CHAPTER 1 Managers and Managing Learning Objectives
CHAPTER 1 Managers and Managing Learning Objectives After studying this chapter, you should be able to: LO1-1 Describe what management is, why management is important, what managers do, and how managers utilize organizational resources efficiently and effectively to achieve organizational goals. LO1-2 Distinguish among planning, organizing, leading, and controlling (the four principal managerial tasks), and explain how managers’ ability to handle each one affects organizational performance.
LO1-3 Differentiate among three levels of management, and understand the tasks and responsibilities of managers at different levels in the organizational hierarchy. LO1-4 Distinguish between three kinds of managerial skill, and explain why managers are divided into different departments to perform their tasks more efficiently and effectively. LO1-5 Discuss some major changes in management practices today that have occurred as a result of globalization and the use of advanced information technology (IT). LO1-6 Discuss the principal challenges managers face in today’s increasingly competitive global environment.
Management part 1 A MANAGER’S CHALLENGE Steve Jobs has Changed His Approach to Management What is high-performance management? In 1976 Steven P. Jobs sold his Volkswagen van, and his partner Steven Wozniak sold his two programmable calculators, and they used the proceeds of $1,350 to build a circuit board in Jobs’s garage. So popular was the circuit board, which developed into the Apple II personal computer (PC), that in 1977 Jobs and Wozniak founded Apple Computer to make and sell it. By 1985 Apple’s sales had exploded to almost $2 billion, but in the same year Jobs was forced out of the company he founded.
Jobs’s approach to management was a big part of the reason he lost control of Apple. Jobs saw his main task as leading the planning process to develop new and improved PCs. Although this was a good strategy, his management style was often arbitrary and overbearing. For example, Jobs often played favorites among the many project teams he created. His approach caused many conflicts and led to fierce competition, many misunderstandings, and growing distrust among members of the different teams. Jobs’s abrasive management style also brought him into conflict with John Sculley, Apple’s CEO.
Employees became unsure whether Jobs (the chairman) or Sculley was leading the company. Both managers were Apple’s CEO Steve Jobs proudly shows off his company’s new i Pad tablet computer in March 2010. More than 1 million i Pads were sold within a month. so busy competing for control of Apple that the task of ensuring its resources were being used efficiently was neglected. Apple’s costs soared, and its performance and profits fell. Apple’s directors became convinced Jobs’s management style was the heart of the problem and asked him to resign. After he left Apple, Jobs started new ventures.
First he founded PC maker NEXT to develop a powerful new PC that would outperform Apple’s PCs. Then he founded Pixar, a computer animation company, which become a huge success after it made blockbuster movies such as Toy Story and Finding Nemo, both distributed by Walt Disney. In both these companies Jobs developed a clear vision for managers to follow, and he built strong management teams to lead the project teams developing the new PCs and movies. Jobs saw his main task as planning the companies’ future product development strategies. However, he left the actual tasks of leading and organizing to managers below him.
He gave them the autonomy to put his vision into practice. In both companies he encouraged a culture of collaboration and innovation to champion creative thinking. Meanwhile Apple was struggling to compete against Michael Dell’s new, low-cost PCs loaded with Microsoft’s Windows software. Its performance was plummeting, and to help his old company survive, in 1996 Jobs convinced Apple to buy NEXT for $400 million and use its powerful operating system in new Apple PCs. Jobs began working inside Apple to lead its turnaround and was so successful that in 1997 he was asked to become its CEO. Jobs agreed and continued to put the new anagement skills he had developed over time to good use. The first thing he did was create a clear vision and goals to energize and motivate Apple employees. Jobs decided that to survive, Apple had to introduce state-of-the-art, stylish PCs and related digital equipment. He instituted an across-the-board planning process and created a team structure that allowed programmers and engineers to pool their skills to develop new PCs. He delegated considerable authority to the teams, but he also established strict timetables and challenging “stretch” goals, such as bringing new products to market as quickly as possible, for these groups.
One result of these efforts was Apple’s sleek new line of iMac PCs, which were quickly followed by a wide range of futuristic PC-related products. 1 In 2003 Jobs announced that Apple was starting a new service called iTunes, an online music store from which people could download songs for 99 cents. At the same time Apple introduced its iPod music player, which can store thousands of downloaded songs, and it quickly became a runaway success. Apple continually introduced new generations of the iPod, each more compact, powerful, and versatile than previous models.
By 2006 Apple had gained control of 70% of the digital music player market and 80% of the online music download business, and its stock price soared to a new record level. The next milestone in Jobs’s managerial history came in 2007 when he announced that Apple would introduce the iPhone to compete directly with the popular Blackberry. Once again he assembled a team of engineers not only to develop the new phone but to create an online iPhone applications platform where users would e able to download iPhone applications to make their phones more useful—able to surf the Web and interact with their friends. By 2010 over 2 million iPhone applications had been developed, over 2 billion applications had been downloaded by iPhone users, and Apple was the leader in the smartphone market. In 2010 Jobs announced that Apple planned to introduce its new iPad tablet computer, which he claimed would be the best way to experience the Web, e-mail, and photos and would also have a wireless reading function to compete directly against Amazon. com’s successful Kindle ireless reader. 2 Jobs organized a new engineering unit to pioneer the development of applications for its new iPad, and in spring 2010 analysts and customers were eagerly awaiting its innovative new digital tablet that could potentially revolutionize yet another industry and make Apple the most profitable company in global computers and electronics. When Apple announced on March 5 that the iPad would be released for sale on April 13, 2010, its stock rose to a record high of $219, and analysts claimed the company’s stock might become worth more than Walmart’s!
Overview The history of Steve Jobs’s ups and downs as founder and manager of Apple and his other companies illustrates many challenges facing people who become managers: Managing a company is a complex activity, and effective managers must possess many kinds of skills, knowledge, and abilities. Management is an unpredictable process. Making the right decision is dif? cult; even effective managers often make mistakes, but the most effective managers, like Jobs, learn from their mistakes and continually strive to ? nd ways to increase their companies’ performance.
In this chapter we look at what managers do and what skills and abilities they must develop to manage their organizations successfully. We also identify the different kinds of managers that organizations need and the skills and abilities they must develop to succeed. Finally, we identify some challenges managers must address if their organizations are to grow and prosper. What Is Management? organizations Collections of people who work together and coordinate their actions to achieve a wide variety of goals or desired future outcomes. anagement The planning, organizing, leading, and controlling of human and other resources to achieve organizational goals efficiently and effectively. When you think of a manager, what kind of person comes to mind? Do you see someone who, like Steve Jobs, can determine the future prosperity of a large for-pro? t company? Or do you see the administrator of a not-for-pro? t organization, such as a community college, library, or charity, or the person in charge of your local Walmart store or McDonald’s restaurant, or the person you answer to if you have a part-time job?
What do all these people have in common? First, they all work in organizations. Organizations are collections of people who work together and coordinate their actions to achieve a wide variety of goals, or desired future outcomes. 3 Second, as managers, they are the people responsible for supervising and making the most of an organization’s human and other resources to achieve its goals. Management, then, is the planning, organizing, leading, and controlling of human and other resources to achieve organizational goals ef? ciently and effectively.
An organization’s resources include assets such as people and their skills, know-how, and experience; machinery; raw materials; computers and information technology; and patents, ? nancial capital, and loyal customers and employees. 6 Chapter 1 LO1-1 Describe what management is, why management is important, what managers do, and how managers utilize organizational resources efficiently and effectively to achieve organizational goals. Achieving High Performance: A Manager’s Goal One of the most important goals that organizations and their members try to achieve is to provide some kind of good or service that customers value or desire.
The principal goal of CEO Steve Jobs is to manage Apple so it creates a continuous stream of new and improved goods and services—such as more powerful PCs, more versatile iPods and iPhones, and the ability to easily download diverse kinds of digital content from the Internet—that customers are willing to buy. In 2010 Apple led the ? eld in many of these areas; its managers are currently working to make its new iPad the industry leader. Similarly, the principal goal of doctors, nurses, and hospital administrators is to increase their hospital’s ability to make sick people well—and to do so cost-effectively.
Likewise, the principal goal of each McDonald’s restaurant manager is to produce burgers, salads, fries, and shakes that people want to pay for and eat so they become loyal return customers. Organizational performance is a measure of how ef? ciently and effectively managers use available resources to satisfy customers and achieve organizational goals. Organizational performance increases in direct proportion to increases in ef? ciency and effectiveness (see Figure 1. 1). What are ef? ciency and effectiveness? Ef? ciency is a measure of how productively resources are used to achieve a goal. Organizations are ef? cient when managers minimize the amount of input resources (such as labor, raw materials, and component parts) or the amount of time needed to produce a given output of goods or services. For example, McDonald’s develops ever more ef? cient fat fryers that not only reduce the amount of oil used in cooking, but also speed up the cooking of french fries. UPS develops new work routines to reduce delivery time, such as instructing drivers to leave their truck doors open when going short distances. Steve Jobs instructed Apple’s engineers not only to develop rganizational performance A measure of how efficiently and effectively a manager uses resources to satisfy customers and achieve organizational goals. ef? ciency A measure of how well or how productively resources are used to achieve a goal. Figure 1. 1 Ef? ciency, Effectiveness, and Performance in an Organization EFFICIENCY LOW Low efficiency/ high effectiveness Manager chooses the right goals to pursue, but does a poor job of using resources to achieve these goals. Result: A product that customers want, but that is too expensive for them to buy.
HIGH High efficiency/ high effectiveness Manager chooses the right goals to pursue and makes good use of resources to achieve these goals. Result: A product that customers want at a quality and price they can afford. EFFECTIVENESS HIGH Low efficiency/ low effectiveness LOW Manager chooses wrong goals to pursue and makes poor use of resources. Result: A low-quality product that customers do not want. High efficiency/ low effectiveness Manager chooses inappropriate goals, but makes good use of resources to pursue these goals. Result: A high-quality product that customers do not want.
High-performing organizations are efficient and effective. Managers and Managing 7 effectiveness A measure of the appropriateness of the goals an organization is pursuing and the degree to which the organization achieves those goals. ever more compact, powerful, and multipurpose models of its iPod and iPhone but also to ? nd cost-effective ways to do so, such as by outsourcing manufacturing to China. A manager’s responsibility is to ensure that an organization and its members perform as ef? ciently as possible all the activities needed to provide goods and services to customers.
Effectiveness is a measure of the appropriateness of the goals that managers have selected for the organization to pursue and the degree to which the organization achieves those goals. Organizations are effective when managers choose appropriate goals and then achieve them. Some years ago, for example, managers at McDonald’s decided on the goal of providing breakfast service to attract more customers. The choice of this goal has proved smart: Sales of breakfast food now account for more than 30% of McDonald’s revenues and are still increasing. Jobs’s goal is to create a continuous ? ow of innovative PC and digital entertainment products.
High-performing organizations, such as Apple, McDonald’s, Walmart, Intel, Home Depot, Accenture, and Habitat for Humanity are simultaneously ef? cient and effective. Effective managers are those who choose the right organizational goals to pursue and have the skills to utilize resources ef? ciently. Why Study Management? Today more students are competing for places in business courses than ever before; the number of people wishing to pursue Master of Business Administration (MBA) degrees—today’s passport to an advanced management position—either on campus or from online universities and colleges is at an all-time high.
Why is the study of management currently so popular? 5 First, in any society or culture resources are valuable and scarce; so the more ef? cient and effective use that organizations can make of those resources, the greater the relative well-being and prosperity of people in that society. Because managers decide how to use many of a society’s most valuable resources—its skilled employees, raw materials like oil and land, computers and information systems, and ? nancial assets— they directly impact the well-being of a society and the people in it.
Understanding what managers do and how they do it is of central importance to understanding how a society creates wealth and af? uence for its citizens. Second, although most people are not managers, and many may never intend to become managers, almost all of us encounter managers because most people have jobs and bosses. Moreover, many people today work in groups and teams and have to deal with coworkers. Studying management helps people deal with their bosses and their coworkers. It reveals how to understand other people at work and make decisions and take actions that win the attention and support of the boss and coworkers.
Management teaches people not yet in positions of authority how to lead coworkers, solve con? icts between them, achieve team goals, and thus increase performance. Third, in any society, people are in competition for a very important resource—a job that pays well and provides an interesting and satisfying career; and understanding management is one important path toward obtaining this objective. In general, jobs become more interesting the more complex or responsible they are. Any person who desires motivating job that changes over time might therefore do well to develop management skills and become promotable. A person who has been working for several years and then returns to school for an MBA can usually, after earning the degree, ? nd a more interesting, satisfying job that pays signi? cantly more than the previous job. Moreover, salaries increase rapidly as people move up the organizational hierarchy, whether it is a school system, a large for-pro? t business organization, or a not-for-pro? t charitable or medical institution. Indeed, the salaries paid to top managers are enormous.
For example, the CEOs and other top executives or managers of companies such as Apple, Walt Disney, GE, and McDonald’s receive millions in actual salary each year. However, even more staggering is the fact that many top executives also receive bonuses in the form of 8 Chapter 1 valuable stock or shares in the company they manage, as well as stock options that give them the right to sell these shares at a certain time in the future. 6 If the value of the stock goes up, the managers keep the difference between the price at which they obtained the stock option (say, $10) and what it is worth later (say, $33).
When Steve Jobs became CEO of Apple again in 1997 he accepted a salary of only $1 a year. However, he was also awarded stock options that, with the fast rise in Apple’s stock price throughout the 2000s, are worth billions of dollars today (he was also given the free use of a $90 million jet). 7 In 2010 Goldman Sachs paid its top managers stock bonuses worth $16. 2 billion, and its CEO Lloyd Blankfein received Goldman Sachs stock worth over $8 billion—but this was only half the value of the stock that JPMorgan Chase CEO Jamie Dimon received from his company! These incredible amounts of money provide some indication of both the responsibilities and the rewards that accompany the achievement of high management positions in major companies—and go to anybody who successfully creates and manages a small business. What is it that managers actually do to receive such rewards? 9 Essential Managerial Tasks The job of management is to help an organization make the best use of its resources to achieve its goals. How do managers accomplish this objective? They do so by performing four essential managerial tasks: planning, organizing, leading, and controlling. The arrows linking these tasks in Figure 1. suggest the sequence in which managers typically perform them. French manager Henri Fayol ? rst outlined the nature of these managerial activities around the turn of the 20th century in General and Industrial Management, a book that remains the classic statement of what managers must do to create a high-performing organization. 10 Managers at all levels and in all departments—whether in small or large companies, for-pro? t or not-for-pro? t organizations, or organizations that operate in one country or throughout the world—are responsible for performing these four tasks, which we look at next.
How well managers perform these tasks determines how ef? cient and effective their organizations are. Figure 1. 2 Four Tasks of Management Planning Choose appropriate organizational goals and courses of action to best achieve those goals. Controlling Establish accurate measuring and monitoring systems to evaluate how well the organization has achieved its goals. Organizing Establish task and authority relationships that allow people to work together to achieve organization goals. Leading Motivate, coordinate, and energize individuals and groups to work together to achieve organizational goals. Managers and Managing 9 LO1-2
Distinguish among planning, organizing, leading, and controlling (the four principal managerial tasks), and explain how managers’ ability to handle each one affects organizational performance. Planning To perform the planning task, managers identify and select appropriate organizational goals and courses of action; they develop strategies for how to achieve high performance. The three steps involved in planning are (1) deciding which goals the organization will pursue, (2) deciding what strategies to adopt to attain those goals, and (3) deciding how to allocate organizational resources to pursue the strategies that attain those goals.
How well managers plan and develop strategies determines how effective and ef? cient the organization is—its performance level. 11 As an example of planning in action, consider the situation confronting Michael Dell, founder and CEO of Dell Computer, who by 2010 was in a major contest planning Identifying and selecting appropriate goals; with Steve Jobs to retain leadership in the PC and digital device market. In 1984 one of the four principal tasks the 19-year-old Dell saw an opportunity to enter the PC market by assembling PCs of management. and selling them directly to customers.
Dell began to plan how to put his idea into practice. First, he decided that his goal was to sell an inexpensive PC, to undercut the prices charged by companies like Apple, Compaq, and HP. Second, he had to choose a course of action to achieve this goal. He decided to sell PCs directly to customers by telephone and so bypass expensive computer stores that sold Compaq and Apple PCs. He also had to decide how to obtain low-cost components and how to tell potential customers about his products. Third, he had to decide how to allocate his limited funds (he had only $5,000) to buy labor and other resources.
He hired three people and worked with them around a table to assemble his PCs. Thus to achieve his goal of making and selling lowMichael Dell sits in the dorm room at the University of price PCs, Dell had to plan, and as his organization Texas–Austin, where he launched his personal computer grew, his plans changed and became progressively company as a college freshman. When he visited, the room more complex. After setbacks during the 2000s that was occupied by freshmen Russell Smith (left) and Jacob Frith, both from Plano, Texas. aw HP, Apple, and a new Taiwanese company, Acer, achieve competitive advantage over Dell in performance, styling, or pricing, Dell and his managers actively searched for new strategies to better compete against agile rivals and help the company regain its position as the highest-performing PC maker. In 2010 Dell was still locked in a major battle with its competitors, and its performance had not recovered despite attempts to introduce innovative new models of laptops and digital devices such as its own music player (which ? pped). Dell needed a new approach to planning to compete more effectively; and new strategies Dell announced in 2010 included more powerful, customized lines of new laptops, and a plan to introduce its own smartphone and tablet computer. As the battle between Dell, HP, Acer, and Apple suggests, the outcome of planstrategy A cluster of ning is a strategy, a cluster of decisions concerning what organizational goals to decisions about what goals to pursue, what actions to take, and how to use resources to achieve these goals.
The pursue, what actions to take, decisions that were the outcome of Michael Dell’s original planning formed a low-cost and how to use resources to strategy. A low-cost strategy is a way of obtaining customers by making decisions that achieve goals. allow an organization to produce goods or services more cheaply than its competitors so it can charge lower prices than they do. Throughout its history, Dell has continuously re? ned this strategy and explored new ways to reduce costs; Dell became the most pro? able PC maker as a result of its low-cost strategy, but when HP and Acer also lowered their costs it lost its competitive advantage and its pro? ts fell. By contrast, since its founding Apple’s strategy has been to deliver to customers new, exciting, and unique computer and digital products, such as its iPods, iPhones, and its new iPads—a strategy known as differentiation. 12 Although this strategy almost ruined Apple in the 1990s when customers bought inexpensive Dell PCs rather its premiumpriced PCs, today Apple’s sales have boomed as customers turn to its unique PCs 0 Chapter 1 and digital products. To ? ght back, Dell has been forced to offer more exciting, stylish products—hence its decision to introduce a new smartphone to compete with the iPhone. Planning strategy is complex and dif? cult, especially because planning is done under uncertainty when the result is unknown so that success or failure are both possible outcomes of the planning process. Managers take major risks when they commit organizational resources to pursue a particular strategy.
Dell enjoyed great success in the past with its low-cost strategy; but presently Apple is performing spectacularly with its differentiation strategy, and HP has enjoyed a major turnaround because by lowering its costs it now can offer customers attractive, stylish PCs at prices similar to Dell’s. In Chapter 8 we focus on the planning process and on the strategies organizations can select to respond to opportunities or threats in an industry.
The story of Anne Mulcahy’s rise to the top at Xerox and her decision to give control of the company to its new CEO, Ursula Burns, illustrates how important the abilities to plan and create the right strategies are to a manager’s career success. Ursula Burns “Copies” Anne Mulcahy as CEO of Xerox By the early 2000s Xerox, the well-known copier company, was near bankruptcy. The combination of aggressive Japanese competitors, which were selling low-priced copiers, and a shift toward digital copying, which made Xerox’s pioneering light-lens copying process obsolete, was resulting in plummeting sales.
Losing billions of dollars, Xerox’s board searched for a new CEO who could revitalize the company’s product line. The person they chose to plan the company’s transformation was Anne Mulcahy, a 26-year Xerox veteran. Mulcahy began her career as a Xerox copier salesperson, transferred into human resource management, and then used her considerable leadership skills to work her way up the company’s hierarchy to become its president. As the new CEO, the biggest management challenge Mulcahy faced was deciding how to reduce Xerox’s high operating costs.
At the same time, however, she had to plan the best strategies for Xerox. Speci? cally, she had to decide how to best invest the company’s remaining research dollars to innovate desperately needed new kinds of digital copiers that would attract customers back to the company and generate new revenues and pro? ts. Simultaneously achieving both these objectives is one of the biggest challenges a manager can face, and how well she performed these tasks would determine Xerox’s fate— indeed its survival. To ? d a solution to this problem, Mulcahy, known as an unassuming CEO who prefers to stay in the backFormer Xerox CEO Anne Mulcahy with her handpicked ground, focused her efforts on involving and listening to successor, Ursula Burns, who became the first female Xerox’s managers, employees, and customers. Mulcahy African-American manager to take change of a major U. S. corporation. began a series of “town hall” meetings with Xerox employees, asked them for all kinds of creative input and their best efforts, but told them that tough times were ahead and that layoffs would be necessary.
At the same time she emphasized that only their hard work to ? nd ways to reduce costs could save the company. To help discover how the Manager as a Person Managers and Managing 11 company should best invest its R&D budget, Mulcahy made reaching out to customers her other main priority. She insisted that managers and engineers at all levels should visit, meet, and talk to customers to uncover what they most wanted from new digital copiers—and from Xerox.
During one of her initiatives, called “Focus 500,” which required Xerox’s top 200 managers to visit its top 500 customers, she came to increasingly appreciate the skills of Ursula Burns, who had joined Xerox four years after her and was quickly establishing her own reputation as a manager. Burns, who had started her career as a mechanical engineer, was then the manager in charge of its manufacturing and supply chain activities. By listening closely to both employees and customers, Mulcahy and Xerox’s managers and engineers gained insights that led to the development of new strategies that transformed the company’s product line.
Mulcahy’s strategy was to spend most of the R&D budget on developing two new kinds of digital copiers: a line of digital color copying machines for use by medium-sized and large businesses and a line of low-end copiers offering print quality, speed, and prices that even Japanese competitors could not match. To shrink costs Mulcahy also reduced the number of levels in Xerox’s management hierarchy, cutting 26% from corporate overhead, and streamlined its operating units, reducing the number of employees from 95,000 to 55,000.
By 2007 it was clear that Mulcahy and her managers—in particular Ursula Burns, who was now Mulcahy’s second in command—had devised a successful turnaround plan to save Xerox. Continuing to work closely with customers, Mulcahy and Burns developed new strategies for Xerox based on improved products and services. In talking to Xerox customers, for example, it became clear they wanted a combination of copying software and hardware that would allow them to create highly customized documents for their own customers. Banks, retail stores, and small businesses needed personalized software to create individual client statements, for example.
Mulcahy decided to grow the customized services side of Xerox’s business to meet these specialized needs. She also decided to replicate Xerox’s sales and customer service operations around the globe and customize them to the needs of customers in each country. The result was soaring pro? ts. In 2009 Mulcahy decided she would leave the position of CEO to become Xerox’s chairperson, and her hand-picked successor Ursula Burns would become its next CEO. The move to transfer power from one woman CEO to another at the same company is exceptional, and Burns is also the ? rst AfricanAmerican woman to head a public company as large as Xerox.
Ursula Burns became Xerox’s CEO in July 2009, and within six months she announced a new major planning initiative. Xerox would acquire Af? liated Computer Services for $6. 4 billion so Xerox could increase its push to provide highly customized customer service. Burns said the acquisition would be a major game changer because it would triple Xerox’s service revenue to over $10 billion and increase total company revenues to $22 billion. Also, $400 million in cost savings were expected. Xerox’s shares have climbed 40% since Burns took over as CEO, and she is busily looking for further strategies to increase Xerox’s growth.
Indeed, Mulcahy decided that with Burns at the helm, Xerox’s future looks bright, and she decided to retire in May 2010, at which time Burns will also become its chairman. organizing Structuring working relationships in a way that allows organizational members to work together to achieve organizational goals; one of the four principal tasks of management. Organizing Organizing is structuring working relationships so organizational members interact and cooperate to achieve organizational goals. Organizing people into departments according to the kinds of job-speci? tasks they perform lays out the lines of authority and responsibility between different individuals and groups. Managers must decide how best to organize resources, particularly human resources. 12 Chapter 1 organizational structure A formal system of task and reporting relationships that coordinates and motivates organizational members so they work together to achieve organizational goals. The outcome of organizing is the creation of an organizational structure, a formal system of task and reporting relationships that coordinates and motivates members so they work together to achieve organizational goals.
Organizational structure determines how an organization’s resources can be best used to create goods and services. As his company grew, for example, Michael Dell faced the issue of how to structure his organization. Early on he was hiring 100 new employees a week and deciding how to design his managerial hierarchy to best motivate and coordinate managers’ activities. As his organization grew to become one of the largest global PC makers, he and his managers created progressively more complex forms of organizational structure to help it achieve its goals. We examine the organizing process in detail in Chapters 10 through 12.
Leading leading Articulating a clear vision and energizing and enabling organizational members so they understand the part they play in achieving organizational goals; one of the four principal tasks of management. An organization’s vision is a short, succinct, and inspiring statement of what the organization intends to become and the goals it is seeking to achieve—its desired future state. In leading, managers articulate a clear organizational vision for the organization’s members to accomplish, and they energize and enable employees so everyone understands the part he or she plays in achieving organizational goals.
Leadership involves managers using their power, personality, in? uence, persuasion, and communication skills to coordinate people and groups so their activities and efforts are in harmony. Leadership revolves around encouraging all employees to perform at a high level to help the organization Ken Chenault, pictured here, is the president and CEO of achieve its vision and goals. American Express Company. Promoted in 1997, he climbed Another outcome of leaderthe ranks from its Travel Related Services Company thanks ship is a highly motivated to his even temper and unrelenting drive. Respected by coland committed workforce. eagues for his personality, most will say they can’t remember Employees responded well him losing his temper or raising his voice. His open-door policy for subordinates allows him to mentor AmEx managers to Michael Dell’s handsand encourages all to enter and speak their minds. on leadership style, which has resulted in a hardworking, committed workforce. Managers at Apple now appreciate Steve Jobs’s new leadership style, which is based on his willingness to delegate authority to project teams and his ability to help managers resolve differences that could easily lead to bitter disputes and power struggles.
We discuss the issues involved in managing and leading individuals and groups in Chapters 13 through 16. Controlling controlling Evaluating how well an organization is achieving its goals and taking action to maintain or improve performance; one of the four principal tasks of management. In controlling, the task of managers is to evaluate how well an organization has achieved its goals and to take any corrective actions needed to maintain or improve performance. For example, managers monitor the performance of individuals, departments, and the organization as a whole to see whether they are meeting desired performance standards.
Michael Dell learned early in his career how important this is; it took Steve Jobs longer. If standards are not being met, managers seek ways to improve performance. Managers and Managing 13 The outcome of the control process is the ability to measure performance accurately and regulate organizational ef? ciency and effectiveness. To exercise control, managers must decide which goals to measure—perhaps goals pertaining to productivity, quality, or responsiveness to customers—and then they must design control systems that will provide the information necessary to assess performance—that is, determine to what degree the goals have been met.
The controlling task also helps managers evaluate how well they themselves are performing the other three tasks of management—planning, organizing, and leading—and take corrective action. Michael Dell had dif? culty establishing effective control systems because his company was growing so rapidly and he lacked experienced managers. In the 1990s Dell’s costs suddenly soared because no systems were in place to control inventory, and in 1994 poor quality control resulted in a defective line of new laptop computers—some of which caught ? re.
To solve these and other control problems, Dell hired hundreds of experienced managers from other companies to put the right control systems in place. As a result, by 2000 Dell was able to make computers for over 10% less than its competitors, which created a major source of competitive advantage. At its peak, Dell drove competitors out of the market because it had achieved a 20% cost advantage over them. 13 However, we noted earlier that through the 2000s rivals such as HP and Acer also learned how to reduce their operating costs, and this shattered Dell’s competitive advantage.
Controlling, like the other managerial tasks, is an ongoing, dynamic, always-changing process that demands constant attention and action. We cover the most important aspects of the control task in Chapters 10, 11, 17, and 18. The four managerial tasks—planning, organizing, leading, and controlling—are essential parts of a manager’s job. At all levels in the managerial hierarchy, and across all jobs and departments in an organization, effective management means performing these four activities successfully—in ways that increase ef? iency and effectiveness. Performing Managerial Tasks: Mintzberg’s Typology Our discussion of managerial tasks may seem to suggest that a manager’s job is highly orchestrated and that management is an orderly process in which managers rationally calculate the best way to use resources to achieve organizational goals. In reality, being a manager often involves acting emotionally and relying on gut feelings. Quick, immediate reactions to situations, rather than deliberate thought and re? ection, are an important aspect of managerial action. 4 Often managers are overloaded with responsibilities and do not have time to analyze every nuance of a situation; they therefore make decisions in uncertain conditions not knowing which outcomes will be best. 15 Moreover, top managers face constantly changing situations, and a decision that seems right today may prove to be wrong tomorrow. The range of problems that managers face is enormous; managers usually must handle many problems simultaneously; and they often must make snap decisions using the intuition and experience gained through their careers to perform their jobs to the best of their abilities. 6 Henry Mintzberg, by following managers and observing what they actually do—hour by hour and day by day—identi? ed 10 kinds of speci? c roles, or sets of job responsibilities, that capture the dynamic nature of managerial work. 17 He grouped these roles according to whether the responsibility was primarily decisional, interpersonal, or informational; they are described in Table 1. 1. Given the many complex, dif? cult job responsibilities managers have, it is no small wonder that many claim they are performing their jobs well if they are right just half of the time. 8 And it is understandable that many experienced managers accept failure by their subordinates as a normal part of the learning experience and a rite of passage to becoming an effective manager. Managers and their subordinates learn from both their successes and their failures. 14 Chapter 1 Table 1. 1 Managerial Roles Identi? ed by Mintzberg Type of Role Speci? c Role Examples of Role Activities Decisional Entrepreneur Disturbance handler Resource allocator Negotiator Interpersonal Figurehead Leader Liaison Informational Monitor Disseminator
Spokesperson Commit organizational resources to develop innovative goods and services; decide to expand internationally to obtain new customers for the organization’s products. Move quickly to take corrective action to deal with unexpected problems facing the organization from the external environment, such as a crisis like an oil spill, or from the internal environment, such as producing faulty goods or services. Allocate organizational resources among different tasks and departments of the organization; set budgets and salaries of middle and ? st-level managers. Work with suppliers, distributors, and labor unions to reach agreements about the quality and price of input, technical, and human resources; work with other organizations to establish agreements to pool resources to work on joint projects. Outline future organizational goals to employees at company meetings; open a new corporate headquarters building; state the organization’s ethical guidelines and the principles of behavior employees are to follow in their dealings with customers and suppliers.
Provide an example for employees to follow; give direct commands and orders to subordinates; make decisions concerning the use of human and technical resources; mobilize employee support for speci? c organizational goals. Coordinate the work of managers in different departments; establish alliances between different organizations to share resources to produce new goods and services. Evaluate the performance of managers in different tasks and take corrective action to improve their performance; watch for changes occurring in the external and internal environments that may affect the organization in the future.
Inform employees about changes taking place in the external and internal environments that will affect them and the organization; communicate to employees the organization’s vision and purpose. Launch a national advertising campaign to promote new goods and services; give a speech to inform the local community about the organization’s future intentions. Managers and Managing 15 Levels and Skills of Managers department A group of people who work together and possess similar skills or use the same knowledge, tools, or techniques to perform their jobs. To perform the four managerial tasks ef? iently and effectively, organizations group or differentiate their managers in two main ways—by level in hierarchy and by type of skill. First, they differentiate managers according to their level or rank in the organization’s hierarchy of authority. The three levels of managers are ? rst-line managers, middle managers, and top managers—arranged in a hierarchy. Typically ? rst-line managers report to middle managers, and middle managers report to top managers. Second, organizations group managers into different departments (or functions) according to their speci? job-related skills, expertise, and experiences, such as a manager’s engineering skills, marketing expertise, or sales experience. A department, such as the manufacturing, accounting, engineering, or sales department, is a group of managers and employees who work together because they possess similar skills and experience or use the same kind of knowledge, tools, or techniques to perform their jobs. Within each department are all three levels of management. Next we examine why organizations use a hierarchy of managers and group them, by the jobs they perform, into departments. LO1-3
Differentiate among three levels of management, and understand the tasks and responsibilities of managers at different levels in the organizational hierarchy. Levels of Management Organizations normally have three levels of management: ? rst-line managers, middle managers, and top managers (see Figure 1. 3). Managers at each level have different but related responsibilities for using organizational resources to increase ef? ciency and effectiveness. At the base of the managerial hierarchy are ? rst-line managers, often called supervisors. They are responsible for daily supervision of the nonmanagerial employees who perform the speci? activities necessary to produce goods and services. Firstline managers work in all departments or functions of an organization. Examples of ? rst-line managers include the supervisor of a work team in the manufacturing department of a car plant, the head nurse in the obstetrics department of a hospital, and the chief mechanic overseeing a crew of mechanics in the service ?rst-line manager A manager who is responsible for the daily supervision of nonmanagerial employees. Figure 1. 3 Levels of Managers CEO Top Managers Middle Managers First-Line Managers 16 Chapter 1 iddle manager A manager who supervises first-line managers and is responsible for finding the best way to use resources to achieve organizational goals. top manager A manager who establishes organizational goals, decides how departments should interact, and monitors the performance of middle managers. top management team A group composed of the CEO, the COO, the president, and the heads of the most important departments. function of a new car dealership. At Dell, ? rst-line managers include the supervisors responsible for controlling the quality of its computers or the level of customer service provided by telephone salespeople.
When Michael Dell started his company, he personally controlled the computer assembly process and thus acted as a ? rst-line manager or supervisor. Supervising the ? rst-line managers are middle managers, responsible for ? nding the best way to organize human and other resources to achieve organizational goals. To increase ef? ciency, middle managers ? nd ways to help ? rst-line managers and nonmanagerial employees better use resources to reduce manufacturing costs or improve customer service.
To increase effectiveness, middle managers evaluate whether the organization’s goals are appropriate and suggest to top managers how goals should be changed. Often the suggestions that middle managers make to top managers can dramatically increase organizational performance. A major part of the middle manager’s job is developing and ? ne-tuning skills and know-how, such as manufacturing or marketing expertise, that allow the organization to be ef? cient and effective. Middle managers make thousands of speci? c decisions about the production of goods and services: Which ? st-line supervisors should be chosen for this particular project? Where can we ? nd the highest-quality resources? How should employees be organized to allow them to make the best use of resources? Behind a ? rst-class sales force, look for the middle managers responsible for training, motivating, and rewarding the salespeople. Behind a committed staff of high school teachers, look for the principal who energizes them to ? nd ways to obtain the resources they need to do outstanding and innovative jobs in the classroom. In contrast to middle managers, top managers are responsible for the performance of all departments. 9 They have cross-departmental responsibility. Top managers establish organizational goals, such as which goods and services the company should produce; they decide how the different departments should interact; and they monitor how well middle managers in each department use resources to achieve goals. 20 Top managers are ultimately responsible for the success or failure of an organization, and their performance (like that of Michael Dell or Ursula Burns) is continually scrutinized by people inside and outside the organization, such as other employees and investors. 1 The chief executive of? cer (CEO) is a company’s most senior and important manager, the one all other top managers report to. Today the term chief operating of? cer (COO) often refers to the top manager who is being groomed to take over as CEO when the current CEO, such as Anne Mulcahy, becomes the chair of the board, retires, or leaves the company. Together the CEO and COO are responsible for developing good working relationships among the top managers of various departments (manufacturing and marketing, for example); usually these top managers have the title “vice president. A central concern of the CEO is the creation of a smoothly functioning top management team, a group composed of the CEO, the COO, and the vice presidents most responsible for achieving organizational goals. 22 The relative importance of planning, organizing, leading, and controlling—the four principal managerial tasks—to any particular manager depends on the manager’s position in the managerial hierarchy. 23 The amount of time managers spend planning and organizing resources to maintain and improve organizational performance increases as they ascend the hierarchy (see Figure 1. ). 24 Top managers devote most of their time to planning and organizing, the tasks so crucial to determining an organization’s long-term performance. The lower that managers’ positions are in the hierarchy, the more time the managers spend leading and controlling ? rst-line managers or nonmanagerial employees. LO1-4 Distinguish between three kinds of managerial skill, and explain why managers are divided into different departments to perform their tasks more efficiently and effectively. Managerial Skills
Both education and experience enable managers to recognize and develop the personal skills they need to put organizational resources to their best use. Michael Dell realized from the start that he lacked suf? cient experience and technical expertise in marketing, ? nance, and planning to guide his company alone. Thus he recruited Managers and Managing 17 Figure 1. 4 Relative Amount of Time That Managers Spend on the Four Managerial Tasks Planning Organizing Leading Controlling Top managers Middle managers First-line managers onceptual skills The ability to analyze and diagnose a situation and to distinguish between cause and effect. experienced managers from other IT companies, such as IBM and HP, to help build his company. Research has shown that education and experience help managers acquire and develop three types of skills: conceptual, human, and technical. 25 Conceptual skills are demonstrated in the general ability to analyze and diagnose a situation and to distinguish between cause and effect. Top managers require the best conceptual skills because their primary responsibilities are planning and organizing. 6 By all accounts, Steve Jobs was chosen as CEO to transform Apple, and Anne Mulcahy was chosen to revive Xerox, because of their ability to identify new opportunities and mobilize managers and other resources to take advantage of those opportunities. Formal education and training are important in helping managers develop conceptual skills. Business training at the undergraduate and graduate (MBA) levels provides many of the conceptual tools (theories and techniques in marketing, ? nance, and other areas) that managers need to perform their roles effectively.
The study of management helps develop the skills that allow managers to understand the big picture confronting an organization. The ability to focus on the big picture lets managers see beyond the situation immediately at hand and consider choices while keeping in mind the organization’s long-term goals. Today continuing management education and training, including training in advanced IT, are an integral step in building managerial skills because new theories and techniques are constantly being developed to improve organizational effectiveness, such as total quality management, benchmarking, and Web-based organization and usiness-to-business (B2B) networks. A quick scan through a magazine such as BusinessWeek or Fortune reveals a host of seminars on topics such as advanced marketing, ? nance, leadership, and human resources management that are offered to managers at many levels in the organization, from the most senior corporate executives to middle managers. Microsoft, IBM, Oracle, and many other organizations designate a portion of each manager’s personal budget to be used at the manager’s discretion to attend management development programs. In addition, organizations may wish to develop a particular manager’s abilities in a speci? skill area—perhaps to learn an advanced component of departmental skills, 18 Chapter 1 human skills The ability to understand, alter, lead, and control the behavior of other individuals and groups. technical skills The job-specific knowledge and techniques required to perform an organizational role. core competency The specific set of departmental skills, knowledge, and experience that allows one organization to outperform another. such as international bond trading, or to learn the skills necessary to implement total quality management.
The organization thus pays for managers to attend specialized programs to develop these skills. Indeed, one signal that a manager is performing well is an organization’s willingness to invest in that manager’s skill development. Similarly, many nonmanagerial employees who are performing at a high level (because they have studied management) are often sent to intensive management training programs to develop their management skills and to prepare them for promotion to ? rst-level management positions. Human skills include the general ability to understand, alter, lead, and control the behavior of other individuals and groups.
The ability to communicate, to coordinate, and to motivate people, and to mold individuals into a cohesive team, distinguishes effective from ineffective managers. By all accounts, Steve Jobs, Anne Mulcahy, and Michael Dell all possess a high level of these human skills. Like conceptual skills, human skills can be learned through education and training, as well as be developed through experience. 27 Organizations increasingly utilize advanced programs in leadership skills and team leadership as they seek to capitalize on the advantages of self-managed teams. 8 To manage personal interactions effectively, each person in an organization needs to learn how to empathize with other people—to understand their viewpoints and the problems they face. One way to help managers understand their personal strengths and weaknesses is to have their superiors, peers, and subordinates provide feedback about their job performance. Thorough and direct feedback allows managers to develop their human skills. Technical skills are the job-speci? c skills required to perform a particular type of work or occupation at a high level. Examples include a manager’s speci? manufacturing, accounting, marketing, and increasingly, IT skills. Managers need a range of technical skills to be effective. The array of technical skills managers need depends on their position in their organizations. The manager of a restaurant, for example, may need cooking skills to ? ll in for an absent cook, accounting and bookkeeping skills to keep track of receipts and costs and to administer the payroll, and aesthetic skills to keep the restaurant looking attractive for customers. As noted earlier, managers and employees who possess the same kinds of technical skills typically become members of a speci? department and are known as, for example, marketing managers or manufacturing managers. 29 Managers are grouped into different departments because a major part of a manager’s responsibility is to monitor, train, and supervise employees so their job-speci? c skills and expertise increase. Obviously this is easier to do when employees with similar skills are grouped into the same department because they can learn from one another and become more skilled and productive at their particular jobs. Figure 1. 5 shows how an organization groups managers into departments on the basis of their job-speci? skills. It also shows that inside each department, a managerial hierarchy of ? rst-line, middle, and top managers emerges. At Dell, for example, Michael Dell hired experienced top managers to take charge of the marketing, sales, and manufacturing departments and to develop work procedures to help middle and ? rst-line managers control the company’s explosive sales growth. When the head of manufacturing found he had no time to supervise computer assembly, he recruited experienced manufacturing middle managers from other companies to assume this responsibility.
At Xerox, Anne Mulcahy nurtured many of her managers to develop the required functional skills, such as Ursula Burns, who used her engineering expertise to rise to become CEO. Today the term core competency is often used to refer to the speci? c set of departmental skills, knowledge, and experience that allows one organization to outperform its competitors. In other words, departmental skills that create a core competency give an organization a competitive advantage. Dell, for example, was the ? st PC maker to develop a core competency in materials management that allowed it to produce PCs at a much lower cost than its competitors—a major source of competitive advantage. Similarly, 3M is well known for its core competency in research and development (R&D) that allows it to innovate new products at a faster rate than its competitors, and Xerox has been working to develop a competency to provide a fullrange service that is customized to the needs of each of the companies it serves. Managers and Managing 19 Figure 1. 5 Types and Levels of Managers CEO
Top Managers Middle Managers First-Line Managers Research and development department Marketing and sales department Manufacturing department Accounting department Materials management department Effective managers need all three kinds of skills—conceptual, human, and technical— to help their organizations perform more ef? ciently and effectively. The absence of even one type of managerial skill can lead to failure. One of the biggest problems that people who start small businesses confront, for example, is their lack of appropriate conceptual and human skills.
Someone who has the technical skills to start a new business does not necessarily know how to manage the venture successfully. Similarly, one of the biggest problems that scientists or engineers who switch careers from research to management confront is their lack of effective human skills. Ambitious managers or prospective managers are constantly in search of the latest educational contributions to help them develop the conceptual, human, and technical skills they need to perform at a high level in today’s changing and increasingly competitive global environment.
Developing new and improved skills through education and training has become a priority for both aspiring managers and the organizations they work for. As we discussed earlier, many people are enrolling in advanced management courses; but many companies, such as Microsoft, GE, and IBM, have established their own colleges to train and develop their employees and managers at all levels. Every year these companies put thousands of their employees through management programs designed to identify the employees who the company believes have the competencies that can be developed to become its future top managers.
Most organizations closely link promotion to a manager’s ability to acquire the competencies that a particular company believes are important. 30 At Apple and 3M, for example, the ability to successfully lead a new product development team is viewed as a vital requirement for promotion; at Accenture and IBM, the ability to attract and retain clients is viewed as a skill its consultants must possess. We discuss the various kinds of skills managers need to develop in most of the chapters of this book. 20 Chapter 1 Recent Changes in Management Practices
The tasks and responsibilities of managers have been changing dramatically in recent years. Two major factors that have led to these changes are global competition and advances in information technology (IT). Stiff competition for resources from organizations both at home and abroad has put increased pressure on all managers to improve ef? ciency and effectiveness. Increasingly, top managers are encouraging lower-level managers to look beyond the goals of their own departments and take a cross-departmental view to ? nd new opportunities to improve organizational performance, as Steve Jobs and Anne Mulcahy did.
Modern IT gives managers at all levels and in all areas access to more and better information and improves their ability to plan, organize, lead, and control. IT also gives employees more job-related information and allows them to become more skilled, specialized, and productive. 31 Restructuring and Outsourcing To utilize IT to increase ef? ciency and effectiveness, CEOs and top management teams have been restructuring organizations and outsourcing speci? c organizational activities to reduce the number of employees on the payroll and make more productive use of the remaining workforce.
Restructuring involves simplifying, shrinking, or downsizing an organization’s operations to lower operating costs, as both Dell and Xerox have been forced to do. The ? nancial crisis that started in 2009 has forced most companies—large and small, and pro? t and nonpro? t—to ? nd ways to reduce costs because their customers are spending less money, so their revenues decrease. Restructuring can be done by eliminating product teams, shrinking departments, and reducing levels in the hierarchy, all of which result in the loss of large numbers of jobs of top, middle, or ? st-line managers, as well as nonmanagerial employees. Modern IT’s ability to improve ef? ciency has increased the amount of downsizing in recent years because IT makes it possible for fewer employees to perform a given task. IT increases each person’s ability to process information and make decisions more quickly and accurately, for example. U. S. companies are spending over $100 billion a year to purchase advanced IT that can improve ef? ciency and effectiveness. We discuss the many dramatic effects of IT on management in Chapter 18 and throughout this book.
Restructuring, however, can produce some powerful negative outcomes. It can reduce the morale of remaining employees, who worry about their own job security— something Anne Mulcahy had to deal with at Xerox. And top managers of many downsized organizations realize that they downsized too far when their employees complain they are overworked and when increasing numbers o