Case in point sas institute invests in employees

Principles of ManagementPrinciples of Management

Principles of ManagementPrinciples of Management

[AUTHORS REMOVED AT REQUEST OF ORIGINAL PUBLISHER]

UNIVERSITY OF MINNESOTA LIBRARIES PUBLISHING EDITION, 2015. THIS EDITION ADAPTED FROM A WORK ORIGINALLY PRODUCED IN 2010 BY A PUBLISHER WHO HAS REQUESTED THAT IT NOT RECEIVE

ATTRIBUTION. MINNEAPOLIS, MN

Principles of Management by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.

Contents

Publisher Information x

Chapter 1: Introduction to Principles of Management

1.1 Introduction to Principles of Management 2 1.2 Case in Point: Doing Good as a Core Business Strategy 5 1.3 Who Are Managers? 8 1.4 Leadership, Entrepreneurship, and Strategy 13 1.5 Planning, Organizing, Leading, and Controlling 20 1.6 Economic, Social, and Environmental Performance 25 1.7 Performance of Individuals and Groups 31 1.8 Your Principles of Management Survivor’s Guide 36

Chapter 2: Personality, Attitudes, and Work Behaviors

2.1 Chapter Introduction 48 2.2 Case in Point: SAS Institute Invests in Employees 50 2.3 Personality and Values 52 2.4 Perception 70 2.5 Work Attitudes 78 2.6 The Interactionist Perspective: The Role of Fit 84 2.7 Work Behaviors 87 2.8 Developing Your Positive Attitude Skills 100

Chapter 3: History, Globalization, and Values-Based Leadership

3.1 History, Globalization, and Values-Based Leadership 104 3.2 Case in Point: Hanna Andersson Corporation Changes for Good 106 3.3 Ancient History: Management Through the 1990s 109 3.4 Contemporary Principles of Management 116 3.5 Global Trends 122

3.6 Globalization and Principles of Management 130 3.7 Developing Your Values-Based Leadership Skills 136

Chapter 4: Developing Mission, Vision, and Values

4.1 Developing Mission, Vision, and Values 143 4.2 Case in Point: Xerox Motivates Employees for Success 145 4.3 The Roles of Mission, Vision, and Values 148 4.4 Mission and Vision in the P-O-L-C Framework 153 4.5 Creativity and Passion 160 4.6 Stakeholders 169 4.7 Crafting Mission and Vision Statements 175 4.8 Developing Your Personal Mission and Vision 182

Chapter 5: Strategizing

5.1 Strategizing 191 5.2 Case in Point: Unnamed Publisher Transforms Textbook Industry 193 5.3 Strategic Management in the P-O-L-C Framework 196 5.4 How Do Strategies Emerge? 204 5.5 Strategy as Trade-Offs, Discipline, and Focus 209 5.6 Developing Strategy Through Internal Analysis 219 5.7 Developing Strategy Through External Analysis 231 5.8 Formulating Organizational and Personal Strategy With the Strategy Diamond 242

Chapter 6: Goals and Objectives

6.1 Goals and Objectives 251 6.2 Case in Point: Nucor Aligns Company Goals With Employee Goals 253 6.3 The Nature of Goals and Objectives 255 6.4 From Management by Objectives to the Balanced Scorecard 260 6.5 Characteristics of Effective Goals and Objectives 269 6.6 Using Goals and Objectives in Employee Performance Evaluation 275 6.7 Integrating Goals and Objectives with Corporate Social Responsibility 281 6.8 Your Personal Balanced Scorecard 289

Chapter 7: Organizational Structure and Change

7.1 Organizational Structure and Change 298 7.2 Case in Point: Toyota Struggles With Organizational Structure 300 7.3 Organizational Structure 303 7.4 Contemporary Forms of Organizational Structures 312

7.5 Organizational Change 317 7.6 Planning and Executing Change Effectively 328 7.7 Building Your Change Management Skills 334

Chapter 8: Organizational Culture

8.1 Organizational Culture 337 8.2 Case in Point: Google Creates Unique Culture 339 8.3 Understanding Organizational Culture 342 8.4 Measuring Organizational Culture 346 8.5 Creating and Maintaining Organizational Culture 356 8.6 Creating Culture Change 370 8.7 Developing Your Personal Skills: Learning to Fit In 375

Chapter 9: Social Networks

9.1 Social Networks 379 9.2 Case in Point: Networking Powers Relationships 381 9.3 An Introduction to the Lexicon of Social Networks 383 9.4 How Managers Can Use Social Networks to Create Value 389 9.5 Ethical Considerations With Social Network Analysis 400 9.6 Personal, Operational, and Strategic Networks 408 9.7 Mapping and Your Own Social Network 414

Chapter 10: Leading People and Organizations

10.1 Leading People and Organizations 421 10.2 Case in Point: Indra Nooyi Draws on Vision and Values to Lead 424 10.3 Who Is a Leader? Trait Approaches to Leadership 427 10.4 What Do Leaders Do? Behavioral Approaches to Leadership 434 10.5 What Is the Role of the Context? Contingency Approaches to Leadership 439 10.6 Contemporary Approaches to Leadership 447 10.7 Developing Your Leadership Skills 461

Chapter 11: Decision Making

11.1 Decision Making 467 11.2 Case in Point: Bernard Ebbers Creates Biased Decision Making at WorldCom 469 11.3 Understanding Decision Making 472 11.4 Faulty Decision Making 485 11.5 Decision Making in Groups 490 11.6 Developing Your Personal Decision-Making Skills 498

Chapter 12: Communication in Organizations

12.1 Communication in Organizations 501 12.2 Case in Point: Edward Jones Communicates Caring 503 12.3 Understanding Communication 505 12.4 Communication Barriers 511 12.5 Different Types of Communication 523 12.6 Communication Channels 530 12.7 Developing Your Personal Communication Skills 539

Chapter 13: Managing Groups and Teams

13.1 Managing Groups and Teams 545 13.2 Case in Point: General Electric Allows Teamwork to Take Flight 547 13.3 Group Dynamics 549 13.4 Understanding Team Design Characteristics 558 13.5 Organizing Effective Teams 573 13.6 Barriers to Effective Teams 579 13.7 Developing Your Team Skills 582

Chapter 14: Motivating Employees

14.1 Motivating Employees 585 14.2 Case in Point: Zappos Creates a Motivating Place to Work 588 14.3 Need-Based Theories of Motivation 590 14.4 Process-Based Theories 598 14.5 Developing Your Personal Motivation Skills 620

Chapter 15: The Essentials of Control

15.1 The Essentials of Control 624 15.2 Case in Point: Newell Rubbermaid Leverages Cost Controls to Grow 626 15.3 Organizational Control 628 15.4 Types and Levels of Control 636 15.5 Financial Controls 642 15.6 Nonfinancial Controls 651 15.7 Lean Control 659 15.8 Crafting Your Balanced Scorecard 665

Chapter 16: Strategic Human Resource Management

16.1 Strategic Human Resource Management 671 16.2 Case in Point: Kronos Uses Science to Find the Ideal Employee 674

16.3 The Changing Role of Strategic Human Resource Management in Principles of Management

677

16.4 The War for Talent 683 16.5 Effective Selection and Placement Strategies 689 16.6 The Roles of Pay Structure and Pay for Performance 696 16.7 Designing a High-Performance Work System 702 16.8 Tying It All Together—Using the HR Balanced Scorecard to Gauge and Manage Human Capital, Including Your Own

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Please share your supplementary material! 714

Publisher Information

Principles of Management is adapted from a work produced and distributed under a Creative Commons license (CC BY-NC-SA) in 2010 by a publisher who has requested that they and the original author not receive attribution. This adapted edition is produced by the University of Minnesota Libraries Publishing through the eLearning Support Initiative.

This adaptation has reformatted the original text, and replaced some images and figures to make the resulting whole more shareable. This adaptation has not significantly altered or updated the original 2010 text. This work is made available under the terms of a Creative Commons Attribution-NonCommercial-ShareAlike license.

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Chapter 5: Strategizing

5.1 Strategizing 5.2 Case in Point: Unnamed Publisher Transforms Textbook Industry 5.3 Strategic Management in the P-O-L-C Framework 5.4 How Do Strategies Emerge? 5.5 Strategy as Trade-Offs, Discipline, and Focus 5.6 Developing Strategy Through Internal Analysis 5.7 Developing Strategy Through External Analysis 5.8 Formulating Organizational and Personal Strategy With the Strategy Diamond

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5.1 Strategizing

What’s in It for Me?

Reading this chapter will help you do the following:

1. See how strategy fits in the planning-organizing-leading-controlling (P-O-L-C) framework.

2. Better understand how strategies emerge.

3. Understand strategy as trade-offs, discipline, and focus.

4. Conduct internal analysis to develop strategy.

5. Conduct external analysis to develop strategy.

6. Formulate organizational and personal strategy with the strategy diamond.

Strategic management, strategizing for short, is essentially about choice—in terms of what the organization will do and won’t do to achieve specific goals and objectives, where such goals and objectives lead to the realization of a stated mission and vision. Strategy is a central part of the planning function in P-O-L-C. Strategy is also about making choices that provide an organization with some measure of competitive advantage or even a sustainable competitive advantage. For the most part, this chapter emphasizes strategy formulation (answers to the “What should our strategy be?” question) as opposed to strategy implementation (answers to questions about “How do we execute a chosen strategy?”). The central position of strategy is summarized in the following figure. In this chapter, you will learn about strategic management and how it fits in the P-O-L-C framework. You will also learn some of the key internal and external analyses that support the development of good strategies. Finally, you will see how the concept of strategy can be applied to you personally, in addition to professionally.

Figure 5.2 The P-O-L-C Framework

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Figure 5.3 Where Strategy Fits in “Planning”

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5.2 Case in Point: Unnamed Publisher Transforms Textbook Industry

Figure 5.4 Cofounder, Jeff Shelstad

Keith Avery – Jeff Shelstad – CC BY-NC 2.0.

Two textbook publishing industry veterans, Jeff Shelstad and Eric Frank, started, a privately held company, in 2007 to be a new and disruptive model for the college textbook market. Traditional business textbook publishers carry a portfolio of 5 to 10 titles per subject and charge premium prices for new textbooks, an average of $1,000 in textbooks for a college student’s first year, according to a recent General Accounting Office (GAO) report. FWK’s strategy aims to turn the traditional model on its head by providing online textbook access free to students. FWK earns revenues by selling students the digital textbooks in alternate formats, print and audio initially, and also by selling highly efficient and mobile study aids. Despite the fact that professors have rated the academic quality of FWK textbooks as equal to or higher than that of textbooks from traditional publishers, the cost to students is a fraction of current market prices due to the efficiencies of the FWK business model. Moreover, with FWK’s open-source platform, instructors who

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adopt FWK books for their classes are able to pick and choose the material provided to their students, even if it is from earlier versions of textbooks that have since been revised.

Shelstad and Frank founded FWK because they believed that big publishers would continue to experiment and innovate, and enjoy the advantages of scale, capital, content, and brand. But the FWK founders also believed that the pace and nature of change by the big publishers of the textbook industry would remain modest and marginal, held back by an inflexible go-to market strategy, with a reflexive (and shortsighted) exercise of pricing power, outdated business models, intransigent channel partners, existing contracts, and a fear of price cannibalization, as well as the traditional culture and organizational barriers.

To seize this perceived market opportunity, FWK designed a strategy based on publishing textbooks around the three main pillars of books that are (1) free, (2) open, and (3) authored by highly respected authors. Ultimately students (or parents) pay for books. Between a publisher and the student is a gatekeeper—the instructor. The first step to revenue is to convince the gatekeeper to assign (“adopt”) an FWK textbook instead of other choices. Only then does FWK establish a relationship with the gatekeeper’s students and earn the opportunity to monetize those relationships through the sale of print books, study aids, user- generated content, and corporate sponsorship. FWK’s strategy, therefore, aims to provide a compelling value proposition to instructors to maximize adoptions and, thus, student relationships.

How is FWK’s strategy working so far? Through the start of 2010, the FWK strategy has proven effective. New customers and books come online daily and the growth trends are positive. Its first term (fall of 2009), FWK had 40,000 students using its textbooks. This has continued to rise. Several new projects are under way in international business, entrepreneurship, legal environment, and mathematical economics. Media attention to the fledgling FWK has generally been favorable. Social media experts also gave the company accolades. For example, Chris Anderson devoted a page to the FWK business model in his bestselling book Free. Moreover, early user reviews of the product were also very positive. For instance, an instructor who adopted Principles of Management noted, “I highly recommend this book as a primary textbook for…business majors. The overall context is quite appropriate and the search capability within the context is useful. I have been quite impressed [with] how they have highlighted the key areas.” At the same time, opportunities to improve the Web interface still existed, with the same reviewer noting, “The navigation could be a bit more user friendly, however.” FWK uses user input like this to better adjust the strategy and delivery of its model. This type of feedback led the FWK design squad to improve its custom Web interface, so that instructors can more easily change the book. Only time will tell if the $11 million invested in FWK by 2010 will result in the establishment of a new titan in textbook publishing or will be an entrepreneurial miss.

Case written based on information from United States Government Accountability Office. (2005, July). College textbooks: Enhanced offering appear to drive recent price increases (GAO-05-806). Retrieved April 22, 2010, from http://www.gao.gov/cgi-bin/getrpt?GAO-05-806; Web site: Community College Open Textbook Collaborative. (2009). Business reviews. Retrieved April 22, 2010, from http://www.collegeopentextbooks.org/reviews/business.html; Personal interviews with Jeff Shelstad and Eric Frank.

Discussion Questions

1. Planning is a key component to the P-O-L-C framework. What type of planning do you think the founders of engaged in?

2. What competitive advantages does possess?

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3. What are key strengths, weaknesses, opportunities, and threats?

4. How might the extensive textbook industry experience the founders possess help or hinder their strategy formulation and ultimate success or failure?

5. Based on Porter’s strategies summarized in the figure below, which type of strategy do you see employing? Support your response.

Figure 5.6

Porter, M. E. (1980). Competitive Strategy. New York: Free Press.

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5.3 Strategic Management in the P-O-L-C Framework

Learning Objectives

1. Be able to define strategic management.

2. Understand how strategic management fits in the P-O-L-C framework.

3. Broadly identify the inputs for strategy formulation.

What Is Strategic Management?What Is Strategic Management?

As you already know, the P-O-L-C framework starts with “planning.” You might also know that planning is related to, but not synonymous with, strategic management. Strategic management reflects what a firm is doing to achieve its mission and vision, as seen by its achievement of specific goals and objectives.

A more formal definition tells us that the strategic management process “is the process by which a firm manages the formulation and implementation of its strategy (Carpenter & Sanders, 2009).” The strategic management process is “the coordinated means by which an organization achieves its goals and objectives (Carpenter & Sanders, 2009).” Others have described strategy as the pattern of resource allocation choices and organizational arrangements that result from managerial decision making (Mintzberg, 1978). Planning and strategy formulation sometimes called business planning, or strategic planning, have much in common, since formulation helps determine what the firm should do. Strategy implementation tells managers how they should go about putting the desired strategy into action.

The concept of strategy is relevant to all types of organizations, from large, public companies like GE, to religious organizations, to political parties.

Strategic Management in the P-O-L-C FrameworkStrategic Management in the P-O-L-C Framework

If vision and mission are the heart and soul of planning (in the P-O-L-C framework), then strategy, particularly strategy formulation, would be the brain. The following figure summarizes where strategy formulation (strategizing) and implementation fit in the planning and other components of P-O-L-C. We will focus primarily

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on the strategy formulation aspects of strategic management because implementation is essentially organizing, leading, and controlling P-O-L-C components.

Figure 5.7 Strategizing in P-O-L-C

You see that planning starts with vision and mission and concludes with setting goals and objectives. In-between is the critical role played by strategy. Specifically, a strategy captures and communicates how vision and mission will be achieved and which goals and objectives show that the organization is on the right path to achieving them.

At this point, even in terms of strategy formulation, there are two aspects of strategizing that you should recognize. The first, corporate strategy answers strategy questions related to “What business or businesses should we be in?” and “How does our business X help us compete in business Y, and vice versa?” In many ways, corporate strategy considers an organization to be a portfolio of businesses, resources, capabilities, or activities. You are probably familiar with McDonald’s, for instance, and their ubiquitous golden arches fast-food outlets. However, you may be less likely to know that McDonald’s owned the slightly upscale burrito vendor Chipotle for several years as well (Carpenter & Sanders, 2008).The McDonald’s corporate strategy helped its managers evaluate and answer questions about whether it made sense for McDonald’s set of businesses to include different restaurants such as McDonald’s and Chipotle. While other food-service companies have multiple outlets—YUM! Brands, for example, owns A&W, Taco Bell, Pizza Hut, Long John Silver’s, and Kentucky Fried Chicken—McDonald’s determined that one brand (McDonald’s) was a better strategy for it in the future, and sold off Chipotle in 2006. The following figure provides a graphic guide to this kind of planning.

Figure 5.8 Corporate and Business Strategy

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The logic behind corporate strategy is one of synergy and diversification. That is, synergies arise when each of YUM! Brands food outlets does better because they have common ownership and can share valuable inputs into their businesses. Specifically, synergy exists when the interaction of two or more activities (such as those in a business) create a combined effect greater than the sum of their individual effects. The idea is that the combination of certain businesses is stronger than they would be individually because they either do things more cheaply or of higher quality as a result of their coordination under a common owner.

Diversification in contrast, is where an organization participates in multiple businesses that are in some way distinct from each other, as Taco Bell is from Pizza Hut, for instance. Just as with a portfolio of stock, the purpose of diversification is to spread out risk and opportunities over a larger set of businesses. Some may be high growth, some slow growth or declining; some may perform worse during recessions, while others perform better. Sometimes the businesses can be very different, such as when fashion sunglass maker Maui Jim diversified into property and casualty insurance through its merger with RLI Corporation (SEC Info, 2008). Perhaps more than a coincidence, RLI was founded some 60 years earlier as Replacement Lens International (later changed to its abbreviation, RLI, in line with its broader insurance products offerings), with the primary business of providing insurance for replacement contact lenses. There are three major diversification strategies: (1) concentric diversification, where the new business produces products that are technically similar to the company’s current product but that appeal to a new consumer group; (2) horizontal diversification, where the new business produces products that are totally unrelated to the company’s current product but that appeal to the same consumer group; and (3) conglomerate diversification, where the new business produces products that are totally unrelated to the company’s current product and that appeal to an entirely new consumer group.

Whereas corporate strategy looks at an organization as a portfolio of things, business strategy focuses on how a given business needs to compete to be effective. Again, all organizations need strategies to survive and thrive. A neighborhood church, for instance, probably wants to serve existing members, build new membership, and, at the same time, raise surplus monies to help it with outreach activities. Its strategy would answer questions surrounding the accomplishment of these key objectives. In a for-profit company such as McDonald’s, its business strategy

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would help it keep existing customers, grow its business by moving into new markets and taking customers from competitors like Taco Bell and Burger King, and do all this at a profit level demanded by the stock market.

Strategic InputsStrategic Inputs

So what are the inputs into strategizing? At the most basic level, you will need to gather information and conduct analysis about the internal characteristics of the organization and the external market conditions. This means an internal appraisal and an external appraisal. On the internal side, you will want to gain a sense of the organization’s strengths and weaknesses; on the external side, you will want to develop some sense of the organization’s opportunities and threats. Together, these four inputs into strategizing are often called SWOT analysis which stands for strengths, weaknesses, opportunities, and threats (see the SWOT analysis figure). It does not matter if you start this appraisal process internally or externally, but you will quickly see that the two need to mesh eventually. At the very least, the strategy should leverage strengths to take advantage of opportunities and mitigate threats, while the downside consequences of weaknesses are minimized or managed.

Figure 5.9 SWOT Analysis

SWOT was developed by Ken Andrews in the early 1970s (Andrews, 1971). An assessment of strengths and weaknesses occurs as a part of organizational analysis; that is, it is an audit of the company’s internal workings, which are relatively easier to control than outside factors. Conversely, examining opportunities and threats is a part of environmental analysis—the company must look outside of the organization to determine opportunities and threats, over which it has lesser control.

Andrews’s original conception of the strategy model that preceded the SWOT asked four basic questions about a company and its environment: (1) What can we do? (2) What do we want to do? (3) What might we do? and (4) What do others expect us to do?

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Strengths and WeaknessesStrengths and Weaknesses

A good starting point for strategizing is an assessment of what an organization does well and what it does less well. In general good strategies take advantage of strengths and minimize the disadvantages posed by any weaknesses. Michael Jordan, for instance, is an excellent all-around athlete; he excels in baseball and golf, but his athletic skills show best in basketball. As with Jordan, when you can identify certain strengths that set an organization well apart from actual and potential competitors, that strength is considered a source of competitive advantage. The hardest thing for an organization to do is to develop its competitive advantage into a sustainable competitive advantage where the organization’s strengths cannot be easily duplicated or imitated by other firms, nor made redundant or less valuable by changes in the external environment.

Opportunities and ThreatsOpportunities and Threats

On the basis of what you just learned about competitive advantage and sustainable competitive advantage, you can see why some understanding of the external environment is a critical input into strategy. Opportunities assess the external attractive factors that represent the reason for a business to exist and prosper. These are external to the business. What opportunities exist in its market, or in the environment, from which managers might hope the organization will benefit? Threats include factors beyond your control that could place the strategy, or the business, at risk. These are also external—managers typically have no control over them, but may benefit by having contingency plans to address them if they should occur.

SWOT Analysis of

is a new college textbook company (and the publisher of this POM text!) that operates with the tagline vision of “Free textbooks. Online. Anytime. Anywhere. Anyone.”

Strengths

1. Great management team.

2. Great college business textbooks.

3. Experienced author pool.

4. Proprietary technology.

Weaknesses

1. Limited number of books.

2. New technology.

3. Relatively small firm size.

Opportunities

1. External pressure to lower higher education costs, including textbook prices.

2. Internet savvy students and professors.

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3. Professors and students largely displeased with current textbook model.

4. Technology allows textbook customization.

Threats

1. Strong competitors.

2. Competitors are few, very large, and global.

3. Substitute technologies exist.

In a nutshell, SWOT analysis helps you identify strategic alternatives that address the following questions:

1. Strengths and Opportunities (SO)—How can you use your strengths to take advantage of the opportunities?

2. Strengths and Threats (ST)—How can you take advantage of your strengths to avoid real and potential threats?

3. Weaknesses and Opportunities (WO)—How can you use your opportunities to overcome the weaknesses you are experiencing?

4. Weaknesses and Threats (WT)—How can you minimize your weaknesses and avoid threats?

Before wrapping up this section, let’s look at a few of the external and internal analysis tools that might help you conduct a SWOT analysis. These tools are covered in greater detail toward the end of the chapter.

Internal Analysis ToolsInternal Analysis Tools

Internal analysis tools help you identify an organization’s strengths and weaknesses. The two tools that we identify here, and develop later in the chapter, are the value chain and VRIO tools. The value chain asks you, in effect, to take the organization apart and identify the important constituent parts. Sometimes these parts take the form of functions, like marketing or manufacturing. For instance, Disney is really good at developing and making money from its branded products, such as Cinderella or Pirates of the Caribbean. This is a marketing function (it is also a design function, which is another Disney strength).

Value chain functions are also called capabilities. This is where VRIO comes in. VRIO stands for valuable, rare, inimitable, and organization—basically, the VRIO framework suggests that a capability, or a resource, such as a patent or great location, is likely to yield a competitive advantage to an organization when it can be shown that it is valuable, rare, difficult to imitate, and supported by the organization (and, yes, this is the same organization that you find in P-O-L-C). Essentially, where the value chain might suggest internal areas of strength, VRIO helps you understand whether those strengths will give it a competitive advantage. Going back to our Disney example, for instance, strong marketing and design capabilities are valuable, rare, and very difficult to imitate, and Disney is organized to take full advantage of them.

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External Analysis ToolsExternal Analysis Tools

While there are probably hundreds of different ways for you to study an organizations’ external environment, the two primary tools are PESTEL and industry analysis. PESTEL, as you probably guessed, is simply an acronym. It stands for political, economic, sociocultural, technological, environmental, and legal environments. Simply, the PESTEL framework directs you to collect information about, and analyze, each environmental dimension to identify the broad range of threats and opportunities facing the organization. Industry analysis, in contrast, asks you to map out the different relationships that the organization might have with suppliers, customers, and competitors. Whereas PESTEL provides you with a good sense of the broader macro-environment, industry analysis should tell you about the organization’s competitive environment and the key industry-level factors that seem to influence performance.