Fundamentals of Management

Sanjivani Business School

PGDM
Prof Sudhanshu Bhatt
05.10.2023
 External Environment

Factors, forces, situations, and events

outside the organization that affect its
performance.

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Components of the External
Environment

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How Does External Environment
Affect Managers?

There are three ways that the external

environment affects managers:
1. Its impact on jobs and employment
2. The amount of environmental
uncertainty, and
3. The nature of stakeholder relationships

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 Impact on jobs and employment
• As external environmental conditions change,
managers face the impact of these changes on
jobs and employment.
• Such readjustments create challenges for
managers who must balance work demands with
having enough people with the right skills to do
the organization’s work.
• Changes in external conditions not only affect the
types of jobs available but they also affect how
the jobs are created and managed.
• For example, many employers use flexible work
arrangements and contract freelancers or
temporary workers.
 Environmental Uncertainty
Environmental uncertainty refers to the degree of
change and complexity in an organizations environment.

• The first dimension of uncertainty is the degree of

unpredictable change; that is, a stable environment
experiences minimal change and a dynamic
environment experiences frequent change. For example,
a stable environment might have no new competitors,
few technological breakthroughs by current competitors,
little pressure from groups trying to influence the
organization, and so on.

• The other dimension of uncertainty describes the

degree of environmental complexity, which looks at
the number of components in an organization’s
environment and the knowledge that the organization
has about those components.
Assessing Environmental
Uncertainty

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 Managing Stakeholder
Relationships
Stakeholders are any constituencies in an
organization’s environment that are affected by
that organization’s decisions and actions. These
groups have a stake in, or are significantly
influenced by, what the organization does. In
turn, these groups can influence the
organization.
• For example, think of the groups that might be
affected by the decisions and actions of
Starbucks—coffee bean farmers, employees,
specialty coffee competitors, local communities,
and so forth. Some of these stakeholders also,
in turn, may impact decisions and actions of
Starbucks’ managers.
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Organizational Stakeholders

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 Organizational Culture

Shared values, principles, traditions,

and ways of doing things that influence the
way an organization’s members act.

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 Culture is:
1. Culture is perceived. It’s not something that can be
physically touched or seen, but employees perceive it on
the basis of what they experience within the
organization.

2. Culture is descriptive. It’s concerned with how Members

perceive or describe the culture, not with whether they like
it.

3. Culture is shared. Even though individuals may have

different backgrounds or work at different Organizational
levels, they tend to describe the organization’s culture in
similar terms.
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Dimensions of Culture

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Managerial Decisions Influenced
by Culture

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Integrative Managerial Issues

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Prof. Sudhanshu Bhatt @ Sanjivani Business School © Pearson Education Ltd
 Globalization and its Impact
“Modern global supply chains mirror complex biological
systems. . . . They can be remarkably resilient and self-
healing, yet at times quite vulnerable to some specific
seemingly small weakness.”
• Normally, the global flow of goods routinely adapts, day
in and day out, to all kinds of glitches and setbacks.
However, when a major disaster strikes (for instance, an
earthquake in Japan), the fragility of the global supply
chain becomes more apparent.
• Although the world is still a global village, how managers
do business in that global village is changing. To be
effective in this boundaryless world, managers need to
adapt to this changed environment, as well as continue to
foster an understanding of cultures, systems, and
techniques that are different from their own.
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 What Does it Mean to Be
“Global”?
• Exchanging goods and services with
consumers in other countries.
• Using managerial and employee talent from
other countries.
• Using financial sources and resources
outside home country.

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 Types of Global Organizations
MNC: Any type of international company that maintains
operations in multiple countries. Three types are:
1. Multidomestic corporation: management and other
decisions are decentralized to the local country in which it is
operating.Relies on local employees to manage the business,
tailors strategies to each country’s unique characteristics, and
is used by many consumer product companies.
2. Transnational (borderless) organization: An MNC where
artificial geographical boundaries are eliminated. Country of
origin or where business is conducted becomes irrelevant;
increases efficiency and effectiveness in a competitive global
marketplace.
3. Global corporation: An MNC in which management and
other decisions are centralized in the home country. World
market is treated as an integrated whole; focus is on control
and global efficiency. 3-18
How Do Organizations Go
Global?
 How Do Organizations Go Global?

When organizations go global, they often use different

approaches, as we see here.

• Managers who want to enter a global market with minimal

investment usually start with global sourcing (also called
global outsourcing), which means purchasing materials
or labor from the cheapest source in order to maintain a
competitive edge. For instance, Massachusetts General
Hospital uses radiologists in India to interpret CT scans.
 How Do Organizations Go Global?
Moving beyond global sourcing involves more investment
and risk for the organization. Exporting and importing
entail less investment and risk than other steps in
globalization.
- Exporting an organization’s products involves making
products domestically and selling them abroad.
- Importing involves acquiring products made abroad and
selling them domestically.
 How Do Organizations Go Global?
Managers may also choose licensing or franchising to
further their global penetration. Both licensing and
franchising involve one organization giving another
organization the right to use its brand name, technology, or
product specifications in return for a lump sum payment or
a fee that is usually based on sales.
- Licensing is most often used by manufacturing
organizations that make or sell another company’s
products. For example, Anheuser-Busch licenses the right
to brew and market Budweiser beer to foreign brewers
such as Labatt in Canada and Kirin in Japan.
- Franchising is primarily used by service organizations
that want to use another company’s name and operating
methods, such as KFC and Dunkin’ Donuts.
 How Do Organizations Go Global?
Global strategic alliance, which is a partnership between
an organization and a foreign company partner created to
share resources and knowledge in developing new
products or building production facilities. Honda Motor and
General Electric, for example, teamed up to produce a new
jet engine.

A joint venture is a type of strategic alliance in which the

partners form a separate, independent organization for a
business purpose. For example, Hewlett-Packard has
initiated joint ventures with various global suppliers to
develop different components for its computer equipment.

Managers may also directly invest in a foreign country by

setting up a foreign subsidiary as a separate and
independent facility or office. For example, United Plastics
Group built three injection-molding facilities in China to
become a global supplier to its global accounts.
How Do Organizations Go
Global?

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 Managing in a Global Organization
A person with a parochial attitude cannot succeed in
today’s world.

• Parochialism is a narrow focus in which managers see

things only through their own eyes and from their own
perspectives (eg USA) – not recognizing that countries
have different values, morals, customs, political and
economic systems, and laws – which can affect how a
business is managed.

• The most important differences for managers to

understand relate to a country’s social context or culture.
For example, status is perceived differently in different
countries. In France, status is often the result of factors
important to the organization, such as seniority, education,
and the like. In the United States, status is more a
function of what individuals have accomplished personally.
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Hofstede’s Framework

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 Hofstede’s Framework
One of the most influential approaches to analyzing cultural differences
among countries was developed by Geert Hofstede in the 1970s and
1980s.
Hofstede surveyed more than 116,000 IBM employees in 40 countries
about their work-related values and found that managers and employees
vary on five value dimensions of national culture:
1. Power distance, which is the degree to which people in a country
accept that institutional power is distributed unequally
2. Individualism versus collectivism, which is the degree to which
people in a country prefer to act as individuals or as members of
groups
3. Quantity of life, which values assertiveness, materialism, and
competition, versus quality of life, which values relationships and
sensitivity and concern for others’ welfare
4. Uncertainty avoidance, which is the degree to which people in a
country prefer structured over unstructured situations and whether
they are willing to take risks; and finally,
5. Long-term orientation, which is the degree to which people look
to the future and value thrift and persistence, versus short-term
orientation, which is the degree to which people value the past
and present and emphasizes respect for tradition and fulfilling
social obligations.
 GLOBE Findings
Global Leadership and Organizational
Behavior Effectiveness (GLOBE)

Although Hofstede’s work provided the basic framework for

differentiating among national cultures, a more recent
research program—called Global Leadership and
Organizational Behavior Effectiveness (or GLOBE)—
continues the ongoing cross-cultural investigation of
leadership and national culture. GLOBE’s findings both
extend Hofstede’s research and confirm the validity of his
original dimensions.

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 Globe Dimentions
The GLOBE research team, using data from more than 17,000 managers
in 62 societies around the world, has identified nine dimensions in which
national cultures differ:
• Assertiveness is the extent to which a society encourages people to
be tough, confrontational, assertive, and competitive versus modest
and tender. (The United States ranks high; Egypt ranks moderate; and
Sweden ranks low.)
• Future orientation indicates the extent to which a society encourages
and rewards future-oriented behavior such as planning, investing in the
future, and delaying gratification. (Canada ranks high; Slovenia ranks
moderate; and Russia ranks low.)
• Gender differentiation captures the extent to which a society
maximizes gender role differences. (South Korea ranks high; Italy
ranks moderate; and Denmark ranks low.)
• Uncertainty avoidance is a society’s reliance on social norms and
procedures to alleviate the unpredictability of future events. (Germany
ranks high; Israel ranks moderate; and Hungary ranks low.)
 Globe Dimentions
• Individualism and collectivism is the degree to which individuals
are encouraged to integrate into groups within organizations and
society. (Greece is highly individualistic; Hong Kong is moderately
individualistic; and Singapore is collective.)
• In-group collectivism encompasses the extent to which members
of a society take pride in their membership in small groups such as
their family and circle of close friends and the organizations by which
they are employed. (China ranks high; Qatar ranks moderate; and
New Zealand ranks low.)
• Performance orientation refers to the degree to which a society
encourages and rewards group members for performance
improvement and excellence. (Taiwan is high; Spain is moderate;
and Greece is low.)
• Humane orientation is the degree to which a society encourages
and rewards individuals for being fair, altruistic, generous, caring, and
kind to others. (Indonesia ranks high; Hong Kong ranks moderate;
and France ranks low.)
• Power distance is the degree to which members of a society expect
power to be unequally distributed. (Thailand ranks high; England
ranks moderate; and South Africa ranks low.)
 Globe Dimentions Video
https://www.youtube.com/watch?
v=3du_rZ0U90Q&t=81s
GLOBE: 9 Dimensions of Cultural
Difference
1. Assertiveness 6. Individualism/
Collectivism
2. Future orientation
7. In-group
3. Gender
collectivism
differentiation
8. Performance
4. Uncertainty
orientation
avoidance
9. Humane
5. Power distance
orientation

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 Corporate social responsibility (CSR)
• Social responsibility refers to a business’s intention, beyond its legal
and economic obligations, to do the right things and act in ways that are
good for society.
• Social obligations are activities a business engages in to meet certain
economic and legal responsibilities. It does the minimum that the law
requires and only pursues social goals to the extent that they contribute
to its economic goals.
• Social responsiveness is characteristic of the business firm that
engages in social actions in response in response to a popular social
need. Managers in these companies are guided by social norms and
values and make practical, market-oriented decisions about their
actions.

Social responsibility adds an ethical imperative to do those things that

make society better and to avoid those things that could make it worse.

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Should Organizations be Socially Involved?

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 Sustainability Means Different
Things to Different People
Meeting the needs of people today without
compromising the ability of future generations to
meet their own needs.

A company’s ability to achieve its business

goals and increase long-term shareholder value
by integrating economic, environmental, and
social opportunities into its business strategies.

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 Ethical Behavior
Ethics:
a set of rules or
principles that
defines right
and wrong
conduct

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 Different Views of Ethics
• The utilitarian view of ethics says that ethical decisions are made
solely on the basis of their outcomes or consequences. The goal of
utilitarianism is to provide the greatest good for the greatest number
of people.

• In the rights view of ethics, individuals are concerned with

respecting and protecting individual liberties and privileges such as
the right of free consent, the right to privacy, and the right of free
speech. Under this view, making ethical decisions is simple because
the goal is to avoid interfering with the rights of others who might be
affected by the decision.

• Lastly, under the theory of justice view of ethics, an individual is

equitable, fair, and impartial in making decisions. For instance, such
a manager would pays individuals of similar skill, performance, or
responsibility level the same wage and wouldn’t base that decision
on gender, personality, or favoritism.

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Factors Determining Ethical
Behavior
– Morality
– Values
– Personality
– Experience
– Organization’s culture

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 The Changing Workforce

Diversity is visible in age, gender, race,

physical attributes, styles of dress, and
personality type.

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 Workplace Diversity
• Workforce diversity is defined as the ways in which people in an
organization are different from and similar to one another.

• Diversity has been one of the foremost business topics over the last
two decades, along with such modern business disciplines as quality,
leadership, and ethics.

• Based in civil rights legislation and social justice, the word “diversity”
has traditionally been associated with fair hiring practices and the
prevention of discrimination and inequality.

• Today diversity focuses on both the differences and similarities of

employees, which reinforces the belief that managers and
organizations should view employees as having qualities in common
as well as differences, and find ways to develop strong relationships
with and engage their entire workforce.
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Types of Diversity

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 Adapting to a Changing Workforce
Managers are adapting to changes taking place in the workforce with
such diversity initiatives as work-life balance programs, contingent
jobs, and recognition of generational differences.
• Due to 24/7 global business and technological access and dual-
career families, many organizations now offer family-friendly
benefits that provide flexible scheduling options, on-site child care,
flextime, job sharing, telecommuting, part-time employment, and
more.
• The labor force has begun shifting away from traditional full-time jobs
toward a contingent workforce of part-time, temporary, and contract
workers who are hired on an as-needed basis. Supervising and
motivating such independent contractors has its own set of
challenges and expectations for managers.
• Generational differences present challenges ranging from
appearance to technology and management style, which can be
accommodated by flexibility. For example, Gen Y employees want
bosses who are open-minded; experts in their field, even if they aren’t
tech savvy; organized; and want teachers who respect their need for
work-life balance, provide constant feedback, communicate in
compelling ways, and provide stimulating learning. 3-42
Foundations
of Decision
Making

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Prof. Sudhanshu Bhatt @ Sanjivani Business School © Pearson Education Ltd
 How Do Managers Make
Decisions? The Decision Making
Process

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Common Errors

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 12 Common Biases
1. Overconfidence occurs when decision makers think they know more
than they do or hold unrealistically positive views of themselves and
their performance.
2. Immediate gratification describes decision makers who want
immediate rewards but want to avoid immediate costs. For these
individuals, decision choices that provide quick payoffs are more
appealing than those with payoffs in the future.
3. The anchoring effect describes when decision makers fixate on
initial information—such as first impressions, ideas, prices, and
estimates—and then fail to adequately adjust for subsequent
information.
4. Selective perception occurs when decision makers organize and
interpret events based on their biased perceptions, which influence
the information they pay attention to, the problems they identify, and
the alternatives they develop.
5. Confirmation bias describes decision makers who seek out
information that reaffirms their past choices and who discount
information that contradicts past judgments. Such people tend to
accept, at face value, information that confirms their preconceived
views and are critical and skeptical of information that challenges
these views.
6. The framing bias occurs when decision makers select and highlight
certain aspects of a situation while excluding others. By drawing
attention to specific aspects of a situation and highlighting them, they
downplay or omit other aspects, distort what they see, and create
incorrect reference points.
 12 Common Biases
1. The availability bias occurs when decision makers focus on
events that are the most recent and vivid in their memory. As a
result, their ability to recall events objectively results in distorted
judgments and probability estimates.
2. Representation bias describes how decision makers assess the
likelihood of an event based on how closely it resembles other
events and then draw analogies and see identical situations where
they don’t necessarily exist.
3. The randomness bias describes when decision makers try to
create meaning out of random events.
4. The sunk costs error occurs when decision makers forget that
current choices can’t correct the past. They incorrectly fixate on past
expenditures of time, money, or effort rather than on future
consequences when they assess choices.
5. Decision makers exhibiting self-serving bias take credit for their
successes and blame failures on outside factors.
6. Finally, the hindsight bias is the tendency for decision makers to
falsely believe that they would have accurately predicted the
outcome of an event once that outcome is actually known.
Examples of Routine Decisions

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 Managers can use three
approaches to making decisions:
Most decision making is routine, such as
deciding which employee will work which
shift or how to resolve a customer’s
complaint.
1. Rational decision making
2. Bounded rational decision making, and
3. Intuition.
 Rational Model
• In a perfect world, being a rational decision maker
means being fully objective and logical. The problem to
be addressed would be clear-cut and the decision maker
would have a specific goal and anticipate all possible
alternatives and consequences. Ultimately, making
decisions rationally would consistently lead to selecting
the alternative that maximizes the likelihood of achieving
that goal.

• For managerial decision making, we need to assume that

decisions are made in the best interests of the
organization.

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 Intuitive Decision Making
• Intuitive decision making involves making decisions on the basis
of experience, feelings, and accumulated judgment, which can
complement both rational and bounded rational decision making.
Researchers have identified five different aspects of intuition,
described here in Exhibit 4-7.

Managers make decisions based on:

• Past experiences
• Feelings and emotions
• Skills, knowledge, and training
• Data from the subconscious, and
• Ethical values or culture.
 Bounded Rationality
• Since most decisions that managers make don’t fit the
assumptions of perfect rationality, a more realistic approach to
describing how managers make decisions is the concept of
bounded rationality. This means that managers make decisions
rationally but are limited (or bounded) by their ability to process
information. Because they can’t possibly analyze all information
on all alternatives, managers satisfice, rather than maximize.
That is, they accept solutions that are “good enough.”

• Remember that decision making is also influenced by the

organization’s culture, internal politics, power considerations, and
escalation of commitment, which is an increased commitment
to a previous decision despite evidence that it may have been
wrong.

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Intuitive Decision Making

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Describe the types of decisions
and decision-making conditions
that managers face.

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 Types of Problems
1. Structured problem
2. Unstructured problem

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 Types of Problems
• In a structured problem, the goal of the decision maker is clear,
the problem familiar, and information about the problem easily
defined and complete. Examples include a customer who wants to
return an online purchase or a TV news team that has to respond to
a fast-breaking event. These situations are called structured
problems because they align closely with the assumptions that
underlie perfect rationality.

• However, many situations that managers face are unstructured

problems—that is, situations that are new or unusual and for which
information is ambiguous or incomplete. Entering a new market
segment or deciding to invest in an unproven technology are
examples of unstructured problems.
Types of Decisions
Problems, Decision Types, and Organizational Levels

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 Decision-Making Conditions
• The ideal situation for making decisions is one of certainty, which is
a situation where a manager can make accurate decisions because
the outcome of every alternative is known.

• However, a far more common situation is one of risk, in which the

decision maker is able to estimate the likelihood of certain outcomes
based on data from past personal experiences or secondary
information that lets the manager assign probabilities to different
alternatives.

• Uncertainty means that the decision maker is not certain about the
outcomes and can’t even make reasonable probability estimates. The
choice of alternatives is influenced by the limited amount of
information and by the psychological orientation of the decision
maker.
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Discuss Group Decision-Making.

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How Do Groups Make Decisions?
Decisions are often made by groups
representing the people who will be most
affected by those decisions.

–Committees
–Task forces
–Review panels
–Work teams

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Advantages of Group Decision
Making

– More complete information

– Diversity of experiences/perspectives
– More alternatives generated
– Increased acceptance of solution
– Increased legitimacy

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Disadvantages of Group Decision
Making
– Time-consuming
– Minority domination
– Ambiguous responsibility
– Pressures to conform

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 Groupthink
When a group exerts extensive pressure on an individual to withhold
his or her different views in order to appear to be in agreement.

What it does
1. Undermining critical thinking in the group.
2. Affecting a group’s ability to objectively appraise alternatives.
3. Deterring individuals from critically appraising unusual, minority, or
unpopular views.

How it occurs
4. Group members rationalize resistance to assumptions.
5. Members directly pressure those who express doubts or question the
majority’s views and arguments.
6. Members who have doubts or differing points of view avoid deviating
from what appears to be group consensus.
7. An illusion of unanimity prevails. Full agreement is assumed if no one
speaks up.

How to minimize it
8. Encourage cohesiveness.
9. Foster open discussion.
10.Have an impartial leader who seeks input from all members
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Improving Group Decision Making
Make group decisions more creative by:

1. Brainstorming
2. The Nominal Group Technique
3. Electronic meetings

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