Tuesday Morning

Management, (Planning, Leading, Organizing, Controlling),

Motivation, Balanced Scorecard

Name Game!

Management

• Management -- The process used to accomplish organizational goals through planning, organizing, leading and controlling people and other organizational resources.

Four Functions of Management– Planning - Includes defining goals, establishing strategy,

and developing plans to coordinate activities

– Organizing - Includes determining what tasks to be done, who is to do them, how the tasks are to be grouped, who reports to whom, and where decisions are to be made

– Leading - Includes motivating employees, directing the activities of others, selecting the most effective communication channel, and resolving conflicts

– Controlling - The process of monitoring performance, comparing it with goals, and correcting any significant deviations

Planning – Sharing the Vision

• Vision -- More than a goal, it’s a broad explanation of why the organization exists and where it’s trying to go.

• John Kennedy - “We choose to go to the moon.”

• Google - Google's mission (to me this is closer to a vision) is to organize the world's information and make it universally accessible and useful. (Motto – (“Do no evil”)

Planning – Defining the Mission

• Mission Statement -- Outlines the organization’s fundamental purposes. It includes:

- The organization’s self–concept.

- Its philosophy.

- Long–term survival needs.

- Customer needs.

- Social responsibility.

- Nature of the product or service.

- Fast Company magazine – November 2009

Creating a Vision/Mission Statement

• BHAG – Big Hairy Audacious Goal (Built to Last)– "A computer on every desk and in every home, all running Microsoft

software.“– "Every book ever printed, in any language, all available in less than 60

seconds.“ Amazon’s Kindle– To improve lives by mobilizing the caring power of communities. United Way– Respect, integrity, communication, and excellence. Enron!!– Google’s 10 Things We Know to be True

• “Write a mission statement with a goal that's an action, not a sentiment; that is quantifiable, not nebulous. If you're trying to sell a product, how and how many? If you're trying to change lives, how and whose? Take your wonky mission statement and rip it to shreds. Then ponder your ambitions, and write and rewrite the thing until it reflects -- in real, printable words and figures -- the difference that you want to make.” – Fast Company, November 2009

Strategic, Tactical, and Operational Planning

• Strategic Planning -- Done by top management and determines the major goals of the organization and the policies, procedures, strategies and resources it will need to achieve them. (long range, >1 year)

• Tactical Planning -- The process of developing detailed, short-term statements about what is to be done, who is to do it and how. (typically about 1 year)

• Operational Planning -- The process of setting work standards and schedules necessary to implement the company’s tactical objectives. (daily, weekly, monthly)

SWOT Analysis• Analyzes a company’s internal strengths and weaknesses and

their external opportunities and threats

SWOT Analysis for AE• Strengths - American Eagle has maintained a cash position of $470 million in cash and Treasury

securities which management believes is an extraordinary accomplishment in a difficult market. Stand alone “Aerie” stores comped slightly positive for the fiscal year. The collection offers Dorm wear and Intimates for AE girl, and has been generally well received among women. AEO management is well knowledgeable that they must focus on AE women’s business in order to further grow the company. AEO management has been able to reach targeted inventory levels as a result of heavy discounting which should help them going forward. Direct businesses improved tremendously over the year with sales reaching $307 million which was a 26% increase.

• Weaknesses – The fourth quarter was a dismal conclusion for AEO. EPS declined 71% as a result of heavy discounting and weak traffic through malls. Margins were sacrificed as a result to move inventory thus hindering profitability and potentially causing a negative effect on the AEO brand name. AEO’s operations of Martin + OSA have been unsuccessful. Although the division seemed to be doing well this revenue growth was driven by promotions. Martin + OSA targets customers in the 28 – 40 year old range which is an extremely difficult target to reach with proposed product lines. Numerous analysts expect the division to be scrapped if profitability does not improve this year. Overall AEO saw customers increase the level of purchases but overall profit was down due to discounting the majority of items at buy one get one 50% off. The overall increase in stores did not cover the decline in revenues.

SWOT Analysis for AE• Opportunities - The economy is expected to come out of the recession in the second half of 2009 and

begin recovery next year. This means that the overall sector should begin to perform well thus giving AEO and its competitors a reason to rally. AEO has also done a good job of hiring Roger Markfield in order to “reinvigorate” the AEO brand. Management has shifted focus to truly important areas such as increase in intimate apparel to resonate better with the AE girl. This includes increasing the availability of sizes, fits, colors, and patters. A potential opportunity also exists from the fact that inventories are now at proper levels. This should give American Eagle better position going forward as inventory per square foot declines causing an increase in profit margins. AEO also plans to shift sourcing and production to Cambodia and Vietnam. Management has also initiated some other cost cutting measures such as a $50 million dollar reduction in headcount and supply chain management. Opportunities also exist in managements plans to open 17 new aerie stand alone stores and 11 new AE locations including a flagship location in the Times sq, area in NYC.

• Threats - As the rest of the retail industry, a lasting recession can negatively affect future cash flows of AEO and its competitors. A lasting threat also exists from the lack of predictability of teen fashions. The industry itself is highly competitive with substitutes arising quickly. AEO’s brand Martin + OSA dragged EPS down $ 0.21 as the brand has not been well received with the targeted consumer. AEO also carries a carrying value of various Auction Rate Securities of $261.56 million. (Refer to following chart). Furthermore it seems that American Eagle is opening to many stores too quickly, and is trying to expand at a rate that is unsustainable, which will cause significant issues in the near future.

• Source: http://www.siena.edu/uploadedfiles/home/academics/schools_and_departments/school_of_business/Umansky AEO_Report_V2.pdf

Generic Decision Making Model

1. Define the situation.

2. Describe and collect needed information.

3. Develop alternatives.

4. Develop agreement among those involved.

5. Decide which alternative is best.

6. ****Do what is indicated.****

7. Determine whether the decision was a good one and follow up.

Decision Making Example

Criteria and Weights in Car-Buying Decision (Scale of 1 to 10)

Assessment of Car Alternatives

Weighting of Vehicles(Assessment Criteria × CriteriaWeight)

Organizational Chart

Organization Chart -- A visual device that shows relationships among people and divides the organization’s work; it shows who reports to whom.

LEVELS of MANAGEMENT – also corresponds to planning

Top Management

• Chief Executive Officer (CEO)- Introduces change into an organization.

• Chief Operating Officer (COO)- Implements CEO’s changes.

• Chief Financial Officer (CFO)- Obtains funds, plans budgets, collects funds, etc.

• Chief Information Officer (CIO)- Gets the right information to the right people so

decisions can be made.

Managerial Skills

• Technical Skills -- The ability to perform tasks in a specific discipline or department.

• Human Relations Skills -- Skills that involve communication and motivation; they enable managers to work through and with people.

• Conceptual Skills -- Skills that involve the ability to picture the organization as a whole and the relationship among its various parts.

Best and Worst CEOs

• From the April 2009 issue of Portfolio magazine

• CEO of the decade – Fortune Magazine• Future CEOs May Need to Have Broad Liberal-

Arts Foundation

SKILLS NEEDED at VARIOUS LEVELS of MANAGEMENT

Leadership

• Leaders must:

- Communicate a vision and rally others around that vision.

- Establish corporate values.

- Promote corporate ethics.

- Embrace change.

- Stress accountability and responsibility

- Transparency -- The presentation of the company’s facts and figures in a way that is clear and apparent to all stakeholders

• Managers carry out a leader’s vision

Leadership Examples

• Jim Collins – Good to Great• George Steinbrenner - “Some guys can lead through real,

genuine respect,” he told Cleveland magazine in 1974. “There are some guys who people would walk through a wall for, O.K., but I’m not that kind of a leader.” He likened himself to George Patton: “He was a gruff son of a bitch and he led through fear. I hope I don’t lead through fear, and I would hope it was more love and respect, but maybe it isn’t.”

• Steve Jobs – three of three (2/6) – 1:20-3:03• Dominic Barton – Managing Director at McKinsey

Motivation

• You Get the Behavior You Reward!!!

Motivation, part 2• The idea that competition and reward are effective motivators

forms the bedrock of our educational, economic, and managerial systems. Kohn, though, has strongly attacked the belief that competition is healthy and has documented its negative effects in No Contest: The Case against Competition (1986). Now he challenges the widely held assumption that incentives lead to improved quality and increased output in the workplace and in schools. He notes that the system of rewards and punishment is based on Pavlovian and Skinnerian behavioral theories, which are supported largely by experiments with laboratory animals. Kohn derides rewards as bribes and offers instead the proposition that collaboration (teamwork), content (meaningfulness), and choice (autonomy) will serve to motivate both students and workers.

Maslow’s Theory of Motivation

Based on a hierarchy of needs: Physiological – food, clothing, shelter Security – protection, safety Social – love, affection, part of something

bigger Esteem – need to be recognized for your

skills and contributions Self-actualization – personal self-fulfillment,

desire to be the best you can be

Maslow’s Heirarchy

Herzberg’s Motivators and Hygiene Factors

Motivators Hygiene Factors

Work itself Company policy and administration

Achievement Supervision

Recognition Working conditions

Responsibility Interpersonal relations

Growth and advancement

Salary, status and job security

Goal Setting Theory

• Goal-Setting Theory -- Setting ambitious but attainable goals can motivate workers and improve performance if the goals are accepted, accompanied by feedback, and facilitated.

• SMART Goals

• Specific, Measureable, Attainable, Relevant, Time-based

Applying Goal Setting Theory

• Management by Objectives (MBO) -- Involves a cycle of discussion, review and evaluation of objectives among top and middle-level managers, supervisors and employees.

• Managers formulate goals in cooperation with everyone.

• Need to monitor results and reward achievement.

Contrarian View

• The End of Management

Using Empowerment as a Competitive Advantage

• Empowerment -- Giving frontline workers the responsibility, authority, and freedom to respond quickly to customer requests. e.g., restaurants, hotels, credit card companies

•Progressive leaders give employees the authority to make decisions on their own without consulting a manager.

• Companies need to share information with its employees

• Employees feel a greater sense of ownership, responsibility, satisfaction, fulfillment, and productivity

• Customer needs are handled more quickly.

• Manager’s role becomes less of a boss and more of a coach.

Organizing

• Create a division of labor

• Set up teams or departments

• Allocate resources

• Assign tasks

• Establish procedures

• Adjust to new realities

Some Basic Organizational Concepts

• Chain of Command– The continuous line of authority that extends from upper organizational

levels to the lowest levels and clarifies who reports to whom.• Unity of Command

– The management principle that no person should report to more than one boss.

• Span of Control– The number of subordinates a manager can direct efficiently and

effectively.– Has increased over the years as a way to reduce costs and speed decision

making (technology helps!); also with better training, employees need less supervision; at higher levels, hard to have large span of control

• Tall versus Flat Structure

Organizational Culture

• Organizational or Corporate Culture -- The widely shared values within an organization that foster unity and cooperation to achieve common goals

• Some of the best organizational cultures emphasize service.

• Culture is shown in stories, traditions and myths.

• American Eagle statement on culture

Organizational Culture, part 2• Organization Culture

– Is a system of shared meanings within an organization that determine how employees act.

– Has shared values in its cultural elements:• Stories, rituals (graduation), material symbols (Nike swoosh), and language unique to

the organization• Google’s TGIF (page 6) – follow-up

– Results from the interaction between:• The founders’ biases and assumptions• What the first employees learn subsequently from their own experiences.

– Influences structure:• Strong culture substitutes for rules and regulations. Employees learn such things via the

culture, not via rules and regs

– A strong culture may be difficult to change• Could act as a barrier to acceptance of change in corporate strategies• Will Apple’s Culture Hurt the iPhone?

Five Steps of Controlling

Evaluating Performance

• Traditional forms of measuring success are financial.

• Pleasing employees, stakeholders and customers (both internal and external) are important.

• In response to this need to evaluate performance across multiple dimensions, the Balanced Scorecard was developed

© 2008 Prentice Hall, Inc. All rights reserved.

13–40

The Balanced Scorecard

• The balanced scorecard attempts to show in one report the various aspects of performance that are critical to the short and long-term success of the organization

• The firm first needs to articulate its goals, and then translate those goals into specific measures

• There are four parts to the balanced scorecard: financial measures customer measures internal processes innovation and improvement

Financial Measures

• Focus is on how does the company look to shareholders• The report should recognize the shortcomings of financial

measures (particularly their emphasis on short-term performance)

• The report should also recognize the need for a financial perspective: improvements in any of the other 3 parts of the report need to eventually be reflected in the bottom line

• Examples: Profit margin, return on assets, ROI

Customer Measures

• This part of the report takes an external focus and looks at what measures of performance are critical for satisfying the firm’s customers

• These measures include time (time to market, waiting times), quality, and service (satisfaction levels, response rates)

• Use of standard measures such as JD Powers surveys or benchmarking studies is appropriate here

• Such a focus is necessary since customers demand it

Internal Perspective

• This part of the report focuses in on what areas the firm must excel at in order to succeed

• This section emphasizes business processes (manufacturing lead time, distribution methods)

• The firm’s information system is critical in order to both assist and monitor the internal business processes

Innovation and Improvement

• This section attempts to measure whether or not the firm is continuing to improve and add value

• For many firms, employee development is a critical factor, and is measured as part of this area

• Other examples of measures here would be the percentage of sales from new products, R&D expenditures, employee turnover

Balanced Scorecard Example

• Apple Computer– financial: shareholder value– customer: market share and customer satisfaction

surveys– internal processes: core competencies (time to

market with new product idea, effective distribution systems (backorder time)

– innovation: percent of sales from new products

The Balanced Scorecard:Non-financial Measures

The balanced scorecard relies on non-financial measures in addition to financial measures for two reasons:

Financial measures are lag indicators that summarize the results of past actions. Non-financial measures are leading indicators of future financial performance.

Financial measures are lag indicators that summarize the results of past actions. Non-financial measures are leading indicators of future financial performance.

Top managers are ordinarily responsible for financial performance measures – not lower level managers. Non-financial measures are more likely to be understood and controlled by lower level managers.

Top managers are ordinarily responsible for financial performance measures – not lower level managers. Non-financial measures are more likely to be understood and controlled by lower level managers.

The balanced scorecard lays out concrete actions to attain desired outcomes.

A balanced scorecard should have measuresthat are linked together on a cause-and-effect

basis.

If we improveone performance

measure . . .

Another desiredperformance measure

will improve.

The Balanced Scorecard

Then

The Balanced ScorecardJaguar Example

Employee skills in installing options

Number ofoptions available

Time toinstall option

Customer satisfactionwith options

Number of cars sold

Contribution per car

Profit

Learningand Growth

Internal Business Processes

Customer

Financial

The Balanced ScorecardJaguar Example

Employee skills in installing options

Number ofoptions available

Time toinstall option

Customer satisfactionwith options

Number of cars sold

Contribution per car

Profit

Increase Options Time

Decreases

Strategies

Satisfaction Increases

Increase Skills

Results

Employee skills in installing options

Number ofoptions available

Time toinstall option

Customer satisfactionwith options

Number of cars sold

Contribution per car

Profit

Increase Options

Strategies

Satisfaction Increases

Results

Cars sold Increase

The Balanced ScorecardJaguar Example

Employee skills in installing options

Number ofoptions available

Time toinstall option

Customer satisfactionwith options

Number of cars sold

Contribution per car

Profit

Strategies

Results

The Balanced ScorecardJaguar Example

TimeDecreases

Increase Skills

ContributionIncreases

The Balanced ScorecardJaguar Example

Employee skills in installing options

Number ofoptions available

Time toinstall option

Customer satisfactionwith options

Number of cars sold

Contribution per car

ProfitResults

TimeDecreases

Increase Skills

ContributionIncreases

ProfitsIncrease

If numberof cars sold

and contributionper car increase,

profits increase.

Increase Options

Strategies

Satisfaction Increases