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• Strategic plans reflect decisions about resource allocations, company priorities,
and the steps needed to meet strategic goals. They are usually created by the firm’s
top management team but often rely on input from others in the organization.
• Tactical plans are shorter-term plans for implementing specific aspects of the
company’s strategic plans. That is, after a strategic plan has been created, managers
then develop shorter-term plans to guide decisions so they are consistent with the
strategic plan. They typically involve upper and middle management.
• Operational plans, which are developed by mid-level and lower-level managers,
set short-term targets for daily, weekly, or monthly performance.
• Contingency Planning seeks to identify in advance important aspects of a business
or its market that might change. It also identifies the ways in which a company will
respond to changes. Suppose, for example, that a company develops a plan to create
a new division. It expects sales to increase at an annual rate of 10 percent for the
next five years, and it develops a marketing strategy for maintaining that level. But
suppose that sales have increased by only 5 percent by the end of the first year. Does
the firm (1) abandon the venture, (2) invest more in advertising, or (3) wait to see
what happens in the second year? Whichever choice the firm makes, its efforts will
be more efficient if managers decide in advance what to do in case sales fall below
planned levels.
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Leadership involves the use of influence or power. This influence may come from
one or more sources. One source of power is the leader’s position in the company. A
national sales manager has the authority to direct the activities of the sales force.
Another source of power is a leader’s expertise and experience. A first-line
supervisor with expert machinist skills will most likely be respected by employees in
the machining department. Some leaders derive power from their personalities.
Employees may admire a leader because they recognize an exceptionally kind and
fair, humorous, energetic, or enthusiastic person. Admiration, inspiration, and
motivation are especially important during difficult economic times or when a leader
has to make tough decisions for the company.
Leadership Styles
1. Autocratic leadership is centered on the boss. Autocratic leaders make decisions
on their own without consulting employees.
2. Democratic leadership includes subordinates in the decision-making process. This
leadership style centers on employees’ contributions. Democratic leaders delegate
assignments, ask employees for suggestions, and encourage participation. An
important outgrowth of democratic leadership in business is the concept of
empowerment, in which employees share authority, responsibility, and decision
making with their managers.
3. Free-rein (=başıboş, serbest) leaders believe in minimal supervision. They allow
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subordinates to make most of their own decisions. Free-rein leaders communicate
with employees frequently, as the situation warrants. For the first decade of its
existence, Google was proud of its free-rein leadership style.
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The control process that begins when management establishes standards, often for
financial performance. If, for example, a company sets a goal of increasing its sales
by 20 percent over the next 10 years, an appropriate standard to assess progress
toward the 20-percent goal might be an increase of about 2 percent a year.
Managers then measure actual performance each year against standards. If the two
amounts agree, the organization continues along its present course. If they vary
significantly, however, one or the other needs adjustment. If sales have increased 2.1
percent by the end of the first year, things are probably fine. If sales have dropped 1
percent, some revision in plans may be needed. Perhaps the original goal should be
lowered or more money should be spent on advertising.
Control can also show where performance is running better than expected and can
serve as a basis for providing rewards or reducing costs. For example, when
Chevrolet introduced the Super Sport Roadster (a classic, late-1940s pickup-style
vehicle with a two-seat roadster design), the firm thought it had a major hit on its
hands. But poor sales led to Chevrolet’s decision to suspend production of the
vehicle. On the other hand, Apple’s iPad has been so successful that the firm has not
been forced to discount or offer incentives for people to buy the device.
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Some firms also employ other specialized managers. Many companies, for example,
have public relations managers. Chemical and pharmaceutical companies have
research and development managers. The range of possibilities is wide, and the
areas of management are limited only by the needs and imagination of the firm.
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Technical Skills: The skills needed to perform specialized tasks are called technical
skills. A programmer’s ability to write code, an animator’s ability to draw, and an
accountant’s ability to audit a company’s records are all examples of technical skills.
People develop technical skills through a combination of education and experience.
Technical skills are especially important for first-line managers. Many of these
managers spend considerable time helping employees solve work-related problems,
training them in more efficient procedures, and monitoring performance.
Human Relations Skills: Effective managers also generally have good human
relations skills—skills that enable them to understand and get along with other
people. A manager with poor human relations skills may have trouble getting along
with subordinates, cause valuable employees to quit or transfer, and contribute to
poor morale. Although human relations skills are important at all levels, they are
probably most important for middle managers, who must often act as bridges
between top managers, first-line managers, and managers from other areas of the
organization. Managers should possess good communication skills. Many managers
have found that being able both to understand others and to get others to
understand them can go a long way toward maintaining good relations in an
organization.
Conceptual Skills: Conceptual skills refer to a person’s ability to think in the abstract,
to diagnose and analyze different situations, and to see beyond the present
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situation. Conceptual skills help managers recognize new market opportunities and
threats. They can also help managers analyze the probable outcomes of their
decisions. The need for conceptual skills differs at various management levels. Top
managers depend most on conceptual skills, first-line managers least. Although the
purposes and everyday needs of various jobs differ, conceptual skills are needed in
almost any job-related
activity.
Decision-Making Skills: Decision-making skills include the ability to define problems
and to select the best course of action. These skills involve gathering facts,
identifying solutions, evaluating alternatives, and implementing the chosen
alternative. Periodically following up and evaluating the effectiveness of the choice
are also part of the decision-making process. These skills allow some managers to
identify effective strategies for their firm. But poor decision-making skills can also
lead to failure and ruin.
Time Management Skills: Time management skills refer to the productive use that
managers make of their time. Any amount of time that the manager wastes clearly
represents a cost to the firm and its stockholders.
Global Management Skills: Tomorrow’s managers must equip themselves with the
special tools, techniques, and skills needed to compete in a global environment.
They will need to understand foreign markets, cultural differences, and the motives
and practices of foreign rivals. They also need to understand how to collaborate with
others around the world on a real-time basis. On a more practical level, businesses
will need more managers who are capable of understanding international
operations.
Technology Skills: Another significant issue facing tomorrow’s managers is
technology, especially as it relates to communication. In today’s world, the amount
of information has reached staggering proportions. New forms of technology have
added to a manager’s ability to process information while simultaneously making it
even more important to organize and interpret an ever-increasing wealth of input.
With e-mail, videoconferencing, and other forms of communication, neither time
nor distance—nor such corporate boundaries as departments and divisions—can
prevent people from working more closely together. More than ever, bureaucracies
are breaking down, while planning, decision making, and other activities are
beginning to benefit from group building and teamwork.
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Strategic management is the process of helping an organization maintain an effective
alignment with its environment. For instance, if a firm’s business environment is
heading toward fiercer competition, the business may need to start cutting its costs
and developing more products and services before the competition really starts to
heat up. Likewise, if an industry is globalizing, a firm’s managers may need to start
entering new markets, developing international partnerships, and so forth during the
early stages of globalization rather than waiting for its full effects.
The starting point in effective strategic management is setting goals—objectives that
a business hopes and plans to achieve. Every business needs goals. Remember,
however, that deciding what it intends to do is only the first step for an organization.
Managers must also make decisions about what actions will and will not achieve
company goals. Decisions cannot be made on a problem-by-problem basis or merely
to meet needs as they arise. In most companies, a broad program underlies those
decisions. That program is called a strategy, which is a broad set of organizational
plans for implementing the decisions made for achieving organizational goals.
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Purposes of Goal Setting
1 Goal setting provides direction and guidance for managers at all levels.
2 Goal setting helps firms allocate resources.
3 Goal setting helps to define corporate culture.
4 Goal setting helps managers assess performance.
Types of Goals: Every enterprise has a purpose, or a reason for being. Many
enterprises also have missions and mission statements—statements of how they will
achieve their purposes in the environments in which they conduct their businesses.
In addition to its mission, every firm also has long-term, intermediate, and shortterm goals:
Long-term goals relate to extended periods of time, typically five years or more.
Intermediate goals are set for a period of one to five years.
Short-term goals are set for perhaps one year and are developed for several
different areas.
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Managers first determine the specific activities needed to implement plans and
achieve goals. Next, they group these work activities into a logical structure. Then
they assign work to specific employees and give the people the resources they need
to complete it. Managers coordinate the work of different groups and employees
within the firm. Finally, they evaluate the results of the organizing process to ensure
effective and efficient progress toward planned goals. Evaluation sometimes results
in changes to the way work is organized.
Many factors influence the results of organizing. The list includes a firm’s goals and
competitive strategy, the type of product it offers, the way it uses technology to
accomplish work, and its size. Small firms typically create very simple structures. As a
company grows, its structure increases in complexity. With increased size comes
specialization and growing numbers of employees. A larger firm may employ many
salespeople, along with a sales manager to direct and coordinate their work, or
organize an accounting department.
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An effective structure is one that is clear and easy to understand: Employees know
what is expected of them and to whom they report. They also know how their jobs
contribute to the company’s mission and overall strategic plan. An organization chart
is a visual representation of a firm’s structure that illustrates job positions and
functions.
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In this arrangement, employees specialize in certain jobs—such as marketing,
finance, or design. Depending on the size of the firm, usually an executive runs the
department, followed by middle-level managers and supervisors. The five major
forms of departmentalization subdivide work by product, geographical area,
customer, function, and process.
• Product departmentalization. This approach organizes work units based on the
goods and services a company offers.
• Geographical departmentalization. This form organizes units by geographical
regions within a country or, for a multinational firm, by region throughout the world.
• Customer departmentalization. A firm that offers a variety of goods and services
targeted at different types of customers might structure itself based on customer
departmentalization.
• Functional departmentalization. Some firms organize work units according to
business functions such as finance, marketing, human resources, and production.
• Process departmentalization. Some goods and services require multiple work
processes to complete their production. A manufacturer may set up separate
departments for cutting material, heat-treating it, forming it into its final shape, and
painting it.
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As Figure illustrates, a single company may implement several different
departmentalization schemes. In deciding on a form of departmentalization,
managers take into account the type of product they produce, the size of their
company, their customer base, and the locations of their customers.
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Functional Structure Under a functional structure, relationships between group
functions and activities determine authority. Functional structure is used by most
small to medium-sized firms, which are usually structured around basic business
functions: a marketing department, an operations department, and a finance
department. The benefits of this approach include specialization within functional
areas and smoother coordination among them.
In large firms, coordination across functional departments becomes more
complicated. Functional structure also fosters centralization (which can be desirable,
but is usually counter to the goals of larger businesses) and makes accountability
more difficult.
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A divisional structure relies on product departmentalization. Organizations using this
approach are typically structured around several product-based divisions that
resemble separate businesses in that they produce and market their own products.
The head of each division may be a corporate vice president or, if the organization is
large enough, a divisional president. In addition, each division usually has its own
identity and operates as a relatively autonomous business under the larger corporate
umbrella.
Ex: Johnson & Johnson, one of the most recognizable names in health care products,
organizes its company into three major divisions: consumer health care products,
medical devices and diagnostics, and pharmaceuticals. Each major division is then
broken down further.
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Sometimes a matrix structure—a combination of two separate structures—Works
better than either simpler structure alone. This structure gets its matrix-like
appearance, when shown in a diagram, by using one underlying “permanent”
organizational structure and then superimposing a different organizing framework on
top of it.
Suppose a company using a functional structure wants to develop a new product as
a one-time special project. A team might be created and given responsibility for that
product. The project team may draw members from existing functional departments,
such as finance and marketing, so that all viewpoints are represented as the new
product is being developed; the marketing member may provide ongoing
information about product packaging and pricing issues, for instance, and the
finance member may have useful information about when funds will be available.
In some companies, the matrix organization is a temporary measure installed to
complete a specific project and affecting only one part of the firm. In these firms, the
end of the project usually means the end of the matrix—either a breakup of the
team or a restructuring to fit it into the company’s existing line-and-staff structure. In
other settings, the matrix organization is a semipermanent fixture.
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Several different international organizational structures have emerged in response to
the need to manufacture, purchase, and sell in global markets. Some companies
adopt a truly global structure in which they acquire resources (including capital),
produce goods and services, engage in research and development, and sell products
in whatever local market is appropriate, without consideration of national
boundaries.
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A virtual organization has little or no formal structure. Typically, it has only a handful
of permanent employees, a very small staff, and a modest administrative facility. As
the needs of the organization change, its managers bring in temporary workers,
lease facilities, and outsource basic support services to meet the demands of each
unique situation. As the situation changes, the temporary workforce changes in
parallel, with some people leaving the organization and others entering. Facilities
and the subcontracted services also change. In other words, the virtual organization
exists only in response to its own needs. This structure would be applicable to
research or consulting firms that hire consultants based on the specific content
knowledge required by each unique project. As the projects change, so too does the
composition of the organization.
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The span of management, or span of control, is the number of employees a manager
supervises. These employees are often referred to as direct reports. First-line
managers have wider spans of management, monitoring the work of many
employees. The span of management varies depending on many factors, including
the type of work performed and employees’ training. In recent years, a growing
trend has brought wider spans of control, as companies have reduced their layers of
management to flatten their organizational structures, in the process increasing the
decision-making responsibility they give employees.
Centralization and Decentralization How widely should managers disperse decisionmaking authority throughout an organization? A company that emphasizes
centralization retains decision making at the top of the management hierarchy. A
company that emphasizes decentralization locates decision making at lower levels. A
trend toward decentralization has pushed decision making down to operating
employees in many cases. Firms that have decentralized believe that the change can
improve their ability to serve customers. For example, the front-desk clerk at a hotel
is much better equipped to fulfill a guest’s request for a crib or a wake-up call than
the hotel’s general manager.
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Decentralized firms tend to have relatively fewer layers of management, resulting in
a flat organizational structure like that of the hypothetical law firm shown in the top
figure. Centralized firms typically require multiple layers of management and thus tall
organizational structures, as in the U.S. Army example in the bottom figure. Because
information, whether upward or downward bound, must pass through so many
organizational layers, tall structures are prone to delays in information flow.
As organizations grow in size, it is both normal and necessary that they become at
least somewhat taller. For instance, a small firm with only an owner-manager and a
few employees is likely to have two layers—the owner-manager and the employees
who report to that person. As the firm grows, more layers will be needed. A manager
must ensure that he or she has only the number of layers his or her firm needs. Too
few layers can create chaos and inefficiency, whereas too many layers can create
rigidity and bureaucracy.
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