Monthly Archives: June, 2012

The Boston Matrix

Back in 1968, one of the world’s preeminent management consulting groups, Boston Consulting (“BCG”) designed a means for their large (read multi-national or multi-business) clients – to decide how to allocate cash amongst their portfolio of businesses or strategic business units – The Boston Matrix also known as Growth-Share Matrix.

The Boston Matrix, classifies products according to their market share and potential for market growth. It is often used by management to help decide on the appropriate product range. This matrix is a powerful tool that assists the firms in planning their product portfolio.

The matrix has four grids which fall under

Stars (High Market Share – High Market Growth)

Stars are high-growth, high share businesses or products. These products generate high amounts of income as they have high growth with relatively high market share. They often need heavy investment to finance their rapid growth. When market growth rate decreases however if it maintains a large market share a star will become cash cows. A diversified company should have stars that have the potential to become the next cash cows in their portfolio to ensure future cash generation.

Cash Cows (High Market Share – Low Market Growth)

Cash cows are low-growth, high-share businesses or products, but will still need marketing to maintain its portion of the market. In a growing market products that hold high share are represented by cash cow. These generate revenue more than what is invested in them as these products are the leaders in the mature market. Firms can continue to have these products in their portfolio till they eventually becomes dogs and stop generating revenue

Problem Child (Low Market Share – High Market Growth)

Problem Children are low-share business units in high-growth markets. These products have low market shares and do not generate much cash. However, these products are in a rapidly growing stage and thus consume large amounts of cash. A question mark has the capability to gain market share when the market growth slows, and can thus become a star and finally a cash cow. Before making the investment required to grow the market share. Question marks must be analyzed carefully in order to determine their potential. It will probably require intensive advertising.

Dogs (Low Market Share – Low Market Growth)

The products that fall in this cell are the ones with a low share of a low growth market. These products do not generate revenues for the company. Firms should get rid of the products that fall in this cell as they tend to require huge investments from time to time

Limitations of the Boston Matrix

The matrix is just based on one factor each in industry attractiveness and competitive advantage. It tends to ignore a number of highly important factors as determinants of profitability.

The framework is based on the assumption that each business unit is independent of the others and their activities are mutually exclusive. However, in practicality, a business unit that is “dog” may be helping other business units gain a competitive advantage.

Using the Matrix typically four different strategies emerge

  1. Build: Make further investments (to retain Star status, or to turn a Question Mark into a Star).
  2. Hold: do nothing and maintain the status quo.
  3. Harvest: Reduce investment and maximize profits/cash flows from a Star or a Cash Cow)
  4. Divest: Lose Dogs, use that capital to invest in Stars / Question Marks.
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Mintzberg’s Ten Managerial Roles

As a manager one plays various kinds of roles, from leading a team to resolving conflicts from representing your organization to promoting your organization. It is a role which one has to switch depending upon the situation.

Many researchers have studies the actual work of managers – from chief executives to line supervisors – Mintzberg has given this approach a higher visibility

After systematically studying the activities of five chief executives in a variety of organizations, Mintzberg came to a conclusion that executives do not perform the classical managerial functions – planning, organizing, coordinating and controlling. Instead they engage in variety of other activities.

Mintzberg came to a conclusion that managers really fill the series of 10 roles as given below:

Interpersonal roles

  1. 1.    The figurehead

The manager will perform some duties that are casual and informal ones like, receiving and greeting visitors, visiting dignitaries, attending to social functions of an employee, entertaining customers by offering parties and lunches, etc…

  1. 2.    The leader role

As a leader, managers motivate, direct and encourages his subordinates. He also reconciles the needs with the goals of the organizations.

  1. 3.    The liaison role

The manager works as a liaison officer between top management and subordinate staff. He also develops contacts with outside people and collects information for the wellbeing of the organization

Informational roles

  1. 4.    The recipient role

A manager monitors the environment and collects information through his personal contacts with colleagues and subordinates

  1. 5.    The disseminator role

Whatever information is gathered by the manager, is then passed on to the subordinates or the seniors

  1. 6.    The spokesperson role

As a spokesperson he communicates the information/goals of the organization to his staff, and progress of the work to his superiors. He also communicates the performance of the company to the shareholders and rules and responsibilities to his subordinates

Decision roles

  1. 7.    The entrepreneurial role

As an entrepreneur manager continuously looks for new ideas and tries to improve the organization by going along with changing work environment

  1. 8.    The disturbance handler role

Here is works like a problem solver, he finds solutions to various un-anticipated problems both within and outside the organization

  1. 9.    The resource allocator role

The manager divides the work, provides required resources and facilitates to carry out the allocated work and delegates required authority amongst the subordinates.

10. The negotiator role

He negotiates with the employees and tries to resolve any internal problems and employee grievances.

Monday Effect

Long time ago it was found that on Mondays the stock market continues its Friday’s move. If on Friday one sees a market drop, then there is a high probability of further stock price drop on Monday. If Friday was good for stock prices, then one can expect continuation of the positive market move on Monday. This is so called the Monday effect in the stock market

This effect is related to the weekend market analysis performed by millions of investors and traders. Many people think “linearly”. They believe in trends. If they see rising stock prices, they expect continuation of this short-term trend. Their decision is simple: we should buy stocks on Monday to catch the train. If people see falling stock prices, they become pessimistic and decide to sell stocks on Monday

The Monday effect of continuation of short-term trends has been confirmed. This effect is strong for actively traded tech stocks. On Tuesdays one can expect the reverse of short-term market trends.

Features of Management

Management is an activity concerned with guiding human and physical resources such that organizational goals can be achieved. Nature of management can be highlighted as:

1. Management is Goal-Oriented

The success of any management activity is accessed by its achievement of the predetermined goals or objective. Management is a purposeful activity. It is a tool which helps use of human & physical resources to fulfill the pre-determined goals. For example, the goal of an enterprise is maximum consumer satisfaction by producing quality goods and at reasonable prices. This can be achieved by employing efficient persons and making better use of scarce resources.

2. Management is a continuous and never ending

Management is a process which constitutes of planning, organizing, directing and controlling. The manager has to plan and organize all the activities, he has to give directions to his subordinates and also the activities are performed and goals are met. One has to review the performance on a regular basis and in case any short fall re-plan and organize, this way it is a continuous and never ending process. The manager has to perform all these activities continuously hence a never ending process.

3. Management integrates Human, Physical and Financial Resources

In an organization, human beings work with non-human resources like machines. Materials, financial assets, buildings etc. Management integrates human efforts to those resources. It brings harmony among the human, physical and financial resources.

4. Management is result oriented

Management emphasis on results, whatever tasks and activities are performed are done with a view to achieve a desired goal. Management always desired to improve upon and get better results everytime. Examples of result are increase in market share, increase in profits, etc…

5. Management is all Pervasive

Management is required in all types of organizations whether it is political, social, cultural or business because it helps and directs various efforts towards a definite purpose. Thus clubs, hospitals, political parties, colleges, hospitals, business firms all require management. Whenever more than one person is engaged in working for a common goal, management is necessary. Whether it is a small business firm which may be engaged in trading or a large firm like Tata Iron & Steel, management is required everywhere irrespective of size or type of activity.

6. Management follows established rules

Management follows certain established rules and principles, such as division of work, unity of command, etc… These principles help to prevent and solve problems in the organization.

7. Management is a Group Activity

Management is not concerned with individual’s efforts. It is more concerned with group (employees) efforts to achieve group (owners) goals. It involves the use of group effort to achieve predetermined goal of management of ABC & Co. is good refers to a group of persons managing the enterprise. Management tries to satisfy the needs and wants of a group (consumers) with the help of group of people (team).

8. Management is aided but not replaced by computers

Now in every office computers have become an integral part of the organization, they help the managers take accurate decisions. However it should be noted that computers only help the management to make accurate decision and cannot replace management. This is because the final responsibility of decision taking rests with the management it is aided but not replaced by computers.

9. Management is intangible

Management is intangible i.e. it cannot be seen or touched, but it can be felt and realized by its results. The success and failure of management can be judged by its results. If there is good discipline, good productivity, good profits then management is successful and vice versa.

10. Management is Dynamic in nature

Management is creative and innovative, it is something which keeps on changing with the time and is never stable. An organization will survive only if it is dynamic, it must continuously bring in new creative ideas, new products, new techniques, etc…

11. Getting things done through people

Managers do not do all the work by themselves; they get work done from others i.e. delegation of work. A team should not be treated as slaves, neither should it be tricked, threatened or forced. A favorable work environment should be created; this can result in the best possible results.

12. Multidisciplinary in nature

One of the most difficult part of management is getting work done through other people and managing them. This is difficult because different people have different feelings, aspirations and emotions, similarly same person may have different feelings and emotions at different times. Understanding an individual and getting work done becomes a challenge, therefore management uses knowledge from different subjects such as Economics, Psychology, Sociology, etc…

January Effect

A phenomenon occurring at the end of the year when investors, starting to worry about taxes, sell some stocks that are down so the losses can be written off against capital gains. This selling causes stocks to go down near the end of the year and back up in January when investors buy back the stocks they sold.

The January effect is said to affect small-caps more than mid/large caps since it is assumed that a relatively small amount of tax-loss selling will still have a significant impact on a relatively small, thinly-traded company.

Tendency of the stock market to rise between December 31 and the end of the first week in January. The January Effect occurs because many investors choose to sell some of their stock right before the end of the year in order to claim a capital loss for tax purposes.

Once the tax calendar rolls over to a new year on January 1st these same investors quickly reinvest their money in the market, causing stock prices to rise.

Although the January Effect has been observed numerous times throughout history, it is difficult for investors to profit from it since the market as a whole expects it to happen and therefore adjusts its prices accordingly.

Another reason the January effect is considered a non-event is that more people are using tax sheltered retirement plans and therefore have no reason to sell at the end of the year for a tax loss. The January effect phenomenon, however, has not occurred in years because the markets have adjusted for the effect.

Management: Definition

Let us look at various definitions of management before we begin the studies of Management. As most of the subjects in MBA are management related, it is essential that we understand the meaning of management.

We begin with the definition provided by dictionary

Man-age-ment /’manijment/ (Noun)

1. The process of dealing with or controlling people: ‘the management of deer’

2. The responsibility for and control of company or similar organization: ‘the management of a newspaper’

Now let us look at few definitions given by management gurus, before we begin to analyze in detail

Management is an art of getting things done through and with people in formally organized groups. It is an art of creating an environment in which people can perform as individuals and cooperate towards attainment of common goals

Harold Koontz

Management is an art of knowing what to do and see that it is done in the best and cheapest way

F.W. Taylor

A process by which managers create, direct, maintain and operate purposive organization through systematic, coordinated, cooperative human efforts

McFardland

Management is a process of reaching organizational goals with the help of combined effort by group of people.

Management can be defined as all the activities and tasks undertaken by one or more person for the purpose of planning and controlling the activities of others in order to achieve an objective or complete an activity that could not be achieved by the others acting independently.

All the above definitions showcase the below three characteristics:

  1. It is a process or series of continuing and related activities.
  2. It involves and concentrates on reaching organizational goals.
  3. It reaches these goals by working with and through people and other organizational resources

Management can be defined in detail in following categories:

a. Management as a Process

b. Management as an Activity

c. Management as a Discipline

d. Management as a Group

e. Management as a Science

f. Management as an Art

g. Management as a Profession

We will look at each of the categories in details in the coming days.

Who is a Manager?

Let us begin by looking at the dictionary meaning of manager

Man-ag-er [Noun]

  1. A person who has control or direction of an institution, business, etc… or a part, division or phase of it
  2. A person who manages: the manager of our track team
  3. A person who controls and manipulates resources and expenditure, as of a household

From the above definition we can see that a manager is manages a workforce and controls the resources and utilizes them in the best possible manner.

A manager is responsible for planning and directing the work of a group of individuals, monitoring their work and taking corrective actions when necessary.

The concepts of manager and managing are intertwined. The term management refers to the process of using organizational resources to achieve organizational objectives through the functions of planning, organizing and staffing, leading, and controlling.

These functions represent the broad framework.

In large companies management is basically divided into three tiers: upper or senior management, mid-management and lower management. Lower management includes managers who operate at basic levels of commerce or function. Mid-level management oversees lower-management and generates reports for senior management. Senior or upper management commonly consists of a board of directors or shareholders who own the company and are responsible for making key decisions that affect the company.

Let us look at some of the functions as a manager

  1. To motivate people and bring out the best in them
  2. To supervise the activities of individuals
  3. To co-ordinate the activities to ensure all are working towards a common organizational goal
  4. Provide regular feedback to both owners and the workers