Chapter 6

1. Chapter 6 Managing the Business Firm

2. Learning Objectives • Explain the importance of setting goals and formulating strategies as the starting points of effective management • Describe the four activities that constitute the management process • Identify types of managers by level and area • Describe the five basic management skills • Describe the development and explain the importance of corporate culture

3. Goals and Strategies • Performance objectives that a firm plans to achieve • The starting point of successfully managing a business • The planned method of reaching a goal is the “strategy”

4. Provides direction, guidance and motivation Assists in allocating resources Helps to define corporate culture Helps managers assess performance Purpose of Setting Goals

5. Mission Statement • Describes how the organization will achieve its purpose • Clarifies who the organization serves, what it offers, and how it will be provided • Purpose: the organization’s reason for being • The purpose of a consulting business is primarily to seek profit • The mission statement may be: “to provide affordable solutions to small and medium businesses..”

6. Kinds of Goals • Goals are characterized by their expected time horizons • Long-term • Five or more years • Intermediate • One to five years • Short-term • Less than one year

7. Purpose/mission Board of directors Long-term goals Top management (with board input) Intermediate Middle management (with top management input) Short-term First line management (with middle management input) Who Sets Goals?

8. Strategy Formulation • Strategic goals • Long-term goals based on the mission statement • SWOT analysis is an evaluation technique • Analyse an organization and its environment by identifying • Internal: strengths and weaknesses • External: opportunities and threats

9. Matching the Organization to the Environment • Final steps in strategy formulation • Matching company strengths to environmental opportunities • Minimizing the impact of threats and company weaknesses

10. Hierarchy of Plans • Strategic plans • Plans that reflect decisions about resource allocations, company priorities, and steps needed to meet strategic goals • Tactical plans • Short-range plans concerned with implementing specific aspects of a company’s strategic plans • Operational plans • Plans setting short term targets for daily, weekly, or monthly performance

11. Hierarchy of Planning Purpose Mission Statement Strategic Plans Strategic Plans Tactical Plans Tactical Tactical Tactical Plans Plans Plans Operational Plans Operational Plans Operational Plans Operational Plans Operational Plans Operational Plans

12. Levels of Strategies • Corporate-level strategy • Identifies the businesses that a company will pursue • Indicates how these businesses relate to each other • Business-level (competitive) strategy • Identifies the ways a business will compete in its chosen line of products or services • Functional strategy • Identifies the basic courses of action that each department will pursue to reach the overall goals

13. Corporate-Level Strategies • Concentration • Growth • Integration • Diversification • Investment Reduction

14. Growth Options • Market penetration • Attempting to increase market share • Focus on existing products and services in current markets • Increasing current marketing efforts in the market segment(s) where the firm already has a presence • Geographic expansion • Firm introduces its current product/service line to new market segments • Can involve new geographic regions as well, including foreign markets

15. Growth Options • Productdevelopment • The firm creates new products/services, or modifies existing products to better serve its market segments

16. Integration Options • Vertical integration • A firm strives to gain ownership of its suppliers or its retailers • Horizontal integration • A firm strives to gain ownership over its competitors

17. Diversification Options • Related diversification • A firm adds new related products or services to its line • Conglomerate diversification • A firm adds new, and unrelated, product or services to its line

18. Cost leadership Differentiation Focus Competitive Strategies

19. Cost Leadership • Striving to have the lowest costs in the industry • Permits the firm to lower prices to gain customers or to respond to the competition’s pricing policies • Useful in industries that are price sensitive

20. Differentiation • Striving to provide goods and services that are distinctive from its competitors • Product design • Packaging • Promotion

21. Focus • Selecting a market segment and serving the customers in that market niche better than competitors • May involve the use of one of the other generic strategies to serve the needs of the market niche more effectively • Cost leadership • Differentiation

22. Contingency Planning • Unexpected events may occur that require quick action • Identifying aspects of a business or its environment that might entail changes in strategy • A “back-up” plan in case the firm’s environments change • Taking stock of all possible scenarios to allow for development of potential solutions

23. Crisis Management • Emergency situations may arise requiring quick action • Who will make decisions • What actions must be taken • Who would take part in the crisis team

24. The Management Process • A series of activities developed to allow businesses to achieve their goals • Planning • Organizing • Leading • Controlling

25. Planning • Determining organizational goals and objectives • Determining how far an organization must move to achieve the goals • Designing methods (plans) • Implementing the plan(s) • Evaluating the results

26. Organizing • Determining how to use existing resources to implement the plan • Jobs must be arranged in a structure to create an efficient task system within the firm

27. Leading • Guiding subordinates to complete the tasks necessary to reach organizational objectives • Managers have various responsibilities with regard to their employees • The authority to provide direction and give orders • The ability to guide employees • The power to motivate subordinates

28. Controlling • Managers monitor the firm’s performance • Determine if goals have been met • Determine what actions were most effective in achieving goals • Understanding what went wrong and how to fix it

29. Establish Standard Steps In the Control Process Measure Performance Does performance meet desired standard/goal? Yes No Continue Current Adjust Activities performance or Change standard

30. Management Levels in the Firm • Top management • President, CEO, CFO, vice president,treasurer • Responsible for overall performance of the firm • Middle management • Plant manager, operations manager, division manager, etc • Responsible for implementing decisions of top management • First-line managers • Supervisor, office manager, foreman • Responsible for supervising the work of employees

31. Management Areas • Finance manager • Plan and oversee financial resources • Marketing manager • Responsible for developing, pricing, promoting, and distributing goods and services to buyers

32. Management Areas • Human resources manager • Hire, train, evaluate, and compensate employees • Information managers • Design and implement systems to collect, process, and organize information needed to make decisions • Operations managers • Control production, inventory, and quality

33. Management Skills • Technical • The ability to do specialized tasks such as keyboarding, artwork, accounting, marketing etc • Human relations • “People skills” that enable managers to understand employees’ needs • Conceptual • The ability to view problems creatively and abstractly, and to accurately analyze situations • Decision-making • Time management

34. Global management Understanding foreign markets & international operations Awareness of cultural differences Practices of foreign competitors Management and technology Understanding communications & information technology Computer networks Effects of easy access to information on decision-making Understanding of teamwork 21st Century Management Skills

35. Corporate Culture • The “feeling” or atmosphere within a firm • A firm’s personality • Shared experience of employees • Stories, beliefs, and norms that characterize the organization • Corporate culture can change over time • Culture can impact performance • Must be established and maintained by management

36. Communicating Corporate Culture • Make sure new and existing managers understand the culture • Develop a clear mission statement for the firm • Communicate the culture to employees • Reward those who understand and maintain the culture