Strategic Planning for Business: A Comprehensive Guide - Prof. Christopher P. Neck, Study notes of Introduction to Business Management

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Suzanne Lee 10/22/ MGMT 3304 Study Guide Exam 2 CHAPTER 3: Ethics and Corporate Responsibility

• Ethics: the system of rules that governs the ordering of values o Motivations to go against ethics are greed and pressure to meet unrealistic goals and deadlines o Most ppl think they’re good decision makers but in fact, have unconscious biases that favor themselves and their own group o Reasons for lying: conflicting expectations, negotiation, keeping a confidence, and reporting your own performance within an organization. Chart on pg 51 o Employers are concerned with computer users introducing viruses, leaking confidential info, and creating a hostile work environ by d/l inappropriate content o The aim of ethics is to identify the rules that should govern behavior and the “goods” that are work seeking. Ethical decisions are guided by the underlying values of the individual o Ethical issue: a situation in which an individual must choose among several actions that must be evaluated as morally right or wrong. o Business ethics: moral principles and standards that guide behavior in the world of business o Moral philosophy: the principles, rues and values people use in deciding what is right/wrong.
• Five major ethical systems used as guides: o 1. Universalism: all ppl should uphold certain values that society needs to function – values that are fundamental to human existence – rules against murder, torture, etc. o Caux Principles for Business: tow basic ethical ideals  Kyosei: living and working together for the common good and mutual prosperity.  Human dignity: the value of each person as an end and not the fulfillment of other’s purposes. o 2. Egoism: acceptable behavior that maximizes benefits for the individual. If everyone follows this, the well-being of society should increase o 3. Utilitarianism: directly seeking the greatest good for the greatest # of people.(Citibank student loan/school kickbacks example) o 4. Relativism: ethical behavior based on the opinions and behaviors of relevant other ppl. It acknowledges the existence of diff ethical viewpoints – norms of expected behavior vary in other countries o 5. Virtue ethics: a perspective that what is moral comes from what a mature person with “good” moral character would deem right

• Kohlberg’s model of cognitive moral development: classifies ppl into categories based on level of moral judgment.  Preconventional stage – make decisions based on rewards/punishments and immediate self-interest  Conventional stage – conform to the expectations of ethical behavior held by groups/institutions  Principled stage – see beyond authority, laws, etc. and follow self- chosen ethical principles.
• Sarbanes-Oxley Act of 2002: responding to a series of corporate scandals, passed to improve and maintain investor confidence o Requires companies to: have more independent board directors, adhere strictly to accounting rules, and have senior managers personally sign off financial results o The US Sentencing Commission modified the sentencing saying that organizations convicted of fed criminal laws may receive more lenient sentences if shown to have an effective compliance and ethics program
• Ethical climate: the processes by which decisions are evaluated and made on the basis of right/wrong
• Danger signs of unethical behavior: o Excessive emphasis on short-term revenues rather than long-term o Failure to estab. Written code of ethics o Desire for simple, quick-fix, solutions to ethical problems o Considering ethics solely as a legal issue o Lack of clear procedures for handling ethical problems
• Managers must lead others to behave ethically
• Ethical leader: those who are both personally moral and a moral manager o IBM’s guideline: if under full glare of examination by associates/friends/etc, would you remain comfortable with your decisions - “light of day” or “sunshine” ethical framework
• Ethic codes must be tailored to individual companies’ philosophies o Involve those who must live with the code in writing it o Focus on real-life situations o Short and simple o Beliefs that people can really believe in
• Ethics programs: o Compliance-based ethics programs: designed by corporate counsel to prevent, detect and punish legal violations. They increase surveillance and punish wrongdoers o Integrity-based ethics programs: concerned with the law but also with instilling in people a personal responsibility for ethical behavior Making ethical decisions takes 3 things: o Moral awareness, moral judgment and moral character – strength and persistence to act in accordance with your ethics
• Corporate social responsibility: obligation toward society assumed by business – maximizes positive effects on society and minimizes negative effects

• Economic responsibilities: product goods and services that society wants at a price that perpetuates the business and satisfies its obligations to investors
• Legal responsibilities: obey local, state, fed and relevant international laws
• Ethical responsibilities: meeting other societal expectations, not written as law
• Philanthropic responsibilities: additional behaviors and activities that society finds desirable and that the values of the business support
• Transcendent education: 5 goals that balance self-interest w/responsibility to others o Empathy: feeling your decisions as potential victims might feel them o Generativity: give as well as take o Mutuality: viewing success as a common victory o Civil aspiration: thinking in terms of positive contributions o Intolerance of ineffective humanity: speaking out against unethical actions
• Social Responsibility can do well for your business o Reducing carbon emissions is more of a competitive advantage to Toyota rather than UPS or Bank of America
• Companies “go green” to satisfy consumer demand, react to competitor’s actions and meet requests of customers and suppliers
• Ecocentric management: the creation of sustainable economic development and improvement of quality of life for all org stakeholders
• Sustainable growth: econ growth that meets org’s present needs w/out harming ability of future generations to meet their needs
• Life-cycle Analysis (LCA): process of analyzing all inputs/outputs, through the entire “cradle to grave” life of a product to determine total environ impact of production and use of a product. o Design of initial packaging in sizes/formats adaptable to final consumer can minimize need for repackaging, cut waste and realize financial benefits CHAPTER 4: Strategic Planning Planning: the conscious systematic process of making decisions and goals and activities that an individual, group, work unit, or organization will pursue – moves in a cycle 6 Formal Planning Steps
• Step 1: Situational analysis: planners should gather, interpret, and summarize all info relevant to the planning issue in question o Examines internal forces and influences from the external environment o Identification and diagnosis of planning assumptions, issues and problems
• Step 2: Generate alternative goals and plans for achieving goals – stress creativity o Goals: targets the manager wants to reach. They should have certain qualities in SMART:  Specific- precise  Measurable- no doubt whether it was achieved  Attainable – won’t become discouraged

 Relevant – contribute to the organization’s overall mission  Time-bound – specify a target date o Plans: actions or means the manager intends to use to achieve goals  Single-use plans, standing plans and contingency plans – specify actions to take when company’s initial plans have not worked well

• Step 3: Evaluate goals and plans o Managers evaluate advantages, disadvantages and potential effects of each alternative goal and plan. Must prioritize goals and eliminate some
• Step 4: Select goals and plans: select the most appropriate and feasible alternative o Scenarios: different plan is attached to each scenario–pick the plan that fits
• Step 5: Implement the goals and plans o Employees usually are better informed, more committed and more highly motivated when a goal or plan is one that they helped develop
• Step 6: Monitor and control performance o Managers must continually monitor the actual performance of their work units against the unit’s goals and plans and allow employees to take corrective action Levels of Planning
• Top level: strategic ; middle-level: tactical ; frontline: operational
• Strategic planning: making decisions about the organization’s long-term goals and strategies
• Strategic goals: major targets that relate to the long-term survival/growth of the organization
• Strategy: pattern of actions designed to achieve the org’s goals
• Strategic planning typically has a time horizon of 3-7 years but can span decades
• Tactical planning: translates broad strategic goals relevant to particular portion of the org. Focus on the major actions a unit must take to fulfill its part of the strategic plan
• Operational planning: specific procedures/processes required at lower levels of the org. (frontline managers)
• All levels of planning should be aligned: consistent, mutually supportive in achieving common purpose and direction  Strategic plan of Whole Foods: to sell the highest quality products.  Operational goals: ingredients, freshness, taste, nutritive value, safety, etc.  Tactical goals: store environ that is inviting, fun, unique and informal
• Strategic management: managers from all parts of the org in the formulation and implementation of strategic goals/strategies  6 steps: estab. Mission, analyze external opportunities/threats, analyze internal opps/threats, SWOT analysis, and strategic control
• First, estab a mission, vision and goals o Mission: a clear/concise expression of the org’s basic purpose

o Strategic vision: provides perspective on where the org is headed o Strategic goals evolve the org’s mission and vision

• Second, analyze external opportunities and threats o The mission and vision drive analysis of the external environ.  Environ. Elements: industry profile, industry growth, industry forces, competitor profile, competitor analysis, competitor advantages, legislation, social issues, tech factors, etc. o Stakeholders: individuals/groups who affect and are affected by achievement of the org’s mission, goals, and strategies. (ie buyers, suppliers, competitors, gov’t and regulation agencies)
• Third, analyze internal strengths and weaknesses o Financial analysis: examines financial strength/weaknesses o Human resource assessment o Marketing audit: strengths/weaknesses of major marketing activities o Operations analysis: s/w or org’s manufacturing, production, delivery o Resources: inputs to production that can be accumulated over time to enhance the performance of a firm  Tangible assets: real estate, raw materials  Intangible assets: patents, culture, tech knowledge, experience o Core competence: something a company does especially well relative to its competitors (Honda has a small-engine design; FedEx = good customer service) o Benchmarking: process of assessing how well one’s company’s functions/ skills compare to competitors
• Forth, conduct a SWOT analysis and formulate strategy o Corporate strategy: identify the set of businesses in which the org competes and the distribution of resources among those  Concentration: focusing on a single business competing in a single industry  Vertical integration: company handles all aspects of processing – Henry Ford  Concentric diversification: moving into new businesses related to the company’s original core business  Conglomerate diversification: expansion into unrelated businesses to minimize risks due to market fluctuations in one industry  BCG Matrix (Boston Consulting Group)  Question marks: high growth, weak competitive position  Stars: high growth and strong competitive position  Cash cows: low growth, strong competitive position – generate excess revenues and fund other businesses  Dogs: low growth, weak competitive position – business should be divested o Business strategy: the major actions by which an org builds and strengthens its competitive position in the marketplace  Low-cost strategy: be efficient and offer a standard, no-frills product (ie: Southwest Airlines)

 Differentiation strategy: company tries to be unique in its industry (ie: Scott Paper Co. and free dispenser that holds larger rolls.  The most effective strategy: one that competitors are unwilling or unable to imitate  Functional strategies: implemented by each functional area of the org to support the business strategy

• Fifth, strategy implementation involves 4 major steps: o Define strategic tasks o Assess org capabilities o Develop an implementation agenda o Create an implementation plan
• Sixth, finally – control your progress o Strategic control system: designed to support managers in evaluating the org’s progress with its strategy and taking corrective action when discrepancies exist  The dual responsibilities of a control system – efficiency and flexibility Managerial decision making
• Decision making is so challenging because most managerial decision lack structure and entail risk, uncertainty and conflict o Risk: when you can estimate the likelihood of various consequences but still don’t know what will happen  When the prob.of an action is less than 100% and losses may occur  Web technology may help to reduce uncertainty: including customers in the design process
• Formal decision making has 6 stages: o Identify and diagnose the problem o Generate alternative solutions o Evaluate alternatives – paralysis by analysis  Maximizing: achieving the best possible outcome that gains the greatest positive consequences and fewest neg consequences  Satisficing: choosing the first option that is minimally acceptable or adequate  Optimizing: achieving the best possible outcome among several goals – interested in quality as well as price o Make the choice o Implement the decision o Evaluate the decision  Psychological biases:  Illusion of control: belief that one can influence events even when one has no control over what will happen  Framing effects: phrasing or presenting problems in a way that subjectively influences or overrides the facts- the way options are expressed determine the managers’ choices

 Discounting the future: weighing short-term costs and benefits more heavily than longer-term costs/benefits Chapter 5: Entrepreneurship

• Managers operate in a formal management hierarchy with well/defined authority while entrepreneurs use networks of contacts more than formal authority
• Small business: fewer than 100 employees and expect normal, moderate sales
• Entrepreneurial venture: growth and high profitability as its primary objectives. Manage aggressively and have innovative strategies
• Since 1980, more than 95% of the wealth of the US has been created from entrepreneurs. In states with more small business start-ups, economies grow faster and employment levels are higher
• Entrepreneurs: individuals who establish a new org w/out the benefit of corporate support
• Intrapreneurs: new-venture creators working inside big companies – corporate entrepreneurs
• Immigrants find conventional paths to economic success closed to them and turn to entrepreneurships
• “It’s how you look at something and how it’s managed that makes the difference”
• What business should you start? o Many great orgs have been built on diff kind of idea: the founder’s desire to build a great org THEN think of the product/service o To spot opportunities, think carefully about events/trends as they unfold  Tech discoveries, demographic changes, lifestyle/taste changes, econ dislocations (booms and failures) – rising oil  solar cells o Franchising: entrepreneurial alliance btwn two parties:  Franchisor: innovator who has created at least one successful store and seeks partners to operate the same concept in other local markets (wealth creation through growth)  Franchisee – operator of one or more stores according to the terms of the alliance (wealth creation via proven business concept)  65% of franchiese succeded/still were operating at end of the 6 year period compared to 72% of independent businesses  Next frontiers: outer space and homeland security o Internet  Transaction fee model: companies charge fee for goods/services (amazon.com)  Advertising support model  Intermediary model: website brings buyers/sellers together and charges a commission for each sale (eBay)

 Affiliate model: sites pay commissions to other sites to drive business to their own sites  Subscription model: website charges a monthly fee for site visits o Side streets  Some entrepreneurs start their enterprises then let the market decide whether it likes their ideas – risky. Must prepare to act quickly

• What does it take? o Commitment, leadership, opportunity obsession, tolerance of risk, ambiguity and uncertainty, creativity, ability to adapt, and motivation o Making good choices  High innovation, little risk: Lego building blocks, Velcro  High innovation, high risk: new products  Low innovation, high risk: restaurants, retail shops  Low-innovation, low-risk: minimal investment/competition o Successful companies do NOT always requires a cutting-edge technology or an exciting new product
• Improving the odds of success o Two major liabilities: newness/smallness  Odds of survival improve when venture grows to at least 10- ppl, revenues of $2 to $3 million and is pursuing opportunities with growth potential  Good econ times = easier to start a company. Bad times = chance to expand (easier to recruit talent) o Business incubators: nurturing environments for fledging enterprises (industrial parks/abandoned factories) that protect environ for new businesses.  Often associated with universities o As the business grows, it gets harder to delegate – stick to what you know how to do and delegate o Misuse of funds and poor controls (bad record keeping) = bad o Two conditions for the org to outlive the entrepreneur:  Company goes public (initial public stock offerings – IPOs: rise capital through federally registered sales of shares in the company)  Entrepreneur has planned an orderly succession – family member
• Planning/resources help you succeed o Opportunity analysis: description of the good or service, assessment of the opportunity, an assessment of the entrepreneur, sources of capital, specification of activities and resources needed to translate your idea into a business o Business plan: all the elements involved in starting the new venture  5 key factors:  The people, the opportunity (competitive advantages), the competition, the context (favorable environment – taxes, interest rates, etc), risk and reward (risk understood)

• Non-financial resources o Legitimacy: ppl’s judgment of a company’s acceptance, appropriateness, and desirability o Networks: social capital
• Top Management Teams o Board of directors: improves company’s image, develops longer-term plans for expansion, supports daily activities, etc o Advisory boards: ppl with experience help the entrepreneur o Partners: through communication and laying out the facts, can overcome many issues Intrapreneurship
• Build Support for Your Ideas o Clearing the investment: explain and seek approval from your boss o Making cheerleaders o Horse trading: making promises of payoffs in return for support o Get the blessing of relevant higher-level officials
• Two common approaches to build intrapreneurial activity in your org: o Skunksworks: project teams designated to produce a new product. o Bootlegging: informal efforts in which employees work to create new products/processes on own time and initiatives. Can be secretive (maybe boss would frown upon it) but companies should tolerate/encourage it – they allow freedom to pursue projects without monitoring progress
• Most dangerous risk – overrelying on a single project. Companies fail while awaiting the completion of one large, innovative project. Entrepreneurial orientation: tendency of an org to engage in activities designed to identify and capitalize successfully on opportunities to launch new ventures by entering new or established markets with new or existing goods/services – determined by 5 tendencies o Independent action: freedom to exercise creativity o Innovativeness o Risk taking o Proactiveness: anticipation of future problems and opportunities o Competitive aggressiveness: challenge competitors directly and intensely Chapter 9: Leadership Leader: one who influences others to attain goals What ppl want and what orgs need are neatly combined in a set of five key behaviors:
• Challenge the process/conventional beliefs
• Inspire a shared vision
• Enable others to act
• Model the way
• Encourage the heart – show appreciation and provide rewards

Vision: a mental image of a possible and desirable future state of the org. It expresses the leader’s ambition for the org

• Many ppl including managers who do not develop into strong leaders, fail to develop a clear vision – instead they focus on performing or surviving day by day
• Leaders must know what they want and ppl must understand what it is. Leading and Managing
• Managing requires planning and budgeting routines while leadership includes setting the direction- creating a vision for the firm
• Supervisory leadership: behavior that provides guidance, support and corrective feedback for day-to-day activities
• Strategic leadership: purpose and meaning to organizations by working with others to initiate changes that create such a future
• Power: the ability to influence other ppl or in orgs- the ability to get things done/accomplish one’s goals despite resistance from others o Legitimate power: authority to tell others what to do o Reward power: influences others because controls rewards people want o Coercive power: control over punishments o Referent power: personal characteristics that appeal to others: admiration o Expert power: expertise/knowledge – ppl comply cuz they believe
• Three traditional approaches to studying leadership: o Trait approach: focuses on individual leaders and tries to determine the personal characteristics that great leaders share: assumes leaders are born, not made. Leaders have:  Drive: high need for achievement, ambition, striving for improvement  Leadership motivation: the want to lead, be extroverted  Integrity: correspondence btwn actions and words. Honesty  Self-confidence: setbacks are inevitable. Be ready w/ confidence  Knowledge of the business: high level of knowledge about their industries Certain behaviors may make leaders effective
• Behavioral approach: identify what good leaders do. Focus on getting the job done and keeping followers happy…how both at once? o Task performance behaviors: leader’s efforts to ensure the org reaches its goals – referred to as concern for production, directive leadership, initiating structure, or closeness supervision o Group Maintenance behaviors: action to ensure the satisfaction of group members, maintain harmonious work relationships, and preserve the group’s social stability

o Leader-Member Exchange (LMX) theory: importance of leader behaviors not just toward the group but toward individuals on a personal basis o Autocratic leadership: make decisions then announce them to the group – highest performance o Democratic leadership: solicits input from others – most positive attitudes o Laissez-fair style of leadership: leader essentially made no decisions – leads to more neg attitude and low performance The best way to lead depends on the situation

• Situational approach: universally important traits/behaviors don’t exist – effect leader behaviors vary from situation to situation
• Vroom model: emphasizes the participative dimension of leadership: how leaders go about making decisions – assessing the situation before approaching it o Decision significance, importance of commitment, leader’s expertise, likelihood of commitment, group support for objectives, group expertise, team competence
• Five leader decision styles: o Decide: make decision then announce/sell it to the group o Consult individually o Consult the group o Facilitate: make sure that your ideas are not given any greater weight than those of others because of your position o Delegate
• Fiedler’s contingency model of leadership effectiveness: effectiveness depends on two factors: the personal style of the leader and the degree to which the situation gives the leader power, control, and influence o Measured leadership styles based on assessing a leader’s least preferred coworker (LPC) – the attitude toward the follower the leader liked the least  Low LPC is more likely in Task-motivated leadership  High LPC is more likely in relationship-motivated leadership
• Situational theory: aka life-cycle theory of leadership o Job maturity: level of the followers’ skills o Psychological maturity: self-confidence/self-respect
• Path-goal theory: concern with how leaders influence followers’ perceptions of their work goals and the paths they follow toward goal attainment o 4 pertinent leadership behaviors: directive leadership (task oriented), supportive leadership (group maintenance), participative leadership, achievement orientated – setting challenging goals/rewarding good performance o Theory also specifies which follower/environ characteristics important  Authoritarianism: degree to which individuals respect, admire and defer to authority

 Locus of control: extent to which individuals see environment as responsive to their own behavior. Internal – what happens to them is their own doing; external – what happens is cuz of fate/luck  Ability: ppl’s beliefs about their own abilities to do their jobs

• Substitutes for leadership: sometimes leaders don’t have to lead o Leadership has very little impact/ is not necessary o Group Maintenance Substitutes: Close-knit group, professional orientation, job is satisfying, great physical distance btwn leader and followers o Task performance leadership substitutes: ppl with a lot of experience/ability, feedback is supplied to them directly from the task or a computer, rules and procedures are rigid
• Charismatic leaders: dominant, exceptionally self-confident. Strong conviction in moral righteousness – arouses sense of excitement/adventure
• Transformational leaders: get ppl to transcend their personal interests for the sake of the larger community – generate excitement and revitalize orgs o 4 skills needed: have a vision, communication vision, building trust, having positive self-regard
• Transactional leaders: view management as a series of transactions in which they use their legitimate, reward and coercive powers to give commands and exchanges rewards for services
• Level 5 leadership: combination of strong professional will and personal humility that builds enduring greatness. A Level 5 leader is relentlessly focused on the org’s long-term success while behaving with modesty, directing attention toward the org, rather than him or herself.
• Authentic leadership: rooted in the ancient Greek philosophy, “to thine own self be true.” This is in the form of honesty, genuineness, reliability, and trust
• Pseudotransformational leaders: the opposite – they talk a good game but ignore followers’ real needs as own self-interests take precedence.
• Servant leader: “leader” and “servant” are usually opposites but in this case they’re put together – like serving customers. Usually easier for orgs focused on what their product or org can do for society
• Bridge leaders: those who leave their cultures for a significant pd of time. Then they return and through expanded repertoire, serve as bridges btwn conflicting value systems within their own cultures or btwn their and other cultures.
• Shared leadership: leadership rotates to the person with the key knowledge, skills and abilities for the issue facing the team at a particular time
• Lateral leadership: does not involve hierarchical, superior-subordinate relationship How do I start? Seek developmental experiences
• Assignments – build something from nothing
• Other ppl – exposure to positive role models and increase visibility to others
• Hardships – overcoming ideas that fail and deals that collapse
• Other events – formal courses – challenging jobs