Chapter 1 12 11 2013 Organizations Four characteristics o Social inventions o External and Internal boundaries External boundaries separate the firm from everything Internal boundaries separate distinct units within the around it firm o Multiple goals o Deliberately structured tasks Position set of tasks Job Position filled by a person Firms subset of organizations o Have all the same set of characteristics o Legal existence and identity Corporations partnerships sole proprietorships limited liability corporation o Rights and obligations dependent on their legal existence Ex right to hire employees Ex obligation to pay taxes o One of their goals is the creation of wealth A firm s environment Open system hypothesis The idea that firms must interact with their environments to survive Transactions interactions between a firm and its environment The environment of one firm contains all other firms The environment of each firm is unique Complex Environments an environment marked by rapid large scale and uncertain change in many underlying business drivers each with a different set of dynamics Change in complex environments Rate of change the speed at which change is occurring o The faster the rate of change the more complex the environment Magnitude of change the size of the change o The greater the magnitude of change the more complex the environment Uncertainty of change o Change is difficult to predict The sources of change keep changing creating uncertainty of change o The greater the uncertainty of change the more complex the environment Drivers of change in complex environments Number of Drivers drivers are sources of change o The greater the number of sources of change the more complex the environment Dynamics the nature of change for a given driver the cause of change for another o Dynamics for one driver can be very different than the driver o The more varied and complicated the dynamics of the drivers the more complex the environment Rate of change Magnitude of change uncertainty of change number of driers and driver dynamics are independent of each other Knowing something about one does not tell us about the others DRIVERS Fewer and less Many and more varied dynamics varied dynamics CHANGE Slower smaller LEAST COMPLEX INTERMEDIATE more predictable less predictable Faster greater INTERMEDIATE MOST COMPLEX Environmental complexity has been increasing over the last two decades General trend from least complex to most complex see table Trends that affect complexity General shift towards deregulation o Previous regulation made it unnecessary for many firms to compete on prices or develop new products or use marketing o Deregulation caused a major change requiring these things to be added to a firm s business increasing its complexity o Deregulation shows that governments can and do affect strategies business Creates lobbying and special interests groups General trend toward market driven economies o Market driven economies capitalistic practicing capitalism o Functions of price product mix and distribution are influenced by the actions of firms and consumers not the o As countries adopt market driven economies firms now have the freedom and the incentive to make decisions they didn t o An increased number of decisions increases the complexity of government have before their environment Breakup of traditional monopolies and oligopolies Globalism o Includes trade between countries and investment from one country into manufacturing and distribution activities in other countries Technology Reducing in the use of debt as a financing option Trend in better assessing the risks to investments Managing part responsibilities Management set of employees with particular types of Managing actions used to satisfy these responsibilities Responsibility obligation or duty that must be accomplished or discharged o Personal accomplishments o Accomplishments of others o Tactical business issues current operations o Strategic business issues future long term responsibilities Authority the rights built into a position o Rights to make decisions o Rights to commit resources of the firm o Authority is scare authority wanted needed by personnel firm s resources This scarcity forces individuals to be innovative in order to satisfy their own responsibilities Could be negative illegal unethical Could also be positive better more efficient way Management Activities changed o As environments become more complex managing has o Empowerment expansion of responsibility of non managers a pushing down of powers through the ranks of a o Heuristics routine solution techniques for solving routine firms bureaucracy problems As environments become more complex firms see less routine problem and more new problems They must continuously develop new heuristics Managing The standard application of standard tools to standard problems using standard criteria to evaluate the effectiveness of proposed solutions and the efficiency of resource utilization within an individual domain of responsibility subject to the constraints of authority given that new problems may require fundamentally new approaches Complex Environments an environment marked by rapid large scale and uncertain change in many underlying business drivers each with a different set of dynamics Managing in Complex environments Knowing understanding and discharging one s work place responsibilities within the authority granted by the firm in business environments characterized by many complex drivers that are subject o rapid large scale and hard to predict changes Goals of a firm A single goal of profit maximization can be difficult to accomplish In complex environments critical decision may depend on future estimates which are not easily predictable Other parties may have input into decision making o Ex Lender will want entrepreneur to be conservative to increase repayment likeliness while entrepreneur will be less conservative b c it is not his own money o Can result in complex compromise may not be profit maximization Actions of others can adversely affect wealth maximization o Employees wanting to maximize individual wealth decrease overall profits for owner o Agency Problem employees who are in the position to effect firm policies to improve their own pay job security ease of Collecting all necessary information to make profit maximization work data is difficult or impossible maximization ones o Satisficing seeking acceptable solutions rather than optimal