Welcome to MT140 Introduction to Management

Unit 2 Seminar – Foundations of Management

Agenda

• General Questions and Announcements• Introduction• Business Organizations as Open Systems• Management Environmental Considerations• Major Management Theories• Conclusion of Seminar

Unit 2 Objectives

During this unit we will:

1. Describe the business organization as an open system.

2. Identify the role of internal and external environmental factors in business.

3. Identify significant past and current management theories.

Key Concepts

• Organizations are open systems that are influenced by their environment and in turn, influence their environment.

• All organizations must operate in a macroenvironment.

• All organizations must operate within a competitive environment.

Businesses are Open Systems

• Organizations that are affected by, and that affect, their environment. See Figure 2.1 page 26.

• They take in Inputs: In the form of goods and services to create products or services.

• They produce Outputs: In the form of goods or services. These are in constant interaction with the firm’s environment.

• These impact and are impacted by both the External Environment and the Macroenvironment.

Inputs Into The Open System

• Raw Materials• Services• Equipment• Capital (Human Labor, Money, Intellectual, Managerial,

etc.)• Information (Knowledge)

Outputs Into The Open System

• Products (Example: Cars, Computers, Furniture, Groceries, etc.)

• Services (Example: Accountants, Medical Services providers, Banking, etc.).

External Environment

• All relevant forces outside the firm’s boundaries. These include competitors, customers, the government, and the economy.

• Examples:

--Copyrights, patents, trademarks, government licenses

--Industry-specific requirements for entry

--Specific taxes

--Interest rates for both customers and business

--Technological changes that impact the firm (Example: iPods versus tape players; regular cameras versus digital cameras, etc.)

Macroenvironment• A part of the External Environment that forms the general environment

for the firm. • Includes:

--Governments (Government actions, rules, laws, regulations, etc.) .

--Economic Conditions (Amount of money, interest rates, etc.) .

--Technology

--Demographics (age, gender, family size, income, education, occupation, etc.).

--Social Issues (labor force, corporate social actions, strategic decisions about products and markets).

Competitive Environment

• A part of the External Environment that forms the immediate environment surrounding the firm. (Figure 2.3, page 31)

• Includes: --Customers - Current customers as well as potential customers.

--Rival Firms - Size, efficiency, and market position of current competitors.

--Potential rival firms - Size, efficiency, and market position of potential competitors. What could customers substitute for your product?

--Suppliers and others that the firm needs to conduct business (Distribution channels).

Barriers to Market Entry

• New firms enter markets when barriers to entry are low and less enter when these increase. Barriers can originate from:

--Government Policy

--Capital Requirements

--Brand Identification

--Cost Disadvantages

--Distribution Channels

Substitutes and Complements

• Substitute – a potential threat. Customer use it as an alternative, buying less of one kind of product but more of another.

• Complement -- a potential opportunity, because customers buy more of a given product if they also demand more of the complementary product.

Ultimately the Customer Decides!

• Ultimately, it is the customer who determines the success or the failure of a business. Regardless of the type of customer involved, business organizations that create value for their customers will retain their customers and attract new ones. Those that fail to provide perceived value for the customer will eventually lose the customer and fail.

• Profit is only the measure of how well a business provides value to its customers! Management plays a key role in determining how well a business provides this value.

Management Theories

As you no doubt discovered as you watched the video “The Evolution of Management,” business management theories extend over many years and cover many different aspects of the management function. One way to describe these is to divide them into three broad categories:

1.) Scientific Management Theories2.) Bureaucratic Management Theories3.) Human Relations Management Theories.

Management Theories

• Scientific Management Theories: Concerned with specific work tasks. These theories were called “scientific” because they introduced task definition and specific measurement to the process of work (Taylor, Fayol, etc.) Around 1900 until about 1940.

• Our current POLC is derived from Henri Fayol’s Theory circa 1917!

• What kinds of measurement do we do at work?

Management Theories (Continued)

• Bureaucratic Management Theories: These added to the measurement and specifications of earlier theories to recognize the need for structure, lines of authority, and control within the management of businesses. It responded to the growth of large business organizations by adding hierarchy to the business structure (Weber, etc. 1930s to 1950s).

Management Theories (Continued)

• Human Relations Management Theories: This broad range of management theories responded to the impersonal approach of earlier theories by recognizing the uniqueness of humans and the need for managers to resolve the needs of workers. Many of these come from the Behavioral Sciences (McClelland, Maslow, Lewin, McGregor, etc. 1930s to today).

Any questions ?

See you next week!After this seminar has concluded, there will

be a recording in the archives located in the seminar room. It may be selected by date.

Thanks for joining us in the seminar!