Management 3031 Study Notes: Chapters 1–4
Chapter 1: The Exceptional Manager
1.1 Management: What It Is, What Its Benefits Are
Definition: Management is the rigorous pursuit of organizational goals in an efficient and effective manner, integrating the work of people through the four principal functions: planning, organizing, leading, and controlling the organization's resources.
Efficiently: This means using resources—people, money, raw materials, etc.—wisely and cost-effectively, aiming to achieve the most output with the least input. It's about 'doing things right.'
Effectively: This means achieving the stated organizational goals or desired results successfully. It's about 'doing the right things' to achieve success.
Benefits of Good Management: Leads to a competitive advantage, fosters innovation, enhances employee satisfaction and retention, supports organizational stability, and ultimately helps achieve the organization's mission.
1.2 What Managers Do: The Four Principal Functions
Planning: Setting goals and identifying how to achieve them. This involves determining objectives, developing strategies, and outlining tasks.
Organizing: Arranging tasks, people, and other resources to accomplish the work. This includes designing structure, allocating resources, and coordinating efforts.
Leading: Motivating, directing, and otherwise influencing people to work hard to achieve the organization's goals. This requires communication, inspiration, and conflict resolution.
Controlling: Monitoring performance, comparing it with goals, and taking corrective action as needed. This ensures that objectives are met and includes establishing standards, measuring performance, and taking action.
1.3 Pyramid Power: Levels and Areas of Management
Levels of Management:
Top Managers: Make long-term decisions about the overall direction of the organization and establish the objectives, policies, and strategies for it. Examples include CEO, COO, President, Senior VP.
Middle Managers: Implement the policies and plans of top managers and supervise and coordinate the activities of first-line managers below them. Examples include plant manager, district manager, regional manager.
First-Line Managers: Make short-term operating decisions, directing the daily tasks of non-managerial personnel. Examples include department head, foreman, supervisor.
Team Leaders: A manager who is responsible for facilitating team activities toward achieving key results. They provide guidance, instruction, and direction to the team.
Types of Organizations:
For-Profit Organizations: Formed to make money by offering products or services. Their primary objective is generating revenue and profit for their owners.
Nonprofit Organizations: Offer services to clients without the aim of making a profit. Examples include hospitals, universities, charities, and social welfare organizations. Their success is often measured by the effectiveness of their service delivery.
Mutual-Benefit Organizations: Voluntary collectives whose purpose is to advance the interests of their members. Examples include unions, trade associations, and clubs. They focus on common goals and shared benefits for members.
Areas of Management: Managers can also be categorized by the functional area they oversee, such as Marketing, Financial, Operations, Human Resources, and Administrative (general) management.
1.4 Roles Managers Must Play Successfully
Henry Mintzberg's Managerial Roles: Managers play 10 different roles, which fall into three categories:
Interpersonal Roles: Managers interact with people inside and outside their work units. Roles include figurehead, leader, and liaison.
Informational Roles: Managers receive and communicate information. Roles include monitor, disseminator, and spokesperson.
Decisional Roles: Managers use information to make decisions to solve problems or take opportunities. Roles include entrepreneur, disturbance handler, resource allocator, and negotiator.
Porter & Nohria’s Observations from Diary Studies: Their research highlights that managerial work is characterized by:
Constant Working: Managers work long hours, with intense periods of activity.
Time Spent Communicating: A significant portion of a manager's time is dedicated to verbal communication (meetings, calls).
Fragmented and Varied Tasks: Managerial work often involves shifting rapidly from one task to another, with many brief, unrelated activities.
Proactive Time Management: Successful managers must be intentional and proactive in managing their time due to the demanding and unpredictable nature of their work.
1.5 The Skills
Robert Katz's Three Principal Skills Managers Need:
Technical Skills: The job-specific knowledge needed to perform well in a specialized field. More important for first-line managers, less for top managers.
Conceptual Skills: The ability to think analytically, to visualize an organization as a whole, and understand how the parts work together. Crucial for top managers, as it helps with strategic planning and problem-solving.
Human Skills (or Soft Skills): The ability to work well in cooperation with other people to get things done, especially a manager's ability to motivate, to inspire trust, to communicate with, and to relate to employees. Essential for managers at all levels.
1.6 Seven Challenges to Being an Exceptional Manager
1. Managing for competitive advantage: Staying ahead of rivals by being responsive to customers, innovating, achieving quality, and being efficient.
2. Managing for technological advances: Utilizing current and new technology (e.g., AI, automation) to improve efficiency, communication, and decision-making, while also managing its associated risks.
3. Managing for individual differences: Dealing with the diverse range of employees, customers, and cultures, understanding different beliefs, values, and work ethics.
4. Managing for globalization: Navigating the interconnected global economy, cultural differences, and international business operations.
5. Managing for ethical standards: Ensuring that decisions, actions, and the organizational culture adhere to high moral and ethical principles, especially critical in an era of increased scrutiny.
6. Managing for sustainability: Focusing on economic development that meets the needs of the present without compromising the ability of future generations to meet their own needs, including environmental and social impact.
7. Managing for happiness and meaningfulness: Fostering an organizational environment where employees find purpose, satisfaction, and well-being in their work, leading to higher engagement and productivity.
1.7 Building Your Career Readiness
Career Readiness: Possessing a set of competencies—knowledge, skills, and attributes—that employers value and require for success in the workplace.
27 Competencies: Identified by research, these include critical thinking, problem-solving, teamwork, communication, leadership, and technical application (see textbook Table 1.3 for a comprehensive list).
Six Actions to Develop Career Readiness:
1. Build self-awareness: Understand your strengths, weaknesses, values, and goals. This forms the foundation for personal and professional growth.
2. Learn from educational activities: Actively engage in coursework, workshops, and seminars to acquire new knowledge and skills.
3. Model others with desired competencies: Observe and learn from individuals who demonstrate the competencies you wish to develop, seeking mentorship or examples.
4. Learn from on-the-job experiences: Actively seek out challenging assignments, internships, and entry-level positions to gain practical experience and apply learned skills.
5. Participate in student groups and organizations: Engage in extracurricular activities to develop teamwork, leadership, communication, and organizational skills in a less formal setting.
6. Experiment with new behaviors and strategies: Proactively try out different approaches to tasks and interactions, reflecting on what works and what doesn't to refine your competencies.
1.8 Career Corner: Managing Your Career Readiness
Four-Step Process for Developing Competencies:
1. Identify the competencies you want to develop: Clearly define which skills or attributes are most important for your career goals.
2. Determine relevant concepts to support development: Research and understand the theoretical knowledge or best practices related to those competencies.
3. Try small steps to build those competencies: Implement specific, achievable actions to practice and strengthen the desired competencies gradually.
4. Evaluate the results and adjust: Reflect on your progress, assess the effectiveness of your efforts, and modify your approach as needed to ensure continuous improvement.
Habit Formation Strategy for Skill Development:
1. Identify a specific goal: Clearly define the competency or behavior you want to make a habit.
2. Choose a small, simple change: Break down the goal into an easily manageable and repeatable action that requires minimal effort.
3. Attach the change to an existing habit: Integrate the new small action into a routine you already consistently perform (e.g., 'after I finish my morning coffee, I will spend 10 minutes reviewing industry news').
Chapter 2: Management Theory
2.1 Evolving Viewpoints: How We Got to Today’s Management Outlook
Major Viewpoints of Management: Historically, management thought has evolved through several key perspectives, each building upon or reacting to its predecessors:
Classical Viewpoint: Emphasizes efficiency and rationality in work processes.
Behavioral Viewpoint: Focuses on understanding human behavior and motivation in the workplace.
Quantitative Viewpoint: Applies mathematical and statistical approaches to management problems.
Systems Viewpoint: Considers the organization as a set of interrelated parts operating together to achieve a common purpose.
Contingency Viewpoint: Proposes that the most effective management approach depends on the specific situation.
Contemporary Viewpoints: Modern approaches that integrate various perspectives, focusing on learning organizations, high-performance work practices, and sustainable development.
Six Practical Reasons to Study Management Theory:
1. Insight into past and present circumstances: Understanding historical management theories helps explain current organizational practices and behaviors.
2. A guide to action: Theories provide frameworks and principles that managers can use to make informed decisions and solve problems.
3. Sources of new ideas: Studying different perspectives can spark innovative approaches to management and organizational design.
4. Clues to the meaning of managerial decisions: Understanding underlying theories helps interpret why certain decisions are made and their potential implications.
5. Clues to the meaning of outside events: Management theories can help explain the behavior of competing organizations, market trends, and economic shifts.
6. A path to achieve positive results: By applying relevant theories and principles, managers can enhance organizational performance, productivity, and employee satisfaction.
2.2 Classical Viewpoint Focus: Managing work more efficiently
This viewpoint, prominent in the early 20th century, sought to improve productivity by focusing on organizational structure and work processes. It has two main branches:
Branch 1: Scientific Management
Frederick W. Taylor: Known as the "Father of Scientific Management," he developed four principles to improve productivity through scientific study of work methods.
1. Scientifically study each task to determine the best way to perform it.
2. Carefully select workers with the right abilities for the task.
3. Give workers the training and incentives to do the task properly.
4. Use scientific principles to plan the work methods, easing the way for workers to do their jobs.
Frank & Lillian Gilbreth: Husband-and-wife team who refined motion studies, breaking down tasks into basic physical motions called "therbligs" to eliminate unnecessary movements and improve efficiency.
Branch 2: Administrative Management
Charles Clinton Spaulding: An early pioneer in administrative management, he advocated for eight necessities for successful management, including cooperation, division of labor, adequate capital, and accountability, recognizing the importance of human resources.
Henri Fayol: A French mining engineer who identified the four functions of management (planning, organizing, leading, controlling) and proposed 14 general principles of management, such as unity of command, division of work, and authority, emphasizing that management is a universal process.
Max Weber: A German sociologist who promoted bureaucracy as a rational, efficient, ideal organization based on logical rules, hierarchy of authority, formal rules and procedures, impersonality, and career based on merit.
2.3 Behavioral Viewpoint Focus: Understanding human behavior and motivation
This viewpoint emphasized the importance of understanding human behavior and motivating employees toward achievement. It evolved through three phases:
Three Phases:
1. Early Behaviorism
Mary Parker Follett: A social worker and political philosopher who believed organizations should be more democratic, with managers and employees working cooperatively. She advocated "power with" (employees and managers working together) rather than "power over" (managers dictating to employees).
Elton Mayo: Led the Hawthorne Studies (1924-1932), which initially investigated worker productivity based on lighting but found that employees improved performance simply because they received attention and felt valued (the Hawthorne Effect).
2. Human Relations Movement
Proposed that better human relations could increase worker productivity. This led to increased focus on workers' psychological needs.
Abraham Maslow: Developed the Hierarchy of Human Needs, proposing that people are motivated by five levels of needs: physiological, safety, social (love/belonging), esteem, and self-actualization. Lower-level needs must be satisfied before higher-level needs become motivators.
Douglas McGregor: Developed Theory X and Theory Y to describe two contrasting managerial views of employee behavior. Theory X managers assume employees are inherently lazy, dislike work, and need to be controlled. Theory Y managers assume employees are self-directed, creative, and seek responsibility when given suitable conditions.
3. Behavioral Science Approach
Relies on scientific research for developing theories about human behavior that can be used to provide practical tools for managers. Draws from psychology, sociology, anthropology, and economics to study organizational behavior.
2.4 Quantitative Viewpoints Focus: Applying quantitative techniques to management
This approach applies mathematical techniques, such as statistics and computer simulations, to management problems for decision-making and problem-solving. It includes two main approaches:
Two Approaches:
1. Operations Management: Focuses on managing the production and delivery of an organization's products or services more effectively. It covers areas like inventory management, quality control, production scheduling, and supply chain management.
2. Evidence-Based Management (EBM): Translates principles from research into organizational practice, emphasizing that management decisions should be guided by the best available evidence (from studies, data, and logic) rather than just intuition or personal experience.
2.5 Systems Viewpoint Focus: Viewing the organization as a system of interrelated parts
The systems viewpoint regards the organization as a system, a set of interrelated parts operating in concert to achieve a common purpose. It emphasizes understanding the interdependencies between different parts of the organization and its environment.
Key Components of a System:
Inputs: The resources (people, money, information, equipment, raw materials) that go into a system.
Transformation Processes: The organization's managerial and technological abilities used to convert inputs into outputs.
Outputs: The products, services, profits, losses, employee satisfaction or discontent, etc., produced by the organization.
Feedback: Information about the reaction of the environment to the outputs, which affects the inputs.
Closed System: Has little interaction with its environment; it receives very little feedback from the outside. Most management theories prior to the 1960s were closed-system thinking.
Open System: Continually interacts with its environment, receiving feedback from it. Nearly all organizations are considered open systems, constantly adapting to changes in their external environment to survive and thrive.
2.6 Contingency Viewpoint Focus: Management style should depend on the situation
This viewpoint emphasizes that a manager's approach should vary according to the individual and environmental situation. There is no "one best way" to manage. Instead, the most effective management practices are those that fit the unique circumstances of each situation.
Contingency Factors: Managers must consider factors such as the organization's size, technology, environmental uncertainty, and individual differences when making decisions and choosing management techniques.
2.7 Contemporary Approaches Key Concepts:
Learning Organization: An organization that actively creates, acquires, and transfers knowledge throughout the organization and is able to modify its behavior to reflect new knowledge and insights. This involves continuous learning, information sharing, and adapting to change.
High-Performance Work Practices (HPWP): A set of human resource practices that aim to improve an organization's ability to attract, develop, motivate, and retain highly skilled employees. Examples include comprehensive employee training, employee involvement and empowerment, performance-based compensation, and extensive screening for new hires.
Shared Value & Sustainable Development: These concepts integrate social and environmental considerations into business strategy.
Shared Value: Focuses on creating economic value in a way that also creates value for society by addressing its needs and challenges (e.g., investing in local communities, improving supply chain sustainability).
Sustainable Development: Economic development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It requires balancing profitability with social equity and environmental protection (the triple bottom line).
2.8 Career Corner: Managing Your Career Readiness
To enhance career readiness, particularly in understanding an organization's context, consider these activities:
Eight Activities to Understand a Business:
1. Learn the company’s mission and vision: Understand its core purpose and long-term aspirations.
2. Identify core values and culture: Grasp the guiding principles and shared beliefs that shape employee behavior and decision-making.
3. Learn company history: Knowing its past helps understand its current trajectory and strategic choices.
4. Identify key organizational players: Recognize top executives, influential leaders, and important departments.
5. Know your audience: Understand the target customers or stakeholders for any communication or initiative.
6. Learn about products, services, and clients: Understand what the company offers and who its customers are.
7. Study current events and accomplishments: Stay updated on recent achievements, challenges, and industry trends affecting the company.
8. Talk to current or former employees: Gain informal insights into the company's operations, culture, and challenges directly from those with experience.
Chapter 3: The Manager’s Changing Work Environment & Ethical Responsibilities
3.1 The Goals of Business: More Than Making Money
Triple Bottom Line: A modern standard of success that measures an organization's social, environmental, and financial performance. It extends traditional financial reporting to include ecological and social accounts.
People: Focuses on social responsibility, including fair labor practices, community involvement, diversity, and employee well-being (e.g., fair wages, safe working conditions, healthcare benefits).
Planet: Emphasizes environmental sustainability, including reducing carbon footprint, waste management, conservation of resources, and promoting eco-friendly operations.
Profit: Represents the organization's financial performance, ensuring sustained economic value, revenue growth, and profitability for shareholders.
Valued by Younger Workers: Younger generations (Millennials and Gen Z) increasingly prioritize organizations that demonstrate a commitment to social and environmental responsibility, often seeking meaningful work and sustainable practices over purely material success. This influences recruiting and retention strategies.
3.2 The Community of Stakeholders Inside the Organization
Stakeholders: All individuals or groups who have an interest in, or are affected by, the organization’s actions. These can be internal or external.
Internal Environment includes:
Employees: The people who work for the organization and are responsible for performing the tasks that achieve its goals. They expect fair pay, safe conditions, and meaningful work.
Owners: All those who can claim the organization as their legal property. This includes sole proprietors, partners, and shareholders in a corporation. They seek profitability and return on investment.
Board of Directors: A group of individuals elected by shareholders to oversee the general management of the organization, representing the owners' interests. They ensure the company is run ethically and legally, and guide strategic direction.
3.3 The Community of Stakeholders Outside the Organization
External Environment: Consists of two broad categories of stakeholders that affect the organization's ability to achieve its goals:
Task Environment (10 Groups): Consists of 10 groups that present an organization with daily tasks to handle and influence its immediate operations:
Customers: Those who pay to use an organization's goods or services. They expect value, quality, and good service.
Competitors: People or organizations that compete for customers or resources. Managers must differentiate their offerings to attract and retain customers.
Suppliers: People or organizations that provide supplies (raw materials, services, equipment, labor, energy) to other organizations. Reliability and cost of suppliers are critical.
Distributors: Organizations that help another organization sell its goods and services to customers. They act as intermediaries.
Strategic Allies: The relationship of two organizations that join forces to achieve advantages neither can perform as well alone (e.g., joint ventures, partnerships).
Employee Organizations: Unions and associations that represent employees' interests regarding wages, work conditions, and grievance procedures.
Local Communities: Residents, companies, and organizations in the area where a business operates. They are affected by, and can influence, job creation, taxation, and environmental impact.
Financial Institutions: Banks, savings and loans, and credit unions that provide capital and loans to organizations.
Government Regulators: Regulatory agencies (e.g., EPA, OSHA, FDA) that establish ground rules under which organizations may operate.
Special-Interest Groups: Groups whose members try to influence specific issues (e.g., environmentalists, consumer advocates, activist organizations).
General Environment (6 Forces): Consists of six major forces that cannot be controlled by the organization but affect its task environment and overall operations:
Economic Forces: General economic conditions and trends (e.g., unemployment, inflation, interest rates, economic growth) that may affect an organization's performance.
Technological Forces: New developments in methods for transforming resources into goods or services (e.g., automation, artificial intelligence, biotechnology) that create new opportunities and threats.
Sociocultural Forces: Influences and trends originating from changes in a country's or society's customs, traditions, values, and norms (e.g., health consciousness, changing work-life balance expectations).
Demographic Forces: Influences on an organization arising from changes in the characteristics of a population (e.g., age, gender, ethnic origin, income, family size) that affect labor supply and consumer markets.
Political-Legal Forces: Changes in the way politics shape laws and laws shape the opportunities for and threats to an organization (e.g., new legislation, international trade agreements, political stability).
International Forces: Changes in the economic, political, legal, and technological global system that can affect organizations worldwide (e.g., global recessions, geopolitical conflicts, international trade policies).
3.4 The Ethical Responsibilities Required of You as a Manager
Ethics: The standards of right and wrong that influence individual and organizational behavior. They provide a moral framework for decision-making.
Ethical Behavior: Conduct that is accepted as morally right or good in accordance with widely accepted principles and societal standards.
Ethical Dilemmas: Situations in which a person has to decide whether to pursue a course of action that may benefit oneself or the organization but that is unethical or even illegal.
Four Approaches to Resolving Ethical Dilemmas:
Utilitarian Approach: Guided by what will result in the greatest good for the greatest number of people. Decisions are made solely on the basis of their outcomes, consequences, or results.
Individual Approach: Guided by what will result in the individual's best long-term interests, which ultimately are in everyone's self-interest. It presumes that people will act ethically in the short run to avoid harm in the long run.
Moral-Rights Approach: Guided by respect for the fundamental rights of human beings. Examples include the right to life, liberty, privacy, freedom of speech, due process, and safety.
Justice Approach: Guided by respect for impartial standards of fairness and equity. This approach suggests that ethical decisions are based on equity, fairness, and impartiality in distributing benefits and burdens.
Key Legislation: Sarbanes–Oxley Act of 2002 (SOX): Enacted in response to major corporate accounting scandals (Enron, WorldCom), this law established requirements for proper financial record keeping and reporting for public companies. It mandates strict corporate governance, greater executive accountability, and whistleblower protection to combat corporate fraud and unethical practices.
Kohlberg’s Levels of Moral Development: Psychologist Lawrence Kohlberg proposed that people develop moral reasoning through three levels:
Level 1: Preconventional: Individuals follow rules primarily to avoid punishment or to achieve rewards. Behavior is self-interested.
Level 2: Conventional: Individuals adhere to the expectations of others (e.g., family, peers, society) to maintain social order and fulfill duties. Most managers operate at this level.
Level 3: Postconventional: Individuals are guided by their own internal values and moral principles, even if these conflict with societal laws or group norms. They seek universal principles like justice and human rights.
Five Ways to Promote Ethics in Organizations:
Create a strong ethical climate: Establish a culture that values and reinforces ethical behavior through clear expectations, policies, and leadership commitment.
Screen prospective employees: Use integrity tests and background checks during hiring to identify individuals with strong ethical predispositions.
Institute ethics codes and training: Develop formal, written documents outlining ethical standards and conduct, combined with regular training programs to educate employees on ethical decision-making.
Reward ethical behavior: Establish recognition and reward systems for employees who demonstrate exemplary ethical conduct, while punishing unethical actions consistently.
Use a multi-faceted approach: Integrate ethical considerations into all aspects of the organization, combining formal mechanisms (codes, training) with informal ones (leadership example, peer influence).
3.5 The Social Responsibilities Required of You as a Manager
Archie Carroll’s Global Corporate Social Responsibility Pyramid: This model suggests that corporate social responsibility (CSR) encompasses four types of responsibilities, from the most fundamental to the most discretionary:
Be a good global corporate citizen (Philanthropic Responsibility): Be a good corporate citizen by contributing resources to the community and improving the quality of life. (Highest level).
Be ethical (Ethical Responsibility): Be ethical in its practices and activities, doing what is right and fair, avoiding harm. Ensure decisions align with societal expectations of integrity.
Obey the law (Legal Responsibility): Obey the law, which is society’s codification of right and wrong. Play by the rules of the game.
Make a profit (Economic Responsibility): Be profitable to survive. This is the base of the pyramid, as all other responsibilities rest upon a profitable business. (Lowest level/Most fundamental).
Types of Social Responsibility:
Environmental Focus: Addressing issues like climate change, pollution, and resource depletion. This includes promoting sustainable development (meeting present needs without compromising future generations), managing natural capital (the natural resources on which businesses and society rely), and reducing ecological footprints.
Philanthropy: Charitable donations to benefit humanity. This includes supporting local communities, educational institutions, or other causes through financial contributions, volunteerism, or in-kind donations.
Benefits of Ethical & Social Responsibility:
Customer satisfaction: Consumers are increasingly loyal to brands perceived as ethical and socially responsible.
Employee and customer loyalty: Employees are more engaged and committed to ethical employers, and customers are more likely to repurchase.
Revenue growth: Positive reputation can attract new customers and markets, driving revenue.
Long-term profitability: Sustainable and ethical practices can lead to reduced operational risks, better stakeholder relations, and enhanced brand value, contributing to sustained profitability.
Avoidance of legal problems: Compliance with ethical and legal standards reduces risks of fines, lawsuits, and regulatory penalties.
3.6 Corporate Governance
Definition: The system by which organizations are directed and controlled. It refers to the mechanisms, processes, and relations by which corporations are controlled and operated. It involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government, and the community.
Importance: Ensures accountability, fairness, and transparency in an organization's relationship with its stakeholders, protecting owners' interests and promoting long-term value creation.
Best Practices:
Hold CEOs accountable for ethical behavior: Implement strong oversight mechanisms and clear consequences for unethical conduct by top executives.
Ensure diverse and qualified board members: Appoint independent directors with varied backgrounds and expertise to provide objective oversight and robust decision-making.
Tie executive compensation to social responsibility goals: Link a portion of executive pay not just to financial performance but also to achievement of environmental, social, and governance (ESG) targets, incentivizing responsible corporate behavior.
3.7 Career Corner: Managing Your Career Readiness
Professionalism/Work Ethic Competency: This competency is about demonstrating personal accountability and effective work habits, such as punctuality, working productively with others, and understanding the impact of your actions on the organization.
Show integrity: Act with honesty, strong moral principles, and transparency in all professional dealings.
Act ethically: Make decisions and behave in ways that align with high moral standards and organizational codes of conduct.
Demonstrate concern for the greater good: Consider the broader impact of your actions on colleagues, customers, the community, and the environment.
Develop this competency: Requires consistent, values-driven behavior, taking ownership of tasks, meeting commitments, and continuously striving to improve one's work quality and professional conduct.
Chapter 4: Global Management
4.1 Globalization: The Collapse of Time and Distance
Globalization: The trend of the world economy toward becoming a more interdependent system. This refers to the increasing interconnectedness of the world's economies, cultures, and populations, driven by international trade, technology, and information flows.
Global Village: The metaphoric shrinking of time and intellectual distance through electronic media and instantaneous communication. It implies that the world has become a much smaller, more accessible place due to advanced communication and transportation technologies.
Global Economy: The increasing tendency of the economies of the world to interact with one another as one market instead of many national markets. This includes the free flow of capital, goods, services, and information across national borders, leading to greater interdependence.
4.2 You and International Management
International Management: The management of business operations conducted in more than one country. It involves understanding and navigating cultural, economic, legal, and political differences.
Managerial Perspectives on International Operations:
Ethnocentric Managers: Believe that their native country, culture, language, and behavior are superior to all others. They tend to believe that what works in their home country will work abroad, often leading to a lack of adaptation to local markets.
Polycentric Managers: Take the view that native managers in the foreign offices best understand native personnel and practices, and therefore the home office should leave them alone. This perspective grants significant autonomy to local operations.
Geocentric Managers: Accept that there are differences and similarities between home and foreign personnel and practices and that they should use whatever techniques are most effective. This is a global mindset, seeking the best talent and practices from anywhere in the world.
4.3 Why and How Companies Expand Internationally
Reasons for Expansion:
Access to supplies: Seeking cheaper raw materials or specialized components unavailable domestically.
Entry into new markets: Expanding customer base and revenue potential beyond saturated domestic markets.
Lower labor costs: Producing goods or services in countries where wages are lower, reducing overall operating expenses.
Access to financial capital: Obtaining funds from foreign investors or accessing more favorable financing conditions abroad.
Avoidance of tariffs or import quotas: Establishing production facilities in foreign countries to bypass trade barriers and serve those markets directly.
Methods of Expansion:
Global Outsourcing (Offshoring): Using suppliers outside the company to provide goods or services (e.g., manufacturing components or providing customer support) that would otherwise be handled in-house.
Importing, Exporting, Countertrading:
Importing: A company buys goods outside the country and resells them domestically.
Exporting: A company produces goods domestically and sells them outside the country.
Countertrading: Bartering goods for goods (e.g., exchanging goods for other goods, rather than for money).
Licensing and Franchising:
Licensing: A company allows a foreign company to pay it a fee to make or distribute the first company's product or service.
Franchising: A form of licensing where a foreign company pays a fee and a share of the profit for the right to use a company's name and operating methods.
Joint Ventures: Also known as a strategic alliance, this is a partnership with a foreign company to share the risks and rewards of starting a new enterprise together in a foreign country. Often used to gain local expertise and access.
Wholly Owned Subsidiaries: A foreign subsidiary that is totally owned and controlled by an organization. This offers maximum control but also maximum risk, often achieved through greenfield ventures (building from scratch) or acquisitions.
4.4 The World of Free Trade: Regional Economic Cooperation and Competition
Free Trade: The movement of goods and services among nations without political or economic obstruction or trade barriers. It aims to foster economic growth through specialization and efficiency.
Barriers to Trade:
Tariffs: Customs duties or taxes, usually based on the value or quantity of imported goods.
Import quotas: Limitations on the number of products that can be imported to protect domestic industries.
Sanctions and embargoes:
Sanction: A trade prohibition on certain types of products or services for a specific country.
Embargo: A complete ban on the import or export of certain products or all products from a specific country.
Organizations Promoting Free Trade:
World Trade Organization (WTO): Monitors and enforces trade agreements, promoting global trade by working to reduce barriers.
World Bank: Provides low-interest loans, interest-free credit, and grants to developing countries to help them reduce poverty and improve their economies.
International Monetary Fund (IMF): Designed to assist in the reconstruction of the world’s international payments system, acting as a last-resort lender that makes short-term loans to countries experiencing balance-of-payments problems.
Trading Blocs (Economic Communities): Groups of nations that have agreed to remove trade barriers among themselves.
USMCA: The United States–Mexico–Canada Agreement, replacing NAFTA, designed to create a free-trade zone among these nations.
EU: The European Union, a political and economic union of 27 member states located primarily in Europe, operating a single market with free movement of goods, services, capital, and people.
Exchange Rate: The rate at which the currency of one country can be exchanged for the currency of another country. Fluctuations significantly impact the cost of imports and exports.
BRICS: An acronym for the five major emerging economies: Brazil, Russia, India, China, and South Africa. These countries are significant players in the global economy due to their large populations, growing economies, and increasing influence.
4.5 The Value of Understanding Cultural Differences
Managers operating internationally must understand cultural nuances to avoid misunderstandings and conduct business effectively.
Cultural Contexts:
Low-Context Cultures: Cultures in which shared meanings are primarily derived from written and spoken words. Communication is direct, explicit, and relies heavily on verbal messages (e.g., Germany, Switzerland, USA).
High-Context Cultures: Cultures in which people rely heavily on situational cues, nonverbal communication, and shared understanding to convey meaning. Relationships, trust, and implicit messages are crucial (e.g., China, Korea, Japan, Mexico).
Hofstede’s Four Cultural Dimensions: Geert Hofstede identified four dimensions along which national cultures can be classified:
Individualism vs. Collectivism: Reflects the extent to which people prefer to act as individuals rather than as members of groups.
Power Distance: Measures how much unequal distribution of power is accepted by those with and without power.
Uncertainty Avoidance: Indicates how much people tolerate ambiguous and unstructured situations.
Masculinity vs. Femininity: Reflects the extent to which a society values assertiveness, competition, and material success (masculinity) versus cooperation, modesty, and quality of life (femininity).
GLOBE Project’s Nine Dimensions: The Global Leadership and Organizational Behavior Effectiveness (GLOBE) project expanded on Hofstede's work, identifying nine cultural dimensions:
Power Distance: The degree to which members of a society expect power to be unequally distributed.
Uncertainty Avoidance: The extent to which a society relies on social norms and procedures to alleviate the unpredictability of future events.
Institutional Collectivism: The degree to which organizational/societal institutional practices encourage and reward collective distribution of resources and collective action.
In-Group Collectivism: The degree to which individuals express pride, loyalty, and cohesiveness in their organizations or families.
Gender Egalitarianism: The extent to which a society minimizes gender role differences and discrimination.
Assertiveness: The degree to which individuals are assertive, confrontational, and aggressive in their relationships with others.
Future Orientation: The extent to which a society encourages and rewards future-oriented behaviors such as planning, investing in the future, and delaying gratification.
Performance Orientation: The degree to which a society encourages and rewards group members for performance improvement and excellence.
Humane Orientation: The degree to which a society encourages and rewards individuals for being fair, altruistic, friendly, generous, caring, and kind to others.
Six Cultural Perceptions Managers Should Understand:
Language: Verbal and nonverbal communication varies significantly, requiring careful attention to translation and context.
Interpersonal Space: The acceptable distance between people when communicating differs culturally, impacting comfort and perceived friendliness.
Communication: Styles vary from direct to indirect, affecting how messages are sent and received.
Time Orientation: Cultures differ in their perception and use of time (monochronic vs. polychronic), influencing punctuality, scheduling, and project timelines.
Religion: Religious beliefs can profoundly impact work ethics, holidays, social norms, and business practices.
Law and Political Stability: Understanding the legal framework and assessing political risks is critical for compliance and business continuity.
4.6 Career Corner: Managing Your Career Readiness
Competency: Awareness of Individual Differences: This competency involves recognizing and valuing the unique characteristics, perspectives, and contributions of individuals from diverse backgrounds.
Listen and observe: Pay close attention to verbal and nonverbal cues, and observe how people interact to better understand their perspectives and cultural norms.
Become aware of context: Understand the cultural, historical, and situational factors that influence individuals' behaviors and beliefs.
Choose something basic to start with: Begin by focusing on readily observable differences (e.g., communication styles, customs) and gradually build your understanding of more complex cultural nuances.