Principles of Management Quiz 3&4 Study Guide

Programmed Decision Making

•involves routine, virtually automatic decision making that follows established rules or guidelines.

•Decisions have been made so many times in the past that managers have developed rules or guidelines to be applied when certain situations inevitably occur.

Example: Manufacturing supervisor hires new workers when existing workers’ overtime increases by more than 10 percent.

Non programmed decision making

•Nonroutine decision making that occurs in response to unusual, unpredictable opportunities and threats.

•No rules because the situation is unexpected or uncertain and managers lack the information, they would need to develop rules to respond to it.

Example: A manager deciding to enter a new market after receiving unexpected data about consumer demand.

Skunkworks

•A group of intrapreneurs who are deliberately separated from the normal operation of an organization to encourage them to devote all their attention to developing new products.

Example: A small team of engineers secretly working in a back room to develop a new phone prototype, separate from the company’s main product development process.

Satisficing

• Searching for and choosing a satisfactory response to problems and opportunities rather than trying to make the best decision.

Example: Choosing the first restaurant that looks “good enough” when you're hungry, instead of checking every restaurant to find the absolute best one.

Optimizing

• The process of making the best or most effective decision, often involving the analysis of multiple solutions to find the most beneficial one.

Example: Comparing prices, reviews, and delivery times on five different websites before buying a laptop to get the best overall deal.

Escalating commitment

•A source of cognitive bias resulting from the tendency to commit additional resources to a project even if evidence shows that the project is failing.

Example: Continuing to put money into repairing an old car that keeps breaking down, even though it would be cheaper to buy a new one.

Illusion of control

•The tendency to overestimate one’s own ability to control activities and events.

•Top managers.

Example: Blowing on the dice before rolling them in a board game, thinking it will help get a better number.

Michael Porter’s strategies:

low cost, differentiation, niche market strategies that enable firms to gain competitive advantage.

Low cost strategy

A business approach focused on minimizing expenses to offer products or services at the lowest price in the market, aiming to attract price-sensitive customers. Driving the organization’s total costs below the total costs of rivals.

Example: Walmart's bulk purchasing and efficient supply chain management to keep prices low.

Many market segments served.

Differentiation

Distinguishing an organization’s products from the products of competitors on dimensions such as product design, quality, or after-sales service

Example: Apple's innovative technology and design aesthetic in its products.

Many market segments served.

Niche

A focused strategy that targets a specific, well-defined market segment, offering unique products or services that meet the needs of that niche audience.

Example: A small bakery that only sells gluten-free, vegan desserts to health-conscious customers in one neighborhood.

This approach allows for deeper customer loyalty and reduced competition.

SWOT Analysis

• Strengths

• Weaknesses

• Opportunities

• Threats

What are Porter’s 5 forces?

• Level of rivalry in an industry.

• Potential for new entrants.

• Power of large suppliers.

• Power of large customers.

• Threat of substitute products.

These forces determine the competitive intensity and attractiveness of a market.

Horizontal integration

• A strategy where a company acquires or merges with other companies at the same level of the supply chain, aiming to increase market share and reduce competition.

Example: A merger between two competing airlines to dominate the market.

This model can lead to concentrated market power hence why it is illegal in many countries due to antitrust laws.

Vertical Integration

•Expanding a company’s operations either backward into an industry that produces inputs for its products or forward into an industry that uses, distributes, or sells its products.

Example: A coffee shop buys the coffee bean farm that supplies its beans.

Diversification

•Expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services.

Examples: •PepsiCo’s diversification into the snack food business with the purchase of Frito Lay.

•Cisco’s diversification into consumer electronics with its purchase of Linksys.

What adds value to the product chain?

Innovation (new product concepts), raw materials, component parts, or professional skills that enhance efficiency and effectiveness in production or delivery.

Definition of Quality

• the degree to which a product or service meets customer requirements and expectations, encompassing attributes such as reliability, durability, and performance.

Example: A phone that works smoothly, lasts several years, and rarely needs repairs.

Total Quality Management

•Focuses on improving the quality of an organization’s products and stresses that all of an organization’s value chain activities should be directed toward this goal.

Example: A hotel trains all its staff — from front desk to housekeeping — to focus on guest satisfaction, regularly asks for customer feedback, and uses that feedback to improve service.

Benefits of self-managed teams

Teams empower employees to take responsibility for their work, promote collaboration, enhance problem-solving capabilities, and can lead to increased job satisfaction, productivity and efficiency. (30% or higher efficiency and cost savings from eliminating supervisors)

Incremental change

The gradual improvement and refinement of existing products that occur over time as existing technologies are perfected.

Examples:

•Google’s Chrome: thousands of small improvements.

Quantum change

The development of new, often radically different, kinds of goods and services because of fundamental shifts in technology brought about by pioneering discoveries.

•Internet and the World Wide Web.

•Fast-casual food.

True or False: the birth rate is declining.

True.

Job enrichment

•Increasing the degree of responsibility a worker has over a job.

Example: A cashier is given responsibility not only for ringing up sales, but also for managing inventory and training new employees.

Types of organizations by product structure

•Managers place each distinct product line or business in its own self-contained division.

•Divisional managers have the responsibility for devising an appropriate business-level strategy to allow the division to compete effectively in its industry or market.

Advantages:

•Allows functional managers to specialize in one product area.

•Allows division managers to become experts in their area.

•Removes need for direct supervision of division by corporate managers.

•Allows divisional management to improve the use of resources.

•Puts divisional managers close to customers for a quick and appropriate response.

Example: A large electronics company has separate divisions for TVs, smartphones, and laptops — each with its own marketing, sales, and production teams.

Types of organizations by geographical structure

Divisions are broken down by geographic location.

Example: A clothing retailer has separate regional offices for North America, Europe, and Asia, each handling its own sales, marketing, and operations.

Types of organizations by market structure

•Groups divisions according to the particular kinds of customers they serve.

•Allows managers to be responsive to the needs of their customers and act flexibly in making decisions in response to customers’ changing needs.

Example: A bank has separate departments for individual customers, small businesses, and large corporations — each with its own team and services.

Flat Hierarchies

-Have fewer levels and wide spans of control.

Benefits:

✅ 1. Faster Decision-Making

• With fewer layers of management, information flows quickly, and decisions can be made more rapidly.

✅ 2. Better Communication

• Employees often have direct access to upper management, which can improve transparency, trust, and collaboration.

✅ 3. Greater Employee Autonomy

• Workers typically have more responsibility and freedom, which can boost motivation, creativity, and ownership.

✅ 4. Lower Operational Costs

• Fewer management layers mean fewer salaries and less bureaucracy, making flat structures more cost-efficient.

✅ 5. More Agile and Flexible

• Flat organizations can adapt quickly to change because they’re less bogged down by hierarchy and red tape.

Tall hierarchies

-Have many levels of authority and narrow spans of control.

Benefits:

✅ 1. Clear Lines of Authority

• Everyone knows who they report to and who is responsible for what.

• This reduces confusion in decision-making and accountability.

✅ 2. Closer Supervision

• Managers have fewer direct reports, allowing for more hands-on guidance, especially useful for new or inexperienced employees.

✅ 3. Opportunities for Promotion

• More layers in the hierarchy mean more management roles, which can motivate employees by offering career progression.

✅ 4. Strong Control and Discipline

• With more layers of oversight, rules and procedures are more likely to be followed.

• Helpful in environments where consistency and risk management are important (e.g., manufacturing, finance)

Span of control

•The number of subordinates who report directly to a manager.

Example: A manager supervises 5 employees on a sales team.

Behaviors vs Output

Behaviors refer to the actions and conduct of employees, while output is the measurable results or outcomes of those behaviors in an organization.

Management by objectives

•A goal-setting process in which a manager and each of his or her employees negotiate specific goals and objectives for the subordinate to achieve and then periodically evaluate the extent to which the subordinate is achieving those goals.

Example: A manager and an employee agree that the employee will increase customer satisfaction scores by 10% over the next 3 months, and they meet regularly to track progress.

This approach encourages employee participation and aligns organizational goals with individual objectives.

Organizational Culture

the kind of values and norms that develop in an organization—values and norms that specify appropriate and inappropriate behaviors and so determine the way its members behave.

Example: A company where teamwork, innovation, and accountability are prioritized, influencing how employees interact and work together.

This approach helps shape the organizational identity and influences how decisions are made.

Financial performance measures

are metrics used to assess a company's financial health, typically including revenue, profit margins, and return on investment. These measures help managers evaluate the effectiveness of organizational strategies and operations.

Example: Analyzing quarterly earnings reports to determine profitability and assess operational efficiency.

Definition of motivation

•The psychological forces that determine the direction of a person’s behavior in an organization, a person’s level of effort, and a person’s level of persistence.

•Explains why people behave the way they do in organizations.

Expectancy Theory (Expectancy, Instrumentality, Valence)

•The theory that motivation will be high when workers believe that high levels of effort lead to high performance and that high performance leads to the attainment of desired outcomes.

Example: An employee works extra hard on a project because they believe their effort will lead to a good performance review, which will result in a raise.

Expectancy

• A person’s perception about the extent to which effort (an input) results in a certain level of performance.

Example: A student believes that studying hard for an exam will result in a good grade.

Instrumentality

•A person’s perception about the extent to which performance at a certain level results in the attainment of outcomes.

Example: An employee believes that if they meet their sales target, they will receive a bonus.

Valence

•How desirable each of the available outcomes from the job is to a person.

Example: An employee really wants a promotion because it means higher pay and more status — so the promotion has high valence for them.

Aldefer’s ERG Theory

•The theory that three universal needs—for existence, relatedness, and growth— constitute a hierarchy of needs and motivate behavior.

•Proposed that needs at more than one level can be motivational at the same time.

Example: An employee wants a promotion (Growth need), but when it's delayed, they start spending more time socializing with coworkers (Relatedness need) and asking for better job security (Existence need).

Herzberg’s motivators and hygiene factors (also called satisfiers and dissatisfiers)

•This need theory distinguishes between motivator needs and hygiene needs and proposes that motivator needs must be met for motivation and job satisfaction to be high.

•Interesting work, autonomy, responsibility, the ability to grow and develop on the job, sense of accomplishment and achievement help to satisfy motivator needs.

Example: An employee is satisfied with their job because they received a promotion (motivator), but they are still frustrated by the outdated office equipment (hygiene factor).

Procedural justice

•A person’s perception of the fairness of the procedures that are used to determine how to distribute outcomes in an organization.

Example: An employee is given a clear and transparent process for requesting time off, where they know exactly how to submit a request, the criteria for approval, and when they will receive a response.

Distributive justice

•A person’s perception of the fairness of the distribution of outcomes in an organization.

Example: Two employees receive different bonuses based on their performance, with higher performers receiving larger bonuses.

Definition of leadership

•The process by which a person exerts influence over others and inspires, motivates and directs their activities to achieve group or organizational goals.

Example: A manager who inspires their team to work towards a common goal by fostering a positive environment and encouraging creativity.

Legitimate Power:

•The authority that a manager has by virtue of his or her position in an organization’s hierarchy.

Example: A manager has the authority to assign tasks to employees because they hold a managerial position in the company.

Reward Power:

•The ability of a manager to give or withhold tangible and intangible rewards.

Example: A supervisor offers an employee a bonus for meeting a sales target, using the promise of the bonus as motivation for better performance.

Coercive Power:

• the ability of a manager to punish others.

Example: verbal reprimand, pay cuts, and dismissal.

Expert Power

•Power that is based on special knowledge, skills, and expertise that the leader possesses.

Tends to be used in a guiding or coaching manner.

Example: A senior engineer is frequently asked for advice by colleagues because they have deep knowledge and experience in the field of software development.

Referent Power:

•Power that comes from employees’ and coworkers’ respect, admiration, and loyalty.

•Possessed by managers who are likable and whom employees wish to use as a role model.

Example: A popular team leader is admired for their positive attitude and strong relationships with others, so team members willingly follow their guidance and want to work with them.

Contingency Model of Leadership

•Whether or not a manager is an effective leader is the result of the interplay between what the manager is like, what he does, and the situation in which leadership takes place.

-Fiedler’s Model: Effective leadership is contingent on both the characteristics of the leader and the situation.

Leader style is a manager’s characteristic approach to leadership.

Two basic leadership styles:

•Relationship-oriented.

•Task-oriented.

Example: A manager adjusts their leadership style depending on the situation: they take a more directive approach when the team is new and needs clear guidance but switch to a more supportive and delegative style when the team becomes more experienced and confident.

This model emphasizes the need for leaders to adapt their style based on situational variables and team dynamics in order to achieve effectiveness.

Task Oriented Managers:

•Leaders whose primary concern is to ensure that employees perform at a high level, so the job gets done.

Example: A manager who focuses primarily on setting clear goals, assigning tasks, and ensuring that projects are completed on time and according to specifications, with less emphasis on team social interactions or emotional support.

Relationship Oriented Managers:

•Leaders concerned with developing good relations with their employees and being liked by them.

Example: A manager who regularly checks in with their team members, offers emotional support, and fosters a friendly, collaborative work environment to ensure that everyone feels valued and connected.