Unit 2 Flashcards
Traditional Levels of Management in Business
Senior Management
Middle Management
Junior Management
Senior Management
• E.g. Board of Directors
• Set corporate objectives & strategic direction
• Board is responsible to shareholders; led by the CEO
Middle Management
• Accountable to senior management
• Run business functions and departments
Junior Management
• Supervisory role, accountable to middle management
• Monitor & control day-to-day tasks, and manage teams of workers
The role of managers should include:
- Setting objectives
- analysing
- leading
- making decisions
- reviewing
Role of managers examples
Role of managers examples
Tannenbaum and Schmidt Continuum
• 1958: “Contingency theorists” Robert Tannenbaum and Warren Schmidt
• Suggested a “continuum” of leadership behaviour
• Continuum represents a range of action related to the:
- Degree of authority used by the manager
- Area of freedom available to non-managers
What is the Tannenbaum
Schmidt continuum?
The continuum puts leadership styles on a scale from autocratic management through increasing levels of participation in decision-making by the workforce
What are the 4 main types of management style that are in the Tannenbaum Schmidt continuum?
- Tells
- sells
- consults
- joins
What type of management style is similar to a tells style?
Autocratic or authoritarian
What type of management style is similar to a sell style?
Paternalistic
What type of management style is similar to a consults style?
Democratic
What type of management style is similar to a joins style?
Laissez-faire
What is an autocratic leadership style?
Autocratic managers are authoritarian; they make decisions without reference to anyone else. They tend to use one way, top-down communication. They give orders to employees and do not want feedback.
What is a democratic leadership style?
Democratic managers encourage decision-making from different perspectives. They tend to listen to the employees ideas and ensure people contribute to the discussion;
communication is the way. Bosses put the idea forward and listen to feedback. This helps motivation of employees.
What is a laissez-faire leadership style?
This occurs when leaders are too busy or just lazy, that they let everyone take responsibility for decisions. This can make decision-making time-consuming and can lack direction of what the business needs to do. However, it is useful for when creative ideas are needed and can be very motivational for employees.
What is a paternalistic leadership style?
Paternalistic leader thinks and acts like a father. They try to do what is best for their staff. Employees are consulted when decisions are made. They are closely supervised to supply direction. Paternalists are interested in the security and social needs of staff
Tells
Leader identifies problems, makes decision and announces to subordinates; expects implementation
Sells
Leader still makes decision, but attempts to overcome resistance through discussion & persuasion
Consults
Leader identifies problem and presents it to the group. Listens to advice and suggestions before making a decision
Joins
Leader defines the problem and passes on the solving & decision-making to the group (which manager is part of)
Tannenbaum and Schmidt Continuum of Leadership
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Tannenbaum and Schmidt Continuum of Leadership
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Two Approaches to Decision-Making in Business
-INTUITION (HUNCH)
-SCIENTIFIC
INTUITION (HUNCH)
Based on intuition, gut feel and experience
SCIENTIFIC
Based on data and analysis
Scientific Decision-Making
Scientific decision-making involves making decisions based on evidence and adopting a systematic approach, rather than intuition, hunch or ‘gut reaction’
Examples of Scientific Decision-Making
-Decision Trees
-Investment Appraisal
-Dynamic Pricing
Benefits of scientific decision making
Data driven = evidence-
based
Removes some (but not all) subjective judgement from decisions
Drawbacks of scientific decision making
May still rely on assumptions (judgement)
Doesn’t guarantee the correct decision
May ignore the crucial aspect of business experience
What is Opportunity Cost?
The cost of missing out on the next best alternative
The benefits that could have been gained by taking a different decision
Why Opportunity Cost is Important
• For most businesses resources are limited (particularly new businesses)
• When resources are limited, decisions have to be made about what to spend / invest and where to focus
• Entrepreneurs and business management take calculated risks and weigh-up the potential implications of decisions (opportunity costs) before choosing the options they believe are best for their business
Why Opportunity Cost is Important
• For most businesses resources are limited (particularly new businesses)
• When resources are limited, decisions have to be made about what to spend / invest and where to focus
• Entrepreneurs and business management take calculated risks and weigh-up the potential implications of decisions (opportunity costs) before choosing the options they believe are best for their business
What is a Decision Tree?
A mathematical model used to help managers make decisions when faced with choices
How Does a Decision Tree Work?
• A decision tree uses estimates and probabilities to calculate likely outcomes
• Calculating these estimates helps to decide whether the net gain from a decision is worthwhile
The 4 Step Approach to Decision Trees
The 4 Step Approach to Decision Trees
What are the 6 stages in scientific decision making?
1) set objectives
2) collect data
3) analyse data
4) make decision
5) implement decision
6) review decision
What are the 6 stages in scientific decision making?
1) set objectives
2) collect data
3) analyse data
4) make decision
5) implement decision
6) review decision
What does a square represent in a decision tree?
Decision point
What does a circle represent on a decision tree?
Alternative outcomes
What do decision trees help set out?
Decision trees show which course of action is probably best from a financial point of view
Give 2 advantages of decision trees
• visual representation of outcomes
- allow managers to quantify options
Give 2 disadvantages of decision trees
-they are only quantitative
- probabilities are hard to accurately predict
What is Probability?
• The percentage chance or possibility that an event will occur
• Ranges between 1 (100%) and 0
• If all the outcomes of an event are considered, the total probability must add up to 1
Calculations Involved in the Decision Tree
-Expected value
-Net gain
Expected value
The financial value of an outcome calculated by multiplying the financial result by its probability
Net gain
The value to be gained from taking a decision. Calculated by adding together the expected value of each outcome and deducting the costs associated with the decision
Final Thoughts on Decision Trees
• Like investment appraisal, decision trees are a popular tool for management decision making
• Output from decision trees very sensitive to the probabilities assigned
• Important not to use them to justify a decision, but to aid decision making
What is a Stakeholder?
A stakeholder is any individual or
organisation who has a vested interest in the activities and decision making of a business
Difference Between Stakeholders and Shareholders
STAKEHOLDERS
Stakeholders
• Have an interest in the business - but do not own it
• May work for (employees) or otherwise transact with the business
Shareholders
• Own the business
• May also work in the business
• Benefit directly from increases in the value of the business
Difference Between Stakeholders and Shareholders
Shareholders
• Own the business
• May also work in the business
• Benefit directly from increases in the value of the business
Stakeholders Have Different Interests in a Business
Shareholders/owners
Return on investment + profits and dividends
Success and growth of the business
Proper running of the business
Stakeholders Have Different Interests in a Business
Managers & Employees
Rewards, including basic pay and other financial incentives
Job security & working conditions
Promotion opportunities + job satisfaction & status - motivation, roles and responsibilities
Stakeholders Have Different Interests in a Business
Customers
Value for money
Product quality & customer service
Stakeholders Have Different Interests in a Business
PART 2
Stakeholders Have Different Interests in a Business
PART 2
Potential Conflicts between Stakeholders
Potential Conflicts between Stakeholders
Managing Stakeholder Influence and Power
Define leadership
Leadership means taking the initiative to set clear objectives and the motivate or guide staff towards their achievement
Define leadership
Leadership means taking the initiative to set clear objectives and the motivate or guide staff towards their achievement
Define management
Management means organising and galvanising staff to implement the strategy is needed to achieve the objectives
Define management
Management means organising and galvanising staff to implement the strategy is needed to achieve the objectives
Give examples of leadership qualities
- Brave
- passionate
- willing to take risks
- driven
- organised
- confident
What are the three main things that influence decisions? (Hint: think RRU)
Risk, reward and uncertainty
Give 2 internal stakeholders
• owners/ managers
- employees
Give 2 internal stakeholders
• owners/ managers
- employees
Give 5 examples of external stakeholders
• customers
• suppliers
• local community
• government
• creditors - people the business owes money to
What analysis technique takes into account the power and interest of stakeholders?
Stakeholder mapping
What are the axis variables on a stakeholder map?
Power/ influence (y) and interest (x)
What are the axis variables on a stakeholder map?
Power/ influence (y) and interest (x)
Relationships with stakeholders are important.
How can a business keep them satisfied?
1) Adapt to external influences
2) Don’t just focus on one stakeholder at the expense of another
3) Consult all stakeholders before major decisions
4) Keep good communication between the business and their stakeholders
