Review Session

Examination #2

Chapters 6 through 11

Chapter SixManaging in a Global Environment

Organizational EnvironmentThe external forces and conditions that can affect the way an organization operates

• Task Environment: Immediate and direct forces and conditions imposed by suppliers, distributors, customers and competitors – the inner ring somewhat within your control

• General Environment: General forces and conditions imposed by economic, social, legal, political, and technological factors – the outer ring largely beyond your control

How Factors Can Change• Foreign competitors enter your market, raising quality and/or

lowering prices• Domestic competitors grow stronger• Existing suppliers fail and new ones arise• Quantum technological advances obsolete your product• Customer needs evolve• Interest rates rise or the economy goes into recession• New government regulations increase your costs• A foreign government nationalizes your operations in their country• New trade agreements open opportunities or create restrictions

Competition is growing more complex and global. If you don’t go find the world, it will come and find you.

Either way you must deal with it!

Barriers to Trade and Investment

Tariff: a tax government imposes on imported goods in order to protect domestically produced goods; Usually self-defeating because trading partners retaliate (manipulating the currency exchange rate can achieve the same objective)Slowly developing free-trade agreements are gradually eliminating tariffs, creating global trade opportunities and heightening competition in all markets.

Declining Barriers…

Distance: The slow boat to China is now a jet airplaneCommunication: Easy, cheap and secure long-distance communication has facilitated overseas expansion, management coordination, and global competitionCulture: Inter-cultural barriers are decreasing, but still must be considered

Role of National Culture

Values and Norms (clothing, table manners, terms of address, gender roles, national values, etc.) vary from nation to nation.

To do business in a foreign culture, you must understand and abide by its values and norms.

When in Rome…

Hofstede’s Model

Individualism values, individual freedom, self-expression and achievement (U.S.)

Collectivism subordination of individual goals to group goals (Japan)

Power-Distance tolerates differences in well-being due to differences in heritage and physical or intellectual capabilities (India=high) or doesn’t (U.S.=low)

Hofstede’s Model

Achievement versus Nurturing stronglyvalue individual achievement and assertiveness (U.S., Korea) or place more value on quality of life, service and personal relations (Sweden, Denmark)Uncertainty Avoidance tolerate a wide range of opinions and beliefs (U.S.) or are more rigid and expect conformity (Japan, France)Long-term/Short-term Outlook value savings and persistence (Japan) or seek immediate gratification and are willing to go into debt to achieve it (U.S.). “grasshoppers versus ants”

Chapter SevenManager as Decision-Maker

• Programmed versus non-programmed decisions• Intuition versus judgment• Evolution of decision-making process: classical model to

administrative model to… • Six-step model:

– (1) Recognize need – (2) Generate alternatives – (3) Evaluate alternatives for strength and weakness – (4) Evaluate alternatives for legality, ethicality, economic

feasibility and practicality– (5) Implement– (6) Learn from feedback and improve (PDCA)

Filters, Assumptions and Teamwork

• Assumption is the mother of all SUs• Examples: prior hypothesis bias,

representativeness, illusion of control, escalating commitment

• Strengths and weaknesses of group decision-making (more at the table, but also can deliver lowest-common-denominator thinking)

• Methods to improve group decision-making: dialectical inquiry, devil’s advocacy, diversity, brainstorming

• Question, question and question (what if?)

Tool Box

• Maintain a diverse, creative, learning organization that rewards risk-taking.

• Use cross-functional teams, brainstorming, devil’s advocacy and dialectical inquiry to maximize the number of thoroughly analyzed alternatives.

• Constantly re-examine basic assumptions as new information becomes available or the business environment changes.

Tool Box (cont.)

• Make a decision only when necessary unless early foreclosure of alternatives will deliver substantial first-mover advantage.

• Thoroughly prepare and when decision-time arrives, don’t hesitate – you will never have perfect knowledge.

• Learn from success and failure; use PDCA to institutionalize learning and continuous improvement (kaizen).

• Be skeptical, question, dig, find the facts!

Chapter EightManager as Planner and Strategist• Planning: the process of selecting an

organization’s goals and the detailed steps to achieve them (i.e., drawing the “road map”)

• Strategy: the set of decisions and actions designed to direct an organization and help it achieve its goals (i.e., the “road map” produced by planning)

Planning

“An infinite capacity for taking pains”Knute Rockne

“Chance favors the prepared mind.”Louis Pasteur

“Planning keeps you on your feet when life pulls the rug out from under them.”

Purpose, Values, Vision, Strategy

• Purpose: Why are we here?

• Values: What do we hold most dear?

• Vision: Where are we going?

• Strategy: How will we get there?

Mission Statements

• Simple, short, direct declaration designed to:

1. Define an organization’s purpose 2. Direct and motivate employees to achieve it3. Differentiate the organization

from its competitors4. Attract customers to the organization.

Key Planning and Operational Procedures

1. Infect everyone with the corporate DNA.2. Determine/define/refine vision, mission and goals.3. Formulate appropriate strategy based on SWOT analysis of internal

strengths-weaknesses and external opportunities-threats.4. Communicate vision, mission, goals and strategy to organization (top-

down).5. Require the organization to respond with suggested tactics, timetables

and resource requests in order to find best ideas, create organizational alignment, and build ownership of the plan (bottom-up).

6. Bracket (best, likely, worst-case scenarios) to provide on-the-shelf capability for dealing with rapid change; worst-case scenario should be the perfect storm; never over-extend by implementing a best-case scenario -- even to fully exploit opportunities.

7. Finalize and implement the three “R’s” by assigning responsibility, allocating resources and demanding results.

Key Procedures…

8. Establish Key Performance Indicators (KPIs) to measure performance – you get what you measure.

9. Recognize and reward good teamwork and good results -- you get what you reward.

10. Compare results with targets, improve process and re-implement (i.e., use PDCA to achieve continuous improvement).

11. Use budget discipline and supply-chain management to harvest savings for re-investment.

12. Occasionally stretch the organization with a BHAG (Big Hairy Audacious Goal) that will build new competitive capabilities.

13. Always run scared and play the what-if game.

Types of Strategies

• Focused low-cost (Kia)• Differentiation (Lexus and Scion)• Focused differentiation (Porsche)• Porter: “Don’t get stuck in the middle.”• But some corporations have been able to

successfully straddle – feeding differentiation with savings generated by low-cost; the ideal position to achieve (e.g., Toyota)

Planning Levels

1. Corporate (TMC)

2. Division or Business (TMA)

3. Functional (TMS & TEMA)

• Linkage of corporate, division and functional plans vital to clarify roles and responsibilities and assure unified, synergistic execution

How To Grow

• Local, regional, national, multi-national, global• Export and import• License (risk technology), franchise (risk

reputation), strategic alliance or joint venture (augment your resources with those of an outsider), wholly owned foreign subsidiary (expensive but maximizes control)

• Any growth strategy must strive to optimize the balance between cost and control. How much control can I afford?

Tool Box

• The basic motivation for business planning is to answer four questions:1. What is my product or service?2. Who will buy it?3. What do they want (product, sales, service)?4. How can we give it to them in ways that will differentiate us from competitors, capture customer loyalty, and make money?

The ultimate goal of business planning is to answer these basic questions with plans and actions that will eventually build sustainable competitive advantage.

Chapter NineValue Chain Management

• Improving a company’s system for transforming inputs (money, manpower, material and information) into outputs (products and services):

1. Product development2. Production 3. Marketing4. Selling5. Servicing

Goals of VCM

• Attain superior efficiency by driving out waste and cost.• Attain superior quality.• Attain superior speed, flexibility and innovation.• Attain superior responsiveness to customers.• Gain brand strength and market share to deliver superior

profit for re-investment in the process.• Apply PDCA to institutionalize continuous improvement.• Congratulations, you have created competitive

advantage.• Now do it over and over forever!

Improving Quality

• Providing more by increasing QDR (Quality, Durability, Reliability), adding features, reducing cost, or all of them

• Enables you to build superior product reputation, which can lead to ability to charge more and deliver strong profits for re-investment.

• Both the high road (brand strength) and the low road (cost reduction) deliver higher profit. If you do both, you will develop a huge competitive advantage!

Total Quality Management:Focusing all activity on improving

customer-defined quality

1. Focus on the customer. 2. Build organizational commitment. 3. Solicit employee input (creativity, innovation, ownership). 4. Involve suppliers and distributors. 5. Establish quality metrics (what and how to measure – KPI’s). 6. Set goals and create incentives. 7. Tear down walls, create teams, empower, train and support people. 8. Identify defects, trace to root cause, fix problem. 9. Drive out waste and cost.10. Introduce JIT inventory (warning: vulnerable to stoppages).11. Design for production (easy and idiot-proof).12. Institutionalize continuous improvement (kaizen) with PDCA.

Manufacturing Improvements

• Flexible manufacturing: re-program and re-arrange rather than replace in order to reduce downtime, machinery and set-up costs

• Facilities lay-out:

1. Product (car assembly line)

2. Process (custom product – chairs)

3. Fixed-position (aircraft)

Chapter TenManaging Structure

• Structure: formal system of task and reporting relationships showing how workers use resources to create value (the “org. chart”).

• Different bottles for different wine (matched to internal resources and external environment).

• Stable environment allows tall command-and-control structure (not used much anymore).

• Quickly changing, uncertain environment favors flat and flexible structure designed to facilitate communication, speed decision-making, foster innovation and enhance adaptability. Remember that elephants can’t dance!

Job Design

• Dividing tasks into specific jobs to create required structure

Job simplification (less tasks)

Job enlargement (more tasks)

Job enrichment (more responsibility)

Divisional Structure

• A separate division dedicated to each business. Structure can be based upon:

1. Product

2. Geography

3. Customer (market)

Tool Box• Base structure on internal resources, corporate culture and external

environment.• In most cases, lean, simple, flexible and flat is best.• Decentralize, empower and drive authority down.• Widely share actionable knowledge.• Re-assess often to assure structure stays in tune with business

environment – smart managers continuously destroy yesterday and recycle the resources to create tomorrow.

• Strengthen corporate culture as you decentralize and empower; implant corporate DNA in each person so aggregate decision-making reflects ideal corporate culture and strategy – the individual, internal gyroscope.

• Don’t let the bread dough grow.• Never get complacent – run scared!

Chapter ElevenOrganizational Control and Change• You have built the machine, now how do you drive it?• Control Systems:

1. Target-setting (carefully pick objectives together)2. Monitoring (feedback metrics – KPIs)> Financial controls (return on investment, etc.)> Activity ratios (days’ supply, inventory turn-over, etc.)3. Evaluation (compare against targets)4. Adjust or Improve (PDCA)5. Process control (for goals difficult to quantify)6. Behavior control through direct supervision7. Bureaucratic control (SOPs) – ossification and red tape8. Clan/culture control: GE Way, H-P Way, Toyota Way, GM Way9. Incentives tied to performance (bonus, pay increase, etc.) You get what you reward!

Control Systems

• A good control system should be flexible and provide accurate feedback that is as nearly real-time as possible.

• Feed-forward controls (before) are used in the input stage to anticipate problems and head them off.

• Concurrent controls (during) are used during the conversion process to react to problems as they arise.

• Feedback controls (after) are used after the conversion process to gain information managers can use to improve the process next time.

Notice how feedback becomes feed-forward, completing the PDCA cycle that yields continuous

improvement

The Control ProcessPDCA

1. Carefully establish performance standards, goals and a way to measure success (KPIs) – What gets measured gets done!Warning: >weigh short-term against long-term>stretch but don’t break

2. Measure the outputs delivered or the behavior that delivers them.

3. Compare performance against goals.4. Evaluate results, find the root cause of any problems

and take corrective action.5. Do it all again and again and again…

The Change Process

Evolutionary Change gradual, incremental, narrowly focused PDCA

Revolutionary Change Rapid, dramatic, broadly focused Likely to shatter and replace old processes,

goals and structure Usually the result of not institutionalizing

evolutionary change (PDCA)

The Change Process

• Assess the need for change.• Create organizational urgency: what do we want

to look like when the first cycle of change is completed?

• Find the root cause(s).• Benchmark the best, then formulate the plan

(top-down/bottom-up)• Identify and remove obstacles to change.• Implement.• Measure results, adjust and re-establish

evolutionary change (PDCA).

Revolutionary Change Goal

The primary goal of revolutionary change is to realign and re-purpose the organization so that it can once again successfully pursue evolutionary change.

The Social Contract

“There are management tools and techniques, concepts and principles, and perhaps even a universal discipline called management…But management also is a culture and a system of values and beliefs.. Through which a society makes productive its own values and beliefs…to serve the common purposes of mankind.”

Lessons From the Meltdown

“We make things.”• Valuable products to satisfy customers• Exciting jobs, satisfaction, fulfillment• Community contributions (taxes, payroll,

philanthropy, expertise, etc.)• Profit to fund social and material progress• All of this is our best defense.Dr. Shoichiro Toyoda

Lessons

“We package deals.”

• Enticed into credit they couldn’t afford

• Disguised bad debt like rotten peaches

• Persuaded raters to endorse peaches

• Sold the peaches to trusting, ignorant, lazy financial institutions

• Meltdown “Not our fault!”

Lessons

• Business is about pursuing excellence, satisfying customers, and creating economic and social value

• Basic tools are practical, principled, ethical and don’t change much

• Fact-based “learning” culture constant at core, adaptive at margin

• Authentic, attached leaders who learn, teach and extract extraordinary performance from ordinary people by empowering, supporting and holding them accountable

Lessons

• Maintain margin of safety, observe and evolve with environment, never overreach

• Control cost, avoid waste, enforce ethics, always try to get more from less

• Trust must be big part of the transaction process at the heart of business

No trust = Meltdown