• What do you consider your most valuable asset—the thing that enabled you to make it?
• If you had it to do over again would you do it again in the same way?
• Looking back, what do you feel are the most critical con- cepts, skills, attitudes, and know-how you needed to get your company started and grown to where it is today? What will be needed for the next five years? To what extent can any of these be learned?
• Some people say there is a lot of stress being an entrepre- neur. What have you experienced? How would you say it compares with other hot-seat jobs, such as the head of a big company or a partner in a large law, consulting, or accounting firm?
• What are the things that you find personally rewarding and satisfying as an entrepreneur? What have been the rewards, risks, and trade-offs?
• Who should try to be an entrepreneur? Can you give me any ideas there?
• What advice would you give an aspiring entrepreneur?
Could you suggest the three most important lessons you have learned? How can I learn them while minimizing the tuition?
SOURCE: J. A. Timmons, New Venture Creation, 3rd ed. 1994. Copyright © 1994 The McGraw-Hill Companies. Reprinted with permission.
OBJECTIVES
1. To introduce you to the complexities of going into busi- ness for yourself.
2. To provide hands-on experience in making new business decisions.
INSTRUCTIONS
1. Your instructor will divide the class into teams and assign each team the task of investigating the start-up of one of the following businesses:
a. Submarine sandwich shop b. Day care service c. Bookstore
d. Gasoline service station e. Other
2. Each team should research the information necessary to complete the New Business Start-Up Worksheet. The fol- lowing agencies or organizations might be of assistance:
a. Small Business Administration
b. Local county/city administration agencies c. Local chamber of commerce
d. Local small business development corporation e. U.S. Department of Commerce
f. Farmer’s Home Administration g. Local realtors
h. Local businesspeople in the same or a similar business i. Banks and S&Ls
3. Each team presents its findings to the class.
7. 2 S TA R T I N G A N E W B U S I N E S S
New Business Start-Up Worksheet
1. Product
What customer need will we satisfy?
How can our product be unique?
2. Customer
Who are our customers? What are their profiles?
Where do they live/work/play?
What are their buying habits?
What are their needs?
3. Competition
Who/where is the competition?
What are their strengths and weaknesses?
How might they respond to us?
4. Suppliers
Who/where are our suppliers?
What are their business practices?
What relationships can we expect?
5. Location
Where are our customers/competitors/suppliers?
What are the location costs?
What are the legal limitations to location?
6. Physical Facilities/Equipment
Rent/own/build/refurbish facilities?
Rent/lease/purchase equipment?
Maintenance?
7. Human Resources Availability?
Training?
Costs?
8. Legal/Regulatory Environment Licenses/permits/certifications?
Government agencies?
Liability?
9. Cultural/Social Environment Cultural issues?
Social issues?
10. International Environment International issues?
11. Other
Mandy Toberman had enjoyed her engineering job at Acme Elec- tronics, but she began to grow restless. Most of her work for the past five years had involved designing minor adjustments to existing products. She worried she would lose her edge in a fast- changing industry, and work just didn’t engage her imagination or problem-solving skills the way it once did. In the evenings, she found herself pursuing new ideas, researching some of the latest technology, and testing out some possible inventions. As the weeks passed, Mandy became increasingly interested in one idea: an e-reader made with flexible materials that could be rolled up and stuffed into a satchel, backpack, or purse. At first she doubted it could be made, but with some investigation, Mandy began to develop a design for the device, which she called the Scroll.
The more Mandy considered the Scroll, the more she thought it would be an exciting new product for Acme to offer. It would open up a whole new area of sales for the company, which had not seen much growth for the past few years. It would generate tremendous publicity for Acme and excitement in her division. So Mandy collected a few of the drawings she had created, estimated the manufacturing costs, and prepared a proposal. She invited her supervisor, Tom Ringsack, and two of her colleagues to a meet- ing, saying only that she had an idea she wanted to bring up.
At the meeting, Mandy started her laptop to show her draw- ings and describe her idea for the Scroll. The other engineers’
eyes were wide, and Mandy could sense their eagerness to
explore the concept. However, Tom sighed and said, “Mandy, you know our situation, right? In the present economy, we can’t get a lot of financing for risky new projects. We have to focus on the product enhancements that will increase our profit mar- gins, and the budget for anything else is tight—well, really, non- existent.” Mandy could tell the discussion was over, so she shut down her computer with a quiet sigh.
That weekend, Mandy spent hours at her desk at home, beginning to plan her escape from Acme Electronics. She perused the Small Business Administration website, looking for advice on writing a business plan, and explored her LinkedIn network, looking for contacts who might give her advice—and possibly funding—for her start-up, which she intended to name ScrollCo.
By the end of the weekend, feeling more than a little nervous, Mandy had drafted the outline of a business plan.
D I S C U S S I O N Q U E S T I O N S
1. What actions could Acme Electronics take to foster intra- preneurship? What consequences does it suffer from failing to foster it?
2. What information should Mandy include in her business plan?
3. Describe three nonfinancial resources likely to be impor- tant for the future of ScrollCo. How can Mandy ensure that her business has those resources?
CONCLUDING CASE
R O L L I N G O U T S C R O L LC O
Apple is famous for its attractive and highly prized electronics, including iPhone and iTouch portable devices, iPod and iTunes for music, and iMac and iPad computers. However, Apple doesn’t actually make any of its products. Rather, it develops ideas, designs devices, and promotes the products and its brand.
To put the devices together, Apple relies on a set of contractors.
One of those contractors is an electronics company called Foxconn, based in Taiwan. With factories located in China, Fox- conn has combined manufacturing expertise with low-cost labor to win deals to make computers and key components such as motherboards. As consumers have slowed their spending on lap- top computers in favor of smaller devices such as the iPad tablet computer and smartphones, Foxconn has benefited. As of this writing, it was the only company making Apple’s iPad and one of just two makers of Apple’s iPhone. Workers at Foxconn facilities also produce the Sony PlayStation 3, the Nintendo Wii, Dell and Hewlett-Packard computers, and Nokia cell phones. In China alone, Foxconn employs almost a million workers, making it one of the largest employers in the world. Many of those workers live in on-site dormitories, eat in company-run dining halls, and relax in bookstores and gyms located right at their workplace.
Recently, Foxconn has been running into some tragic prob- lems. In 2010, the company drew international media attention when it came to light that several workers at Foxconn’s plant in Shenzhen (a city in southern China) had committed suicide.
Questions arose about whether working conditions were so horrible as to drive workers to kill themselves. Apple sent exec- utives accompanied by suicide prevention experts to the plant to investigate. Although Apple requires its contract partners to meet specific standards in its code of conduct, and it visits over 100 facilities a year to ensure compliance, it had failed to uncover any problems at Foxconn before the suicides came to light.
In the following year, Foxconn was again in the news about a tragedy when an explosion in its Chengdu, China, plant killed 3 workers and injured 15. Initial investigations suggested that the explosion was the result of a fairly basic manufacturing safety problem: because of improper ventilation, dust collected in the air of a metal-polishing shop, and the dust ignited. If such a prob- lem occurred in the United States, regulators would quickly shut down the facility for violating safety requirements.
Embarrassed by the media and pressured by important customers such as Apple, Foxconn acted to improve working
PA RT T WO S U P P O R T I N G C A S E
Can Foxconn Deliver for Apple?
conditions. At the Shenzhen plant, it brought in counselors, improved training of managers and the staff answering calls on the employee hotline, and launched a morale-boosting program called Care–Love, which sponsors employee outings. In the factories in Chengdu and elsewhere, the company took mea- sures to improve ventilation. Along with these changes, Foxconn began giving out raises. In Shenzhen, workers’ wages more than doubled.
Since Foxconn launched the effort to improve morale, employee turnover has fallen, and the suicides seem to have ended. Unfortunately, the payoff for the company is difficult to measure. Higher costs have erased profits, and Foxconn’s stock price has tumbled. So now the company is looking for lower- cost locations. It opened facilities in China’s interior cities, where wage rates are about one-third below those of Shenzhen, and is investigating sites in Slovakia, Turkey, and Brazil. Besides saving money, the additional facilities in China may contribute to morale by allowing workers to live closer to their hometowns and families; many of the workers at the Shenzhen facility had traveled far to work there and were homesick.
Q U E S T I O N S
1. What threats, opportunities, strengths, and weaknesses can you identify at Foxconn? How is it addressing these with its strategy?
2. If Foxconn’s management hired you to offer advice on improving its ethical decision making and corporate social responsibility, what measures would you suggest? Why?
3. For Foxconn, what management challenges arise from running an exporting business based in China and serving developed nations such as the United States? What man- agement skills does it need under these circumstances?
SOURCES: T. Culpan, Z. Lifei, and B. Einhorn, “Foxconn: How to Beat the High Cost of Happy Workers,” Bloomberg Businessweek, May 5, 2011, http://www.busi- nessweek.com ; D. Nystedt, “Apple: Foxconn ‘Saved Lives’ with Suicide Prevention Efforts,” PC World, February 15, 2011, http://www.pcworld.com ; J. Bussey, “Mea- suring the Human Cost of an iPad Made in China,” The Wall Street Journal, June 3, 2011, http://online.wsj.com ; “Apple Report Details Response to Foxconn Suicides,”
eWeek, February 15, 2011, Business & Company Resource Center, http://galenet.
galegroup.com ; and J. Dalrymple, “Apple Reports on Foxconn, Supplier Workplace Standards,” CNET News, February 14, 2011, http://news.cnet.com .
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Information for Entrepreneurs
If you are interested in starting or managing a small business, you have access to many sources of useful information.
P U B L I S H E D S O U R C E S
The first step is a complete search of materials in libraries and on the Internet. You can find a huge amount of published infor- mation, databases, and other sources about industries, markets, competitors, and personnel. Some of this information will have been uncovered when you searched for ideas. Listed here are additional sources that should help get you started.
Guides and Company Information Valuable informa- tion is available in special issues and the websites of Business- Week, Forbes, Inc., The Economist, Fast Company, and Fortune, as well as online in the following:
• Hoovers.com • ProQuest.com • Investext.com • RDS Bizsuite.com
Valuable Sites on the Internet
• Entreworld ( http://www.entreworld.org ), the website of the Kauffman Center for Entrepreneurial Leadership, Ewing Mar- ion Kauffman Foundation
• Fast Company ( http://www.fastcompany.com ) • Ernst & Young ( http://www.ey.com )
• Global Access—SEC documents through a subscription- based website ( http://www.primark.com )
• Inc. magazine ( http://www.inc.com )
• Entrepreneur.com and magazine ( http://www.entrepreneur.
com ).
• EDGAR database ( http://www.sec.gov )—subscription sources, such as ThomsonResearch ( http://www.thomsonfi- nancial.com ), provide images of other filings as well.
• Venture Economics ( http://www.ventureeconomics.com ).
Journal Articles via Computerized Indexes • Factiva with Dow Jones, Reuters, The Wall Street Journal • EBSCOhost
• FirstSearch • Ethnic News Watch • LEXIS/NEXIS • The New York Times • InfoTrac from Gale Group
• ABI/Inform and other ProQuest databases • RDS Business Reference Suite
• The Wall Street Journal
Statistics
• Stat-USA ( http://www.stat-usa.gov )—U.S. government sub- scription site for economic, trade, and business data and mar- ket research
• U.S. Bureau of the Census ( http://www.census.gov )—the source of many statistical data, including
• Statistical Abstract of the United States • American FactFinder—population data
• Economic programs ( http://www.census.gov/econ/www/
index.html )—data by sector • County business patterns • Zip code business patterns
• Knight Ridder . . . CRB Commodity Year Book
• Manufacturing USA, Service Industries USA, and other sector compilations from Gale Group
• Economic Statistics Briefing Room ( http://www.whitehouse.
gov/fsbr/esbr.html ) • Federal Reserve Bulletin • Survey of Current Business • FedStats ( http://www.fedstats.gov/ ) • Labstat ( http://stats.bls.gov/labstat.htm ) • Global Insight, formerly DRI-WEFA
• International Financial Statistics—International Monetary Fund • World Development Indicators—World Bank
• Bloomberg Database Consumer Expenditures • New Strategist Publications Projections and Forecasts • ProQuest
• InfoTech Trends
• Guide to Special Issues and Indexes to Periodicals (Grey House Directory of Special Issues)
• RDS Business Reference Suite • Value Line Investment Survey Market Studies
• LifeStyle Market Analyst • MarketResearch.com • Scarborough Research
• Simmons Market Research Bureau Consumer Expenditures • New Strategist Publications • Consumer Expenditure Survey • Euromonitor
260
Other Sources • Wall Street transcript
• Brokerage house reports from Investext, Multex and so on • Company annual reports and websites
O T H E R I N T E L L I G E N C E
Everything entrepreneurs need to know will not be found in libraries because this information needs to be highly specific and current. This information is most likely available from people—
industry experts, suppliers, and the like. Summarized here are some useful sources of intelligence.
Trade Associations Trade associations, especially the editors of their publications and information officers, are good sources of information. Trade shows and conferences are prime places to discover the latest activities of competitors.
Employees Employees who have left a competitor’s company often can provide information about the competitor, especially if the employee departed on bad terms. Also, a firm can hire people away from a competitor. Although consideration of ethics in this situation is important, the number of experienced people in any industry is limited, and competitors must prove that a company hired a person intentionally to get specific trade secrets to chal- lenge any hiring legally. Students who have worked for competi- tors are another source of information.
Consulting Firms Consulting firms frequently conduct industry studies and then make this information available. Fre- quently, in such fields as computers or software, competitors use the same design consultants, and these consultants can be sources of information.
Market Research Firms Firms doing market studies, such as those listed under the previously mentioned published sources, can be sources of intelligence.
Key Customers, Manufacturers, Suppliers, Distributors, and Buyers These groups are often a prime source of information.
Public Filings Federal, state, and local filings, such as filings with the Securities and Exchange Commission (SEC), Patent and Trademark Office, or Freedom of Information Act filings, can reveal a surprising amount of information. There are companies that process inquiries of this type.
Reverse Engineering Reverse engineering can be used to determine costs of production and sometimes even manufactur- ing methods. An example of this practice is the experience of Advanced Energy Technology, Inc., of Boulder, Colorado, which learned firsthand about such tactics. No sooner had it announced a new product, which was patented, than it received 50 orders, half of which were from competitors asking for only one or two of the items.
Networks The networks mentioned in this chapter can be sources of new venture ideas and strategies.
Other Classified ads, buyers’ guides, labor unions, real estate agents, courts, local reporters, and so on can all provide clues.
The U.S. government is engaging in new and more extensive outreach efforts so that small business owners will use govern- ment resources more and understand them more easily. In 2009, the U.S. Small Business Administration launched a community forum, the first government-sponsored online community built specifically for small business owners, on the Business Gateway site of Business.gov . The forum combines discussion threads, blogs, and resource articles. The goals for the SBA and 21 other federal agencies that cosponsor the site are to engage in dialogue with the public, leverage the expertise that exists in both the public and private sectors, and help government serve entrepreneurs better.
SOURCES: J. A. Timmons and S. Spinelli, New Venture Creation, 7th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2007), pp. 103–4; K. Klein, “Government Resources for Entrepreneurs,” Business Week, March 3, 2009.
262
CHAPTER 8
Organization Structure
CHAPTER OUTLINE
Take my assets—but leave me my organization and in five years I’ll have it all back.
—AL F R E D P. SL O A N JR.
LEARNING OBJECTIVES
Fundamentals of Organizing Differentiation
Integration
The Vertical Structure Authority in Organizations Hierarchical Levels Span of Control Delegation Decentralization
The Horizontal Structure The Functional Organization The Divisional Organization The Matrix Organization The Network Organization Organizational Integration
Coordination by Standardization Coordination by Plan
Coordination by Mutual Adjustment Coordination and Communication Looking Ahead
After studying Chapter 8, you will be able to:
Explain how differentiation and integration influence an organization’s structure. p. 264 Summarize how authority operates. p. 266
Define the roles of the board of directors and the chief executive officer. p. 267 Discuss how span of control affects structure and managerial effectiveness. p. 269 Explain how to delegate effectively. p. 271
Distinguish between centralized and decentralized organizations. p. 272 Summarize ways organizations can be structured. p. 273
Identify the unique challenges of the matrix organization. p. 278 Describe important integrative mechanisms. p. 283
LO 1 LO 2 LO 3 LO 4 LO 5 LO 6 LO 7 LO 8 LO 9
263 The history of General Motors shows that size and lon-
gevity do not guarantee success. GM once dominated the U.S. auto industry with a “price ladder” strategy in which Chevrolet, Pontiac, GMC, Oldsmobile, Buick, and Cadillac catered to specific slices of the consumer market. But after GM’s U.S. market share peaked in 1962 at 51 percent, the company steadily began losing share to smaller, more nimble, and more innovative competition. By 2008, GM’s U.S. market share was less than half what it was in 1962, and when customer demand and bank lending dried up in the 2008 financial crisis, GM neared collapsed. The fed- eral government stepped in with money to keep GM alive through a Chapter 11 managed bankruptcy. In July 2009, after restructuring, the old General Motors Corporation reemerged as General Motors Company. Daniel Akerson, a Navy veteran with experience turning around compa- nies in other industries, was named to the new company’s Board of Directors. In September 2010, Akerson was named Chairman and CEO and led the company’s initial public offering—the largest in U.S. history—in November of that year.
In 2011, GM posted record earnings and reclaimed its spot as the world’s automotive sales leader, but its stock price slid as investors questioned the company’s long- term potential. In the years leading up to bankruptcy, GM had become known for a culture in which managers were slow to act and reluctant to embrace change. Akerson set out to change that. In his 2012 letter to stockhold- ers, he wrote, “It has never been far from my mind that U.S. and Canadian taxpayers rightfully expected us to change the way we do business in exchange for a second chance.” Among Akerson’s challenges has been teaching a 213,000-employee multinational company selling mil- lions of vehicles annually to be more nimble, more inno- vative, and more customer-centric.
Akerson has driven change by assembling a manage- ment team of seasoned industry insiders (including Mark Reuss, president, GM North America, and Mary Barra,
executive vice president, Global Product Develop- ment, Purchasing & Supply Chain) and outside expertise (including chief financial officer Dan Ammann, chief infor- mation officer Randy Mott, and chief infotainment officer Mary Chan). GM has also assembled a diverse board of 14 directors, mostly current and retired executives from other organizations, including representatives from For- tune 100 companies (Walmart, Coca-Cola, Conoco- Phillips, Burlington Northern Santa Fe, etc.), the financial and telecom industries, academia, and a former chairman of the U.S. Joint Chiefs of Staff.
As GM strives to return to greatness, some signs are hopeful. The company reported 2012 earnings of
$7.9 billion on revenue of more than $152 billion, enabling significant reinvestments for growth. GM also boasted the largest market share in the industry’s two biggest markets, the United States and China, fueled by record sales of 2.8 million vehicles in China (the 2.6 million sold in the United States actually represented a slip in market share). Whether GM can meet its goals will depend on its ability to roll out enticing new products while continuing to improve vehicle quality, customer service, and global efficiency.1
Management Connection