Principles of Management

PRINC PLE mana Ch rtes W.C. Hill Ste en L. McShane.

[Audio] PRINCIPLESOFMANAGEMENTCharlesW.L.HillUNIVERSITYOFWASHINGTONStevenL.McShaneUNIVERSITYOFWESTERNAUSTRALIA BostonBurrRidge,ILDubuque,IAMadison,WINewYorkSanFranciscoSt.LouisBangkokBogotáCaracasKualaLumpurLisbonLondonMadridMexicoCityMilanMontrealNewDelhiSantiagoSeoulSingaporeSydneyTaipeiToronto.

[Audio] PRINCIPLES OF MANAGEMENT Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 0 DOW/DOW 0 9 8 7 6 ISBN 978-0-07-353012-3 (student edition) MHID 0-07-353012-3 (student edition) ISBN 978-0-07-331626-0 (instructor's edition) MHID 0-07-331626-1 (instructor's edition) Editorial director: John E. Biernat Senior sponsoring editor: Ryan Blankenship Developmental editors: Natalie Ruffatto and Laura Griffin Senior marketing manager: Anke Braun Media producer: Greg Bates Lead project manager: Mary Conzachi Lead production supervisor: Michael R. McCormick Senior designer: Kami Carter Senior photo research coordinator: Jeremy Cheshareck Photo researcher: Keri Johnson Supplement producer: Ira C. Roberts Senior media project manager : Susan Lombardi Cover and interior design: Kami Carter Cover image: © Corbis Images Typeface: 10/12 Times New Roman Compositor: Techbooks Printer: R. R. Donnelley Library of Congress Cataloging-in-Publication Data Hill, Charles W. L. Principles of management / Charles W.L. Hill, Steven L. McShane. p. cm. Includes index. ISBN-13: 978-0-07-353012-3 (student edition : alk. paper) ISBN-10: 0-07-353012-3 (student edition : alk. paper) ISBN-13: 978-0-07-331626-0 (instructor's edition : alk. paper) ISBN-10: 0-07-331626-1 (instructor's edition : alk. paper) 1. Management. I. McShane, Steven Lattimore. II. Title. HD31.H4885 2008 658--dc22.

[Audio] For Lane —C.W.L.H. Dedicated with Love and devotion to Donna, and to our wonderful daughters, Bryton and Madison —S.L.M..

[Audio] about the // AUTHORS Charles W. L. Hill Steven L. McShane Charles W. L. Hill is the Hughes M. Blake Professor of International Business at the School of Business, University of Washington. Professor Hill recei ved his PhD from the University of Manchester's Institute of Science and Technology (UMIST) in Britain. In addition to the Uni versity of Washington, he has ser ved on the f aculties of UMIST , Texas A&M University, and Michigan State University. Professor Hill has pub lished over 40 ar ticles in peer reviewed academic jour nals, including the Academy of Management Journal, Academy of Mana gement Review, Strategic Management Journal, and Organization Science . He has also pub lished two college texts: one on strate gic management and the other on inter national business. Professor Hill has served on the editorial boards of several academic journals, including the Strategic Management Journal and Organization Science. Between 1993 and 1996 he was consulting editor at the Academy of Mana gement Review . Professor Hill teaches in the MB A, Executive MBA, Management, and PhD pro grams at the Uni versity of Washington. He has recei ved awards for teaching e xcellence in the MBA, Executive MBA, and Management programs. He has also taught customized executive programs. Professor Hill works on a consulting basis with a number of organizations. His clients have included ATL, Boeing, BF Goodrich, Hexcel, House of Fraser, Microsoft, Seattle City Light, Tacoma City Light, Thompson F inancial Services, and Wizards of the Coast. Ste ven L. McShane is Professor of Management in the Graduate School of Management at the University of Western Australia, where he recei ves high teaching ratings from students in P erth, Singapore, and other cities in Asia where UWA offers its pro grams. He is also an Honorar y Professor at Universiti Tunku Abdul Rahman (UTAR) in Malaysia and previously taught in the business f aculties at Simon F raser University and Queen's University in Canada. Ste ve has conducted e xecutive seminars with Nokia, Wesfarmers Group, ALCOA World Alumia Australia, and many other organizations. He is also a popular visiting speaker, having given four dozen talks to f aculty and students in almost a dozen countries over the past three years. Steve earned his PhD from Michigan State University in organizational beha vior, human resource management, and labor relations. He also holds a Master.

[Audio] /// BRIEF CONTENTS PART 1 Managers and the Environment Chapter 1 Management 2 Chapter 2 The External and Internal Environments 26 Chapter 3 Globalization and the Manager 54 Chapter 4 Stakeholders, Ethics, and Corporate Social Responsibility 80 PART 2 Strategizing Chapter 5 Planning and Decision Making 104 Chapter 6 Strategy 132 Chapter 7 Managing Operations 156 PART 3 Organization Architecture Chapter 8 Organizing 180 Chapter 9 Control Systems 206 Chapter 10 Organizational Culture 230 Chapter 11 Developing High-Performance Teams 254 PART 4 Leading Chapter 12 Staffing and Developing a Diverse Workforce 284 Chapter 13 Motivating and Rewarding Employee Performance 314 Chapter 14 Managing Employee Attitudes and Well-Being 346 Chapter 15 Managing through Power, Influence, and Negotiation 376 Chapter 16 Effective Leadership 402 Chapter 17 Communication 426 PART 5 Change Chapter 18 Managing Innovation and Change 452 Glossary 478 Index 487.

[Audio] // TABLE OF CONTENTS PART 1 Managers and the Environment Chapter 1 Management 2 The General Environment 38 Political and Legal Forces 39 Macroeconomic Forces 39 Demographic Forces 40 Sociocultural Forces 41 Technological Forces 41 International Forces 41 Dynamic Changes in the External Environment 42 Incremental versus Discontinuous Change 42 Environmental Uncertainty 43 The Functions of Management 4 Planning and Strategizing 4 Organizing 5 Controlling 6 Leading and Developing Employees 6 The Internal Environment 44 Internal Organization 44 Employees (Human Capital) 45 Resources 46 In Conclusion: Why Does It Matter? 48 Types of Managers 7 Corporate-Level General Managers 8 Business-Level General Managers 9 Functional Managers 9 Frontline Managers 10 Management Challenges 49 Management Portfolio 50 Becoming a Manager 10 From Specialist to Manager 10 Mastering the Job 11 CLOSING CASE The Pharmaceutical Industry 50 Chapter 3 Globalization and the Manager 54 Managerial Roles 12 Interpersonal Roles 13 Informational Roles 14 Decisional Roles 15 Some Qualifications 15 The Process of Globalization 56 The Spread of Market-Based Systems 56 Falling Barriers to Trade and Investment 58 Tumbling Communication and Transportation Costs 58 Management Competencies: Do You Have What It Takes? 16 Managerial Skills 16 Managerial Values 19 Managerial Motivation 20 In Conclusion: Why Does It Matter? 21 Implications of Globalization 59 The Globalization of Production 60 The Globalization of Markets 61 Technology: The Great Facilitator 61 Management Challenges 21 Management Portfolio 22 CLOSING CASE George David 22 Constraints on Globalization 62 Protectionist Countertrends 63 National Differences in Consumer Behavior 64 National Differences in Business Systems 64 Differences in Social Culture 65 Chapter 2 The External and Internal Environments 26 The Benefits of Going Global 66 Expanding the Market.

[Audio] Contents vii In Conclusion: Why Does It Matter? 74 Management Challenges 75 The Benefits and Pitfalls of Planning 118 The Pitfalls of Planning 119 Improving Planning 120 Management Portfolio 75 CLOSING CASE Planet Starbucks 75 Decision Making 121 The Rational Decision-Making Model 122 Bounded Rationality and Satisficing 122 Decision-Making Heuristics and Cognitive Biases 123 Prospect Theory 125 Groupthink 126 Improving Decision Making 127 Chapter 4 Stakeholders, Ethics, and Corporate Social Responsibility 80 In Conclusion: Why Does It Matter? 127 Management Challenges 128 Stakeholders and Stakeholder Management 82 Stakeholders and the Organization 83 Taking Stakeholders into Account 83 Management Portfolio 128 CLOSING CASE Boom and Bust in Telecommunications 129 Business Ethics 86 Ethical Issues in Management 86 The Roots of Unethical Behavior 90 Philosophical Approaches to Ethics 92 Behaving Ethically 94 Chapter 6 Strategy 132 Superior Performance and Competitive Advantage 134 Social Responsibility 97 Arguments for Social Responsibility 98 The Friedman Doctrine 99 In Conclusion: Why Does It Matter? 100 Management Challenges 100 Management Portfolio 101 Business-Level Strategy 137 Competitive Theme: Differentiation or Low Cost? 137 Segmenting the Market 139 Choosing Segments to Serve 140 Segmentation and Strategy 140 The Low Cost–Differentiation Frontier 141 CLOSING CASE Working Conditions at Wal-Mart 101 Implementing Business-Level Strategy 143 Configuring the Value Chain 144 Competitive Advantage and Strategic Fit 146 PART 2 Strategizing Competitive Tactics 147 Tactical Pricing Decisions 147 Tactical Product Decisions 148 Chapter 5 Planning and Decision Making 104 Corporate-Level Strategy 148 Focus on a Single Business 149 Vertical Integration 149 Diversification 150 International Expansion 151 In Conclusion: Why Does It Matter? 152 Management Challenges 152 Planning within Organizations 106 Levels of Planning 107 Planning Horizons 108 Single-Use Plans and Standing Plans 109 Contingency Planning 110 Management Portfolio 153 CLOSING CASE Google's {Quest for Competitive Advantage 153 Chapter 7.

[Audio] viii Contents Management Challenges 203 Management Portfolio 203 CLOSING CASE Dow Chemical 203 Configuring the Production System 159 Traditional Production Systems 159 Production Systems, Flexibility, and Costs 160 New Production Technologies: Mass Customization 162 Optimizing Work Flow: Process Reengineering and Process Innovation 164 Asset Utilization 165 Chapter 9 Control Systems 206 Quality Management 167 Managing Inventory 169 Economic Order Quantity and Setup Time 170 Just-in-Time Inventory Systems 171 Build to Order and Inventory 172 Control Systems 208 Establishing Goals and Standards 208 Measuring Performance 210 Comparing Performance against Goals and Standards 210 Taking Corrective Action 211 Providing Reinforcement 211 Supply Chain Management and Information Systems 174 Product Development and Productivity 175 In Conclusion: Why Does It Matter? 176 Management Challenges 176 Management Portfolio 177 Methods of Control 212 Personal Controls 212 Bureaucratic Controls 213 Output Controls 214 Cultural Control 216 Control through Incentives 217 Market Controls 218 Summary 219 CLOSING CASE Improving Productivity in the Auto Industry 177 Matching Controls to Strategy and Structure 220 Controls in the Single Business 220 Controls in Diversified Firms 221 PART 3 Organization Architecture Choosing Control Metrics: The Balanced Scorecard 223 Backchannel Control Methods 225 In Conclusion: Why Does It Matter? 226 Chapter 8 Organizing 180 Management Challenges 226 Organization Architecture 182 Management Portfolio 226 CLOSING CASE Lincoln Electric 227 Designing Structure: Vertical Differentiation 184 Centralization and Decentralization 184 Tall versus Flat Hierarchies 188 Chapter 10 Organizational Culture 230 Designing Structure: Horizontal Differentiation 191 Functional Structure 192 Multidivisional Structure 193 Geographic Structure 194 Matrix Structure.

[Audio] Contents ix Management Challenges 278 Management Portfolio 278 Is Organizational Culture Important? 239 Organizational Culture Strength and Fit 239 Corporate Cults and Suppressing Dissent 240 Adaptive Cultures 241 Organizational Culture and Business Ethics 241 CLOSING CASE The Shipping Industry Accounting Team 279 PART 4 Leading How to Change and Strengthen Organizational Culture 242 Actions of Founders and Leaders 243 Aligning Artifacts 245 Introducing Culturally Consistent Rewards 245 Selecting and Socializing Employees 246 Chapter 12 Staffing and Developing a Diverse Workforce 284 Managing Organizational Culture during Mergers 246 Strategies to Merge Different Organizational Cultures 247 In Conclusion: Why Does It Matter? 249 Management Challenges 250 Management Portfolio 250 CLOSING CASE Schwab Acquires U.S. Trust 250 Human Resource Planning: Translating Strategy into Staffing Requirements 286 Step 1: Conduct Job Analysis 287 Step 2: Estimate Human Resource Demand 287 Step 3: Document Current Human Resource Supply 288 Step 4: Estimate Future Internal Human Resource Supply 288 Step 5: Estimate Future External Human Resource Supply 289 Relying on the Contingent Workforce 289 Chapter 11 Developing High-Performance Teams 254 Staffing a Diverse Workforce 290 Surface-Level and Deep-Level Diversity 290 Is Diversity Important? 291 Why Rely on Teams? 256 Why People Belong to Informal Groups 257 The Trouble with Teams 258 Social Loafing 258 Recruiting Job Applicants 294 Nurturing the Employer Brand 295 Internal versus External Recruitment 296 Choosing Recruiting Channels 297 Recruitment and Diversity 299 Types of Teams 258 Self-Directed Teams 260 Virtual Teams 261 A Model of Team Effectiveness 262 Selecting Job Applicants 299 Reliability and Validity of Selection Methods 299 Application Forms, Résumés, and Reference Checks 301 Work Sample Tests 301 Employment Interviews 302 Ability and Personality Tests 303 Selection and Diversity 303 Team Design Features 264 Task Characteristics 264 Team Size 264 Team Composition 265 Team Roles 265 Orienting and Developing Employees.

[Audio] x Contents Chapter 13 Motivating and Rewarding Employee Performance 314 Job Satisfaction 351 Job Satisfaction and Work Behavior 352 Job Satisfaction and Performance 354 Job Satisfaction and Customer Satisfaction 354 Organizational Commitment 355 Watch Out for Continuance Commitment! 356 Building Organizational Commitment 356 MARS Model of Individual Behavior and Results 316 Motivation 316 Ability 317 Role Perceptions 317 Situational Factors 318 Using MARS to Diagnose Employee Disengagement 318 Motivating Employees: A Three-Part Process 318 Work-Related Stress and Its Management 357 General Adaptation Syndrome 358 Consequences of Distress 358 Stressors: The Sources of Stress 359 Managing Work-Related Stress 361 Work–Life Balance 364 Part 1: Managing Motivation through Drives and Needs 319 Maslow's Needs Hierarchy Theory 319 Learned Needs Theory 322 Four-Drive Theory 322 Personality Effects on Attitudes and Well-Being 365 The Big Five Personality Dimensions 365 Effects of Personality on Emotions and Attitudes 366 Effects of Personality on Stress and Well-Being 366 Effects of Personality on Performance 367 Effects of Personality on Career Satisfaction 367 Part 2: Managing Motivation through Goals, Expectations, and Feedback 325 Goal Setting and Feedback 325 Expectancy Theory of Motivation 327 In Conclusion: Why Does It Matter? 369 Management Challenges 369 Part 3: Managing Motivation through Extrinsic and Intrinsic Rewards 329 Management Portfolio 370 CLOSING CASE Rough Seas on the LINK650 370 Chapter 15 Managing through Power, Influence, and Negotiation 376 Power in Organizations 378 Motivating Employees through Extrinsic Rewards 329 Membership- and Seniority-Based Rewards 329 Job Status–Based Rewards 330 Competency-Based Rewards 330 Performance-Based Rewards 330 Nonfinancial Rewards 332 Improving Performance Appraisals 332 Rewarding Employees Equitably 333 Motivating Employees through Intrinsic Rewards 335 Job Characteristics Model 336 Motivating Employees through Job Enrichment 337 Motivating Employees through Empowerment 337 Sources of Power 379 Formal Hierarchical Position 379 Expertise 381 Control over Information 381 Networks of Allies 383 Individual Attributes 383 In Conclusion: Why Does It Matter? 338 Contingencies of Power 385 Management Challenges 339 Management.

[Audio] Contents xi Chapter 16 Effective Leadership 402 Managing and Leading 404 What Makes an Effective Leader? 405 The Power–Influence Perspective 406 Improving Communication 442 Match Media to Messages 442 Reduce Information Overload 442 Get Your Message Across 443 Engage in Active Listening 443 Proactively Use the Grapevine 444 Communicate Directly with Employees 445 Facilitate Communication through Workspace Design 445 In Conclusion: Why Does It Matter? 446 Management Challenges 447 Management Portfolio 447 The Competency (Trait) Perspective 407 Strategic Thinking 407 Achievement Motivation 408 Power Motivation 408 Charisma 409 Emotional Intelligence 409 Limitations and Implications 410 CLOSING CASE The Challenger Disaster 447 The Behavior Perspective 410 PART 5 Change The Contingency Perspective 411 Fiedler's Contingency Theory 411 Path–Goal Theory 413 Leadership Substitutes 416 Chapter 18 Managing Innovation and Change 452 Transformational Leadership 416 Elements of Transformational Leadership 417 Evaluating Transformational Leadership 419 Gender Differences in Leadership 419 In Conclusion: Why Does It Matter? 420 Management Challenges 421 Paradigm Shifts 454 Natural Limits to Technology 455 Disruptive Technology 456 New Business Model 458 Punctuated Equilibrium 459 Management Portfolio 421 CLOSING CASE A.G. Lafley 421 Organizational Inertia 460 Cognitive Schemata 460 Internal Political Constraints 461 Organizational Culture 461 Commitments and Capabilities 462 External Institutional Constraints 463 Chapter 17 Communication 426 The Communication Process 428 Organizational Change 463 Leadership Committed to Change 463 Unfreezing the Organization 464 Moving the Organization 465 Refreezing the Organization 466 Failed Change Efforts and the Secret of Success 466 Communication Channels 429 Verbal Communication 430 Nonverbal Communication 431 Selecting the Best Communication Channel 432 Driving Innovation 468 New Product Failures 468 Generating Successful Innovations 469 Organizational Communication 434 Formal Communication Channels 434 Informal Communication Channels 435 In Conclusion:.

[Audio] \\ PREFACE \\\ error that planning and strate gizing are interchangeab le terms, this book has the distinction of presenting separate chapters for both practices. Organizing and Controlling—Organization Architecture The management textbook market is crowded, so why did we write another one? The answer, quite frankly, is that a huge gap exists between what managers actually do or think about and what the existing gaggle of management books say are contemporary practices. Some topics that managers say are important (such as strategizing and shaping corporate culture) need much more attention in management courses; other concepts and practices long for gotten by most managers shouldn't be required reading in a colle ge management course. Management theor y has also mo ved forward, and in some cases has become w ell-established practice in the cor porate world. Again, we were surprised by the gap in what students have been reading. So, this book was crafted to close that gap, to help students have a more realistic understanding about w hat managers actuall y do and what management theory actually recommends. We offer this relevant view of management in a w ay that has a logical flow of content, is succinct and clear in its writing style, rich in real-world examples, and remains focused on the role of managers. Most management textbooks treat organizing and controlling as completely separate functions. Yet managers will tell you that organizing people into departments and teams is an important form of control. They also point out that various control systems—such as incentive systems and budgets— are closely connected to the or ganization's structure. Furthermore, managers emphasize that or ganizational culture is an important control system, no matter how difficult it is to shape; it should never be viewed as an untouchable fixture of the inter nal environment (as other books assume). Thus, we apply the contemporar y management vie w that organizing and controlling belong together as two parts of the underlying management process, called organizational architecture . Leading and Developing Employees // RELEVANCE: A BOOK FOR THE TWENTY-FIRST CENTURY Leadership is important; in fact, it is vital for guiding the organization toward its objectives and for applying the other management functions. But managers toda y do more than motivate, influence, and direct others. Although missing from Fayol's original functions, this book highlights the fact that managers also devote much of their time to developing staff. In f act, General Electric and other top-perfor ming companies insist that managers give the highest priority to hiring, training, mentoring, and re warding employees. In contemporary management parlance, these companies consider human capital as their competiti ve advantage, and managers play a vital role in enhancing the v alue of that resource. // ORGANIZATION: A LOGICAL INTEGRATED FLOW OF TOPICS Almost 100 years ago, French industrialist Henri Fayol proposed five functions of management, four of w hich (planning, organizing, leading, and controlling) have become the foundation of management books o.

[Audio] Students want real-world examples that are fresh, not ancient histor y (like the 1980s or e ven the 1990s), so w e scanned the latest sources to link management concepts to recent events. For instance, we describe how Chick-Fil-A CEO Dan Cathy serves as a figurehead by camping out with customers (Chapter 1), how Intel CEO Paul Otellini is steering the microchip mak ers to ward a ne w strate gic plan (Chapter 5), how Unilever has reconf igured its or ganizational structure in recent y ears to f ind the right balance among competing demands in the marketplace (Chapter 8), how Dell executives have attempted to shift the computer maker's corporate culture (Chapter 10), how Google attracts top talent b y engaging in guer rilla recruitment practices (Chapter 12), and how Xerox CEO Anne Mulcahy led the company's dramatic tur naround despite her status as an "outside-insider." motivating, and maintaining the well-being of employees in a sequence, because this is how managers actually view the process of building human capital. More generall y, this book moves from macro, through midlevel issues, to micro issues, and closes by switching back to a macro perspective (managing innovation and change). This book also takes an integrated rather than piecemeal approach to management topics. This means that later chapters build upon concepts introduced in earlier chapters. Students can't make sense of planning and strategizing, for example, unless they have learned about the external environment. The goal is to get students to see the big picture, and to understand the impor tant linkages between different aspects of management. To drive this home, we frequently refer to concepts introduced in prior chapters, and show how they related to the material being discussed in the cur rent chapter. At the same time, w e are sensitive to the desire of some instructors to skip certain chapters. We have not pushed the level of integration so far that this cannot be done. // READABILITY: INTERESTING AND ACCESSIBLE // SUCCINCT: FOCUSING ON WHAT IS IMPORTANT Management textbooks don't have to be dense, boring, and dull. Our tactic for engaging students has been to illustrate concepts through stories, using examples that are current, interesting, and, when appropriate, pro vocative. We are story tellers, and w e believe that the e vocative stories throughout this book will help students to understand the content and moti vate them to read through the assigned pages. At the end of the day, we have written this book for students; we want to reach them through lively and accessible communication. To improve readability, we have also cleared out the clutter found in most management books. Gone is the w eighty boxed material because instr uctors and students alik e told us that content or anecdotes placed in bo xes are not read. Instead, these examples are embedded in the text so they are more clearly interwoven with the discussion of k ey concepts. Each chapter also opens not with the traditional boxed case, but with a brief story that is used to illustrate the concepts covered in the chapter. The goal,.

[Audio] xiv Preface course. Not only do you receive the instr uctor's material, but we also provide you with additional student e xercises such as threaded discussion questions, quizzes, and more! why the concepts discussed in a chapter matter for managers. We also drive these points home at the end of e very chapter with a closing section appropriately entitled "Why does it matter?" // HIGH-QUALITY SUPPORT MATERIALS // ADDITIONAL RESOURCES FOR YOUR PRINCIPLES OF MANAGEMENT COURSE Unlike revised texts/resource packages, where materials are refitted, resized, and repurposed, the resources suppor ting this text have been freshly created in close conjunction with the text and each other to provide you with a truly integrated support package organized by chapter learning objectives, measures lear ning outcomes, and incor porating AACSB standards. The Instructor's Manual (authored by Barbara Carlin, University of Houston, and Chris Quinn-Trank, Texas Tech University) closely follows the textbook's learning objectives and includes extra war stories and teaching tips. The Instructor's Manual also incor porates ideas and guidelines for implementing the Management P ortfolio Project into your management course. The Test Bank (authored by Carol Johnson, University of Denver) includes over 150 questions per chapter, including multiple-choice, true/false, and short answer questions at various levels of Bloom's Taxonomy. Every test bank question is tagged to the cor responding te xtbook page, learning objective, Bloom's Taxonomy, and the AACSB requirement it assesses. A test table is also provided to help you easily choose questions to fit your needs. An additional set of practice quizzes, also written by the test bank author, is available on the text's Online Learning Center. PowerPoint Package (authored by Amit Shah, Frostburg State University) includes over 350 slides, each tied to the textbook page and learning objective. Slides include teaching notes to help reduce y our prep time. A set of student slides is available on the text's Online Learning Center. Instructor's Resource CD . All of our instructor supplements are available in this one-stop, multimedia resource, which includes the PowerPoint Package, Test Bank, and Instructor's Manual. Videos . A set of ne w videos on management issues accompanying this text is suitable to support your classroom or student lab, or for home viewing. These thoughtprovoking video clips are available upon adoption of this text. Online Learning Center (OLC). Our Web site mirrors the text chapter-by-chapter. OLCs can be delivered in multiple ways—professors and students can access them directl y through the textbook Web site, through PageOut, or within a course management system such as WebCT, Blackboard, TopClass, or eCollege. Enhanced Cartridge. McGraw-Hill/Irwin is pleased to offer an enhanced car tridge to help y ou or ganize y our Group and Video Resource Manual: An Instructor's Guide to an Active Classroom. This.

[Audio] Preface xv directs students to a Web site where they enter the code and then gain access to BusinessWeek's registration page to enter address info and set up their print and online subscription as well. Passcode ISBN 007-251530-9. The Wall Street Journal Edition. Your students can subscribe to the The Wall Street Journal for a speciall y priced rate of $20.00 in addition to the price of the te xt. Students will receive a "How To Use the WSJ " handbook plus a pass code card shrink-wrapped with the te xt. The card directs students to a Web site w here they enter the code and then gain access to the WSJ registration page to enter address info and set up their print and online subscription, and also set up their subscription to Do w Jones Interactive online for the span of the 10-w eek period. Passcode ISBN 007-251950-9. // FOR STUDENTS Most or you will start your careers as functional specialists— as accountants, engineers, salespeople, f inance specialists, and so on. If you are successful in your entry-level job, you will be promoted, and more than lik ely, before long y ou will be put in charge of other people. At this point, you will have become a manager. As a manager, further advancement will be dependent upon y our ability to get things done though others—to moti vate, persuade, encourage, and coach others so that they perform better. This book is about what it takes to become an ef fective manager. It is about how to make good decisions, how to exert influence on the strategies and policies of y our employer (even when you are an entry-level employee), how to motive and lead others, ho w to communicate ef fectively, ho w to manage change, and much more. Becoming a good manager is not easy, but it is a way to have a successful career and have an impact upon the organizations in which you work. Becoming a great manager is more than that—g reat managers build organizations that change the world. Great managers of the last quarter-century include Sam Walton, who built Wal-Mart from nothing into the w orld's largest retailer, Jack Welch, who transformed General Electric from a lumbering conglomerate into a dynamic and productive enterprise, Howard Schultz, who was the inspiration behind the growth of Starbucks, and Michael Dell, who starting from his dorm room created the world's largest manufacturer of personal computers. We have written this book to help you get started on the road to becoming a good—or e ven a great—manager. We have tried to put to gether a book that is written in a li vely and accessible style, that is crammed full of interesting and relevant examples, and that introduces you to the most useful concepts and theories for managers, y et presents these concepts and theories in a way that is easy to understand. We hope you enjoy the book, but more than that, we hope.

[Audio] xvi Preface Jerry Kinard, Western Carolina University; Nada Kobeissi, Long Island University; Beverly Little, Western Carolina University; Geoffrey Love, University of Illinois; Carlstien Lutchmedial, PACE University; Joan Mahoney, Worcester State University; Hank Moczul, Davenport University; Stephen A. Morreale, Worcester State University; David Oliver, Edison College; Terry Pearson, West Texas A&M University; Shelia Petcavage, Cuyahoga Community College; Antoinette S. Phillips, Southeastern Louisiana University; Carl Phillips, Southeastern Louisiana University; Erin Pleggenkuhle, Northwest Missouri State University; Jeffrey Podoshen, DeVry University; Christine Quinn-Trank, Texas Tech University; Robert W. Raspberry, Southern Methodist University; Clint Relyea, Arkansas State University; Susan Roach, Georgia Southern University Statesboro; Cynthia Ruszkowski, Illinois State University; Robert H. Schwartz, University of Toledo; Mary Ann Short, Franklin University; Richard L. Smith, Iowa State University; Cindy Sutton, Metro State—Denver; James Swenson, Minnesota State University Moorhead; Gary Taylor, South Dakota State University; Stan Williamson, University of Louisiana at Monroe; and Xian Yi, Western Illinois University..

[Audio] PRINCIPLES OF MANAGEMENT. PRINCIPLES OF MANAGEMENT.

[Audio] // PART 1 Ma na g e rs a nd t h e E nvi ro nm e nt 1 MANAGEMENT After Reading This Chapter You Should Be Able to: 1 Describe the basic functions of management. 2 Identify where in an organization managers are located. 3 Discuss the challenges people encounter as they become first-time managers. 4 Describe the roles managers adopt to perform the basic functions of management. 5 Outline the competencies managers must have to be effective. LEARNING OBJECTIVES / / / / / / / / / / / / / / Managerial Roles Interpersonal Roles Informational Roles Decisional Roles Some Qualifications The Functions of Management Planning and Strategizing Organizing Controlling Leading and Developing Employees Management Competencies: Do You Have What It Takes? Managerial Skills Managerial Values Managerial Motivation In Conclusion: Why Does It Matter? Types of Managers Corporate-Level General Managers Business-Level General Managers Functional Managers Frontline Managers Management Challenges Management Portfolio Becoming a Manager From Specialist to Manager Mastering the Job Closing Case: George David.

[Audio] The Essence of Hip— The Burberry Trench Coat Under the leadership of Rose Marie Bravo, London fashion house Burberry underwent a renaissance. Between 1997 and 2003 profits increased almost fivefold as Burberry was repositioned as a hip, high-end global brand. © McGraw-Hill Companies/ Lars A. Niki Photographer. / / / / / / / / / / / / / / / / / / / / W hen Rose Marie Bravo, the highly regarded president of Saks Fifth Avenue, announced in 1997 that she was leaving to become CEO of ailing British fashion house Burberry, people thought she was crazy. Burberry, best known as a designer of raincoats with trademark tartan linings, had been described as "an outdated business with a fashion cachet of almost zero." Seven years later Bravo was being heralded in Britain and the United States as one of the world's best managers. In her tenure at Burberry she engineered a remarkable turnaround, leading a transformation of Burberry into what one commentator called an "achingly hip" high-end fashion brand whose raincoats, clothes, handbags, and other accessories were must-have items for well-heeled, fashion-conscious consumers. When asked how she achieved the transformation, Bravo explained that hidden value in the brand was unleashed by constant creativity and innovation. Although she hired good designers to reenergize the brand, she also noted that "creativity doesn't just come from designers…ideas can come from the sales floor, the marketing department, even from accountants, believe it or not. People at whatever level they are working have a point of view and have something to say that is worth listening to." Bravo also emphasized the importance of teamwork. "One of the things I think people overlook is the quality of the team. It isn't one person, and it isn't two people. It is a whole group of people—a team that works cohesively toward a goal—that makes something happen or not." She notes that her job is to build the team and then motivate them, "keeping them on track, making sure that they are following the vision." 1 By all accounts Rose Marie Bravo is a remarkable manager. Her story illustrates the important and powerful role that managers can play in an organization. Bravo didn't redesign Burberry's tired fashion line; she didn't personally create the ads featuring supermodel Kate Moss that helped reposition the brand; it wasn't her job to coordinate Burberry's global manufacturing system to make sure suppliers adhered to Burberry's exacting quality standards; nor did she directly participate in the redesign of Burberry's retail stores. But she did help to hire, motivate, lead, and reward the people who did these things. Bravo saw the hidden value in the Burberry brand, pushed for a new hip vision, asked people at all levels in the organization for ideas, and built and managed the teams that transformed Burberry. Rose Marie Bravo embodies what great managers do: They make things happen; they develop strategy; they organize people, projects, and processes; they energize others in the organization; and they lead..

[Audio] 4 PART 1 // Managers and the Environment management The art of getting things done through people. This book is about management , which can be defined as the art of getting things done through people in organizations. 2 As we will see, management can be an enor mously creative endeavor. Managers are not bureaucrats. They do more than just keep the trains running on time. Managers can also gi ve organizations a sense of pur pose and direction. As Wal-Mart's founder Sam Walton was fond of saying, they can motivate "ordinary people to do extraordinary things." 3 They can transform organizations; they can create new ways of producing and distributing goods and ser vices; and they can change how the world works through their actions. Think about w hat some of the g reatest managers of this era ha ve done. Sam Walton built Wal-Mart from scratch into the lar gest retailer in the w orld. Lou Gerstner repositioned IBM from a troubled manufacturer of mainframe computers into the dominant provider of computer software services in the world. Jack Welch reenergized General Electric, transforming a tired engineering conglomerate into an ef ficient, vibrant, entrepreneurial enterprise that set the standard for e xcellence in many industries in which it competed. In the late 1970s Ste ve Jobs of Apple Computer gave the world the first massmarketed, easy-to-use personal computers; toda y Apple under Jobs' s management is still driving innovation with its iPod music player. Meg Whitman provided the leadership that helped eBay become the world's first and most successful online auction house, revolutionizing the auction industry. Throughout this book w e will discuss ho w great managers lik e these w ork through people to do remarkab le things. F irst, however, we must better understand the basic functions of management, where you can f ind managers in an or ganization, how one becomes a manager, the nature of managerial work, the roles managers adopt to get things done through people, and the dif ferent competencies that are required to become a good manager. // The Functions of Management In the early 20th century a French industrialist named Henri Fayol stated that management had five main functions: planning, organizing, commanding (that is, leading), coordinating, and controlling. 4 A lot of w ater has passed under the bridge since F ayol wrote about management, and we have learned much about the theory and practice of management; but in a testament to the robustness of F ayol's original for mulation, a modif ied version of Fayol's list is still widel y used. This list identif ies four management functions: planning, organizing, controlling, and leading (Fayol's fifth function, coordinating, is now treated as an aspect of organizing). In this book w e focus on these four main functions of management, but we have broadened the definition of those functions somewhat to better represent the realities of management practice in the 21st century. The four functions that we discuss are (1) planning and strategizing, (2) organizing, (3) controlling, and (4) leading and.

[Audio] Management \\ CHAPTER 1 5 strategizing The process of thinking through on a continual basis what strategies an organization should pursue to attain its goals. ■ Strategy development at Starbucks. ■ Strategy development at Starbucks. crises, and so on. To be sure, many of these plans are linked to the strategy of the enterprise. The allocation of f inancial resources specif ied in an organization's budget for the coming year, for example, should be driven by the strategy of the organization. However, planning is often about formalizing a strategy that has already been selected and documenting the steps that managers must follow within the organization to put that strategy into effect. Although planning is a useful process for generating strategies, strategizing involves more than planning. Strategizing is the process of thinking through on a continual basis w hat strategies an organization should pursue to attain its goals. Strategizing involves being aware of and analyzing what competitors are doing; thinking about how changes in the external environment, such as changes in technology or government regulations, impact the organization; weighing the pros and cons of alter native strategies; anticipating how competitors might respond to these strategies; and choosing a course of action. When Rose Marie Bravo decided to reposition Burberry as a hip, high-end fashion brand, she was strategizing. Whereas planning is a formal process for generating the strategies of an organization, strategies can also arise in the absence of planning. 5 For example, anyone who has walked into a Starbucks store may have noticed that in addition to v arious coffee beverages and food, the company also sells music CDs. Most Starbucks stores no w have racks displaying about 20 CDs. Reports suggest that when Starbucks decides to carry a CD, it typically ranks among the top four retailers selling it. The interesting thing about Starbucks' entry into music retailing is that it was not the result of a for mal planning process. The company's journey into music retailing started in the late 1980s w hen Tim Jones, then the manager of Starbucks' store in Seattle's University Village, started to bring his own tapes of music compilations into the store to play. Soon Jones w as getting requests for copies from customers. Jones told this to Starbucks' CEO Howard Schultz and suggested that Starbucks star t to sell its own music. In other words, Jones was strategizing . At first Schultz was skeptical, but after repeated lobbying by Jones he eventually took up the suggestion. Today Starbucks not only sells CDs; it is also moving into music downloading with its Hear Music Starbucks stores, w here customers can listen to music from Starbucks' 200,000-song online music library while sipping their coffee and burning their own CDs. 6 Starbucks' strategy to enter the music retailing business emer ged from the grass roots of the organization in the absence of planning. It w as the result of strategizing by an individual store manager, and only after some time was the strategy adopted by senior managers. As we will see later in this book, strate gy often develops in this way. Managers at all le vels in an.

[Audio] 6 PART 1 // Managers and the Environment // CONTROLLING controlling The process of monitoring performance against goals, intervening when goals are not met, and taking corrective action. ■ Controls and incentives at Starbucks. ■ Controls and incentives at Starbucks. incentive A factor, monetary or nonmonetary, that motivates individuals to pursue a particular course of action. Caffeine Music Starbucks has a profitable sideline selling select music CDs. Since 2004 customers have been able to download music and burn their own CDs at its Hear Music stores. The strategy to enter the music retailing business was not planned—it was adopted after lobbying by an individual store manager. © Axel Koester, Axel Koester Photography. Controlling is the process of monitoring performance against goals, intervening when goals are not met, and taking cor rective action. Controlling is just as important as planning, strategizing, and or ganizing. Without control systems to verify that performance is hitting goals, an or ganization can v eer off course. Controlling is also linked to planning and strategizing and to organizing. Drafting plans is the first step in controlling an organization. Controlling requires managers to compare perfor mance against the plans to monitor how successful an organization is at implementing a strategy. Thus at Starbucks, Don MacKinnon has been given goals related to the rollout and sales of Hear Music, and his success at implementing the strategy will be assessed by comparing actual performance against the goals. An impor tant aspect of controlling is creating incentives that align the interests of individual emplo yees with those of the organization, helping to ensure that everyone is pulling in the same direction. An incentive is a f actor, monetar y or nonmonetar y, that motivates individuals to pursue a par ticular course of action. Starbucks, for example, has a long histor y of gi ving stock-based compensation to emplo yees. The thinking here is that stock-based incenti ve pay will induce employees to look for ways to improve the perfor mance of the or ganization, thus increasing the company's stock price and their own wealth. So perhaps it is no sur prise that Tim Jones, who was not only a store manager but also a stockholder, actively lobbied senior management to persuade them to sell music in the stores. With the right incentives in place, employees will work productively and control their own behavior, which reduces the need for close personal supervision and other intrusive control methods. // LEADING AND DEVELOPING EMPLOYEES leading The process of motivating, influencing, and directing others in the organization to work productively in pursuit of organization goals. developing employees The task of hiring, training, mentoring, and rewarding employees in an organization, including other managers. Leading is the process of motivating, influencing, and directing others in the organization to work productively in pursuit of organization goals. 7 Leading also entails articulating a grand.

[Audio] Management \\ CHAPTER 1 7 human capital The knowledge, skills, and capabilities embedded in individuals. ■ Leadership at Burberry. ■ Leadership at Burberry. Academics talk about the value of the human capital of an enterprise, by which they mean the skills and motivations of its employees; they assert that human capital can be a source of competitive advantage. 8 Rose Marie Bravo recognized the importance of human capital when she took on the top management position at Burberry. One of her first actions was to recruit a top-notch team of managers and creative designers through which she could get things done. Management expert Peter Drucker has emphasized that hiring and promoting the right people are among the most important management tasks because they have lasting consequences for the organization and are difficult to reverse. Unfortunately Drucker also estimates that many managers are not good at this function. According to Drucker, about one in three selection and promotion decisions is onl y minimally effective. 9 The legendary former CEO of General Electric, Jack Welch, seen by many as one of the best managers of the 20th century, estimated that he spent 70 percent of his time as CEO developing and selecting other managers, mentoring them, and evaluating their performance. 10 Leading and developing employees are in many ways the core connection among planning and strategizing, organizing, controlling, and creating incentives. Skilled leaders Drive strategic thinking (strategizing) deep within the organization while articulating their own vision for the organization. Have a plan for their organization and push others to develop plans. Proactively structure the organization to implement their chosen strategy. Exercise control with a deft hand, never seeming too overbearing or demanding, while at the same time never taking their eyes off the ball. Put the right kinds of incentives in place. Get the best out of people by persuading them that a task is worthy of their effort. Build a high-quality team of other managers and employees through which they can work to get things done. Without skilled leaders strategy may fail. The organization may become bureaucratic; control may be lost; employees will lack incentives and motivation; and the organization may suffer insufficient human capital. // Types of Managers general managers Managers responsible for the overall performance of an organization or one of its major self-contained subunits or divisions. functional managers Managers responsible for leading a particular function or a subunit within a function. frontline managers Managers who manage employees who are themselves not managers. Managers are found at multiple levels in an organization. They may lead an entire organization as Rose Marie Bravo did at Burberry; or they may head functions, departments, or units. There are three main types of managers: general managers, functional managers, and frontline managers. General managers are responsible for the overall performance of an organization or one of its major self-contained subunits or di visions. Functional managers lead a.

[Audio] 8 PART 1 // Managers and the Environment FIGURE 1.1 CEO A Multidivisional Management Hierarchy Corporate-level general managers Division Division Division Division Business-level general managers Functional managers R&D Sales Marketing Production Team Team T Team T Frontline managers // CORPORATE-LEVEL GENERAL MANAGERS ■ Corporate management at GE. ■ Corporate management at GE. Green in Green The vision of CEO Jeffery Immelt for General Electric calls for the company to invest in green technologies. GE now sells over $2 billion worth of power-generating windmills annually. Courtesy of GE Energy The principal general manager at the corporate level is the chief executive officer (CEO), who leads the entire enterprise. In a multidivisional enterprise the CEO formulates strategies that span businesses—deciding, for e xample, whether to enter new businesses through acquisitions or whether to exit a business area. The CEO decides how the enterprise should be organized into different divisions and signs off on major strategic initiatives proposed by the heads of di visions. The CEO e xercises control o ver divisions, monitoring their performance and deciding what incentives to give divisional heads. Finally, the CEO helps develop the human capital of the enterprise. At General Electric Jeffery Immelt has been the CEO since 2001. Immelt has articulated a grand vision that includes pushing GE into environmentally friendly technologies. 11 Immelt is doing this because he thinks it mak es good business sense. He believes that tighter environmental standards are inevitable, that environmentally friendly technologies are also cost-efficient, and that customers will increasingly demand them. Thus GE is in vesting in more fuel-efficient locomotives and jet engines; coal-based power plants that use technolo gies to strip almost all pollutants out; technolo gies for sequestering carbon dioxide emissions; water purification systems; and po wer-generating windmills. Under Immelt GE is also e xiting some businesses that do not f it his strategic vision, including GE's insurance business, which he sold to Swiss Reinsurance Co. in 2006 for $6.8 billion. 12 The CEO of a cor poration also manages relationships with the people who own the company— its shareholders. The CEO repor ts to the board of.

[Audio] Management \\ CHAPTER 1 9 directors, whose primary function is to make sure the strategy of the company is consistent with the best interests of shareholders. The CEO also normally sits on the board and spends considerable time describing company strategy to shareholders. Members of the top management team help the CEO in all of this. The team normally includes a chief financial officer (CFO), who is responsible for the overall financing of the corporation. It may also include a chief operating officer (COO), who makes sure operations are run efficiently within the company; and in some high-technology enterprises a chief technology officer (CTO) is responsible for developing new technologies and products within the corporation. // BUSINESS-LEVEL GENERAL MANAGERS ■ Business-level managers at GE. ■ Business-level managers at GE. With a multidivisional enterprise such as General Electric, business-le vel general managers head the different divisions. GE has general managers running its power generation business, medical equipment business, lighting business, and so on. These general managers report directly to Jeffery Immelt. Within an organization that is active in just one line of business, such as Burberry or Starbucks, the business and corporate levels are the same. Business-level general managers lead their divisions—motivating, influencing, and directing their subordinates—and are responsible for divisional performance. Business-level general managers translate the overall strategic vision for the corporation into concrete strategies and plans for their units. Thus the head of GE's locomotive business, together with that team, has formulated strategies for making locomotives more environmentally friendly. These include the development of diesel locomotives with lower emissions and hybrid diesel–electric engines. Business-level managers often have considerable latitude to develop and implement strategies that they believe will improve the performance of their divisions, so long as those strategies are consistent with the overall goals and vision for the entire corporation. Businesslevel general managers organize operations within their division, deciding how best to divide tasks into functions and departments and how to coordinate those subunits so that strategy can be successfully implemented. Business-level general managers also control activities within their divisions, monitoring performance against goals, inter vening to take corrective action when necessary, and developing human capital. // FUNCTIONAL MANAGERS ■ Functional managers at GE. ■ Functional managers at GE. Below general managers we find functional managers, who are responsible for specific business functions that constitute a company or one of its divisions. Thus a functional manager's sphere of responsibility is generally confined to one organizational activity (purchasing, marketing, production, or the like), whereas general managers oversee the operation of the entire company or a self-contained division. The head of each function leads that function. Functional managers moti vate, influence, and direct others within their areas. Although the y are not responsib le for the o verall performance of the organization, functional managers nevertheless have a major strategic role: to develop functional strategies and draft plans in their areas that help fulfill the strategic objectives set by business- and corporate-level general managers. In GE's aerospace business, for instance, manufacturing managers develop manufacturing strategies consistent with the corporate objective of producing environmentally friendly products and generating high performance. They might, for example, decide to implement process improvement programs to improve quality and boost emplo.

[Audio] 10 PART 1 // Managers and the Environment The heads of functions are responsible for developing human capital within their organizations. They also organize their functions into subunits such as departments or teams; exercise control over those subunits; set goals; monitor performance; provide feedback; and make adjustments if necessary. Thus the manufacturing function might be further subdivided into departments responsible for specif ic aspects of the manuf acturing process. There might be a procurement department, a production planning depar tment, an inventory management department, and a quality assurance department. Each department will have its own managers, who report to their superiors, the functional heads; those managers will be responsible for leading their units, or ganizing and controlling them as necessar y, strategizing for the tasks under their control, and developing employees within their units. // FRONTLINE MANAGERS ■ Frontline managers at BP. ■ Frontline managers at BP. Furthest down the management hierarchy are frontline managers, who manage employees who are themselves not managers. A frontline sales manager might manage 10 salespeople; a frontline manager in manufacturing might manage a work group of employees who physically assemble a product; and a frontline engineering manager in a softw are company might manage a g roup of developers writing computer code. Most complex organizations have many frontline managers. For example, the oil and energy company BP has some 10,000 frontline managers w ho oversee 80 percent of the organization's 100,000 employees. They work in every part of the company— from solar plants in Spain to drilling rigs in the North Sea and marketing teams in Chicago. Their decisions, in aggregate, have an enormous impact on BP's performance. 13 Most successful managers begin their managerial careers as frontline managers. In this job they encounter the realities of management, which as we will see in the next section often differ from their expectations. Frontline managers are critical to maintaining the perfor mance of an organization. They lead their teams and units. They strategize about the best way to do things in their units and about the best strategies for their functions and the company. They plan how best to perform the tasks of their units. They organize tasks within their teams, monitor the perfor mance of their subordinates, and try to develop the skills of their subordinates. As we saw in the case of Tim Jones at Starbucks, who was a frontline manager responsible for the performance of an individual store, frontline managers can ha ve an impact signif icantly beyond their jobs. In some cases they can influence the destiny of an entire organization. // Becoming a Manager As we have just seen, managers are found at multiple levels within an organization. Although their precise roles and responsibilities v ary depending on their le vels in the or ganization, all managers have to lead and de velop other employees, plan and strate gize for their units, organize their units, and apply controls and incentives. How do people become managers, and what is the job like? // FROM SPECIALIST TO MANAGER ■ Becoming a manager at Microsoft. ■ Becoming a manager at Microsoft. The journey into management typically begins when people are.

[Audio] Management \\ CHAPTER 1 11 Software Man The career of John DeVaan at Microsoft exemplifies how many people become managers. DeVaan started out as a software engineer writing code, but he was promoted to become a software development lead and then a general manager. DeVaan, a 20-year Microsoft veteran, is now a member of the business leadership team at Microsoft and senior vice president for engineering excellence. © Microsoft Corporation. development lead. He managed this successfull y too, and fur ther promotions followed. He directed software development for Office 95 and Office 97 and was ultimately promoted to lead Microsoft's Desktop Applications Business (the unit responsible for Office), growing that to a $7 billion business. DeV aan then became the general manager of Microsoft' s TV division. Today he is senior vice president of engineering excellence at Microsoft and part of the business leadership team. To be sure, DeVaan was valued and promoted for his technical skills; but he would not have advanced had he not also been a g reat manager who excelled at leading and developing employees, planning and strategizing, organizing, and controlling. More generally, whatever people's disciplinary backgrounds and initial functional assignments, if they are successful they may find themselves promoted into managerial roles. Accountants and f inance professionals may manage other accounts and finance professionals; engineers working in production may manage other engineers; scientists in R&D may manage other scientists; and salespeople might find themselves managing part of the sales force. In these new roles technical skills remain important, but now people also have to manage. If they succeed, like John DeVaan they may find themselves promoted to general management positions, running entire divisions of an organization where their ability to lead, plan, develop strategy, organize, control, and motivate through incentives becomes of paramount importance. So the art of management is relevant to almost anyone who joins an organization with ambition and the ability to succeed, whatever his or her disciplinary background. // MASTERING THE JOB Harvard Business School Professor Linda Hill wanted to discover what work life was like for functional specialists who had been newly appointed to management positions, so she followed 19 newly appointed frontline managers through their first year as managers. 14 These managers had all been star perfor mers as functional specialists, and their promotions to management positions were seen as rewards and an opportunity for career advancement. Hill documented the enormous difference between their expectations as they entered the job and the reality the y soon encountered. Initially the new managers believed that their job was to exercise formal authority, making decisions and telling others w hat to do—in effect, to be the "boss." They also thought they would be able to continue doing the technical w ork they had been doing, "only with more power and control." 15 These expectations were shattered by reality. After six months the new managers found themselves struggling with the fast-paced nature of the job. The managers found.

[Audio] 12 PART 1 // Managers and the Environment "people challenges." They had to lear n how to influence subordinates, peers, and their o wn bosses to get things done, and the y had to establish trust and credibility with their subordinates, peers, and bosses before they could influence them. Being known as a star individual contributor is rarely enough; managers earn trust and credibility largely through interpersonal interactions on the job. Over time the managers in Hill's study discovered that they had two sets of responsibilities: agenda setting for their teams and network building within the organization. Most new managers grasped the importance of agenda setting quickly, but the importance of building networks took longer to sink in. Managers must realize that to get things done and to help their own team succeed, they must work closely with a network of peers and superiors, persuading them to buy into the agenda of the manager's team. They have to be network builders, good at managing relationships. Hill concluded that new managers go through a psychological change during their first year on the job. They learn through experience to see themselves not as technical experts or functional specialists, but as leaders and network builders—not as bosses who get things done through command and control, but as people w ho get things done through their ability to influence and persuade others. // Managerial Roles managerial roles Specific behaviors associated with the task of management. Managerial roles are specific behaviors associated with the task of management. Managers adopt these roles to accomplish the basic functions of management just discussed—planning and strategizing, organizing, controlling, and leading and developing employees. One of the earliest and most enduring descriptions of managerial roles comes from Henr y Mintzberg, who (as we have already noted) shadowed managers observing what they did during the day. 18 Mintzberg developed a list of roles that he grouped into three categories: interpersonal roles, informational roles, and decisional roles (see Figure 1.2 ). Mintzberg emphasized that managing is an inte grated activity, so these roles are rarel y distinct. Visiting clients, for instance, usually relates to two or more roles simultaneously. so na er l r rp ol te In es Leader Liaison Figurehead Negotiator Monitor Managerial roles s Resource allocator D le Disseminator ec ro Disturbance is l io handler na n io al at FIGURE 1.2 Spokesperson ro Entrepreneur m r le s fo Management Roles In Source: Based on H. Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973)..

[Audio] Management \\ CHAPTER 1 13 Mintzberg's work has been replicated man y times. Most researchers ha ve found similar sets of roles (although there are some v ariations in labels and cate gories). 19 The roles that Mintzberg identified flesh out the richness of managerial work and tell us how managers behave and what they do when trying to perform the main functions of management. // INTERPERSONAL ROLES The CEO as a Figurehead Dan Cathy, the president and COO of Atlanta-based Chick-filA restaurants, blows his trumpet to signal a new store opening. Cathy takes his figurehead role seriously. He particularly enjoys participating in the grand opening of a new store. 21 Photo courtesy of Chick-fil-A, Inc. Photograph by Joe Siebold. Interpersonal roles are roles that in volve interacting with other people inside and outside the organization. Management jobs are people-intensive: Research suggests that managers spend somewhere between 66 and 80 percent of their time in the company of others. 20 Seldom do managers work alone for long periods without outside communication. As Linda Hill noted, managers get things done through their netw ork of interpersonal relationships. Mintzberg identified three types of interpersonal roles: a figurehead role, a leader role, and a liaison role. Managers at all levels are figureheads . They greet visitors, represent the company at community events, serve as spokespeople, and function as emissaries for the or ganization. For example, when Atlanta-based Chick-fil-A opens a new restaurant, it gives a year's worth of free meal coupons to the f irst 100 customers. This incentive draws big crowds, who camp outside the restaurant before opening day in the hope of being among the first 100 customers. The chain's president, Dan Cathy, joins them, camping outside the night before the opening, chatting with them, and then signaling the grand opening by playing his trumpet. By doing this, Cathy is acting as a figurehead for Chick-fil-A. At lower levels in a compan y, functional and frontline managers perform a variety of f igurehead roles. They welcome new staff, help their teams celebrate perfor mance milestones, give performance awards to employees, accompany senior e xecutives or outside visitors on tours through the work area, and so on. Earlier we noted that leadership is one function of management, and it is perhaps the most pi votal. Ho wever, leadership is more than a function that managers must fulfill. Managers also take on a leadership role to get things done within or ganizations. Managers behave as leaders to influence, motivate, and direct others within or ganizations and to strate gize, plan, organize, control, and develop. A central task of leaders is to give their organizations a sense of direction and pur pose. They do this b y identify and articulating strategic visions for the or ganizations (by strategizing) and then by motivating others to w ork toward this vision. This is exactly what Rose Marie Bravo did at Burberry: She gave the organization a strategic vision, repositioning it as a hip, high-end brand, and she eng aged Burberry's employees in that vision. In their {liaison.

[Audio] 14 PART 1 // Managers and the Environment These may be the managers of other units within the organization or people outside the organization, such as suppliers, buyers, and strategic partners. An important purpose of such liaisons is to build a network of relationships. Managers can use their networks to help coordinate the work of their units with others, to gain access to v aluable information, and more generally to get things done and further their own agendas within the organization. As Linda Hill observed in her research, building a network is one of the most impor tant tasks that new managers face. // INFORMATIONAL ROLES ■ Information roles at Nordstrom. ■ Information roles at Nordstrom. Informational roles are concerned with collecting, processing, and disseminating information. Managers collect information from various sources both inside and outside the or ganization, process that information, and distribute it to others who need it. Mintzberg found that managers spend 40 percent of their time in these tasks. Mintzber g divided the information roles of management into three types: monitor, disseminator, and spokesperson. As monitors managers scan the environment both inside and outside the or ganization. At Microsoft, for example, CEO Steve Ballmer is constantly reviewing competitive, technological, and regulatory trends in the markets in which Microsoft competes. He also monitors the performance of the dif ferent units within Microsoft, assessing, for e xample, how well the Windows, Office, and Xbox businesses are performing against targets. Managers rely on both formal and informal channels to collect the information required for effective monitoring. Formal channels include the organization's own internal accounting information systems and data pro vided by important external agencies. Managers at Microsoft, for example, can access through the company's intranet a vast electronic library of research reports produced by external consulting companies and stock analysts that profile competitive trends and competitors in all the rele vant markets. Informal channels include the manager's own personal network, which can be a great source of qualitative information and useful gossip. By monitoring the e xternal competiti ve and inter nal organizational environment for infor mation, managers tr y to gain kno wledge about how well the organization is performing and whether any changes in strategy or operational processes are required. At Seattle-based retailer Nordstrom, for example, the first thing President Blake Nordstrom does when he gets to his desk every day is review sales figures from all company stores for the previous day. He compares these figures against targets; looks for trends; and if there is variance considers whether the company should take corrective action. In this respect the monitoring role of management is par t of the controlling function. In addition, the information collected from monitoring can help managers think more clearl y about the company's strategy. One thing managers do with this information is disseminate it to direct reports and others inside the organization. In their dissemination role managers regularly inform staff about the company's direction and sometimes about specif ic technical issues. At the supervisory level, the disseminator role often takes the form of one-to-one informal conversations with specific employees about particular matters. In their spokesperson role, managers deliver specific information to individuals and groups located.

[Audio] Management \\ CHAPTER 1 15 // DECISIONAL ROLES ■ Decision roles at Burberry. ■ Decision roles at Burberry. Management guru Peter Drucker once wrote that w hatever managers do, the y do through making decisions. 22 The information collected through monitoring is directed toward discovering problems or opportunities, weighing options, making decisions, and ensuring that those decisions are put into action. Whereas interpersonal roles deal with people and informational roles deal with knowledge, decisional roles deal with action. They translate the people and information into processes with the pur pose of moving the organization toward its strategic goals. Mintzberg identified four decision roles: entrepreneur , disturbance handler, resource allocator, and negotiator. To survive in competitive markets, firms must be entrepreneurial. They must pioneer new products and processes and quickly adopt those pioneered by others. In their role as entrepreneurs , managers must make sure that their organizations innovate and change when necessary, developing or adopting ne w ideas and technolo gies and improving their own products and processes. They must make decisions that are consistent with such entrepreneurial behavior. If they do not, their organizations will be quickly outflanked by more nimble competitors. Rose Marie Bravo is a good example of what happens when a manager successfully adopts the entrepreneur role. She made decisions that encouraged creati vity within Burberry, leading directly to the development of new product offerings that appealed to a wider customer base. Managing is full of paradoxes, and this is partly apparent when we contrast the proactive entrepreneurial role with the reactive disturbance handler role. Disturbance handling includes addressing unanticipated problems as they arise and resolving them expeditiously. In managerial work unanticipated problems arise often. Sales may grow more slowly than anticipated; excess inventory may accumulate; production processes may break down; valuable employees might leave for jobs else where; and so on. Managers must decide w hat to do about these unanticipated problems—often quickly. An important class of management decisions involves resource allocation . Organizations never have enough money, time, facilities, or people to satisfy all their needs. Resources are scarce and can be used in many different ways. A crucial decision responsibility of managers is to decide how best to allocate the scarce resources under their control betw een competing claims in order to meet the organization's goals. As a resource allocator, a manager in charge of product development, for example, may have to assign people, money, and equipment to three different product de velopment teams. A marketing manager ma y apportion money between media advertising and point-of-sale promotions. A production manager ma y have limited funds for new equipment. In general, resource allocation decisions should be guided by the strategy of the organization. Negotiating is continual for managers. 23 They negotiate with suppliers for better delivery, lower prices, and higher-quality inputs. They negotiate with customers over the pricing, delivery, and design of products and services. They negotiate with peers in their own organization over shared resources and cooperative efforts. They negotiate with their superiors for access to scarce resources, including capital, personnel, and facilities. They even negotiate with subordinates in their.

[Audio] 16 PART 1 // Managers and the Environment by watching managers at work. Simply because managers routinely engage in an activity does not mean that they should pursue that activity. As a practical matter, all of the roles described in Mintzberg's model seem important, and most successful practicing managers probably engage in all of them at least occasionall y. However, some roles ma y be more important than others and more deser ving of management time and ef fort. The leader role, for example, is probably far more important than the figurehead role for managerial success. Second, Mintzberg does not mention some impor tant roles of managers. F or example, evidence shows that managers can impro ve strategic thinking and decisions within their organization by taking on the role of devil's advocate , questioning the logic underlying proposed decisions to expose flawed thinking. 24 Similarly, many successful managers adopt a mentoring role with their subordinates. As mentors, managers draw on their own experiences to offer important insights to their subordinates, coaching them on ho w to become better managers. A further limitation of Mintzberg's managerial roles model is that it is context dependent. The managerial roles model tries to describe what all managers do in all situations. The reality, of course, is that w hat managers do depends par tly on the situation. F or instance, one study noted that chief e xecutives in local go vernment agencies do not perfor m the public figurehead role because it is assigned to politicians. Similarl y, some decision-making roles are limited for managers in government agencies because key decisions are made by politicians. Other studies have reported that the size of an organization has an impact on management roles. One study repor ted that managers of small g rowth-oriented businesses experience more brevity and fragmentation in their work than do managers in large companies. The absence of formal structure in these companies also changes the amount of time spent on some roles versus others. Studies also report that the importance of specific managerial roles varies across cultures. 25 A f inal limitation of the model is that it does not re veal much about how to per form these different roles. To be sure, it is interesting to kno w that managers eng age in negotiations all the time, that they have an important monitoring role, and that they allocate resources betw een competing claims. But w hat a practicing manager reall y wants to know is how to improve the performance of these tasks. This is precisely the focus of this book. // Management Competencies: Do You Have What It Takes? competencies A manager's skills, values, and motivational preferences. To fulfill the roles that were just described, managers need to have the "right stuff." They must possess several competencies —skills, values, and motivational preferences—that allow them to perform their jobs effectively and become proficient at planning and strategizing, organizing, controlling, developing, and leading. 26 We might be gifted with some competencies at birth, but most are developed through upbringing, education, and experience. No single set of competencies represents.

[Audio] Management \\ CHAPTER 1 17 how the various parts of the organization affect each other, and conceptualize how those parts can be organized to improve the performance of the overall organization. In other words, conceptual skills are the foundation for strategizing and organizing. A common misunderstanding is that conceptual skills for managers are all about the capacity for structured analysis. Rational, logical thinking is certainly important; but managers also require conceptual skills to think outside the box. 29 Many issues on managers' desk are exceptions with no existing solutions. Thus managers must be able to creatively figure out the real problem (or opportunity), the variety of options available to solve that problem, and the best choice in the context of that novel situation. Managers at all levels require conceptual skills, but they are paramount in top management positions. This makes sense because CEOs and vice presidents ha ve more scope to under stand. They also face more novelty and uncertainty, which require plenty of creative thinking. In general, managers further down in an organization, such as frontline managers, f ace narrowly focused tactical issues as opposed to bigger strate gic issues, and the prob lems they confront tend to be routine rather than exceptional. technical skills Skills that include mastery of specific equipment or following technical procedures. ■ Technical skills: at Wild Oats Markets. ■ Technical skills: at Wild Oats Markets. Technical Skills Technical skills enable managers to perform specific activities involving methods, processes, or techniques. These skills include mastery of specific equipment (such as configuring intranet servers) or correctly following procedures (such as conducting an accounting audit). Frontline managers work directly with employees with technical expertise, so they typically require some of this e xpertise themselves to monitor employee performance, provide meaningful feedback, and help emplo yees solve unusual problems. As an example, call center managers spend up to half of their time monitoring customer calls and giving employees feedback about how to improve their dialogue in the future. These managers would be ineffective in this mentoring role if the y lacked sufficient knowledge about the product and the correct procedures for handling customer calls. The general rule is that technical knowledge and skills are more important for frontline managers than for more senior management positions. The reasoning is that managers in the lo wer part of the hierarchy work directly with technical staff, whereas managers further up the hierarchy work more with other managers. Studies of management careers repor t that managers need to shift away from reliance on technical skills to more reliance on conceptual skills as they advance within an organization. The breakpoint occurs when a manager is responsible for people across functional units, such as managing a plant where employees have various forms of expertise. 30 Although the demand for technical skills diminishes as a manager is promoted up the hierarchy, they remain important for managers at all levels. In fact, higher-level managers usually require technical knowledge and skills across a broader spectr um of functional areas (marketing, production, accounting, and so on) than is necessary for lower-level managers operating within one functional area. For instance, consider Ed Dunlap, the chief f inancial.

[Audio] 18 PART 1 // Managers and the Environment The Technical CEO People in top management positions generally use their conceptual and human skills more than technical skills. However, the latter remain important; some experts even suggest that CEOs need enough technical bench strength to effectively execute strategies developed with their conceptual skills. Apple CEO Steve Jobs is a case in point. Jobs closely inspects many of Apple's products, even suggesting initial designs and features. "The interesting thing about the iPod is that since it started, it had 100 percent of Steve Jobs's time," says Ben Knauss, who worked on Apple's digital music player while a senior manager at Portal Player. "Every day there were comments from Steve saying where it needed to be." Knauss claims the iPod is even a little louder than other players because Steve Jobs has less than ideal hearing.33 © AP Photo/Marcio Jose Sanchez. human skills Skills that managers need, including the abilities to communicate, persuade, manage conflict, motivate, coach, negotiate, and lead . The human skills that managers need include the abilities to communicate, persuade, manage conflict, moti vate, coach, ne gotiate, and lead. Ef fective managers understand the needs of their subordinates and act on this knowledge to improve employee well-being while also achieving organizational objectives. Human skills include working with other units, not just with employees within the manager's own unit. In other words, successful managers use their human skills to reconcile the needs and goals of their own team members with people in other work units, as well as with the needs of customers, suppliers, and others outside the organization. Human skills go be yond interacting effectively with others. They include the manager's self-awareness and self-management. 34 Good managers kno w how to manage themselv es, which lets them manage others more effectively. They are mindful of their own needs, emotions, and impulses and can control or appl y them at appropriate times and places. After all, managers are role models, so they must manage their emotions, words, and deeds accordingly. They must be able to lead by example. Human skills are important whether you are a night manager at a 7-Ele ven store, a development manager at Microsoft, or the chief executive officer at Bank of America. This makes sense when we recall that, by definition, managers accomplish organizational goals through others. You cannot get employees to work together toward common goals if you lack the ability.

[Audio] Management \\ CHAPTER 1 19 to manage yourself and others. A recent study of thousands of managers at IBM, Lucent, PepsiCo, British Airways, and hundreds of other di verse organizations revealed that human skills are more impor tant than technical and conceptual skills for managers across a wide range of levels.35 The analysis showed that people get promoted into management, and promoted from lower to higher le vels of management, b y demonstrating acceptab le levels of technical and cognitive skills. However, these skills are secondar y to human skills w hen it comes to distinguishing between successful and mediocre managers // MANAGERIAL VALUES values Stable, evaluative beliefs that guide our preferences for outcomes or courses of action in a variety of situations. enacted values Values that actually guide behavior. espoused values What people say is important to them. shared values Values held in common by several people. Another important characteristic of successful managers is the values they hold and the strength of those values. 36 Values are stable, evaluative beliefs that guide our preferences for outcomes or courses of action in a variety of situations. 37 They are perceptions about what is good or bad, right or wrong. Values tell us what we "ought" to do. They serve as a moral compass that directs our decisions and actions. People organize the dozens of values that exist into a hierarchy of importance. Values at the top tak e priority over values further down the hierarchy. Some individuals value new challenges more than the y value conformity. Others value generosity more than frugality. We are referring here to the values that actually guide behavior ( enacted values ), not what people say is important to them ( espoused values ). Values have gained a lot of respect in business circles over the past decade. 38 Top executives in most Fortune 500 companies have carefully identified the core values that they believe employees should embrace in the workplace. These shared values —values held by several people—are important because they create a sense of collective purpose, which increases loyalty and satisfaction within the team and organization. Equally important, when employees embrace and follow shared values, their actions are more consistent with team or organizational objectives. This point brings us to the tw o reasons w hy values represent an impor tant characteristic of successful managers. Across all levels of the organization, managers are ultimately responsible for forming, strengthening, and, where necessary, reprioritizing the shared values of their staff. To accomplish this, they must personally hold the values that steer the team and organization in the right direction. "You can't lead other people unless you have a strong set of beliefs," advises former New York mayor Rudy Giuliani. 39 Managers who act by their values are more likely to instill those values in others. Thus the personal values of middle and frontline managers need to echo and amplify the values that top management wants to spread throughout the organization. The other reason why values represent an important characteristic of successful managers is that they stabilize and guide managers through ambiguous circumstances. 40.

[Audio] 20 PART 1 // Managers and the Environment look for and admire in a leader, well over 80 percent included honesty in their lists. Honesty remained the most often identif ied value in three sets of surveys over 15 years. It was also at the top of the list in most cultures and was in the top four traits (out of 225 traits) in others. 43 // MANAGERIAL MOTIVATION Along with the right combination of managerial skills and v alues, truly great managers also possess needs that motivate them to manage others ef fectively. Several specific managerial motivations have been discussed over the years, but the four discussed here stand out. 44 Desire to Compete for Management Jobs Managers are more successful w hen they are motivated to compete for their jobs. Even in collegial firms, managers vie for promotion to positions further up the hierarchy. These tournaments are so pronounced for top-le vel jobs that we often read about executives leaving the company because they lost the fight. For example, Jeffery Immelt, the current CEO of General Electric, was one of three managers groomed by Jack Welch to succeed him as CEO. When Immelt won the competition to become CEO, the other two managers left GE. Effective managers thrive rather than wither in the f ace of this competition. The desire to compete for managerial jobs is so important that one expert warns that if this motivation declines, the United State could face a shortage of high-performance leaders in the future. 45 personalized power orientation Seeking power for personal gain. Desire to Exercise Power Successful managers are moti vated to seek po wer. However, they don't want this po wer for personal gain or for the thrill the y might e xperience from wielding power over others (called personalized power orientation ). Instead good managers have a socialized power orientation . They do not seek po wer for its o wn sake; rather they accumulate power to accomplish organizational objectives. Management theorist Jeffery Pfeffer has argued that organizations are political entities characterized b y different centers of power and influence. To get things done in such a setting, Pfeffer argues that managers need to accumulate power and use that power in a constructive way. 46 Power comes not just from formal authority: It also comes from personal traits, such as ability to influence others through communication; from a network of allies; and from control over crucial information or resources. According to Pfeffer, the wise and constructive use of power is an important characteristic of successful managers. socialized power orientation Accumulating power to achieve social or organizational objectives. Desire to Be Distinct or Different Successful managers need to be—or at least feel comfortable being—different from the people they lead. Why? One reason is that managers need to broker the interests of many stakeholders, so the need to be distinct or different from others allows them to act neutrall y. This is consistent with studies repor ting that effective managers have a moderately low need for affiliation —they have less concer n about being liked.

[Audio] Management \\ CHAPTER 1 21 IN CONCLUSION WHY DOES IT MATTER? If you are on track to become an accountant, a finance professional, an engineer, a salesperson, a creative marketer, you may wonder, "Why am I studying management"? The answer is straightforward: If you are successful as a functional specialist within an organization, it is almost inevitable that you will be offered a management position. If you have ambition, you will see that offer as a route to career advancement. As you transition into the job of management, however, you will discover what many others before you have realized—management is a very different and challenging job. Being a good manager requires more than technical skills. It requires an ability to get work done through others; planning and strategizing; organizing; controlling; and developing and leading a team, unit, function, or entire organization. It requires you to perform multiple roles effectively. You must be a good leader, figurehead, and liaison; be able to collect, analyze, and disseminate information; and function effectively as a negotiator, resource allocator, disturbance handler, and entrepreneur. It requires that you have the right human and conceptual skills, the right values, and the right motivations. It requires that you know how to craft a strategic vision, energize others through communication, build networks, accumulate power, and use that power wisely and constructively. Some people may be born with these skills, but many of us have to learn them. This book is designed to help you do that. It represents the first step on the road toward becoming a successful manager. MANAGEMENT CHALLENGES 1. Every January BusinessWeek produces a list of "The Best and Worst Managers of the Year." Take a look at the most recent list and pick one of the best managers and one of the worst managers: a. What makes them good or bad? b. Can you find an example of a management function they performed well or poorly? c. Can you find examples of management roles they performed well or poorly? d. What are the strongest and weakest skills of these managers? 2. Jack Welch, the CEO of General Electric from 1981 to 2001, was regarded by many as one of the best managers in recent business history. Do some research to identify the characteristics and behaviors that made Welch so admired. Can you see drawbacks to his management style? 3. What skills and competencies must a newly appointed frontline manager develop to perform his or her job effectively? How do these skills and competencies differ from those required to perform a technical specialist job effectively? 4. Why might strategizing be an important part of the job of a frontline manager? Can you find examples of frontline managers who have influenced the strategies of their organizations?.

[Audio] 22 PART 1 // Managers and Environment 22 PART 1 // Managers and the Environment MANAGEMENT PORTFOLIO There is a management portfolio exercise at the end of every chapter in this book. To complete this exercise, you are asked to pick an organization that you can track as you work through the chapters in this book. At the end of each chapter you will be asked to look into an aspect of the organization that matches the content of the chapter. It is probably best if you pick a large business organization that is well known and has publicly traded stock. For such an organization you can typically find lots of information in news reports and magazine articles. Students at most universities can now access much of this material online through their libraries. In addition, a wealth of information can often be extracted from company Web sites, including Securities and Exchange Commission (SEC) documents and annual financial reports. It can also help if you know someone who works at the organization (a family member perhaps) who can be a source of information. FOR THE ORGANIZATION YOU HAVE CHOSEN TO FOLLOW: 1. Describe the firm. How old is it? What industry (or industries) is the firm active in? What products or services does it sell? Who are its principal competitors? Is it active internationally? How many employees does it have? What are its sales and profits? 2. How well has the firm performed recently compared to rivals? Has it outperformed rivals or underperformed them? Why? 3. Who is the CEO? How long has she or he been in this position? What has been the career track of the CEO? 4. Can you find examples of how the CEO has performed the basic tasks of management—strategizing, planning, organizing, controlling, developing, and leading his or her organization? CLOSING CASE GEORGE DAVID George David has been CEO of United Technologies Corporation (UTC) for more than a decade. During that time he has received numerous accolades and awards for his performance as a CEO. Under his leadership UTC, a $343 billion conglomerate whose operating units include manuf acturers of elevators (Otis Ele vator), aerospace products (including Pratt & Whitney jet engines and Sikorsky helicopters), air conditioning systems, and fire and security systems, has seen earnings grow at 10–14 percent annually—impressive numbers for any company but particularly for a manufacturing enterprise. According to David, a key to United Technologies' success has been sustained impro vements in productivity and product quality. The story goes back to the 1980s when David was running the international operations of Otis Elevator. There he encountered a Japanese engineer , Yuzuru Ito, who had been brought in to deter mine why a new elevator product was performing poorly. David was impressed with Ito's methods for identifying quality prob lems and improving performance. When he w as promoted to CEO , David realized that he had to lower the costs and improve the quality of UTC's products. One of the f irst things he did w as persuade Ito to work for him at UTC. Under Da vid, Ito developed a program for improving product quality and productivity,.

[Audio] Management \\ CHAPTER 1 23 Management \\ CHAPTER 1 23 "You have to have the same trusting relationships. You kno w people; the y know you. You can predict them; the y can predict you. All of that kind of begins to work, and it accelerates over the tenure of a CEO . If y ou have people bouncing in and out e very two to three years, that's not good." According to Sandy Weill, former chair man of Citicor p and a UTC board member, David has the right mix of toughness and sensiti vity. "When somebody can't do the job he' ll try to help; but if that person is not going to make it work, that person won't be on the job forever." At the same time Weill says, "He does a lot of things that emplo yees respect him for. I think he is a very good manager. Even though David is demanding, he can also listen—he has a recei ve mode as well as a send mode." 49 CASE DISCUSSION QUESTIONS Values Manager! George David, the CEO of United Technologies, is seen as something of a paradox. A tough no-nonsense manager who holds people accountable for measurable performance, he also stresses the importance of helping employees improve themselves and maintaining the highest ethical, environmental, and safety standards. Courtesy of United Technologies Corporation. At the same time Da vid has always stressed that management is about more than goal setting and holding people accountable. Values are also important. David has insisted that UTC employees adhere to the highest ethical standards, that the compan y produce goods that have minimal en vironmental impact, and that employee safety remain the top consideration in the workplace. When ask ed w hat his g reatest achievement as a manager has been, David refers to UTC's worldwide employee scholarship pro gram. Implemented in 1996 and considered the hallmark of UTC' s commitment to employee development, the pro gram pays the entire cost of an emplo yee's college or graduate school education, allows employees to pursue an y subject at an accredited school, pro vides paid study time, and a wards UTC stock (up to $10,000 w orth in the United States) for completing degrees. Explaining the program, David states, "One of the ob ligations that an employer has is to give employees opportunities to better themselv es. And we feel it's also very good business for us because it generates a better workforce that stays longer." David states that one of his central tasks has been to build a management team that functions smoothly over the long term. "People come to rely upon each other," he says. 1 . What makes George David such a highly regarded manager? 2. How does Da vid get things done through people? 3. What evidence can y ou see of David's planning and strategizing, organizing, controlling, leading, and developing? 4. Which managerial competencies does Da vid seem to.

[Audio] 24 PART 1 // Managers and the Environment 31. D. Buss, "How to Pick Your Number 2," Financial Times (London), December 16, 2004, p. 16. 17. H. Mintzberg, "The Yin and the Yang of Managing," Organizational Dynamics 29 (2001), pp. 306–12; H. Mintzberg, "Managing Exceptionally," Organization Science 12 (2001), pp. 759–71. 32. The author consults with Microsoft on these issues and teaches se veral in-house management development programs. 18. H. Mintzberg, The Nature of Mana gerial Work (New York: Har per & Ro w, 1973). 33. L. Kahney, "Inside Look at Birth of the iPod," Wired News , July 21, 2004. 34. D. Goleman, R. Bo yatzis, and A. McKee, Primal Leaders (Boston: Harvard Business School Press, 2002). 35. L.M. Spencer and S.M. Spencer , Competence at Work: Models f or Superior Performance (New York: John Wiley & Sons, 1993), Chapter 16; D . Goleman, "Emotional Intelligence: Issues in P aradigm Building," in The Emotionally Intelligent Workplace , ed. C. Cherniss and D. Goleman (San Francisco: JosseyBass, 2001), pp. 13–26. 36. E.E. Ghiselli, "Interaction of Traits and Motivational Factors in the Determination of the Success of Managers, " Journal of Applied Psychology 52, no. 6 (1968), pp. 480–83. 19. Mintzberg, The Nature of Managerial Work; H. Mintzberg, "The Manager's Job: Folklore and Fact," Harvard Business Review, July–August 1975, pp. 49– 61; L.B. Kurke and H. Aldrich, "Mintzberg Was Right! A Replication and Extension of The Nature of Managerial Work ," Management Science 29, no. 8 (August 1983), pp. 975–84; C.P. Hales, "What Do Managers Do? A Critical Review of the Evidence," Journal of Management Studies 23, no. 1 (January 1986), pp. 88–115; S. Chareanpunsirikul and R.C. Wood, "Mintzberg, Managers, and Methodology: Some Observations from a Study of Hotel General Managers," Tourism Management 23 (2002); pp. 551–56. Mintzberg recently proposed a revised model of managerial work, but few writers have taken up this model, possibly due to its messiness and gaps. See Mintzberg, "Managing Exceptionally." 20. Hales, "What Do Managers Do? A Critical Review of the Evidence." 37. B.M. Meglino and E.C. Ravlin, "Individual Values in Organizations: Concepts, Controversies, and Research, " Journal of Mana gement 24, no. 3 (1998), pp. 351–89; B.R. Agle and C.B. Caldwell, "Understanding Research on Values in Business," Business and Society 38, no. 3 (September 1999), pp. 326–387; S. Hitlin and J.A. Pilavin, "Values: Reviving a Dormant Concept," Annual Review of Sociology 30 (2004), pp. 359–93. 21. C. Salter, "Customer-Centered Leader Chick-fil-A," Fast Company , October 2004,.

NOTES.

[Audio] 2 THE EXTERNAL AND INTERNAL ENVIRONMENTS After Reading This Chapter You Should Be Able to: 1 Identify the major components of an organization's task environment. 2 Explain how each component in the task environment impacts the organization. 3 Identify the major components of an organization's general environment. 4 Explain how each component in the general environment impacts the organization. 5 Discuss the nature of change in the external environment. 6 Outline the main components of the internal environment of an organization and articulate their implications for managerial actions. LEARNING OBJECTIVES / / / / / / / / / / / / / / Dynamic Changes in the External Environment Incremental versus Discontinuous Change Environmental Uncertainty The Task Environment The Threat of Entry Bargaining Power of Buyers Bargaining Power of Suppliers The Threat of Substitutes The Intensity of Rivalry A Sixth Force: Complementors Synthesis The Internal Environment Internal Organization Employees (Human Capital) Resources In Conclusion: Why Does It Matter? Management Challenges Management Portfolio Closing Case: The Pharmaceutical Industry The General Environment Political and Legal Forces Macroeconomic Forces Demographic Forces Sociocultural Forces Technological Forces International Forces.

[Audio] Can It Stay Airborne? United Airlines is one of the carriers struggling to survive in the beleaguered airline industry. Hamstrung by high labor costs, United has found it hard to compete with lowcost airlines like Jet Blue. In 2004 United started operating under bankruptcy protection for the third time in a decade. © Reuters/Corbis. / / / / / / / / / / / / / / / / / / / / M anagers in the airline industry have their work cut out for them; they face one of the most challenging environments in business. Since 2001 this industry has been characterized by volatile demand conditions and intense competition from low-cost carriers such as Jet Blue, Air Tran, and Southwest Airlines. Consumers have plenty of options to choose from, and they tend to select carriers with the lowest prices, putting downward pressure on pricing. When adjusted for inflation, the price consumers paid to fly one mile in the United States fell from $0.091 in 1980 to $0.042 in 2004. Moreover, the cost structure of airlines is closely linked to volatile fuel prices. Every 5 percent increase in fuel costs reduces airline profitability by 1 percent, and the price of jet fuel increased from $0.71 a gallon on average in 2002 to $1.80 a gallon in late 2005. To complicate matters, many long-established airlines also have to work with powerful labor unions that historically have resisted attempts to reduce employee pay and introduce flexible work processes. This has kept labor costs high. Due to these conditions, between 2001 and 2004 the industry lost a staggering $32.3 billion.1.

[Audio] 28 PART 1 // Managers and the Environment external environment Everything outside a firm that might affect the ability of the enterprise to attain its goals. task environment Actual and potential competitors, suppliers, and buyers (customers or distributors); firms that provide substitute products to those sold in the industry; and firms that provide complements. general environment Political and legal forces, macroeconomic forces, demographic forces, sociocultural forces, technological forces, and international forces. If managers in the airline industr y are going to r un their organizations efficiently, they have to understand the external environment confronting them, anticipate how changes in the environment might affect the profitability of their airlines, and tak e appropriate actions. These actions might include reducing capacity as demand declines, purchasing more fuel-ef ficient jets, avoiding price wars with low-cost airlines if possible, and reducing labor costs. At the same time the ability of managers to tak e such actions is shaped b y the airlines' internal environment. For example, some long-established airlines, such as United, have powerful labor unions that ha ve resisted attempts by managers to cut pay for pilots, flight attendants, and ground staff, or to introduce flexible work practices that boost labor productivity. This constraint has kept costs high and made it more difficult for managers to do what is required to make the airline profitable. The situation confronting managers in the airline industr y, while dramatic, is not unique. The work of all managers is affected by two main environments: the external environment and the internal environment. The external environment constitutes everything outside a firm that might affect the ability of the enterprise to attain its goals. The external environment itself can be subdivided into two main components (see Figure 2.1 ). There is the industry or task environment confronting the or ganization, which typically includes actual and potential competitors, suppliers, and buyers (customers or distributors); f irms that provide substitute products to those sold in the industry; and firms that provide complements. Then there is the more encompassing general environment within which the task environment is embedded. The general en vironment includes political and le gal forces, macroeconomic forces, demographic forces, sociocultural forces, technological forces, and international forces. The general environment impacts the firm through its influence on the task environment. When managers analyze the external environment they typically look for opportunities and threats. Opportunities arise from circumstances or developments in the external environment that, if exploited through strategies, enable managers to better attain the goals of their enter prise. For example, according to the most recent forecast from Boeing, airline travel is predicted to grow at 4.8 percent per y ear compounded over the next 20 years, which is considerably faster than the growth rate over the last 20 years. 2 Rising demand for airline travel can be seen en vi ro al n er m en en G t l vi r n ga o e n k s m a e le T T n In {t d.

[Audio] The External and Internal Environments \\ CHAPTER 2 29 internal environment Everything inside a firm that affects managers' ability to pursue actions or strategies. SWOT Strengths, weaknesses, opportunities, and threats. as an opportunity, the exploitation of which might better enable airlines to increase revenues and profits. Threats arise from circumstances or developments in the external environment that may adversely affect the ability of managers to attain the goals of their enter prise. Thus the entry of budget carriers into the airline industry is a threat to the position of established carriers such as United and American Airlines, which have a higher cost structure than firms like South West Airlines and Jet Blue. Rising fuel costs are another significant threat. The internal environment constitutes everything inside the firm that might affect the ability of managers to pursue cer tain actions or strate gies. The internal environment includes the organization of the firm (its structure, culture, controls, and incentives), the employees of the firm (its human capital), and the resources of the firm (its tangible and intangible assets). As we will see, each of these elements can be a strength or a w eakness. A strength is an acti vity the organization is good at; it is a potential source of competitive advantage. A weakness is an activity that the organization does not excel at; it may be a source of competitive disadvantage. When managers analyze the internal environment of their own firm, they often do so by identifying its strengths and weaknesses. This inward focus complements the identification of opportunities and threats in the external environment. Taken together, an inventory of internal strengths and weaknesses and external opportunities and threats can help managers de velop strategy. This methodology, which is often refer red to by the acronym of SWOT analysis ( s trengths, w eaknesses, o pportunities, and t hreats), is a standard part of strategic planning and decision making; we will discuss it in more detail in Chapter 5. In this chapter we take a close look at the components of the external and internal environments and discuss how they shape managerial actions and give rise to opportunities, threats, strengths, and weaknesses. We start with the external environment, looking f irst at the task environment and then at the general en vironment. We discuss the task en vironment f irst because it is closest to the firm and thus of most immediate concern for managers. Moreover, because the general environment affects the firm through its impact on the task environment, we cannot discuss the impor tance of the general en vironment until we understand the task environment. We close the chapter with a discussion of the internal environment. // The Task Environment One of the most popular frameworks for analyzing the task or industry environment is a model developed by Michael Porter known as the five forces model (see Figure 2.2 ). 3 According to Porter, the ability of a f irm to make a profit is influenced by five competitive.

[Audio] 30 PART 1 // Managers and the Environment threat of entry by potential competitors, the power of buyers, the power of suppliers, the threat of substitute products, and the intensity of ri valry between firms already in the industr y. In Porter's framework, the stronger each of these forces, the more dif ficult it will be for incumbent firms in an industry to make profits. A strong force thus constitutes a threat, w hereas a weak force often gi ves managers the oppor tunity to increase sales, raise prices, and mak e higher prof its. Porter also notes that b y getting their f irm to pursue the right strate gies, managers can alter the strength of the various forces. Thus managers might pursue strategies that reduce the bargaining power of buyers, thereby decreasing the threat posed by this force. In this section we look at each force in turn. // THE THREAT OF ENTRY barriers to entry Factors that make it costly for potential competitors to enter an industry and compete with firms already in the industry. barriers to entry Factors that make it costly for potential competitors to enter an industry and compete with firms already in the industry. economies of scale Cost reductions associated with large output. economies of scale Cost reductions associated with large output. brand loyalty The preference of consumers for the products of established companies. brand loyalty The preference of consumers for the products of established companies. ■ Entry barriers in the express delivery market. ■ Entry barriers in the express delivery market. Not Much Bang for the Buck DHL has spent over $2 billion trying to gain share from FedEx and UPS in the U.S. market for small package delivery, but it has little to show for it. The entry barriers into the U.S. market are very high. © AP Photo/Roberto Pfeil. In general, if an industr y is profitable new enterprises will enter, output will expand, prices will fall, and industry profits will decline. Managers often strive to reduce the threat of entry by pursuing strategies that raise barriers to entry. 4 Barriers to entry are factors that make it costly for potential competitors to enter an industr y and compete with f irms already in the industry. High entry barriers protect incumbent firms from new competition even when they are making good prof its; they reduce the threat associated with a potential increase in the number of competitors in a market. Economies of scale , which are the cost reductions associated with a large output, represent an impor tant barrier to entr y. When incumbent f irms enjoy signif icant economies of scale, they may have a cost adv antage over new entrants that lack sales v olume. Another important barrier to entry is the brand loyalty enjoyed by incumbents. Brand loyalty is the preference of consumers for the products of established companies. Other things being equal, the higher the brand loyalty enjoyed by incumbents, the harder it is to enter an industr y and the fewer competitors there will be. In the market for cola, for.

[Audio] The External and Internal Environments \\ CHAPTER 2 31 $638 million in the United States in 2004 and another $380 million in 2005. What did DHL get for its mone y? Not much. In 2005 DHL 's share of the U .S. market stood at 7 percent, barely more than the share enjo yed by Airborne Express before DHL acquired the outf it. It would seem that the costs of entering the mark et are indeed high. DHL is f inding it difficult and expensive to overcome the brand loyalty enjoyed by UPS and FedEx and to achieve the volumes necessary for economies of scale. 5 // BARGAINING POWER OF BUYERS bargaining power of buyers Ability of buyers to bargain down prices charged by firms in the industry or to raise the costs of firms in the industry by demanding better product quality and service. bargaining power of buyers Ability of buyers to bargain down prices charged by firms in the industry or to raise the costs of firms in the industry by demanding better product quality and service. ■ Buying power at Wal-Mart. ■ Buying power at Wal-Mart. ■ Switching costs and Microsoft. ■ Switching costs and Microsoft. switching costs The time, energy, and money required to switch from the products offered by one enterprise to those offered by another. switching costs The time, energy, and money required to switch from the products offered by one enterprise to those offered by another. The next competitive force is the bargaining power of buyers. An industry's buyers may be the individual customers who ultimately consume its products (its end users) or the intermediaries that distribute the industr y's products to end users, such as retailers and w holesalers. For example, although deter gents made b y Procter & Gamb le and Unile ver are ultimatel y purchased by individual consumers, the principal buyers of detergents from P&G and Unilever are supermarket chains and discount stores, which then resell the products to consumers. The bargaining power of buyers is the ability of buy ers to bargain down prices charged by firms in the industr y or to raise the f irms' costs by demanding better product quality and service. By lowering prices and demanding better service, powerful buyers can squeeze profits out of an industr y. Thus powerful buyers should be vie wed as a threat. Alternatively, when buyers are in a w eak bargaining position, f irms in an industr y may have the opportunity to raise prices and increase the level of industry profits. Buyers are most powerful when one or more of the following conditions holds: (1) they are few in number and purchase large quantities, (2) they can choose between equivalent products from many different firms, and (3) they can switch easily between the offerings of different firms (their switching costs are low). Consider the power that Wal-Mart has over manufacturers of detergents. Wal-Mart is the largest retailer in the world, accounting for some 8 percent of U.S. retail sales, so it buys in huge quantities. Its v olume purchases gi ve it considerab le leverage over producers like Procter & Gamble and Unilever:.

[Audio] 32 PART 1 // Managers and the Environment firms have been able to charge higher prices than would otherwise have been the case. On the other hand, anything that lowers switching costs should be vie wed as a threat. In 2003 just such a threat emerged in the wireless telephone industr y when the government allowed customers to take their phone numbers with them when they switched from one carrier to another. Prior to this legislation, the inconvenience associated with changing telephone numbers when customers changed carriers constituted a powerful switching cost. // BARGAINING POWER OF SUPPLIERS bargaining power of suppliers Ability of suppliers to bargain up prices charged by firms in the industry or to raise the costs of firms in the industry by supplying lower-quality products and service. bargaining power of suppliers Ability of suppliers to bargain up prices charged by firms in the industry or to raise the costs of firms in the industry by supplying lower-quality products and service. ■ Intel's bargaining power. ■ Intel's bargaining power. Suppliers provide inputs to the firm. These inputs may be raw materials, partly finished products, or services. Suppliers include the employees of a firm, who supply their skills and time in return for pay. Whether suppliers represent an oppor tunity or threat to a f irm depends on the extent of their control over inputs the firm needs to function. 8 In the extreme case, where there is only a single supplier of an impor tant input, that supplier has substantial bar gaining power over the f irm and can use this po wer to raise input prices and increase costs. Such a situation constitutes a threat. Managers tr y to reduce this threat b y f inding alter native suppliers. A good example of this situation has occur red in the personal computer industr y, where chip maker Intel has long been the dominant supplier of microprocessors to personal computer makers. This has given Intel substantial bargaining power over PC manufacturers and enabled Intel to charge higher prices. Managers at PC firms have responded by encouraging Intel's sole competitor, AMD, to increase its suppl y of microprocessors. This effort has met with limited success. Intel's brand loyalty among consumers is high, and their preference for computers with Intel microprocessors has limited the ability of PC f irms to develop this alternative supply source. Suppliers represent an oppor tunity when incumbent f irms have bargaining power over them and can reduce the prices the y pay for inputs. As noted earlier , Wal-Mart has such enormous bargaining power that it has been able to drive down the prices it pays suppliers for goods and service, which increases the profitability of Wal-Mart. The bargaining power of an enterprise over its suppliers is greater if one or more of the following conditions holds: (1) the firm purchases in large quantities, (2) it can choose between multiple suppliers, (3) the costs of switching between suppliers is low, and (4) the firm is not dependent on any single supplier for important inputs. // THE THREAT OF SUBSTITUTES substitute products The goods or services of.

[Audio] The External and Internal Environments \\ CHAPTER 2 33 // THE INTENSITY OF RIVALRY Last in Porter's model, but by no means least, is the intensity of ri valry between firms in an industry. Intense rivalry between incumbents, such as we currently see in the airline industry, is a threat that reduces the profits of established enterprises. Conversely, anything that reduces the intensity of ri valry between incumbent f irms, allowing them to raise prices and mak e greater profits, can be seen as an oppor tunity. A number of different factors determine the intensity of rivalry in an industry: the nature of the product, demand and suppl y conditions, the cost structure of firms, and the competitive structure of the industry. commodity product A product that is difficult to differentiate from those produced by rivals. The Nature of the Product Some products can be thought of as commodities or as being commoditylike. A commodity product is one that is difficult to differentiate from those produced by rivals. Pure commodities include raw materials, such as oil, natural gas, and coal, along with many agricultural products—like wheat, corn, beef, and pork. In such cases ri val firms' products are close substitutes for each other , if not e xactly the same thing. Thus it might be difficult for a consumer to distinguish between the gasoline sold by different service stations, the w heat produced b y different farmers, and the gold from dif ferent mines. An inability to dif ferentiate a product from those produced b y competitors can result in competition defaulting to the lowest common denominator: price! An inability to compete on attributes other than price tends to be a threat, because this can lead to a do wnward price spiral and lower profits, particularly if demand conditions are weak. Managers try to deal with this threat b y finding ways to differentiate their products. This has been a surprisingly successful strategy in some industries where the products might seem difficult to dif ferentiate. Take the w ater industr y: In man y w ays w ater is the ultimate commodity, yet clever marketing coupled with a little bit of natural carbonation and a slice of French cunning has enabled Perrier to successfully differentiate its carbonated bottled water from that produced by other enterprises. Some products that are not pure commodities, such as airline tra vel, are commoditylike because many firms provide products that are almost identical and thus are close substitutes for each other. Most airline passengers view the service of competing airlines as similar and thus choose betw een them on the basis of price. Managers in the airline industr y have pursued all sor ts of tactics to tr y to differentiate their product of ferings—from frequent fl yer pro grams to in-flight entertainment systems—but with only limited success. Those offerings are often quickly imitated b y competitors, in w hich case competition again defaults to price. Not a Commodity! By clever marketing, Perrier has been able to differentiate its product offering—naturally carbonated sparkling water—to create a powerful brand.