Ebook Management (Eleventh edition): Part 1

Ebook Management (Eleventh edition): Part 1 presents the following content: Chapter 1 management and organizations; chapter 2 understanding management’s context: constraints and challenges; chapter 3 managing in a global environment; chapter 4 managing diversity; chapter 5 managing social responsibility and ethics; chapter 6 managing change and innovation; chapter 7 managers as decision makers; chapter 8 foundations of planning; chapter 9 strategic management.

Management ELEVENTH EDITION Qwerty on KAT.PH for more This page intentionally left blank Prentice Hall Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Editorial Director: Sally Yagan Editor in Chief: Eric Svendsen Acquisitions Editor: Kim Norbuta Director of Editorial Services: Ashley Santora Editorial Project Manager: Claudia Fernandes Editorial Assistant: Carter Anderson Director of Marketing: Patrice Lumumba Jones Marketing Manager: Nikki Ayana Jones Marketing Assistant: Ian Gold Senior Managing Editor: Judy Leale Senior Operations Supervisor: Arnold Vila Design Development Manager: John Christiana Art Director: Kathryn Foot Text and Cover Designer: Kathryn Foot Photo Development Editor: Nancy Moudry Editorial Media Project Manager: Denise Vaughn MyLab Product Manager: Joan Waxman Media Project Manager: Lisa Rinaldi Full-Service Project Management: Sharon Anderson/BookMasters, Inc Composition: Integra Software Services Printer/Binder: Quebecor World Color/Versailles Cover Printer: Lehigh-PhoenixColor/Hagerstown Text Font: 10/12 TimesNewRoman Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within text Copyright © 2012, 2009, 2007, 2005, 2003 Pearson Education, Inc., publishing as Prentice Hall, One Lake Street, Upper Saddle River, New Jersey 07458 All rights reserved Manufactured in the United States of America This publication is protected by copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458 Many of the designations by manufacturers and sellers to distinguish their products are claimed as trademarks Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps Library of Congress Cataloging-in-Publication Data Robbins, Stephen P Management / Stephen P Robbins, Mary Coulter — 11th ed p cm Includes bibliographical references and index ISBN 978-0-13-216384-2 Management I Coulter, Mary K II Title HD31.R5647 2012 658—dc22 2010035514 10 ISBN 10: 0-13-216384-5 ISBN 13: 978-0-13-216384-2 ᩄ To my wife, Laura Steve To my family: Ron Sarah and James Katie and Matt and our newest addition, Brooklynn Mary ᩄ v STEPHEN P ROBBINS (Ph.D., University of Arizona) is professor emeritus of management at San Diego State University and the world’s best-selling textbook author in the areas of both management and organizational behavior His books are used at more than 1,000 U.S colleges and universities, have been translated into 19 languages, and have adapted editions for Canada, Australia, South Africa, and India Dr Robbins is also the author of the best-selling The Truth About Managing People, 2nd ed (Financial Times/Prentice Hall, 2008) and Decide & Conquer (Financial Times/Prentice Hall, 2004) In his “other life,” Dr Robbins actively participates in masters’ track competitions Since turning 50 in 1993, he’s won 21 national championships and 12 world titles He was inducted into the U.S Masters’ Track & Field Hall of Fame in 2005 Dr Robbins is the current world record holder at 100m (12.37) and 200m (25.20) for men 65 and over MARY COULTER (Ph.D., University of Arkansas) is professor emeritus at Missouri State University Dr Coulter has published other books with Prentice Hall, including Strategic Management in Action, now in its fifth edition, and Entrepreneurship in Action, which is in its second edition During her “free” time, Dr Coulter enjoys puttering around in her flower garden, trying new recipes on family members (usually successful!), reading a variety of books, and enjoying many different activities with Ron, Sarah and James, Katie and Matt, and first granddaughter, Brooklynn vi Preface xxiii Part I Chapter Module Chapter Part II Chapter Chapter Chapter Chapter Part III Chapter Chapter Chapter Module Part IV Chapter 10 Chapter 11 Chapter 12 Module Chapter 13 Introduction to Management Management and Organizations Management History 27 Understanding Management’s Context: Constraints and Challenges 42 Integrative Managerial Issues Managing in a Global Environment 68 Managing Diversity 96 Managing Social Responsibility and Ethics Managing Change and Innovation 150 122 Planning Managers as Decision Makers 176 Foundations of Planning 202 Strategic Management 222 Planning Tools and Techniques 248 Organizing Basic Organizational Design 262 Adaptive Organizational Design 286 Managing Human Resources 310 Managing Your Career 340 Managing Teams 344 Part V Leading Chapter Chapter Chapter Chapter 14 15 16 17 Part VI Chapter 18 Chapter 19 Appendix: Understanding Individual Behavior 370 Managers and Communication 402 Motivating Employees 428 Managers as Leaders 458 Controlling Introduction to Controlling 484 Managing Operations 514 Managing Entrepreneurial Ventures Endnotes 561 Name Index 607 Organization Index Glindex 628 Photo Credits 643 537 624 vii This page intentionally left blank Preface xxiii Part I Introduction to Management Chapter Management and Organizations Why Are Managers Important? Who Are Managers and Where Do They Work? Who Is a Manager? 5 Where Do Managers Work? What Do Managers Do? Management Functions Mintzberg’s Managerial Roles and a Contemporary Model of Managing Management Skills 12 How Is the Manager’s Job Changing? 13 Importance of Customers to the Manager’s Job 14 Importance of Innovation to the Manager’s Job 16 Importance of Sustainability to the Manager’s Job Why Study Management? 16 17 The Universality of Management The Reality of Work 10 17 18 Rewards and Challenges of Being a Manager 18 Boxed Features A Manager’s Dilemma BY THE NUMBERS FUTURE VISION | The Working World in 2020 LEADER WHO MADE A DIFFERENCE | Andrew Cherng 12 My Response to A Manager’s Dilemma 19 Chapter Summary by Learning Outcomes Review and Discussion Questions Preparing for: My Career 20 21 21 Case Application 1: More Than a Good Story Case Application 2: Flight Plans Module 23 24 Management History 27 Early Management Classical Approach 28 29 Behavioral Approach Quantitative Approach 32 34 Contemporary Approaches 36 ix This page intentionally left blank M anagers in baseball team front offices have discovered certain factors dictate whether they can charge more for tickets— namely, weather reports, winning streaks, and a big factor: pitching matchups.1 The San Francisco Giants are the first Major League Baseball team to try and ride these shifts in demand by repricing tickets daily, a technique known as dynamic pricing How well does it work? In 2009, the Giants were able to earn an extra $500,000 in revenue from dynamic pricing In 2010, revenues increased about percent As this example shows, managers use planning tools and techniques to help their organizations be more efficient and effective In this module, we discuss three categories of basic planning tools and techniques: techniques for assessing the environment, techniques for allocating resources, and contemporary planning techniques Techniques for Assessing the Environment Leigh Knopf, former senior manager for strategic planning at the AICPA, says that many larger accounting firms have set up external analysis departments to “study the wider environment in which they, and their clients, operate.” These organizations have recognized that, “What happens in India in today’s environment may have an impact on an American accounting firm in North Dakota.”2 In our description of the strategic management process in Chapter 9, we discussed the importance of assessing the organization’s environment Three techniques help managers that: environmental scanning, forecasting, and benchmarking Environmental Scanning How important is environmental scanning? While looking around on competitor Google’s company Web site, Bill Gates found a help-wanted page with descriptions of all the open jobs What piqued his interest, however, was that many of these posted job qualifications were identical to Microsoft’s job requirements He began to wonder why Google—a Web search company—would be posting job openings for 248 software engineers with backgrounds that “had nothing to with web searches and everything to with Microsoft’s core business of operating-system design, compiler optimization, and distributed-systems architecture.” Gates e-mailed an urgent message to some of his top executives saying that Microsoft had better be on its toes because it sure looked like Google was preparing to move into being more of a software company.3 How can managers become aware of significant environmental changes such as a new law in Germany permitting shopping for “tourist items” on Sunday; the increased trend of counterfeit consumer products in South Africa; the precipitous decline in the working-age populations in Japan, Germany, Italy, and Russia; or the decrease in family size in Mexico? Managers in both small and large organizations use environmental scanning, which is the screening of large amounts of information to anticipate and interpret changes in the environment Extensive environmental scanning is likely to reveal issues and concerns that could affect an organization’s current or planned activities Research has shown that companies that use environmental scanning have higher | performance.4 Organizations that don’t keep on top of environmental changes are likely to experience the opposite! COMPETITOR INTELLIGENCE A fast-growing area of envi- ronmental scanning is competitor intelligence.5 It’s a process by which organizations gather information about their competitors and get answers to questions such as Who are they? What are they doing? How will what they’re doing affect us? Let’s look at an example of how one organization used competitor intelligence in its planning Dun & Bradstreet (D&B), a leading provider of business information, has an active business intelligence division The division manager received a call from an assistant vice president for sales in one of the company’s geographic territories This person had been on a sales call with a major customer and the customer happened to mention in passing that another company had visited and made a major presentation about its services What was interesting was that, although D&B had plenty of competitors, this particular company wasn’t one of them The manager gathered together a team that sifted through dozens of sources (research services, Internet, personal contacts, and other external sources) and quickly became convinced that there was something to this; that this company was “aiming its guns right at us.” Managers at D&B jumped into action to develop plans to counteract this competitive attack.6 Competitor intelligence experts suggest that 80 percent of what managers need to know about competitors can be found out from their own employees, suppliers, and customers.7 Competitor intelligence doesn’t have to involve spying Advertisements, promotional materials, press releases, reports filed with government agencies, annual reports, want ads, newspaper reports, and industry studies are examples of readily accessible sources of information Attending trade shows and debriefing the company’s salesforce can be other good sources of competitor information Many firms regularly buy competitors’ products and have their own engineers study them (through a process called reverse engineering) to learn about new technical innovations In addition, the Internet has opened up vast sources of competitor intelligence as many corporate Web pages include new product information and other press releases Managers need to be careful about the way competitor information is gathered to prevent any concerns about whether it’s legal or ethical For instance, at Procter & Gamble, executives hired competitive intelligence firms to spy on its competitors in the hair-care business At least one of these firms misrepresented themselves to competitor Unilever’s employees, trespassed at Unilever’s hair-care headquarters in Chicago, and went through trash dumpsters to gain information When P&G’s CEO found out, he immediately fired the PLANNING TOOLS AND TECHNIQUES MODULE individuals responsible and apologized to Unilever.8 Competitor intelligence becomes illegal corporate spying when it involves the theft of proprietary materials or trade secrets by any means The Economic Espionage Act makes it a crime in the United States to engage in economic espionage or to steal a trade secret.9 The difficult decisions about competitive intelligence arise because often there’s a fine line between what’s considered legal and ethical and what’s considered legal but unethical Although the top manager at one competitive intelligence firm contends that 99.9 percent of intelligence gathering is legal, there’s no question that some people or companies will go to any lengths—some unethical—to get information about competitors.10 GLOBAL SCANNING One type of environmental scanning that’s particularly important is global scanning Because world markets are complex and dynamic, managers have expanded the scope of their scanning efforts to gain vital information on global forces that might affect their organizations.11 The value of global scanning to managers, of course, largely depends on the extent of the organization’s global activities For a company that has significant global interests, global scanning can be quite valuable For instance, Sealed Air Corporation of Elmwood Park, New Jersey—you’ve probably seen and used its most popular product, Bubble Wrap—tracks global demographic changes Company managers found that as countries move from agriculture-based societies to industrial ones, the population tends to eat out more and favor prepackaged foods, which translates to more sales of its food packaging products.12 Because the sources that managers use for scanning the domestic environment are too limited for global scanning, managers must globalize their perspectives For instance, they can subscribe to information clipping services that review world newspapers and business periodicals and provide summaries of desired information Also, there are numerous electronic services that provide topic searches and automatic updates in global areas of special interest to managers Forecasting The second technique managers can use to assess the environment is forecasting Forecasting is an important part of planning and managers need forecasts that will allow them to predict future events effectively and in a timely manner Environmental scanning establishes the basis for forecasts, which are predictions of outcomes Virtually any component in an organization’s environment can be forecasted Let’s look at how managers forecast and the effectiveness of those forecasts environmental scanning competitor intelligence forecasts The screening of large amounts of information to anticipate and interpret changes in the environment Environmental scanning activity by which organizations gather information about competitors Predictions of outcome 249 250 PART THREE | PLANNING FORECASTING TECHNIQUES Forecasting techniques fall into two categories: quantitative and qualitative Quantitative forecasting applies a set of mathematical rules to a series of past data to predict outcomes These techniques are preferred when managers have sufficient hard data that can be used Qualitative forecasting, in contrast, uses the judgment and opinions of knowledgeable individuals to predict outcomes Qualitative techniques typically are used when precise data are limited or hard to obtain Exhibit PM-1 describes some popular forecasting techniques Today, many organizations collaborate on forecasts using an approach known as CPFR, which stands for collaborative planning, forecasting, and replenishment.13 CPFR provides a framework for the flow of information, goods, and services between retailers and manufacturers Each organization relies on its own data to calculate a demand forecast for a particular product If their respective forecasts differ by a certain amount (say 10%), the retailer and manufacturer exchange data and written comments until they arrive at a more accurate forecast Such collaborative forecasting helps both organizations a better job of planning FORECASTING EFFECTIVENESS The goal of forecasting is to provide managers with information that will facilitate EXHIBIT PM-1 Forecasting Techniques Technique decision making Despite its importance to planning, managers have had mixed success with it.14 For instance, prior to a holiday weekend at the Procter & Gamble factory in Lima, Ohio, managers were preparing to shut down the facility early so as not to have to pay employees for just sitting around and to give them some extra time off The move seemed to make sense since an analysis of purchase orders and historical sales trends indicated that the factory had already produced enough cases of Liquid Tide detergent to meet laundry demand over the holiday However, managers got a real surprise One of the company’s largest retail customers placed a sizable—and unforeseen—order They had to reopen the plant, pay the workers overtime, and schedule emergency shipments to meet the retailer’s request.15 As this example shows, managers’ forecasts aren’t always accurate In a survey of financial managers in the United States, United Kingdom, France, and Germany, 84 percent of the respondents said their financial forecasts were inaccurate by percent or more; 54 percent of the respondents reported inaccuracy of 10 percent or more.16 Results of another survey showed that 39 percent of financial executives said they could reliably forecast revenues only one quarter out Even more disturbing is that 16 percent of those executives said they were “in the dark” about revenue forecasts.17 But it is Description Application Time series analysis Fits a trend line to a mathematical equation and projects into the future by means of this equation Predicting next quarter’s sales on the basis of years of previous sales data Regression models Predicts one variable on the basis of known or assumed other variables Seeking factors that will predict a certain level of sales (e.g., price, advertising expenditures) Econometric models Uses a set of regression equations to simulate segments of the economy Predicting change in car sales as a result of changes in tax laws Economic indicators Uses one or more economic indicators to predict a future state of the economy Using change in GNP to predict discretionary income Substitution effect Uses a mathematical formula to predict how, when, and under what circumstances a new product or technology will replace an existing one Predicting the effect of DVD players on the sale of VHS players Jury of opinion Combines and averages the opinions of experts Polling the company’s human resource managers to predict next year’s college recruitment needs Salesforce composition Combines estimates from field sales personnel of customers’ expected purchases Predicting next year’s sales of industrial lasers Quantitative Qualitative Customer evaluation Combines estimates from established customers’ purchases Surveying major car dealers by a car manufacturer to determine types and quantities of products desired | important to try to make forecasting as effective as possible, because research shows that a company’s forecasting ability can be a distinctive competence.18 Here are some suggestions for making forecasting more effective.19 First, it’s important to understand that forecasting techniques are most accurate when the environment is not rapidly changing The more dynamic the environment, the more likely managers are to forecast ineffectively Also, forecasting is relatively ineffective in predicting nonseasonal events such as recessions, unusual occurrences, discontinued operations, and the actions or reactions of competitors Next, use simple forecasting methods They tend to as well as, and often better than, complex methods that may mistakenly confuse random data for meaningful information For instance, at St Louis–based Emerson Electric, chairman emeritus Chuck Knight found that forecasts developed as part of the company’s planning process indicated that the competition wasn’t just domestic anymore, but global He didn’t use any complex mathematical techniques to come to this conclusion but instead relied on the information already collected as part of his company’s planning process Next, look at involving more people in the process At Fortune 100 companies, it’s not unusual to have 1,000 to 5,000 managers providing forecasting input These businesses are finding that as more people are involved in the process, the more the reliability of the outcomes improves.20 Next, compare every forecast with “no change.” A no change forecast is accurate approximately half the time Next, use rolling forecasts that look 12 to 18 months ahead, instead of using a single, static forecast These types of forecasts can help managers spot trends better and help their organizations be more adaptive in changing environments.21 It’s also important to not rely on a single forecasting method Make forecasts with several models and average them, especially when making longerrange forecasts Next, don’t assume that you can accurately identify turning points in a trend What is typically perceived as a significant turning point often turns out to be PLANNING TOOLS AND TECHNIQUES MODULE simply a random event And, finally, remember that forecasting is a managerial skill and as such can be practiced and improved Forecasting software has made the task somewhat less mathematically challenging, although the “number crunching” is only a small part of the activity Interpreting the forecast and incorporating that information into planning decisions is the challenge facing managers Benchmarking Suppose that you’re a talented pianist or gymnast To make yourself better, you want to learn from the best so you watch outstanding musicians or athletes for motions and techniques they use as they perform That same approach is involved in the final technique for assessing the environment we’re going to discuss—benchmarking, the search for the best practices among competitors or noncompetitors that lead to their superior performance.22 Does benchmarking work? Studies show that users have achieved 69 percent faster growth and 45 percent greater productivity.23 The basic idea behind benchmarking is that managers can improve performance by analyzing and then copying the methods of the leaders in various fields Organizations such as Nissan, Payless Shoe Source, the U.S military, General Mills, United Airlines, and Volvo Construction Equipment have used benchmarking as a tool in improving performance In fact, some companies have chosen some pretty unusual benchmarking partners! IBM studied Las Vegas casinos for ways to discourage employee theft Many hospitals have benchmarked their admissions processes against Marriott Hotels And Giordano Holdings Ltd., a Hong Kong–based manufacturer and retailer of mass-market casual wear, borrowed its “good quality, good value” concept from Marks & Spencer, used Limited Brands to benchmark its point-of-sales computerized information system, and modeled its simplified product offerings on McDonald’s menu.24 What does benchmarking involve? Exhibit PM-2 illustrates the four steps typically used in benchmarking Techniques for Allocating Resources Once an organization’s goals have been established, it’s important to determine how those goals are going to be accomplished Before managers can organize and lead as goals are implemented, they must have resources, which are the assets of the organization (financial, physical, human, and intangible) How can managers allocate these resources effectively and efficiently so that organizational goals are met? Although managers can choose from a number of techniques for allocating resources (many of which are covered in courses on accounting, finance, and operations management), we’ll discuss four techniques here: budgeting, scheduling, breakeven analysis, and linear programming quantitative forecasting benchmarking Forecasting that applies a set of mathematical rules to a series of past data to predict outcome The search for the best practices among competitors or noncompetitors that lead to their superior performance qualitative forecasting Forecasting that uses the judgment and opinions of knowledgeable individuals to predict outcomes resources The assets of the organization including financial, physical, human, intangible, and structural/cultural 251 252 PART THREE EXHIBIT | PLANNING PM-2 Steps in Benchmarking Form a benchmarking planning team BEST PRACTICES Prepare and implement action plan Identify: • What is to be benchmarked • Comparative organizations • Data collection methods Gather internal and external data Analyze data to identify performance gaps Source: Based on Y K Shetty, “Aiming High: Competitive Benchmarking for Superior Performance,” Long Range Planning, February 1993, p 42 Budgeting Most of us have had some experience, as limited as it might be, with budgets We probably learned at an early age that unless we allocated our “revenues” carefully, our weekly allowance was spent on “expenses” before the week was half over A budget is a numerical plan for allocating resources to specific activities Managers typically prepare budgets for revenues, expenses, and large capital expenditures such as equipment It’s not unusual, though, for budgets to be used for improving time, space, and use of material resources These types of budgets substitute nondollar numbers for dollar amounts Such items as person-hours, capacity utilization, or units of production can be budgeted for daily, weekly, or EXHIBIT monthly activities Exhibit PM-3 describes the different types of budgets that managers might use Why are budgets so popular? Probably because they’re applicable to a wide variety of organizations and work activities within organizations We live in a world in which almost everything is expressed in monetary units Dollars, rupees, pesos, euros, yuan, yen, and the like are used as a common measuring unit within a country That’s why monetary budgets are a useful tool for allocating resources and guiding work in such diverse departments as manufacturing and information systems or at various levels in an organization Budgets are one planning technique that most managers, regardless of organizational level, use It’s an important managerial activity because it forces financial discipline and structure PM-3 Types of Budgets Cash Budget Forecasts cash on hand and how much will be needed Variable Budget Takes into account the costs that vary with volume Profit Budget Combines revenue and expense budgets of various units to determine each unit’s profit contribution Revenue Budget Projects future sales OR Fixed Budget Assumes fixed level of sales or production Expense Budget Lists primary activities and allocates dollar amount to each Source: Based on R S Russell and B W Taylor III, Production and Operations Management (Upper Saddle River, NJ: Prentice Hall, 1995), p 287 | • • • • • • • PLANNING TOOLS AND TECHNIQUES MODULE Collaborate and communicate Be flexible Goals should drive budgets—budgets should not determine goals Coordinate budgeting throughout the organization Use budgeting/planning software when appropriate Remember that budgets are tools Remember that profits result from smart management, not because you budgeted for them throughout the organization However, many managers don’t like preparing budgets because they feel the process is time consuming, inflexible, inefficient, and ineffective.25 How can the budgeting process be improved? Exhibit PM-4 provides some suggestions Organizations such as Texas Instruments, IKEA, Hendrick Motorsports, Volvo, and Svenska Handelsbanken have incorporated several of these suggestions as they revamped their budgeting processes Scheduling Jackie is a manager at a Chico’s store in San Francisco Every week, she determines employees’ work hours and the store area where each employee will be working If you observed any group of supervisors or department managers for a few days, you would see them doing much the same—allocating resources by detailing what activities have to be done, the order in which they are to be completed, who is to each, and when they are to be completed These managers are scheduling In this section, we’ll review some useful scheduling devices including Gantt charts, load charts, and PERT network analysis GANTT CHARTS The Gantt chart was developed during the early 1900s by Henry Gantt, an associate of Frederick EXHIBIT Taylor, the scientific management expert The idea behind a Gantt chart is simple It’s essentially a bar graph with time on the horizontal axis and the activities to be scheduled on the vertical axis The bars show output, both planned and actual, over a period of time The Gantt chart visually shows when tasks are supposed to be done and compares those projections with the actual progress on each task It’s a simple but important device that lets managers detail easily what has yet to be done to complete a job or project and to assess whether an activity is ahead of, behind, or on schedule Exhibit PM-5 depicts a simplified Gantt chart for book production developed by a manager in a publishing company Time is expressed in months across the top of the chart The major work activities are listed down the left side Planning involves deciding what activities need to be done to get the book finished, the order in which those activities need to be completed, and the time that should be allocated to each activity Where a box sits within a time frame reflects its planned sequence The shading represents actual progress The chart also serves as a control tool because the manager can see deviations from the plan In this example, both the design of the cover and the review of first pages are running behind schedule Cover design is EXHIBIT Activity Month PM-4 How to Improve Budgeting PM-5 A Gantt Chart Copyedit manuscript Design sample pages Draw artwork Review first pages Print final pages Design cover Actual progress Goals Reporting Date budget scheduling Gantt chart A numerical plan for allocating resources to specific activities Detailing what activities have to be done, the order in which they are to be completed, who is to each, and when they are to be completed A scheduling chart developed by Henry Gantt that shows actual and planned output over a period of time 253 254 PART THREE | PLANNING even thousands of activities, some of which must be done simultaneously and some of which can’t begin until preceding activities have been completed If you’re constructing a building, you obviously can’t start putting up the walls until the foundation is laid How can managers schedule such a complex project? The program evaluation and review technique (PERT) is highly appropriate for such projects A PERT network is a flowchart diagram that depicts the sequence of activities needed to complete a project and the time or costs associated with each activity With a PERT network, a manager must think through what has to be done, determine which events depend on one another, and identify potential trouble spots PERT also makes it easy to compare the effects alternative actions might have on scheduling and costs Thus, PERT allows managers to monitor a project’s progress, identify possible bottlenecks, and shift resources as necessary to keep the project on schedule To understand how to construct a PERT network, you need to know four terms Events are end points that represent the completion of major activities Activities represent the time or resources required to progress from one event to another Slack time is the amount of time an individual activity can be delayed without delaying the whole project The critical path is the longest or most time-consuming sequence of events and activities in a PERT network Any delay in completing events on this path would delay completion of the entire project In other words, activities on the critical path have zero slack time Developing a PERT network requires that a manager identify all key activities needed to complete a project, rank them in order of occurrence, and estimate each activity’s completion time Exhibit PM-7 explains the steps in this process Most PERT projects are complicated and include numerous activities Such complicated computations can be done with specialized PERT software However, let’s work through a simple example Assume that you’re the superintendent at a construction company and have been assigned to oversee the construction of an office building Because time really is money in your business, you must determine how long it will take to get the building completed You’ve determined the about three weeks behind (note that there has been no actual progress—shown by blue color line—as of the reporting date), and first pages review is about two weeks behind schedule (note that as of the report date, actual progress— shown by blue color line—is about six weeks, out of a goal of completing in two months) Given this information, the manager might need to take some action to either make up for the two lost weeks or to ensure that no further delays will occur At this point, the manager can expect that the book will be published at least two weeks later than planned if no action is taken LOAD CHARTS A load chart is a modified Gantt chart Instead of listing activities on the vertical axis, load charts list either entire departments or specific resources This arrangement allows managers to plan and control capacity utilization In other words, load charts schedule capacity by work areas For example, Exhibit PM-6 shows a load chart for six production editors at the same publishing company Each editor supervises the production and design of several books By reviewing a load chart, the executive editor, who supervises the six production editors, can see who is free to take on a new book If everyone is fully scheduled, the executive editor might decide not to accept any new projects, to accept new projects and delay others, to make the editors work overtime, or to employ more production editors As this exhibit shows, only Antonio and Maurice are completely scheduled for the next six months The other editors have some unassigned time and might be able to accept new projects or be available to help other editors who get behind PERT NETWORK ANALYSIS Gantt and load charts are use- ful as long as the activities being scheduled are few in number and independent of each other But what if a manager had to plan a large project such as a departmental reorganization, the implementation of a cost-reduction program, or the development of a new product that required coordinating inputs from marketing, manufacturing, and product design? Such projects require coordinating hundreds and EXHIBIT PM-6 A Load Chart Editors Month Annie Antonio Kim Maurice Dave Penny Work scheduled | PLANNING TOOLS AND TECHNIQUES MODULE Identify every significant activity that must be achieved for a project to be completed The accomplishment of each activity results in a set of events or outcomes Determine the order in which these events must be completed Diagram the flow of activities from start to finish, identifying each activity and its relationship to all other activities Use circles to indicate events and arrows to represent activities This results in a flowchart diagram called a PERT network Compute a time estimate for completing each activity This is done with a weighted average that uses an optimistic time estimate (to) of how long the activity would take under ideal conditions, a most likely estimate (tm) of the time the activity normally should take, and a pessimistic estimate (tp) that represents the time that an activity should take under the worst possible conditions The formula for calculating the expected time (te) is then te = EXHIBIT PM-7 Steps in Developing a PERT Network to + 4tm + Using the network diagram that contains time estimates for each activity, determine a schedule for the start and finish dates of each activity and for the entire project Any delays that occur along the critical path require the most attention because they can delay the whole project specific activities and events Exhibit PM-8 outlines the major events in the construction project and your estimate of the expected time to complete each Exhibit PM-9 shows the actual PERT network based on the data in Exhibit PM-8 You’ve also calculated the length of time that each path of activities will take: A-B-C-D-I-J-K (44 weeks) A-B-C-D-G-H-J-K (50 weeks) A-B-C-E-G-H-J-K (47 weeks) A-B-C-F-G-H-J-K (47 weeks) Event A B C D E F G H I J K Description Your PERT network shows that if everything goes as planned, the total project completion time will be 50 weeks This is calculated by tracing the project’s critical path (the longest sequence of activities): A-B-C-D-G-H-J-K and adding up the times You know that any delay in completing the events on this path would delay the completion of the entire project Taking six weeks instead of four to put in the floor covering and paneling (Event I) would have no effect on the final completion date Why? Because that event isn’t on the critical path However, taking seven weeks instead of Expected Time (in weeks) Approve design and get permits Dig subterranean garage Erect frame and siding Construct floor Install windows Put on roof Install internal wiring Install elevator Put in floor covering and paneling Put in doors and interior decorative trim Turn over to building management group 10 14 3 5 Preceding Event None A B C C C D, E, F G D I, H J EXHIBIT PM-8 Events and Activities in Constructing an Office Building load chart events slack time A modified Gantt chart that schedules capacity by entire departments or specific resources End points that represent the completion of major activities in a PERT network PERT network activities The amount of time an individual activity can be delayed without delaying the whole project A flowchart diagram showing the sequence of activities needed to complete a project and the time or cost associated with each The time or resources needed to progress from one event to another in a PERT network critical path The longest sequence of activities in a PERT network 255 256 PART THREE EXHIBIT | PLANNING PM-9 PERT Network for Constructing an Office Building Start 10 A B 14 C six to dig the subterranean garage (Event B) would likely delay the total project A manager who needed to get back on schedule or to cut the 50-week completion time would want to concentrate on those activities along the critical path that could be completed faster How might the manager this? He or she could look to see if any of the other activities not on the critical path had slack time in which resources could be transferred to activities that were on the critical path Breakeven Analysis Managers at Glory Foods want to know how many units of their new sensibly seasoned canned vegetables must be sold in order to break even—that is, the point at which total revenue is just sufficient to cover total costs Breakeven analysis is a widely used resource allocation technique to help managers determine breakeven point.26 Breakeven analysis is a simple calculation, yet it’s valuable to managers because it points out the relationship between revenues, costs, and profits To compute breakeven point (BE), a manager needs to know the unit price of the product being sold (P), the variable cost per unit (VC), and total fixed costs (TFC) An organization breaks even when its total revenue is just enough to equal its total costs But total cost has two parts: fixed and variable Fixed costs are expenses that not change regardless of volume Examples include insurance premiums, rent, and property taxes EXHIBIT D E F I 5 G J H Variable costs change in proportion to output and include raw materials, labor costs, and energy costs Breakeven point can be computed graphically or by using the following formula: BE = TFC P - VC This formula tells us that (1) total revenue will equal total cost when we sell enough units at a price that covers all variable unit costs, and (2) the difference between price and variable costs, when multiplied by the number of units sold, equals the fixed costs Let’s work through an example Assume that Randy’s Photocopying Service charges $0.10 per photocopy If fixed costs are $27,000 a year and variable costs are $0.04 per copy, Randy can compute his breakeven point as follows: $27,000 ÷ ($0.10 – $0.04) = 450,000 copies, or when annual revenues are $45,000 (450,000 copies * $0.10) This same relationship is shown graphically in Exhibit PM-10 As a planning tool, breakeven analysis could help Randy set his sales goal For example, he could determine his profit goal and then calculate what sales level is needed to reach that goal Breakeven analysis could also tell Randy how much volume has to increase to break even if he’s currently operating at a loss or how much volume he can afford to lose and still break even Breakeven Analysis Total Revenue 70,000 Profit Area Revenue/Cost ($) 60,000 Loss Area Variable Costs 40,000 30,000 K PM-10 50,000 Breakeven Point Total Costs 20,000 Fixed Costs 10,000 100 200 300 400 500 600 Output (in thousands) | Linear Programming Maria Sanchez manages a manufacturing plant that produces two kinds of cinnamon-scented home fragrance products: wax candles and a woodchip potpourri sold in bags Business is good, and she can sell all of the products she can produce Her dilemma: Given that the bags of potpourri and the wax candles are manufactured in the same facility, how many of each product should she produce to maximize profits? Maria can use linear programming to solve her resource allocation problem Although linear programming can be used here, it can’t be applied to all resource allocation problems because it requires that resources be limited, that the goal be outcome optimization, that resources can be combined in alternative ways to produce a number of output mixes, and that a linear relationship exist between variables (a change in one variable must be accompanied by an exactly proportional change in the other).27 For Maria’s business, that last condition would be met if it took exactly twice the amount of raw materials and hours of labor to produce two of a given home fragrance product as it took to produce one What kinds of problems can be solved with linear programming? Some applications include selecting transportation routes that minimize shipping costs, allocating a limited advertising budget among various product brands, making the optimal assignment of people among projects, and determining how much of each product to make with a limited number of resources Let’s return to Maria’s problem and see how linear programming could help her solve it Fortunately, her problem is relatively simple, so we can solve it rather quickly For complex linear programming problems, managers can use computer software programs designed specifically to help develop optimizing solutions First, we need to establish some facts about Maria’s business She has computed the profit margins on her home fragrance products at $10 for a bag of potpourri and $18 for a scented candle These numbers establish the basis for Maria to be able to express her objective function as maximum profit = $10P + $18S, where P is the number of bags of PLANNING TOOLS AND TECHNIQUES MODULE potpourri produced and S is the number of scented candles produced The objective function is simply a mathematical equation that can predict the outcome of all proposed alternatives In addition, Maria knows how much time each fragrance product must spend in production and the monthly production capacity (1,200 hours in manufacturing and 900 hours in assembly) for manufacturing and assembly (See Exhibit PM-11.) The production capacity numbers act as constraints on her overall capacity Now Maria can establish her constraint equations: 2P + 4S … 1,200 2P + 2S … 900 Of course, Maria can also state that P Ú and S Ú because neither fragrance product can be produced in a volume less than zero Maria has graphed her solution in Exhibit PM-12 The shaded area represents the options that don’t exceed the capacity of either department What does this mean? Well, let’s look first at the manufacturing constraint line BE We know that total manufacturing capacity is 1,200 hours, so if Maria decides to produce all potpourri bags, the maximum she can produce is 600 (1,200 hours ÷ hours required to produce a bag of potpourri) If she decides to produce all scented candles, the maximum she can produce is 300 (1,200 hours ÷ hours required to produce a scented candle) The other constraint Maria faces is that of assembly, shown by line DF If Maria decides to produce all potpourri bags, the maximum she can assemble is 450 (900 hours production capacity ÷ hours required to assemble) Likewise, if Maria decides to produce all scented candles, the maximum she can assemble is also 450 because the scented candles also take hours to assemble The constraints imposed by these capacity limits establish Maria’s feasibility region Her optimal resource allocation will be defined at one of the corners within this feasibility region Point C provides the maximum profits within the constraints stated How we know? At point A, profits would be (no production of either potpourri bags or scented candles) At point B, profits would be $5,400 (300 scented candles Number of Hours Required (per unit) Department Manufacturing Assembly Profit per unit Potpourri Bags 2 $10 Scented Candles $18 Monthly Production Capacity (in hours) 1,200 900 breakeven analysis linear programming A technique for identifying the point at which total revenue is just sufficient to cover total costs A mathematical technique that solves resource allocation problems EXHIBIT PM-11 Production Data for Cinnamon-Scented Products 257 258 PART THREE PLANNING PM-12 Graphical Solution to Linear Programming Problem Quantity of Scented Candles EXHIBIT | 700 600 500 F 400 300 B 200 Feasibility Region 100 A * $18 profit and potpourri bags produced = $5,400) At point D, profits would be $4,500 (450 potpourri bags produced * $10 profit and scented candles produced C D E 100 200 300 400 500 600 Quantity of Potpourri Bags = $4,500) At point C, however, profits would be $5,700 (150 scented candles produced * $18 profit and 300 potpourri bags produced * $10 profit = $5,700) Contemporary Planning Techniques Lowest home mortgage rates since 1950s H1N1 flu pandemic Chemical/biological attacks Recession/inflation worries Category or hurricanes Changing competition Today’s managers face the challenges of planning in an environment that’s both dynamic and complex Two planning techniques that are appropriate for this type of environment are project management and scenarios Both techniques emphasize flexibility, something that’s important to making planning more effective and efficient in this type of organizational environment Project Management Different types of organizations, from manufacturers such as Coleman and Boeing to software design firms such as SAS and Microsoft, use projects A project is a one-timeonly set of activities that has a definite beginning and ending point in time.28 Projects vary in size and scope—from Boston’s “big dig” downtown traffic tunnel to a sorority’s holiday formal Project management is the task of getting a project’s activities done on time, within budget, and according to specifications.29 More and more organizations are using project management because the approach fits well with the need for flexibility and rapid response to perceived market opportunities When organizations undertake projects that are unique, have specific deadlines, contain complex interrelated tasks requiring specialized skills, and are temporary in nature, these projects often not fit into the standardized planning procedures that guide an organization’s other routine work activities Instead, managers use project management techniques to effectively and efficiently accomplish the project’s goals What does the project management process involve? PROJECT MANAGEMENT PROCESS In the typical project, work is done by a project team whose members are assigned from their respective work areas to the project and who report to a project manager The project manager coordinates the project’s activities with other departments When the project team accomplishes its goals, it disbands and members move on to other projects or back to their permanent work area The essential features of the project planning process are shown in Exhibit PM-13 The process begins by clearly defining the project’s goals This step is necessary because the manager and the team members need to know what’s expected All activities in the project and the resources needed to them must then be identified What materials and labor are needed to complete the project? This step may be time-consuming and complex, particularly if the project is unique and the managers have no history or experience with similar projects Once the activities have been identified, the sequence of completion needs to be determined What activities must be completed before others can begin? Which can be done simultaneously? This step often uses flowchart diagrams such as a Gantt chart, a load chart, or a PERT network Next, the project activities need to be scheduled Time estimates for each activity are done, and these estimates are used to develop an overall project schedule and completion date Then the project schedule | PLANNING TOOLS AND TECHNIQUES MODULE EXHIBIT PM-13 Project Planning Process Define objectives Identify activities and resources Establish sequences Estimate time for activities Determine project completion date Compare with objectives Determine additional resource requirements Source: Based on R S Russell and B W Taylor III, Production and Operations Management (Upper Saddle River, NJ: Prentice Hall, 1995), p 287 is compared to the goals, and any necessary adjustments are made If the project completion time is too long, the manager might assign more resources to critical activities so they can be completed faster Today, the project management process can take place online as a number of Web-based software packages are available These packages cover aspects from project accounting and estimating to project scheduling and bug and defect tracking.30 THE ROLE OF THE PROJECT MANAGER The temporary nature of projects makes managing them different from, say, overseeing a production line or preparing a weekly tally of costs on an ongoing basis The one-shot nature of the work makes project managers the organizational equivalent of a hired gunman There’s a job to be done It has to be defined—in detail And the project manager is responsible for how it’s done At J.B Hunt Transport Services, the head of project management trains project managers on both technical and interpersonal skills so that they know how to “ run a project effectively.”31 Even with the availability of sophisticated computerized and online scheduling programs and other project management tools, the role of project manager remains difficult because he or she is managing people who typically are still assigned to their permanent work areas The only real influence project managers have is their communication skills and their power of persuasion To make matters worse, team members seldom work on just one project They’re usually assigned to two or three at any given time So project managers end up competing with each other to focus a worker’s attention on his or her particular project Scenario Planning During the 1990s, business was so good at Colgate-Palmolive that then-chairman Reuben Mark worried about what “might go wrong.” He installed an “early-warning system to flag problems before they blew up into company-wrecking crises.” For instance, a red-flag report alerted Mark “that officials in Baddi, India, had questions about how a plant treated wastewater.” Mark’s response was to quickly assign an engineering team to check it out and prevent potential problems.32 We already know how important it is that today’s managers what Reuben Mark was doing—monitor and assess the external environment for trends and changes As they assess the environment, issues and concerns that could affect their organization’s current or planned operations are likely to be revealed All of these issues won’t be equally important, so it’s usually necessary to focus on a limited set that are most important and to develop scenarios based on each A scenario is a consistent view of what the future is likely to be Developing scenarios also can be described as contingency planning; that is, if this event happens, then we need to take these actions If, for instance, environmental scanning reveals increasing interest by the U.S Congress for raising the national minimum wage, managers at Subway could create multiple scenarios to assess the possible consequences of such an action What would be the implications for its labor costs if the minimum wage was raised to $10 an hour? How about $12 an hour? What effect would these changes have on the chain’s bottom line? How might competitors respond? Different assumptions lead to different outcomes The intent of scenario planning is not to try to predict the future but to reduce uncertainty by playing out potential situations under different specified conditions.33 Subway could, for example, develop a set of scenarios ranging from optimistic to pessimistic in terms of the minimum wage issue It would then be prepared to implement new strategies to get and keep a competitive advantage An expert in scenario planning said, “Just the process of doing scenarios causes executives to rethink and clarify the essence of the business environment in ways they almost certainly have never done before.”34 project project management scenario A one-time-only set of activities that has a definite beginning and ending point in time The task of getting a project’s activities done on time, within budget, and according to specifications A consistent view of what the future is likely to be 259 260 PART THREE | PLANNING Although scenario planning is useful in anticipating events that can be anticipated, it’s difficult to forecast random events—the major surprises and aberrations that can’t be foreseen For instance, an outbreak of deadly and devastating tornadoes in southwest Missouri on January 7, 2008, was a scenario that could be anticipated The disaster recovery planning that took place after the storms was effective because this type of scenario had been experienced before A response had already been planned and people knew what to But the planning challenge comes from those totally random and unexpected events For instance, the 9/11 terrorist attacks in New York and Washington, D.C., were random, unexpected, and a total shock to many organizations Scenario planning was of little use because no one could have envisioned this scenario As difficult as it may be for managers to anticipate and deal with these random events, they’re not totally vulnerable to the consequences One suggestion that has been identified by risk experts as particularly important is to have an early warning system in place (A similar idea is the tsunami warning systems in the Pacific and in Alaska, which alert officials to potentially dangerous tsunamis and give them time to take action.) Early warning indicators for organizations can give managers advance notice of potential problems and changes— such as it did Reuben Mark at Colgate-Palmolive—so they, too, can take action Then, managers need to have appropriate responses (plans) in place if these unexpected events occur Planning tools and techniques can help managers prepare confidently for the future But they should remember that all the tools we’ve described in this chapter are just that— tools They will never replace the manager’s skills and capabilities in using the information gained to develop effective and efficient plans | PLANNING TOOLS AND TECHNIQUES MODULE REVIEW AND DISCUSSION QUESTIONS Describe the different approaches to assessing the environment Describe the four techniques for allocating resources How does PERT network analysis work? Why is flexibility so important to today’s planning techniques? What is project management, and what are the steps managers use in planning projects? “It’s a waste of time and other resources to develop a set of sophisticated scenarios for situations that may never occur.” Do you agree or disagree? Support your position Do intuition and creativity have any relevance in quantitative planning tools and techniques? Explain The Wall Street Journal and other business periodicals often carry reports of companies that have not met their sales or profit forecasts What are some reasons a company might not meet its forecast? What suggestions could you make for improving the effectiveness of forecasting? In what ways is managing a project different from managing a department or other structured work area? In what ways are they the same? 10 What might be some early warning signs of (a) a new competitor coming into your market, (b) an employee work stoppage, or (c) a new technology that could change demand for your product? 261 ... Diversity 11 3 Top Management Commitment to Diversity Mentoring 10 9 11 0 11 4 11 4 Diversity Skills Training 11 5 Employee Resource Groups 11 5 Boxed Features A Manager’s Dilemma 98 BY THE NUMBERS 10 9 LEADER... Manager’s Dilemma 11 6 11 2 Chapter Summary by Learning Outcomes Review and Discussion Questions Preparing for: My Career 11 7 11 8 11 8 Case Application 1: Mission Possible: Strategic Diversity 12 0 Case Application... Career 17 1 17 1 Case Application 1: Too Big to Change? Case Application 2: Stress Kills Part III Chapter 17 0 17 4 17 5 Planning Managers as Decision Makers 17 6 The Decision-Making Process Step 1: Identifying