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OTTO-VON-GUERICKE-UNIVERSITY MAGDEBUR G BEIJING NORMAL UNIVERSITY. Prof. Dr. Birgitta Wolff, Marjaana Rehu, M.A. Otto-von-Guericke-University, Germany. I. Introduction to Management. Some Basics. Outline. Why study management at a university? 2.1 The function of „intellectual maps“

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i introduction to management

OTTO-VON-GUERICKE-UNIVERSITY MAGDEBURG

BEIJING NORMAL UNIVERSITY

Prof. Dr. Birgitta Wolff, Marjaana Rehu, M.A.

Otto-von-Guericke-University, Germany

I. Introduction to Management

Some Basics

outline
Outline
  • Why study management at a university?
  • 2.1 The function of „intellectual maps“
  • 2.2 Selecting the adequate scale and mode of a model
  • 2. Basic terminology
  • 2.1 Why engage in economic activities?
  • 2.2 What is a firm?
  • 2.3 What is efficiency?
  • 3. Economics as a theory of decision-making
  • 3.1 Economic model of individual behavior
  • 3.2 Modelling decision-making
  • 3.3 Opportunity costs
  • 3.4 Managerial decsions as a result of organizational architecture
  • 3.5 Managerial decisions by „areas of action“

Beijing, Sept. 2002

1 why study management at a universtity
1. Why Study Management at a Universtity?

Alternatives:

Polytech, Apprenticeship, Trainee Program, Learning by Doing, Natural Talent, ...

Costs:

Time, Effort, Money, ...

Benefits:

Learn to use and even draw „intellectual Maps“

Source: www.msn.de

Beijing, Sept. 2002

1 why to study management at a universtity 1 1 the function of intellectual maps
1.Why to Study Management at a Universtity?1.1 The Function of „Intellectual Maps“

Example 1 (from Geography):

The Globe as a Model of the Earth

Function:

Answer questions such as

„Where is Africa?“

Beijing, Sept. 2002

1 why to study management at a universtity 1 1 the function of intellectual maps1
1. Why to Study Management at a Universtity?1.1 The Function of „Intellectual Maps“

Example 2:

City Map of Magdeburg

Function:

Answer questions such as

„How do I get from the university to Hasselbachplatz?“

Beijing, Sept. 2002

1 why to study management at a universtity 1 1 the function of intellectual maps2
1. Why to Study Management at a Universtity?1.1 The Function of „Intellectual Maps“

Example 3:

Campus Plan

Function:

Answer questions such as

„How do I get from Building 22 to the Faculty of Computer Science?“

Beijing, Sept. 2002

slide7

1. Why to Study Management at a Universtity?

1.2 Selecting the Adequate Scale and Mode of a Model

Different Scales!

 Scale depends on question/problem

Also: Different Modes

E.g.: Street Map, Hiking Map, Map of Canals/Rivers...

 Mode depends on question/problem

However, are there

„Maps“ in Social Sciences?

Beijing, Sept. 2002

slide8

1. Why to Study Management at a Universtity?

1.2 Selecting the Adequate Scale and Mode of a Model

  • Are there „Maps“ in Social Sciences?
  • Models or conceptual framework (BSZ 11)

Idea of a Model:

Leave out some aspects of reality in order to understand others better.

Important:

Distinction of relevant and irrelevant aspects with respect to a given problem.

  • (Example of alternative models of human behavior: BSZ 30ff.)

Beijing, Sept. 2002

slide9

1. Why to Study Management at a Univertity?

1.2 Selecting the Adequate Scale and Mode of a Model

Example:

Porter‘s model of five competive forces

Potential Entrants

Threat of new entrants

Industry Competitors

Bargaining Power

Bargaining Power

Suppliers

Buyers

Rivalry Among Existing Firms

Threat of Substitute Products or Services

Substitutes

(Source: M. E. Porter: Competitive Advantage, New York: Free Press 1985, p. 5)

Beijing, Sept. 2002

slide10

1. Why to Study Management at a Univertity?

1.2 Selecting the Adequate Scale and Mode of a Model

Example:

Porter‘s model of five competive forces rev.

(Family business)

Potential Entrants

Threat of new entrants

Industry Competitors

Bargaining Power

Bargaining Power

Suppliers

Buyers

Rivalry Among Existing Firms

The Owner‘s Spouse

Threat of Substitute Products or Services

Substitutes

Beijing, Sept. 2002

slide11

2. Basic Terminology2.1 Why Engage in Economic Activities?

to serve a market

(provide products, services)

fulfill one‘s own needs

(use income to buy things)

Example: Selling cars to customers (serving a market), earning money while doing so and using the money to buy desired items (fulfill one‘s own needs)

Adam Smith (Wealth of Nations): „It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.“

Beijing, Sept. 2002

slide12

2. Basic Terminology

2.2 What is a Firm?

  • A „Pool of resources“:
  • financial resources
  • human resources

Source: www.nokia.fi

  • Ownership of Resources: „Property rights“
  • use rights
  • alienability rights (BSZ 43)

Beijing, Sept. 2002

slide13

2. Basic Terminology

2.2 What is a Firm?

A „ Coalition of resource owners“:

Individual goal: income/utility maximization

Collective goal: profit maximization

Source: www.nokia.de

Two levers of Profit Maximization:

Revenue maximization

Cost minimization

Profit Maximization

Beijing, Sept. 2002

slide14

2. Basic Terminology

2.3 What is Efficiency?

Effectivity:

the ability of a process to achieve a given objective, to reach a target

Efficiency:

the ability to reach a given target at lowest possible cost

Example:

Street cleaning can be done slowly... or fast (at a given quality and hourly wage)

  • Efficiency comes in two forms (two levers, see previous slide):
  • if the input is given, the output is to be maximized (Revenue maximization)
  • if the output is given (target set), the amount of resources used to produce is to be minimized (Cost minimization)

Beijing, Sept. 2002

slide15

3. Economics as a Therory of Decision-Making

3.1 Economic Model of Individual Behavior

  • (BSZ 16; 30ff.)
  • Utility Maximization
  • one works according to one‘s individual preferences
  • one wants to benefit as much as possible
  • Bounded Rationality
  • limits of human mental abilities, that prevent people from being able to foresee all possible contingencies and process all information
  • opportunism: self-interest seeking with guile (Williamson)

Beijing, Sept. 2002

slide16

3. Economics as a Therory of Decision-Making

3.2 Modelling Decision Making

  • Decision-making under constraints:
  • Individuals have unlimited wants; however, the resources available are limited
  • Individuals assign priorities to their wants and choose to invest their scarce resources into the most preferred option among the alternatives
  • „In essence, economics provides a theory to explain the way individuals make choices“ (BSZ 6)

Beijing, Sept. 2002

slide17

3. Economics as a Therory of Decision-Making

3.2 Modelling Decision Making

Economic methods:

e.g. Analysis of marginal costs and benefits (BSZ 16)

Action should be taken if marginal benefits exceed the marginal costs

Example: Working overtime?

When one values leisure time more than the amount of money one earns in the job, the marginal costs of working are higher than the marginal benefits

 Individual will select „leisure“

Beijing, Sept. 2002

slide18

3. Economics as a Therory of Decision-Making

3.2 Opportunity Costs

  • Individuals face trade-offs Notion of opportunity costs
  • „The opportunity costs of using a resource for a given purpose is its value in ist best alternative use“ (BSZ 17)
  • Examples:
  • Ferdinand Pièch (Volkswagen AG) has to decide if to produce small, highly profitable cars, or big, prestigeous cars, such as Bugattis, or Lamborghinis, at a loss?
  • You decide if you will work on an assignment or go partying.

Beijing, Sept. 2002

slide19

3. Economics as a Therory of Decision-Making

3.4 Managerial Decisions as a Result of Organizational Architecture

  • „... three critical aspects of organization:
  • The assignment of decision rights within the company
  • The methods of rewarding individuals
  • The structure of systems to evaluate the performance of both individuals and business units“
  • (BSZ 5)

Beijing, Sept. 2002

slide20

3. Economics as a Therory of Decision-Making

3.4 Managerial Decisions as a Result of Organizational Architecture

Who should make a decision?

„Successful organizations assign decision rights in a manner that effectively links decision-making authority with the relevant information to make good decisions“ (BSZ 11)

 Nobel Price 2001 in Economics for Akerlof, Spence, and Stiglitz

Beijing, Sept. 2002

slide21

3. Economics as a Therory of Decision-Making

3.5 Managerial Decisions by „Areas of Action“

How to produce

Which resources

When

How to finance business

Incorpor-ation

How many to hire

Qualif-ication

Guar-antees

Customer relation-ship

Demand:

What at which prices

Inform-ation System

Accounting

Ongoing relation-ships

Revenue

Product

Target Group

Collect-ion of revenue

Operative Financial Plan

Business Idea

Market Research

Financial Plan

Production Plan

After Sale Services

Staffing

Sale

Resale

Beijing, Sept. 2002

slide22

Furter Readings

Brickley, J. A./Smith, C. W. Jr./Zimmerman, J. L. (2001): Organizational Architecture, 2nd ed., Irwin Book Team.

Reekie, W. D./ Crook, J.N. (1995): Managerial Economics, 4th ed. Prentice Hall: New York, etc.

Beijing, Sept. 2002