Reading: Lesson 6 - Changes Affecting Businesses

3.6.A - Changes Affecting Businesses

1. INNOVATION'S IMPACT ON MANAGEMENT

1. Management decisions are made in a dynamic environment—an atmosphere of constant change. To be successful, a manager must guide a business to react quickly to the changing nature of society. Managers need to understand the impact of innovation.
   
2. An innovation is a new idea or new implementation of an existing idea. Innovations affect the kinds of products and services offered for sale by other businesses. For example, telephones have been around since the late 1800s. Basic telephone technology did not change much until the innovation of mobile cellular phone systems in the 1970s. Today, change is even faster with the growth of smartphones. These phones combine wireless communication with computing power allowing software applications to provide digital assistance at almost any location. Now customers have more choices in how to communicate with others.
   
3. Innovations also affect business operations. For example, since Apple Computer built one of the first personal computers over 40 years ago, computers operated by individual employees have increasingly influenced the way companies do business. Computers help businesses design and manufacture products as well as keep track of billing, inventory, and customer information. Computers are now involved in most key business functions. The Internet is an innovation that has literally changed the relationships between businesses, employees, and their customers. Customers have 24-hour access to businesses without leaving their homes. Employees can work for a business by linking in with others from all over the country and even around the world. Modern innovations are allowing for instant and constant contact between managers, employees, and customers. Managers can now keep in contact by cell phones, email and text messages, and social networks. All of these common means of communication became prevalent in the past three decades.
   

2. IMPACT OF GLOBAL COMPETITION ON BUSINESS MANAGEMENT

1. For many years, American businesses led the way in producing new goods and services for sale around the world. Consumers worldwide eagerly purchased exciting new products that were invented and made in the United States. Factories hummed with activity, workers from other countries arrived by the thousands to find jobs, and people spent their wages buying the goods that the firms produced. Many business people and government leaders from foreign countries also arrived to find out how American businesses were managed. During the past half-century, however, other countries became more industrialized and learned how to invent and produce new products for consumers. Often the products were cheaper than similar products produced in the United States, and over time, many of the products were judged to be of equal or better quality/value. Americans gradually began to purchase these foreign products.
   
2. Foreign companies learned to produce innovative designs for products ranging from cell phones to MP3 players and flat-screen televisions. American business leaders soon realized it was time for change. They had to find ways to use the abundant resources of the United States and the human talent of their managers and employees to meet the challenge of global competition. Global competition is the ability of businesses from one country to compete with similar businesses in other countries. One of the biggest challenges facing American businesses and managers today is competing in the global economy. Domestic goods (products made by firms in the United States) must compete with foreign goods (products made by firms in other countries).
   

3. FOCUSING MANAGEMENT ON THE RIGHT THINGS

1. Managers often study their own operations to determine whether they are doing the right things and doing the right things well. Two terms are used to describe the best management practices. First, effectiveness means making the right decisions about what products or services to offer customers and the best ways to produce and deliver them. Second, efficiency means producing products and services quickly, at low cost, without wasting time and materials. Time management and careful use of materials demonstrates how a firm’s leadership prioritizes tasks to promote future success. Firms that provide products at the lowest cost while maintaining the quality customers expect have the best chances of success. Some companies are extremely efficient but very ineffective, whereas others are effective but inefficient. Good managers focus on both effectiveness and efficiency and are able to achieve both.
   
2. Making the right decisions requires both common sense and skill. Knowing what customers want is critical to business success and to achieving effectiveness. What kind of sleeping bags, for example, will best satisfy the needs of the Mackin family if they take their summer vacation in the mountains? In the early days of manufacturing, customers bought whatever was available because there were few brands, colors, and styles from which to select. Today, the choices for most products have increased because many businesses provide similar products. Consumers can usually choose among the products offered by both domestic and foreign firms.
   
3. Businesses today focus efforts on gathering information from consumers, studying their buying habits, testing new products with prospective customers, and adding new features to existing products. New designs, different materials and colors, clear and precise instructions, and ease of product use are features customers like. Large businesses spend millions of dollars examining customers’ preferences. Equally important, businesses also invest heavily in keeping customers satisfied after products are sold. Product guarantees and follow-up with customers to make sure the product is working well help keep customers loyal.
   
4. To meet their needs, customers increasingly are concerned about the quality of products they buy. They want them to work well and last a long time. A growing emphasis of American producers is to improve the quality of the products they produce. Japanese car makers are an excellent example of how foreign producers captured a large portion of the market worldwide by providing customers with reliable and attractive cars. In the early 1980s, American car producers were not meeting quality needs as well as Japanese producers in the opinion of many buyers. Many domestically produced cars had defects that required numerous trips to car dealers to correct. On the other hand, Japanese cars had fewer initial problems and required little service.
   
5. American producers learned important lessons about quality from the Japanese. Today, American car producers are building products that are equaling their Japanese and European counterparts. In addition, producers might make their cars anywhere in the world despite labels as American, Japanese, or European. American car manufacturers and producers of many other products vigorously stress to their workers the importance of using procedures that result in the highest quality. The concept is called total quality management (TQM), which is a commitment to excellence that is accomplished by teamwork and continual improvement of work procedures and products. Where TQM is implemented, managers and employees receive a great deal of training on the topic of quality from experts. The result is a return to what many consumers want—high-quality products.
   
6. Not only must firms do the right things, such as offering high-quality products, but they must also produce their products efficiently. Efficiency is measured by output—the quantity produced within a given time. Productivity, on the other hand, refers to producing the largest quantity in the least amount of time by using efficient methods and modern equipment. Workers are more productive when they are well equipped, well trained, and well managed. Employee productivity in the United States has grown over the years; however, Americans also average more hours at work than employees in other countries. Efficiency—including improved productivity—can be achieved in three ways:
   
   1. Specialization of effort
   2. Better technology and innovation
   3. Reorganization of work activities
   
   
7. In any business with more than a few employees, work can be performed more efficiently by having workers become specialists. In a large auto- mobile repair shop, for example, not all workers are general mechanics. Rather, some workers specialize in body repair work whereas others specialize in repairing transmissions or engines. When workers specialize, they become highly capable at their assigned tasks. As a result, specialization improves quality while increasing the amount produced (output). Because specialization improves efficiency, it is no wonder that businesses hire or train employees for many specialized jobs.
8. Efficiency can also be improved through mass production. Mass production is a manufacturing procedure started in the early 1900s. It combines the use of technology, specialized equipment, and an assembly line. Employees perform efficient repetitive assembly methods to produce large quantities of identical goods. Through mass production, the cost of goods manufactured decreases because it is possible to produce more items in less time. Today, computer-driven equipment and robots make it possible to mass-produce large numbers of items with fewer workers.
9. Efficiency can also be improved through the application of advanced technology. Technology includes equipment, manufacturing processes, and materials from which products are made. Because of new discoveries and inventions, higher-quality goods and services are built at a faster pace and often at a lower cost. Improved materials, for example, may weigh less, last longer, and permit faster product assembly. Examples of new technology are found in everyday items such as cars, clothing, computers, and electronic appliances. Advanced technology helps companies stay ahead of competitors. And because technology has a significant impact on productivity, businesses spend billions of dollars annually on creating, acquiring, and using new technology.
10. The third way to increase efficiency is through reorganizing the way work gets done. Reorganization of work is a challenge for all types of managers. When companies experience slow growth or negative growth, a typical reaction is to try to cut back on production costs. Businesses downsize by reducing the amount and variety of goods and services produced and the number of employees needed to produce them. Laying off workers, dropping unprofitable products, or even increasing the use of technology helps firms cut their costs, but producing the right products inexpensively is still a problem. To address this problem, some firms choose bold actions that are similar to tearing down the business and rebuilding it.
11. Many firms believe employees are their most important resource. Further, managers have learned that by empowering workers, businesses can become more productive. Empowerment is letting workers participate in determining how to perform their work tasks and offer ideas on how to improve the work process. Empowerment dramatically changed the role of the worker. In the past, workers performed narrow tasks on assembly lines and had little decision-making power. After empowering workers, firms find that the quality of work often improves, as does the efficiency of production. Although better-trained and highly skilled workers are required, fewer managers are needed. Companies reduce the number of levels of management by pushing down the day-to-day decisions directly to workers rather than to managers. Workers learn to use new technology, to work in teams, and to be responsible for quality.
12. While practicing empowerment, some managers also redesign the work flow throughout their organizations—a concept sometimes called re-engineering. Instead of typical assembly lines found in factories and offices, production steps are eliminated, abbreviated, or placed entirely in the hands of a team of employees. Fewer well-trained workers, with the help of advanced technology and streamlined work processes, are able to better satisfy customer needs and wants. Firms that adopt these practices find that customer satisfaction rises along with productivity.
13. As a result of the prolonged recession that began in 2007, companies experienced slow and sometimes negative growth. At the same time, businesses were facing competition from growing economies such as China. Many companies throughout the world reacted by trying to cut production costs by laying off workers and freezing hiring. In turn, the rate of unemployment globally rose dramatically.
14. Fortunately, recessions don’t last forever. The American economy recovered by the actions of both the U.S. government and businesses across the country. American firms renewed their position as strong competitors in the global marketplace as a result of restructuring their work processes and a more intensive focus on quality and customers’ needs. Businesses became more innovative by using technology and by empowering workers to be innovative. Furthermore, both large and small businesses are no longer thinking only about customers in their own countries. They see prospective customers located all around the world.