MGMT449 Final Study Guide - Harold Fraser PDF

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Final Study Guide - Harold Fraser...

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1.advantages and disadvantages associated with the various organizational form

The simple structure is highly informal and the coordination of tasks is accomplished by direct supervision. Decision-making is highly centralized, there is little specialization of tasks, few rules and regulations, and an informal evaluation and reward system. A simple structure may foster creativity and individualism, however such informality may lead to problems. Employees may not clearly understand their responsibilities, which can lead to conflict and confusion. Employees may also take advantage of the lack of regulations, act in their own self-interest, which can erode motivation and satisfaction and lead to the possible misuse of organizational resources. Small organizations have flat structures that limit opportunities for upward mobility. Without the potential for future advancement, recruiting and retaining talent may become difficult.

By bringing together specialists into functional departments, a firm is able to enhance its coordination and control within each of the functional areas. Decision-making in the firm will be centralized at the top of the organization. This enhances the organizational level (as opposed to functional area) perspective across the various functions. In addition, the functional structure provides for more efficient use of managerial and technical talent since functional area expertise is pooled in a single department (e.g. marketing) instead of being spread across a variety of product-market areas. Finally, career paths and professional development in specialized areas are facilitated. However, the differences in values and orientations among functional areas may impede communication and coordination, causing the development of “stovepipes” or “functional silos”, in which departments view themselves as isolated, self-contained units with little need for interaction and coordination with other departments. This can erode communication and lead to short-term thinking, and overburden the top executives because they now have to deal with conflicts. Functional structures also make it difficult to establish uniform performance standards across the entire organization.

By creating separate divisions to manage individual product markets, there is a separation of strategic and operating control. Divisional managers can focus their efforts on improving operations in the product markets for which they are responsible, and corporate officers can devote their time to overall strategic issues for the entire corporation. This focus on the division’s products and markets gives the firm an enhanced ability to respond quickly to changes in the market environment. Since there are functional departments within each division, the problems associated with sharing resources across functional departments are minimized. Because there are multiple levels of management, the development of talent is enhanced. However, there can be increased costs due to the duplication of personnel, operations, and investment since each division must staff multiple functional departments. There could also be dysfunctional competition among divisions since each division tends to become concerned solely about its own operations. With many divisions providing different products and services, there is the chance that differences in image and quality may occur across divisions. Since each division is evaluated in terms of financial measures such as return on investment and revenue growth, there is often an urge to focus on short-term performance.

The SBU structure makes the task of planning and control by the corporate office more manageable. Also, with greater decentralization of authority, individual businesses can react more quickly to important changes in the environment than if all divisions had to report directly to the corporate office. However, since the divisions are grouped into SBUs it may become difficult to achieve synergies across SBUs: if divisions in different SBUs have different potential sources of synergy, it may become difficult for them to be realized. The additional level of management increases the number of personnel and overhead expenses, while the additional hierarchical level removes the corporate office further from the individual divisions. The corporate office may become unaware of key developments that could have a major impact on the corporation.

The holding company structure has cost savings associated with fewer personnel, and a lower overhead resulting from a small corporate office and fewer hierarchical levels. The autonomy of the holding company structure increases the motivational level of divisional executives and enables them to respond quickly to market opportunities and threats. However, there is an inherent lack of control, and a dependence that corporate level executives have on divisional executives. Major problems could arise if key divisional executives leave the firm, because the corporate office has very little additional managerial talent ready to quickly fill key positions. If problems arise in the division, it may become very difficult to turn around individual businesses because of limited staff support in the corporate office.

The matrix structure allows for shared resources instead of duplicating functions, as would be the case in a divisional structure based on products. Individuals with high expertise can divide their time among multiple projects. Such resource sharing and collaboration enables the firm to use resources more efficiently and to respond more quickly and effectively to changes in market conditions. The flexibility inherent in the matrix structure provides professionals with a broader range of responsibility which enables them to develop their skills and competencies. However, the dual reporting structures can result in uncertainty and lead to intense power struggles and conflict over the allocation of personnel and other resources. Working relationships become more complicated. This may result in excessive reliance on group processes and teamwork, along with the diffusion of responsibility, which in turn may erode timely decision-making.

2. board of director duties 

Duties of the Board of Directors 

Evaluate senior management

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Determine management compensation

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Review & approve financial objectives, major strategies, and plans of the corporation.

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Provide advice and counsel to top management.

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Review the adequacy of all compliance systems.

The Board of Directors acts as a fulcrum between the owners and controllers of a Corporation. They are the intermediaries who provide a balance between a small group of key managers in the firm based at the corporate headquarters and a sometimes vast group of shareholders. In the United States, the law

imposes on the board a strict and absolute fiduciary duty to ensure that a company is run consistent with the long-term interests of the owners – the shareholders. 

Boards are responsible for managerial rewards and incentives 

Boards can require that CEOs become substantial owners of company stock

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Salaries, bonuses, and stock options can be structured so as to provide rewards for superior performance and penalties for poor performance

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Dismissal for poor performance should be a realistic threat

Incentive systems must be designed to help the company achieve its goals. One of the most critical roles of the Board of Directors is to create incentives that align the interests of the CEO and top executives with the interests of owners of the corporation, and long-term shareholder returns. Shareholders rely on CEOs to adopt policies and strategies that maximize the value of their shares. The above three basic policies can create the right monetary incentives for CEOs to maximize the value of their companies

3. capabilities that a leader should possess

Valuable traits of successful leaders can be grouped into three broad sets of capabilities: purely technical skills (like accounting or operations research), cognitive abilities (like analytical reasoning or quantitative analysis), or emotional intelligence (like self-management and managing relationships). Emotional intelligence = an individual’s capacity for recognizing his or her own emotions and those of others, including the five components of self-awareness, self-regulation, motivation, empathy, and social skills.

4. CEO duality and the two schools of thought that represent alternate positions on this issue

CEO duality is one of the most controversial issues in corporate governance. It refers to the dual leadership structure where the CEO acts simultaneously as the chair of the Board of Directors. There are two schools of thought. The unity of command perspective assumes that when one person holds both roles, he or she is able to act more efficiently and effectively. CEO duality provides firms with a clear focus on both objectives and operations as well as eliminates confusion and conflict between the CEO and the chairman. Thus, it enables smoother, more effective strategic decision-making. The agency theory perspective questions whether a board can act as a safeguard against corruption or incompetence when the possible source of that corruption and incompetence is sitting at the head of the table. CEO duality can create a conflict of interest that could negatively affect the interests of the shareholders. Duality also complicates the issue of CEO succession, when, for instance the CEO/Chairman may choose to retire as CEO but keep his or her role as the chairman. This puts the new CEO in a difficult position. Duality also serves to reinforce popular doubts about the legitimacy of the system as a whole and evokes images of bosses writing their own performance reviews and setting their own salaries. Research suggests that there is no one correct answer on duality but that firms should consider their current position and performance trends when deciding whether to keep the CEO and chairman position in the hands of one person.

5. characteristics of leaders 

Leadership is the process of transforming organizations from what they are to what the leader would have them become.

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Leaders motivate people

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Successful leaders are 

Proactive – dissatisfied with the status quo

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Goal oriented – visualizing successful futures

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Focused on the creation & implementation of a creative vision – understanding the process

Leadership is proactive, goal oriented, and focused on the creation and implementation of the creative vision. Leadership = the process of transforming organizations from what they are to what the leader would have them become. This definition implies dissatisfaction with the status quo, a vision of what should be, and process for bringing about change. Leaders are change agents whose success is measured by how effectively they formulate and implement a strategic vision and mission.

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Entrepreneurial leadership is needed 

Courage

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Belief in one’s convictions

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Energy to work hard

Leadership characteristics 

Vision

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Dedication and drive

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Commitment to excellence

Launching a new venture requires a special kind of leadership. Entrepreneurial leadership = leadership appropriate for new ventures that requires courage, belief in one’s convictions, and the energy to work hard even in difficult circumstances; and embodies vision, dedication and drive, and commitment to excellence. However, ventures built on the charisma of a single person may have trouble growing “from good to great” once that person leaves. Thus, the leadership that is needed to build a great organization is usually exercised by a team of dedicated people rather than a single leader. The leadership team must attract members who fit with the company’s culture, goals, and work ethic. For a venture’s leadership to be a valuable resource and not a liability it must be cohesive in its vision, drive and dedication, and commitment to excellence.

6. competitive dynamics 

New entry threatens existing competitors

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Competitive dynamics helps explain why strategies evolve and how to respond: 

New competitive action

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Threat analysis

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Motivation and capability to respond

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Types of competitive action

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Likelihood of competitive reaction

New entry into markets, whether by startups or by incumbent firms, nearly always threatens existing competitors. As a result, the competitive actions of the new entrants are very likely to provoke negative response from companies that feel threatened. Competitive dynamics = intense rivalry, involving actions and responses among similar competitors vying for the same customers in a marketplace. Intense rivalry among similar competitors has the potential to alter a company’s strategy. New entry is among the most common reasons why a cycle of competitive actions and reactions gets started. It might also occur because of threatening actions among existing competitors, such as aggressive cost-cutting. Thus, studying competitive dynamics helps explain why strategies evolve and reveals how, why, and when to respond to the actions of close competitors. New competitive action = acts that might provoke competitors to react, such as new market entry, price-cutting, imitating successful products, and expanding production capacity. Threat analysis = a firm’s awareness of its closest competitors and the kinds of competitive actions they might be planning.

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Why do companies launch new competitive actions? 

To improve market position

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To capitalize on growing demand

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To expand production capacity

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To provide an innovative new solution

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To obtain first mover advantages

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To strengthen financial outcomes & capture profits

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To grow the business

When a company enters a market for the first time, it is an attack on existing competitors. In addition, price-cutting, imitating successful products, or expanding production capacity are all examples of competitive acts that might provoke a reaction. Companies are motivated to launch competitive challenges because they want to strengthen financial outcomes, capture some of the extraordinary profits that industry leaders enjoy, and grow the business. They also may want to build their reputation for innovativeness or efficiency. The likelihood that a competitor will launch an attack depends on many factors. Some of these factors include competitor analysis, market conditions, types of strategic actions available, and the resource endowments and capabilities companies need in order to take this competitive action. 

Competition among incumbent rivals can involve “hardball” strategies: 

Devastating rivals’ profit sanctuaries

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Plagiarizing with pride

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Deceiving the competition

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Unleashing massive & overwhelming force

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Raising competitors’ costs

Competitive attacks can come from many sources besides new entrants. Some of the most intense competition is among incumbent rivals intent on gaining strategic advantages. According to Boston Consulting Group authors George Stalk, Jr. and Rob Lachenauer, “winners in business play rough and don’t apologize for it.” Exhibit 8.5 outlines their five strategies for playing “hardball”. While the “big boys” are competing, it’s possible an entrepreneur might be able to take advantage of some of these activities. 

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Threat analysis involves an assessment of 

Market commonality

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Resource similarity

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How serious is the threat?

Motivation & capability to respond 

What type of competitive response is necessary?

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What resources are needed to fend off a competitive attack?

Which competitive action should I take?

Awareness of the threats posed by industry rivals allows a firm to understand what type of competitive response, if any, may be necessary. Competitive dynamics are likely to be most intense among companies that are competing for the same customers or who have highly similar sets of resources. Market commonality = the extent to which competitors are vying for the same customers in the same markets. Resource similarity = the extent to which rivals draw from the same types of strategic resources. When any two firms have both a high degree of market commonality and highly similar resource bases, a stronger competitive threat is present. Once attacked, competitors are faced with deciding how to respond. Before deciding, however, they need to evaluate not only how they will respond, but also their reasons for responding and their capability to respond.

Once an organization determines whether it is willing and able to launch a competitive action, it must determine what type of action is appropriate. The actions taken will be determined by both its resource capabilities and its motivation for responding. Two broadly defined types of competitive action include strategic actions and tactical actions. Strategic actions = major commitments of distinctive and specific resources to strategic initiatives. Tactical actions= refinements or extensions of strategies usually involving minor resource commitments. See Exhibit 8.6 for some examples. 

Likelihood of competitive reaction 

Market dependence

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Competitor’s resources

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The reputation of the firm that initiates the action – the actor’s reputation

Choosing not to respond 

Forbearance

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Co-opetition  Working together behind the scenes to achieve industrywide efficiencies

The final step before initiating a competitive response is to evaluate what a competitor’s reaction is likely to be. Evaluating potential competitive reactions helps companies plan for future counterattacks. How a competitor is likely to respond will depend on three factors: market dependence, the competitor’s resources, and the reputation of the firm that initiates the action. Market dependence = degree of concentration of a firm’s business in a particular industry. If a company has a high concentration of its business in a particular industry, it has more at stake because it must depend on that industry’s market for its sales. Young and small firms with a high degree of market dependence may be limited in how they respond due to resource constraints. The competitor’s resources must also be considered. For instance, if the competitor is a small firm, it may be unable to mount a serious attack due to lack of resources. As a result, it is more likely to react to tactical actions such as incentive pricing or enhanced service offerings because they are less costly to attack than large-scale strategic actions. Finally, whether a company should respond to a competitive challenge will also depend on who launched the attack against it. Compared to relatively smaller firms with less market power, competitors are more likely to respond to competitive moves by market leaders. Competitors can also choose not to react at all. Forbearance = a firm’s choice of not reacting to a rival’s new competitive action. Co-...