MANAGEMENT AND MARKETING
MANAGEMENT PART
CHAPTER 4 – THE MANAGEMENT ENVIRONMENT
What are characteristics of an organization (that distinguish it from a non-organization)?
- Goal orientation an organization must have a specific purpose.
- Division of labor/tasks organizations consist of several people (at least 2), that have specific
tasks
- Permanent boundaries organizations have boundaries that allow to distinguish the internal and
external environment of the organization. Boundaries are defined by legal definition.
Around an organization, there are different organizational layers that constitute the environment:
1st layer organization
2nd layer competitors and market
3rd industry/sector
4th macro-environment
Depending on the layer we are considering, different tools can be used to analyze the environment of the
organization:
- At level of competitors and market (2 nd), tools that can be used are strategic groups and analysis of
market segments
- At level of industry/sector (3rd), a tool used is Five-Forces analysis
- For the macro-environment level (4th), a tool used is PESTEL analysis
- Stakeholder analysis tool that takes into account all the levels to analyze what are the
stakeholders of the organization.
- SWOT analysis also used at organizational level
PESTEL-analysis (macro-environment level)
PESTEL is the abbreviation for the factors in the macro-environment that influence the organization:
- Political, (refers to political situation)
- Economic, e.g. the gross domestic product of a country, the employment rate
- Social, e.g. the demographic structure of a population
- Technological, e.g. technological developments and innovations
- Ecological, e.g. climate conditions
- Legal factors, e.g. laws and restrictions
PESTEL analysis is an analysis tool that evaluates the effects of external factors on the company.
Five-forces analysis (industry/sector level) (cerca figura)
The analysis focuses on the industry rivalry/competition. Competition in the sector is influenced by:
- Threat of new entrants in the industry if new businesses enter the sector there’s more
competition
- Potential substitutes un substitute is any product or service that a consumer can choose in
place of another.
- Supplier power it refers to the power of suppliers to control (increase) prices. Suppliers have
more power when they produce a unique product, and when it would be a big cost for a company
to switch to another supplier
- Buyer power it refers to the power of consumers to influence companies to lower prices, to
offer better quality products etc. Buyers have more power for example when it is not a cost for
them to change the product they are buying.
,How can companies respond to competition/what are possible competitive strategies:
- Companies can be more competitive by lowering prices cost leadership strategy
- Companies can invest on uniqueness by making a product that is different from all others
differentiation strategy
- Companies can focus to produce products/services directed to a particular market segment
focus strategy
SWOT analysis
Allows to connect the environment and the firm, by analyzing the Strengths, Weaknesses, Opportunities
and Threats of the company.
The results of the analysis have an influence on the strategic decisions of the company towards the macro-
environment and competitors.
Stakeholder analysis
Stakeholders = all actors that have an interest in the organization and that are affected by/can affect the
decisions of the company.
Steps of stakeholder management:
- Identifying relevant stakeholders and their interests
- Evaluating stakeholders and their importance
- Implementing measures towards specific stakeholders
Examples of stakeholders are customers, employees, suppliers, governments, competitors, media,
investors, society, labor unions. Stakeholders can be:
- Internal refer to stakeholders inside the company, which are the owner(s), manager(s) and
employees of the company, and the shareholders (people that own a part of the company)
- External all other stakeholders that are outside of the company
For managers, the stakeholders that are more important are employees, shareholders and customers.
What is the external environment and why is it important?
External environment = factors, forces, situations and events outside of the organization/company, but
that still affect its performance. The external environment includes different components:
- Economic component, which includes factors such as interest rates, inflation, market fluctuations.
These all influence the company performance
- Demographic component, includes factors such as age, sex, education level, geographic location,
that all influence the company performance.
- Technological component, includes scientific and industrial innovations.
- Socio-cultural component, includes values, attitudes, trends, traditions, behaviour, taste.
- Political/legal component, includes laws of the country and of other countries as well.
- Global component, includes issues associated with globalization, e.g. political instability, terrorist
attacks, natural catastrophes.
How does the external environment affect managers?
The external environment influences managers in three ways:
1. Through its impact on jobs and employment
2. Through the environmental uncertainty that is present
3. Through the stakeholder relationships that exist between an organization and its external
constituencies.
, 1. Jobs and employment
External environmental conditions have an impact on jobs and employment. This affects managers, that
need to balance work demands and having enough people with the right skills.
The external conditions influence the types of jobs that are
available, how these jobs are created, designed and
managed.
2. Environmental uncertainty
Another constraint posed by the external environment is the
amount of uncertainty found in that environment, which
influences organizational performance.
Environmental uncertainty = the degree of change,
predictability of change and complexity in an organization’s
environment. These two dimensions are shown in the
picture, which represents the environmental uncertainty
matrix:
- Degree of change = the environment can be stable (does not change and is predictable) or dynamic
(changes a lot and is unpredictable).
A stable environment could be one with no new competitors, or no new technologies.
- Environmental complexity = complexity refers to the number of components in the organization’s
environment, how similar they are, and the degree of knowledge of the company about those
components. The environment can thus be complex or simple. It is complex if the components are
not similar, there are many components and the organization does not know a lot about them. Vice
versa if the environment is simple.
e.g. when new competitors enter the sector, the environment becomes more uncertain.
Looking at the matrix in the figure, cell 1 represents the lowest level of environmental uncertainty because
the external environment is stable and simple. Cell 4 represents the highest uncertainty. This means that
managers can have more influence on company performance when the external environment is like cell 1,
and less when it is like cell 4.
3. Stakeholder relationships
These also have an influence on the performance of managers.
Stakeholders = any constituencies in an organization’s environment that are affected by the decisions and
actions of the organization. Cioè sono tutte le parti coinvolte in qualche modo con l’organizzazione.
Stakeholders include employees, suppliers, customers, competitors, governments, media, communities.
The relationship of a company with these stakeholders of course influence the performance of the
company.
CHAPTER 2 – THE MANAGER AS DECISION-MAKER
How do managers make decisions?
Decision-making process = a set of 8 steps that involves identifying a problem, selecting a solution to solve
it and then evaluate the result. Vedi fig 2.1 libro (incollare da slide?). Steps:
1. Identification of a problem
Problem = when something is different from what you want, e.g. your performance is not good enough,
you cannot reach your goals
, 2. Identification of decision criteria
Decision criteria = factors that are important in a decision. For example, if your car is broken and you need
to buy a new one, the decision criteria when you decide which new car to buy can be price, model, size,
performance.
3. Allocation of weights to criteria
Allocating weight to decision criteria means giving more importance to some criteria than others; So you
would give a weight of 10 to the most important, and lower scores to the others. e.g. when you want to
buy a car, the most important criterion to choose one is price.
4. Development of alternative solutions
You list all possible alternative solutions that can solve your problem. In the car example, you would list the
car models that are suitable for you.
5. Analysis of alternative solutions
Now you evaluate the alternatives based on the decision criteria. For each solution, you look at all the
criteria and give a score. The alternatives with the lowest scores overall, will likely be discarded.
6. Selection of a solution
After the analysis, you choose the alternative that generated the highest score.
7. Implementation of the solution
Decision implementation = putting the decision into action. In our example, you go buy the car
8. Evaluation of the result
You evaluate if the solution you chose solved the problem or not. If not, you have to repeat the entire
process and choose another solution.
Common errors in decision-making process:
When managers make decisions, they use their own style and also rules of thumb (regole generali) to
simplify the process. However, it does not mean that these rules are always reliable, and this can cause
mistakes. Common decision errors are:
- Overconfidence bias = when decision-makers think they know more than they do
- Immediate gratification bias = when decision-makers want immediate rewards and avoid costs.
- Anchoring effect = when someone has a certain idea about something based on certain
information, but never changes idea even when receiving new information
- Selective perception bias = when decision-makers ignore information that are against their view,
they see only what they want to see
- Confirmation bias = when decision-makers look for information that can confirm their own
assumptions
- Framing bias = when you take into account certain aspects when making your decision, but do not
consider others.
- Availability bias = remembering events that are more recent in your memory, and use that info to
make decisions
- Representation bias = when you believe that an event will probably occur, just because it
resembles other events
- Randomness bias = when decision-makers try to find a meaning in random events.
- Revision bias = when decision-makers think that an object or idea is always better when it is
changed in some way, even if it might not be true.
- Sunk cost error = forgetting that current choices cannot correct the past
- Self-serving bias = taking credit for success, but blaming outside factors when you fail
- Hindsight = falsely believing that you would have accurately predicted the outcome after it is
known
MANAGEMENT PART
CHAPTER 4 – THE MANAGEMENT ENVIRONMENT
What are characteristics of an organization (that distinguish it from a non-organization)?
- Goal orientation an organization must have a specific purpose.
- Division of labor/tasks organizations consist of several people (at least 2), that have specific
tasks
- Permanent boundaries organizations have boundaries that allow to distinguish the internal and
external environment of the organization. Boundaries are defined by legal definition.
Around an organization, there are different organizational layers that constitute the environment:
1st layer organization
2nd layer competitors and market
3rd industry/sector
4th macro-environment
Depending on the layer we are considering, different tools can be used to analyze the environment of the
organization:
- At level of competitors and market (2 nd), tools that can be used are strategic groups and analysis of
market segments
- At level of industry/sector (3rd), a tool used is Five-Forces analysis
- For the macro-environment level (4th), a tool used is PESTEL analysis
- Stakeholder analysis tool that takes into account all the levels to analyze what are the
stakeholders of the organization.
- SWOT analysis also used at organizational level
PESTEL-analysis (macro-environment level)
PESTEL is the abbreviation for the factors in the macro-environment that influence the organization:
- Political, (refers to political situation)
- Economic, e.g. the gross domestic product of a country, the employment rate
- Social, e.g. the demographic structure of a population
- Technological, e.g. technological developments and innovations
- Ecological, e.g. climate conditions
- Legal factors, e.g. laws and restrictions
PESTEL analysis is an analysis tool that evaluates the effects of external factors on the company.
Five-forces analysis (industry/sector level) (cerca figura)
The analysis focuses on the industry rivalry/competition. Competition in the sector is influenced by:
- Threat of new entrants in the industry if new businesses enter the sector there’s more
competition
- Potential substitutes un substitute is any product or service that a consumer can choose in
place of another.
- Supplier power it refers to the power of suppliers to control (increase) prices. Suppliers have
more power when they produce a unique product, and when it would be a big cost for a company
to switch to another supplier
- Buyer power it refers to the power of consumers to influence companies to lower prices, to
offer better quality products etc. Buyers have more power for example when it is not a cost for
them to change the product they are buying.
,How can companies respond to competition/what are possible competitive strategies:
- Companies can be more competitive by lowering prices cost leadership strategy
- Companies can invest on uniqueness by making a product that is different from all others
differentiation strategy
- Companies can focus to produce products/services directed to a particular market segment
focus strategy
SWOT analysis
Allows to connect the environment and the firm, by analyzing the Strengths, Weaknesses, Opportunities
and Threats of the company.
The results of the analysis have an influence on the strategic decisions of the company towards the macro-
environment and competitors.
Stakeholder analysis
Stakeholders = all actors that have an interest in the organization and that are affected by/can affect the
decisions of the company.
Steps of stakeholder management:
- Identifying relevant stakeholders and their interests
- Evaluating stakeholders and their importance
- Implementing measures towards specific stakeholders
Examples of stakeholders are customers, employees, suppliers, governments, competitors, media,
investors, society, labor unions. Stakeholders can be:
- Internal refer to stakeholders inside the company, which are the owner(s), manager(s) and
employees of the company, and the shareholders (people that own a part of the company)
- External all other stakeholders that are outside of the company
For managers, the stakeholders that are more important are employees, shareholders and customers.
What is the external environment and why is it important?
External environment = factors, forces, situations and events outside of the organization/company, but
that still affect its performance. The external environment includes different components:
- Economic component, which includes factors such as interest rates, inflation, market fluctuations.
These all influence the company performance
- Demographic component, includes factors such as age, sex, education level, geographic location,
that all influence the company performance.
- Technological component, includes scientific and industrial innovations.
- Socio-cultural component, includes values, attitudes, trends, traditions, behaviour, taste.
- Political/legal component, includes laws of the country and of other countries as well.
- Global component, includes issues associated with globalization, e.g. political instability, terrorist
attacks, natural catastrophes.
How does the external environment affect managers?
The external environment influences managers in three ways:
1. Through its impact on jobs and employment
2. Through the environmental uncertainty that is present
3. Through the stakeholder relationships that exist between an organization and its external
constituencies.
, 1. Jobs and employment
External environmental conditions have an impact on jobs and employment. This affects managers, that
need to balance work demands and having enough people with the right skills.
The external conditions influence the types of jobs that are
available, how these jobs are created, designed and
managed.
2. Environmental uncertainty
Another constraint posed by the external environment is the
amount of uncertainty found in that environment, which
influences organizational performance.
Environmental uncertainty = the degree of change,
predictability of change and complexity in an organization’s
environment. These two dimensions are shown in the
picture, which represents the environmental uncertainty
matrix:
- Degree of change = the environment can be stable (does not change and is predictable) or dynamic
(changes a lot and is unpredictable).
A stable environment could be one with no new competitors, or no new technologies.
- Environmental complexity = complexity refers to the number of components in the organization’s
environment, how similar they are, and the degree of knowledge of the company about those
components. The environment can thus be complex or simple. It is complex if the components are
not similar, there are many components and the organization does not know a lot about them. Vice
versa if the environment is simple.
e.g. when new competitors enter the sector, the environment becomes more uncertain.
Looking at the matrix in the figure, cell 1 represents the lowest level of environmental uncertainty because
the external environment is stable and simple. Cell 4 represents the highest uncertainty. This means that
managers can have more influence on company performance when the external environment is like cell 1,
and less when it is like cell 4.
3. Stakeholder relationships
These also have an influence on the performance of managers.
Stakeholders = any constituencies in an organization’s environment that are affected by the decisions and
actions of the organization. Cioè sono tutte le parti coinvolte in qualche modo con l’organizzazione.
Stakeholders include employees, suppliers, customers, competitors, governments, media, communities.
The relationship of a company with these stakeholders of course influence the performance of the
company.
CHAPTER 2 – THE MANAGER AS DECISION-MAKER
How do managers make decisions?
Decision-making process = a set of 8 steps that involves identifying a problem, selecting a solution to solve
it and then evaluate the result. Vedi fig 2.1 libro (incollare da slide?). Steps:
1. Identification of a problem
Problem = when something is different from what you want, e.g. your performance is not good enough,
you cannot reach your goals
, 2. Identification of decision criteria
Decision criteria = factors that are important in a decision. For example, if your car is broken and you need
to buy a new one, the decision criteria when you decide which new car to buy can be price, model, size,
performance.
3. Allocation of weights to criteria
Allocating weight to decision criteria means giving more importance to some criteria than others; So you
would give a weight of 10 to the most important, and lower scores to the others. e.g. when you want to
buy a car, the most important criterion to choose one is price.
4. Development of alternative solutions
You list all possible alternative solutions that can solve your problem. In the car example, you would list the
car models that are suitable for you.
5. Analysis of alternative solutions
Now you evaluate the alternatives based on the decision criteria. For each solution, you look at all the
criteria and give a score. The alternatives with the lowest scores overall, will likely be discarded.
6. Selection of a solution
After the analysis, you choose the alternative that generated the highest score.
7. Implementation of the solution
Decision implementation = putting the decision into action. In our example, you go buy the car
8. Evaluation of the result
You evaluate if the solution you chose solved the problem or not. If not, you have to repeat the entire
process and choose another solution.
Common errors in decision-making process:
When managers make decisions, they use their own style and also rules of thumb (regole generali) to
simplify the process. However, it does not mean that these rules are always reliable, and this can cause
mistakes. Common decision errors are:
- Overconfidence bias = when decision-makers think they know more than they do
- Immediate gratification bias = when decision-makers want immediate rewards and avoid costs.
- Anchoring effect = when someone has a certain idea about something based on certain
information, but never changes idea even when receiving new information
- Selective perception bias = when decision-makers ignore information that are against their view,
they see only what they want to see
- Confirmation bias = when decision-makers look for information that can confirm their own
assumptions
- Framing bias = when you take into account certain aspects when making your decision, but do not
consider others.
- Availability bias = remembering events that are more recent in your memory, and use that info to
make decisions
- Representation bias = when you believe that an event will probably occur, just because it
resembles other events
- Randomness bias = when decision-makers try to find a meaning in random events.
- Revision bias = when decision-makers think that an object or idea is always better when it is
changed in some way, even if it might not be true.
- Sunk cost error = forgetting that current choices cannot correct the past
- Self-serving bias = taking credit for success, but blaming outside factors when you fail
- Hindsight = falsely believing that you would have accurately predicted the outcome after it is
known
