041_MANAJEMEN_Meija_495

Characteristics of Management
Decision Making (Cont)

Decision Scope – the effect and time horizon of a
decision

 Strategic Decisions – long term perspective of 2-5 years and

affect on the organization

 Tactical Decisions – short term perspective of 1 year or less and

focus on subunits

 Operational Decisions – shortest time perspective, generally

less than a year, often measured on a daily or weekly basis

McGraw-Hill ©©2020404TThheeMMcGcGraraww-H-HililllCCoommppaannieise,sI,nInc.cA. Allllrirgihghtstsrerseesrevrveded. .

Stages of Decision Making

Identifying Generating Evaluating Selecting Implementing
and alternative alternatives the best the decision
solutions alternative
diagnosing
the problem

Evaluating
the decision

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Typical problems
that require decisions

 A high level of employee turnover.
 A reduction in firm profits.
 Unacceptable levels of “shrinkage” in a store.
 Lower than planned quality of finished goods.
 An unexpected increase in workplace injuries.
 The invention of a new technology that can

increase the productivity of the workforce.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Evaluating Alternatives

 Decision criteria should be related to the
performance goals of the organization and its
subunits.

 Decision criteria can include:

 Costs
 Profits
 Timeliness
 Whether the decision will work
 Fairness

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Evaluating Alternatives (continued)

 A practical way to apply decision criteria is to
consider:

 Decision quality – aspect of decision making based on such
facts as costs, revenues, and product design specifications.

 Decision acceptance – aspect of decision making based on
people’s feelings.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Approaches to selecting
the best alternative

 Optimizing – selecting the best
alternative from among
multiple criteria.

 Satisficing – selecting the first alternative
solution that meets a minimum
criterion.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Key factors for
successful implementation

 Providing resources (staff, budgets, office space)
that will be needed for the activities that are required
for successful implementation.

 Exercising leadership to persuade others to move the
implementation forward.

 Developing communication and information
systems that enable management to know if the
decision alternative is meeting its planned objectives.

 Recognition and rewards for individuals and teams
that are successful with implementation.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Assumptions of the Rational
Decision Making Process

 The problem is clear and unambiguous.

 There is a single, well-defined goal that all parties
agree to.

 Full information is available about criteria.

 All the alternatives and their consequences are
known.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Assumptions of the Rational
Decision Making Process (continued)

 The decision preferences are clear.

 The decision preferences are constant and stable
over time.

 There are no time and cost constraints affecting
the decision.

 The decision solution will maximize the economic
payoff.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Factors That Limit Rational
Decision Making

Organization Politics

Emotions and Personal
Preferences

Illusion of Control

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Nonrational Decision
Making Models

Satisficing Model

 Bounded rationality – the ability of a manager to be
perfectly rational is limited by factors such as cognitive
capacity and time constraints

 Therefore, decision makers apply heuristics , or decision
rules, that quickly eliminate alternatives

 By using the heuristic known as satisficing, a manager
seeks out the first decision alternative that appears to be
satisfactory

 Satisficing is an accurate model many management
decisions.

Nonrational Decision
Making Models (continued)

Garbage Can Model

This model suggests that managers have a set of
preestablished solutions to problems located in
“garbage cans.”

The garbage can model is likely to be used when
decision makers are undisciplined and have no clear
immediate goals.

The decision making process lacks structure
This can lead to serious difficulties

Advantages and Disadvantages of
Group Decision Making

Advantages Disadvantages
 Increased acceptance  Social pressure
 Greater pool of  Minority domination
 Logrolling
knowledge  Goal displacement
 Different perspectives  “Groupthink”
 Greater comprehension
 Training ground

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Managing Group Decision Making

Leadership Style
Devil’s Advocate Role
Stimulating Creativity

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Leader Decision Making Styles

 Decide and persuade
 Discover facts and decide
 Consult and decide
 Consult with group and decide
 Group decision

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Decision Making Techniques to
Stimulate Group Creativity

Brainstorming Storyboarding

Delphi Nominal Group
Technique Technique
(NGT)
McGraw-Hill
© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Skills for decision making process

 Time management skills

 To make good decisions, managers
need time to understand the problem
and develop creative solutions.

 Delegation skills

 Managers who know how to delegate
are able to accomplish more than
those who feel the need to be involved
in every decision, no matter how trivial.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Effective Time
Management Practices

 Plan a list of things that need to be done today.
 Plan weekly, monthly, and annual schedules of

activities.
 Schedule difficult and challenging activities when

you are at your highest level of energy and
alertness.
 Set deadlines.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Effective Time
Management Practices (continued)

 Answer phone messages and e-mail
in batches during a lull in your
work schedule.

 Have a place to work uninterrupted.
 Do something productive during non-productive

activities.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Effective Delegation

 Determine what you want
done.

 Match the desired task with
the most appropriate
employee.

 Communicate clearly when
assigning the task.

 Ask questions to make sure the
task is fully understood.

 Set clear guidelines.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Effective Delegation (continued)

 Keep communication channels open.
 Allow employees to do the task the way they

feel comfortable doing it.
 Trust employees’ capabilities.
 Check on the progress of the assignment.
 Hold the employee responsible for the work.
 Recognize what the employee has done, and

show appropriate appreciation.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Applications of Management
Perspectives—For the Manager

 Procrastination is a major barrier to effective
decision making.

 Managers need to establish clear priorities by:

 Determining which activities produce the greatest value.
 Setting dates for completion of these activities.

 Setting priorities forces managers to make
decisions and helps control procrastination.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Applications of Management
Perspectives—For Managing Teams

 Overly relying on team meetings is a barrier to
making effective team decisions.

 A team should be able to manage its workflow if:

 Subgroups or individual team members are assigned tasks; and
 They are given responsibility for decision making associated with these

tasks.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Applications of Management
Perspectives—For Individuals

 When you feel fearful, angry, anxious, or
frustrated:

 You are not likely to think clearly and focus on the
problem.

 It is not a good time to make a decision.

 It is better to postpone the decision until after you
have coped with the source of the stress and are in
a more comfortable emotional state.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Chapter

7

Strategic Management

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

After reading this chapter, you should be able to:

 Implement the steps in the strategic management
process.

 Conduct an analysis of the firm’s strengths,
weaknesses, opportunities, and threats.

 Identify the factors that create a sustained competitive
advantage.

 Link external and internal environment data to
determine a firm’s strategic intent and mission.

 Choose appropriate business strategies at the
corporate and business-unit levels.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

The Strategic Management Process

 It is the job of top level management to
chart the course of the entire enterprise.

 It consists of:

 Analysis of the internal and external environment of the
firm.

 Definition of the firm’s mission.
 Formulation and implementation of strategies to create or

continue a competitive advantage.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

The Strategic Management Process

(continued)

 Strategic management involves both long-range
thinking and adaptation to changing conditions.

 Strategies should be designed to generate a
sustainable competitive advantage.

 Competitors should be unable to duplicate what
the firm has done or should find it too difficult or
expensive.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Components of the Strategic Management
Process:

Analyze the external and
internal environments

Define strategic intent
and mission

Formulate strategies

McGraw-Hill Implement strategies

Assess strategic
outcomes

© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

SWOT Analysis

 Commonly used strategy tool: SWOT

 Strengths, Weaknesses, Opportunities, Threats

 Step 1: Analyze the organization’s internal environment,
identifying its strengths and weaknesses.

 Step 2: Analyze the organization’s external environment,
identifying its opportunities and threats.

 Step 3: Cross-match

 Strengths with opportunities
 Weaknesses with threats
 Strengths with threats

 Weaknesses with opportunities

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

The External Environment

 Company leaders must study the external
environment in order to:

 Identify opportunities and threats in the marketplace.
 Avoid surprises.
 Respond appropriately to competitors’ moves.

 A major challenge is to gather accurate market
intelligence in a timely fashion, and transform it
into usable knowledge to gain a competitive
advantage.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Components of External Analysis

Scanning Monitoring

Assessing Forecasting

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Scope of the External Analysis

General The Industry
Environment

Competitor Strategic
Analysis Groups

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

The Segments of the General Environment

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Porter’s Framework for Analyzing
the Industry Environment

Threat of new Threat of
entrants substitutes

Suppliers

Customers

Intensity of rivalry
among competitors

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

The Internal Environment

 Each company has something that it does well.
These are called ―core competencies.‖

 Company executives should identify the resources,
capabilities, and knowledge the firm has that may
be used to exploit market opportunities and avoid
potential threats.

 Resource-based view: Basing the strategy on what
the firm is capable of doing

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

4. Select a strategy that best Core Competencies and
exploits the firm’s Market Opportunities
capabilities relative to
external opportunities. Strategy

3. Appraise the profit Potential for 5. Identify resource gaps
generating potential of sustainable that need to be filled.
resources/capabilities in competitive Invest in replenishing
terms of creating, advantage and augmenting the
sustaining, and exploiting firm’s resource base.
competitive advantage. Capabilities

2. Identify the firm’s
capabilities
(What can the firm do?)

1. Identify the firm’s Resources
resources and locate
McGraw-Hill areas of strength and © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
weakness relative to
competitors.

Resource Types:
Tangible Resources

 Assets that can be quantified and observed.

 Include financial resources, physical assets, and
workers.

 Strategic assessment of tangible resources should
enable management to efficiently use tangible
resources to support the company and
to expand the volume of business.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Resource Types:
Intangible Resources

 Difficult to quantify and included on a balance
sheet

 Often provides the firm with a strong competitive
advantage.

 Competitors find it difficult to purchase or imitate
these resources.

 Strategically most important intangibles:

 Reputation

 Technology

 Human Capital © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill

Analyzing the Firm’s Capabilities

Functional Analysis
Value Chain Analysis

McGraw-Hill Benchmarking

© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Analyzing Capabilities by
Functional Areas

Functional Area Capability
Corporate Management
Effective financial control systems
Information Management Expertise in strategic control of diversified corporation
Effectiveness in motivating and coordinating divisional and
business-unit management
Management of acquisitions
Values-driven, in-touch corporate leadership

Comprehensive and effective MIS network, with strong central
coordination

Research and Development Capability in basic research
Ability to develop innovative new products
Speed of new product development

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Analyzing Capabilities by
Functional Areas (continued)

Functional Area Capability
Manufacturing
Efficiency in volume manufacturing
Capacity for continual improvements in production processes
Flexibility and speed of response

Product Design Design capability
Marketing Brand management and brand promotion
Promoting and exploiting reputation for quality
Sales and Distribution Responsive to market trends

Effectiveness in promoting and executing sales
Efficiency and speed of distribution
Quality and effectiveness of customer service

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

A Simple Value Chain

Technology Product Manufacturing Marketing Distribution Service
Design

Source Function Integration Prices Channels Warranty
Integration Dealer Support
Sophistication Physical Raw Materials Advertising Inventory Availability
Capacity Promotion Warehousing Speed
Patents Characteristics Location Sales Force Transport Prices
Procurement Package
Product Process Aesthetics

Product Choices Quality

Parts Production Brand

Assembly

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Benchmarking Involves Four Stages:

 Identifying activities or functions that are weak
and need improvement.

 Identifying firms that are known to be at the
leading edge of these activities or functions.

 Studying the leading-edge firms by visiting them,
talking to managers and employees, and reading
trade publications.

 Using the information gathered to redefine goals,
modify processes, and acquire new resources to
improve the firm’s functions.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Strategic Intent and Mission

 The primary guides to strategic management are
formal statements of strategic intent and mission.

 Strategic intent is internally focused, defining how
the firm uses its resources, capabilities, and core
competencies.

 Strategic mission is externally focused, defining what
will be to produced and marketed, utilizing its internal
core competencies.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Strategy Formulation

 The design of an approach to achieve the firm’s
mission.

 Takes place at:

 Corporate-Level
 Business-Level

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Corporate-Level Strategy

 The corporation’s overall plan concerning the:

 Number of businesses the corporation holds.
 Variety of markets or industries it serves.
 Distribution of resources among those businesses.

 This diversification strategy may be analyzed in terms
of:

 Portfolio mix
 Type of diversification
 Process of diversification

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Portfolio Analysis

 The basic idea is to classify the businesses of a
diversified company within a single framework.

 Two of the most widely applied include:

 The McKinsey-General Electric Portfolio Analysis
Matrix

 The Boston Consulting Group’s Growth Share Matrix

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

The McKinsey-General Electric
Portfolio Analysis Matrix

Business-Unit Position
Low Medium High

1) 2) 3)

Low

Harvest

4) 5) 6) Industry
Hold Attractiveness
Medium 9)
8) Build
7)

High

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.