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I. Introduction to Management

OTTO-VON-GUERICKE-UNIVERSITY MAGDEBUR G BEIJING NORMAL UNIVERSITY. Prof. Dr. Birgitta Wolff, Marjaana Rehu, M.A. Otto-von-Guericke-University, Germany. I. Introduction to Management. Some Basics. Outline. Why study management at a university? 2.1 The function of „intellectual maps“

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I. Introduction to Management

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  1. OTTO-VON-GUERICKE-UNIVERSITY MAGDEBURG BEIJING NORMAL UNIVERSITY Prof. Dr. Birgitta Wolff, Marjaana Rehu, M.A. Otto-von-Guericke-University, Germany I. Introduction to Management Some Basics

  2. Outline • Why study management at a university? • 2.1 The function of „intellectual maps“ • 2.2 Selecting the adequate scale and mode of a model • 2. Basic terminology • 2.1 Why engage in economic activities? • 2.2 What is a firm? • 2.3 What is efficiency? • 3. Economics as a theory of decision-making • 3.1 Economic model of individual behavior • 3.2 Modelling decision-making • 3.3 Opportunity costs • 3.4 Managerial decsions as a result of organizational architecture • 3.5 Managerial decisions by „areas of action“ Beijing, Sept. 2002

  3. 1. Why Study Management at a Universtity? Alternatives: Polytech, Apprenticeship, Trainee Program, Learning by Doing, Natural Talent, ... Costs: Time, Effort, Money, ... Benefits: Learn to use and even draw „intellectual Maps“ Source: www.msn.de Beijing, Sept. 2002

  4. 1.Why to Study Management at a Universtity?1.1 The Function of „Intellectual Maps“ Example 1 (from Geography): The Globe as a Model of the Earth Function: Answer questions such as „Where is Africa?“ Beijing, Sept. 2002

  5. 1. Why to Study Management at a Universtity?1.1 The Function of „Intellectual Maps“ Example 2: City Map of Magdeburg Function: Answer questions such as „How do I get from the university to Hasselbachplatz?“ Beijing, Sept. 2002

  6. 1. Why to Study Management at a Universtity?1.1 The Function of „Intellectual Maps“ Example 3: Campus Plan Function: Answer questions such as „How do I get from Building 22 to the Faculty of Computer Science?“ Beijing, Sept. 2002

  7. 1. Why to Study Management at a Universtity? 1.2 Selecting the Adequate Scale and Mode of a Model Different Scales!  Scale depends on question/problem Also: Different Modes E.g.: Street Map, Hiking Map, Map of Canals/Rivers...  Mode depends on question/problem However, are there „Maps“ in Social Sciences? Beijing, Sept. 2002

  8. 1. Why to Study Management at a Universtity? 1.2 Selecting the Adequate Scale and Mode of a Model • Are there „Maps“ in Social Sciences? • Models or conceptual framework (BSZ 11) Idea of a Model: Leave out some aspects of reality in order to understand others better. Important: Distinction of relevant and irrelevant aspects with respect to a given problem. • (Example of alternative models of human behavior: BSZ 30ff.) Beijing, Sept. 2002

  9. 1. Why to Study Management at a Univertity? 1.2 Selecting the Adequate Scale and Mode of a Model Example: Porter‘s model of five competive forces Potential Entrants Threat of new entrants Industry Competitors Bargaining Power Bargaining Power Suppliers Buyers Rivalry Among Existing Firms Threat of Substitute Products or Services Substitutes (Source: M. E. Porter: Competitive Advantage, New York: Free Press 1985, p. 5) Beijing, Sept. 2002

  10. 1. Why to Study Management at a Univertity? 1.2 Selecting the Adequate Scale and Mode of a Model Example: Porter‘s model of five competive forces rev. (Family business) Potential Entrants Threat of new entrants Industry Competitors Bargaining Power Bargaining Power Suppliers Buyers Rivalry Among Existing Firms The Owner‘s Spouse Threat of Substitute Products or Services Substitutes Beijing, Sept. 2002

  11. 2. Basic Terminology2.1 Why Engage in Economic Activities? to serve a market (provide products, services) fulfill one‘s own needs (use income to buy things) Example: Selling cars to customers (serving a market), earning money while doing so and using the money to buy desired items (fulfill one‘s own needs) Adam Smith (Wealth of Nations): „It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.“ Beijing, Sept. 2002

  12. 2. Basic Terminology 2.2 What is a Firm? • A „Pool of resources“: • financial resources • human resources Source: www.nokia.fi • Ownership of Resources: „Property rights“ • use rights • alienability rights (BSZ 43) Beijing, Sept. 2002

  13. 2. Basic Terminology 2.2 What is a Firm? A „ Coalition of resource owners“: Individual goal: income/utility maximization Collective goal: profit maximization Source: www.nokia.de Two levers of Profit Maximization: Revenue maximization Cost minimization Profit Maximization Beijing, Sept. 2002

  14. 2. Basic Terminology 2.3 What is Efficiency? Effectivity: the ability of a process to achieve a given objective, to reach a target Efficiency: the ability to reach a given target at lowest possible cost Example: Street cleaning can be done slowly... or fast (at a given quality and hourly wage) • Efficiency comes in two forms (two levers, see previous slide): • if the input is given, the output is to be maximized (Revenue maximization) • if the output is given (target set), the amount of resources used to produce is to be minimized (Cost minimization) Beijing, Sept. 2002

  15. 3. Economics as a Therory of Decision-Making 3.1 Economic Model of Individual Behavior • (BSZ 16; 30ff.) • Utility Maximization • one works according to one‘s individual preferences • one wants to benefit as much as possible • Bounded Rationality • limits of human mental abilities, that prevent people from being able to foresee all possible contingencies and process all information • opportunism: self-interest seeking with guile (Williamson) Beijing, Sept. 2002

  16. 3. Economics as a Therory of Decision-Making 3.2 Modelling Decision Making • Decision-making under constraints: • Individuals have unlimited wants; however, the resources available are limited • Individuals assign priorities to their wants and choose to invest their scarce resources into the most preferred option among the alternatives • „In essence, economics provides a theory to explain the way individuals make choices“ (BSZ 6) Beijing, Sept. 2002

  17. 3. Economics as a Therory of Decision-Making 3.2 Modelling Decision Making Economic methods: e.g. Analysis of marginal costs and benefits (BSZ 16) Action should be taken if marginal benefits exceed the marginal costs Example: Working overtime? When one values leisure time more than the amount of money one earns in the job, the marginal costs of working are higher than the marginal benefits  Individual will select „leisure“ Beijing, Sept. 2002

  18. 3. Economics as a Therory of Decision-Making 3.2 Opportunity Costs • Individuals face trade-offs Notion of opportunity costs • „The opportunity costs of using a resource for a given purpose is its value in ist best alternative use“ (BSZ 17) • Examples: • Ferdinand Pièch (Volkswagen AG) has to decide if to produce small, highly profitable cars, or big, prestigeous cars, such as Bugattis, or Lamborghinis, at a loss? • You decide if you will work on an assignment or go partying. Beijing, Sept. 2002

  19. 3. Economics as a Therory of Decision-Making 3.4 Managerial Decisions as a Result of Organizational Architecture • „... three critical aspects of organization: • The assignment of decision rights within the company • The methods of rewarding individuals • The structure of systems to evaluate the performance of both individuals and business units“ • (BSZ 5) Beijing, Sept. 2002

  20. 3. Economics as a Therory of Decision-Making 3.4 Managerial Decisions as a Result of Organizational Architecture Who should make a decision? „Successful organizations assign decision rights in a manner that effectively links decision-making authority with the relevant information to make good decisions“ (BSZ 11)  Nobel Price 2001 in Economics for Akerlof, Spence, and Stiglitz Beijing, Sept. 2002

  21. 3. Economics as a Therory of Decision-Making 3.5 Managerial Decisions by „Areas of Action“ How to produce Which resources When How to finance business Incorpor-ation How many to hire Qualif-ication Guar-antees Customer relation-ship Demand: What at which prices Inform-ation System Accounting Ongoing relation-ships Revenue Product Target Group Collect-ion of revenue Operative Financial Plan Business Idea Market Research Financial Plan Production Plan After Sale Services Staffing Sale Resale Beijing, Sept. 2002

  22. Furter Readings Brickley, J. A./Smith, C. W. Jr./Zimmerman, J. L. (2001): Organizational Architecture, 2nd ed., Irwin Book Team. Reekie, W. D./ Crook, J.N. (1995): Managerial Economics, 4th ed. Prentice Hall: New York, etc. Beijing, Sept. 2002

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