References / Reading Materials

• John R. Schermerhorn, Jr. ,

EG306 “Management” , Wiley
Engineering Management 1-3 • Lucy Morse and Daniel Babcock,
“Managing Engineering and Technology”,
- Course Introduction; Definition of Management Pearson Prentice-Hall
- Historical Development of Management Theories • Stephen Robins and Mary Coulter,
- Introduction to Planning and Strategic Planning “Management”, Prentice Hall
Mr. Peter Mok, Visiting Lecturer
fbmok@yahoo.com
Tel: 9646-1426 1 2

Management Development of Management Theories

• ‘To manage is to forecast and plan, to organize,
to command, to coordinate and to control.’ Historical Background • Human Resources School
H. Fayol (1916) – As old as mankind Behavioral School
– 1776 Adam Smith: • Management Science /
• ‘Management is the process of planning, organizing, Wealth of Nations
leading and controlling …. Operation Research
the work of organization members and of using – 18th Century - Industrial • Process Approach
all available organizational resources to reach Revolution started
• Systems Approach
stated organizational goals.’ – 20th Century - Industrial
J. Stoner and R. Freeman (1995) • Contingency Theory
Enterprises grew to very
large scales
• ‘Management is the art of getting things done • Numerous Contemporary
through people.’ • Scientific Management Theories ….
Mary Parker Follett (1942) • Administrative Management
3 4

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 Management, Industrial Management
• Modern management started with industry.
• The Industrial Revolution started at the late 18th
Century in Britain. By applying technology in
production and transportation, manual-labour-based
production was converted into machine-based
manufacturing
• The changes subsequently spread over Europe,
North America, and eventually the whole world.
• By the 20th Century, industrial enterprises grew to
very large scales
5 6
The Classical School (Cont.)
Administrative Management Schools
– Henri Fayol
Management Functions: Planning, organizing,
directing, coordination, controlling (as different from
business functions); 14 management principles.
– Max Weber
Bureaucracy: division of work, formal selection of
applicants, rules, disciplines and systems.
Professional management, to reduce personal preferences.
– Mary Parker Follett
Management is the art of getting things done
through people.
7 8
The Classical School
Scientific Management
the separation of the hand & the brain, and collective de-skilling.
– Frederick Taylor – Father of Scientific Management
One Best Way. Managers to identify and enforce workers
to follow standardized, scientifically best methods.
– Frank & Lillian Gilbreth
Mass Production, Work Study (Method, Time, Motion
Study); Basic Motion Element : Therblig.
– Henry Gantt
Gantt Chart; Bonus for work completion before schedule;
Incentives for line leaders
The worker is an “Economic Men”.
Behavioral School
• Human Relations School
Improve labour-management relationship; use psychological
tests; incentives, pay attention to social systems, …
• Human Resources School
Dale Carnegie; Abraham Maslow; Douglas McGregor etc.
Strong beliefs in the relationship between people’s capability
and human relations; People is the most important resource.
(A satisfied worker is a productive worker.)
• Behavioral School
Frederick Herzberg; Victor Vroom; David McClelland; Renis
Likert; etc. : Scientifically study human behaviors such as
leadership, motives, motivation, communication, power,
conflict, etc. The Worker is a “Social Man”.
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Management Science (Operation Research)
Quantitative Approaches
• Applying the mathematics used in WWII to business.
• After the War, Ford Motors hired the experts from
the air force and formed the “Whiz Kid Team”.
• The tools they used include: statistics, information
models, simulation, optimization models, etc.
• Many of these tools are still commonly used today:
EOQ, CPM, LP, Games Theory, Monte Carlo
Techniques, etc. are all developed from this school
of management.
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The Management Process
• Planning
• Organizing
• Leading
• Controlling
The process of planning, organizing, leading and
controlling with work of organization members and of
using organization resources to reach organization
goals.
11
Subsequent Management Theories
• Process Approach
– Harold Koontz: this approach can cover all the other theories
– Looks at the functions of management (planning,
organizing, …) as a circular process
• Systems Approach
– Wiener, Barnard, Kast, Rosenzweig
– Considers that organizations should be a “Socio-technical
system” with subsystems, an “open system” and cannot exist
isolated.
• Contingency Theories: Recognizes the uncertainty and
variety of different environmental factors and internal factors
which affects the appropriate ways of management and
organizations.
Systems Theory
• External Environment
– Factors’ input: labour, capital, land, management,
technology
– External variables and information: opportunities,
constraints, etc.
– Stakeholders: consumers, employees, stockholders,
government, the public, suppliers, others
• Conversion Process
– Management know-how, purposes of stakeholders,
utilization of resources
– Planning, Organizing, Leading, Controlling
• Outputs
– Products, services, profits, satisfaction, feedback, ..
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 A System View to Management Some Contemporary Theories/Tools
External
• Strategic Management • Corp.-Wide Improvements
External – Value chain, Competitive – Management by Objective:
Environment Environment advantage: Michael Porter Peter Drucker, J.Humble
Strategic – Core competence: Prahalad / – Corporate Culture: Hofstede;
Inputs: Management Hamel Mckinsey (7S); W. Ouchi
• Money Outputs:
• Man •Product – Co-opetition: Joel Bleeke – Team Management:
• Machine •Service • IT–Related Improvements Hank Williams
• Material Planning Organizing •Profit
– MRP, ERP, CRM – ABC, Balance Scorecard,
• Energy Leading Controlling •Satisfaction
• Tech. •Other goals – Knowledge Management: Becker; Strategic Map: Kaplan, Norton
• etc. achievement Thomas Stewart; Annie Brooking – TQM: Deming, Crosby, Juran
•etc. – Business Process Reengineering: – 5 S, 6 Sigma,
Operations Hammer and James Champy – Theory of Constraint: Goldratt
External Management External • Change • Marketing: 4P, 4C, Market
Environment Environment – The Fifth Discipline (Learning Orientation: Leavitt,
Organization): Peter Senge Philip Kotler, McCarthy
Stakeholders: Shareholders, managers, employees, consumers, – John Kotter, Tom Peters, Kanter • ISO9000, Lean, Agile, etc.
suppliers, government departments, public, public bodies, … 13 14

Roles of a Manager Henry Mintzberg Essential Managerial Skills Robert Katz

Interpersonal COCEPTUAL SKILLS

• Figurehead The ability to solve complex problems
• Leader
• Liaison

Decisional HUMA SKILLS

Informational
• Entrepreneur
The ability to work well with people
• Monitor
• Disseminator • Disturbance handler
• Spokesperson • Resource allocator
• Negotiator TECHICAL SKILLS
The ability to perform specific tasks
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 Planning
• The process of setting objectives and deciding how
to accomplish them. Schermerhorn

• Deciding in advance what to do, how to do it, when

to do it, and who is to do it.
Plannimg John Amos and Bernard Sarchet, “Management for Engineers”

– In advance: hence needs forecasting

and – Deciding: decision making, making a
Fundamentals of Strategic Management conscious choice between two of more
alternatives, an essential part of planning
– Routine decisions vs. non-routine decisions
17 18

Problem Solving Procedures (1)

Planning usually includes these subjects
Rational (Classical) Model, Optimizing Model,
• Decision Making, Behavioral Decision Model, Satisficing Model

Problem Solving, 1. Identify and Define the Problem 1. Define problem

2. Evaluate alternatives
– Define the problem 3. Make the choice
(& Creative Problem Solving) What problem? 4. Implement
– Diagnose the causes 5. Evaluate results

– Identify, and prioritize the objectives

• Strategic Planning, 2. Generate and Evaluate Alternatives
Strategic Management If you have time, the more the better.
Long term solutions, short term patchwork, real
solutions, temporary suppressive measures, etc.:
costs, benefits, time, acceptability, ethics
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 Problem Solving Procedures (2) Strategy
in Greek, “Strategos”
3. Make the right choice (ethically)
– Certainty • Meaning of “Strategy” in business, national
– Risk administration.
– Uncertainty • Top level, Long Term Plan/Intent, regarding
4. Implement the decision Overall Corporate Direction
– Organizing the people • Defines Scope, and focus, of activities
– Leading and motivating the people • Courses on Strategic Management are also called:
– Executing the work or projects Business Policy, Corporate Management,
5. Evaluate Results – Controlling Corporate Strategy, or even Strategic Planning.
Schermerhorn
21 22

The Hierarchy of Strategies

The Company's Mission and Vision
Mission
• Purpose, Scope, Strategic Intent • Mission: What is our business?
Vision

• Corporate Level Strategies

Corporate Objectives • Vision: What do we want
/ Strategies
• Business Level Strategies to become?
Different Competitive Strategies

• Functional & Operational

Operation Plans, Projects, and Budgets
Strategies

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 Broad vs. Detailed Mission Statement The Corporate Strategic Process
Detailed Mission Statement of an organization usually includes:
The organization’s reason for its existence; Strategic Analysis
Mission
The organization’s purpose of existence: • External Analysis
• Value/Philosophy
• A definition of the business (to be developed): • Internal Analysis
• Vision
– Needs being satisfied
• Strategic Intent
– Chosen markets
– How the markets will be reached
– Technologies used in delivering the products/services
• Shared beliefs and values
• Legitimate claims of relevant stakeholders
• Attitudes to growth, financing, decentralization, innovation,
etc.
Adapted from Cliff Bowman 25 26

Environment Scanning
Identify Structural Drivers of Change
• PEST Framework (PESTEL)
Political, Economic, Social, Technological, Environmental, Legal, ….

Strategic Analysis – Political-Legal

– Economic-Global
– Social-Cultural
External Analysis:
Environmental Scanning, Industry Analysis, .. – Technological
Internal Analysis: • Scenarios Planning
Competences, Competitive Advantages, Culture, Portfolio, CSF,
..

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 In Particular, e.g. In Particular, e.g.
• Political–Legal (Governments’ Positions)
– Possible trade protection / customs measures ?
• Social-Cultural
– Lobby-able consumer protection, environment ? – Demographics: younger/older population, children
– Usable Export Promotion ? – Lifestyle
– New food and drug laws, environmental laws, local and – Superstition / obsession
overseas – Attitudes towards foreign products, pollution, wastages, ..
• Economic Trend • Technological
– Investment climate, interest rate, … – Flexibility in product changes
– People’s disposable income: e.g. middle income group
– Flexibility in production, packaging changes
– Exchange rate stability
– , ..
– Those of e.g. neighbouring countries
29 30

Industry Analysis(1): Structure of Competition Industry Analysis (2): Product Life Cycle
Sales

Types of Monopoly Oligopoly Monopolistic Perfect

Competition Competition Competition
Nature of Little Considerate Severe Virtually
Competition Competition Competition. Competition. everyone is
Key is in Key is often in doing the same. Time
positioning Implementing. Introduction Growth Maturity/Saturation Decline
Example Water Supermarkets Electrical/Elec- Newsstands,
Authority tronics Products Taxis, etc.
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 Industry Analysis (3) : 5 Competitive Forces
Industry Analysis (3) Michael Porter’s
5 Competitive Forces 1. Power of Buyers
Potential Entrants – Concentrated Buyers
– Large number of small vendors
– Undifferentiated alternative sources of supply
– Constitute significant portion of total cost
Industry – Low cost of switching
Rivals – Threat of backward integration by the buyer
Suppliers Customers
2. Power of Suppliers
– Concentrated suppliers
Our Co. – High switching cost
• Note their drivers and likely changes
– Powerful brand of supplier
• For use for SBUs (individual businesses), – Threat of forward integration by supplier
not for whole multi-business corporations – Fragmented buyers
Substitutes
33 34

Industry Analysis (3) : 5 Forces Industry Analysis (4)

3. Threat of ew Entrants vs. Barrier to Entry: • Strategic Groups & Organizational Fields: direct
economies of scale; capital requirement; access to rivals
distribution channels; experience; expected retaliation;
government action; differentiation (customer preference) • Supply Chain, Distribution Chain, Clusters, Linkage
industries, ..
4. Threat of Substitutes
– Product-for-product substitution (letter-email) • Markets, market segments, new markets
– Substitution of need (scissors-sharpening service) • Consumer/customer needs:
– Generic substitution (competing for disposable income) – brand reputation,
– after-sales service,
5. Competitive Rivalry
– delivery reliability,
– Balance of power, market growth rates, fixed costs,
– quality, ..
increments of extra capacity, differentiation, exit
barriers • Other industry factors
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 Michael Porter’s Value Chain Analysis
Identify your strength:
Where is your strongest link along the value chain?

Supporting Activities
Internal Analysis:
Firm Infrastructure
Human Resources Management Pro-

Technology Development fit

• Value Chain Procurement
• Portfolio

Primary Activities

Logistics
Inbound

Operations

Logistics
Outbond

Sales
Marketing &

Service
• Culture Mar-

• Competence gin

37 38

The Corporate Portfolio Directional Policy Matrix

BCG Matrix (Growth-Share matrix) Market Attractiveness / SBU Strength Matrix (GE)
SBU Strength
I High
n Star Problem Child
d
Strong Average Weak
u
s Nurture Long High 1 2 3
t Bring up or Exit
r & Bring up
Term
y
Cash Cow Dog Market Medium 4 5 6
G
r Attract-
o
w iveness
t
Harvest Exit Low 7 8 9
h
Low
High Our Company’s Market Share Low
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 Culture Strategic Analysis (Summary)
Mission
1.Top Layer: External Analysis Internal Analysis
• Philosophy
languages, actions, sings, stories, symbols Environment • Definition of
Scanning Internal Environment
Business
2.Middle Layer: •P E S T • Vision,Strategic • Culture
Industry Analysis Intent • Portfolio, Value Chain, …
Expression of values, attitudes and behaviors: • 5 Forces Corporate Objectives Resource-Based Analysis
Laws, rules, systems, procedures, methods, .. • Product Life Cycle
↓ Resources
• Market, Consumers
↓ Core Competence
3.Deep Layer: • Cluster,
→Competitive Advantages
Other Competitive
→Advantages’ Sustainability
Basic assumptions, ideology, values, concepts, .. Conditions
→Critical Success Factors
(explains behaviors) (Dynamic) SWOT
GAP
41 42

SWOT Analysis Formulating Strategies

Strengths Weaknesses
Environmental Scanning
Industry Analyses
Internal Analyses

Opportunities Threats
• Directions
• Methods / Funding

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 Strategic Options
TOWS Matrix
I n t e r n a l F a c t o r s
S: Strengths W: Weaknesses

E
(5-10 items)……………
…………………………
(5-10 items)……………
………………………… Strategic Options
x ………………………… …………………………
t
e O: Opportunities SO Strategies WO Strategies
r (5-10 items)…………… ………………….. ……………………….
n ………………………… ………………….. ……………………….
a
l ………………………… ………………….. ……………………….

F T: Threats ST Strategies WT Strategies

a • Corporate Level Considerations
c (5-10 items)…………… ………………………. ……………………….
t ………………………… ………………………. ………………………. • Business Level (SBU Level) Considerations
o ………………………… ………………………. ……………………….
r
s
45 46

Strategic Directions Ansoff′′s Growth Strategies (Modified)

PRODUCTS
• Product Development • Consolidation Existing ew
• Market Penetration • Retrenchment/Downsizing M Exist PROTECT/BUILD PRODUCT DEVELOPMET
A - • Consolidation • On existing competences
• Market Development • Withdrawal ing • Market penetration
R • With new competences
• Diversification – Abandonment K • Beyond current expectations
– Horizontal – Divestment/Divestiture E
T ew MARKET DIVERSIFICATIO
– Vertical – Liquidation DEVELOPMET • On existing competences
S
– Concentric • New segments • With new competences
• Turnaround • New territories • Beyond current expectations
– Conglomerate
• New users
• With new competences
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 Ansoff′′s Expanded Diversification Matrix
Related Diversifications: Integration
Products Related Unrelated
Customers Technology Technology Backward Forward Horizontal
• Manufacture • Distribution outlets • Competitive
Same Type Horizontal Diversification or supply of: products
• Transport
- Components
Firm is its Own - Machinery • Marketing • Complementary
(Backward) Vertical Diversification
Customer - Services products
information
• Product/ process • By-products
Similar Customers Concentric Diversification • Repair and
R&D
• Transport servicing
Conglomerate
New Type Diversification
49 50

Advantages of Related Diversification Unrelated Diversification

• Control of suppliers for quality, quantity, price:
tea plantation, jet engine, Moving beyond current industry, product base,
• Control of markets: garment outlets market base, or organizational competences
• Access to information: car hire and repair Motives:
• Cost savings: own printing facilities • Exploit core competence;
• Building on Core competences: • Portfolio;
– Businesses: accounting-audit-tax • Escape,
- Technology: RF, AV, PC, PDA
• Even-out cyclical effect,
• Spreading risk
• Resource utilization • Excess cash, personal reasons…(e.g. take-overs)
• Parenting
On condition that SBUs are willing to share and transfer.
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 In Bad Times: the only motive is to stay alive
• Consolidation
- Solidify and reshape
- Maintenance of market share in existing markets
(high link between market share and performance)
• Retrenchment, Downsizing
• Withdrawal
- Abandonment:
e.g. License the right to others, or privatize
(Service obligations may take years to discharge.)
- Divestment: Dress up and sell off as a going-concern
- Liquidation: Sell the assets at scrap value
• Turnaround
e.g. by capital restructuring, change of management, debt
restructuring, then, usually, sell off.
53
Mergers and Acquisitions
• In the past two decades, there was a world-wide
wave of M&A – thousands in Europe and USA.
• These included:
- Professional firms (law firms, property agents,
accounting and audit firms, financial services),
- Technology companies (IT, telecommunication,
pharmaceuticals, automobiles, ..)
- Newspaper, media, food, beverage, etc.
Based on: Johnson & Scholes, Exploring Corporate Strategy
Fred David, Strategic Management
55
Strategic Options: Methods
• Internal development
• Merger and acquisition
• Joint development
• Strategic alliance / cooperation-competition
• Outsourcing, supply chain management
Where to find the funds…
54
Motives for M&A
Keep up with the Changing Environment
• Quickly gain access to new suppliers, distributors,
markets, technology, products, sources of financing,
etc.
• Enter new market or product areas which are
changing very rapidly (e-commerce, software);
• Enter a market of static competition without
creating excess capacity for the industry;
• Gain market share or eliminate keen competition by
acquiring/merging with rival(s);
56
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 Motives for M&A (Conti.-) Michael Porter′′s Generic Strategies
• Opportunity from deregulation for rationalization of Competitive Strategies for Competitive Strength or
scale by improving monopoly power (e.g. train + bus; SBUs Strategic Advantage
electricity + gas); to achieve economies of scale (and
Uniqueness Low Cost Position
scope); perceived by
• Cost efficiency: Better utilization of corporate Customer
resources and fixed costs (cross-harbour tunnels? Industry Cost leadership
Universities?) -wide Differentiation
No. of
• Financial reasons: such as manipulating reported Strategic
profitability, growth potential, cash position, P/E, etc. Options
Specific
(e.g. asset stripping). or Targets
Segment Focus
• Stakeholders’ expectation: growth, personal reasons, only
tax benefits, ...
70% of M&As Failed
57 58

Strategy Evaluation & Selection

• Suitability: in the light of the likely SWOT, CSF
- Ranking
- Decision trees
Additional Reference for Strategic Planning
- Scenarios
• Acceptability • G.Johnson & K.Scholes, “Exploring Corporate Strategy”,
- Return Prentice-Hall
• Profitability analyses (ROCE, DCF, Payback) • Fred David, “Strategic Management”,
• Cost-benefit Prentice-Hall
• Real-options-based approaches • Wheelen T.L. & Hunger, J.D. “Concepts in Strategic
• Shareholder value analysis Management and Business Policy”
- Risk; financial ratios; sensitivity analysis Pearson Prentice-Hall
- Stakeholders’ reaction
• Feasibility: Financial; Resource Deployment End
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