001

Table of Contents
 
Praise
Title Page
Copyright Page
Dedication
Preface
Acknowledgements
Introduction
Scope
Score
Leadership
Business School Admissions
Business Practitioners
Generalist Manifesto
 
LEARNING MODULE 1 - General Management, Leadership, and Strategy
 
Learning Objective 1.1: UNDERSTAND THE SCOPE AND NATURE OF CORPORATE STRATEGIES
Learning Objective 1.2: UNDERSTAND THE IMPORTANCE OF PLANNING AND ORGANIZING SKILLS
Learning Objective 1.3: UNDERSTAND THE IMPORTANCE OF DIRECTING AND LEADING SKILLS
Learning Objective 1.4: UNDERSTAND THE IMPORTANCE OF CONTROLLING AND MEASURING SKILLS
Learning Objective 1.5: UNDERSTAND THE IMPORTANCE OF MOTIVATING SKILLS
Learning Objective 1.6: UNDERSTAND THE IMPORTANCE OF PROBLEM-SOLVING AND ...
Learning Objective 1.7: UNDERSTAND THE IMPORTANCE OF NEGOTIATING SKILLS
Learning Objective 1.8: UNDERSTAND THE IMPORTANCE OF COMMUNICATION SKILLS
Learning Objective 1.9: UNDERSTAND THE IMPORTANCE OF CONFLICT MANAGEMENT SKILLS
Learning Objective 1.10: UNDERSTAND THE VARIOUS ISSUES IN ORGANIZATIONAL ...
Learning Objective 1.11: UNDERSTAND HOW TO MEASURE AND MANAGE BUSINESS ...
 
LEARNING MODULE 2 - Operations Management
 
Learning Objective 2.1: UNDERSTAND THE STRATEGIC IMPORTANCE OF DEMAND FORECASTING
Learning Objective 2.2: UNDERSTAND THE PRODUCTION STRATEGIES AND MANUFACTURING ...
Learning Objective 2.3: UNDERSTAND THE PRODUCTION-RELATED VALUE CONCEPTS
Learning Objective 2.4: UNDERSTAND THE PHILOSOPHIES OF JUST-IN-TIME AND LEAN OPERATIONS
Learning Objective 2.5: UNDERSTAND THE PRINCIPLES AND TECHNIQUES OF INVENTORY MANAGEMENT
Learning Objective 2.6: UNDERSTAND THE PRINCIPLES AND TECHNIQUES OF ...
Learning Objective 2.7: UNDERSTAND THE VARIOUS PLANNING SYSTEMS APPLICABLE TO ...
Learning Objective 2.8: UNDERSTAND THE VARIOUS SHORT-TERM SCHEDULING SYSTEMS ...
Learning Objective 2.9: UNDERSTAND THE THEORY OF CONSTRAINTS IN OPERATIONS
Learning Objective 2.10: UNDERSTAND THE PRINCIPLES OF PRODUCTION ECONOMICS AND ...
Learning Objective 2.11: UNDERSTAND THE PRINCIPLES AND TECHNIQUES OF EQUIPMENT ...
Learning Objective 2.12: UNDERSTAND THE PRODUCTION PROCESS FLOWS AND METRICS
Learning Objective 2.13: UNDERSTAND THE TECHNOLOGY DEPLOYED IN MANUFACTURING ...
 
LEARNING MODULE 3 - Marketing Management
 
Learning Objective 3.1: UNDERSTAND THE COMPONENTS OF MARKETING MIX
Learning Objective 3.2: UNDERSTAND THE EXPECTANCY-VALUE MODEL IN CONSUMER MARKETS
Learning Objective 3.3: UNDERSTAND THE BRAND ELEMENTS AND CALCULATE A BRAND VALUE
Learning Objective 3.4: UNDERSTAND COMPETITOR ANALYSIS
Learning Objective 3.5: UNDERSTAND THE PRICING STRATEGIES AND METHODS
Learning Objective 3.6: UNDERSTAND THE MARKETING COMMUNICATIONS MIX
Learning Objective 3.7: UNDERSTAND THE NEW-PRODUCT DEVELOPMENT PROCESS
Learning Objective 3.8: COMPUTE THE CUSTOMER RETENTION RATE
Learning Objective 3.9: COMPUTE THE LIFETIME VALUE OF A CUSTOMER
Learning Objective 3.10: COMPUTE THE CUSTOMER CONVICTION IN TERMS OF NET ...
Learning Objective 3.11: COMPUTE THE CUSTOMER LOYALTY SCORE
Learning Objective 3.12: COMPUTE THE NET MARKETING CONTRIBUTION AMOUNT
Learning Objective 3.13: COMPUTE THE MARKETING PROFITABILITY METRICS
Learning Objective 3.14: COMPUTE THE MARKET DEVELOPMENT INDEX
Learning Objective 3.15: COMPUTE THE MARKET SHARE INDEX
Learning Objective 3.16: COMPUTE A PRODUCT’S LIFECYCLE COST AND ECONOMIC VALUE ...
Learning Objective 3.17: COMPUTE THE RELATIVE PERFORMANCE, PRICE, AND CUSTOMER ...
Learning Objective 3.18: COMPUTE A MARKETING CHANNEL INTERMEDIARY’S TRANSACTION VALUE
Learning Objective 3.19: UNDERSTAND THE RELATIONSHIPS AMONG PRICE, PROFIT, AND ...
Learning Objective 3.20: UNDERSTAND A MARKETING CHANNEL’S PERFORMANCE
Learning Objective 3.21: EVALUATE THE ADVERTISING’S EFFECTIVENESS WITH CUSTOMER ...
Learning Objective 3.22: LEARN HOW TO CONDUCT A MARKETING PORTFOLIO ANALYSIS
Learning Objective 3.23: LEARN HOW TO DEVELOP A MARKETING BUDGET
Learning Objective 3.24: UNDERSTAND THE FINANCIAL PERFORMANCE METRICS RELATED ...
Learning Objective 3.25: UNDERSTAND THE NATURE OF MARKETING OF SERVICES
Learning Objective 3.26: UNDERSTAND THE STRATEGIES IN PRODUCT MANAGEMENT
Learning Objective 3.27: UNDERSTAND THE STAGES IN A PRODUCT LIFECYCLE
 
LEARNING MODULE 4 - Quality and Process Management
 
Learning Objective 4.1: UNDERSTAND THE BASIC QUALITY CONCEPTS
Learning Objective 4.2: UNDERSTAND THE VARIOUS DEFINITIONS OF QUALITY
Learning Objective 4.3: CALCULATE THE COST OF QUALITY
Learning Objective 4.4: CALCULATE THE SIX-SIGMA METRIC
Learning Objective 4.5: COMPUTE THE RETURN-ON-QUALITY METRIC
Learning Objective 4.6: APPLY QUALITY TOOLS
Learning Objective 4.7: APPLY STATISTICAL PROCESS CONTROL TECHNIQUES
Learning Objective 4.8: COMPUTE TAGUCHI’S QUALITY LOSS FUNCTION
Learning Objective 4.9: UNDERSTAND THE ROLE OF INSPECTION AND QUALITY AT SOURCE
Learning Objective 4.10: UNDERSTAND THE PROCESS MANAGEMENT METHODS AND TOOLS
 
LEARNING MODULE 5 - Human Resources Management
 
Learning Objective 5.1: UNDERSTAND THE HUMAN RESOURCES PLANNING PROCESS
Learning Objective 5.2: UNDERSTAND THE RELATIONSHIP BETWEEN JOB ANALYSIS AND ...
Learning Objective 5.3: UNDERSTAND THE RECRUITMENT METHODS AND ALTERNATIVES
Learning Objective 5.4: UNDERSTAND THE EMPLOYEE SELECTION PROCESS
Learning Objective 5.5: UNDERSTAND THE EMPLOYEE SELECTION TESTS AND THEIR CHARACTERISTICS
Learning Objective 5.6: UNDERSTAND THE EMPLOYMENT INTERVIEW PROCESS
Learning Objective 5.7: UNDERSTAND THE PRE-EMPLOYMENT SCREENING PROCESS
Learning Objective 5.8: UNDERSTAND THE EMPLOYEE TRAINING AND DEVELOPMENT PROCESS
Learning Objective 5.9: UNDERSTAND THE MANAGEMENT DEVELOPMENT PROCESS
Learning Objective 5.10: UNDERSTAND THE ORGANIZATION DEVELOPMENT PROCESS
Learning Objective 5.11: UNDERSTAND THE CAREER PLANNING AND DEVELOPMENT PROCESS
Learning Objective 5.12: UNDERSTAND THE EMPLOYEE PERFORMANCE APPRAISAL PROCESS
Learning Objective 5.13: UNDERSTAND THE EMPLOYEE RELATIONS ISSUES
Learning Objective 5.14: COMPUTE THE HUMAN CAPITAL METRICS
 
LEARNING MODULE 6 - Accounting
 
Learning Objective 6.1: UNDERSTAND THE BASIC CONCEPTS OF FINANCIAL ACCOUNTING
Learning Objective 6.2: UNDERSTAND THE PURPOSE OF THE ACCOUNTING CYCLE
Learning Objective 6.3: UNDERSTAND THE TYPES AND CONTENTS OF FINANCIAL STATEMENTS
Learning Objective 6.4: UNDERSTAND THE INTERMEDIATE CONCEPTS OF FINANCIAL ACCOUNTING
Learning Objective 6.5: UNDERSTAND THE ADVANCED CONCEPTS OF FINANCIAL ACCOUNTING
Learning Objective 6.6: LEARN HOW TO ANALYZE FINANCIAL STATEMENTS
Learning Objective 6.7: UNDERSTAND VARIOUS COST CONCEPTS AND COST BEHAVIORS
Learning Objective 6.8: UNDERSTAND THE PRINCIPLES AND TECHNIQUES OF OPERATING BUDGETS
Learning Objective 6.9: UNDERSTAND THE APPLICATION OF TRANSFER PRICING
Learning Objective 6.10: UNDERSTAND THE APPLICATION OF COST-VOLUME-PROFIT ANALYSIS
Learning Objective 6.11: UNDERSTAND THE MEANING AND APPLICATION OF RELEVANT COSTS
Learning Objective 6.12: UNDERSTAND VARIOUS COSTING SYSTEMS FOR PRODUCTS AND SERVICES
Learning Objective 6.13: UNDERSTAND THE MEANING AND APPLICATION OF ...
 
LEARNING MODULE 7 - Finance
 
Learning Objective 7.1: UNDERSTAND THE NEED FOR FINANCIAL PLANS AND CONTROLS
Learning Objective 7.2: UNDERSTAND THE PRINCIPLES AND TECHNIQUES OF CASH MANAGEMENT
Learning Objective 7.3: UNDERSTAND THE TECHNIQUES OF MANAGING CURRENT ASSETS
Learning Objective 7.4: UNDERSTAND THE VARIOUS TYPES OF DEBT AND EQUITY IN A ...
Learning Objective 7.5: UNDERSTAND THE TECHNIQUES FOR EVALUATING THE COST OF CAPITAL
Learning Objective 7.6: UNDERSTAND THE PRINCIPLES AND TECHNIQUES OF CAPITAL BUDGETING
Learning Objective 7.7: UNDERSTAND THE VARIOUS TYPES AND RISKS OF FINANCIAL INSTRUMENTS
Learning Objective 7.8: UNDERSTAND THE VARIOUS TYPES OF VALUATION MODELS
Learning Objective 7.9: UNDERSTAND THE NATURE OF BUSINESS MERGERS AND ACQUISITIONS
Learning Objective 7.10: UNDERSTAND THE IMPLICATIONS OF DIVIDEND POLICIES, ...
 
LEARNING MODULE 8 - Information Technology
 
Learning Objective 8.1: UNDERSTAND HOW TO PLAN AND MANAGE THE INFORMATION ...
Learning Objective 8.2: UNDERSTAND HOW BUSINESS APPLICATION SYSTEMS ARE ...
Learning Objective 8.3: UNDERSTAND HOW BUSINESS APPLICATION SYSTEMS ARE ...
Learning Objective 8.4: UNDERSTAND THE NEED FOR CONTINGENCY PLANS TO ENSURE THE ...
Learning Objective 8.5: UNDERSTAND HOW INFORMATION TECHNOLOGY OPERATIONS ARE MANAGED
Learning Objective 8.6: UNDERSTAND THE TECHNOLOGY BEHIND COMPUTER NETWORK MANAGEMENT
Learning Objective 8.7: UNDERSTAND HOW TO MANAGE THE INFORMATION TECHNOLOGY ...
Learning Objective 8.8: UNDERSTAND HOW DATABASES ARE DESIGNED AND MANAGED
Learning Objective 8.9: UNDERSTAND HOW ELECTRONIC COMMERCE IS FACILITATED AND MANAGED
 
LEARNING MODULE 9 - Corporate Control, Law, Ethics, and Governance
 
Learning Objective 9.1: UNDERSTAND THE NATURE AND TYPES OF CORPORATE CONTROL SYSTEMS
Learning Objective 9.2: UNDERSTAND THE NATURE AND TYPES OF CORPORATE RISKS
Learning Objective 9.3: UNDERSTAND THE SCOPE AND NATURE OF BUSINESS LAW, ...
Learning Objective 9.4: UNDERSTAND THE VARIOUS ISSUES IN CORPORATE GOVERNANCE
Learning Objective 9.5: UNDERSTAND THE NATURE AND TYPES OF CORPORATE AUDITS
Learning Objective 9.6: UNDERSTAND THE NATURE AND TYPES OF CORPORATE FRAUD
Learning Objective 9.7: UNDERSTAND THE ISSUES IN CORPORATE LAW REGARDING AGENCY ...
 
LEARNING MODULE 10 - International Business
 
Learning Objective 10.1: UNDERSTAND HOW TO DEVELOP AND MANAGE INTERNATIONAL ...
Learning Objective 10.2: UNDERSTAND THE VARIOUS ISSUES IN INTERNATIONAL TRADE ...
Learning Objective 10.3: UNDERSTAND THE NATURE OF INTERNATIONAL PRODUCTION ECONOMICS
Learning Objective 10.4: UNDERSTAND THE NATURE OF INTERNATIONAL TRADE LAWS
Learning Objective 10.5: UNDERSTAND THE VARIOUS ISSUES IN INTERNATIONAL ...
Learning Objective 10.6: UNDERSTAND HOW TO STAFF AND MANAGE INTERNATIONAL OPERATIONS
Learning Objective 10.7: UNDERSTAND THE VARIOUS ISSUES IN CONDUCTING ...
 
LEARNING MODULE 11 - Project Management
 
Learning Objective 11.1: DEFINE PROJECT MANAGEMENT AND IDENTIFY SUCCESS ...
Learning Objective 11.2: UNDERSTAND THE VARIOUS TYPES OF RISKS IN PROJECT MANAGEMENT
Learning Objective 11.3: UNDERSTAND THE VARIOUS TYPES OF PROJECT STRUCTURES AND ORGANIZATIONS
Learning Objective 11.4: UNDERSTAND THE PROJECT MANAGEMENT PROCESS, INCLUDING ...
Learning Objective 11.5: UNDERSTAND THE VARIOUS METHODS IN PROJECT PLANNING, ...
Learning Objective 11.6: UNDERSTAND THE VARIOUS METHODS IN PROJECT SCHEDULING
Learning Objective 11.7: UNDERSTAND THE PROJECT MANAGEMENT METRICS, PROBLEMS, ...
 
LEARNING MODULE 12 - Decision Sciences and Managerial Economics
 
Learning Objective 12.1: LEARN HOW TO APPLY QUANTITATIVE METHODS TO BUSINESS
Learning Objective 12.2: UNDERSTAND THE BASIC PRINCIPLES AND CONCEPTS IN ECONOMICS
Learning Objective 12.3: UNDERSTAND THE BASIC PRINCIPLES AND APPLICATIONS OF MICROECONOMICS
Learning Objective 12.4: UNDERSTAND THE BASIC PRINCIPLES AND APPLICATIONS OF MACROECONOMICS
Learning Objective 12.5: UNDERSTAND THE BASIC PRINCIPLES AND APPLICATIONS OF ...
Learning Objective 12.6: UNDERSTAND THE NATURE OF ECONOMIC BUSINESS CYCLES AND ...
 
References
Index

Praises for
WHAT’S YOUR MBA IQ?
I often tell the young professional we work with that I learned more in the first two chapters of this book than I did in my first two months at Harvard Business School. This book has become our primary teaching tool for young business managers.
—Ronald Mitchell, CEO & Co-Founder, CareerCore Inc.
 
This book defines a tough and tangible new standard for what every MBA graduate should know about business. With the degree’s credibility under fire, this quality benchmark is just in time. Test yourself and see how you measure up.
—Tim Westerbeck, Managing Director and Principal, Lipman Hearne, Inc.
 
Kudos to Devi for creating what the business world has always needed - a simple guide and assessment that covers the fundamental business skills all industry professionals need. This should be required reading for all corporate training professionals, business school faculty and students! Devi Vallabhaneni clearly gets it!
—Doug Harward, CEO and Founder, TrainingIndustry.com
 
As one who has been involved in the hiring and promotion decisions of many professionals over my career, I would recommend this book to those managers who are looking to take their careers to the next level. It gives the reader a broader understanding of business operations which so many companies need in today’s challenging and complex market.
—Michael Sprague, Vice President-Marketing & Communications, Kia Motors America

001

To my parents
By word and by deed, you have showed me that the harder I work today,
the easier tomorrow will be.
Well, that tomorrow is now here.
Devi

Preface
This is the book I wish I had before I started my MBA at the Harvard Business School.
I thought I would be adequately prepared for the rigors facing me, as I was a CPA and had worked for four years as a consultant at Arthur Andersen in its Chicago, Singapore, and Hong Kong offices. Nevertheless, and despite an undergraduate degree in business, as I began my first year at Harvard, I felt that I didn’t have the core building blocks to take full advantage of the curriculum. I felt comfortable with the accounting and finance classes, but I had not been exposed to the vocabulary and concepts of operations management or to the quantitative side of marketing. As a result, I had to work two to three times as hard to keep up with engineers in operations management class and with the Procter & Gamble brand managers in marketing class. In other words, I had to work really hard just to have what I refer to as Basic or even Intermediate types of discussions while the engineers and the brand marketers were capable of Intermediate or even Advanced discussions. Because they had been exposed to the Basic or even Intermediate levels during their previous work experience, they were able to jump in and really dig deep into the coursework, just as I could in the accounting and finance classes.
How fast you move from engaging in Basic level discussions to more Advanced level discussions will determine your success in business school. If you only have minimal awareness of the issues and concepts, then you have a Basic level comprehension in a particular course. As you gain a better working knowledge, perform quantitative analysis, and can solve problems, you now have an Intermediate comprehension level. With an Advanced comprehension level, you can apply the concepts learned in one class to other classes in your MBA program and can begin to visualize the consequences of your analysis and decisions on the rest of the company. See the figure on the next page for further clarification. As you have more exposure to the subject matter, you can transition faster from the Basic types of discussions to the Advanced level discussions.
What surprised me even more was that many of my classmates had even less business experience than I had. They were seeing most of the first-year curriculum for the first time. In general, the majority of MBA aspirants probably is strong in two to three functional areas and will need to work on strengthening themselves in the other areas. For example, an engineer is going to be great at operations and may need to focus on accounting and strategy. An investment banker is strong in accounting and finance and may need to focus on marketing and operations. Your effectiveness in MBA coursework will depend on how fast you can get up to speed in the areas in which you are weak.
The top business schools excel at providing learning opportunities outside the classroom, such as team projects, independent study, job search and interviewing, attending company presentations, and socializing and networking with fellow classmates. If MBA students have to spend too much time just keeping their heads above water with coursework, they are not maximizing all of the learning opportunities that top business schools have to offer.
Earning an MBA is a big investment in time and money, so I encourage you to plan ahead. You prepared for your GMAT/CAT, so take the next step and plan for your MBA coursework. It is often said that the hardest part of the top MBA programs is getting in. I challenge that notion; getting admitted is just the starting point. In today’s environment, there is more at stake than ever in doing well at school, so it is imperative that you prepare for what happens after you get in. You want to be armed with a solid foundation across the entire curriculum so that you can interact with peers and professors at a higher, more advanced level. The better prepared you are in terms of subject matter from MBA IQ, the more you can get out of the MBA program, ultimately resulting in getting the job you want, which is the primary goal of attending business school.
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For those of you who do not want to pursue an MBA, this book and the accompanying online assessment provide a roadmap for further management education irrespective of the MBA degree. Most of the topics covered in the book can be developed further through your corporate training and development department or through third-party training organizations.
My experience over the last nine years as the founder and CEO of Association of Professionals in Business Management (APBM), a nonprofit higher education organization, has enabled me to assemble the range of topics necessary for all business managers, with or without an MBA. Having worked through the dot-com rise and fall, the implosion of Enron, WorldCom, and Arthur Andersen, increased globalization, and the latest financial industry crisis, I am more convinced than ever that all business managers need to be proficient in the topics covered in this book in order to have a job security, career advancement, and a positive societal impact.
My personal story is what inspired me to write this book. However, two other books reinforced the MBA IQ process. Malcolm Gladwell’s Outliers and Geoff Colvin’s Talent Is Overrated suggest that exceptional performance in any field, including business, is a result of “deliberate practice.” My goal for you is to view the MBA IQ process as deliberate practice to build and develop your career. I don’t expect you to master the 12 Learning Modules presented in this book immediately. It may take several jobs and years for you to truly see the interdependencies of these modules. I don’t want you to get discouraged at a low initial score. As you gain more knowledge and experience, you will see for yourself how your MBA IQ score progresses over time. That’s the whole point. In other words, your MBA IQ will mirror your career development.
This book covers a lot of material—it reflects the increased responsibility placed on today’s business manager. I am grateful to be in a position to help managers in their career development efforts.
With no bias intended and for the sake of simplicity, the pronoun “he” has been used throughout the book rather than “he/she” or “he” or “she.”
 
DEVI VALLABHANENI
Chicago, IL
September 2009
www.mbaiq.com

Acknowledgments
I would like to first and foremost thank Sheck Cho of John Wiley & Sons for bringing forth this project. Sheck, thank you for seeing the vision and guiding me through this process. Stacey Rivera and Natasha Andrews-Noel of Wiley, I appreciate your patience in reviewing and editing the very long and detailed manuscript.
Dean Dipak Jain of Kellogg School of Management, Professor Rakesh Khurana of Harvard Business School, and Professor Deborah Ancona of MIT’s Sloan School of Management: thank you for your suggestions and input regarding the topics to be covered in this book. Rakesh, a hearty thanks to you for all of our touch-base calls and the tremendous support you have shown over the years.
Dennis Chookaszian, thank you for discussing the various ways the self-assessment can be structured as well as all of the other suggestions you have provided me.
A special thanks to my friends and colleagues (in alphabetical order)—Carol Allen, Peri Altan, Carine Beer, Marie Cohen, Kerry Whorton Cooper, Alison and Greg Deldicque, Jen and Amit Dhadwal, April Diehl, Mark Donofrio, Matt Finick, Lori Flees, Mary Glasser, Melissa Hayes, Barb Hoffman, Karen Klutznick, Mary-Jo Kovach, Alex Lach, William Levacy, Michael Littlejohn, Luba McElroy, Armeen and Zeeshan Mirza, Ron Mitchell, Sharon Novaaaaak, Bill Paladino, Helene Roux, Michael Sprague, Sean Stowers, John Wannamacher, Tim Westerbeck, and Craig Will—thank you for being extremely supportive and for letting me ask you for your opinions and suggestions. Your guidance and patience are very much appreciated. You know that I can get rather focused at times. Lisa Schuble, it’s great working with you to educate audiences about the value of this book to their career development.
I’d also like to thank Neal Maillet who, back in January 2007, first inspired in me the idea that I could become an author. You planted the seed that made this book possible. Jon Malysiak and Scott Adlington, thank you for being part of the journey. I hope we can find another project where we can work together. Dad, I really couldn’t have completed this project without you. Mom, you made me who I am today.
I am truly grateful for my time at Harvard Business School, where I was convinced of the following: (1) a general management education needs to be accessible to all managers and (2) there is indeed a common body of knowledge that all managers need to know.
Last but not least, I’d like to thank my trusted colleague Karen Murphy who makes my life easier every day!

Introduction
This book provides business practitioners and MBA aspirants with a roadmap to facilitate advanced management education (i.e., MBA or CBM) and provides a structured approach for career development in the management profession.

Scope

An individual’s MBA IQ is based on 12 Learning Modules, which reflect the scope of a general management education:
1. General Management, Leadership, and Strategy
2. Operations Management
3. Marketing Management
4. Quality and Process Management
5. Human Resources Management
6. Accounting
7. Finance
8. Information Technology
9. Corporate Control, Law, Ethics, and Governance
10. International Business
11. Project Management
12. Decision Sciences and Managerial Economics
These 12 Learning Modules have been compiled from multiple sources, such as MBA curricula, specialty professional certification programs in business, and corporate training and development programs. These modules together establish a common body of knowledge necessary for all business managers. This book exposes readers to that common body of knowledge.
Studies have revealed a positive correlation between job performance and functional knowledge and competence (i.e., the 12 Learning Modules). Strong job performance is also correlated to higher compensation, greater job security, and increased career opportunities.
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Score

You can compute your MBA IQ through the online self-assessment exercises at www.mbaiq.com. Each of the 12 Learning Modules is divided into specific learning objectives, which are the basis for the self-assessment exercises. The self-assessment exercises have awareness, knowledge, and experience components. In other words, your MBA IQ is a combination of these three components.
004

Leadership

In management literature and business media, the term leadership has come to connote personal characteristics, or soft skills. I believe the view of leadership needs to be broadened to include and perhaps even emphasize knowledge competencies, or hard skills. Today we need the competency-based type of leader. The competency-based leader is rooted in equal knowledge of hard and soft skills. A figurehead leader who possesses only soft skills is no longer acceptable to direct complex businesses and to lead knowledge workers. This book enables an individual to develop the knowledge, skills, and abilities to become a competency-based leader.
What Are Hard and Soft Skills?
Hard skills include analytical; technical; mathematical or quantitative data analysis; problem solving; strategic planning; negotiating; and functional skills, such as accounting/finance, marketing, and operations.
Soft skills include communication skills; decision-making skills; time-management skills; and people/interpersonal skills, such as motivation, teamwork, conflict management, and leadership skills.

Business School Admissions

The Graduate Management Admission Test (GMAT [worldwide]) and Common Admission Test (CAT [India]) are among the admissions requirements to top MBA programs worldwide. These standardized tests assess MBA aspirants in valuable noncore business skills, such as verbal, reading comprehension, data interpretation, logical reasoning, mathematical, analytical, and writing skills.
However, prospective MBA applicants need both core and noncore business skills to succeed in business school. Core business skills, which can be learned from the MBA IQ process, include functional skills in marketing, operations, quality, human resources, accounting, finance, information technology, corporate governance, managerial economics, business law, international business, and general management.
When combined with the GMAT/CAT knowledge, the MBA IQ knowledge enables MBA aspirants to maximize their coursework due to enhanced business knowledge and to be well prepared to take advanced MBA courses. Furthermore, the MBA IQ self-assessment enables people to cope with and put their best foot forward during the fast-paced MBA program.
GMAT/CAT → Noncore business skills
MBA IQ → Core business skills
GMAT/CAT + MBA IQ = Preparedness for an MBA program
In other words, there is built-in synergy among MBA IQ, GMAT/CAT, and MBA.

Business Practitioners

Career Development

The MBA IQ process is just as applicable to business practitioners who may never pursue an MBA degree because it provides them with a roadmap of hard skills needed to be effective business managers and to help in the transition from business specialists to business generalists.
The MBA IQ score reveals a person’s knowledge gaps. We encourage business practitioners to use existing company training programs or third-party training programs in order to actively close these knowledge gaps. For example, if an accountant is strong in accounting and finance and perhaps weak in marketing and human resources (HR), we encourage him to be deliberate in strengthening his marketing and HR skills.
As the business practitioner takes on more assignments, receives promotions, or participates in cross-functional projects, we encourage him to recalculate his MBA IQ so that he actively manages his knowledge competencies. Upward career movement necessitates generalist rather than specialist knowledge. Using the accountant example again, his career trajectory is influenced more by his understanding of nonaccounting issues than by an even deeper level of understanding of accounting. More accounting knowledge and training will strengthen his specialist skills but not his generalist skills.
In the job search and recruiting process, we encourage business practitioners to include their MBA IQ score as part of their resumes, showing potential employers that they are actively managing their knowledge competencies in a generalist fashion. Employers value the fact that potential hires are actively monitoring their knowledge strengths and weaknesses.

Professional Certifications

Regardless of the MBA IQ score, an individual can pursue either the Certified Associate Manager (CABM) Credential or the Certified Business Manager (CBM) Credential. The CBM is a professional certification based on an MBA curriculum while the CABM is based on a pre-MBA curriculum. In other words, the CABM is a stepping-stone for the CBM or an MBA. There is a natural and built-in synergy among MBA IQ, the CABM/CBM Credentials, and the MBA due to a common syllabus.
The MBA IQ self-assessment can be used to satisfy the continuing professional education (CPE) hours required for various professional certifications in business, including the CABM and CBM. There are approximately 100 certifications in various functional areas, so please check with the continuing education requirements of your certification to make sure that the MBA IQ can be used for CPE hours.
Professional management certification options available to business practitioners with MBA IQ include:
Option 1: MBA IQ→CABM
Option 2: MBA IQ→CABM→CBM
Option 3: MBA IQ→CABM→MBA
Option 4: MBA IQ→CABM→MBA→CBM
Option 5: MBA IQ→CABM→MBA→CBM
Option 6: MBA IQ→CBM
Option 7: MBA IQ→CBM→MBA

Business Specialist versus Generalist

Business specialists work in a specific business function handling a single role. They still need to have a full understanding of the inner workings of other functions in order to become effective and efficient in their current jobs. To understand what it means to be a business generalist, please refer to the Generalist Manifesto at the end of this section.
Who Is a Business Specialist?
A business specialist is an individual working in accounting, auditing, advertising, marketing, risk management, project management, operations, supply chain, procurement, human resources, staffing and recruiting, information technology, software development, computer security, product development, sales, finance, treasury, brand management, engineering, program management, manufacturing, management consulting, investment banking, government contracts, quality assurance and control, service management, learning and development, logistics, organizational development, fraud, investment management, research and development, or international business.
At some point in a business specialist’s career development, there will be a trade-off between increasing specialization and transitioning into a generalist. The MBA IQ process exposes business specialists to what is required in the transition. An example of how an accountant with CPA credential (a business specialist in accounting) can turn into a vice president of finance (a business generalist) either with CBM credential or MBA is shown next:
CPA + CBM →Vice President of Finance
CPA + MBA →Vice President of Finance
In today’s flat organizational structures, resulting from downsizing and restructuring, generalists are prized by employers for their cross-functional knowledge. Management recognizes a business generalist because of his resourcefulness in handling multiple roles and tasks. This is because a generalist is a person who appears to be a specialist to a specialist and a generalist to a generalist.
A business specialist handles one role at a time. A business generalist handles multiple roles at a time.
Very often, business generalists are promoted to business managers, general managers, division/ group directors, senior managers, vice presidents, senior vice presidents, executive vice presidents, and presidents due to their strong cross-functional knowledge base, greater core competencies with big-picture focus, and general management skills. In essence, these generalists manage more than one business function at a time in an efficient and effective manner.
The figure below shows why business specialists must move to become business generalists on their career trajectory, moving from an entry-level job to a mid-level to an executive-level position. The MBA IQ knowledge can facilitate a smooth transition among these levels.
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Generalist Manifesto

A generalist:
1. Understands where, when, and how a business function fits into the rest of the organization.
2. Is cognizant of the key drivers of each function as well as the entire organization.
3. Makes decisions that are best for the entire organization, not at the expense of other functions.
4. Has an understanding of the level of impact (i.e., low, medium, and high) of a decision taken by one function on other, interrelated functions of an organization.
5. Appreciates how the rate of business velocities (i.e., sales, inventory, production, finance, human resources, and systems) in a specific business unit affects other business units.
6. Has an understanding of how the Chain of Knowledge is established, maintained, and applied to employees and to the management hierarchy in order to keep the knowledge base consistent and current.
7. Listens to all stakeholder voices at one time instead of listening to one voice at a time and has the ability to integrate all voices simultaneously.
8. Has a greater working knowledge of the industry in which an employee works and a company operates and how that industry knowledge affects the inter- and intra-industries.
9. Filters business noise and understands the implications of management fads and has the ability to select and apply only what is right for the organization.
10. Possesses a strong functional knowledge of all business requirements and has the ability to keep that knowledge current through continuous learning, training, and self-improvement.
11. Solves business problems aimed at the root cause, instead of at the symptom, so that solutions have a far-reaching and positive effect.
12. Possesses a big-picture view of the entire company and the industry in which the company operates.
13. Is viewed by senior management as a potential candidate in the succession planning pool of talent.
14. Maintains an understanding and complies with all applicable laws, rules, and regulations affecting the organization and the industry to reduce or eliminate enterprise-wide risks.
15. Above all, is a person who appears to be a specialist to a specialist and a generalist to a generalist.

LEARNING MODULE 1
General Management, Leadership, and Strategy

Learning Objective 1.1: UNDERSTAND THE SCOPE AND NATURE OF CORPORATE STRATEGIES

The scope of this learning objective includes defining strategic management and its processes in terms of grand strategy and strategic planning, implementation, and control. It concludes with describing strategic planning process and competitive strategies.

Strategic Management Defined

Strategic management is the set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals. Managers ask questions such as, “What changes and trends are occurring in the competitive environment? Who are our customers? What products or services should we offer? How can we offer those products and services most efficiently?” Answers to these questions help managers make choices about how to position their organization in the environment with respect to rival companies. Superior organizational performance is not a matter of luck. It is determined by the choices that managers make.

Strategic Management Process

Top executives use strategic management to define an overall direction for the organization. The strategic management process is defined as a series of activities:
Grand StrategyStrategic Planning
Strategy ImplementationStrategic Control

Grand Strategy

Grand strategy is the general plan of major action by which a firm intends to achieve its long-term goals. Grand strategies can be defined using four general categories: (1) growth, (2) stability, (3) retrenchment, and (4) global operations.
1. Growth can be promoted internally by investing in expansion or externally by acquiring additional business divisions. Internal growth can include development of new or changed products or expansion of current products into new markets. External growth typically involves diversification, which means the acquisition of businesses that are related to current product lines or that take the corporation into new areas. The number of companies choosing to grow through mergers and acquisitions is astounding, as organizations strive to acquire the size and resources to compete on a global scale, to invest in new technology, and to control distribution channels and guarantee access to markets.
2. Stability, sometimes called a pause strategy, means that the organization wants to remain the same size or grow slowly and in a controlled fashion. The corporation wants to stay in its current business. After organizations have undergone a turbulent period of rapid growth, executives often focus on a stability strategy to integrate strategic business units and to ensure that the organization is working efficiently.
3. Retrenchment means that the organization goes through a period of forced decline by either shrinking current business units or selling off or liquidating entire businesses. The organization may have experienced a precipitous drop in demand for its products or services, prompting managers to order across-the-board cuts in personnel and expenditures. Liquidation means selling off a business unit for the cash value of the assets, thus terminating its existence. Divestiture involves the selling off of businesses that no longer seem central to the corporation. Studies show that between 33 and 50 percent of all acquisitions are later divested. Retrenchment is also called downsizing.
4. In today’s global operations, senior executives try to formulate coherent strategies to provide synergy among worldwide operations for the purpose of fulfilling common goals. Each country or region represents a new market with the promise of increased sales and profits. In the international arena, companies face a strategic dilemma between global integration and national responsiveness. Organizations must decide whether they want each global affiliate to act autonomously or whether activities should be standardized and centralized across countries. This choice leads managers to select a basic grand strategy alternative such as globalization versus multidomestic strategy. Some corporations may seek to achieve both global integration and national responsiveness by using a transnational strategy.

Strategic Planning

The overall strategic management process begins when executives evaluate their current position with respect to mission, goals, and strategies. They then scan the organization’s internal and external environments and identify strategic factors that might require change. Internal or external events might indicate a need to redefine the mission or goals or to formulate a new strategy at either the corporate, business unit, or functional level.
Strategy formulation includes the planning and decision making that lead to the establishment of the firm’s goals and the development of a specific strategic plan. Strategy formulation may include assessing the external environment and internal problems and integrating the results into goals and strategy. This is in contrast to strategy implementation, which is the use of managerial and organizational tools to direct resources toward accomplishing strategic results. Strategy implementation is the administration and execution of the strategic plan. Managers may use persuasion, new equipment, changes in organization structure, or a reward system to ensure that employees and resources are used to make formulated strategy a reality.
Planning (formulating) strategy often begins with an assessment of the internal and external factors that will affect the organization’s competitive situation. Situation analysis typically includes a search for SWOTs (strengths, weaknesses, opportunities, and threats) that affect organizational performance. Situation analysis is important to all companies but is crucial to those considering globalization because of the diverse environments in which they will operate. External information about opportunities and threats may be obtained from a variety of sources, including customers, government reports, professional journals, suppliers, bankers, friends in other organizations, consultants, or association meetings. Many firms hire special scanning organizations to provide them with newspaper clippings, Internet research, and analyses of relevant domestic and global trends. Some firms use more subtle techniques to learn about competitors, such as asking potential recruits about their visits to other companies, hiring people away from competitors, debriefing former employees or customers of competitors, taking plant tours posing as “innocent” visitors, and even buying competitors’ garbage. In addition, many companies are hiring competitive intelligence professionals to scope out competitors.
Executives acquire information about internal strengths and weaknesses from a variety of reports, including budgets, financial ratios, profit-and-loss statements, and surveys of employee attitudes and satisfaction. Managers spend 80 percent of their time giving and receiving information. Through frequent face-to-face discussions and meetings with people at all levels of the hierarchy, executives build an understanding of the company’s internal strengths and weaknesses.
Internal strengths are positive internal characteristics that the organization can exploit to achieve its strategic performance goals. Internal weaknesses are internal characteristics that might inhibit or restrict the organization’s performance. The information sought typically pertains to specific functions such as marketing, finance, production, and research and development (R&D). Internal analysis also examines overall organization structure, management competence and quality, and human resource characteristics. Based on their understanding of these areas, managers can determine their strengths or weaknesses vis-à-vis other companies.
External threats are characteristics of the external environment that may prevent the organization from achieving its strategic goals. External opportunities are characteristics of the external environment that have the potential to help the organization achieve or exceed its strategic goals. Executives evaluate the external environment with information about various sectors. The task environment sectors are the most relevant to strategic behavior and include the behavior of competitors, customers, suppliers, and the labor supply. The general environment contains those sectors that have an indirect influence on the organization but nevertheless must be understood and incorporated into strategic behavior. The general environment includes technological developments, the economy, legal-political and international events, and sociocultural changes. Additional areas that might reveal opportunities or threats include pressure groups, interest groups, creditors, natural resources, and potentially competitive industries.

Strategy Implementation

The next step in the strategic management process is strategy implementation—how strategy is put into action. Some people argue that strategy implementation is the most difficult and important part of strategic management. No matter how creative the formulated strategy, the organization will not benefit if it is incorrectly implemented. In today’s competitive environment, there is an increasing recognition of the need for more dynamic approaches to formulating as well as implementing strategies. Strategy is not a static, analytical process; it requires vision, intuition, and employee participation. Many organizations are abandoning central planning departments, and strategy is becoming an everyday part of the job for workers at all levels. Strategy implementation involves using several tools—parts of the firm that can be adjusted to put strategy into action. Once a new strategy is selected, it is implemented through changes in leadership, structure, information and control systems, and human resources. For strategy to be implemented successfully, all aspects of the organization need to be in congruence with the strategy. Implementation involves regularly making difficult decisions about doing things in a way that supports rather than undermines the organization’s chosen strategy.
The difficulty of implementing strategy is greater when a company goes global. In the international arena, flexibility and superb communication emerge as mandatory leadership skills. Likewise, structural design must merge successfully with foreign cultures as well as link foreign operations to the home country. Managers must make decisions about how to structure the organization to achieve the desired level of global integration and local responsiveness. Information and control systems must fit the needs and incentives within local cultures.
Finally, the recruitment, training, transfer, promotion, and layoff of international human resources create an array of problems. Labor laws, guaranteed jobs, and cultural traditions of keeping unproductive employees on the job provide special problems for strategy implementation.
In summary, strategy implementation is essential for effective strategic management. Managers implement strategy through the tools of leadership, structural design, information and control systems, and human resources. Without effective implementation, even the most creative strategy will fail.

Strategic Control

A formal control system can help keep strategic plans on track. A control system (e.g., reward systems, pay incentives, budgets, IT systems, rules, policies, and procedures) should be proactive instead of reactive. Control should not stifle creativity and innovation since there is no tradeoff between control and creativity. Feedback is part of control.
The goal of a control system is to detect and correct problems in order to keep plans on target. This means negative results should prompt corrective action at the steps both immediately before and after problem identification. Some examples of corrective actions include updating assumptions, reformulating plans, rewriting polices and procedures, making personnel changes, modifying budget allocations, and improving IT systems.

Strategic Planning Process

The input to the strategic planning process is the strategic management process. The output of the strategic planning process is the development of a strategic plan. Its four components include:
1. Organizational mission. Every organization exists to accomplish something, and the mission statement is a reflection of this. The mission statement of an organization should be a long-term vision of what the organization is trying to become, the unique aim that differentiates the organization from similar ones. It raises questions such as “What is our business?” and “What should it be?” In developing a statement of mission, management must take into account three key elements:
a. The organization’s history
b. The organization’s distinctive competencies
c. The organization’s environment
The organization’s environment dictates the opportunities, constraints, and threats that must be identified before a mission statement is developed.
When completed, an effective mission statement will be focused on markets rather than products, achievable, motivating, and specific. A key feature of mission statements has been an external rather than internal focus. This means, the mission statement should focus on the broad class of needs that the organization is seeking to satisfy (external focus), not on the physical product or service that the organization is offering at present (internal focus). As Peter Drucker put it, the question “What is our business?” can be answered only by looking at the business from the outside, from the point of view of customer and market.
A mission statement should be realistic and achievable and should not lead the organization into unrealistic ventures far beyond its competencies. A mission statement is a guide to all employees and provides a shared sense of purpose and strong motivation to achieve objectives of the organization.
A mission statement must be specific to provide direction to management when they are choosing between alternative courses of action. For example, a mission “to provide the highest quality products at the lowest possible cost” sounds good, but it is not specific enough to be useful. Specific quantitative goals are easier to measure.
2. Organizational objectives. An organization’s mission is converted into specific, measurable, and action-oriented commitments and objectives. These objectives in turn provide direction, establish priorities, and facilitate management control. When these objectives are accomplished, the organization’s mission is also accomplished. Peter Drucker advises at least eight areas for establishing objectives, including: (1) market standing, (2) innovations, (3) productivity, (4) physical and financial resources, (5) profitability, (6) manager performance and responsibility, (7) worker performance and attitude, and (8) social responsibility.
3. Organizational strategies.
The organizational strategy described in terms of a product/market matrix is shown here:
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Market penetration strategy focuses on improving the position of the present product with its present customers. It involves designing a marketing plan to encourage customers to purchase more of a product. It can also include a production plan to produce more efficiently what is being produced at present. Market development strategy would seek to find new customers for its present products. With the product development strategy, new products are developed for present customers. Diversification strategy seeks new products for new customers.
Organizational portfolio plan.