2. Management, Leadership and Decision Making

What are traditional levels of management?

• Senior management

• Middle management

• Junior management

What are senior management?

• Examples: Board of Directors.

• Role: Set corporate objectives and strategic direction.

• The board is responsible to shareholders and is led by the CEO.

What is middle management?

• Accountable to senior management.

• Role: Run business functions and departments.

What is junior management?

• Supervisory role, accountable to middle management.

• Role: Monitor and control day-to-day tasks, and manage teams of workers.

What are main roles of managers?

• Set objectives: e.g., Sales targets by product and territory.

• Analyse performance: e.g., Sales performance compared with last year and budget.

• Review performance: e.g., Individual appraisals for each salesperson.

• Make decisions: e.g., Where and how to spend the promotional budget.

• Lead others: Motivate, encourage, and inspire the sales team.

What are types of leadership styles according to Tannenbaum Schmidt Continuum?

• Autocratic: Leaders tell their teams exactly what to do.

• Democratic/Participative: Leaders involve employees in decision-making.

• Continuum: A range of approaches between autocratic and democratic.

When was the tannenbaum and schmidt continuum developed?

1958 by ‘Contingency theorists’ Robert Tannenbaum and Warren Schmidt.

What is the Tannenbaum Schmidt Continuum?

• It is a ‘continuum’ of leadership behaviour.

• Continuum represents a range of actions related to:

  • Degree of authority used by the manager.

  • Area of freedom available to non-managers.

What are the four stages of leadership?

1. Tells: The leader identifies problems, makes decisions, and announces them to subordinates, expecting implementation.

2. Sells: The leader still makes decisions but attempts to overcome resistance through discussion and persuasion.

3. Consults: The leader identifies the problem and presents it to the group, listening to advice and suggestions before making a decision.

4. Joins: The leader defines the problem and passes on the solving and decision-making to the group (of which the manager is part).

• "Tell" style is more autocratic.

What are decisions for businesses?

What price to charge? Who and how many to employ? How to respond to a new competitor? How much inventory to hold? Whether to expand the business?

What are approaches to decision-making in business?

• Intuition (Hunch):

  • Based on intuition, gut feeling, and experience.

• Scientific:

  • Based on data and analysis.

What is scientific decision making?

Involves making decisions based on evidence and adopting a systematic approach, rather than intuition, hunch, or ‘gut reaction’.

What examples of scientific decision making?

• Decision trees.

• Investment appraisal.

• Dynamic pricing.

What are benefits of scientific decision making?

• Data-driven = evidence-based.

• Removes some (but not all) subjective judgment from decisions.

What are drawbacks of scientific decision making?

• May still rely on assumptions (judgment).

• Doesn’t guarantee the correct decision.

• May ignore the crucial aspect of business experience.

What are risks?

The possibility that events will not occur as planned/hoped - i.e., go wrong.

What is uncertainty?

The unpredictable and uncontrollable events that affect business decisions and actions.

What are examples of risk in business?

• Cyber-security and Fraud

• Environmental damage.

• Supply Chain Shocks.

• Changing Regulation and Legislation.

• Economic Change

What are examples of uncertainty in business?

• How will the market respond to changes in the marketing mix? (e.g. Price increase).

• Will a new business achieve its break-even output?

• Will suppliers prove reliable if used for the first time?

• How many employees will leave this year?

What is a decision tree?

A mathematical model used to help managers make decisions when faced with choices.

How does a decision tree work?

A mathematical model used to help managers make decisions when faced with choices.

What is the approach to decision trees?

1. Identify the options.

2. Add possible outcomes.

3. Add Associated Costs, Outcome Probabilities, and Financial Results.

4. Calculate the Expected Values and Net Gains.

What are final thoughts on decision trees?

• Like investment appraisal, decision trees are a popular tool for management decision-making.

• Output from decision trees is very sensitive to the probabilities assigned.

• It is important not to solely rely on them to justify a decision, but to aid decision-making.

What are influences on decision making?

The approach taken to making business decisions is influenced by a variety of factors

What are business objectives/budgets?

• Set the scene for how decisions are made.

• A culture of strong budgetary control should encourage more data & evidence-driven decisions.

What is an organisational structure?

• Who has the authority to make decisions?

• Are employees empowered to make decisions to deliver more responsive customer service?

• Is decision-making centralised or decentralised?

What is the attitude to risk?

• Close link to business culture.

• Is risk-taking encouraged?

• What are the penalties for poor decisions?

What is availability and reliability of data?

• Is the data available to support a scientific approach?

• Are management comfortable with using scientific methods? Do they have the right skills and experience?

What is the external environment?

• How fast is the external environment changing?

• Do the uncertainties in the external environment make scientific approaches less reliable?

What is a stakeholder?

A stakeholder is any individual or organisation that has a vested interest in the activities and decision-making of a business.

What is a stakeholder compared to a shareholder?

• Have an interest in the business - but do not own it.

• May work for (employees) or otherwise transact with the business.

What is a shareholder compared to a stakeholder?

• Own a business.

• May also work in the business.

• Benefit directly from increases in the value of the business.

What are internal stakeholders?

They are closely connected to the organisation and their needs are likely to have a strong influence on an organisation.

What are examples of stakeholders?

• Owners.

• Shareholders.

• Employees.

• Managers.

• Trade union representatives.

• Members of work councils.

What are external stakeholders?

• They have diverse needs and varying levels of influence on an organisation’s ability to meet its objectives.

• Even though they are external to the organisation they still have a contractual relationship.

• They are sometimes known as ‘connected stakeholders’

What are examples of external stakeholders?

• Customers.

• Competitors.

• Suppliers.

• Central and local government agencies and regulators.

• Pressure groups.

• Investors.

• Bankers.

• Creditors.

• Professional and Trade associations.

• The local community.

• The media.

What are primary stakeholders?

• Those who are directly involved and affected, either positively or negatively, by an organisation’s actions.

• These people will have the power to influence and shape decisions.

What are secondary stakeholders?

• They are the ‘intermediaries’ so the persons or organisations who are indirectly affected by an organisation’s actions.

• These people will have the power to influence and shape decisions.

What are key stakeholders?

They can either be primary or secondary stakeholders but will have significant influence upon, or within, an organisation.

What are examples of business stakeholders?

• Owners

• Society

• Creditors

• Suppliers

• Government

• Customers

• Managers

• Employees

What are shareholders/owners mainly interested in?

• Return on investment and profits + dividends

• Success and growth of the business

• Proper running of the business

What are managers and employees mainly interested in?

• Rewards, including basic pay and other financial incentives

• Job security and working conditions

• Promotion opportunities + job satisfaction & status- motivation, roles and responsibilities

What are customers mainly interested in?

• Value for money

• Product quality & Customer service

Which stakeholders have different interests in a business?

• Suppliers

• Banks and other financial providers

• Government

• Society

What interests do suppliers have in businesses?

• Continued, profitable trade with business

• Financial stability- can the business pay its bills?

What interests do banks and other financial providers have in businesses?

• Can the business repay amounts loaned or invested?

• Profitability and cash flows of the business

• Growth in profits and value of the business

What interests do government have in businesses?

• The correct collection and payment of taxes (e.g. VAT)

• Helping the business to grow- creating jobs

• Compliance with business legislation

What interests do society have in businesses?

• The success of the business- particularly creating and retaining jobs

• Compliance with local laws and regulations (e.g. noise, pollution)

What are potential conflicts between stakeholders?

• Cutting jobs or closing business units will be supported by shareholders and banks but opposed by Employees and the local community

• Adding extra shifts to increase capacity will be supported by Management, Customers and suppliers but opposed by the local community

• Introducing greater automation will be supported by Customers and shareholders but opposed by Employees

• Increasing selling prices will be supported by the shareholders and management but opposed by customers

What is stakeholder power?

Some stakeholders have more power over a business than others