Chapter 2 - The Management Environment
CHAPTER 2 – THE MANAGEMENT ENVIRONMENT
LEARNING OUTCOMES
After reading this chapter students should be able to:
1. Describe the three waves in modern social history and their implications for organizations.
2. Explain the importance of viewing management from a global perspective.
3. Identify the ways in which technology is changing the manager’s job.
4. Describe the difference between an e-business, e-commerce, and an e-organization.
5. Define social responsibility and ethics.
6. Explain what is meant by the term entrepreneurship and identify the components of the entrepreneurial venture.
7. Describe the management implications of a diversified workforce.
8. Identify which work/life concepts are currently affecting employees.
9. Explain why many corporations have downsized.
10. Describe the key variables for creating a customer-responsive culture.
11. Explain why companies focus on quality and continuous improvement.
Opening Vignette
SUMMARY
Even a company like WalMart cannot guarantee success or the answers to the questions of “Is bigger always better when it comes to organizational size? Does size allow for economies of scale that create greater efficiencies? Does largeness promote success and profitability?” It depends; size alone cannot control environmental factors. Wal-Mart executives learned this lesson in its German companies.
For a period of time, Wal-Mart’s expansion into Germany appeared to be working. Its 85 stores there employed more than 11,000 employees and annual sales there exceeded $2.5 billion USD. However, annual costs exceeded those annual sales figures, and after years of no success in turning the situation around, Wal-Mart executives sold off all 85 stores in Germany (just two months after Wal-Mart pulled out of South Korea for much the same reason).
Wal-Mart’s failure in Germany was ironically brought about for some of the same reasons Wal-Mart succeeds in the US. Strategies of linking to suppliers and taking much of the cost out of the supply chain did not work in Germany. Many perceived the store locations to be poor locations, because Wal-Mart purchased stores the Germans considered second tier. Food suppliers were already aligned with Wal-Mart’s major competitor. Accordingly, Wal-Mart could not compete on price in several areas---a hallmark of the Wal-Mart philosophy.
Cultural differences also created problems. Germans differ from Americans in that they do not like having others bag their groceries, or smiling greeters or cashiers. They prefer a more abrupt and to the point interaction when they shop. Thus, the American managers and the friendly practices that Wal-Mart put in their German stores backfired and offended German patrons.
Wal-Mart learned a more than $1 billion dollar lesson-----that success in one country is not a recipe for success in another.
Teaching Notes
1. Ask the students to respond to the following questions
What other countries might WalMart do well in? Do poorly in? (Similar countries on friendliness---e.g. Sweden; Ireland; Countries that prefer more abruptness---e.g. France)
Ask students to consider any other examples of companies who did not do as well in another country as they thought they would. (e.g. Euro Disney)
What steps might a company take to make the most informed strategic decisions possible when considering moving into another country? (Hiring locals, expatriates living in the country for time before decisions are made, hiring local consultants, etc)
I. THE CHANGING ECONOMY
A. Introduction
1. Organizations that are stagnant and bound by tradition are increasingly fading from the limelight.
2. One of the biggest problems in managing an organization is failing to adapt to change.
a) Just 30 years ago, no one had a fax machine, a cellular phone, or a notebook computer.
b) E-mail and modems were known to maybe, at best, a few hundred people.
c) Computers often took up considerable space, quite unlike the 4-pound laptop today.
d) The silicon chip and other advances in technology have permanently altered the economies of the world and the way people work.
3. Alvin Toffler studied these changes, and predicted some of their implications.
4. He argued that modern civilization has evolved over three “waves.” (PPT 2-2)
a) The first wave was driven by agriculture.
1) Until the late nineteenth century, all economies were agrarian.
2) Individuals were typically their own boss and performed a variety of tasks.
3) Their success—or failure—was contingent on how well they produced.
4) Now less than five percent of the global workforce is needed to provide our food.
b) The second wave was industrialization.
1) From the late 1800s until the 1960s, most developed countries moved to industrial societies.
2) Work left the fields and moved into formal organizations.
3) The industrial wave forever changed the lives of skilled craftsmen.
4) Workers were hired into tightly structured and formal workplaces.
5) Mass production, specialized jobs, and authority relationships became common.
6) By the 1950s, industrial workers were the largest group in every developed country.
7) Today, blue-collar industrial workers account for less than 30 percent of the U.S. workforce (and will be less than half of that in a few years)
8) The shift since World War II has been away from manufacturing and toward service jobs.
5. By the start of the 1970s, the information age was gaining momentum.
a) Technological advancements were eliminating many low-skilled, blue-collar jobs.
b) The information wave was transforming society from manufacturing to service.
c) Job growth in the past 20 years has been in low-skilled service work and knowledge work.
(1) Knowledge workers (those whose jobs are designed around the acquisition and application of information) as a group make up about a third of the U.S. work force.
d) The dot.com business has been the most powerful technological innovation to influence business in the past decade.
(1) Using the Internet is completely changing the rules of business.
6. These waves also affect how we do business.
a) See Exhibit 2-1, The Changing Economy.
Teaching Notes ______
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II. A GLOBAL MARKET PLACE
A. The Globalization of Business
1. Management is no longer constrained by national borders.
a) BMW, a German-owned firm, builds cars in South Carolina.
b) McDonald’s sells hamburgers in China.
c) Exxon, a so-called American company, receives more than three fourths of its revenues from sales outside the U.S.
d) Toyota makes cars in Kentucky.
e) General Motors makes cars in Brazil.
f) Mercedes makes SUVs in Alabama.
g) Parts for Ford Motor Company’s Crown Victoria come from Mexico, Japan, Spain, Germany, and England.
h) The world has become a global village. (PPT 2-3)
2. To be effective in this boundaryless world, managers need to adapt.
3. In the 1960s, Canada’s prime minister described his country’s proximity to the United States as analogous to sleeping with an elephant.
a) In the 2000s, we can generalize this analogy to the entire world.
4. International businesses have been with us for a long time.
b) Siemens, Remington, and Singer, were selling their products in many countries in the nineteenth century.
c) By the 1920s, some companies, including Fiat, Ford, Unilever, and Royal Dutch/Shell, had gone multinational.
d) Not until the mid-1960s were multinational corporations (MNCs) commonplace.
5. The generic global organization, the transnational corporation (TNC).
a) Decisions in TNCs are made at the local level.
b) Nationals are typically hired to run operations in each country.
c) The products and marketing strategies for each country are tailored to that country’s culture.
d) Nestle and Frito Lay, for example, are transnationals.
6. The borderless organization operates effectively by breaking down artificial geographic barriers. (PPT 2-3)
a) IBM reorganized into 14 industry groups.
b) Ford merged its culturally distinct European and North American auto operations.
c) Borderless management is an attempt to increase efficiency and effectiveness in a competitive global marketplace.
Teaching Notes ______
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B. How Does Globalization Affect Organizations?
1. An organization going global typically proceeds through three stages as shown in Exhibit 2-3.
2. Stage I, the first step toward going international, exporting the organization’s products.
a) This is a passive step involving minimal risk.
b) The organization fills foreign orders only when it gets them.
c) Mail order businesses may have this kind of international involvement.
3. In Stage II, managers make an overt commitment to sell products or make products abroad.
a) Still no physical presence of company employees outside the company’s home country.
b) Sales through sending domestic employees on regular business trips to meet foreign customers or by hiring foreign agents or brokers.
c) To manufacture, managers contract with a foreign firm to produce their products.
4. Stage III, a strong commitment to pursue international markets aggressively.
a) As shown in Exhibit 2-3, managers can do this in different ways.
b) License or franchise the right to use the brand name, technology, or product specifications.
1) This approach is used widely by pharmaceutical companies and fast-food chains.
c) Joint ventures involve larger commitments; a domestic and a foreign firm share the cost of developing new products or building production facilities in a foreign country.
1) These are called strategic alliances.
2) These partnerships provide a fast and less expensive way for companies to compete globally than would doing it on their own.
d) The greatest commitment (and risk), occurs when the organization sets up a foreign subsidiary.
1) Such subsidiaries can be managed as an MNC (with domestic control), a TNC (with foreign control), or a borderless organization (with global control).
Teaching Notes ______
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C. What Effect Does Globalization Have on Managers?
1. Whirlpool is the top manufacturer and distributor of appliances in the U.S., Latin America, Europe, and Asia.
2. In the changing global environment, the spread of capitalism makes the world smaller.
a) Business has new markets to conquer.
b) The implementation of free markets in Eastern Europe further underscores the growing interdependence between countries of the world.
3. A boundaryless world introduces new challenges for managers.
4. One specific challenge, one of the first issues to deal with, is the perception of “foreigners.” (PPT 2-4)
5. U.S. managers in the past held a rather parochial view of the world of business.
a) Parochialism is a narrow focus.
b) Seeing things solely through their own eyes and perspectives is an ethnocentric view.
c) They believed that their business practices were the best in the world.
d) They did not recognize different ways of doing things or living.
6. Countries have different values, morals, customs, political and economic systems, and laws.
7. Traditional approaches to international business sought to advance general principles.
a) Organizational success can come from a variety of managerial practices.
b) Example, status is perceived differently in different countries.
1) In France, status is the result of factors important to the organization, ascribed status.
2) In the United States, status is more a function of what individuals have personally
accomplished, achieved status.
c) Countries also have differences in their laws.
1) In the United States, laws guard against employers’ taking action against employees
solely on the basis of an employee’s age.
2) Similar laws do not exist in all other countries.
8. Viewing the global environment from any single perspective may be potentially problematic.
9. An appropriate approach is recognizing the cultural dimensions of a country’s environment.
Teaching Notes ______
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10. A study of the differences of cultural environments was conducted by Geert Hofstede. (PPT 2-4)
a) Surveyed over 116,000 employees in forty countries—all of whom worked for IBM.
b) Found that managers and employees vary on five value dimensions of national culture.
1) Power distance.
2) Individualism versus collectivism.
3) Quantity of life versus quality of life.
4) Uncertainty avoidance.
5) Long-term versus short-term orientation.
11. Highlights of conclusions from Hofstede’s research.
a) China and West Africa scored high on power distance; the United States and the Netherlands scored low.
b) Most Asian countries were more collectivist than individualistic.
c) The United States ranked highest among all countries on individualism.
d) Germany and Hong Kong rated high on quantity of life.
e) Russia and the Netherlands rated low on quantity of life.
f) On uncertainty avoidance, France and Russia were high; Hong Kong and the United States were low.
g) China and Hong Kong rated high on Long-Term Orientation while France and the U.S. rated low.
12. The Global Leadership and Organizational Behavior Effectiveness (GLOBE) research program has updated Hofstede’s research. (PPT 2-5)
a) Using data from 825 organizations in 62 countries, GLOBE identified 9 dimensions on which national culture differ:
1) Assertiveness
2) Future orientation
3) Gender differentiation
4) Uncertainty avoidance
5) Power distance
6) Individualism/collectivism
7) In-group collectivism
8) Performance orientation
9) Human orientation
b) See Exhibit 2-4 (PPT 2-5)
c) The GLOBE study confirms that Hofstede’s original dimensions are still valid, and has added some additional dimensions.
d) It also provides us with an update measure of where countries rate on each dimension.
1) For example, the United States led the world in individualism in the 1970s but today scores in the mid-ranks of countries.
e) We can expect future cross-cultural studies of human behavior to increasingly use the GLOBE dimensions to assess differences between countries.
Teaching Notes ______
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III. EMPHASIS ON TECHNOLOGY (PPT 2-6)
A. Introduction
1. Suppose you need information on how well your unit is meeting its production standards.
a) Thirty years ago you would have submitted a requisition to the operations-control department.
b) Today, a few keystrokes on your computer will get that information almost instantaneously.
2. Since the 1970s, U.S. companies such as General Electric, CitiGroup Technologies, Wal-Mart, and 3M have been using automated offices, robotics, computer-assisted design software, integrated circuits, microprocessors, electronic meetings, etc.