chapter 7 GMS 200

Managers must have

• technological competency

  • ability to understand new technologies and to use them to their best advantage

• information competency

  • ability to locate, gather, organize, and display information for decision-making and problem solving

• analytical competency

  • ability to evaluate and analyze information to make actual decisions and solve real problems

What is useful information?

• data

  • raw facts and observations

• information

  • data made useful and meaningful for decision making

  • information drives management decision making

CHARACTERISTICS OF USEFUL INFORMATION

• timely

• high quality

• complete

• relevant

• understandable

management information system

• using the latest technologies to collect, organize, and distribute data

data mining and analytics

• data mining is the process of analyzing data to produce useful information for decision makers

• big data exists in huge quantities and is difficult to process without sophisticated mathematical and analytical techniques

• management analytics involves the systematic evaluation and analysis of data to make informed decisions

business intelligence

• taps information systems to extract and report data in organized ways that are useful to decision makers

executive dashboards

• visually update and display key performance metrics and information on a real-time basis

information exchanges with the external environment

• gather intelligence information

• provide public information

information exchanges within the organization

• facilitate decision making

• facilitate problem solving

problem solving

• the process of identifying a discrepancy between actual and desired performance and taking action to resolve it

SYSTEMATIC VS INTUITIVE THINKING

• • approaches problems in a rational, step-by-step, and analytical fashion

• • approaches problems in a flexible and spontaneous fashion

MULTIDIMENSIONAL THINKING

• applies both intuitive and systematic thinking

• effective multidimensional thinking requires skill at strategic opportunism

STRUCTURED PROBLEMS

• ones that are familiar, straightforward, and clear with respect to information needs

PROGRAMMED DECISIONS

• apply solutions that are readily available from past experiences to solve structured problems

UNSTRUCTURED PROBLEMS

• ones that are full of ambiguities and information deficiencies

NON-PROGRAMMED DECISIONS

• apply a specific solution to meet the demands of a unique problem

  • commonly faced by higher-level management

RULES FOR CRISIS MANAGEMENT

• figure out what is going on

• remember that speed matters

• remember that slow counts too

• respect the danger of the unfamiliar

• value the skeptic

• be ready to “fight fire with fire”

CERTAIN ENVIRONMENT

• Offers complete information on possible action alternatives and their consequences

RISK ENVIRONMENT

• lacks complete information but offers probabilities of the likely outcomes for possible action

UNCERTAIN ENVIRONMENT

• lacks so much information that it is difficult to assign probabilities to the likely outcomes of alternatives

STEP 1 IN THE DECISION MAKING PROCESS: IDENTIFY AND DEFINE THE PROBLEM

• focuses on information gathering, information processing, and deliberation

• decision objectives should be established

• common mistakes in defining problems:

  • defining the problem too broadly or too narrowly

• focusing on symptoms instead of causes

• choosing the wrong problem to deal with

STEP 2 IN THE DECISION MAKING PROCESS: GENERATE AND EVALUATE ALTERNATIVE COURSES OF ACTION

• potential solutions are formulated and more information is gathered, data are analyzed, the advantages and disadvantages of alternative solutions are identified

• approaches for evaluating alternatives:

  • stakeholder analysis

  • cost-benefit

• criteria for evaluating alternatives:

  • benefits

  • costs

  • timeliness

  • acceptability

  • ethical soundness

• common mistakes:

  • abandoning the search for alternatives too quickly

STEP 3 IN THE DECISION MAKING PROCESS: DECIDE ON PREFERRED COURSE OF ACTION

• two different approaches

  • behavioural model leads to satisfying decisions

  • classical model leads to optimizing decisions

STEP 4 IN THE DECISION MAKING PROCESS: IMPLEMENT THE DECISION

• involves taking action to make sure the solution decided upon becomes a reality

• managers need to have willingness and ability to implement action plans

• lack-of-participation error should be avoided

STEP 5 IN THE DECISION MAKING PROCESS: EVALUATE RESULTS

• involves comparing actual and desired results

• positive and negative consequences of chosen course of action should be examined

• if actual results fall short of desired results, the manager returns to earlier steps in the decision-making process

spotlight question: utility

• does the decision satisfy all constituents or stakeholders?

spotlight question: rights

does the decision respect the rights and duties of everyone?

spotlight question: justice

is the decision consistent with the canons of justice?

spotlight question: caring

is the decision consistent with my responsibilities to care?

HEURISTICS

are strategies for simplifying decision making

AVAILABILITY BIAS

bases a decision on recent information or events

REPRESENTATIVENESS BIAS

bases a decision on similarity to other situations

ANCHORING AND ADJUSTMENT BIAS

bases a decision on incremental adjustment from a prior decision point

FRAMING ERROR

trying to solve a problem in the context perceived, positive or negative

CONFIRMATION ERROR

Focusing on information that confirms a decision already made

ESCALATING COMMITMENT

Continuing a course of action even though it is not working

BIG-C CREATIVITY

occurs when extraordinary things are done by exceptional people

LITTLE-C CREATIVITY

occurs when average people come up with unique ways to deal with daily events and situations

SOURCES OF COMPETITIVE ADVANTAGE: cost and quality

where strategy drives an emphasis on operating efficiency and product or service quality

SOURCES OF COMPETITIVE ADVANTAGE: knowledge and speed

where strategy drives an emphasis on creating a market

SOURCES OF COMPETITIVE ADVANTAGE: barriers to entry

where strategy drives an emphasis on creating a market stronghold that is protected from entry to others

SOURCES OF COMPETITIVE ADVANTAGE: financial resources

where strategy drives an emphasis on investments or loss absorption that competitors can’t match

SOURCES OF COMPETITIVE ADVANTAGE: technology

where strategy drives an emphasis on using technology to gain operating efficiencies, market exposure, or customer loyalty

Strategy

a comprehensive plan guiding resource allocation to achieve long-term organization goals

strategic intent

focuses and applies organizational energies on a unifying and compelling goal

corporate strategy

sets long term direction for the total enterprise

business strategy

identifies how a division or strategic business unit will compete in its product or service domain

functional strategy

guides activities within one specific area of operation

strategic management

the process of formulating and implementing strategies

strategic analysis

the process of analyzing the organization, the environment, and the organization’s competitive position and current strategies

strategy formulation

the process of crafting strategies to guide the allocation resources

strategy implementation

the process of putting strategies into actions

mission statement

expresses the organization’s reason for existence in society

stakeholders

individuals and groups directly affected by the organization and its strategic accomplishments

strategic constituencies analysis

assesses interests of stakeholders and how well the organization is responding to them

core values

broad beliefs about what is or not appropriate behaviour

organizational culture

the predominant value system for the organization as a whole

operating objectives

specific results that organizations try to accomplish

PROFITABILITY

operating with a net profit

FINANCIAL HEALTH

acquiring capital; earning positive results

COST EFFICIENCY

using resources well to operate at low cost

CUSTOMER SERVICE

meeting customer needs and maintaining loyalty

PRODUCT QUALITY

producing high quality goods or services

MARKET SHARE

gaining specific share or possible outcomes

HUMAN TALENT

recruiting and maintaining a high-quality workforce

INNOVATION

developing new products and processes

SOCIAL RESPONSIBILITY

making a positive contribution to society

SWOT analysis

• strengths

• weaknesses

• opportunities

• threats

MONOPOLY

only one player in an industry; have no rivals to compete with for resources or customers (ideal condition for firm to operate in)

OLIGOPOLY

facing just a few competitors

HYPER COMPETITION

facing several direct competitors (competitive advantage tends to be short-lived)

Porter’s five forces model

• Framework for competitive industry analysis

1. Industry competition: intensity of rivalry among firms in the industry and the ways they behave competitively toward one another

2. New entrants: threat of new competitors entering the market, based on the presence or absence of barriers to entry

3. Substitute products or services: based on the ability of consumers to find what they want from other sellers

4. Bargaining power of suppliers: ability of resource suppliers to influence the price that one has to pay for their products or services

5. Bargaining power of customers: ability of customers to influence the price that they will pay for their firm’s products or services

growth strategy

involves expansion of the organization’s current operations

• acquisition, merger, and global expansion

stability strategy

maintains current operations without substantial changes

renewal strategy

tries to solve problems and overcome weaknesses that are hurting performance

• liquidation: business operations cease and assets are sold to pay creditors

combination strategy

pursues growth, stability, and/or retrenchment in some combination

growth through concentration

is growth within the same business area

Growth through diversification

is growth by acquisition of or investment in new and different business areas

Growth through vertical integration

is growth by acquiring suppliers or distributors

reconstructing

changes the mix or reduces the scale of operations

turnaround

strategy tries to fix specific performance problems

downsizing

strategy decreases the size of operations

divestiture

sells off parts of the organization to refocus attention on core business areas

globalization strategy

adopts standardized products and advertising for use worldwide

multi-domestic strategy

customizes products and advertising to best fit local needs

transnational strategy

seeks efficiencies of global operations with attention to local markets

strategic alliance

organizations join together in partnership to pursue an area of mutual interest

co-opetition

strategy of working with rivals on projects of mutual benefit

E-business strategy

strategically uses the internet to gain competitive advantage

B2B business strategy

uses IT and web portals to link organizations vertically in supply chains

B2C business strategy

uses IT and web portals to link businesses with customers

stars

are high market share businesses in high growth markets

Produce large profits through substantial penetration of expanding markets

Growth and further resource investment is recommended

question marks

low market share businesses in high growth markets

Do not produce much profit but compete rapidly growing markets, but compete in rapidly growing markets

Preferred strategy is growth, but the risk exists that further investment will not result in improved market share

Only most promising question marks should be targeted for growth; others are candidates for retrenchment by reconstructing or divestiture

cash cow

high market share businesses in low growth markets

Produce large profits and a strong cash flow

Preferred strategy is stability or modest growth

“cows” should be “milked” to generate cash that can be used to support investment in stars/question marks

dogs

low market share businesses in low growth markets

Do not produce much profit, and show little potential for the future improvement

Preferred strategy is retrenchment by divestiture

Differentiation strategy:

offers products that are different from the competition

• Try to develop goods and services that are clearly different from the competition or are perceived to be different through successful advertising

• Objective is to build a strong base of customers who are loyal to the organization’s products and lose interest in those competitors

• Organization must have strengths in R&D, marketing, and advertising

Cost leadership strategy:

seeks to operate with low costs so that products can be sold at low prices

• Low cost structure allows to still make profits even when selling at low prices that competitors can’t match

• Successes with cost leadership at low price strategy requires a continuing search for innovation that increase operating efficiencies throughout purchasing, production, distribution, and other organizational systems

Focus strategy:

concentrates on serving a unique market segment better than anyone else

Focused differentiation:

strategy offers a unique product to a special market segment

Focused cost leadership:

seeks the lowest costs of operations within a special market segment