Business

1
Business

• A business is the organized effort of
  individuals to produce and provide services to
  meet the needs of society. We view business as a
  broad concept, incorporating profit-making
  concerns such as manufacturing firms and banks,
  and non-profit-making concerns such as schools
  and hospitals.

2
Organization

• An organization refers to the way in which
  people are grouped and the way in which they
  operate to carry out the activities of the
  business. We define the key elements of the
  organization as the goals of the business and the
  way they are formulated, ownership and control,
  size, social structure and organizational
  structure.
• We are able to set the boundaries to the
  organization and to decide whether or not one
  individual is in or out.
• People are working together to achieve a goal.

3
Basis of Existence for Companies and Organizations

• Satisfying a need in exchange for money or other
  kind of payment, not necessarily profit.
• The generated payment or need-satisfaction must
  in the long run be sufficient to maintain the
  business going. Payment to all interest groups
  included.

4
Different kinds of organization
5
Who wants the company to exist?
Financial institutions
Customers
Suppliers
Company
Community
Leaders
Owners
Employees
Power Model by Mintzberg
6
Basic elements

• Setting goals
• Strategy
• Structure, grouping functions and tasks

7
Goals for the company
Survival
Long term profit
Profit this year
Production and marketing of furniture investments
Continue generating sub-goals
8
BUSINESS IN CONTEXT MODEL
1.2
FIGURE 1.1
Interaction between levels
9
THE CONTEXTS OF BUSINESS
1.3

• Activities level (core-element)
• Strategic level (decisions)
• Organizational level (structure, people,
  machinery etc.)
• Environment level (economy, technology, culture,
  state)
• NB Interaction occurs within and between
  levels

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Activities (or basic functions)
Operations, marketing, HRM, finance accounting,
innovations

• Operations Purchasing, production, service,
  retail etc.
• Marketing Sales, advertising, exhibitions,
  market-research etc.
• HRM Hiring employees, career-planning, dealing
  with labour-unions, wages salaries etc.
• Finance accounting bookkeeping, invoices
  (debtors creditors, payments, budgeting,
  analyses, dealing with banks etc.
• Innovations Research development, new methods
  etc.

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Grouping of activities
12
Business strategy and management decision-making
The business strategy specifies why tasks and
functions, machines and people are arranged in a
certain way. Consequently the business strategies
form the framework and conditions, within the
activity takes place.
13
Organization - level

• Ownership
• Size
• Culture
• Goals, mission, visions, objectives

14
Environment

• The state, law, tax etc.
• Economy, wages, interest-rates, etc.
• Technology
• Cultural aspects, language
• Labour unions and trade markets

15
Exercise no. 1
Give at least 5 examples how an organization is
able to adapt to changes in the
environment. (Human resources and job design,
location, procurement, prices, distribution)
A An increase in corporate taxes
(State) B Better means of communication
(Technology) C Globalisation (Reduction of custom
duties etc.) D Increased labour costs in the
area Describe other consequences outside the
company.
16
Organization Theory History

• Business as patriarchal system. The owner decides
  everything
• Division of labour, specialisation (1779)
• Scientific Management (1900)
• Human Relations Approach (1930)
• Systems Approach (1960)
• Contingency Approach (1990)
• Whats next ?? Spaghetti organizations??

17
Different views 1
18
Classical approaches Scientific management
bureaucracy
Adam Smith The Wealth of Nations 1779
Specialisation, dividing work, law of diminishing
output.
Frederick W. Taylor Principles of scientific
Management 1911 Focuses on selection of workers,
dividing planning and doing in two separate items.
Henri Fayol General and Industrial Management
1949 Division of work, authority, discipline,
unity of command, unity of direction, span of
control, general interest, remuneration,
communication follow line-structures, equity and
fairness, esprit de corps, stability of tenure,
initiative.
Max Weber Bureaucracy, every employee is a wheel
in the machinery, written task-descriptions,
impersonal organization
19
Different views 2
20
Human relations 1
Elton Mayo Hawthorne Investigations 1927-1935
The Hawthorne effect
Control group No change
Experimental group 1 Higher illumination Better
performance
Experimental group 2 Lower illumination Better
performance
21
Human relations 2
External stimuli
Goals and incentives
Motives
Behaviour striving to satisfy wants and needs
Internal stimuli
22
Maslows hierarchy of needs
23
McGregors X/Y-theory

• X-leaders expect subordinates to be lazy and
  only working if forced to work
• Y-leaders expect subordinates to motivate
  themselves, develop better methods and to find
  pleasure in doing a good job (like children
  playing).

24
Different views 3
25
SYSTEMS APPROACH

• An input, process, output model
• FIGURE 1.2
• Inputs and processes may be modified as a result
  of feedback

26
Different views in organization theory
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CONTINGENCY APPROACH

• Organizations and their activities are shaped by
  the environments in which they operate
• Business should organize to adapt to prevailing
  environmental conditions
• Most successful businesses have Best Fit with
  their environment
• Businesses which do not adapt will fail and go
  bankrupt (cleaned away)

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Exercise no. 2

• What are the differences between private
  companies and public organizations?
• 1. State 4 attributes of an organization
  (definition).
• 2. Describe the 4 levels in the business context
  model.
• 3. What is an environmental factor? Give 5
  examples.
• 4. What is the difference between the open and
  the closed perspective of organizations? What is
  the prevailing perspective today?

29
Exercise no. 3
Read D.Needle p. 1 18 Read the Car Industry
Case in D. Needle and describe the Car Industry
with respect to Mutual interaction between
economy, culture,, ownership, size, technology,
strategy, decision-making (what kind of cars
should be produced), operations, marketing,
innovations.
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THE NATURE OF GOALS
3.1.1

• Give direction to the activities of members of an
  organization
• Attempt to reduce conflict and ambiguity
• Often comprise an overall statement of intent and
  detailed objectives
• Goals can be viewed as a hierarchy
• Vision
• Mission
• Goals
• Objectives

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VISION
3.1.1

• A vision is a future picture of the company.
  Desired future state The aspiration of the
  organisation.
• A personal example
• To run the Berlin Marathon

32
MISSION
3.1.1

• A mission is the reason to be, the kind of needs
  the company is trying to meet. How the company is
  going to contribute to society. It is the
  overriding purpose in line with the values or
  expectations of stakeholders.
• A personal example
• To be healthy and fit

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MISSION STATEMENT for FedEx(Mixed goals
statement from annual report)

• FedEx is committed to our People-Service-Profit
  philosophy. We will produce outstanding financial
  returns by providing totally reliable,
  competitively superior, global air-ground
  transportation of high-priority goods and
  documents that require rapid, time-certain
  delivery.
• Equally important, positive control of each
  package will be maintained utilizing real time
  electronic tracking and tracing systems. A
  complete record of each shipment and delivery
  will be presented with our request for payment.
  We will be helpful, courteous, and professional
  to each other and the public. We will strive to
  have a completely satisfied customer at the end
  of each transaction.

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Goal (not operational statement)
3.1.1

• General statement of aim or purpose.
• A personal example
• Lose weight and strengthen muscles

35
Objective (operational)
3.1.1

• Quantification (if possible) or more precise
  statement of goal.
• A personal example
• Lose 5 kilos by 1 September and run the marathon
  in 2002

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Core competences
3.1.1
Resources, processes or skills which provide
COMPETITIVE ADVANTAGE A personal
example Proximity to a fitness centre, supportive
family and friends and past experience of
successful diet.
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Strategies
3.1.1
Long-term direction (how) A personal
example Associate with a collaborative network
(e.g. join running club), exercise regularly,
compete in marathons locally, stick to
appropriate diet.
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Goal-setting in carpentry
39
Decision making in a small firm
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GOAL-HIERACHY
Deliver cabinets made of wood for
communication-industry
Mission
Financial Profit 5 million
Innovation
Sales 120000 cabinets
Production
Main goals
Sub-goals
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HOW GOALS ARE DEVELOPED
3.1.2

• Political process
• Product of interest groups
• Role of the dominant coalition and senior
  management
• Effective pursuit of goals linked to power
• Goal conflict common
• Goal conflict tackled by
• Rules and regulations
• Bargaining
• Acceptance of top management
• Control mechanisms

42
COMPLEXITY OF GOALS
3.1.3

• Involve the resolution of complex external forces
  and internal politics
• Goal formulation operates in dynamics and
  changing internal and external environments
• Links with performance difficult to show
• Most organizations have multiple goals - A
  product of different interest groups and
  stakeholders
• Variations in the nature of goal occur both
  between and within organizations

43
Rational decision model
Problem or opportunity Search for
alternatives Find consequences Goals
Choose Implement Evaluate
You need goals to decide what is the best
44
Arguments against the rational decision model
Decisions can not be entirely rational because,
the following conditions are not met.

• The decision makers preferences are known, rank
  and consistency is unambiguous
• All alternatives are known
• All consequences are known

Decision makers have to act before they have got
total information and they recognize only a
limited number of criteria and alternatives.
Often they chose alternatives, that reflect their
self-interest.
45
Other decision models

• Anarchistic model
• The science of Muddling through by Charles
  Lindblom (1959)
• Small steps at a time
• The garbage can model by James March and Olsen
  (1976)
• 4 streams of a) decision possibilities b)
  problems c) solutions and d) participants.
• The political model
• Consensus, distribution of power, legal
  restraints, commitment
• by Cyert and March (1963)
• The institutional model
• Legitimacy for the time being e.g. JIT, TQM, BPR
• by March Olsen (1989)