Instructor Solution Manual For Essentials of Contemporary Management 10e By Gareth Jones and Jennife by StudyGuide

Instructor Solution Manual For Essentials of Contemporary Management 10e By Gareth Jones and Jennifer George Chapter 1-14

Chapter 01

The Management Process Today CHAPTER CONTENTS Learning Objectives

1-2

Key Definitions/Terms

1-3

Chapter Overview

1-5

Lecture Outline

1-6

Lecture Enhancers

1-14

Management in Action

1-16

Building Management Skills

1-23

Managing Ethically

1-27

Be the Manager

1-28

Case in the News

1-29

Connect Features

1-30

PowerPoint Slides

1-31

LEARNING OBJECTIVES LO 1-1. Describe what management is, why management is important, what managers do, and how managers use organizational resources efficiently and effectively to achieve organizational goals. LO 1-2. Distinguish among planning, organizing, leading and controlling (the four principal managerial tasks), and explain how managers’ ability to handle each one affects organizational performance. LO 1-3. Differentiate among three levels of management and understand the tasks and responsibilities of managers at different levels in the organizational hierarchy. LO 1-4. Distinguish among three kinds of managerial skill, and explain why managers are divided into different departments to perform their tasks more efficiently and effectively. LO 1-5. Contrast the differences between managers, entrepreneurs, and intrapreneurs. LO 1-6. Discuss the principal challenges managers face in today’s increasingly competitive global environment.

KEY DEFINITNONS/TERMS

innovation: The process of creating new or improved goods and services or developing better ways to produce or provide them.

competitive advantage: The ability of one organization to outperform other organizations because it produces the desired goods or services more efficiently and effectively than they do. conceptual skills: The ability to analyze and diagnose a situation and to distinguish between cause and effect.

leading: Articulating a clear vision and energizing and enabling organizational members so that they understand the part they play in achieving organizational goals; one of the four principal tasks of management.

controlling: Evaluating how well an organization is achieving its goals and taking action to maintain or improve performance; one of the four principal tasks of management.

management: The planning, organizing, leading and controlling of human and other resources to achieve organizational goals efficiently and effectively.

core competency: The specific set of departmental skills, knowledge and experience that allows one organization to outperform another.

middle manager: A manager who supervises firstline managers and is responsible for finding the best way to use resources to achieve organizational goals.

department: A group of people who work together and possess similar skills or use the same knowledge, tools, or techniques to perform their jobs.

organizational performance: A measure of how efficiently and effectively a manager uses resources to satisfy customers and achieve organizational goals.

effectiveness: A measure of the appropriateness of the goals an organization is pursuing and of the degree to which the organization achieves those goals.

organizational structure: A formal system of task and reporting relationships that coordinates and motivates organizational members so they work together to achieve organizational goals.

efficiency: measure of how well or productively resources are used to achieve a goal.

organizations: Collections of people who work together and coordinate their actions to achieve a wide variety of goals or desired future outcomes.

empowerment: The expansion of employees‘ knowledge, tasks, and decision-making responsibilities.

organizing: Structuring working relationships in a way that allows organizational members to work together to achieve organizational goals; one of the four principal tasks of management.

first-line manager: A manager who is responsible for the daily supervision of non-managerial employees.

outsourcing: Contracting with another company, usually abroad, to have it perform an activity the organization previously performed itself.

global organizations: Organizations that operate and compete in more than one country.

planning: Identifying and selecting appropriate goals; one of the four principal tasks of management.

human skills: The ability to understand, alter, lead and control the behavior of other individuals and groups. 1-3

restructuring: Downsizing an organization by eliminating the jobs of large numbers of top, middle, and first-line managers and non-managerial employees. self-managed teams: A group of employees who assume responsibility for organizing, controlling and supervising their own activities and monitoring the quality of the goods and services they provide. strategy: A cluster of decisions about what goals to pursue, what actions to take and how to use resources to achieve goals. technical skills: The job-specific knowledge and techniques required to perform an organizational role. top manager: A manager who establishes organizational goals, decides how departments should interact, and monitors the performance of middle managers. top management team: A group composed of the CEO, the COO, and the vice presidents of the most important departments. turnaround management: The creation of a new vision for a struggling company based on a new approach to planning and organizing to make better use of a company‘s resources to allow it to survive and prosper.

CHAPTER OVERVIEW Chapter 1 examines what management is, including what managers do and how they use resources to achieve organizational goals. The chapter highlights the four main functions of management (planning, organizing, leading and controlling) as well as exploring the levels of management (first line, middle and top) as well as the importance of three types of managerial skills (conceptual, human and technical). The chapter concludes with a discussion of the major changes and challenges brought forth by increased globalization and advancement in information technology and competition faced by managers today.

LECTURE OUTLINE NOTE ABOUT POWERPOINT SLIDES A list of the PowerPoint slides can be found at the end of this chapter.

Management Snapshot CEO Manages for Growth at Momentive What difference can a manager make? New CEO Zander Lurie arrived at Momentive (the company formerly known as SurveyMonkey) to stabilize the company and plan a path forward for renewed growth. He had served on the board of directors, which supported then-CEO Dave Goldberg. When Goldberg died suddenly at the age of 47, the board appointed Lurie as interim CEO until a replacement for Goldberg could be found. However, within a few months, it was obvious to the board that Lurie was the best choice for permanent CEO. A big part of Lurie‘s empathetic leadership style involves listening (to customers and coworkers, with empathy). He leveraged the company‘s product, surveys, to elicit opinions of employees and customers and soon built employee surveys into corporate decision-making. The company has since addressed employee-generated issues of employee growth, diversity, and corporate responsibility. Adjusting their business model, the company now focuses on paid services (as opposed to formerly free services) and growth markets outside the United States.

I. What Is Management? LO 1-1: Describe what management is, why management is important, what managers do, and how managers utilize organizational resources efficiently and effectively to achieve organizational goals.

1. Managers operate within an organization, a collection of people who work together and coordinate their actions to achieve a wide variety of goals or desired future outcomes. 2. Management is the planning, organizing, leading and controlling of human and other resources to achieve organizational goals effectively and efficiently.

A. Achieving High Performance: A Manager’s Goal 1. Organizational performance is a measure of how effectively and efficiently a manager uses resources to satisfy customers and reach organizational goals. a. Efficiency measures how well or how productively resources are used to achieve a goal. b. Effectiveness measures the appropriateness of the goals an organization is pursuing and the degree to which the organization is achieving those goals. B. Why Study Management? 1. Managers understand the complexity of modern work, respond to environmental contingencies, and make decisions that are ethical and effective. 2. Studying management helps a person avoid the mistakes made by managers in the past. 3. Students of management have the potential to compete successfully for interesting and well-paying jobs. TEXT REFERENCE

Manager as a Person Strong Skills Make Shar Dubey a Perfect Fit for Match Sharmistha (Shar) Dubey brings determination and other skills to her position of CEO at Match Group, the owner of various popular online dating sites, including Match, OkCupid, Tinder, and Hinge. She came to the United States to earn her masters in engineering at Ohio State University, afterwards joining Texas Instruments. She moved to Match and worked there for 15 years before becoming CEO in 2020. One of her first leadership challenges was responding to the impending pandemic. The company enhanced the features on their site with videos and speed-dating games. The company continues to focus on innovation and technology trends. It also values its subscribers by refusing to sell their information to third parties. Innovation and growth has continued with the acquisition of Hyperconnect, a South Korean 1-6 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

social media company, for $1.73 billion—its largest acquisition to date. Their revenue growth has also been very positive the past few years.

II. Essential Managerial Tasks LO 1-2: Distinguish among planning, organizing, leading and controlling (the four principal managerial tasks), and explain how managers’ ability to handle each one affects organizational performance.

A. Planning 1. To perform the planning task, managers identify and select appropriate organizational goals and courses of action; they develop strategies for how to achieve high performance. 2. The three steps involved in planning are: o Deciding which goals the organization will pursue o Deciding what strategies to adopt to attain those goals o Deciding how to allocate organizational resources to pursue the strategies that attain those goals 3. The outcome of planning is a strategy, a cluster of decisions about what goals to pursue, what actions to take, and how to use resources to achieve goals.

o A low-cost strategy is a way of obtaining customers by making decisions that allow an organization to produce goods or services more cheaply than its competitors so it can charge lower prices than they do. o A differentiation strategy is a way of obtaining customers by making decisions that allow an organization to produce new, exciting, and unique goods or services. 4. Planning strategy is complex and difficult, especially because planning is done under uncertainty when the result is unknown so that either success or failure is a possible outcome of the planning process.

B. Organizing 1. Organizing is structuring working relationships in a way that allows organizational members to work together to achieve organizational goals. 2. Organizational structure is the formal system of task and reporting relationships that coordinates and motivates organizational members so they work together to achieve organizational goals.

C. Leading 1. Leading is articulating a clear vision and energizing and enabling organizational members so they understand the part they play in achieving organizational goals. 2. Leadership involves managers using their power, personality, influence, persuasion, and communication skills to coordinate people and groups so their activities and efforts are in harmony. D. Controlling 1. Controlling is evaluating how well an organization is achieving its goals and taking action to maintain or improve performance. 2. The desired outcome of the control function of management is the ability to measure performance and regulate organizational efficiency and effectiveness.

III. Levels and Skills of Managers LO 1-3: Differentiate among three levels of management and understand the tasks and responsibilities of managers at different levels in the organizational hierarchy.

A department is a group of people who work together and possess similar skills or use the same knowledge, tools, or techniques to perform their jobs. A. Levels of management 1. First-line managers: Responsible for daily supervision of non-managerial employees; also called supervisors. 2. Middle managers: Supervise the first-line managers and are responsible for finding the best way to organize human and other resources to achieve organizational goals. 3. Top managers: Responsible for the performance of all departments and ultimately responsible for the success or failure of an organization. a. The CEO, or Chief Executive Officer, is a company‘s most senior manager, the highest in the organizational hierarchy b. The COO, or the Chief Operating Officer, is a top manager who is being groomed to take over as CEO when the CEO leaves the company. c. The top management team is a group composed of the CEO, the COO, and the vice presidents most responsible for achieving organizational goals.

B. Managerial skills LO 1-4: Distinguish among three kinds of managerial skill, and explain why managers are divided into different departments to perform their tasks more efficiently and effectively.

1. Education and experience help managers acquire the three types of skills required to be a successful manager. a. Conceptual skills are demonstrated in the ability to analyze and diagnose a situation and to distinguish between cause and effect. Top managers require outstanding conceptual skills because their primary responsibilities are planning and organizing b. Human skills are the ability to understand, alter, lead and control the behavior of other individuals and groups as well as the ability to communicate, coordinate and motivate people into a cohesive team. c. Technical skills are the job-specific knowledge and techniques required to perform a particular type of work or occupation at a high level. The technical skills required by managers are dependent upon their position within the organization. 2. Core competency is a specific set of departmental skills, knowledge and experience that allows one organization to outperform its competitors. 3. Core competency gives an organization its competitive advantage, or the skill, knowledge, and experience that make an organization outperform other organizations. 4. Effective managers need all three types of skills (conceptual, human, and technical) to help their organization perform more efficiently and effectively.

IV. Managers Versus Entrepreneurs LO 1-5: Contrast the differences between managers, entrepreneurs and intrapreneurs.

A. Entrepreneurs Entrepreneurs are individuals who notice opportunities and decide how to mobilize the resources necessary to start a new business venture. Entrepreneurs make all of the planning, organizing, leading, and controlling decisions necessary to start new business ventures. 1. Characteristics of Entrepreneurs a. Entrepreneurs are likely to possess a set of personality traits including openness to experience, have an internal locus of control, high self esteem and a high need for achievement.

b. These characteristics will be discussed further in Chapter 2. 2. Entrepreneurship and Management a. Some entrepreneurs who successfully start a new business have difficulty managing it as it grows and requires day to day decisions. b. Entrepreneurship is NOT the same thing as management. Management encompasses planning, organizing, leading and controlling where entrepreneurship involves finding an unmet need and using resources to meet that need. c. Intrepreneurship is an employee working inside an organization who notices new opportunities to develop new or improved products or services and uses the organization‘s resources to create them. TEXT REFERENCE

Ethics in Action Turning Plastic Waste into Entrepreneurial Gold David Katz had a business idea that solved a problem (global plastic waste) and made money. He just needed a way to make money by getting plastic off the ground and into recycling plants. He founded Plastic Bank, which sets up collection centers run by locals and online bank accounts for collectors. When collectors bring plastic bottles to a center, it credits their Plastic Bank accounts electronically. Collectors can access the amount on their phones, using it to make mobile payments for necessities. Since Plastic Bank opened its first recycling centers in Haiti in 2015, it has improved the lives of more than 17,000 families while recovering and recycling more than 1 billion pounds of plastic waste. Plastic Bank partners with big global corporations such as S. C. Johnson that want to demonstrate their commitment to sustainability. They fund the recycling centers and commit to using more recycled plastic in their packaging. It is a win for all.

V. Challenges for Management in a Global Environment LO 1-6: Discuss the principal challenges managers face in today’s increasingly competitive global environment.

Global organizations are organizations that operate and compete in more than one country. In order to remain competitive in a global environment managers must face five major challenges: a.

building a competitive advantage

maintaining ethical standards

managing a diverse work force

utilizing new information systems and technologies

practicing global crisis management

A. Building competitive advantage 1. A competitive advantage is the ability of one organization to outperform other organizations because it produces desired goods or services more efficiently and effectively than its competitors. 2. The four building blocks of competitive advantage are superior efficiency, quality, innovation, and responsiveness to customers. a. Organizations increase efficiency when they reduce the quantity of resources (such as people and raw materials) they use to produce goods and services. b. Increased pressure by global organizations has led to a thrust to improved quality through total quality management or TQM. c. Companies can win or lose the competitive race depending on their speed and flexibility. i. Speed is how quickly an organization can bring a new product to market. ii. Flexibility is how easily an organization can change or alter the way an activity is performed in response to competition d. Innovation is the process of creating new or improved goods and services that customers want or developing better ways to produce or provide goods and services. e. Because the competition for customers is intense, the need for organizations to train employees to be responsive to the needs of their customers is vital. 3. Turnaround Management is the creation of a new vision for a struggling company using a new approach to planning and organizing to make a better use of the company‘s resources. An organization often needs turnaround management because of poor management for a continuing period or because a competitor has introduced a new product or technology that is more attractive to customers. B. Maintaining Ethical and Socially Responsible Standards 1. Pressure for a manager to increase organizational performance exists at all levels. a. Pressure can be healthy as it creates the motivation to find more effective and efficient methods to perform planning, organizing, leading and controlling. b. Too much pressure, however, can induce managers to behave unethically towards others.

2. Social responsibility centers on deciding what if any obligations a company has towards the people and groups affected by its activities such as employees, customers and its surrounding community. C. Managing a Diverse Workforce 1. The challenge for managers is to recognize the ethical need and legal requirement to treat human resources in a fair and equitable manner. 2. Today the age, gender, race, ethnicity, religion, sexual preference, and socioeconomic composition of the workforce presents new challenges for managers. 3. To create a highly trained and motivate workforce, and to avoid lawsuits, human resource management (HRM) procedures and practices that are legal and fair must be put into place. 4. Managers who value their diverse employees succeed best in promoting performance over the long run 5. Diverse human resources can be used as a competitive advantage TEXT REFERENCE

Focus on DE&I A Bold Model for Diversity in Video Games Laura Miele, whom Businessweek called ―the most powerful woman in gaming,‖ says the excitement of her career has outweighed its awkward moments. Joining a video game developer right after college, Miele had to stand up for herself and her passion for gaming. A fast learner and bold innovator, Miele made a significant impact, eventually running the company‘s marketing efforts. In 1998, Electronic Arts (EA) acquired Westwood and tasked Miele with improving decision making. Her team replaced monthly forecasts based on handmade spreadsheets with advanced analytics that could create alternative scenarios on demand. She also realigned the company‘s marketing efforts to better align with its customers and her influence grew. As a woman in gaming, she is in the minority and is supportive of women and minorities in the industry.

D. Utilizing New Technologies 1. An important challenge for managers is to continually utilize efficient and effective new technology that can link and enable managers and employees to better perform their jobs—whatever their level in the organization. 2. New technology has enabled individual employees and self-managed teams by providing them with more information and allowing for virtual interactions.

3. Technical superiority is a potential competitive advantage.

LECTURE ENHANCERS Lecture Enhancer 1.1 WHY COMPANIES FAIL CEOs often attempt to explain poor corporate performance with external environmental factors outside of their control, such as a bad economy, market turbulence, or competitive subterfuge. A close study of corporate failure, however, suggests that most companies flounder because of managerial error, according to a recent article in Fortune magazine. By failure, the article‘s authors are referring to any type of dramatic fall from grace, which may or may not result in bankruptcy. Often these failures are years in the making and are unique to the company‘s own industry and culture. Below is a list of some of the mistakes made by corporate leaders that often lead to the downfall of their organizations.

1. Softened by Success: A number of studies show that people are less likely to make optimal decisions after prolonged periods of success. NASA, Enron, Lucent, and WorldCom all had reached the mountaintop before they ran into trouble. 2. See No Evil: Author Jim Collins says that a litmus test of greatness within a company is its willingness to confront brutal facts head-on instead of trying to explain them away. Andy Grove and Gordon Moore of Intel passed this test. While watching their competitors change memory chips into a cheap commodity, they made the decision exit the chip business and enter the microprocessor business. However, Polaroid and Xerox failed. Both were slow to confront the changing world around them and face the fact that their business models were no longer sustainable. 3. Fearing the Boss More Than the Competition: Sometimes CEOs don‘t get the information they need because their subordinates are afraid to tell them the truth. Although it may not be CEOs‘ intent, sometimes a subtle signal, such as a sour expression or a curt response, can signal that bad news is not welcome. An example is Samsung Chairman Lee Kun Hee‘s 1997 decision to take the company into the automobile business. Knowing that this industry was crowded and plagued with overcapacity, many of Samsung‘s top managers silently opposed this decision but were unwilling to confront their forceful leader. Samsung Motors failed after its first year of production. 4. Listening to Wall Street more than to employees: During the late 1990‘s, Lucent‘s CEO Richard McGinn was delivering the top-line growth that Wall Street wanted, and in return, Wall Street lavished the company with attention. But as McGinn continued to 1-13 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

perform for investors, he failed to listen to his own scientists, who feared the company was missing out on an important new technology, and his own salespeople, who realized that sales targets were becoming increasingly unrealistic. 5. Strategy Du Jour: When companies run into trouble, the desire for a quick fix can become overwhelming. The frequent result is illustrated by a description of A&P by author Jim Collins. ―A&P vacillated, shifting from one strategy to another, always looking for a single stroke to quickly solve its problems. It held pep rallies, launched programs, grabbed fads, fired CEOs, hired CEOs, and hired them again.‖ Lurching from one silver bullet solution to another, the company never gained any traction. Taken from Why Companies Fail, by Ram Charan and Jerry Useem, published in the May 27, 2002 issue of Fortune magazine.

Lecture Enhancer 1.2 Why Good Employees Can Be Bad Managers You have a good employee, a hard worker, technically proficient. You promote him and it turns out to be a bad decision. You have promoted your best technical employee, and in the process, lose a good employee and gain a poor manager. How does this happen? Good technical employees can make good managers, of course, but many do not. Good technical specialists—engineers, accountants, computer gurus, financial analysts, statistical experts—are more likely to have introvert personalities. Introverts prefer to work alone. They revel in painstaking details, meaningful paperwork, tedious activities, and precision. They can focus for hours on extracting meaningful data from mounds of information. The presence of ambiguity and clutter motivates them to find the ―perfect solution.‖ The traits that make technical experts successful actually get in the way of managing others. The world of the worker encourages them to seek precision and order. By contract, the management role is messy, complicated, and ambiguous. Additionally, the sense of pride and reward for completing a task is missing. Relationship complexities are more dynamic than task complexities. Management analysis must account for distasteful political elements, egos, pride, insecurities, envy, hurt feelings, and petty conflicts. To make the successful transition to leadership, technical experts learn to rely more upon their instincts, insights, intuitions, tolerance for human equations, underlying values, and their ―feel‖ for things. Rational analysis is still important; it just is not sufficient.

MANAGEMENT IN ACTION Notes for Topics for Discussion and Action

DISCUSSION 1. Describe the difference between efficiency and effectiveness and identify real organizations you think are, or are not, efficient and/or effective. An organization‘s performance is directly tied to the levels of efficiency and effectiveness exhibited by managers within the organization. Efficiency is described as a measure of how well or productively resources are used to achieve an organizational goal. Efficiency can be increased by minimizing inputs needed to achieve desired outputs. Effectiveness is a measure of the appropriateness of the goals chosen and the degree to which they are achieved. Organizations are more effective when managers choose appropriate goals and then achieve them. 2. In what ways can managers at each of the three levels of management contribute to organizational efficiency and effectiveness? Efficiency is a measure of how well or productively resources are used to achieve a goal. First-line managers can contribute to organizational efficiency by instituting quality control procedures. Production should be monitored to ensure that the goods and services are produced without defects to prevent wasted materials, returned merchandise, and/or unsatisfied customers. The first-line manager should be very familiar with how his or her employees complete their tasks and responsibilities, meeting with them on a regular basis to discuss alternative methods that could save time and materials. Middle managers can contribute to organizational efficiency by finding ways to help first-line manager and employees better utilize resources in order to reduce manufacturing costs or improve the way services are provided to customers. They are responsible for ensuring that employees are properly trained and are equipped with the necessary skills and have access to the most efficient technology and machinery. Top managers can contribute to organizational efficiency by ensuring that departments throughout the company are cooperating with each other in the most efficient manner. It is important for them to determine if it is more economical to provide certain resources in-house (such as marketing, legal, accounting) or to outsource these functions to external agencies. Effectiveness is a measure of the appropriateness of the goals chosen and the degree to which they are achieved. First-line managers can contribute to organizational effectiveness by informing their employees of the expectations and goals that are set for them and discuss the best way to fulfill those goals and expectations. In addition, he or she might include the employees in setting appropriate goals that they both feel are obtainable. The first-line manager should periodically give feedback to his or her employees to let them know if they are on the right track in meeting preset goals and expectations. Middle managers can contribute to organizational effectiveness by evaluating whether or not the goals that an organization is pursuing are appropriate and for suggesting ways in which they could be changed. Top managers can contribute to organizational effectiveness by establishing appropriate organizational goals. They are responsible for deciding which goods and services the company should produce. In addition, they must monitor their middle managers throughout the organization to ensure that they are making the most effective use of their resources to accomplish goals. 3. Identify an organization that you believe is high performing and one you believe is low performing. Give five reasons why you think the performance levels of the two organizations differ so much. 1-15 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

(Note to instructor: Due to the nature of this question, individual answers may vary widely. Examples of factors affecting performance are listed.) Organizations that operate at different performance levels (high vs. low performing organizations) may have many different factors affecting their performance:

(1) The high-performing organization has managers who interact with and motivate employees, while the low-performing organization has managers who are aloof and do not interact with or motivate employees directly, perhaps negatively affecting morale. (2) The high-performing organization has managers who set difficult but achievable goals for their employees. A low-performing organization may not set goals, or the ones they do set are vague and difficult to attain. (3) In a high-performing organization, bonuses or rewards are directly tied to the company‘s performance. In a low-performing organization, bonuses or rewards are tied to other criteria, which may or may not include performance. (4) High-performing organization managers are able to delegate authority, and hold employees responsible for meeting organizational goals. Managers from low-performing organizations may not be able to effectively delegate authority or hold employees responsible for achieving goals. (5) Managers who solicit feedback from employees on how to manage the organization efficiently and effectively and use this information wisely will likely have a higher performing organization than managers who refuse to listen to their employees‘ suggestions for improving organizational performance. (6) Managers in high-performing organizations tend to take a ―hands-on‖ approach to management, for example, visiting a production line and learning the day-to-day operations of an organization. Managers in low-performing organizations tend to not take this approach, preferring to hear about problems or situations through indirect communication with employees. (7) High-performing organizations have managers who are able to choose appropriate goals to pursue, decide what courses of action to adopt to attain those goals, and allocate resources to attain those goals. In other words, these managers plan effectively. Low-performing organizations may have managers who lack the ability to plan effectively. (8) Managers in high-performing organizations know how to organize, or how to establish relationships within the organization that allow employees to work together toward achieving organizational goals. Managers in low-performing organizations may be ineffective in establishing these important relationships within their organization. (9) Leading involves determining direction, articulating a clear vision for employees to follow, and energizing and enabling employees so they understand the part they play in achieving organizational goals. High-performing organizations have effective leaders, while low1-16 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

performing organizations have ineffective leaders who are unable to encourage employees to perform at a high level. (10) High-performing organizations have managers who are proficient at controlling, or evaluating how well the organizations achieve their goals, and are capable of taking corrective action to maintain and improve performance. Low-performing organizations may have managers who are unable to evaluate and adapt to changing performance needs. 4. What are the key differences between managers and entrepreneurs?? Managers perform all the management functions of planning, organizing, leading and controlling, whereas entrepreneurs identify an unmet customer need and find resources to create or improve a product or service to meet that need. Entrepreneurs frequently have difficulty with handling company growth and day to day management and hire managers to ensure the organization runs smoothly. 5. In what ways do you think managers‘ jobs have changed the most over the last 10 years? Why have these changes occurred? The roles that managers have to fulfill today are quite different from the ones they have traditionally occupied. Many unique challenges face today's managers, including changes in the workforce, the environment, and organizational cultures themselves. One of the most intriguing challenges concerns the human resources in organizations. The workforce is becoming increasingly diverse in terms of age, gender, race, ethnicity, religion and socioeconomic background. Managers must find ways to treat people fairly, while at the same time effectively utilizing the different perspectives and contributions that a diversified workforce offers. Managers have been forced to comply with legislation such as the American with Disabilities Act and Affirmative Action which prevent discrimination in the workplace and encourage the hiring of employees from underrepresented groups. In addition to diversity, managers must now learn to compete on an increasingly global scale. The breakdown of barriers between formerly distinct economies has forced companies to improve performance in order to compete successfully with companies around the world. Managers can learn to keep their competitive advantage by achieving superior efficiency, increasing quality, increasing innovation, and increasing responsiveness to customers. In order to achieve these goals, managers must encourage creativity in finding new ways to use resources efficiently, empower their employees to monitor and evaluate quality, reward risk taking, and encourage employees to provide outstanding customer service. The nature of a manager‘s job has also changed in response to the shift in industry concentration of the United States from manufacturing to a more service-oriented emphasis. This has caused a modification in the nature of the work performed and mandated a greater emphasis on personal relations and leadership skills.

In addition, managers need to take advantage of the technological advances that offer opportunities to increase responsiveness to customers, improve quality, facilitate communication, and increase the rate of innovation. Organizations that can harness the power of these new technologies and information systems to increase performance will maintain a competitive advantage in an increasingly complex business environment. ACTION

6. Choose an organization such as a school or a bank; visit it; then list the different kinds of organizational resources it uses. How do managers use these resources to maintain and improve its performance? (Note to instructor: Due to the nature of this question, individual answers may vary widely. An example of a school is listed.) In order to provide the best educational environment for its students, George Washington High School makes use of a tremendous amount of organizational resources both from within and outside of the school. From within the school these resources include department heads (e.g., social studies, math, science, English, etc.) that closely manage the teachers in their department; the roster office that handles scheduling; counseling and psychological services that provide testing and guidance for students; the athletic department that provides organized and competitive sports for students to participate; the custodial and maintenance workers that handle the physical needs of the building such as cleaning, heating and repairs; secretaries that help with administration functions; the public address system for communication; computers for teaching and organizing; financial resources given to them by their school district to purchase books, supplies and equipment; and the cafeteria that provides meals for both students and teachers. G.W.H.S. also utilizes resources external to the organization, they include parents (i.e., the home and school association), the surrounding community and organizations within the community, the local police department, private organizations and businesses that provide funding, mentorship to students and internships for students. As in most cities and towns, G.W.H.S. falls under the jurisdiction of the local School District which provides personnel and other human resource services, administrative support, training, curriculum support, information technology, research, and further facilitates maintenance. The organizational resources obtained from all sources are essential to the successful operations of this school as well as any public or private institution.

7. Visit an organization and talk to first-line, middle, and top managers about their respective management roles in the organization and what they do to help the organization be efficient and effective. (Note to instructor: Due to the nature of this question, individual answers may differ widely, though students should address the following points in their answers.)

Managers at various levels within an organization have different but related types of responsibilities for utilizing organizational resources to increase efficiency and effectiveness. First-line managers have the day-to-day responsibility of supervising human resources, the employees or non-managerial employees who actually perform the activities necessary to produce goods and services. Given the knowledge of dayto-day operations that first-line managers have, they are often in good positions to make suggestions to middle managers on how processes can be made more effective and efficient. Middle managers supervise the first-line managers and have the added responsibility to find the best way to combine human and other resources to achieve organizational goals. Middle managers increase efficiency by finding ways to help first-line managers and employees better utilize resources in order to reduce manufacturing costs, or improve the way services are provided to customers. To increase effectiveness, middle managers are responsible for evaluating whether or not the goals that an organization is pursuing are appropriate and for suggesting ways in which they should be changed. Since achieving these goals efficiently is the main focus, middle managers try to find the best ways to use organizational resources. They also nurture and develop the organizational skills necessary for an organization to be efficient and effective. Top managers are at the apex of the managerial pyramid. They are responsible for supervising all the departments in an organization, and deciding how the different departments can cooperate and work together to achieve organizational goals. They are ultimately responsible for the success or failure of an organization. Top managers are responsible for establishing appropriate organizational goals and monitoring the performance of each department in achieving those goals. Most of their time is devoted to planning and organizing resources to maintain and improve efficiency and effectiveness, which determine an organization‘s long-term performance.

8. Ask a middle or top manager, perhaps someone you already know to give examples of how he or she performs the management functions of planning, organizing, leading and controlling. How much time does he or she spend in performing each task? (Note to instructor: Due to the nature of this question, individual answers may differ widely. A sample answer is given here.) Mark Jayton is a production manager at clothing manufacturing company. In our discussion he informed me that he performs all four management functions in varying degrees. He spends time at the end of each month, quarter and year planning departmental budgets, goals, and strategies for the upcoming period. Once these strategic tools are completed, he must disseminate the information to both his superiors and his subordinates. He spends time organizing on a weekly basis, when he must determine which project team should work on which production line and in what order the projects should be completed. By organizing he needs to ensure that he is using his human and material resources to their full capacity. Mark spends some time each day leading his employees. He must motivate them to produce quality work and listen to their concerns and problems on a regular basis. Mark performs the controlling function on a constant basis as he monitors the performance of his department at all levels so that he is able to be proactive in dealing with any issues or problems that could arise.

9. Try to find a cooperative manager who will allow you to follow him or her around for a day. List the roles the manager plays and how much time he or she spends performing them. Peter Johnson is a manager of a real-estate office. Performing this job requires Peter to perform many of Mintzberg‘s roles that encompass the managerial functions of planning, organizing, leading and controlling organizational resources. Peter acts as a figurehead; a person who symbolizes an organization and what it is seeking to achieve. He establishes for his field agents the appropriate ways to behave in an organization with his professional manner and enthusiasm. This role requires constant attention, and is exhibited in his personality and mannerisms. Much of Peter‘s time is devoted to acting as a leader for his employees, motivating his employees to perform at a higher level by training, counseling, and mentoring them. Another main part of Peter‘s job is in the liaison role, linking and coordinating activities of people and groups both inside and outside the organization. Disseminating information is also an integral part of Peter‘s job. By acting as a monitor, Peter analyzes information to effectively organize and control resources, while his role as a disseminator involves sharing this information with his employees to influence their work and behavior. Finally, Peter does play some decisional roles within his organization, working as a resource allocator who decides how to allocate people and other resources, and a negotiator, who manages solutions between groups with competing interests. AACSB: Analytic AACSB: Reflective Thinking

BUILDING MANAGEMENT SKILLS Thinking about Managers and Management (Note to instructor: Due to the nature of these questions, student responses may vary. The following are examples.) 1. Think of your direct supervisor. Of what department is he or she a member and at what level of management is this person? Jonathon Lewis is an audit manager at a large accounting firm. His position is considered middlemanagement since he reports to the partners of the firm but is responsible for managing the supervisors who closely monitor the staff associates on a day-to-day basis. 2. How would you characterize your supervisor‘s approach to management? For example, which particular management tasks and roles does this person perform most often? What kinds of management skills does the manager have?

Jonathon performs the four functions of management to different degrees. He is involved in planning when he determines strategies for soliciting customers and recruiting new employees. 1-20 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

He also determines which of his supervisors and staff associates would be best suited to work with certain clients. He needs to allocate his staff appropriately so that all of his client needs are met in a timely manner. Jonathon performs the organizing function by choosing team members who will work together to achieve the goals that he has set forth for them. He needs to coordinate the efforts of the support staff, such as the tax department, whose services are essential in completing the project. When beginning a new project, Jonathon exercises his leadership skills by holding meetings with his entire staff to communicate his goals for the project and delegating responsibilities to appropriate team members. His confident nature coupled with his accounting expertise motivates his team to enthusiastically tackle the challenges that he sets forth for them. He continues to control the project by holding weekly meetings with his team to assess the progress and provide the necessary feedback. He reviews the work that they have completed and makes recommendations for any necessary changes. At this point he determines whether his team is on schedule with the budget and if necessary how they can better manage their time. Jonathon performs many of the interpersonal, informational and decisional roles coined by Mintzberg. Within the interpersonal roles he is required to act as a figurehead, leader and liaison among and between his team members. He performs informational roles by monitoring technical and client-specific information, disseminating the necessary information to his clients and staff, and acting as a spokesperson when he represents the firm at many meetings, presentations and recruiting events. While performing decisional roles he must act as an entrepreneur in determining what lines of business are best to solicit, a disturbance handler when any unforeseen events effect the progress of his team, a resource allocator in determining which employee should work on which project, and a negotiator when he must negotiate with other managers when there is a scheduling conflict involving his team members. Jonathon possesses tremendous technical and human skills. His technical skills include his everincreasing accounting expertise as well as his up-to-date knowledge of the issues facing his clients and their industry. He exercises his human skills every time he interacts with supervisors, staff associates, partners, support staff and clients. 3. Are the tasks, roles, and skills of your supervisor appropriate for the particular job he or she performs? How could this manager improve his or her task performance? How can technology affect this? Jonathon possesses the functions, roles and skills that are necessary for him to effectively manage his project teams while satisfying the customer and soliciting new business on a regular basis. However, he could work on his conceptual skills. At times he has trouble seeing the big picture when it comes to managing the careers of his employees. He is very good at ensuring that he has the best people on his team and that they are equipped with the technical skills needed for that project, but is lacking when it comes to the development needed for them to progress to the next level. He has a habit of handling the more technically difficult aspects of the project himself, instead of involving team members so that they will become more proficient in those areas.

Clearly, Jonathan needs to do a better job of empowering his employees. He should consider delegating additional technical tasks to teams of employees, serving as their coach instead of providing direct supervision, and using IT to monitor the progress of those teams. 4. How did your supervisor‘s approach to management affect your attitudes and behavior? For example, how well did you perform as a subordinate and how motivated were you? As a result of the functions he performed, the skills he possessed and the roles he fulfilled, I found that Jonathon‘s management style had a positive effect on my attitudes and my work performance. I was very motivated to provide top quality work and eager to please a well-respected figurehead in my organization. To make up for any deficiency in Jonathon‘s conceptual skills of ―seeing the big picture,‖ I found myself feeling more responsible for my future growth and development. This did not prevent me from performing to my full potential, it merely meant that I needed to spend my own time and energy to ensure that I gained the additional skills and knowledge that I did not learn while working on Jonathon‘s projects. 5. Think about the organization and its resources. Do its managers utilize organizational resources effectively? Which resources contribute most to the organization‘s performance? Being a service-oriented organization made it necessary to ensure that organizational resources were utilized most effectively and efficiently. In a service organization the ―human‖ resources are the most valuable resources that the company possesses. The accounting firm has an entire department devoted to the scheduling functions of employees to project teams in response to managers‘ requests. In addition, they have an in-house educational department that spends a great deal of time and money on employee training and development. 6. Describe the way the organization treats its human resources. How does this treatment affect the attitudes and behaviors of the workforce? To a great extent this accounting firm values its most precious resource, its employees. They organize social functions on a regular basis during the busiest times of the year to reward employees for hard work and provide some relaxation. In addition, employees are rewarded monetarily for overtime worked and receive bonuses annually which are based on performance. Problems do arise when managers are extremely demanding of their project teams and require them to meet unreasonable budgets. As a result, employees feel that their personal obligations and needs are neglected. Fortunately, the human resource department monitors the hours worked by all employees and consults with managers when their teams are working an exorbitant number of hours. In response to the professional nature of the firm and the high regard given to employees most of the time, a large percentage of employees are extremely motivated and self-driven. 7. If you could give your manager one piece of advice or change one management practice in the organization, what would it be?

I would suggest to Jonathon that he take a more proactive role in the management of his subordinate‘s careers. By looking at the ―big picture‖ he can help them to develop, which would enable smoother transitions as their careers progressed. If he would include subordinates in the more difficult tasks of the project they could benefit tremendously while gaining the experience and exposure necessary to enter the future ranks of management. 8. How attuned is the organization to the need to increase efficiency, quality, innovation, or responsiveness to customers? How well do you think the organization performs its prime goals of providing the goods or services that customers want or need the most? The managers at this accounting firm are constantly faced with pressure from upper management to increase efficiency while increasing the quality of the services rendered. Since time budgets are extremely important and used as a measurement of success, actual hours spent are measured against budgeted hours on a regular basis. Managers are open to suggestions from supervisors and staff associates about how to provide the same service in a timelier fashion, as long as the intended purpose is served and quality is not compromised. Managers are responsible for reviewing the work performed by their project teams and require that errors and omissions are attended to on a timely basis. In a service-oriented environment it is essential that the organization be responsive to customer needs. Therefore, any successful manager is constantly in touch with his or her clients and keeps abreast of any issue that will affect his or her client‘s financial or economic health. AACSB: Reflective Thinking AACSB: Analytic

MANAGING ETHICALLY Think about an example of unethical behavior that you observed in the past. The incident could be something you experienced as an employee or a customer or something you observed informally. 1. Either by yourself or in a group, give three reasons why you think the behavior was unethical. For example, what rules or norms were broken? Who benefited or was harmed by what took place? What was the outcome for the people involved? Responses to this set of questions will differ, based upon the varying experiences of students. Examples of unethical behavior might include observing an employee intentionally mislead customers to generate sales, padding expense accounts, falsifying credentials on a resume, or accepting expensive gifts from suppliers eager to improve business relationships with their client. Dishonesty is unacceptable regardless of the circumstance. Employees should be careful to avoid conflicts of interest that may cause others to question their integrity. Although those involved in such unethical situations may perhaps benefit in the short run, in the long run they harm not only their customers and their companies, but also themselves.

2. What steps might a manager take to prevent such unethical behavior and encourage people to behave in an ethical way? Establishing an organizational code of ethics and making all employees aware of it can encourage ethical behavior. It is also important that managers always engage in ethical conduct, so that they can lead by example. AACSB: Ethics AACSB: Reflective Thinking

BE THE MANAGER Questions: 1. What kinds of organizing and controlling problems is Achieva suffering from? It is very common when a company starts out to be very informal. Everyone is excited by the new venture and in this case, its success. But the founders must now deal with the enormous growth and develop what they want as a culture; they need to take their roles seriously. They must take a look at the requirements for planning, organizing, leading and controlling the organization; they should assign managerial and technical roles to employees; and they need to develop an equitable performance appraisal and reward system for all employees. It also sounds like they must to look at their Human Resources function more closely as they are growing so fast and want to be sure to bring the right people on board. 2. What kinds of management changes need to be made to solve them? The founders should recognize that management of the firm is now essential by developing some sort of organizational chart, assign all those with managerial roles either a title or some acknowledgement of their duties and responsibilities, and let everyone know how they are to interact and coordinate to continue to be successful. AACSB: Analytic AACSB: Reflective Thinking

CASE IN THE NEWS Case Synopsis: Larry Culp Redefines Success at GE Corporate giant GE was thriving in businesses as diverse as jet engines, entertainment, power generation, and consumer finance until the financial crisis of 2008, when excessive risk in the financial-services division nearly caused the company to collapse under the weight of its debt. Ten years and two CEOs later, Larry Culp joined GE. At that time, the company was still struggling to remain relevant. 1-24 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Immediately after his arrival, Culp assessed each segment of the company and, using his experience in cutting costs and improving processes, started making changes. Culp pulled GE completely out of consumer-facing businesses such as appliances and home mortgages and left the company with four main businesses—aviation, healthcare (hospital equipment), renewable energy (wind turbines), and power (equipment for fossil-fuel power generation). In 2021, culp split GE into three parts: healthcare, power (fossil-fuel and renewables), and aviation. At the time of the announcement, the plan was to spin off GE‘S strongest division, healthcare, in early 2023. In the meantime, it would combine its fossil-fuel power unit with its renewable-energy unit to create one power unit, aiming to sell in 2024. With those deals complete, GE would retain the aviation unit and try to maintain its leadership position.

Questions 1. List three examples of Larry Culp using organizational resources to achieve organizational goals. First, Culp used organizational resources to conduct an in-depth investigation of the organization. Second, he upgraded machinery and improved processes at a turbine plant. Third, he decentralized support services such as IT and HR to the divisions, making them stand-alone profit centers. 2. What is something Culp planned? What is an organizational change he made? When was he engaged in controlling? How would effective leadership help him carry out these tasks?

He planned his initial investigation of the divisions, cutting costs, selling divisions and cutting dividends. Organizational changes included decentralizing costs (i.e., IT, HR) and selling divisions. Throughout the changes, he used leadership to convince employees, the board and investors of the soundness of his approach. 3. At GE, Larry Culp is a top manager. How would the work of a middle manager at GE differ from Culp‘s work?

Top managers determine strategy and direction, middle managers implement them. AACSB: Analytic AACSB: Reflective Thinking

CONNECT For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect

Case Analysis  

The Outsider at Ford Safety at BP

Manager’s Hot Seat (MHS)  

Fumbling Management Theory Management Hits Rough Waters

iSeeIt! Animated Video 

History of Management

Worksheets 

Essential Managerial Tasks (Click and Drag)

Self-Assessments (See Application-Based Activities within Connect) There is no recommended self-assessment for Chapter 1.

POWERPOINT SLIDES These Instructor‘s PowerPoint slides can be used to supplement the lecture material. SLIDE 1 Chapter Title SLIDE 2 Learning Objectives SLIDE 3 What Is Management? Organizations SLIDE 4 What Is Management? Management SLIDE 5 What Is Management? Managers and Resources SLIDE 6 Achieving High Performance SLIDE 7 Organizational Performance SLIDE 8 Figure 1.1: Efficiency, Effectiveness, and Performance in an Organization SLIDE 9 Why Study Management? SLIDE 10 Four Tasks of Management (Figure 1.2) SLIDE 11 Planning SLIDE 12 Steps in the Planning Process SLIDE 13 Organizing SLIDE 14 Leading SLIDE 15 Controlling SLIDE 16: Topics FOR Discussion: Efficiency And Effectiveness SLIDE 17 Performing Managerial Tasks SLIDE 18 Managerial Roles Identified by Mintzberg

Chapter 02 Values, Attitudes, Emotions, and Culture: The Manager as a Person

SLIDE 19 Levels of Managers SLIDE 20 Levels Managers: Figure 1.3 SLIDE 21 Top Management Team SLIDE 22 Relative Amount of Time That Managers Spend on the Four Managerial Tasks SLIDE 23 Topics of Discussion: Organizational Performance SLIDE 24 Types of Managerial Skills SLIDE 25 Topics of Discussion: Organizational Performance SLIDE 26 Core Competency SLIDE 27 Types and Levels of Managers SLIDE 28 Managers Versus Entrepreneurs SLIDE 29 Entrepreneurship SLIDE 30 Challenges for Management in a Global Environment SLIDE 31 Building Competitive Advantage SLIDE 32 Building Blocks of Competitive Advantage SLIDE 33 Innovation SLIDE 34 Turnaround Management SLIDE 35 Maintaining Ethical and Socially Responsible Standards SLIDE 36 Managing a Diverse Workforce SLIDE 37 Utilizing New Technologies SLIDE 38 Be the Manager SLIDE 39 Topics for Discussion: Challenges for Managers

Chapter 02 Values, Attitudes, Emotions, and Culture: The Manager as a Person

Chapter 02 Values, Attitudes, Emotions, and Culture: The Manager as a Person CHAPTER CONTENTS

Learning Objectives

2-2

Key Definitions/Terms

2-3

Chapter Overview

2-4

Lecture Outline

2-5

Lecture Enhancers

2-11

Management in Action

2-14

Building Management Skills

2-18

Managing Ethically

2-19

Be the Manager

2-20

Case in the News

2-21

In-Class Activity

2-23

Connect

2-24

PowerPoint Slides

2-25

Chapter 02 Values, Attitudes, Emotions, and Culture: The Manager as a Person

LEARNING OBJECTIVES

LO 2-1.

Describe the various personality traits that affect how managers think, feel, and behave.

LO 2-2.

Explain what values and attitudes are, and describe their impact on managerial action.

LO 2-3.

Appreciate how moods and emotions influence all members of an organization.

LO 2-4.

Describe the nature of emotional intelligence and its role in management.

LO 2-5.

Define organizational culture, and explain how mangers both create and are influenced by organizational culture

Chapter 02 Values, Attitudes, Emotions, and Culture: The Manager as a Person

KEY DEFINITIONS/TERMS

negative affectivity: The tendency to experience negative emotions and moods, to feel distressed, and to be critical of oneself and others

agreeableness: The tendency to get along well with other people

norms: Unwritten, informal codes of conduct that prescribe how people should act in particular situations and are considered important by most members of a group or organization

attitude: A collection of feelings and beliefs attraction-selection-attrition (ASA) framework: A model that explains how personality may influence organizational culture

openness to experience: The tendency to be original, have broad interests, be open to a wide range of stimuli, be daring, and take risks

conscientiousness: The tendency to be careful, scrupulous, and persevering

organizational citizenship behaviors (OCBs): Behaviors that are not required of organizational members but that contribute to and are necessary for organizational efficiency, effectiveness, and competitive advantage

emotional intelligence: The ability to understand and manage one‘s own moods and emotions and the moods and emotions of other people emotions: Intense, relatively short-lived feelings external locus of control: The tendency to locate responsibility for one‘s fate in outside forces and to believe that one‘s own behavior has little impact on outcomes

organizational commitment: The collection of feelings and beliefs that managers have about their organization as a whole organizational culture: The shared set of beliefs, expectations, values, norms, and work routines that influence how individuals, groups, and teams interact with one another and cooperate to achieve organizational goals

extraversion: The tendency for individuals to be outgoing, sociable, and energetic in their behavior. instrumental value: A mode of conduct that an individual seeks to follow internal locus of control: The tendency to locate responsibility for one‘s fate within oneself

organizational socialization: The process by which newcomers learn an organization‘s values and norms and acquire the work behaviors necessary to perform jobs effectively

job satisfaction: The collection of feelings and beliefs that managers have about their current jobs

personality traits: Enduring tendencies to feel, think, and act in certain ways

mood: A feeling or state of mind need for achievement: The extent to which an individual has a strong desire to perform challenging tasks well and to meet personal standards for excellence

self-esteem: The degree to which individuals feel good about themselves and their capabilities terminal value: A lifelong goal or objective that an individual seeks to achieve

need for affiliation: The extent to which an individual is concerned about establishing and maintaining good interpersonal relations, being liked, and having other people get along

value system: The terminal and instrumental values that are guiding principles in an individual‘s life

need for power: The extent to which an individual desires to control or influence others

Chapter 03 Managing Ethics and Diversity

CHAPTER OVERVIEW This chapter focuses upon the manager as a feeling, thinking human being. We start by describing enduring personality characteristics that influence how managers ‗manage,‖ as well as how they view other people, their organizations, and the world around them. We discuss as well how managers‘ values, attitudes, and moods play out in organizations, shaping organizational culture. This chapter provides a strong appreciation of how the personal characteristics of managers influence the process of management in general, and organizational culture in particular.

Chapter 03 Managing Ethics and Diversity

LECTURE OUTLINE NOTE ABOUT POWERPOINT SLIDES Please see the list at the end of this chapter for titles of all the Chapter 2 PowerPoint slides. The PowerPoints include alternate text for unsighted students, describing the images contained in the slides.

Management Snapshot John Hancock CEO Ensures a Bright Future What Qualities Does a Successful Manager Posses? Marianne Harrison, CEO of John Hancock, shapes the values of her organization by showing concern for others, fostering diverse ideas, and demonstrating a willingness to step outside her comfort zone. Starting her career as an accountant, Harrison discovered early on the importance of speaking up for herself. She learned this lesson when she told her then-boss that she would like the chance to work with the company‘s highest profile client and he expressed surprise that she would be willing to relocate with three small children and a self-employed husband. Switching from accounting to banking and insurance, Harrison continued to seek challenges and credits her success to doing her best in every position she has held. Making the jump to John Hancock, she relocated her family from Toronto to Boston so she could run the entire long-term care insurance business for the company. Harrison values the input of others and regularly hires and listens to a diverse group of employees. Her emphasis on customer empathy extended to having her entire salesforce answering customer calls for a month. She looks for opportunities to improve customers‘ lives rather than simply create and sell products. I. Enduring Characteristics: Personality Traits

LO 2-1: Describe the various personality traits that affect how managers think, feel, and behave. Personality traits are enduring tendencies to feel, think, and act in certain ways. It is important to understand the personalities of managers because their personalities influence their behavior and their approach to managing people and resources.

A. The Big Five Personality Traits The Big Five is a group of five general traits that contribute to the composition of an individual‘s personality. Each should be evaluated along a continuum. 1. Extraversion is the tendency for individuals to be outgoing, sociable, and energetic in

their behavior. Managers who are high on the extraversion continuum (often called extroverts) tend to be friendly and enjoy social interactions. Managers who are low on the

Chapter 03 Managing Ethics and Diversity

extraversion continuum (often called introverts) tend to be less inclined toward social interactions and prefer to spend more time alone. 2. Negative Affectivity is the tendency to experience negative emotions and moods, feel

distressed, and be critical of others. Managers high on this trait may often feel angry and dissatisfied and complain about their own and others‘ lack of progress. Those who are low on negative affectivity do not tend to experience as many negative emotions and are less pessimistic and critical of themselves and others. 3. Agreeableness is the tendency to get along well with others. Managers high on this

continuum are likeable, tend to be affectionate, and care about other people. Those who are low may be somewhat distrustful of others, unsympathetic, uncooperative, and even at times antagonistic. See Figure 2.2 for a measure of this. 4. Conscientiousness is the tendency to be careful, scrupulous, and persevering.

Managers who are high on this factor are organized and self-disciplined while those who are low may seem to lack self-direction and self-discipline. 5. Openness to experience is the tendency to be original, have broad interests, be open to

a wide range of stimuli, be daring, and take risks. Those high on this trait continuum like to take risks and sometimes choose to become an entrepreneur, while those low on this scale tend to be more conservative in their planning and decision-making. B. Other Personality Traits that Affect Managerial Behavior 1. The locus of control trait captures an individual‘s beliefs concerning the amount of control they have over what happens to and around them. a. People with an internal locus of control believe that they are responsible for their own fate and see their own actions and behaviors as being important and decisive determinants of future outcomes. b. People with an external locus of control believe that outside forces are responsible for what happens to and around them and that their own actions don‘t make much of a difference. 2. Self-esteem is the degree to which individuals feel good about themselves and their capabilities. 3. Needs for achievement, affiliation and power have been extensively researched by psychologist David McClelland. a. The need for achievement is the extent to which an individual has a strong desire to perform challenging tasks well and to meet personal standards for excellence. b. The need for affiliation is the extent to which an individual is concerned about establishing and maintaining good interpersonal relations, being liked, and getting along with other people. c. The need for power is the extent to which an individual desires to control or influence others.

Chapter 03 Managing Ethics and Diversity

II. Values, Attitudes, and Moods and Emotions LO 2-2: Explain what values and attitudes are, and describe their impact on managerial action. A. Values: Terminal and Instrumental 1. A terminal value is a personal conviction about lifelong goals or objectives while an

instrumental value is a personal conviction about desired modes of conduct or ways of behaving. 2. Terminal values often lead to the formation of norms, which are informal rules of

conduct for behaviors considered to be important within an organization. 3. A leading researcher identified 18 terminal values and 18 instrumental values that

when placed in rank order, will describe a person‘s value system.

B. Attitudes An attitude is a collection of feelings and beliefs. A manager‘s attitude affects how they approach their job. Two of the most important attitudes in this context are: 1.Job Satisfaction is the collection of feelings and beliefs that managers have about their current job. See Figure 2.3 for a sample of items from two measures of job satisfaction. a. Managers who are satisfied with their jobs are more likely to perform organizational citizenship behaviors (OCBs). OCBs are behaviors that are not required but contribute to organizational efficiency, effectiveness, and gaining a competitive advantage. b. A growing source of dissatisfaction for many lower- and middle-level managers and employees is the threat of unemployment and increased workloads from downsizing. c. The ways in which layoffs are handled is important for both layoff victims and survivors. 2. Organizational commitment is the collection of feelings and beliefs that managers have about their organization as a whole. With organizational commitment, managers: a. Believe in what their organizations are doing b. Are proud of what the organization stands for c. Feel a high degree of loyalty toward their organizations. C. Moods and Emotions LO 2-3: Appreciate how moods and emotions influence all members of an organization

Chapter 03 Managing Ethics and Diversity

1. Mood: A mood is a feeling or state of mind. Personality traits and current circumstances often determine a person‘s mood. See Figure 2.4 for a measure of positive and negative mood at work 2. Emotions: Emotions are more intense than moods, are more short-lived, and are usually linked to a specific cause.

III. Emotional Intelligence (EI) LO 2-4: Describe the nature of emotional intelligence and its role in management Emotional Intelligence is the ability to understand and manage one‘s own moods and emotions, as well as the moods and emotions of others.

1.Managers with high levels of EI are able to prevent their emotions from getting in the way of making effective decisions. 2.EI helps managers perform the interpersonal roles of figurehead, leader, and liaison. 3.Emotional intelligence helps managers understand and relate well to other people. TEXT REFERENCE

Managing Globally Emotional Intelligence across Borders Outward displays of enthusiasm are expected and valued in the U.S. culture, but those displays may be very out of place in the cultures of Britain and China, for example. British businesspeople tend to play down their emotions and Chinese workers see enthusiasm as a way of showing off rather than fitting in. Smiling is another example of behavior that is interpreted differently in different cultures. While expected in the United States, smiling is less common in northern Europe and seen as a way to cover up embarrassment or unhappiness in Japan. These variations demonstrate that although all cultures share the same feelings, they express them differently, which can lead to misinterpretation and confusion. Recognition of cultural differences in the expression of emotions is a good start to developing global emotional intelligence.

Chapter 03 Managing Ethics and Diversity

IV. Organizational Culture LO 2-5: Define organizational culture, and explain how mangers both create and are influenced by organizational culture Organizational culture describes the set of beliefs, expectations, values, norms, and work routines that influence how members of an organization relate to one another and work together to achieve organizational goals.

1. When members share an intense commitment to goals, a strong organizational culture exists. When the opposite is true, the organization‘s culture is weak 2. When an organization‘s culture is very strong, it is often referred to as the organization‘s ‗personality‘ because it influences the way its members behave. A. Managers and Organizational Culture 1. Managers play a particularly important part in influencing organizational culture. This is most evident in the start-up of new companies 2. Management researcher Benjamin Schneider developed a model called the attraction-selection-attrition (ASA) framework, which posits that entrepreneurs tend to hire employees whose personalities are similar to their own. B. The Role of Values and Norms in Organizational Culture Shared values, as well as shared norms, play a particularly important role in organizational culture. Terminal values signify what an organization and its employees are trying to accomplish, and instrumental values guide how the organization and its members achieve organizational goals.

1.Values of the founder: From the ASA model previously discussed, it is clear that founders can have a profound and long-lasting effect on organizational culture. 2.Organizational Socialization: This is the process by which newcomers learn an organization‘s values and norms and acquire the work behaviors necessary to perform jobs effectively. As a result, organizational values and norms are internalized. 3.Ceremonies and rites: These are formal events that recognize incidents of importance to the organization as a whole and to specific employees. The most common rites that organizations use to transmit cultural norms and values to their members are rites of passage, of integration, and of enhancement. (See Table 2.1 for examples of the rites listed below.) a. Rites of passage determine how individuals enter, advance within, or leave an organization. b. Rites of integration build and reinforce common bonds among organizational members c. Rites of enhancement let organizations publicly recognize and reward employee contributions and thus strengthen their commitment to organizational values. 3-36 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 Managing Ethics and Diversity

4. Stories and language: Stories frequently told within an organization, either fact or fiction, provide important clues about values and norms. The slang or jargon that people within an organization use to frame and describe events also provides important clues about norms and values. C. Culture and Managerial Action Culture influences the way in which managers perform their four main functions.

1.Planning: In an innovative organizational culture, top managers are likely to develop a flexible approach to planning and to encourage participation by subordinates. In contrast, managers in a conservative organizational culture are likely to emphasize topdown planning. 2.Organizing: Because they value creativity, managers in an innovative culture are likely to create an organic structure that is flat and in which authority is decentralized. In contrast, managers in a conservative culture are likely to create a well-defined hierarchy of authority and establish clear reporting relationships. 3.Leading: In an innovative culture, managers are likely to lead by example, encourage employees to take risks and experiment, and to be supportive regardless of success or failure. In a conservative culture, they are likely to use management by objectives, constantly monitor progress toward goals, and oversee their every move. 4.Controlling: Managers in innovative cultures tend to recognize that there are multiple, potential paths to success and that failure must be accepted in order for creativity to thrive. Therefore, they are more concerned that employees be flexible and take risks and less concerned about their adherence to pre-determined routines and goals. In contrast, managers in more conservative cultures emphasize caution and maintenance of the status quo.

Chapter 03 Managing Ethics and Diversity

LECTURE ENHANCERS

Lecture Enhancer 2.1 DANIEL GOLEMAN AND EMOTIONAL INTELLIGENCE

For eight years, Daniel Goleman has argued persuasively that emotionally intelligent managers become the best and most profitable business leaders in the world. Beginning with his 1995 bestseller Emotional Intelligence, Goleman has sought to strip away conventional notions of what it means to be intelligent by examining how key personality traits can lead to measurable success. Although his background is in psychology, he has become a powerful voice in the corporate world. It is Goleman‘s contention that top leaders will recognize that they cannot function without a clear understanding of their own feelings and those of the people around them. ―Emotions have their place, and your emotions have an enormous impact on how well you can do the task at hand,‖ he says. Below are excerpts from an interview with Dr. Goleman.

Industry observers often complain about the dichotomy in the business world today. Executives are expected to behave as if they have no emotions while they make decisions that will have profound effects on other people‘s lives. What do you think has brought us to this state where businesspeople are supposed to ‗check their emotions at the door‘? Goleman: The first analysis of the organizational life was conducted in a sociological tradition by Max Weber and Talcott Parsons, and it pretty much ignored to emotional reality of work. It analyzed the workplace and organizational dynamics as though emotions were not part of the equation. That framework has survived to this day, even though everyone who works knows it‘s a lie. We don‘t leave emotions at home and we don‘t check them at the door. We can either acknowledge this fact or not. You maintain that companies perform better if top managers have emotional intelligence, but the business world is rife with stories of CEOs and top managers who have been wildly successful even though they are insensitive jerks. If emotional intelligence is so important, how do you account for their successes? Goleman: The question to ask is not, ―Is a specific company successful despite the fact that the head guy is a jerk?‖ Rather, you should ask, ―If all things were equal – if there were two companies with similar markets, similar opportunities, and similar resources, and one boss was a jerk and the other was a dream boss – which company would do better? In fact, the insurance industry did exactly that study. It was commissioned by LOMA, an insurance industry organization, and carried out by the Hay Group. The researchers looked at moderately successful companies of the same size and evaluated CEOs on their emotional intelligence and leadership abilities. They found that the more these bosses exhibited empathy, initiative, and a drive to achieve, the more profitable the companies were. That‘s the better way to answer this question.

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Is it there ever a point at which someone is too old to learn these competencies? Goleman: You are never too old to learn emotional intelligence. In fact, people tend to improve in emotional intelligence over the course of a lifetime, because life lessons often make people wiser in this domain. Thy get more comfortable with themselves and other people. So in a rough way, a slow way, there‘s a tendency to learn. But someone who wants to be a leader needs to have a relatively high level of these abilities. A business school that wants to help its students achieve high leadership levels either has to select people who have already developed these abilities, or it has to help its students to learn them. Essentially, you are saying that individuals must be able to draw on the so-called ‗soft skills‘ or they won‘t be good leaders. Goleman: It‘s a paradox. Soft skills have hard consequences. Taken from Intelligence at Work by Sharon Shinn, published in BizEd Magazine, September/October 2003.

Lecture Enhancer 2.2 BIRTH ORDER AND PERSONALITY

Birth-order guru Kevin Leman, Ph.D. says he can explain how a simple understanding of birth order enhances the chance of success in business. In his book, The Birth Order Book, Leman profiles three birth-order positions. The firstborn tends to be a perfectionist, conscientious, list maker who doesn‘t like surprises. The only child has similar, yet often more intense personality traits. The middle child is a master negotiator who never had his parents to himself, and endured hand-medowns. The good news is he can compromise, share, and negotiate. Leman describes the baby of the family as manipulative, social, outgoing, and a natural salesperson. She is the child who got her siblings in trouble while she was cute, helpless, and got away with murder. A fourth birth-order position, identified by Michael Maniacci, a clinical psychologist and member of the faculty at the Adler School of Professional Psychology in Chicago, is the second born. The second born tends to be more rebellious, non-conforming and independent than the middle child. After reading these descriptions, most either buy into the birth-order concept as a perfect description of their family or discount it. Either way, Leman says, there are other birth-order rules that impact children‘s development.

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Sex of children is an important variable in the birth-order equation. ―If there are three daughters and a last-born son, the son may possess the characteristics of the firstborn, rather than the baby,‖ Leman says. Maniacci says: ―In my practice, I‘ve found the greater the sex differentiation between the parents, the less children of the opposite sex compete with each other. That impacts birth-order roles.‖ ―In a family with a firstborn boy and a second born girl, if both parents work, both wear pants, and equally share housework tasks, the girl is more likely to be a rebellious second born. There is not much distinction between being a girl and a boy. Conversely, if Dad has short hair and Mom has long, and Mom stays at home and Dad works, the boy holds the role of the oldest born male and the girl the oldest born female.‖ ―If there is a five-year age gap between the children, you can draw a line and start another family with a whole new set of firstborns and middles,‖ Maniacci says. Physical differences play a role too. If the oldest child is physically or psychologically challenged, the second child usually takes on the role of the firstborn. Other experts caution that understanding and using birth order is anything but simple, and many variables mold personality. Experts generally agree interpreting birth order can be complicated and only presents part of the picture. But Leman says, ―As a psychologist, I have not found a more practical tool for understanding human dynamics than birth order.‖

Lecture Enhancer 2.3 THE BIG THRILL PERSONALITY Another facet of personality is one‘s tolerance for risk taking. Some individuals have a kind of psychological urge to reach beyond the status quo and seek out novelty, change, and excitement. Psychologist Frank Farley, of the University of Wisconsin, has spent twenty years examining what he calls the Type T (thrill-seeking) personality. According to Farley‘s theory, Big T types are high-profile individuals who seek excitement and stimulation wherever they can find it or create it. For some the thrills are mostly physical. For others, they‘re mental. The degree of risk that individuals are willing to assume spans a broad continuum. Big T personalities, those who continually live on the edge, are at one end of the scale. Little t‘s, who cling to certainty and predictability, are at the other. Most people fall somewhere in the middle. But Farley believes it‘s the Big T segment, a group that makes up an estimated 10 to 30 percent of the American population, that holds the key to America‘s future. ―Type Ts are the people who are likely to have enormous impact on society,‖ he says. ―They are the great experimenters in life; they break the rules.‖

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Whether male or female, risk-taking individuals tend to be what Farley calls ―transmutative thinkers,‖ adept at shifting from one cognitive process to another, and from the abstract to the concrete and vice versa. Thrill seekers are happiest in jobs that provide change, excitement, and an ample outlet for their creativity. They are often drawn to careers in advertising, journalism, or in the brokerage business, where novelty and uncertainty are a given. Whether individuals seek risks or avoid them affects not only their own job performance but also bossemployee relationships and co-worker production. An organization with too many risk takers can spell trouble. So can one top-heavy with cautious, security-minded individuals. A synergistic mix is best. If it‘s the thrill-seeking visionaries who drive a company with their ideas, it‘s their more pragmatic peers who help implement those concepts. Finally, says Farley, ―people who are the most successful realize that if they‘re going to take risks, they‘re going to fail once in a while.‖

MANAGEMENT IN ACTION Notes for Topics for Discussion and Action DISCUSSION

1. Discuss why managers who have different types of personalities can be equally effective and successful. The chapter notes that there is no single ―right‖ or ―wrong‖ personality trait for being an effective manager; rather, effectiveness is determined by a complex interaction between characteristics of managers (including personality traits) and the nature of the job and organization. Furthermore, personality traits that contribute to the managerial effectiveness in one situation may actually hinder the effectiveness in another situation.

2. Can managers be too satisfied with their job? Can they be too committed to their organizations? Why or why not? (Note to Instructors: Student answers will vary.) The text defines job satisfaction as the feelings and beliefs people have about their current jobs, and organizational commitment as the collection of feelings and beliefs people have about their organizations as a whole. Students may mention that managers who are too satisfied with their jobs may not look to improve the current state of affairs, preferring to let things go on as they are. This may harm the prospects of the team as a whole. On the personal level, managers who are too satisfied with their jobs or too committed to the organization may harm their own prospects of career improvement or advancement.

3. Assume that you are a manager of a restaurant. Describe what it is like to work for you when you are in a negative mood. (Note to Instructors: Student answers will vary based on their personalities. The text identifies characteristics of a negative mood as feelings of distress, fearful, scornful, hostile, jittery or nervous.)

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This question is very individualized. However, you might turn it into an interesting exercise. You could have the individual student answer the question and then have their classmates react to their selfdescription as to its accuracy from their perspective.

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4. Why might managers be disadvantaged by low levels of emotional intelligence? Social skills are increasingly important in organizations today. People work more and more in teams. Emotional intelligence enables managers to interact more effectively both internally with co-workers and externally with customers. ACTION

5. Interview a manager in a local organization. Ask the manger to describe situations in which he or she is especially likely to act in accordance with his or her values. Ask the manager to describe situations in which he or she is less likely to act in accordance with his or her values. (Note to Instructor: Student answers will vary based on the manager‘s value system and experiences.) Posing this question to potential strangers is tricky. People are sometimes quite guarded about their values and are not eager to discuss them with others. It is suggested that the class or a team of students, as interviewers, should be more comfortable and aware when asking ethical questions and capturing a response. You may also want to suggest that students interview a manager who is someone they know.

6. Watch a popular television show and as you watch it, try to determine the emotional intelligence levels of the characters the actors in the show portray. Rank the characters from highest to lowest in terms of emotional intelligence. As you watched the show, what factors influenced your assessments of emotional intelligence levels? (Note to Instructors: Student answers will vary based upon the television show they view. You may want to request that the entire class watch the same episode of a popular television show.) The ranking of characters by students will probably vary, thereby providing the basis for an interesting discussion. Factors influencing student assessment of emotional intelligence may include awareness of and ability to manage one‘s own emotions, the ability to perceive and understand the emotions of others, good listening skills, and the ability to effectively deal with interpersonal conflict.

7. Go to an upscale store in your neighborhood and go to a store that is definitely not upscale. Observe the behavior of employees in each store as well as the store‘s environment. In what ways are the organizational cultures in each store similar? In what ways are they different? Often the environment of upscale stores is rather quiet and formal, and salespersons are dressed rather conservatively. On the other hand, less upscale stores often have a much more casual environment in which music that appeals to the younger generation is played. Salespeople sometimes dress in trendy, casual clothing that reflects the store‘s product line and the taste of the target audience. Normative behavior for employees in the upscale store is reflected in the reserved and cautious manner required when interacting with customers. In a less upscale environment, however, interaction with customers is less formal and more casual. For example, slang language may be used. However, core values common to both stores would include high levels of customer responsiveness, honesty, and integrity, operational efficiency, and a strong work ethic.

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AACSB: Analytic AACSB: Reflective Thinking

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BUILDING MANAGEMENT SKILLS Diagnosing Culture

1. What values are emphasized in this culture? Student answers will vary but they should give specific examples of behaviors or policies that reflect specific values such as a sense of accomplishment, self-control, dependability, independence, and honesty.

2. What norms do members of this organization follow? Again, student answers will vary but they should give specific examples of behaviors or policies that reflect specific norms such as courtesy, informality, and a willingness to take risks.

3. Who seems to have played an important role in creating the culture? Founders, managers, or even employees often establish or influence the culture.

4. In what ways is the organizational culture communicated to organizational members? Often founders use their own values to determine and guide organizational culture. Culture can also be communicated to organizational members through formal or informal socialization programs, ceremonies, rites, stories, and language. AACSB: Analytic AACSB: Reflective Thinking

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MANAGING ETHICALLY Notes for Managing Ethically

1. Either individually or in a group, think about the ethical implications of using personality and interest inventories to screen potential employees. How might this practice be unfair to potential applicants? How might organizational members who are in charge of hiring misuse it? It is important that companies make every effort to hire employees whose values, personality, and interests fit with their organizational culture. However, reliance upon personality and inventory tests is an ineffective means of evaluating such factors. Because of their measurement error and validity problems, these tests could mistakenly screen out those candidates who are well suited for the job. Managers in charge of hiring may think these tests are a quick and easy substitute for a thorough interviewing process, but will regret their decision later.

2. Because of measurement error and validity problems, some relatively trustworthy people may ―fail‖ an honesty test given by an employer. What are the ethical implications of trustworthy people ―failing‖ honesty tests, and what obligations do you think employers should have when relying on honesty tests for screening? (Note to Instructor: Student answers will vary.) When candidates apply for a job, they generally assume that they will be evaluated and compared to other applicants in a fair, nonbiased manner. The use of such tests violates that trust, thus representing an ethical breach. AACSB: Analytic AACSB: Reflective Thinking

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BE THE MANAGER In this situation it is best to take a collaborative approach toward conflict resolution. A collaborative approach encourages the disputing parties to solve the problem together. The position of both parties should be treated as equally important (though not necessarily the case), and equal emphasis should be placed on the quality of the outcome and the fairness of the decision-making process. The intent is to find solutions that are satisfactory to both parties rather than find fault or assign blame. The first step of the vice president for human resources should be to bring the disputing parties together for the purpose of focusing upon a shared goal, such as improved work climate, improved quality of work, improved work relationships, etc. The establishment of common goals will provide a context for the continuance of discussions between disputants. As the collaborative effort to identify mutually acceptable resolutions continues, it is important that emphasis always rests upon issues, not personalities. In other words, people must remain separated from the problem and the focus must remain upon interests, not position. Doing so will depersonalize disagreement and allow all parties to feel less vulnerable about opening up to a different point of view. After the source of conflict has been identified and resolved, the attitudes and behavior of the disputants should change, gradually eliminating any lingering feelings distress, fear, or hostility in the office environment. AACSB: Reflective Thinking AACSB: Communication Skills

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CASE IN THE NEWS Case Synopsis: Fidji Simo Brings a Unique Perspective to Instacart Fidji Simo joined Instacart as CEO at a pivotal time in the company‘s short history. Founded in 2012 to provide rapid delivery of groceries, Instacart contracts with workers to shop and then deliver to consumers‘ doorsteps. In 2021, when Simo took the reins from founder Apoorva Mehta, the company was figuring out how to maintain significant growth that occurred shortly after the start of the COVID-19 pandemic. Simo does not fit the usual categories of a tech company CEO. She is female in a mostly male industry, she is young (in her mid-thirties), came from France, didn‘t start out in information technology (or retailing), and brings a strong fashion sense to a casual culture. However, her values and attitudes, combined with her intelligence, help explain why she has thrived. Colleagues and board members from former employer Facebook and Instacart have praised Simo for her discipline, self-confidence, knowledge, empathy, willingness to listen, and leadership skills. At Instacart, Simo is identifying and seizing opportunities for the company. When the pandemic arrived in the United States in March 2020, grocery delivery was a small but growing business increasingly dominated by Walmart. Then Instacart‘s sales quadrupled, putting it on a par with Walmart. Although sales quickly softened, they remain above prepandemic levels. Significant challenges lie ahead. Instacart must respond to pressure for better pay and conditions, postpandemic U.S. consumers are returning to supermarkets, and some large retailers are investing in their own delivery services. Nevertheless, Simo anticipates that Instacart can lower costs and delivery prices to a point where 30% of U.S. consumers will opt for delivery. Simo says as long as leaders keep open minds, they can adapt quickly. Her idea for career success is ―iterate yourself,‖ meaning continually try new ideas and ways of working to see what is most authentic and effective. She also embraces her identity as a unique contributor in the workplace and describes a diverse work environment as an ingredient that makes work more interesting, creative, and even fun. QUESTIONS

1. What personality traits and values do you associate with Fidji Simo‘s success as a manager? (Note to the instructor: Student answers will vary depending on their perceptions of what they have read.) The following are some examples: There are several categories of personality traits mentioned in the chapter that could impact a person‘s ability to succeed at Instacart. From the Big Five, extraversion and agreeableness would be helpful. People high on extraversion tend to experience positive emotions and moods and feel good about themselves and the rest of the world. The quality of agreeableness helps someone get along well with others. Because there is so much interaction and healthy debate among employees, both characteristics would be helpful to a person‘s success. Additionally, high self-esteem, need for affiliation, organizational commitment, and emotional intelligence would be useful. Self-esteem enables people to feel good about themselves and a need for affiliation provides the tendency to value establishing and maintaining a good relationship with others. Organizational commitment is the collection of feelings and beliefs a person has about the organization as a whole and possessing this commitment would help individuals remember the bigger picture. High emotional intelligence enables people to understand their own and others‘ feelings. This trait would enable them to be respectful and respond with tolerance when others are highly emotional.

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2. Based on the information in the case, would you describe Simo as having high emotional intelligence? What evidence supports your opinion? (Note to the instructor: Student answers will vary depending on their perceptions of what they have read.) The following are some examples: Emotional intelligence is the ability to understand and manage one‘s own moods and emotions, as well as the moods and emotions of other people. Evidence of Simo‘s emotional intelligence include her awareness of her own authenticity regarding her attire (she dressed fashionably in a notoriously dresseddown techy business) and her willingness to share personal health conditions such as a miscarriage and a neuroimmune disorder. She learned to deliver negative feedback clearly but respectfully.

3. How did Simo relate to corporate culture at Facebook? How could her experience influence the way she shapes culture as CEO of Instacart? The corporate culture at Facebook was one of very casual attire. Simo initially tried to dress down, despite her personal style of dressing very fashionably. She reports having felt inauthentic and soon decided to dress in the fashionable way she felt comfortable. Although not explicitly stated in the case, the communications about personal topics such as health were not openly discussed at Facebook. Simo challenged that norm by talking about her health challenges, which also enabled others to be more transparent about themselves.

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IN-CLASS ACTIVITY

Before class, review Lecture Enhancer 2.2, ―Birth Order and Personality.‖ Ask students in class to group themselves by birth order as follows: 1. Only child 2. First born 3. Middle child 4. Baby of the family Have the groups: 

discuss personality traits they have in common



generate a list of 4 to 5 common traits



divide traits into strengths and weaknesses (or explain how they fall into both categories)



suggest strategies for managing weaknesses



discuss whether or not they think birth order is a valid way to determine personality

Each group reports their top 4 or 5 common traits, an evaluation of their impact for a manager, and whether or not they believe birth order determines personality. As groups report out, list traits on board or easel. Wrap up with a review of each set of traits. Ask for class consensus on predictability of results. If time allows, share Lecture Enhancer 2.2 information with the class and compare with student results.

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CONNECT

For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect Case Analysis



Who Might Fit Well: Personality, Values, and Culture at Ryla

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New Belgium Brewery

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Zappo‘s Corporate Culture

Video Case

Manager’s Hot Seat Video Case

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Bullying in the Workplace

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Too Much Personality, Too Little Performance

Worksheets

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Aiming for the Good Life (Click and Drag)

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Identifying Personality Traits (Click and Drag)

Self-Assessments (See Application-Based Activities within Connect)

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A Profile of Your Personality Based on the Five-Factor Model

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Assessing Your Empathy Skills (Perspective Taking)

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What Is Your Level of Emotional Intelligence?

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POWERPOINT SLIDES

Slide 1 Title Chapter 2 Slide 2 Learning Objectives Slide 3 Enduring Characteristics: Personality Traits Slide 4 Managers and Traits Slide 5 Topics for Discussion: Managers and Traits Slide 6 Big Five Personality Traits (Figure 2.1) Slide 7 Big Five Personality Traits: Extraversion Slide 8 Big Five Personality Traits: Negative affectivity Slide 9 Big Five Personality Traits: Agreeableness Slide 10 Big Five Personality Traits: Conscientiousness Slide 11 Big Five Personality Traits: Openness to Experience Slide 12 Measures of Extraversion, Agreeableness, Conscientiousness, and Openness to Experience (Figure 2.2) Slide 13 Other Personality Traits: Internal Locus of Control Slide 14 Other Personality Traits: External Locus of Control Slide 15 Other Personality Traits: Self Esteem Slide 16 Other Personality Traits: Need for Achievement Slide 17 Other Personality Traits: Need for Affiliation Slide 18 Other Personality Traits: Need for Power Slide 19 Values, Attitudes and Moods and Emotions Slide 20 Values: Terminal and Instrumental Values Slide 21 Values: Norms and Value System Slide 22 Attitudes: Attitudes and Job Satisfaction Slide 23 Two Measures of Job Satisfaction Slide 24 Attitudes: Organizational Citizenship Behaviors Slide 25 Attitudes: Organizational Commitment Slide 26 Attitudes: Context Slide 27 Topics for Discussion: Job Satisfaction Slide 28 Moods and Emotions Slide 29 A Measure of Positive and Negative Mood at Work (Figure 2.4) Slide 30 Topics for Discussion: You as a Manager Slide 31 Emotional Intelligence 3-52 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Slide 32 Organizational Culture Slide 33 Organizational Culture: Managers and Organizational Culture Slide 34 Role of Values and Norms Slide 35 Factors That Maintain and Transmit Organizational Culture (Figure 2.6) Slide 36 Roles of Values and Norms: Organizational Socialization Slide 37 Roles of Values and Norms: Ceremonies and Rites Slide 38 Ceremonies and Rites: Rites of Passage and Integration Slide 39 Ceremonies and Rites: Rites of Enhancement Slide 40 Ceremonies and Rites: Stories and Language Slide 41 Culture and Managerial Action: Planning Slide 42 Culture and Managerial Action: Organizing Slide 43 Culture and Managerial Action: Leading Slide 44 Culture and Managerial Action: Controlling Slide 45 Be the Manager

Chapter 03 Managing Ethics and Diversity CHAPTER CONTENTS Learning Objectives

3-2

Key Definitions/Terms

3-3

Chapter Overview

3-4

Lecture Outline

3-5

Lecture Enhancers

3-15

Management in Action

3-19

Building Management Skills

3-22 3-53

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Managing Ethically

3-24

Be the Manager

3-25

Case in the News

3-26

In-Class Activity

3-28

Connect Features

3-29

PowerPoint Slides

3-30

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LEARNING OBJECTIVES LO 3-1. Illustrate how ethics help managers determine the right way to behave when dealing with different stakeholder groups. LO 3-2. Explain why managers should behave ethically and strive to create ethical organizational cultures. LO 3-3. Describe the increasing diversity of the workforce and of the organization environment. LO 3-4. Explain the central role that managers play in the effective management of diversity. LO 3-5. Understand why the effective management of diversity is both an ethical and a business imperative. LO 3-6. Understand the two major forms of sexual harassment and how they can be eliminated.

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KEY DEFINITIONS/TERMS

justice rule: An ethical decision that distributes benefits and harms among people and groups in a fair, equitable, or impartial way.

diversity: Differences among people due to age, gender, race, ethnicity, religion, sexual orientation, socioeconomic background, education, experience, physical appearance, capabilities/disabilities, and any other characteristic that is used to distinguish between people.

moral rights rule: An ethical decision is one that best maintains and protects the fundamental or inalienable rights and privileges of the people affected by it. practical rule: An ethical decision is one that a manager has no reluctance about communicating to people outside the company because the typical person in a society would think it is acceptable.

ethical dilemma: The quandary people find themselves in when they have to decide if they should act in a way that might help another person or group even though doing so might go against their own self-interest.

professional ethics: Standards that govern how members of a profession are to make decisions when the way they should behave is not clear cut.

ethics: The inner guiding moral principles, values, and beliefs that people use to analyze or interpret a situation and then decide what is the right or appropriate way to behave.

quid pro quo sexual harassment: Asking for or forcing an employee to perform sexual favors in exchange for receiving some reward or avoiding negative consequences.

ethics ombudsman: An ethics officer who monitors an organization‘s practices and procedures to be sure they are ethical.

reputation: The esteem or high repute that individuals or organizations gain when they behave ethically.

glass ceiling: A metaphor alluding to the invisible barriers that prevent minorities and women from being promoted to top corporate positions.

societal ethics: Standards that govern how members of a society are to deal with each other on issues such as fairness, justice, poverty, and the rights of the individual.

hostile work environment sexual harassment: Telling lewd jokes, displaying pornography, making sexually oriented remarks about someone‘s personal appearance, and other sex-related actions that make the work environment unpleasant.

stakeholders: The people and groups that supply a company with its productive resources and so have a claim on and stake in the company. trust: The willingness of one person or group to have faith or confidence in the goodwill of another person, even though this puts them at risk.

individual ethics: Personal values and attitudes that govern how individuals interact with other people.

utilitarian rule: An ethical decision is a decision that produces the greatest good for the greatest number of people.

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CHAPTER OVERVIEW The chapter opens with a discussion of ethics and how managers can apply ethical standards to assist in deciding upon the proper way to behave toward organizational stakeholders. The importance of establishing a code of ethics and an ethical organizational culture within the organization is also discussed. Multiple components of diversity within the workforce are identified, followed by a discussion of how managers can either promote or derail the effective management of diversity. It discusses how effective management of diversity can improve organizational effectiveness. The chapter closes with a discussion on sexual harassment and how it can be eliminated.

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LECTURE OUTLINE NOTE ABOUT POWERPOINT SLIDES The PowerPoint Slides include chapter content as well as additional material that can be used to expand the lecture. A list of the PowerPoint slides can be found at the end of this chapter.

Management Snapshot UPS Foundation Delivers What Matters to Global Community How Can Doing Good Help a Company De Well? As president of the UPS Foundation, Nikki Clifton oversees the logistics company‘s efforts to reach out to local as well as global communities in times of need. UPS helps large and small companies and entrepreneurs do business in more than 220 countries. It allocates some of its earnings to the UPS Foundation, which provides financial assistance and employee volunteer support to help build resilient communities and address social and environmental issues around the world. In the view of UPS‘s leadership, all these efforts to support economic development create both a social benefit and a business environment in which UPS can flourish. The Foundation‘s contributions—totaling more than $122 million through 2020—have a significant impact on communities in the form of HELP: health and humanitarian relief; equity and economic empowerment; local community engagement; and planet protection. Because of its presence in many markets, UPS is aware of floods, earthquakes, and other situations that impair deliveries, even when stories don‘t make the news in the United States. Celebrating its 70th anniversary in 2021, the UPS Foundation with Clifton at the helm is dedicated to continuing a legacy of service with the help of its more than 540,000 employees worldwide, long-time business partners, and other organizations to deliver what matters most to the global community.

Chapter 03 Managing Ethics and Diversity

I. The Nature of Ethics

LO 3-1: Illustrate how ethics help managers determine the right way to behave when dealing with different stakeholder groups. A. Ethical Dilemmas 1. An ethical dilemma is the quandary people find themselves in when they have to decide if they should act in a way that might help another person or group and is the right thing to do, even though it might go against their own self- interest. 2. Ethics are the inner-guiding moral principles, values, and beliefs that people use to analyze or interpret a situation and then decide the appropriate way to behave. a. Ethics indicate inappropriate behavior and how a person should behave to avoid harming another person. b. The essential problem in dealing with ethical issues is that there are no absolute or indisputable rules or principles can be developed to decide if an action is ethical or unethical. B. Ethics and the Law 1. Laws and ethics are not fixed principles. Ethical beliefs change over time, and as they do, laws also change to reflect the changing ethical beliefs of a society. 2. ―Do unto others as you would have them do unto you‖ is a commonly used ethical or moral rule that continues to be useful. C. Changes in Ethics over Time There are many behaviors, such as murder, theft, and rape, that are unacceptable and unethical to most people and therefore should be illegal. However, there are other actions and behaviors whose ethical nature is open to dispute. Examples include gun possession or the use of tobacco.

1. It is important to note that laws themselves change as ethical beliefs change. There is no absolute or unvarying standard to determine how we should behave. 2. Over the past decade, J.P Morgan Chase, HSBC, and Capital One broke the law and used illegal and unethical means to defraud investors. 3. Being legal does not make behavior ethical. The Occupy Wall Street movement was prompted by the unethical influence of the financial services sector on the government, even though the Wall Street companies broke no laws.

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TEXT REFERENCE Ethics in Action Embedding Ethics in Organizational Culture Organizations have typically approached ethics by devising and teaching rules so employees understand how to behave ethically. However, whether people behave ethically in a situation is more complex. People often know basic principles of fairness, respect, and so on, but they may be reluctant to act ethically in certain situations. For example, they tend to be more willing to help someone in need if they are the only other person on the scene, and they tend to make ethical choices more often when ethical values are mentioned explicitly. Organizations need to be explicit about their ethics. For example, when launching a new project, managers should mention how it relates to the company‘s mission, vision, or values statement. Managers should also embed ethical conversations in decision-making processes to ensure employees are thinking about what they should do, not what they can get away with. Engaging in conversations around ethics is associated with more ethical behavior as people learn from one another how to approach these issues. Organizations also create an ethical climate when they ensure that rewards and consequences are aligned with ethical values. Ethical behavior is more likely when employees believe their colleagues generally do the right thing. Rewards and consequences also should be tied to outcomes that realistically can result from ethical behavior. Finally, the organization‘s executives need to model the ethical behaviors they seek. In order to promote justice, they should listen to their people. And they should practice values they champion. II. Stakeholders and Ethics Stakeholders are the people and groups who are affected by the way a company and its manages behave. They include stockholders, managers, employees, suppliers, customers, and the community.

1. Stockholders, who buy or own stock in the company, want to ensure that managers are behaving ethically by not engaging in actions that could hurt the company‘s reputation. 2. Managers: Managers are responsible for using a company‘s financial, capital, and human resources to increase its performance and stock price. a. They bring skills, expertise, and experience to an organization. b. They bear the responsibility of making decisions about the goals a company should pursue to most benefit stakeholders and how to efficiently use resources to meet these goals.

Chapter 03 Managing Ethics and Diversity

3. Employees: Employees expect to receive rewards consistent with their performance. A company can act ethically towards its employees by creating an occupational structure that rewards them fairly and equitably. 4. Suppliers and Distributors: Most companies operate within a network of suppliers and distributors. Suppliers expect to be paid fairly and promptly for their inputs. Distributors expect to receive quality products at agreed-upon prices. 5. Customers: Customers are often regarded as the most critical stakeholder group, since a company cannot survive without them. Managers work very hard to create loyal customers and attract new ones by selling customers quality products at a fair price, providing good after-sales service, improving products over time, and providing product guarantees to customers. 6. Community, Society, and Nation: The effects of the decisions made by companies and their managers permeate all aspects of the communities, societies, and nations in which they operate. a. Community refers to physical locations in which companies are located. b. Through the salaries, wages, and taxes it pays, a company contributes to the economy of the town or region in which it resides and often determines whether the community prospers or declines. c. Companies affect the prosperity of a society and a nation, and to the extent that a company is involved in global trade, it affects the prosperity of the global economy. E. Rules for Ethical Decision Making 1. To help managers and employees make ethical decisions, four ethical rules or principles can be used to analyze the effects of their business decisions on stakeholders: a. The utilitarian rule defines an ethical decision as one that produces the greatest good for the greatest number of people. Therefore, managers should consider how different courses of action can benefit or harm stakeholders, and implement the one with the most benefits. b. The moral rights rule defines an ethical decision as one that best maintains and protects the fundamental rights and privileges of the people affected by it. Therefore, managers should compare and contrast different courses of action based on how the action will affect stakeholders‘ rights. c. The justice rule defines an ethical decision as one that distributes benefits and harms among stakeholders in a fair, equitable or impartial way. Therefore, managers 3-61 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 Managing Ethics and Diversity

should compare and contrast alternative courses of action based on the degree to which the action will promote a fair distribution of outcome to stakeholders. d. The practical rule defines an ethical decision as one that a manager has no hesitation communicating to others both inside and outside of the company because they would find it acceptable. A manager can assume a decision is ethical if he or she can answer ‗yes‘ to the following three questions: i.

Does my decision fall within the accepted values or standards that typically apply in business activity today?

ii.

Am I willing to see the decision communicated to all stakeholders affected by it by, for example, having it reported in newspapers or on television?

iii.

Would the people with whom I have a significant personal relationship, such as family members, friends, or even managers in other organizations, approve of the decision?

F. Why Should Managers Behave Ethically? LO 3-2: Explain why managers should behave ethically and strive to create ethical organizational cultures. 1. The relentless pursuit of self-interest can lead to a collective disaster. When one or more people start to profit from unethical conduct, this encourages others to act in the same way. 2. The pursuit of individual self-interest with no consideration of societal interests leads to disaster for each individual and for the whole society because scarce resources are destroyed. This situation is called a ‗tragedy of the commons.‖ 3. Unethical behavior ruins business commerce, and society has a lower standard of living because fewer goods and services are produced. 4. When stakeholders believe that they are dealing with others who are basically moral and honest, trust exists. Trust is the willingness of one person or group to have faith or confidence in the goodwill of another person, even though this puts them at risk. 5. Over time, trust between stakeholders allows them to work together more efficiently and effectively, thus raising company performance. As people see the positive results of acting in an honest way, ethical behavior becomes a valued social norm. 6. If other individuals or groups copy the behavior of the unethical stakeholder, the rate at which collective resources are misused increases, and eventually few resources are available for producing goods and services. 3-62 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 Managing Ethics and Diversity

7. Reputation is the esteem or high repute that individuals or organizations gain when they behave ethically. If a manager misuses resources and if other parties regard that behavior as being at odds with acceptable standards, the manager‘s reputation will suffer. G. Sources of an Organization’s Code of Ethics 1. Codes of ethics are formal standards and rules, based upon beliefs about right or wrong, that managers can use to help themselves make appropriate decisions concerning the interests of their stakeholders. 2. An organization‘s code of ethics is derived from three principal sources in the organizational environment. They are societal ethics, professional ethics, and individual ethics. a. Societal ethics are standards that govern how members of a society deal with each other in matters involving issues such as fairness, justice, poverty, and the rights of the individual. Societal ethics emanate from a society‘s laws, customs, and practices, and from unwritten attitudes, values, and norms that influence how people interact with each other. b. Professional ethics are standards that govern how members of a profession, including managers or workers, make decisions when the way in which they should behave is not clear-cut. c. Individual ethics are personal values (both terminal and instrumental) and attitudes that govern how individuals interact with other people. Sources of one‘s individual ethics include the influence of family, peers, personality, and experience. H. Ethical Organizational Cultures 1. Managers must ensure that important ethical norms and values are central components of the organization‘s culture. 2. Employees expect those in authority to become role models of ethical conduct, knowing that subordinates scrutinize their behavior. 3. Organizations can encourage an ethical culture by creating the role of ethics officer, or ethics ombudsman. The ethics ombudsman is responsible for communicating ethical standards to all employees, designing systems to monitor employees‘ conformity to those standards, and teaching all employees how to respond to ethical dilemmas appropriately. III. The Increasing Diversity of the Workforce and the Environment

LO 3-4: Explain the central role that managers play in the effective management of diversity. 3-63 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 Managing Ethics and Diversity

LO 3-5: Understand why the effective management of diversity is both an ethical and a business imperative.

TEXT REFERENCE

Focus on DE&I Impact of Hispanics on the U.S. Workforce In the United States, individuals counted as Hispanic or Latino include those with ancestry or country of origin in any of 27 countries in Europe (Spain), North America (Mexico), Central America, South America, and the Caribbean. This diverse category includes native-born Americans and immigrants. The Hispanic population has been increasing by 16% a year, versus 3% for non-Hispanics. The primary reason is a higher birth rate, although immigration plays a role. Because of the higher birth rate, the Hispanic population is relatively young. This results in high labor-force participation. Without the increase in the Hispanic population, U.S. economic growth would be slower. An economic analysis attributes an additional $780.7 billion a year in gross domestic product to the participation of Hispanics in the labor force. Hispanics are starting their own businesses at a higher-than-average rate. In a recent year, when Hispanics were 18% of the population, they accounted for almost one-fourth of U.S. entrepreneurs. Those businesses created 2.8 million jobs. Another qualitative way in which Hispanics contribute involves cultural diversity. To varying degrees, Hispanic Americans have been navigating two or more cultures, and many find that this gives them cultural agility that is an asset in the workplace. For example, Patricia Mota, CEO of the Hispanic Alliance for Career Advancement, says her experience as the daughter of Mexican immigrants taught her traditional values of hard work, family, and faith, and her work experience taught her values of independence and strategic thinking. She combines them to operate in way that is adaptable and inclusive.

A. Diversity: Differences among people due to age, gender, race, ethnicity, religion, sexual orientation, socioeconomic background, education, experience, physical appearance, capabilities/disabilities, and other characteristics used to distinguish people. 1. Diversity is a critical issue in organizations for the following reasons: a. There is a strong ethical imperative in many societies that diverse people must receive equal opportunities and be treated fairly and justly. Unfair treatment is illegal. b. Effective management of a diverse team of employees can improve organizational effectiveness. c. There is substantial evidence that minority and underrepresented individuals continue to experience unfair treatment in the workplace as a result of biases, stereotypes, and overt discrimination.

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LO 3-6: Understand the two major forms of sexual harassment and how they can be eliminated. 2. The glass ceiling: a term that alludes to the invisible barriers that prevent women and minorities from being promoted to top corporate positions. a. The federal Glass Ceiling Commission Report indicated that African Americans have the hardest time climbing the corporate ladder, Asians are often stereotyped into technical jobs, and Hispanics are assumed to be less educated than other minority groups. 3. Age: The aging of the population suggests managers need to be vigilant in ensuring that employees are not discriminated against because of age. a. Effectively managing diversity means employees of diverse ages are able to learn from each other. 4. Gender: Although women and men are almost equally represented in the U.S. workforce, the median weekly earnings of women are estimated to be less than the earnings of men. Thus the gender pay gap appears to be as alive and well as the glass ceiling. a. Research suggests that female executives outperform their male colleagues in skills such as motivating others, promoting good communication, turning out high quality work, and being a good listener. 5. Race and Ethnicity: The U.S. Census Bureau distinguishes among several races in its report. It treats ethnicity in terms of whether a person is Hispanic, Latino, or of Spanish origin or not. a. The racial and ethnic diversity of the U.S. population is increasing quickly, as is the composition of the workforce. 6. Religion: Title VII of the Civil Rights Act prohibits discrimination based on religion, as well as based on race/ethnicity, country of origin, and sex. a. Employers must make reasonable accommodations for religious practices, such as observances of holidays. 7. Capabilities/Disabilities a. The Americans with Disabilities Act (ADA) prohibits discrimination against people with disabilities and also requires employers to make reasonable accommodations to allow the disabled to effectively perform their jobs, while making sure that those accommodations are perceived to be fair by those not disabled.

Chapter 03 Managing Ethics and Diversity

b. Some employees are hesitant to reveal their disabilities, and others abuse the ADA by seeking unnecessary accommodations for disabilities that do not exist. 8. Socioeconomic Background: typically refers to a combination of social class and income-related factors. Socioeconomic diversity requires managers to be sensitive and responsible to the needs and concerns of employees who are not as wealthy as others. a. Managers must provide the less-fortunate employees with opportunities to learn, advance, and make meaningful contributions to the organization while improving their economic well-being. 9. Sexual Orientation: According to a recent Gallup report 5.6% of adults the U.S. selfidentify as lesbian, gay bisexual, transgender or queer (LGBTQ). a. An increasing number of organizations recognize the minority status of LGBTQ employees, affirm their right to fair and equal treatment, and provide benefits to same-sex partners. 10. Other Kinds of Diversity: Organizations and teams need members with diverse backgrounds and experiences. a. This is illustrated by the prevalence of cross-functional teams in organizations whose members might come from various departments such as marketing, production, finance, etc. b. Employees differ from each other in physical appearance and it has no bearing on their job performance, unless they have jobs in which physical appearance plays a role, such as modeling. IV. Managers and the Effective Management of Diversity

A. Critical Managerial Roles: Managers can either promote or derail the effective management of diversity. 1. By using their formal authority to support diversity, managers can influence other members of the organization to make the same commitment. Managerial commitment to diversity legitimizes the diversity management efforts of others. 2. Seeing managers express confidence in the abilities and talents of a diverse workforce causes other organizational members to adopt similar attitudes and helps reduce misconceptions rooted in ignorance or stereotypes. 3. Research suggests that slight differences in treatment of a diverse workforce based upon race, gender, ethnicity or other factors can accumulate to result in major disparities over time. Therefore, managers must ensure that such disparities do not occur and are not tolerated. 3-66 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 Managing Ethics and Diversity

B. Effectively Managing Diversity Makes Good Business Sense 1. The diversity of organizational members can be a source of competitive advantage. The variety of points of view that a diverse workforce provide can improve managerial decision making. 2. Employees with a diverse background are likely to be attuned to what goods and services diverse segments of the market do and do not want. 3. The recruiting of a diverse workforce must be followed up with ongoing effective management of diversity to retain those employees. It helps the company avoid the costs related to the hiring of replacements of members of diverse groups who, once hired, think that they are being unfairly treated. 4. Many organizations also insist that their suppliers support diversity. 5. Effective management of diversity is necessary to avoid costly lawsuits. V. Sexual Harassment

A. Forms of Sexual Harassment in the Workplace: Sexual harassment seriously damages both the people who are harassed and the reputation of the organization in which it occurs. While victims can be either men or women, women are the most frequent. There are two forms of sexual harassment: 1. Quid pro quo sexual harassment occurs when a harasser asks or forces an employee to perform sexual favors in exchange for receiving some reward or avoiding negative consequences. 2. Hostile work environment sexual harassment occurs when organizational members are faced with an intimidating, hostile, or offensive work environment because of their sex. A hostile work environment interferes with members‘ ability to perform their jobs effectively and has been deemed illegal by the courts. B. Steps Managers Can Take to Eradicate Sexual Harassment 1. Develop and clearly communicate a sexual harassment policy endorsed by top management. 2. Use a fair complaint procedure to investigate charges of sexual harassment. 3. When it has been determined that sexual harassment has taken place, take corrective actions as soon as possible. 4. Provide sexual harassment education and training to organizational members, including managers. 3-67 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 Managing Ethics and Diversity

LO 3-3: Describe the increasing diversity of the workforce and of the organization environment. TEXT REFERENCE

Management Insight Providing Effective Anti-Harassment Training Despite the rise in complaints following the Harvey Weinstein scandal, there is little evidence to support the effectiveness of anti-harassment training programs. But the evidence does suggest some ideas for effective training to prevent sexual harassment. One helpful tactic is to set up training in small groups. Face-to-face conversations and job-related examples are more powerful than generic presentations. Furthermore, having everyone, especially leaders, participate in the training signals that respectful behavior is valued and necessary at all levels of the organization. Finally, training should be embedded in an ethical culture of respect and inclusion. Organizations that are inclusive in hiring, training, and promoting will place more women and people of color in positions of power. This restrains the power dynamic that supports harassment. And as with any other kind of behavior, the behavior of the organizations leaders sets the tone for everyone else.

Chapter 04 Managing in the Global Environment

LECTURE ENHANCERS Lecture Enhancer 3.1 MODELING ETHICAL CONDUCT: THE BALANCING ACT AND LEVEL FIVE LEADERSHIP

In the May 2000 issue of Executive Excellence, Dr. William Cottringer, the author of Managing Fairness, asserts that, ―the first and most important rule of good management is fundamental fairness.‖ According to Cottringer, leaders should follow the golden rule, treating all stakeholders as they would like to be treated. This requires ―an attitude of openness, a desire to achieve a workable balance between valid opposing behaviors, and a keen sensitivity to know when you cross over the line of fundamental fairness.‖ According to Cottringer, by balancing ten dilemmas, managers can achieve fairness. Among the ten dilemmas that any leader eventually faces are giving vs. taking, change vs. stability, idealism vs. realism, organization vs. individuals, and thinking vs. action. Making sound judgments in these areas represents one of the greatest challenges of leadership and is seldom easy. Unfortunately, we have become aware of too many CEOs who apparently made little or no effort to manage fairness. One way a CEO can attempt to achieve and maintain the balance described by Cottringer is to aspire to what author Jim Collins has labeled Level 5 leadership. In his book, Good to Great, Collins describes a Level 5 leader as one who ―embodies a paradoxical mix of personal humility and professional will. They are ambitious, to be sure, but ambitious for the company, not themselves . . ..Level 5 leaders display a compelling modesty, are self-effacing, and understated.‖ He contrasts Level 5 leaders with others who had ―gargantuan personal egos that contributed to the demise or continued mediocrity of the company.‖ 93% of 40,000 Americans surveyed admitted to lying regularly at work, according to a Fast Company magazine report. 60% of employees who say or know about an ethical violation in their workplace have not reported it, according to a survey by Walker Information and the Hudson Institute. 47% of 148 secretaries to Fortune 1000 CEOs, responding to a survey by OfficeClick.com, had been asked by their boss to lie. These statistics illustrate that in too many organizations, bending the rules has become legendary. The leader‘s job is to create an environment that delivers results without sacrificing integrity. While codes of ethics and ethics training are helpful, there is no program for making integrity come to life. Rather, it requires employees witnessing their leaders successfully managing their balancing act and demonstrating Level 5 leadership.

Chapter 04 Managing in the Global Environment

Lecture Enhancer 3.2 ETHICS, THE BOTTOM LINE, AND COMPETITIVE ADVANTAGE

Do ethics impact the bottom line? Yes, according to DePaul University and the Management Review. A 1999 study of 300 large firms conducted by researchers at DePaul University found that companies that make an explicit commitment to follow an ethics code provided more than twice the value to shareholders than companies that didn‘t. According to Management Review, published by the American Management Association, ―for the 47 companies expressing a more extensive or more explicit commitment to ethics, the market value added difference was larger– an average of $10.6 billion, or almost three times the MVA (market value added) of companies without similar commitments.‖ Does ethics impact competitive advantage? Yes, it does, if a business either partially or fully attributes its competitive advantage to its workforce. The ability to attract talented employees can be tarnished by a poor reputation, since for many executives, a firm‘s ethical stance strongly influences their decision to accept a job there. In a recent online survey conducted by TheLadders.com, an executive job search service, 83 percent of the survey's 1,020 respondents rated a company's record of business ethics "very important" when deciding whether to accept a job offer. Only 2 percent rated it "unimportant," and 15 percent said it was "important, but not a deal breaker." Marc Cenedella, Ladders founder and president, says, ―Executives clearly see the public images of the companies they work for as a reflection of their own credibility in the marketplace. In companies like Enron, where there is systemic misbehavior across all levels of the company, folks don't want to be in that environment." Executives are "drawing subtle distinctions between what's an acceptable corporate misstep and what's an outright reputational disaster," Cenedella believes. "I think what people are seeing is that at some companies there are executives, or a group of executives, who are doing wrong, but now that's been changed.‖ In these cases, he says, job seekers "don't punish the underlying company" for the behavior of a few. As an example, Cenedella cites the case of Martha Stewart Living Omnimedia. Respondents were split almost evenly: 51 percent wouldn't want to work there, 49 percent would. ―In that case,‖ Cenedella says, ―Martha's crime had nothing to do with her business, so that's a mitigating factor.‖ However, ―the brand is so tightly wrapped up in her personal behavior and her lifestyle that the brand has been tarnished,‖ he says. ―That's why people are right in the middle on this.‖

Chapter 04 Managing in the Global Environment Would you work for these companies? Below are additional results from TheLadder.com‘s survey: Company Name

Responding No

Enron

72%

World com

65%

Adelphia

59%

Global Crossing

47%

Tyco

38%

Symbol Technologies

37%

Taken from Jennifer Salopeck, ―Right Thing – Business Ethics,‖ Training & Development, July 2001 and ―Tarnished Employment Brands Affect Recruiting,‖ HR Magazine, November 2004.

Lecture Enhancer 3.3 CATALYST KEEPS TRACK OF FEMALE PROGRESS IN CORPORATE AMERICA Catalyst is an independent, not-for-profit research and advisory organization that works with businesses and the professions to build inclusive work environments and expand opportunities for women at work. It also conducts research on all aspects of women‘s career advancement. Some of its research findings concerning women in workplace are summarized below: Female Executives Aspire to the CEO Job: Women and men report equal aspirations to reach the corner office, and women who have children living with them are just as likely to aspire to the CEO job as those who do not. Catalyst found that women and men employ very similar advancement strategies, which include consistently exceeding performance expectations, successfully managing others, seeking highvisibility assignments, and demonstrating expertise. They have also experienced similar barriers to their rise to the top, which include lack of significant general management or line experience, lack of awareness of organizational politics, and displaying a behavior style that is different than the organization‘s norm. However, women report enduring a set of cultural barriers to their advancement not experienced by men, such as gender-based stereotypes, exclusion from informal networks, lack of role models, and an inhospitable corporate culture. Catalyst‘s report also uncovered similar experiences between men and women regarding the difficulty in achieving work/life balance. However, the two genders used very different strategies to find such a balance, and as they advanced to senior levels, women had to make more trade-offs between the two than men.

Chapter 04 Managing in the Global Environment African American Women: African American women are not advancing as far in corporate America as their white, Asian, and Latina counterparts. The biggest barriers they face are negative, race-based stereotypes, more frequent questioning of their credibility and authority, and a lack of institutional support. Even though African American women represent an important and growing source of talent, they currently represent only 1.1% of corporate officers in Fortune 500 companies. Experiencing a double outsider status– unlike white women or African American men– African American women report exclusion from informal networks and conflicted relationships with white women among the challenges they face. Keys to success for this group have included exceeding performance expectations, communicating effectively, connecting with mentors, and building positive relationships with managers and colleagues. Asian Women: Catalyst‘s research regarding Asian women in the workplace uncovered two distinct groups; the more acculturated and the less acculturated. The more acculturated group is defined as those born in the U.S. or immigrated as children and who spoke only English at home. They are less likely to have elder care responsibilities, are more satisfied and successful in their careers, and are more likely to be paid what they feel they are worth. Those in the less acculturated group are less likely to feel it is appropriate to challenge the way things are done in their workplace and less likely to report that diversity efforts have created a supportive environment. These women told Catalyst that Asian cultural values are frequently at odds with their ability to successfully navigate the corporate landscape. Specifically, the discomfort some Asian women have with self-promotion makes advancement problematic, and their strong work ethic appears to limit networking opportunities. Also, they report difficulty in finding mentors, and few report having positive relationships with their superiors.

Excerpts from press releases found on http://www.catalyst.org/

Chapter 04 Managing in the Global Environment

MANAGEMENT IN ACTION Notes for Topics for Discussion and Action DISCUSSION

1. When are ethics and ethical standards especially important in organizations? It may be difficult for managers to determine how to apportion harms or benefits among various stakeholder groups. In such cases, ethical standards and guidelines are very important. For example, when companies experience great financial losses, they often engage in massive layoffs without considering ways to make such layoffs as painless as possible. It may also be difficult for managers to determine how to fairly apportion benefits among stakeholder groups, especially when management is one of the stakeholder groups that may be positively impacted. For example, when Chrysler amassed $9 billion in cash, managers wanted to use the money to protect the company against future economic downturns, a tactic that would give the managers themselves security. However, stockholders felt that managers were making the wrong decision, and some of this wealth should be shared with them. Ethics and ethical standards are especially important in organizations when decision-making is not governed by legal or governmental requirements. Because behavior considered unethical in the U.S. maybe acceptable in foreign countries, international managers may also need guidelines to apprise them of ethical standards in the U.S. Also, managers must keep ethical standards in the forefront of their minds when working in situations of intense pressure.

2. Why might managers do things that conflict with their own ethical values? Unfortunately, some managers let greed and ruthless self-interest take control of their decision-making. Such managers have a poor or undeveloped code of individual ethics. Also, managers who find themselves under intense pressure to help their organization succeed will sometimes engage in unethical behavior. For example, to improve its very weak financial position, Sears created a bonus system that encouraged employees to convince customers to purchase unnecessary automobile repairs.

3. How can managers ensure that they create ethical organizational cultures? Leading by example is the primary way by which managers can ensure that an ethical organizational culture is created. Because employees expect those in authority to provide leadership and set an example, managers must behave as role models of ethical conduct, knowing that subordinates scrutinize their behavior. In addition, managers can encourage an ethical culture by establishing a code of ethics and by hiring an ethics ombudsman with organization-wide authority.

4. Sometimes LGBTQ employees experience discrimination in the workplace. As a manager, what steps would you take to ensure such discrimination is eliminated? Unfortunately, a great deal of prejudice against LGBTQ individuals exists in our society. Managers should take steps to make sure all employees respect others of differing backgrounds.

Chapter 04 Managing in the Global Environment 5. Some workers might resent accommodations made for employees with disabilities. As a manager, what could you do to ensure all employees are treated fairly? Managers must often educate themselves and their employees concerning the disabilities and abilities of those who are disabled. Because many people are unaware of the prevalence of disabilities and misinformed about their consequences, they do not fully understand why accommodations are needed. Unfortunately, there are anecdotes of employees abusing the ADA by seeking unneeded accommodations for disabilities that may not exist, which could lead to resentment by others. Worse yet, such abuse may prevent persons with real disabilities from revealing their disability so that they can receive the accommodations they deserve. ACTION

6. Choose a Fortune 500 company not mentioned in the chapter. Conduct research to determine what steps this organization has taken to effectively manage diversity and eliminate sexual harassment. (Note to Instructors: Obtaining the information to answer this question is more difficult than it appears. You might consider eliminating the Fortune 500 requirement or have students identify an exemplary company in the area of diversity/multiculturalism. Companies are less likely to disclose anything to do with sexual harassment. Information on reported incidences of sexual harassment is easier to find. Two different versions of this question are answered below). Sample A: In response to allegations of discrimination and other inequitable practices, Texaco has devised the following plans to create a more diverse environment for their company. These plans include:

(1)Plans to increase its hiring and promotion of women and other minorities. (2)Implementing a scholarship and internship program to expand college recruiting. (3)Revising its employee evaluation procedures. (4)Increase purchasing from women- and minority-owned businesses. (5)Plans to encourage women and minorities to become wholesalers and retailers with targeted financing programs. Sample B: L‘Oreal was recently named the first ever recipient of the Diversity Best Practices Global Leadership Award for creating an environment of diversity and inclusion for employees, customers, and suppliers. The award recognizes the world's most progressive companies and their leaders for embracing diversity in markets, workforces and communities. L‘Oréal was honored for creating a corporate culture that embraces and drives diversity throughout its organization. The progress of L‘Oreal USA‘s diversity programs is tracked, monitored and benchmarked by Ed. Bullock, the company‘s chief diversity officer.

Chapter 04 Managing in the Global Environment To ensure diversity at L‘Oreal, Bullock has implemented a variety of strategies over the years. In the area of recruitment, he introduced the concept of ‗fishing in different ponds.‘ As a result, more than 60% of the company‘s general managers are women, and minority representation in management increased from 13.9% to 16% over a three-year period. Bullock partnered with the company‘s training department to make diversity training a part of the core curriculum for all major leadership development training programs in the U.S. and Paris. Diversity is now included as a management objective in annual performance reviews on a worldwide basis. Bullock also oversees company efforts to ensure that diversity is a priority with its suppliers. He instituted a Diversity Supplier Council to control and increase spending in women and minority owned businesses and multicultural media organizations. On a quarterly basis, the company also publishes a State of Diversity report that measures results and monitors progress in key areas. This report is shared with the company‘s president, senior leadership team, and human resources executives. Bullock‘s future plans include examining mentorship programs and establishing additional diversity councils. AACSB: Diversity

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BUILDING MANAGEMENT SKILLS Notes for Building Management Skills: Solving Diversity-Related Problems (Note to Instructor: Student answers will vary. Below is some general information to help guide class discussion.) Questions:

1. Why do you think that the decision maker acted unfairly in this situation? Perhaps the differences made the decision maker feel uncomfortable or threatened. There is substantial evidence that diverse individuals continue to experience unfair treatment in the workplace as a result of biases, stereotypes, and overt discrimination.

2. In what ways, if any, were biases, stereotypes, or overt discrimination involved in this situation? Responses to this question will vary. However, biases mentioned may include the similar-to-me effect, the social status effect, or salience. Overt discrimination has occurred if unjust treatment was intentional and deliberate.

3. Was the decision maker aware that they were acting unfairly? If the decision maker is inexperienced in working in a diverse workplace, they may be unaware of their unfair acts. However, lack of awareness does not excuse such unacceptable behavior.

4. What could you or the person who was treated unfairly have done to improve matters and rectify the injustice on the spot? To rectify the injustice, it must first be called to the decision maker‘s attention. Then, alternative solutions must be identified that will correct the situation.

Chapter 04 Managing in the Global Environment 5. Was any sexual harassment involved in this situation? If so, what kind was it? There are two forms of sexual harassment: quid pro quo and hostile work environment. Quid pro quo sexual harassment occurs when a harasser asks or forces an employee to perform sexual favors to keep a job, receive a promotion, receive a raise, obtain some other work-related opportunity or avoid receiving negative consequences such as demotion or dismissal. Hostile work environment sexual harassment occurs when employees are faced with an intimidating, hostile, or offensive work environment because of their sex. Examples include lewd jokes, vulgar language, displays of pornography, etc.

6. If you had authority over the decision maker (for example, you were their manager or supervisor), what steps would you take to ensure that the decision maker no longer treated diverse individuals unfairly? The manager of this decision maker must remind the decision maker that all employees must be treated equally, fairly, and with respect. They should also remind the decision maker that a diverse workforce is an asset to the organization and that failure to recognize the contributions of diverse employees constitutes a waste of organizational resources. This employee should also be sent to diversity awareness training, in an attempt to increase their sensitivity level. AACSB: Diversity

Chapter 04 Managing in the Global Environment

MANAGING ETHICALLY Some companies require that their employees work very long hours and travel extensively. Employees with young children, employees taking care of older relatives, and employees who have interests outside the workplace sometimes find that their careers are jeopardized if they try to work more reasonable hours or limit their work-related travel. Some of these employees feel that it is unethical for their manager to expect so much of them in the workplace and not understand their needs as parents and caregivers. Questions:

1. Either individually or in a group, think about the ethical implications of requiring long hours and extensive amounts of travel for some jobs. Student answers will vary but should consider that the question really doesn‘t have to do with whether or not individuals have families but rather the bigger picture of how many hours a week a manager should ethically expect employees to work. Challenge the students to consider the question from the different ethical perspectives as they think things through.

2. What obligations do you think managers and companies have to enable employees to have a balanced life and meet non-work needs and demands? It depends on whether or not students feel that a manager‘s obligation is to make employees as productive as possible–and then how the students feel that should happen. Some may feel that everyone must ―pay their dues‖ at work and that a manager‘s job is to squeeze as much out of employees as possible. With this perspective, employee non-work issues are not of any concern to managers. But students should recognize that employees will be more productive when they are not distracted by other non-work needs, and thus it is in a company‘s best interest to make employee lives as simple as possible. Ethically, it‘s the human thing to do, and economically, it makes sense in the long run. AACSB: Ethics

Chapter 04 Managing in the Global Environment

BE THE MANAGER Notes for Be the Manager (Note to instructor: Below are some suggestions. Student responses will vary.)

1. What are you going to do to address this issue? You might meet with Susan to determine what kinds of problems she is aware of. To act without more information might create problems where none exist. If there is a problem, consider contacting the human resources department for their advice and/or participation in responding to it, especially if it involves an actionable offense such as sexual harassment. You may also engage in ―management by walking around‖ to observe how workers interact with each other. You should not make a big deal of the visits, but they must occur with enough frequency to observe what is going on in formal work settings as well as in informal social settings. Gradually, your subordinates will become more comfortable with you, allowing you to observe behaviors that may be unapparent on the surface. You should encourage all subordinates to let you know about any problems they are experiencing. AACSB: Reflective Thinking

Chapter 04 Managing in the Global Environment

CASE IN THE NEWS Case Synopsis: How Nike Keeps Score on Diversity Community members, customers, and investors are interested in what companies are doing to promote diversity and equality in the workplace. In early 2021, Nike announced five-year DEI (diversity, equity, and inclusion) goals aimed at opportunities for women and people of color. Globally, the company aims for females to represent 50% of its corporate workforce and 45% of executive positions (vice president and higher) by 2025. For its U.S. workforce, the company also set a target of 35% racial and ethnic minorities. In addition to setting goals, Nike is one of the few companies that tie DEI goals to executive compensation. At Nike, a portion of executives‘ long-term bonuses are tied to meeting the five-year diversity targets. The percentage of total compensation is small, but it can amount to a six- or sevenfigure pay cut if the targets aren‘t met. In this way, said CEO John Donahoe, Nike redefined ―what responsible leadership looks like.‖ Initiatives to reach its DE&I goals include funding historically Black colleges and universities and

schools serving major Hispanic student populations, partnering with Serena Williams on an apprenticeship program for young designers, supporting organizations with missions to enable women and people of color to participate more fully in the workforce and contributed to National Urban League Programs. Nike credits its DEI efforts and culture of innovation with contributing to continued growth despite the COVID-19 pandemic. CEO Donahoe acknowledges that Nike is not perfect but insists the company is committed to continuous improvement, as expressed in its slogan ―There is no finish line.‖ 1. How have stockholders influenced Nike‘s approach to diversity, equity, and inclusion? According to the case, stockholders have submitted a resolution that Nike publish an annual report of progress on DEI measures. These stockholders pointed to past complaints of discrimination and harassment. Backers of the initiative said the company‘s previous reports omitted key information, such as data on hiring, retention, and promotion, but the initiative was defeated.

2. What ethical principles support having a goal of maintaining pay equity? What other measures of equity should Nike managers consider? The four ethical rules or principles used to analyze the effects of business decisions on stakeholders are: the utilitarian, moral rights, justice, and practical rules. According to the utilitarian rule, which is an ethical decision that produces the greatest good for the greatest number of people, maintaining pay equity would be good for all employees. While it might not be beneficial for stockholders cost-wise, in the long run, fairness would reduce turnover and satisfy employees and customers. Under the moral rights rule, which results in a decision that best maintains and protects the fundamental or inalienable rights and

Chapter 04 Managing in the Global Environment privileges of the people affected by it, the rights of all to a fair wage are upheld. Under the justice rule, which states that an ethical decision distributes benefits and harms among people and groups in a fair, equitable, or impartial way, all would be treated fairly. Finally, under the practical rule, which is an ethical decision that a manager has no reluctance about communicating to people outside the company because the typical person in a society would think it is acceptable, managers and the company could be proud of their company‘s wage equity.

3. Do you think Nike benefits from measuring DEI performance and adjusting executives‘ compensation accordingly? Why or why not? As mentioned in the case, customers, employees, and investors are paying attention to Nike‘s measures of DEI performance and can be influenced by them, so yes, Nike benefits from measuring DEI performance. Executive compensation adjustments ensure that employees at the top take the initiatives seriously and model ethical DEI principles to all.

Chapter 04 Managing in the Global Environment

IN-CLASS ACTIVITY Create PowerPoint slides or overheads with the three Ethical Dilemma questions (Building Management Skills, Dealing with Ethical Dilemmas), and yes or no options. See below. You are planning to leave your job to go work for a competitor. Your boss invites you to an important meeting where you will learn about new products your company will be bringing out next year. Do you go to the meeting? A. Yes B. No You‘re the manager of sales in an expensive sports car dealership. A young executive who has just received a promotion comes in and wants to buy a car that you know is out of her price range. Do you encourage the executive to buy it so you can receive a big commission on the sale? A. Yes B. No You sign a contract to manage a young rock band, and that group agrees to let you produce their next seven records, for which they will receive royalties of 5%. Their first record is a smash hit and sells millions. Do you increase their royalty rate on future records? A. Yes B. No For each question, ask students to think about their answer, then discuss in a small group (with their neighbors), then vote via remote polling device (a clicker) or show of hands. Ask the ―yes‖ answers to defend their choice. Then ask the ―no‖ answers to defend their choice. You can also repeat the question to see if the discussion yielded a shift in student opinion. Repeat for every question.

Chapter 04 Managing in the Global Environment

CONNECT For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect Case Analysis

   

Is It Right to Use Child Labor? Making Ethical Decisions. Sexual Harassment Preventing Sexual Orientation Discrimination

Manager’s Hot Seat (MHS)

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Ethics: Let‘s Make a Fourth Quarter Deal Whistleblowing: Code Red or Red Ink? Is Sybil‘s Ethics Sheet in Balance? To Serve and Protect…and Discriminate?

Worksheets

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Illegal or Unethical? (Click and Drag) Stakeholder Concerns (Click and Drag) The Effective Management of Diversity (Click and Drag)

Self-Assessments and Role Play (See Application-Based Activities within Connect)

   

Role-Play: Ethical Approaches: Prescribing an Ethical Approach Self-Assessment: Corporate Social Responsibility and Human Resource Management Self-Assessment: Do You Appreciate and Value Diversity? Self-Assessment: Performance Appraisal Characteristics Questionnaire

Chapter 04 Managing in the Global Environment

POWERPOINT SLIDES These PowerPoint slides can be used to supplement the lecture material. SLIDE 1 Chapter Title SLIDE 2 Learning Objectives SLIDE 3 The Nature of Ethics: Ethical Dilemma SLIDE 4 The Nature of Ethics: Ethics SLIDE 5 The Nature of Ethics: Ethics and the Law SLIDE 6 Stockholders and Ethics SLIDE 7 Types of Company Stakeholders (Figure 3.1) SLIDE 8 Stockholders SLIDE 9 Managers SLIDE 10 Topics for Discussion: Ethics and Ethical Standards SLIDE 11 Employees SLIDE 12 Suppliers and Distributors SLIDE 13 Customers SLIDE 14 Community, Society, and Nations SLIDE 15 Four Ethical Rules SLIDE 16 Practical Rule SLIDE 17 Why Should Managers Behave Ethically? 1 SLIDE 18 Some Effects of Ethical/Unethical Behavior SLIDE 19 Why Should Managers Behave Ethically 2 SLIDE 20 Sources of an Organization‘s Code of Ethics SLIDE 21 Ethical Organizational Cultures 1 SLIDE 22 Topics for Discussion: Organizational Culture SLIDE 23 Ethical Organizational Cultures 2 SLIDE 24 The Increasing Diversity of the Workforce and the Environment SLIDE 25 Diversity Concerns SLIDE 26 Diversity Concerns: Glass Ceiling SLIDE 27 Sources of Diversity in the Workplace SLIDE 28 Workforce Diversity: Age SLIDE 29 Workforce Diversity: Gender SLIDE 30 Workforce Diversity: Race and Ethnicity SLIDE 31 Workforce Diversity: Religion SLIDE 32 Workforce Diversity: Capabilities and Disabilities SLIDE 33 Topics for Discussion: Capabilities and Disabilities

Chapter 04 Managing in the Global Environment SLIDE 34 Workforce Diversity: Socioeconomic Background SLIDE 35 Topics for Discussion: Sexual Orientation SLIDE 36 Some Major Equal Employment Opportunity Laws Management SLIDE 37 Topics for Discussion: Sexual Orientation SLIDE 38 Critical Managerial Roles SLIDE 39 Effectively Managing Diversity Makes Good Business Sense SLIDE 40 Managerial Roles and the Effective Management of Diversity SLIDE 41 Forms of Sexual Harassment: Quid Pro Quo SLIDE 42 Forms of Sexual Harassment: Hostile Work Environment SLIDE 43 Steps to Eradicate Sexual Harassment SLIDE 44 Be the Manager

Chapter 04 Managing in the Global Environment CHAPTER CONTENTS Learning Objectives

4-2

Key Definitions/Terms

4-3

Chapter Overview

4-5

Lecture Outline

4-6

Lecture Enhancers

4-16

Management in Action

4-19

Building Management Skills

4-23

Managing Ethically

4-25

Be the Manager

4-26

Case in the News

4-27 4-85

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In-Class Activity

4-29

Connect Features

4-30

PowerPoint Slides

4-31

Chapter 04 Managing in the Global Environment

LEARNING OBJECTIVES LO 4-1: Explain why the ability to perceive, interpret, and respond appropriately to the global environment is crucial for managerial success. LO 4-2: Differentiate between the global task and global general environments. LO 4-3: Identify the main forces in both the global task and general environments and describe the challenges that each force presents to managers. LO 4-4: Explain why the global environment is becoming more open and competitive and identify the forces behind the process of globalization that increase the opportunities, complexities, challenges, and threats that managers face. LO 4-5: Discuss why national cultures differ and why it is important that managers be sensitive to the effects of falling trade barriers and regional trade associations on the political and social systems of nations around the world.

Chapter 04 Managing in the Global Environment

KEY DEFINITIONS/TERMS

achievement orientation: A worldview that values assertiveness, performance, success, and competition.

general environment: The wide-ranging global, economic, technological, socio-cultural, demographic, political, and legal forces that affect an organization and its task environment.

barriers to entry: Factors that make it difficult and costly for an organization to enter a particular task environment or industry.

global environment: The set of global forces and conditions that operate beyond an organization‘s boundaries but affect a manager‘s ability to acquire and utilize resources.

brand loyalty: Customers‘ preference for the products of organizations currently existing in the task environment.

globalization: The set of specific and general forces that work together to integrate and connect economic, political, and social systems across countries, cultures, or geographical regions so that nations become increasingly interdependent and similar.

collectivism: A worldview that values subordination of the individual to the goals of the group and adherence to the principle that people should be judged by their contribution to the group. competitors: Organizations that produce goods and services that are similar to a particular organization‘s goods and services.

global organization: An organization that operates and competes in more than one country.

customers: Individuals and groups that buy the goods and services an organization produces.

global outsourcing: The purchase or production of inputs or final products from overseas suppliers to lower costs and improve product quality or design.

demographic forces: Outcomes of changes in, or changing attitudes toward, the characteristics of a population, such as age, gender, ethnic origin, race, sexual orientation, and social class.

individualism: A worldview that values individual freedom and self-expression and adherence to the principle that people should be judged by their individual achievements rather than by their social background.

distributors: Organizations that help other organizations sell their goods or services to customers.

long-term orientation: A worldview that values thrift and persistence in achieving goals.

economic forces: Interest rates, inflation, unemployment, economic growth, and other factors that affect the general health and well-being of a nation or the regional economy of an organization.

mores: Norms that are considered to be central to the functioning of society and to social life. national culture: The set of values that a society considers important and the norms of behavior that are approved or sanctioned in that society.

economies of scale: Cost advantages associated with large operations.

norms: Unwritten, informal codes of conduct that prescribe how people should act in particular situations and are considered important by most members of a group or organization.

free-trade doctrine: The idea that if each country specializes in the production of the goods and services that it can produce most efficiently, this will make the best use of global resources. folkways: The routine social conventions of everyday life.

Chapter 04 Managing in the Global Environment nurturing orientation: A worldview that values the quality of life, warm personal friendships, and services and care for the weak.

suppliers: Individuals and organizations that provide an organization with the input resources that it needs to produce goods and services.

political and legal forces: Outcomes of changes in laws and regulations, such as deregulation of industries, privatization of organizations, and increased emphasis on environmental protection.

tariff: A tax that a government imposes on imported or, occasionally, exported goods. task environment: The set of forces and conditions that originate with suppliers, distributors, customers, and competitors and affect an organization‘s ability to obtain inputs and dispose of its outputs because they influence managers daily.

potential competitors: Organizations that presently are not in a task environment but could enter if they so choose. power distance: The degree to which societies accept the idea that inequalities in the power and well-being of their citizens are due to differences in individuals‘ physical and intellectual capabilities and heritage.

technology: The combination of skills and equipment that managers use in the designing, producing, and distributing goods and services. technological forces: Outcomes of changes in the technology managers use to design, produce, or distribute goods and services.

short-term orientation: A worldview that values personal stability or happiness and living for the present.

uncertainty avoidance: The degree to which societies are willing to tolerate uncertainty and risk.

social structure: The traditional system of relationships established between people and groups in a society.

values: Ideas about what a society believes to be good, right, desirable, or beautiful.

sociocultural forces: Pressures emanating from the social structure of a country or society or from the national culture.

Chapter 04 Managing in the Global Environment

CHAPTER OVERVIEW This chapter examines the organizations operating in a global environment. It identifies and examines the changing environmental forces in both the global task and general environments that managers must learn to understand. The chapter also discusses the impact on organizations and managers as companies compete for increased efficiency and effectiveness. It identifies the forces behind the process of globalization. It concludes with the discussion on national cultures and the effects of falling trade barriers and regional trade associations.

Chapter 04 Managing in the Global Environment

LECTURE OUTLINE NOTE ABOUT POWERPOINT SLIDES The PowerPoint Slides include most chapter content, along with additional material that can be used to expand the lecture. A list of the PowerPoint slides can be found at the end of this chapter.

Management Snapshot BMW’s Outsize Role in the United States and China What Opportunities and Challenges Can Managers Find in Going Global? German-based automobile company BMW is the largest U.S. automotive exporter by value, and has been for the eighth year in a row. The top destination for BMW‘s U.S. exports was China (BMW‘s largest market globally), which received almost 25% of the total, followed by Germany, South Korea, Canada, Great Britain, and more than a hundred other countries. Most of those vehicles were made by the 11,000 people working at BMW‘s plant in Spartanburg, South Carolina. At the headquarters in Munich, BMW Group identifies Spartanburg as its ―center of competence‖ for its X line of vehicles, including the BMW X3 and X5, Motorsport X models, and plug-in hybrid electric X models. The company hires and trains with the goal of staffing the facility with world-class talent. In 2021, despite disruptions in the market for auto parts and components, Spartanburg set a production record of almost 434,000 vehicles. China accounts for over 40% of BMW‘s growth and the company plans to take full control of its joint venture manufacturing facility in China in 2022. This gives BMW Group‘s leadership more control over the business and is expected to enhance its earnings. BMW Group serves the international demand for vehicles as a German company with a global outlook, operations in several countries, and sales made locally. The company has built its success on superior engineering and premium product quality, so it establishes standard processes and structures, which it applies across its production network of 31 facilities located in 15 countries. The production network employs the latest in manufacturing technologies, including artificial intelligence, 3D printing, virtual reality, and the Internet of Things. BMW also has a global sales network operating in more than 140 countries.

Chapter 04 Managing in the Global Environment

I. What Is the Global Environment? LO 4-1: Explain why the ability to perceive, interpret and respond appropriately to the global environment is crucial for managerial success. A. The global environment is a set of forces and conditions in the world outside an organization‘s boundary that affect how it operates and shape its behavior. These forces change over time and thus present managers with opportunities and threats. B. To identify opportunities or threats caused by forces in the environment, it is helpful for managers to distinguish between the task environment and the more encompassing general environment. 1. The task environment is the set of forces and conditions that originate with global suppliers, customers, distributors, and competitors, and affect an organization‘s ability to obtain inputs and dispose of its outputs because they influence managers daily. 2. The general environment includes the wide-ranging global, economic, technological, socio-cultural, demographic, political and legal forces that affect the organization and its task environment. TEXT REFERENCE

Ethics in Action Levi Strauss Motivates Global Suppliers to Treat Workers Well Levi Strauss began sourcing work from low-wage countries in the 1990s and countered fears of worker mistreatment with the creation of a code of conduct that all suppliers had to follow. Though this approach became the industry norm, CEO Chip Bergh sought lasting change, which required a shift in managerial attitudes. To create a shift in attitudes, Levi launched an initiative called ―Worker Well-Being.‖ Its goal is to improve the experience of workers at Levi‘s suppliers, leading to greater efficiency and reliability, thereby creating a stronger supply network. Caring for workers‘ interests thus generates a win for all. Levi partnered with Harvard Center for Health and the Global Environment to develop specific goals for the initiative. In the first five years, Levi‘s rolled out the program to facilities in 12 countries with 100,000 workers. In Egypt, health education reduced absenteeism and turnover among female employees, and in Turkey, changes to the work schedule did the same. Levi‘s set a timetable for the program to cover the factories producing 80% of its products by 2020 and to cover all suppliers‘ workers by 2025.

II. The Task Environment LO 4-2: Differentiate between the global task and global general environments.

Chapter 04 Managing in the Global Environment A. Suppliers are the individuals and organizations that provide the input resources needed by an organization in order to produce goods and services. In exchange for providing an organization with inputs, the supplier is compensated. 1. Changes in the nature, numbers, or types of suppliers produce opportunities and threats to which managers must respond. Depending upon these factors, a supplier‘s bargaining position may be either strong or weak. 2. At a global level, managers have the opportunity to buy products from foreign suppliers or to become their own suppliers and manufacture their own products abroad. It is important that managers recognize the opportunities and threats associated with managing their global supply chain. 3. Although the purchasing activities of global companies have become increasing complicated as a result of the development of skills and competencies in different countries around the world, advances in technology and the Internet often ease the process of coordinating complicated international transactions. 4. Most large global companies utilize global outsourcing, which is the process of purchasing or producing inputs or final products from overseas suppliers to lower costs and improve product quality or design. B. Distributors are organizations that help other organizations sell their goods or services to customers. The changing nature of distributors and distribution methods can create opportunities or threats for managers. The power of a distributor may be strengthened or weakened depending upon its size and the number of distribution options available. C. Customers are individuals and groups that buy goods and services an organization produces. An organization‘s success depends on its ability to respond to the needs of its customers. Changes in the number and types of customers or in customers‘ tastes and needs can result in opportunities or threats for managers. The most obvious opportunity associated with expanding into the global environment is the prospect of selling goods and services to new customers. D. Competitors are organizations that produce goods and services that are similar to a particular organization‘s goods and services. In other words, competitors are organizations trying to attract the same customers. Potential competitors are the organizations that are not at present in a task environment but could enter if they so choose. 1. The potential of new competitors entering an industry is a function of that industry‘s barriers to entry. Barriers to entry are factors that make it difficult and costly for an organization to enter a particular task environment or industry. The greater the barriers to entry, the smaller the number of competitors.

Chapter 04 Managing in the Global Environment 2. Barriers to entry result from three sources: economies of scale, brand loyalty, and government regulations. a. Economies of scale are the cost advantages associated with large operations. They may result from manufacturing products in large quantities, buying inputs in bulk, or by fully utilizing the skills and knowledge of employees. b. Brand loyalty is a customers‘ preference for the products of organizations currently in the task environment. If established organizations enjoy significant brand loyalty, a new entrant will find it difficult and costly to obtain a market share. c. At the national and global level, administrative barriers are government policies that create barriers to entry and limit the imports of goods by overseas companies.

III. The General Environment LO 4-3: Identify the main forces in both the global task and general environments and describe the challenges that each force presents to managers. An organization‘s general environment can have profound effects upon its task environment which may not be evident to managers. Therefore, managers must constantly analyze forces in the general environment because these forces affect ongoing planning and decision-making.

A. Economic forces, such as interest rates, inflation, unemployment, and economic growth, affect the general health and well-being of a nation or the regional economy of an organization. Economic forces produce many opportunities and threats for managers. 1. Strong macroeconomic conditions, such as low levels of unemployment and falling interest rates, often create opportunities for organizations to flourish. 2. Worsening macroeconomic conditions, such as recession or rising inflation rates, often pose a threat to organizations because they limit management‘s ability to gain access to the resources they need to survive and prosper. B. Technological forces: Technology is the combination of skills and equipment that managers use in the design, production, and distribution of goods and services. Technological forces are the outcomes of changes in the technology that managers use to design, produce, or distribute goods and services and can have profound implications for managers and organizations. 1. Technological change can create a threat to organizations by making established products obsolete. It can also create a host of opportunities for the development of new products or processes.

Chapter 04 Managing in the Global Environment 2. Changes in technology are also changing the very nature of work itself. Telecommuting, videoconferencing, and collaborative software programs let managers supervise and coordinate geographically dispersed employees. C. Sociocultural forces are pressures emanating from the social structure of a country or society or from the national culture. Social structure is the traditional system of relationships between individuals and groups within a society. National culture is the set of values that a society considers important and the norms of behavior that are approved or sanctioned in that society. 1. Social structure and national culture not only differ across societies but also change within societies over time. 2. Individual managers and organizations must be responsive to changes in, and differences among, the social structures and national cultures of all the countries in which they operate. D. Demographic forces are outcomes of changes in, or changing attitudes toward, the characteristics of a population, such as age, gender, ethnic origin, race, sexual orientation, and social class. 1. Demographic forces present managers with opportunities and threats and can have major implications for organizations. For example, most industrialized nations are experiencing the aging of their populations as a consequence of falling birth and death rates and the aging of the baby boom generation. This demographic change has led to increasing opportunities for organizations that cater to older people. 2. The aging of the population also has several implications for the workplace, such as the relative decline in the number of young people joining the workforce and the willingness of older employees to postpone retirement beyond the age of 65. E. Political and legal forces are outcomes of changes in laws and regulations resulting from political and legal developments within a nation, world region, or across the world. 1. A nation‘s political processes shape laws that constrain the operations of organizations and managers, thereby creating both opportunities and threats. For example, there has been a movement toward deregulation and privatization of organizations formerly owned or controlled by the state. 2. The increasing political integration around the world that has been taking place during the past decades is another important political and legal force affecting managers. The growth of the EU is an example. The fall in legal trade barriers can create both opportunities and threats. TEXT REFERENCE

Chapter 04 Managing in the Global Environment Managing Globally When Growth Becomes a Problem In 2020, when the COVID-19 pandemic arrived in the United States, a chief economic worry was that lockdowns and physical distancing would trigger massive layoffs and widespread business failures, leading to a recession. However, businesses were more agile and resilient than feared, and the federal government provided support that helped households and companies stay afloat. While economic wellbeing was out of reach for some, the overall U.S. economy quickly bounced back, and spending soared— but not always through the same channels. Many consumers made more of their purchases online or shifted from entertainment to home goods or from travel to electronics in their buying decisions. These sudden changes led to major headaches for companies with global networks of suppliers and distributors. U.S. ports, many of which have not been expanded or upgraded in years, experienced backups of ships bringing in parts and products from Asia. Companies had to revise their production practices to deal with the sudden changes and shortages. For companies trying to cope with a supply shortage and demand surge, the options are limited. Production of semiconductors is already near capacity. Building new capacity to fabricate semiconductors, mine nickel, or process lithium can take months or years and requires a major investment. To accelerate access to the goods and technology, General Motors and other U.S. companies are forming partnerships or acquiring businesses overseas. Manufacturers, construction businesses, and distributors are also coping in the short term by purchasing whenever they can, which typically involves higher prices and greater storage costs.

IV. The Changing Global Environment LO 4-4: Explain why the global environment is becoming more open and competitive and identify the forces behind the process of globalization that increase the opportunities, complexities, challenges, and threats that managers face. Managers need to recognize that their organizations exist and compete in a global environment. Managers view today‘s global environment as open. In an open environment, global companies are free to trade in whatever nations they choose. A. The Process of Globalization: Globalization is the set of specific and general forces that

work together to integrate and connect economic, political, and social systems across countries, cultures, or geographical regions. 1. The result of globalization is that nations and people become increasingly interdependent because the same forces affect them in similar ways. 2. The path of globalization is shaped by the ebb and flow of capital, that is, valuable wealth-generating assets or resources that people move through companies, countries, and world regions to seek their greatest profits. The four forms of capital that flow between countries are: a. human capital: the flow of people around the world through immigration, migration, and emigration.

Chapter 04 Managing in the Global Environment b. financial capital: the flow of money across world markets through overseas investment, credit, lending, and aid. c. resource capital: the flow of natural resources, parts, and components between companies and countries, such as metal, minerals, lumber, energy, food products, microprocessors, and auto parts. d. political capital: the flow of power and influence around the world using diplomacy, persuasion, aggression, and armed forces to protect right or access of a nation, world region, or political bloc to the other forms of capital. B. Declining Barriers to Trade and Investment: During the 1920s and 1930s, many

countries erected barriers to international trade called tariffs, taxes that a government imposes on imported goods or, occasionally exported goods. 1. The aim of import tariffs is to protect domestic industries and jobs from foreign competition. 2. The reason for removing tariffs is that, very often, when one country imposes an import tariff, others follow suit and the result is a series of retaliatory moves as countries progressively raise tariff barriers against each other. 3. GATT and the Rise of Free Trade a. The free trade doctrine predicts that if each country agrees to specialize in the production of the goods and services that it can produce most efficiently, this will make the best use of global resources and result in lower prices. b. Historically, countries that accept the free-trade doctrine set as their goal the removal of barriers to allow free flow of goods between countries. They attempted to achieve this through an international treaty known as the General Agreement on Tariffs and Trade (GATT). c. GATT has been replaced by the World Trade Organization (WTO), which continues the struggle to reduce tariffs. It has more power to sanction countries that break global agreements. C. Declining Barriers of Distance and Culture: In the past, barriers of distance and culture

were major contributors to a closed global environment. However, advances in communication and transportation technology have reduced these barriers. 1. Satellites, digital technology, the Internet, global computer networks, and video teleconferencing have revolutionized global communications over the past 30 years. As a result, reliable, secure, and instantaneous communication is now possible in nearly any part of the world.

Chapter 04 Managing in the Global Environment 2. Innovations in transportation technology have opened the global environment. The growth of commercial jet travel has reduced the time it takes to reach any location. 3. The Internet and its millions of websites facilitate the development of global communications networks and media that have helped to create a worldwide culture above and beyond unique national cultures. Also, television networks such as CNN, BBC, HBO, ESPN, and MTV can be received in many foreign nations, and Hollywood films are streamed via the Internet throughout the world. D. Effects of Free Trade on Managers: The lowering of barriers to trade and investment

and the decline of distance and culture barriers have created enormous opportunities for organizations to expand the market for their goods and services through exports and investments in foreign countries. The manager‘s job is more challenging in a dynamic global environment because of the increased intensity of competition that comes with lowering of barriers to trade and investment. 1. Regional Trade Agreements: The growth of regional trade agreements such as NAFTA and CAFTA also presents opportunities and threats for managers and their organizations. 2. NAFTA (the North American Free Trade Agreement), which became effective in 1994, had the aim of abolishing tariffs on all goods and services traded between Mexico, Canada and the U.S. by 2004. Although it has not achieved this lofty goal, NAFTA has removed most barriers on the cross-border flow of resources. a. The establishment of free trade areas creates an opportunity for manufacturing organizations because it allows them to reduce their costs. However, some managers might see free trade agreements as a threat because they expose a company to increased competition. b. There are many regional trade agreements around the world, including the African Union and the Cooperation Council for the Arab States of the Gulf. 3. Negotiating teams from the United States, Mexico, and Canada worked through more than seven rounds of meetings to renegotiate and modernize NAFTA. The new agreement—the United States–Mexico–Canada Agreement (USMCA), ratified by all three countries, went into effect in July 2020. USMCA includes: a. major changes to car manufacturing rules, b. new policies on labor and environmental standards, c. intellectual property and digital trade protections, d. increased access to the Canadian dairy market by U.S. farmers. 4-98 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 Managing in the Global Environment

V. The Role of National Culture LO 4-5: Discuss why national cultures differ and why it is important that managers be sensitive to the effects of falling trade barriers and regional trade associations on the political and social systems of nations around the world. A. Cultural Values and Norms: Despite evidence that countries are becoming similar to one another and that the world is on the verge of becoming ―a global village,‖ significant cultural differences still exist between nations. 1. National culture includes the set of values, norms, knowledge, beliefs, moral principles, laws, customs, and other practices that unite the citizens of a country. National culture shapes individual behavior by specifying appropriate and inappropriate behavior and interaction with others. 2. Values are ideas about what a society believes to be good, right, desirable, or beautiful. They are deeply embedded in society, change over time, and any change is likely to be slow and painful. 3. Norms are unwritten social rules and codes of conduct that prescribe appropriate behavior in particular situations and are considered important by most members of a group or organization. They shape the behavior of people toward one another. Two types of norms play a role in national culture: folkways and mores. a. Mores are norms that are considered to be central to the functioning of society and to social life. The violation of them may result in serious punishment. There are many differences in mores from one society to another. In many societies mores have been enacted into law. b. Folkways are the routine social conventions of everyday life, such as good social manners, dressing appropriately, eating with the correct utensils, and behaving neighborly. Folkways define the way people are expected to behave, but violation of folkways is not a serious matter. B. Hofstede’s Model of National Culture: Geert Hofstede, a psychologist for IBM, collected data on values and norms from more than 100,000 IBM employees from 64 countries. He used this data to develop a model of national culture, which is widely accepted and used. 1. Individualism is a worldview that values individual freedom and self-expression and adherence to the principle that people should be judged by their individual achievements rather than their social background. 2. Collectivism values subordination of the individual to the goals of the group and adherence to the principle that people should be judged by their contribution to the group. 4-99 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 Managing in the Global Environment Collectivism was widespread in communist countries, but has become less prevalent since the collapse of communism in most of those nations. Japan is a noncommunist country where collectivism is highly valued. 3. By power distance, Hofstede meant the degree to which societies accept that inequalities in the power and wellbeing of their citizens are due to differences in individual‘s physical and intellectual capabilities and heritage. a. Societies in which inequalities are allowed to persist or grow have high power distance. Workers who are professionally successful amass wealth and pass it on to their children, resulting in inequalities that may grow over time. b. In societies with low power distance, large inequalities are not allowed to develop. The governments of these countries use taxation and social welfare programs to reduce inequality. 4. Societies that have an achievement orientation value assertiveness, performance, competition, success, and results. Societies that have a nurturing orientation value the quality of life, warm personal relationships, and services and care for the weak. Japan and the United States tend to be achievement oriented, while the Netherlands, Denmark, and Sweden are more nurturing oriented.

5. Societies as well as individuals differ in their tolerance for uncertainty and risk. Societies low on uncertainty avoidance, such as the U.S. and Hong Kong, are easygoing, value diversity, and tolerate differences in personal beliefs. Societies high on uncertainty avoidance, such as Japan and France, are more rigid and skeptical about people whose behaviors differ from the norm. 6. A national culture with a long-term orientation rests on values such as thrift and persistence in achieving goals, whereas a national culture with a short-term orientation is concerned with personal stability or happiness and living for the present. C. National Culture and Global Management: Differences among national cultures have important implications for managers. Because of cultural differences, management practices that are effective in one country might be troublesome in another.

1. Often, management practices must be tailored to suit the cultural contexts within which an organization operates. Managers doing business with individuals from another country must be sensitive to the value systems and norms of that country and behave accordingly. 2. A culturally diverse management team can be a source of strength for an organization participating in the global marketplace. Organizations that employ managers from a

Chapter 04 Managing in the Global Environment variety of cultural backgrounds are often better at appreciating the differences in national culture and tailoring their management systems and behaviors to those differences. TEXT REFERENCE

Manager as a Person Working in a Foreign Country? If you are ready to work abroad, how do you decide where? The annual Expat Explorer Survey could help you decide. The survey by HSBC Bank International ranks the best places in the world to be an expatriate worker. The results are available on the company‘s website. The HSBC site allows users to submit tips based on their expatriate experiences. For example, an expatriate provides a list of five tips on how to live in Japan. Other information on the site is more general. The HSBC survey ranks countries based on experience, economics, and raising children abroad. According to the survey, among the ―best‖ countries on the three factors are Switzerland, Australia, and New Zealand. The ―worst‖ countries on the three factors include United Kingdom, Italy, and Turkey. The United States ranked 36th out of 46 due to average scores in experience and family factors. Some of the top reasons individuals choose an expatriate experience include looking for a new challenge, improving the quality of life, trying to improve earnings, and finding purpose in a career. Despite some of the challenges encountered in foreign countries, most expats believe their work and life experiences overseas allow them to broaden their horizons, pursue new opportunities, and embrace different cultures.

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LECTURE ENHANCERS Lecturer Enhancer 4.1 THE CHALLENGE OF AN INTERNATIONAL ASSIGNMENT An expatriate is someone who lives and works outside of his or her native country. Although there have been some disagreements among researchers concerning the exact figures, it is safe to say that between five and twenty percent of American expatriates sent abroad by their companies will return to the United States before they have successfully completed their assignments. Of those who do complete their international assignments, about one-third are judged by their companies to be no better than marginally effective. Since the average cost of sending an employee on an international assignment can run between $500,000 and $3 million, failure in those assignments can be extraordinarily expensive. To shore up the productivity of their expatriates, companies should do more to relieve their fears about growing political tensions around the world. Expatriates who believe they are not getting enough information about health and safety issues have less peace of mind and feel less productive, according to respondents to the Global Expatriate Study conducted in 2003 by a business unit of CIGNA Corporation. Employees working on foreign soil want their companies to provide them with security bulletins, contingency plans, and emergency guidelines to keep them up to date about potentially adverse conditions. Only 20% of survey respondents said their companies were keeping them informed. Nearly 40% of survey respondents said they were prepared inadequately for an international assignment, 56% cited poor coordination between local-country and home-office HR departments, and 35% said that they expect to leave their current employer in five years. Pre-departure language and cross-cultural training can reduce the uncertainty that expatriates feel, the misunderstandings that take place between expatriates and natives, and the inappropriate behaviors that expatriates unknowingly commit when they travel to a foreign country. Although studies show that those receiving such training make faster adjustments to foreign cultures and perform better on their assignments, only one-third of expatriates receive it. Evidence also indicates that how well an expatriate‘s spouse and family adjust to the foreign culture is the most important factor in determining the success or failure of an international assignment. Language and cross-cultural training is very important for family members because, unlike expatriates, whose professional jobs often shield them from the full force of a country‘s culture, spouse and children are fully immersed in foreign neighborhoods and schools. Taken from "Expatriates Want More Support from Home" by Julie Britt, published in HR Magazine, July 2002 and Management by Chuck Williams, third edition, published by Thompson/Southwestern Publishing Company, pp. 267-8.

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Lecturer Enhancer 4.2 HOUSE CALLS FOR PETS Not every country values their pets as Americans do. And, in recent years, this societal norm has been changing—Americans are increasing the attention that they pay to their household pets. This, coupled with the aging of the population, has created a unique opportunity for one Virginia veterinarian. Veterinarian M. Christine Foster and her administrator, Michelle Ward, run Companion Paws, a mobile veterinary service. Pet owners can schedule appointments as early as 7:30 a.m. on some mornings and as late as 8 p.m. on most evenings. ―There are so many good standard practices in the area already… I wanted something that would serve a different need,‖ Foster said. Her town house doubles as home and a base for the mobile operation. Outside sits a 24-foot customized blue and white Companion Paws van. The mobile veterinary unit is equipped to provide services ranging from routine dental care and shots to surgery. There is even pharmacy, X-ray, and electrocardiogram equipment. Companion Paws is limited to small animals—mostly dogs and cats. Fees are comparable to those charged in regular veterinary offices, Foster said. There is a discount if Foster treats more than one animal during the same visit, and in some cases, neighbors have joined together to schedule appointments. On a typical day, Foster and Ward may visit a cat with ―behavior problems,‖ give an insulin injection to a diabetic cat whose owner is out of town, remove the sutures from a dog that recently had surgery, or give annual vaccinations. Foster, who worked at a Reston, Virginia veterinary clinic before striking out on her own, said that she always liked the idea of a house call practice but that until recently, the scope of such a service was too limited. Those limits were lifted when Foster‘s operation became the first mobile veterinary unit in Virginia to be licensed as a full-service unit, meaning, she can perform surgery on site. Many of Foster‘s patients belong to owners who are too busy to make regular visits to a veterinary office. Others are elderly or disabled pet owners for whom getting around is difficult, if not impossible. Some simply have too many animals to make office visits practical. One of Foster‘s clients, for example, has nine dogs and three cats. Foster said house calls also can benefit the animals, particularly those that are old or sickly. With a mobile service, pets can be cared for and pampered in the comfort of their own homes, she said. http://www.companionpaws.com/fame.htm accessed on Jan 1, 2010

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Lecturer Enhancer 4.3 IT’S ALL ABOUT THE GUANXI Business is based on relationships, and in the global marketplace relationships become more important, and more complicated. In China, doing business depends on building ―guanxi‖ or connections. Considerable time and effort must be invested in forming and nurturing these relationships, and it‘s difficult, if not impossible, to conduct business without having this guanxi. Real estate transactions, licenses and permits all depend on this foundation. Yet, today‘s guanxi is somewhat different from guanxi in the past. Before, it used to create access to logistical necessities and resources. Today, it‘s more about growth and education, especially with respect to strategy and expansion. Guanxi in China is not just about doing business in China, it‘s about relationships and connections in one‘s home country as well. (Source: https://www.forbes.com/sites/michaelcwenderoth/2018/05/16/how-a-betterunderstanding-of-guanxi-can-improve-your-business-in-china/?sh=67efb2d25d85, accessed on January 4, 2023.)

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MANAGEMENT IN ACTION Notes for Topics for Discussion and Action DISCUSSION

1. Why is it important for managers to understand the forces in the global environment that are affecting them and their organizations? The text defines an organization‘s environment as the forces outside of its boundaries that have the potential to affect the way it operates. These forces change over time and thus present managers with opportunities and threats. The organization‘s environment includes the task environment and the general environment (some theorists include the internal environment as another kind of environment.) The task environment consists of forces from suppliers, distributors, customers, and competitors. The general environment refers to the wider economic, technological, sociocultural, demographic, legal-political, and global forces. The general environment affects the way an organization operates. Managers must constantly analyze forces in the general environment because these forces affect long-term decision making and planning. Furthermore, these forces in an organization‘s general environment can have profound effects on an organization‘s task environment. It is important to understand the forces in the task environment because they have the ability to pressure and influence managers on an ongoing, daily basis and have a significant impact on short-term decision making. These forces affect an organization‘s ability to obtain inputs and dispose of its outputs, which is critical to the success of any organization. For example, it would be important for managers to understand the economic forces present in their general environment because they could affect their organization in both a positive and negative manner. Low levels of unemployment and falling interest rates provide opportunities for an organization. This could result in a change in their customer base since people have more money to spend on goods and services. A decline in the economy could result in a threat to the financial health of an organization. Declining economic conditions limit managers‘ ability to gain access to the resources their organizations need to survive. Furthermore, customers would have less money to spend on goods and services.

2. Which organization is likely to face the most complex task environment—a biotechnology company trying to develop a new cure for cancer or a large retailer like the Gap or Macy‘s? Why?

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A large retailer like the Gap or Macy‘s experiences a more complex task environment. Primarily two forces in the task environment exhibit this. First, competition is not a very strong force for a biotechnology company, while it is extremely strong for a retailer that must compete against hundreds, even thousands of other retailers. There might be other labs trying to develop a cure for cancer, but even if they do discover one first, there will still be plenty more work to do. Second, tastes and needs of customers for a cure of cancer do not change rapidly. The tastes of the customers of a retail store change each season of every year.

3. The population is aging because of a combination of declining birth rates, declining death rates, and the aging of the baby boom generation. What might some of the implications of this demographic trend be for (a) a pharmaceutical company, and (b) the home construction industry? The aging population is an example of a demographic force in an organization‘s general environment. The aging of the population has increased many opportunities for organizations that provide goods and services to the older population. The aging population will have a positive effect on the pharmaceutical industry. People are living longer due to advancements in the medical field in the form of cures for diseases and medications that alleviate the debilitating effects of old age. This results in a greater demand for prescription drugs and medical supplies, the output of the pharmaceutical industry. Furthermore, in order to effectively compete, pharmaceutical companies must spend a tremendous amount of money on research and development in order to remain competitive in their industry. The reward of inventing a much-needed medication is a patent that prevents other companies from producing that medication for seventeen years. Since they are the sole producers of the medicine, in response to the demand for the product, they have the capabilities to charge high prices since they have no competition. The home construction industry will see a change in the demands of their customers. Older customers who have already raised their families will be looking for homes and apartments with less square footage. They also require easier accessibility, such as single level, few steps, and buildings equipped with elevators. The older population has more time to spend on socializing. They will have more interest in amenities such as clubhouses and swimming pools.

4. How do political, legal, and economic forces shape national culture? What characteristics of national culture do you think have the most important effect on how successful a country is in doing business abroad? National cultures differ in many ways, and although we seem to be moving toward a more global culture, each country has a culture that is a unique mix of competing and complimentary forces. One force that seems pervasive to all aspects of a nation‘s culture is the political system that is in place. The global range of political systems ranges from communism to representative democracies, with many variations in between. Citizens may elect individuals to represent their interests, as they do in representative democracies, or have one single political party or individual that monopolizes political power, as is the 5-106 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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case in totalitarian regimes, and this can have major effects on the nation‘s culture. The political culture is important to managers trading with foreign countries because issues of economic freedom and legal representation can arise that may be more easily resolved in a democratic society. Also, ethics is a concern for managers dealing with some foreign countries, for example, totalitarian regimes that may not respect human rights. A country‘s economic system is determined by the force that drives the production of goods and services. A free market economy operates under the law of supply and demand, and production is in the hands of private enterprise. In a command economy, the government decides which goods and services are produced, the quantity in which they are produced, and the prices at which they are sold. A mixed economy combines characteristics of free market and command economies, with some government ownership and some free enterprise. The economic system that is in place has major ramifications for a nation‘s culture. Fewer restrictions to expansion to global markets make free market economies attractive. In democracies, services tend to be better because private enterprises must compete with each other for survival, in contrast to a state-run industry where there is no competition. Also, nations with free economies tend to have higher rates of economic growth and are more economically developed, so their citizens tend to have higher per capita incomes and more spending power. The degree to which a nation‘s populace can support itself and its families has great impact on a nation‘s culture.

5. After the passage of NAFTA, many U.S. companies shifted production operations to Mexico to take advantage of lower labor costs and lower standards for environmental and worker protection. As a result, they cut their costs and were better able to survive in an increasingly competitive global environment. Was their behavior ethical—that is, did the ends justify the means? The problem with the decision to shift production operations to low-wage countries, like Mexico, is that eventually the wages will increase due to increased demand for workers, and companies will be forced to again shift their production operations in pursuit of lower costs. In addition, American workers feel slighted, understandably, when plants close and layoffs occur due to these shifts. Increased competition to provide low-priced, quality goods and services is indeed an issue that managers must confront in a more open global environment, but there are other alternatives to shifting production to other countries. Organizations can avoid these hazards by building efficiency and effectiveness into their existing operations. Decisions involving decentralization of management and other cost-cutting measures can replace less ethical solutions. Also, lax standards in environmental and worker protection can often hurt the organization in terms of public relations and consumer image. Nike has recently come under attack for its operations in foreign countries, and Kathy Lee Gifford experienced similar attacks for the sweatshop conditions in the factories that produce her clothing line. These disadvantages, while perhaps not as easily discerned as effects on the bottom-line, need to be considered when an organization contemplates relocation of production operations.

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ACTION

6. Choose an organization, and ask a manager in that organization to list the number and strengths of forces in the organization‘s task environment. Ask the management to pay particular attention to identifying opportunities and threats that result from pressures and changes in customers, competitors, and suppliers. The text defines the task environment as consisting of forces from suppliers, distributors, customers, and competitors that pressure and influence managers on an ongoing, daily basis because they affect an organization‘s ability to obtain inputs and dispose of its outputs. Since suppliers provide input resources that the organization needs to produce goods and services, they are very critical to the success of the organization. Input resources include raw materials, component parts, employees, financing, and funding. Suppliers are a threat to an organization when they are in a strong bargaining position and are capable of determining the availability of the necessary input resources. This is especially evident when they are the sole producers of the input resources needed by the organization and/or the resources they provide are crucial to the organization. The presence of low-cost foreign suppliers provides both an opportunity and threat to an organization. They are an opportunity if the organization is able to purchase lower cost input resources from them, which could result in higher profits or competitive pricing for the organization. They are a threat to the organization if the organization‘s competitors take advantage of the lower cost suppliers while they do not or are not able to due to union contracts that prohibit the use of foreign suppliers. This could result in competitors providing the same goods and services at lower prices, resulting in a decline in sales for the organization that did not take advantage of lower cost foreign suppliers. Changes in the number and types of customers or changes in customers‘ tastes and needs result in opportunities and threats in the task environment. It is critical for an organization to identify the needs of their customers, the people who buy the goods and services that they produce, and respond to any changes in customer needs. If customers require a lower priced or higher quality product, it is essential for an organization to respond to this in order to keep their customers happy and continually buying their products. Competitors are other organizations that produce goods and services that are similar to a particular organization‘s goods and services. Since they are vying for the same customers, competitors are potentially the most threatening force that a manager must deal with. They provide a threat to organizations when they engage in price competition. If an organization is forced to lower its prices to compete with a competitor, this could result in lower profits, which limits their ability to access further resources in the future. Besides existing competitors, potential competitors also provide a threat in the task environment. Potential competitors are those organizations that are not presently in a task environment but could be if they chose to be. The fewer competitors in an organization‘s task environment, the lower the threat of competition. With fewer competitors, it is easier to obtain customers and keep prices high, which results in greater profits and success for the organization. AACSB: Analytic 5-109 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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BUILDING MANAGEMENT SKILLS Analyzing an Organization’s Environment (Note to Instructors: The answers to this exercise are based on a university, since this is an organization with which students are familiar.)

1. Describe the main forces in the global task environment that are affecting the organization. The main forces in the task environment that affect the university are its suppliers, customers and competitors. The faculty and staff of the university are its primary suppliers. They supply the necessary inputs that are needed in order to provide the service of a quality education to the customer (students). If the faculty and staff belong to a union, the university administration must negotiate a new contract every few years that is acceptable to both parties. Without faculty, the university would be unable to generate and deliver its product to its customers. If you are a student, you are the university‘s customer. The mission and purpose of this organization is to provide you with a high-quality education. As a customer, you determine if the services provided are worth your money. The university has designed its curriculum in an effort to satisfy you, the customer, and meet your needs. When you select your courses, you are creating a demand for them. If there were no demand for the product that your university provides, it would be forced to close its doors. Competition is an extremely powerful force in the task environment of a university. Students often choose among many competing colleges and universities. Therefore, the university must learn how to compete effectively within the marketplace of students by providing the most attractive bundle of services available. Today‘s students often make decisions amongst competitors based upon criteria, such as the availability of computer labs, class size, on-campus recruiting opportunities, and the percentage of students securing jobs upon graduation.

2. Describe the main forces in the global general environment that are affecting the organization. The university is affected by economic, technological, demographic, and legal-political forces. The economy is a very powerful force to the University. When the economy is in a downturn, universities face an increase in graduate enrollment but a decrease in undergraduate enrollment. When the economy is in an upturn, universities experience an increase in undergraduate enrollment and a decrease in graduate enrollment. Additionally, during an upturn, employment opportunities increase at the university level. Since a good deal of expenses (i.e., salaries and operating costs) are fixed for the university, when enrollment decreases they might experience financial difficulty.

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The technological force involves the need for the university to obtain and maintain advanced technology within their facilities. This involves updated computer systems as part of the administration of the university. An example would be on-line or telephone course registration. Advances in technology can provide a means of advertising and access to university resources. An example of this is found in the Internet and World Wide Web. A university that does not have its own web site or provide Internet access for its students is behind the times and is not keeping competitive in their industry. Professors of the university must keep current in their research and teach their students the latest skills, techniques and knowledge in order for them to be marketable upon graduation. If this is not provided then graduating students are at a disadvantage, which affects the university in a negative manner. The demographic environment is constantly changing. People of many different nationalities, races, religion and ages attend universities. In addition, students with physical and mental disabilities are now welcome (or should be) as part of the campus culture. An atmosphere of tolerance and acceptability is required in any organization, especially the university. Additional services and policies for those who speak different languages, celebrate different holidays, or require physical accommodation are needed and sometimes mandated. Furthermore, universities are filled with more non-traditional students than ever before. The nontraditional student includes those beginning or returning to their undergraduate education after the age of 25. These students have more responsibilities and commitments than younger students. They have families, full-time jobs, and mortgages to pay. To attract this increasing market of customers, universities need to provide more courses at night and on weekends along with more flexible programs to meet the needs of the non-traditional student. Since many universities receive funding from their respective states, the legal-political environment plays an important role in their general environment. In many states the state legislature determines how much money each university receives. This money is very important to the university and can even determine the salaries it pays to the professors (suppliers) and the tuition it charges the students (customers.) The university also relies on the state and city to fund capital projects such as building new classrooms, laboratories and athletic facilities.

3. Explain how these environmental forces affect the job of an individual manager within this organization. How do they determine the opportunities and threats that its managers must confront? Consider the dean of the business school as a manager in the university. An example of how environmental forces affect the dean‘s job is apparent if we look at customers, a force in the task environment. The changing number and needs of students, the customers, are a strong force that the manager must deal with. When enrollment increases, the manager must ensure that there are enough courses for the students to take and enough professors to teach those courses. Furthermore, if students are interested in international business (in response to the larger global environment that they will face in the future), then the dean must ensure that these courses are offered in order to remain competitive in the university environment. 5-111 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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AACSB: Analytic

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MANAGING ETHICALLY 1. What could Home Depot have done to avoid its mistake in China? (Note to Instructors: Student answers may vary. The answer given below is indicative.) Home Depot should have done more research into the cultural folkways of the Chinese. Folkways are the routine social conventions of everyday life. Part of everyday life for the Chinese involves hiring workers for home improvement projects and living in apartments. Both of these characteristics lessen the appeal of a store like Home Depot.

2. In what cultures might Home Depot find better success? (Note to Instructors: Student answers may vary. The answer given below is indicative.) Home Depot might find better success in cultures in which people often do their own home improvement and where people often use lumber to construct houses. AACSB: Ethics

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BE THE MANAGER Questions:

1. Analyze the major forces in the task environment of a retail clothing store. Retail clothing is by definition a representation of old and new. The old is represented by those consumers who do not care about the latest fashions and purchase the same styles they always have. The new are those who love to keep up with the latest fashions that they see on TV, in the movies, in magazines, or on friends. Both can be lucrative markets, but one must first analyze the environment. This includes the competition as well as the general social, economic, political and global trends. For example, Levi Strauss responded to Casual Fridays by marketing Dockers. Levi Strauss is a good example of a company that markets a standard brand with little change and is still in demand while also responding to changing trends such as relaxed fit for the expanding waists of Baby Boomers. Many catalog stores (L.L. Bean and Lands‘ End) have also developed websites that allow customers to shop from catalogs and order online.

2. Devise a program that will help other managers and employees to better understand and respond to their store's task environment. One approach would be to look at the websites of online retailers such as L.L. Bean and Lands‘ End. These could be used as training tools for employees and managers to see what the competition is offering. The company could appoint a group of employees and managers from various departments within the store to keep track of trends and to compare notes. This group could devise customer surveys, read trade journals, and observe the fashions of those working and those attending school. The group could visit one or more college campuses to gather information by observing students or conducting group interviews. The company could also solicit feedback from customers concerning customer satisfaction levels and merchandise suggestions using e-mail, phone surveys, or onsite questionnaires. AACSB: Analytic

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CASE IN THE NEWS Huawei’s Contentious but High-Potential Environment Huawei Technologies, based in China, is the world‘s largest maker of telecommunications equipment and second-largest maker of cell phones. It builds fifth-generation (5G) wireless networks for sharing information and controlling Internet-connected products such as self-driving vehicles and robot-operated factories. The U.S. federal government has cautioned that Huawei technology can invade privacy and has charged the company with stealing intellectual property from several U.S. companies. The United States alleges that Huawei‘s products would enable the company to fulfill requests from the Chinese government for information about users. This concern is based on a Chinese law requiring businesses and individuals to assist in intelligence gathering if requested to do so. If Huawei were to comply with such a request, China could obtain information about Internet use from Huawei‘s monitoring of networks using its equipment. This issue is not limited to the United States. In Africa, the Zambian telecommunications network was once found to be blocking certain websites, and its network allegedly included monitoring and blocking equipment from Huawei. Extending such capabilities to 5G would create potential to interfere with the operations of vehicles, power grids, and anything else connected to a network. The U.S. government and businesses have also accused Huawei of stealing intellectual property such as patents. A criminal filing charged Huawei employees in China with pressuring U.S. colleagues to share information about a competitor‘s robot used for testing mobile phones. A different Huawei competitor has filed lawsuits for theft of intellectual property. The United States, in addition to enforcing laws related to cybersecurity and intellectual property theft, has urged businesses and governments to avoid signing contracts with Huawei. Huawei‘s response to these threats has been firm. It denied charges of using its technology to spy and said it would sign sales agreements that ban spying. Although the ban on U.S. components poses a serious challenge because half of Huawei‘s microchips come from U.S. suppliers, the company anticipated the ban and built up an inventory of parts to use while it prepares a way forward. Meanwhile, Huawei is asking its product developers in China to work around the clock to write software and design components it can make there, instead of importing. Huawei‘s domestic political environment, within China, is more favorable. On the same day the U.S. government banned sales to Huawei, China‘s government announced it would waive taxes for two years on local software and microchip companies, which would give them an edge in replacing U.S. suppliers. China also is expected to back Huawei by making the easing of restrictions on the company a topic of trade negotiations with the United States. China‘s support has been present since Huawei‘s start as a maker of switches. An analysis of Huawei‘s financial history found that government support has totaled more than $75 billion in tax waivers, loans, lines of credit, grants, and discounts on land purchases. China‘s banking system, controlled by the state, has ensured that loans are at favorable rates. In this environment, Huawei has generated profit growth by offering a wide range of reliable, advanced products coupled with financing at favorable terms. In 5G, few competitors are as far along in the development of the technology. As of early 2022, Huawei had participated in the development of more than 15 countries‘ 5G networks and plans to work with more nations over the next several years. Low prices and financing are especially helpful for selling in high-growth developing markets such as Vietnam

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and Zambia. Huawei recently reported that its annual revenues fell by nearly 30% from the previous year, as it continued to be weighed down by U.S. sanctions that affected its cell phone sales. QUESTIONS

1. Briefly summarize the threats and opportunities you see for Huawei in its task environment. Consider suppliers, distributors, customers, and competitors, if applicable. For Huawei, opportunities in its task environment include favorable lending conditions, financial support from the Chinese government, a large workforce, and a large customer base. The company‘s competitors are all outside China and none have the same advantageous lending and taxation advantages. Threats include customers such as the United States, which is accusing Huawei of using its technology to spy on its citizens. It has therefore sued and sanctioned the company. It has also banned the purchase of technology containing Huawei components.

2. Briefly summarize the threats and opportunities you see for Huawei in its general environment. Consider economic, technological, sociocultural, demographic, and political/legal forces, if applicable. Forces in the global environment include the state of international trade and presence or absence of tariffs on products and components made in China. The global economy is a factor as they impact the market for high end products. Opportunities in their general environment include continuing economic support from the Chinese government. Global legal forces would be considered a threat as countries and competitors file lawsuits.

3. In Hofstede‘s model of national culture, China has been found to score relatively high on collectivism and very high on long-term orientation. In light of what this chapter says about these dimensions, how would you predict that Huawei‘s Chinese managers and employees would deal with their opportunities and challenges? China‘s collectivist culture and long-term orientation suggest that the company will work together with the government, employees will be loyal to the company and the company will use long-term strategies to counter their challenges and maximize opportunities. AACSB: Analytic

Chapter 05 Decision Making, Learning, and Creativity

IN-CLASS ACTIVITY For each question, ask students to think about their answer, then discuss in a small group (with their neighbors), then vote via remote polling device (a clicker) or show of hands. Ask the ―yes‖ answers to defend their choice. Then ask the ―no‖ answers to defend their choice. You can also repeat the question to see if the discussion yielded a shift in student opinion. Repeat for every question. Divide the class into small groups. Groups will make a 3- to 5-minute presentation on their findings. Give each group each a different country to research (the more varied the country culture, the more interesting the exercise). Presentations should include each country‘s: 

Culture and business norms



Gestures and societal rules



Where the country falls on Hofstede‘s 6 dimensions (as compared with the United States)



How U.S. businesses should approach business negotiations in the country.

Some potential research sources include:  http://www.travlang.com/  http://www.embassy.org AACSB: Analytic, Reflective thinking

Chapter 05 Decision Making, Learning, and Creativity

CONNECT For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect

Case Analysis 

Ikea on Top of the World

Manager’s Hot Seat (MHS)  

Globalization A Dose of Cross-Cultural Malpractice

Video Case 

Global Markets: Disney Imagineering

iSeeIt! Animated Video  

Global Expansion Globalization: Hofstede‘s Cultural Dimensions

Worksheets   

Hofstede‘s Model of National Culture (Click and Drag) Identify the Environment (Click and Drag) Competition and Barriers to Entry (Click and Drag)

Role-Playing (See Application-Based Activities within Connect) 

Global Management: Seeing Beneath the Surface

Chapter 05 Decision Making, Learning, and Creativity

POWERPOINT SLIDES These Instructor‘s PowerPoint slides can be used to supplement the lecture material. SLIDE 1 Chapter Title SLIDE 2 Learning Objectives: LO 4-1–LO 4-3 SLIDE 3 Learning Objectives: LO 4-4–LO 4-5 SLIDE 4 What is the Global Environment? SLIDE 5 Figure 4.1: Forces in the Global Environment SLIDE 6 Topics for Discussion: Managers in the Global Environment SLIDE 7 What is the Global Environment?: Task Environment SLIDE 8 What is the Global Environment?: General Environment SLIDE 9 The Task Environment: Suppliers SLIDE 10 Suppliers SLIDE 11 The Task Environment: Global Outsourcing SLIDE 12 The Task Environment: Distributors SLIDE 13 The Task Environment: Customers SLIDE 14 The Task Environment: Competitors and Potential Competitors SLIDE 15 The Task Environment: Barriers to Entry and Economies of Scale SLIDE 16 The Task Environment: Brand Loyalty and Government Regulation SLIDE 17 Figure 4.2: Barriers to Entry and Competition SLIDE 18 The General Environment: Economic Forces SLIDE 19 Topics for Discussion: National Culture SLIDE 20 The General Environment: Technology and Technological Forces SLIDE 21 The General Environment: Sociocultural Forces and Social Structure SLIDE 22 The General Environment: National Culture SLIDE 23 The General Environment: Demographic Forces SLIDE 24 Topics for Discussion: Demographics SLIDE 25 The General Environment: Political and Legal Forces SLIDE 26 The Changing Global Environment: The Process of Globalization SLIDE 27 Declining Barriers to Trade and Investment SLIDE 28 GATT and Rise of Free Trade SLIDE 29 Regional Trade Agreements SLIDE 30 The Role of National Culture: Values SLIDE 31 The Role of National Culture: Norms SLIDE 32 Hofstede‘s Model of National Culture: Individualism

Chapter 05 Decision Making, Learning, and Creativity SLIDE 33 Hofstede‘s Model of National Culture: Collectivism SLIDE 34 Hofstede‘s Model of National Culture: Power Distance SLIDE 35 Hofstede‘s Model of National Culture: Achievement and Nurturing Orientations SLIDE 36 Hofstede‘s Model of National Culture: Uncertainty Avoidance SLIDE 37 Hofstede‘s Model of National Culture: Long- and Short-Term Orientation SLIDE 38 The GLOBE Project SLIDE 39 National Culture and Global Management SLIDE 40 Be the Manager

Chapter 05 Decision Making, Learning, and Creativity CHAPTER CONTENTS Learning Objectives

5-2

Key Definitions/Terms

5-3

Chapter Overview

5-5

Lecture Outline

5-6

Lecture Enhancers

5-17

Management in Action

5-20

Building Management Skills

5-24

Managing Ethically

5-26

Be the Manager

5-27

Case in the News

5-27 5-120

Chapter 05 Decision Making, Learning, and Creativity

In-Class Activity

5-29

Connect Features

5-30

PowerPoint Slides

5-31

Chapter 05 Decision Making, Learning, and Creativity

LEARNING OBJECTIVES LO 5-1.

Understand the nature of managerial decision making, differentiate between programmed and nonprogrammed decisions, and explain why nonprogrammed decision making is a complex, uncertain process.

LO 5-2.

Describe the six steps that managers should take to make the best decisions.

LO 5-3.

Explain how cognitive biases can lead managers to make poor decisions.

LO 5-4.

Identify the advantages and disadvantages of group decision making, and describe techniques that can improve it.

LO 5-5.

Explain the role that organizational learning and creativity play in helping managers to improve their decisions.

Chapter 05 Decision Making, Learning, and Creativity

KEY DEFINITIONS/TERMS

administrative model: An approach to decision making that explains why decision making is inherently uncertain and risky and why managers usually make satisfactory rather than optimum decisions.

devil’s advocacy: Critical analysis of a preferred alternative, made in response to challenges raised by a group member who, playing the role of devil‘s advocate, defends unpopular or opposing alternatives for the sake of argument.

ambiguous information: Information that can be interpreted in multiple and often conflicting ways.

entrepreneur: An individual who notices opportunities and decides how to mobilize the resources necessary to produce new and improved goods and services.

bounded rationality: Cognitive limitations that constrain one‘s ability to interpret, process, and act on information.

entrepreneurship: The mobilization of resources to take advantage of an opportunity to provide customers with new or improved goods and services.

classical decision-making model: A prescriptive approach to decision making based on the assumption that the decision maker can identify and evaluate all possible alternatives and their consequences and rationally choose the most appropriate course of action.

escalating commitment: A source of cognitive bias that results from the tendency to commit additional resources to a project even if the evidence shows that the project is failing.

confirmation bias: A source of cognitive bias that results from the tendency to base decisions on one‘s existing beliefs even if evidence shows that those beliefs are wrong.

groupthink: A pattern of faulty and biased decision making that occurs in groups whose members strive for agreement among themselves at the expense of accurately assessing information relevant to a decision.

creativity: A decision maker‘s ability to discover original and novel ideas that lead to feasible alternative courses of action.

heuristics: Rules based on an individual‘s experience that simplify the process of decision making

delphi technique: A decision-making technique in which group members do not meet face-to-face but respond in writing to questions posed by the group leader.

illusion of control: A source of cognitive bias that results from the tendency to overestimate one‘s own ability to control activities and events. intrapreneur: A manager, scientist, or researcher who works inside an organization and notices opportunities to develop new or improved products and better ways to make them.

decision making: The process by which managers respond to opportunities and threats by analyzing options and making determinations about specific organizational goals and courses of action.

intuition: Feelings, beliefs, and hunches that come readily to mind, require little effort and information gathering, and result in on-the-spot decisions.

Chapter 05 Decision Making, Learning, and Creativity learning organization: An organization in which managers try to maximize the ability of individuals and groups to think and behave creatively and thus maximize the potential for organizational learning to take place.

reasoned judgment: A decision that requires time and effort and results from careful information gathering, generation of alternatives, and evaluation of alternatives. representativeness bias: A source of cognitive bias that results from the tendency to generalize inappropriately from a small sample or from a single vivid event or episode.

nominal group technique: A decision-making technique in which group members write down ideas and solutions, read their suggestions to the whole group, and discuss and then rank the alternatives.

risk: The degree of probability that the possible outcomes of a particular course of action will occur.

nonprogrammed decision making: Nonroutine decision making that occurs in response to unusual, unpredictable opportunities and threats.

satisficing: Searching for and choosing an acceptable, or satisfactory, response to problems and opportunities, rather than trying to make the best decision.

optimum decision: The most appropriate decision in light of what managers believe to be the most desirable future consequences for the organization.

skunkworks: A group of intrapreneurs who are deliberately separated from the normal operation of an organization to encourage them to devote all their attention to developing new products.

organizational learning: The process through which managers seek to improve employees‘ desire and ability to understand and manage the organization and its task environment.

social entrepreneur: An individual who pursues initiatives and opportunities and mobilizes resources to address social problems and needs in order to improve society and well-being through creative solutions.

product champion: A manager who takes ―ownership‖ of a project and provides the leadership and vision that take a product from the idea stage to the final customer. production blocking: A loss of productivity in brainstorming sessions due to the unstructured nature of brainstorming.

systematic errors: Errors that people make over and over again that result in poor decision making. uncertainty: Unpredictability.

programmed decision making: Routine, virtually automatic decision making that follows established rules or guidelines.

Chapter 06 Planning, Strategy, and Competitive Advantage

CHAPTER OVERVIEW In this chapter, we examine how managers make decisions and explore how individual, group, and organizational factors affect the quality of the decisions they make. We discuss the nature of managerial decision making and examine the models of the decision-making process that help reveal its complexities. The main steps of the decision-making process and the biases that may cause managers to make poor decisions are explored. Finally, how managers can promote organizational learning and creativity and improve the quality of decision making throughout an organization is explored.

Chapter 06 Planning, Strategy, and Competitive Advantage

LECTURE OUTLINE NOTE ABOUT POWERPOINT SLIDES The PowerPoint slides include chapter content along with additional material that can be used to expand the lecture. A list of the PowerPoint slides can be found at the end of this chapter.

Management Snapshot Karen Lynch’s Bold Decisions at CVS Health How Do Managers Make Decisions That Add Value? Karen Lynch, CEO of CVS Health, the fourth largest U.S. company with almost 10,000 stores, described herself as decisive in an interview with the New York Times, saying, ―When you make decisions as often as I do, you‘re going to make a bad call. You just have to readjust.‖ Lynch applies her decision making to corporate and organizational strategy. It has guided her in acquisitions such as Aetna, a health insurance company, to enable the company to add health care services. Lynch went into a health care-related field because of the early deaths of her mother and aunt, which taught her the importance of basic health care. She worked for several insurance companies, including Aetna, actively seeking profit and loss responsibility. When CVS acquired Aetna, it promoted Lynch to run that business. Her success during the COVID response by positioning the stores to become a community source for vaccines prompted the company to promote her to CEO when her predecessor retired.

I. The Nature of Managerial Decision Making LO 5-1: Understand the nature of managerial decision making, differentiate between programmed and nonprogrammed decisions, and explain why nonprogrammed decision making is a complex, uncertain process. A. Decision making is the process by which managers respond to opportunities and threats by analyzing the options and making determinations, or decisions about specific organizational goals and courses of action. 1. A good decision results in the selection of appropriate goals and courses of action that increase organizational performance. Bad decisions result in lower performance. 2. Decision making in response to opportunities occurs when managers search for ways to improve organizational performance. Decision making in response to threats occurs when events adversely affect organizational performance and managers search for ways to increase performance. 3. Decision making is central to being a manager, and whenever managers engage in planning, organizing, leading, and controlling, they are constantly making decisions.

Chapter 06 Planning, Strategy, and Competitive Advantage 4. Managers are always searching for ways to make better decisions in order to improve organizational performance. B. Programmed and Nonprogrammed Decision Making 1. Programmed decision making is a routine, virtually automatic process. These decisions have been made so many times in the past that managers have developed rules or guidelines to be applied when certain situations inevitably occur. 2. Most decision making that relates to the day-to-day running of an organization is programmed decision making. It occurs when managers have the information they need to create rules that will guide decision making. 3. Nonprogrammed decision making is required for non-routine decisions. Nonprogrammed decisions are decisions that are made in response to unusual or novel opportunities and threats. These occur when there are no ready-made decision rules that managers can apply to a situation. 4. To make decisions in the absence of decision rules, managers may rely upon their intuition or they may make reasoned judgments. When using intuition, managers rely upon feelings, beliefs, and hunches that come readily to mind, require little effort and information gathering, and result in on-the-spot decisions. Reasoned judgments are decisions that take time and effort and result from careful information gathering, generation of alternatives, and evaluation of alternatives. 5. Although ―exercising‖ one‘s judgment is a more rational process than ―going with‖ one‘s intuition, both processes are often flawed and can result in poor decision making. Thus, the likelihood of error is much greater in nonprogrammed decision making than in programmed decision making. 6. Sometimes managers have to make rapid decisions and don‘t have time to carefully consider the issues involved, while in other cases, they do have the time available to make reasoned judgments. C. The Classical Model 1. The classical model is prescriptive, that is, it specifies how decisions should be made. Managers using this model make a series of simplifying assumptions about the nature of the decision-making process. 2. The model‘s premise is that managers have access to all the information they need to make the optimum decision. It also assumes that managers can easily list and rank each alternative from least to most preferred to make the optimum decision. D. The Administrative Model 6-127 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 Planning, Strategy, and Competitive Advantage 1. The administrative model explains why decision making is always inherently risky and uncertain and why managers usually make satisfactory rather than optimum decisions. It is based upon three important concepts: bounded rationality, incomplete information, and satisficing. 2. Bounded rationality describes the situation in which the number of alternatives a manager must identify is so great and the amount of information so vast that it is difficult to evaluate. 3. Information is incomplete because in most cases, the full range of decision-making alternatives is unknown and the consequences associated with known alternatives are uncertain. In other words, information is incomplete because of risk and uncertainty, ambiguity, and time constraints. a. Risk is present when managers know the possible outcomes of a particular course of action and can assign probabilities to them. Uncertainty exists when the probabilities of alternative outcomes cannot be determined, and future outcomes are unknown. b. Much of the information managers have at their disposal is ambiguous information, which can be interpreted in multiple and often conflicting ways. c. Due to time constraints and information costs, managers are unable to search for all possible alternatives and evaluate all the potential consequences. 4. Due to the limitations mentioned above, managers do not attempt to discover every alternative in an attempt to reach the optimum decision. Instead, they search for and choose an acceptable or satisfactory response to problems from a limited sample of all potential alternatives. This strategy is called satisficing. TEXT REFERENCE Management Insight Making “Back to Work” Work at Molson Coors When Molson Coors sent office employees home in March 2020, executives already knew they would have to decide when to return, but the decision making would be more complex than expected. They hoped for a few months of remote work, followed by a return to focusing on the big challenges facing Molson, the world‘s fifth-largest brewing company. The planning to return finally began in early 2021. By then, employees were accustomed to remote work, which raised a new question: Must they be in the office five days a week? In surveys, employee forums, and virtual chats with CEO Gavin Hattersley, employees indicated they were eager to get back, but many said they liked the flexibility of working at home. Some had health concerns, and some worried about child care. To enable in-person collaboration, the executive team selected a schedule of three mandatory

Chapter 06 Planning, Strategy, and Competitive Advantage in-office days: Monday, Tuesday, and Thursday. Employees could choose where to work on the other two days. The team also selected September 7, 2021, as the office-reopening date. Implementation began in April, when Molson announced the in-office schedule, giving employees a few months to plan child care, transportation, and other needs. Employees received memos detailing the reopening plans, tips on hybrid working, and guides to offices (for the hundreds of employees who had not yet worked at the office). Safety concerns persisted, so Hattersley made what he calls his most difficult decision: requiring that employees be vaccinated. He worried that many would quit, but less than 1% did, citing either the mandate or a preference for remote work. Hattersley‘s decision led the team to rethink the timeline. To give employees time to get vaccinated, they pushed the opening to October 2021. On the day of the return, Molson gave employees welcome packets and, in at least one department, colorcoded wristbands they could wear to signal whether they wanted to be greeted with a hug, elbow bump, or just a wave. Executives consider the transition a success. Employees expressed satisfaction, although some were surprised at their need to remember basics such as allowing time between in-person meetings. And during it all, Molson stayed on track with deals supporting its diversification strategy.

II. Steps in the Decision-Making Process LO 5-2: Describe the six steps managers should take to make the best decisions. A. Using the work of March and Simon as a basis, researchers developed a step-by-step model of the decision-making process. There are six steps that managers should consciously follow to make a good decision. 1. Recognize the Need for a Decision Some stimuli usually spark the realization that a decision needs to be made. The stimuli may originate from the actions of managers inside an organization or from changes in the external environment. Be it proactive or reactive, it is imperative that managers recognize this need and respond in a timely and appropriate manner.

2. Generate Alternatives A manager must generate a set of feasible alternative courses of action to take in response to the opportunity or threat. Failure to properly generate and consider different alternatives can result in bad decisions. Sometimes managers find it difficult to generate creative, alternative solutions to specific problems. Generating creative alternatives may require that we abandon our existing mind-sets and develop new ones.

3. Assess Alternatives Once managers have generated a set of alternatives, they must evaluate the advantages and disadvantages of each one. Successful managers use four criteria to evaluate the pros and cons of alternative courses of action. Often a manager must consider these four criteria simultaneously. Some of the worst managerial decisions can be traced to poor assessment of the alternatives.

a. Legality: Managers must ensure that a possible course of action is legal. 6-129 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 Planning, Strategy, and Competitive Advantage b. Ethicalness: Managers must ensure that a possible course of action is ethical and will not unnecessarily harm any stakeholder group. c. Economic feasibility: Managers must decide whether the alternatives can be accomplished, given the organization‘s performance goals. d. Practicality: Managers must decide whether they have the capabilities and resources required to implement the alternative. 4. Choose Among Alternatives The next step is to rank the various alternatives, using the criteria listed above, in order to make a decision. Managers must be sure that all information available is used. Sometimes managers have a tendency to ignore critical information, even when it is available.

5. Implement the Chosen Alternative Once a decision has been made, it must be implemented. Many managers make a decision and then fail to act on it. To ensure that implementation occurs, top managers must assign to middle managers the responsibility for making follow-up decisions, give them sufficient resources required achieve the goal, and hold them accountable for their performance.

6. Learn from Feedback Effective managers always conduct a retrospective analysis in order to learn from past successes or failures. To ensure that they learn from experience, managers should establish a formal procedure that includes the following steps:

a. Compare what actually happened to what was expected to happen as a result of the decision. b. Explore why any expectations for the decision were not met. c. Develop guidelines that will help in future decision making

III. Cognitive Bias and Decision Making LO 5-3: Explain how cognitive biases can lead managers to make poor decisions.

Chapter 06 Planning, Strategy, and Competitive Advantage In the 1970s, psychologists Daniel Kahneman and the late Amos Tversky suggested that because all decision makers are subject to bounded rationality, they tend to use heuristics, which are rules based on an individual‘s experience that simplify the process of making decisions. Kahneman and Tversky argued that these rules are often useful because they help decision makers make sense of complex, uncertain, and ambiguous information. Sometimes, however, the use of heuristics can lead to systematic errors in the way decision makers process information about alternatives and make decisions. Systematic errors are errors that people make over and over and that result in poor decision making. Because of cognitive biases, which are caused by systematic errors, otherwise capable managers may end up making bad decisions. Four sources of bias that can adversely affect the way managers make decisions are confirmation, representativeness, the illusion of control, and escalating commitment.

A. Confirmation Bias happens when decision makers have strong existing beliefs about the relationship between two variables and tend to make decisions based on those beliefs even when presented with evidence that those initial beliefs may be wrong. Decision makers tend to seek and use information consistent with those existing beliefs and to ignore information that contradicts those beliefs. Research suggests that confirmation bias is particularly strong when information is presented sequentially, and the individual is asked to revisit his or her decision as a result of new information. B. Many decision makers inappropriately generalize from a small sample or even from a single vivid case or episode; these are instances of the representativeness bias. C. Other errors in decision making result from the illusion of control, which is the tendency of decision makers to overestimate their ability to control activities and events. Top managers seem particularly prone to this bias. Having worked their way to the top of an organization, they tend to have an exaggerated sense of their own worth and are overconfident about their ability to succeed and to control events. The illusion of control causes managers to overestimate the odds of a favorable outcome and, consequently, to make inappropriate decisions. D. Escalating commitment occurs when managers have already committed significant resources to a course of action, and commit more resources to the project even if they receive feedback that the project is failing. Feelings of personal responsibility for a project apparently bias the analysis of decision makers and lead to this escalating commitment. The managers decide to increase their investment of time and money in a course of action and even ignore evidence that it is illegal, unethical, uneconomical, or impractical. E. Be Aware of Your Biases. Managers must become aware of biases and their effects, and they must identify their own personal style of making decisions. One way to analyze decision-making styles is to review two decisions that managers have made recently— one decision that turned out well and one that turned out poorly. Problem-solving experts recommend that managers start by determining how much time to spend on each of the decision-making steps, such as gathering information to identify the pros and cons of alternatives or ranking the alternatives, to make sure they spend sufficient time on each step. Working with others improves this process and group decision making can be helpful. 6-131 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 Planning, Strategy, and Competitive Advantage

IV. Group Decision Making LO 5-4: Identify the advantages and disadvantages of group decision making, and describe techniques that can improve it. When managers work as a team, their choices of alternatives are less likely to suffer from biases. They are able to draw on the group‘s combined skills and accumulated knowledge. Group decision making allows managers to process more information and correct each other‘s errors. Managers included in the decision-making process will most likely cooperate with its implementation. When a group makes a decision, the likelihood of its successful implementation increases. The disadvantages of group decision making include the long time it often takes and the possibility of being undermined by biases.

A. The Perils of Groupthink 1. Groupthink is a pattern of faulty and biased decision making that occurs in groups whose members strive for agreement within the group at the expense of accurately assessing information relevant to a decision. 2. When managers are subject to groupthink, they collectively embark on a course of action without developing appropriate criteria to evaluate alternatives. Typically, the group rallies around one central manager and becomes blindly committed to that manager‘s preferred course of action without evaluating its merits. 3. Pressures for harmony and agreement have the unintended effect of discouraging individuals from raising issues that counter the majority opinion. B. Devil's Advocacy 1. Devil’s advocacy is a technique used to counteract groupthink. It involves a critical analysis of the group‘s preferred alternative in order to ascertain its strengths and weaknesses before implementation. One member of the decision-making group plays the role of devil‘s advocate by critiquing and challenging the way in which the group evaluated alternatives and selected one alternative over the other. 2. The purpose of devil‘s advocacy is to identify all the reasons that might make the preferred alternative unacceptable. C. Diversity among Decision Makers 1. Promoting diversity within decision-making groups improves group decision making by broadening the range of experiences and opinions that the group members can draw from as they generate, assess, and choose among alternatives. 2. Diverse groups are less prone to groupthink because of the differences that already exist among them.

Chapter 06 Planning, Strategy, and Competitive Advantage

IV. Organizational Learning and Creativity LO 5-5: Explain the role that organizational learning and creativity play in helping managers to improve their decisions. A. The quality of managerial decision making ultimately depends on innovative responses to opportunities and threats. 1. Organizational learning is the process through which managers seek to improve employees‘ desire and ability to understand and manage the organization. 2. A learning organization is one in which managers do everything possible to maximize the thinking ability of groups and individuals and thus maximize the potential for organizational learning to take place. 3. At the heart of every learning organization is creativity, the ability of a decision maker to discover original and novel ideas that lead to feasible alternative courses of action.

B. Creating a Learning Organization: Peter Senge developed five principles for creating a learning organization. 1. Top managers must allow every person in the organization to develop a sense of personal mastery. 2. Organizations need to encourage employees to develop and use complex mental models. 3. Managers must do everything they can to promote group creativity and team learning. 4. Managers must emphasis the importance of building a shared vision. 5.

Managers must encourage systems thinking.

Chapter 06 Planning, Strategy, and Competitive Advantage TEXT REFERENCE Managing Globally Constant Learning Keeps Western Union Relevant Western Union (WU) offers a financial lifeline worldwide, sending 130 currencies to recipients in 200plus countries. When a customer pays, a code is sent to the recipient, who presents it to an agent, who hands over cash minus a processing fee. WU later reimburses the agent. Currency transfers could include support from emigrants to family members back home, help to a stranded traveler overseas, or tuition payments for a child studying abroad. WU outlasted competitors by learning to embrace industry transformations. Until recently, when he announced his retirement, WU‘s CEO was Hikmet Ersek, son of a Turkish father and Austrian mother, who was raised in Istanbul, studied economics in Vienna, and worked in Europe. Ersek maintained that a multicultural mind-set is a competitive strength. Every international transaction requires knowledge of customer needs and legal requirements in the sending and receiving countries. Learning these facts is easier with local experience and open-mindedness. Continuing to encourage learning as Western Union continues navigating global trends, it has adopted WU Way, a program in which everyone learns to provide better service more efficiently. Top leaders assigned to champion the change meet with managers for informal learning. This learning will help them stay ahead of the next technological changes.

C. Promoting Individual Creativity: Research indicates that when certain conditions are met, managers are more likely to be creative. 1. Employees must be provided the opportunity and freedom to generate new ideas. 2. The employees have an opportunity to experiment, to take risks, and to make mistakes and learn from them. 3. Employees must not fear that they will be penalized or looked down upon for ideas that at first seem outlandish. 4. Individual creativity can be promoted by providing constructive feedback so that employees will know how they are doing and by visibly rewarding creative employees. D. Promoting Group Creativity 1. Brainstorming is a group problem-solving technique in which managers meet face-toface to generate and debate a wide variety of alternatives from which to make a decision. This technique is very useful in some situations but at other times can result in a loss of productivity due to production blocking, the loss of productivity in brainstorming sessions due to the unstructured nature of brainstorming. A brainstorming session is conducted as follows: a. One manager describes the problem in broad outline. 6-134 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 Planning, Strategy, and Competitive Advantage b. Group members share their ideas and generate alternative courses of action. c. Group members are not allowed to criticize each alternative until all have been heard. d. Group members are encouraged to be as innovative and radical as possible. Anything goes, and the greater the number of ideas put forth, the better. e. When all alternatives have been generated, the group members debate the pros and cons of each and develop a list of the best alternatives. 2. The Nominal Group Technique The nominal group technique is a more structured way of generating alternatives. It avoids production blocking and is especially useful when an issue is controversial and when different managers might champion different courses of action. A nominal group technique session is conducted as follows: a. One manager outlines the problem to be addressed and group members write down ideas and solutions. b. Managers take turns reading their suggestions to the group. Criticism is not allowed until all the alternatives have been read. c. The alternatives are discussed, and group members can critique to identify its pros and cons. d. Each member ranks all the alternatives, and the highest-ranking alternative is selected. 3. The Delphi Technique: The Delphi Technique is a written approach to creative problem solving. It works as follows: a. The group leader writers a statement of the problem and a series of questions to which participating managers are to respond. b. The questionnaire is sent to the managers and departmental experts who are most knowledgeable about the problem. They are asked to generate solutions and mail the questionnaire back to the group leader. c. A team of top managers records and summarizes the responses. The results are then sent back to the participants, with additional questions to be answered before a decision can be made. d. The process is repeated until a consensus is reached and the most suitable course of action is apparent. E. Intrapreneurship and Learning: The intensity of competition today has made it increasingly important to promote intrapreneurship to raise the level of innovation and 6-135 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 Planning, Strategy, and Competitive Advantage organizational learning. The higher the level of intrapreneurship, the higher will be the level of learning and innovation. The ways to increase intrapreneurship within an organization are: 1. Product Champions: A product champion is a manager who takes ―ownership‖ of a project and provides the leadership and vision that takes a product from the idea stage to the final customer. Product champions become responsible for developing a business plan for the product. If the plan is accepted, the production champion assumes responsibility for product development. 2. Skunkworks: A skunkworks is a group of intrapreneurs who are deliberately separated from the normal operation of an organization to encourage them to devote all their attention to developing new products. a. Development time is shortened and the quality of the final product is enhanced. b. The term ―skunkworks‖ was coined at the Lockheed Corporation, which formed a team of design engineers to develop special aircraft, such as the U2 spy plane. The secrecy of this unit and the speculation about its goals led others to refer to it as ―the skunkworks.‖ 3. Rewards for Innovation: To encourage managers to bear risk and uncertainty, it is necessary to link performance to rewards. a. Increasingly, companies are rewarding intrapreneurs on the basis of the outcome of the product development process by granting them large bonuses and stock options if their products sell. In addition to money, they often receive promotion to the ranks of top management. b. Organizations must reward intrapreneurs equitably if they wish to prevent them from leaving to become outside entrepreneurs who might form a competitive new venture.

Chapter 06 Planning, Strategy, and Competitive Advantage

LECTURE ENHANCERS Lecturer Enhancer 5.1 WORLD-CLASS BAD DECISIONS In the Decision-Making Hall of Fame, one room should be reserved for truly bad decisions. One of the classics, already mentioned in an earlier chapter, was Hewlett-Packard‘s decision not to develop a product created by an employee. The employee, Steve Wozniak then co-founded Apple Computer. Some rejected ideas have involved whole industries. When Alexander Graham Bell invented the telephone in 1876, he had a hard time attracting backers. President Rutherford B. Hayes used a prototype telephone and remarked, ―That‘s an amazing invention, but who would ever want to use one of them?‖ Bell approached Western Union Telegraph Company and offered to sell them the patents. Their decision: they had no use for an electrical toy. A young inventor, Chester Carlson, took his idea to twenty corporations, all of whom turned him down. He finally got a small New York company named Haloid Co. to purchase the rights to his electrostatic paper-copying process. Haloid became Xerox Corporation, and Carlson‘s process made both Xerox and Carlson very rich. In 1962 four musicians played for executives of Decca Recording Company. One executive later explained that they just didn‘t like the group‘s sound, noting that guitar groups were on their way out. Four other record companies turned them down. The Decision-Making Hall of Fame will have a special place for Decca, who turned down the Beatles.

Lecture Enhancer 5.2 TEACHING CREATIVITY TO BUSINESS STUDENTS Jeff Skoll, a vice president of eBay whose net worth is $2.16 billion, says one of the most valuable courses he took at Stanford‘s Graduate School of Business was Dr. Michael L. Ray‘s ―Personal Creativity in Business.‖ Dr. Ray has been teaching this course for 21 years, and although it is unlike anything else the business school offers, it fills up quickly each quarter. It would be unimaginable in most other business schools, yet it has inspired numerous Stanford graduates to become Internet entrepreneurs. ―The course enabled me to step back and look at what I wanted to accomplish in my life.‖ says Skoll, who received his MBA in 1995 and became eBay‘s first president the following year. He is now vice president for strategic planning at the online auction site. Dr. Ray began teaching the course after a trip to India, where he discovered that everyone, even the shopkeepers, seemed motivated by a higher purpose and often starting their workday with prayer. The goal of the course, he says, is to motivate business students to look inside themselves, trust their intuition, and silence the annoying voice that discourages them from taking chances. ―This kind of creativity is in all of us but we don‘t always see it,‖ says the professor. ―It‘s often covered by the fear of judgment and the chattering mind.‖

Chapter 06 Planning, Strategy, and Competitive Advantage Some of the techniques he uses to unleash the creative powers of students seem out of place in a business school. The course is built around nine assignments, in which students choose a specific strategy for coping with contemporary challenges, such as ―destroy judgment, create curiosity,‖ ―live with it,‖ ―do what is easy, effortless, and enjoyable,‖ or ―ask dumb questions.‖ Each strategy relates to five challenges: purpose and career, time and stress, relationships, balance, and finding true prosperity. Students choose a form of creative expression, such as dance or poetry reading, and to loosen their inhibitions, they may meditate in the dark or create ―mood doodles‖ with crayons in their journals. To deal with stress, they might record their anxieties in journals or limit their fretting to a designated ―worry time.‖ Another one of Dr. Ray‘s successful alums is Jim Collins, an educator, business consultant, and author of two best-selling management books, Good to Great and Built to Last: Successful Habits of Visionary Companies. ―I almost dropped the course after the first few weeks. It was just too weird,‖ says Collins. ―The last thing I expected when I entered business school was to be sitting on the floor in the dark, listening to a tape of an Indian spiritual leader and chanting ‗Om‘.‖ In retrospect, however, Collins realizes that the course had a profound impact upon his life. He says it was this creativity class that propelled him into a career as both an entrepreneurship professor and author. What stimulated Dr. Ray, who holds a doctorate in social psychology, to teach a course in creativity to soon-to-be corporate executives and entrepreneurs? Ray says, ―People were coming here and getting technologically trained but nowhere did they stop and ask, who am I, at essence, and why am I here? What is the purpose of all of this? People need to take the risk of being vulnerable, and when they do, they are not only accepted, but applauded.‖ Taken from ―Michael Ray: Teaching Entrepreneurs How to Cut Loose,‖ by Katherine Mangan, published in The Chronicle of Higher Education, October 20, 2000.

Lecture Enhancer 5.3 BUREAUCRACY STRANGLES INTRAPRENEURSHIP In the 1980s ―intrapreneurship‖ became a buzzword among managers who wanted to introduce smallbusiness fervor into lumbering corporations. The idea was that the parent company would provide seed money to employees, who would gain the satisfaction of running their own shop while producing products that benefited their corporate sponsor. The ventures did produce some successes. IBM developed its IBM Personal Computer through such a venture. At Xerox Corporation, about half dozen successful companies have been created. Most, though, have fallen flat. Companies like Control Data Corporation and Northwestern Bell Telephone Co. have ended their programs. So did IBM, which says the program was unnecessary after the company decentralized. Of the fourteen ventures Eastman Kodak created, six have been shut down, three have been sold, four have been merged into the company, and only one still operates independently. One of Kodak‘s projects was canceled because the company didn‘t like the unit‘s logo, a Cheshire cat, considering it too frivolous for a serious organization.

Chapter 06 Planning, Strategy, and Competitive Advantage The problem, management experts say, is that a go-go small business culture can‘t easily be grafted onto a deliberate corporate giant. The practices that make corporations successful—training procedures, personnel policies, and hierarchical management structures—are incompatible with risk-taking entrepreneurs. In addition, employees-turned-entrepreneurs are often ill-prepared for their new roles. Researchers, for example, who have spent their careers in the lab, are unfamiliar with the rigors of the marketplace.

Chapter 06 Planning, Strategy, and Competitive Advantage

MANAGEMENT IN ACTION Notes for Topics for Discussion and Action DISCUSSION

1. What are the main differences between programmed decision making and nonprogrammed decision making? Programmed decision making is a routine, almost automatic process. These decisions have been made so many times that managers do not need to readdress all the alternatives every time one of these decisions arises, but can use decision-making rules or guidelines that have been developed for these situations. Managers typically have all the information they need to create the rules necessary to make a decision. There is little ambiguity involved in these types of decisions. Nonprogrammed decision making is required when a situation arises that is not easily resolved by a preexisting rule or guideline. These decisions are non-routine, and require managers to respond to uncertainty, since managers in these situations lack the information that they need to develop rules that allow them to accurately predict the future.

2. In what ways do the classical and administrative models of decision making help managers appreciate the complexities involved in real-world decision making? The classical model‘s main premise is that once managers recognize the need to make a decision, they should be able to generate a complete list of all alternatives and consequences from which the best choice can then be made. This premise assumes that managers will have access to all the information that they need in order to make the optimum decision. This model helps managers appreciate the complexities of decision making by requiring them to consider all the information and then attempting to make decisions that will have the most desirable consequences for their organization. The administrative model proposes that although managers do not have access to all the information, they still must make a decision. This model more fully exposes the complexities involved of decision making by forcing us to consider the limitations we may face. Proponents of this model assert that even if managers had access to all information needed, they would lack the mental or psychological ability to absorb and correctly evaluate it. In most situations, managers do not have access to complete information. Nor do they have knowledge of all of the consequences of each alternative. This model is more realistic for managers because it concedes that risk and uncertainty, ambiguity, and time constraints often compound in ways that make nonprogrammed decision making difficult, even for the most experienced managers.

Chapter 06 Planning, Strategy, and Competitive Advantage 3. What can individual managers do to improve their decision-making skills? Managers should identify their own personal style of decision making in order to recognize inconsistencies that may prevent them from making good decisions. By reviewing two recent decisions— one that turned out well and one that turned out poorly—and seeing how they were made, a manager can gain insight into his or her decision-making process. Another technique that is useful is to list the criteria used to assess and evaluate alternatives. This can help managers critically evaluate the effectiveness and the appropriateness of each criterion. Working with others may be helpful as well, as it is often difficult to recognize our own biases and weaknesses.

4. Why do capable managers sometimes make bad decisions? Capable managers sometimes make bad decisions because the decision-making process can often be risky and uncertain. Failure to think creatively in order to generate a wide variety of alternatives and failure to evaluate all relevant information available can lead to a bad decision. Failure to consider the economic feasibility, legality, or ethicalness of decision prior to its implementation can result in disastrous consequences. They may also fall victim to cognitive biases which can negatively impact the decisionmaking process.

5. In what kinds of groups is groupthink most likely to be a problem? When is it least likely to be a problem? What steps can group members take to ward off groupthink? Groupthink is a pattern of faulty and biased decision making that occurs in groups whose members strive for agreement within the group at the expense of accurately assessing information relevant to a decision. When this occurs, alternatives are not critically examined, potentially leading to a poor decision. Emotion, rather than objective assessment, guides the selection of the optimal course of action. This is most likely to be a problem in groups where pressure toward agreement is seen as more important than finding a workable solution or reaching an optimum decision. If the culture of the organization is not tolerant of criticism or innovative thinking, groupthink is more likely to occur during the group decision-making process. If one person in a group is allowed to be highly vocal and controlling during the decision-making process, others may feel too intimidated to present their suggestions or opinions. Groupthink is least likely to be a problem when all the members of the group feel comfortable making suggestions and offering radical alternatives. If the culture supports risk-taking and innovative thinking, group members will not feel pressure to conform to the feeling of the majority. Also, if the contribution of the group is emphasized, rather than individual achievement, managers will see the opportunity to build upon the suggestions of others. Devil‘s advocacy is a technique that can be used to reduce the probability of the occurrence of groupthink. This technique involves the critical analysis of the preferred alternative and the process that was used to select that alternative. Typically, one member of the group is selected to play the role of the devil‘s advocate by critiquing and challenging the way in which the group evaluated each alternative and selected one over the others. The purpose is to identify any reason that may make the selected alternative unacceptable after all.

Chapter 06 Planning, Strategy, and Competitive Advantage 6. What is organizational learning, and how can managers promote it? Organizational learning is the process through which managers seek to improve organization members‘ desire and ability to understand and manage the organization and its environment, so that they can make decisions that continuously raise organizational effectiveness. A learning organization is one that promotes creativity, or the ability of a decision maker to discover original and novel ideas that lead to feasible alternative courses of action. Creativity is at the heart of organizational learning, and managers can promote both by adopting Peter Senge‘s five principles for creating a learning organization. If every employee is allowed to develop a sense of personal mastery, employees will be able to experiment and create and explore what they want. Employees must also be encouraged to develop complex mental models that challenge them to find new and better ways of doing things. Promoting group creativity is also essential, since groups, rather than individuals make most important decisions. Building a shared vision among employees requires managers to build a common mental model that all organizational members use to frame threats and opportunities. Finally, systems thinking is required for organizational learning. Learning at each level affects learning on other levels, and this must be understood for organizational learning to increase efficiency and effectiveness in the organization. ACTION

7. Ask a manager to recall the best and the worst decisions he or she ever made. Try to determine why these decisions were so good or so bad. (Note to Instructors: Students‘ answers will vary. The answers given here are only indicative.) Leslie Fox is the manager at a commercial bank. She described her worst managerial decision as the one to establish a teller of the month program at her branch. This well-intentioned effort to motivate her employees led to competition and resentment when only one employee was recognized each month. There was no recognition given if someone improved his or her performance, only recognition for the best performer in the branch. Also, no teller could be named ―teller of the month‖ more than once, and tellers began to see the program as a turn-taking operation that did not necessarily reward the consistently superior employees. Leslie‘s best management decision was to establish a ―Teller‘s Wall of Fame.‖ Any teller who met the standards that were set for service and quality of work was eligible for the Wall. This allowed more than one person to be recognized, as soon as they were eligible, rather than only once a month. Members of the Wall of Fame were recognized in the company newsletter, and were given special incentives, such as time off with pay, or monetary compensation. This program made it possible to reward improvement and cooperation among tellers.

Chapter 06 Planning, Strategy, and Competitive Advantage Leslie believes that the two decisions had different outcomes because the decision to implement the first program was more of a programmed decision than a nonprogrammed decision. She had gotten the idea from seeing its application in other organizations, and she did not consider the alternatives to this kind of program, or the possible consequences of it. She believes that she should have asked managers at other branches for suggestions for a recognition program before she decided on one. She also should have evaluated the program‘s success in other organizations before implementing it in her own. Also, if she would have received immediate feedback, or feedback on the idea before implementation, her tellers might have suggested better ways of recognizing employees.

8. Think about an organization in your local community or your university, or an organization‘s that you are familiar with, that is doing poorly. Now think of questions managers in the organization should ask stakeholders to elicit creative ideas for turning around the organization‘s fortunes. (Note to Instructors: Students‘ answers will vary. The answers given here are only indicative.) A local university is phasing out its hotel and hospitality management (HHM) program because of low enrollment. University officials would like to continue the program but can no longer justify the operational inefficiencies that result from doing so. Stakeholders include students, faculty, university administrators, the Board of Regents that governs the university, and the local community. To save this program, which is one of several offered by the university‘s College of Commerce, faculty and university administrators must identify the reasons behind low enrollment. Potential students could be asked: If you were to major in HHM, tell me how you envision your career ten years from now? Next, tell me how you envision your future if enrolled in one of the more traditional areas of business, such as marketing or finance. Comparison of responses to these two questions should reveal any positive and negative perceptions that students have about career opportunities in HHM. This is important information, since many business students select their major based upon perceived career opportunities in that field. It could be that students are unaware of the great career opportunities in HHM, or worse yet, have incorrect perceptions of those career opportunities. Residents of the local community could be asked: What can the HHM department do to make a contribution to this community? By making a positive contribution to the community, the department‘s visibility is heightened, which will in turn, attract interest and increase the number of applications received. Community contributions might include offering a seminar series for local restaurant owners, offering cooking classes for kids, etc. Faculty members could be asked: Which part of your HHM classes do students find most boring? This question should stimulate faculty to think about new approaches that allow classroom material to be presented in more creative and dynamic ways, thereby peaking the interest of students considering the HHM as a major. AACSB: Analytic

Chapter 06 Planning, Strategy, and Competitive Advantage

BUILDING MANAGEMENT SKILLS Notes for Building Management Skills (Instructors Note: Below is an example of one possible problem (John‘s) and how he considered the problem and made his decision.)

1. Identify the criteria you used, either consciously or unconsciously, to guide your decision making. John needed to decide if he should take a part-time job as a research assistant in the management department in his second year in college. John decided that he would take the position because he thought it would be good experience and would allow him to earn some extra spending money. He was excited about the prospect of working with the faculty he liked and respected. When John was offered the position at the end of his freshman year, he decided that he would think it over in the summer. John decided that it would not be unethical for him, a management and accounting major, to take the job since the job did not require him to photocopy tests or handle any sensitive student information. John also decided that the position was economically feasible since he would be making his own money and would not need to rely on his parents for support. John also decided that it would be practical, since the job was only ten hours a week; it would not interfere with his studies and his goal of attaining a 3.5 grade point average.

2. List the alternatives you considered. Were they all possible alternatives? Did you unconsciously (or consciously) ignore some important alternatives? John listed alternatives before he made his decision. He thought that he could:

1. take the job in the management department. 2. take a different part-time job somewhere else, either within the university or the community. 3. not accept the position nor seek other employment, in order to concentrate on his classes. John did not consider any other alternatives. It seemed to him that these were all the alternatives that were possible. One alternative that John did not consider was the option of taking out a student loan to cover expenses. John did not think he would be eligible for such a loan, and it did not occur to him to go to the financial aid office and see if it was possible for him to get a loan.

3. How much information did you have about each alternative? Were you making the decision on the basis of complete or incomplete information? John had some information about the job in the management department, such as the hours he would be required to work, his duties, and his pay rate. He did not know if he would like the job, or if he would prefer to do something else with his time.

Chapter 06 Planning, Strategy, and Competitive Advantage John did not know if he would be able to get another job at the university, or if there were any jobs in the community that would be practical for him to take. John also did not know the amount of work he would need to do for his classes. He did not know for sure how much time he would need to devote to his classes in order to achieve his goals. John also did not have enough information about his financial status and was not aware of the resources available through loans and scholarships. John was making his decision on the basis of incomplete information.

4. Try to remember how you reached the decision. Did you sit down and consciously think through the implications of each alternative, or did you make a decision on the basis of intuition? Did you use any rules of thumb to help you make the decision? John sat down and consciously thought through the implications of each alternative. He realized that working would interfere with doing other things, like socializing with friends or playing on a sports team. He also realized that it would be a good experience and would look impressive on his resume. John thought it might also allow him to make contacts that might help him to find a job when he graduated. Also, the skills of time management and organization that John would develop would be beneficial to everything else in his life. John‘s intuition also told him that he would be able to juggle the demands of his studies and with those of his job because he had held a part-time job in high school and had managed to do well in school.

5. Having answered the previous five questions, do you think in retrospect that you made a reasonable decision? What, if anything, might you do to improve your ability to make good decisions in the future? John made many contacts and gained valuable experience during his employment in the management department. Through his job there, he was able to obtain an internship position for the summer that further advanced his education and opportunities. John found that the real world was not as easily arranged as his textbooks had led him to believe. He learned how to get along with people and apply his academic knowledge to real situations. John made a reasonable decision based on the outcomes but also on the process he used. He consciously weighed the alternatives and obtained information before deciding. John might have improved his decision-making process by obtaining feedback from other students who were working during the school year to see how they handled all their responsibilities. He might have also talked to faculty or managers in the community about the value of taking the position. Additionally, John could have spoken with his parents and the financial aid office to determine if he was eligible for assistance. AACSB: Analytic AACSB: Reflective Thinking

Chapter 06 Planning, Strategy, and Competitive Advantage

MANAGING ETHICALLY Notes for Managing Ethically

1. Either alone or in a group, think about the ethical implications of extreme decision making by groups. Note to Instructors: Students‘ answers may vary. The answer given below is indicative.) Extreme decisions negatively impact others by unnecessarily placing them at excessive levels of risk. Placing others in a precarious situation for no compelling reason is unethical.

2. When group decision making takes place, should members of a group each feel fully accountable for outcomes of the decision? Why or why not? Note to Instructors: Students‘ answers may vary. The answer given below is indicative.) If groupthink has occurred, some members may lack commitment to the group‘s decision. These members probably supported the group‘s decision in order to conform, not because they agreed to it. They may think that their lack of commitment to and lack of endorsement of the extreme decision relinquishes them from fully accountability for it. However, this is not the case. Silence during group discussions is usually viewed as tacit agreement. Your physical presence, along with your lack of verbal objection to the extreme decision implies that you concur.

AACSB: Ethics

Chapter 06 Planning, Strategy, and Competitive Advantage

BE THE MANAGER Questions: What are you going to do? The CEO and the COO do not seem to be risk takers and appear afraid to venture beyond the status quo. You will have to convince them that your new ideas do not involve excessive levels of risk because they have been thoroughly researched. To do so, consider requesting a formal meeting with the CEO and COO at which the sole topic of discussion is your three proposals. At the meeting, the practicality and economic feasibility of each idea must be emphasized. Also, consider engaging in "devil‘s advocacy" with the CEO and COO, which would give them the opportunity to thoroughly critique each proposal and address areas of uncertainty. AACSB standards: Analytic

CASE IN THE NEWS Case Synopsis: Teaching Soldiers to Be Creative on the Battlefield Warfare has largely changed from the army-against-army model to one of army-against-insurgent. The freedom fighters/insurgents are innovative and make weapons from unconventional items, which can be difficult for soldiers to anticipate or spot. The U.S. Marine Corps has been seeking greater agility in this environment of constant change. Its Next Generation Logistics (NexLog) group, charged with applying technology to logistics, embraced the socalled maker movement, in which individuals apply the power of computer-aided technologies to create and build devices whose manufacture once required a fully equipped factory. Technologies central to the maker movement include computer-aided design (CAD), 3D printing, microcontrollers, and laser cutting. A person equipped with a laptop can quickly make precision parts to build robots, drones, and other devices. NexLog set up a program called Marine Maker to prepare soldiers to use these skills and technologies on the battlefield. Essentially, it is creating hackers, in the sense of people who craft solutions from whatever is at hand. Most who enter the program have aptitude but do not possess high tech or engineering training. The rationale is that people with specific training tend to rely on that training to solve problems and this group needs to rely instead on innovation and creative solutions. Soldiers are put through Innovation Boot Camp where they are given exercises to craft solutions with limited supplies in limited time. This training design ensures they will be able to react quickly in combat conditions. In NexLog rollout of Marine Maker training, hundreds of Marines have completed Innovation Boot Camp at maker labs in California, North Carolina, Virginia, and Washington, DC, as well as on the ground in Kuwait. Trainers are looking at expanding into programs focused on specific kinds of capabilities, such as anti-drone warfare and explosive ordnance disposal. One NexLog leader envisions a future in which agile-thinking Marines can develop customized drones on demand for a given mission, say, in a city or in

Chapter 06 Planning, Strategy, and Competitive Advantage cold weather—and deploy them as needed. NexLog‘s mission is to prepare for the logistics needs of the next decade. Marine Maker is already helping to create that future. Questions

1. Which type of decision making are Marines being taught in the Marine Maker training: programmed or nonprogrammed decisions? Explain. Nonprogrammed decision making is taught in the training, because it requires non-routine decisions. Nonprogrammed decisions are decisions that are made in response to unusual or novel opportunities and threats. In this case, the opportunities are unpredictable and require creative solutions.

2. Does the classical model or the administrative model of decision making better fit the decision process of the Marine Maker program? Why? The classical model of decision making assumes that decision makers have complete information; are able to process that information in an objective, rational manner; and make optimum decisions. The administrative model is based on the belief that decision-making is inherently uncertain and risky. It is based on three important concepts: bounded rationality, incomplete information, and satisficing.

Since the Marine Maker program is teaching soldiers to operate with incomplete information as well as limited time and resources, the decision process of the program better fits the administrative model.

3. Which of the chapter‘s ideas for creating a learning organization and promoting individual creativity support creative thinking by the Marines? Peter Senge‘s five principles for creating learning organizations support creative thinking by the Marines. The principles are: 1. Develop personal mastery 2. Build complex, challenging mental models 3. Promote team learning 4. Build a shared vision 5. Encourage systems thinking.

AACSB: Analytic

Chapter 06 Planning, Strategy, and Competitive Advantage

IN-CLASS ACTIVITY Decision-making exercise: Buying a Computer

Show the decision-making slide Fig. 5.4 while walking students through a decision-making scenario of buying a new computer. Start by asking students to take out a sheet of paper. 1. Recognize the need for a decision. Have students list conditions that would indicate their need for a new computer (e.g., graduating college, aging of their current machine, changing computing needs due to new career, etc.) 2. Generate alternatives. Based on their knowledge, have students list 3 to 4 alternatives (types of computers they would consider buying). 3. Assess alternatives. Have students rank their alternatives according to the following criteria: a. Legality (probably not a concern if they are buying a legal device) b. Ethicalness (also unlikely to be an issue) c. Economic feasibility (this criterion is very realistic) d. Practicality (this is also a reasonable criterion; how well will each alternative perform in its new environment?) e. What additional criteria they should consider for this purchase? (computer features, specifications) If so, have them list the additional criteria and rate each alternative. 4. Choose among Alternatives. Which computer did they choose? What did they learn about decision-making from the process? How was this different from the process they went through to purchase their current computer?

Chapter 06 Planning, Strategy, and Competitive Advantage

CONNECT For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect

Case Analysis  

Decision Making at UPS Decision Making Errors

Manager’s Hot Seat (MHS) 

Decision Making

iSeeIt! Animated Video  

Innovation Model of Intuition

Worksheets   

Creativity and Decision Making The Decision-Making Process Fostering Innovation

Self-Assessments (See Application-Based Activities within Connect) There is no recommended self-assessment for Chapter 5.

Chapter 06 Planning, Strategy, and Competitive Advantage

POWERPOINT SLIDES These PowerPoint slides can be used to supplement the lecture material. SLIDE 1 Chapter Title SLIDE 2 Learning Objectives SLIDE 3 The Nature of Managerial Decision Making SLIDE 4 Programmed Decision Making SLIDE 5 Non-Programmed Decisions SLIDE 6 Topic for Discussion: Programmed versus Non-Programmed SLIDE 7 Decision Making SLIDE 8 The Classical Model SLIDE 9 Figure 5.1: The Classical Model of Decision Making SLIDE 10 The Administrative Model SLIDE 11 Topic for Discussion: The Administrative Model SLIDE 12 The Administrative Model: Bounded Rationality and Incomplete Information SLIDE 13 Figure 5.2: Why Information is Incomplete SLIDE 14 Causes of Incomplete Information: Risk and Uncertainty SLIDE 15 Causes of Incomplete Information: Ambiguous Information SLIDE 16 Causes of Incomplete Information: Time Constraints and Information Costs SLIDE 17 Causes of Incomplete Information: Satisficing SLIDE 18 Topic for Discussion: Avoiding Bad Decisions SLIDE 19 Figure 5.4: Six Steps in Decision Making SLIDE 20 Figure 5.5: General Criteria for Evaluating Possible Courses of Action SLIDE 21 Learn from Feedback SLIDE 22 Cognitive Bias and Decision Making SLIDE 23 Group Decision Making SLIDE 24 Group Decision Making: Groupthink SLIDE 25 Topic for Discussion: Groupthink SLIDE 26 Group Decision Making: Devil’s Advocacy SLIDE 27 Group Decision Making: Diversity Among Decision-Makers SLIDE 28 Organizational Learning and Creativity SLIDE 29 Topic for Discussion: Organizational Learning SLIDE 30 Organizational Learning and Creativity SLIDE 31 Figure 5.7: Senge’s Principles for Creating a Learning Organization SLIDE 32 Organizational Learning and Creativity

Chapter 06 Planning, Strategy, and Competitive Advantage SLIDE 33 Promoting Individual Creativity SLIDE 34 Promoting Group Creativity SLIDE 35 Building Group Creativity: Production Blocking, NGT SLIDE 36 Building Group Creativity: Delphi Technique SLIDE 37 Intrapreneurship and Organizational Learning SLIDE 38 Be the Manager

Chapter 6 Planning, Strategy, and Competitive Advantage CHAPTER CONTENTS Learning Objectives

6-2

Key Definitions/Terms

6-3

Chapter Overview

6-5

Lecture Outline

6-6

Lecture Enhancers

6-16

Management in Action

6-19

Building Management Skills

6-22

Managing Ethically

6-24

Be the Manager

6-25

Case in the News

6-26

In-Class Activity

6-28

Connect Features

6-29 6-153

Chapter 06 Planning, Strategy, and Competitive Advantage

PowerPoint Slides

6-30

Chapter 06 Planning, Strategy, and Competitive Advantage

LEARNING OBJECTIVES LO 6-1. Identify the three main steps of the planning process and explain the relationship between planning and strategy.

LO 6-2. Differentiate among the main types of business-level strategies and explain how they give an organization a competitive advantage that may lead to superior performance.

LO 6-3. Differentiate among the main types of corporate-level strategies and explain how they are used to strengthen a company’s business-level strategy and competitive advantage.

LO 6-4. Describe the vital role managers play in implementing strategies to achieve an organization’s mission and goals.

Chapter 06 Planning, Strategy, and Competitive Advantage

KEY DEFINITIONS/TERMS

business-level plan: Divisional managers‘ decisions pertaining to divisions‘ long-term goals, overall strategy, and structure. business-level strategy: A plan that indicates how a division intends to compete against its rivals in an industry concentration on a single industry: Reinvesting a company‘s profits to strengthen its competitive position in its current industry. corporate-level plan: Top management‘s decisions pertaining to the organization‘s mission, overall strategy, and structure.

functional-level plan: Functional managers‘ decisions pertaining to the goals that they propose to pursue to help the division attain its businesslevel goals. functional-level strategy: A plan of action to improve the ability of each of an organization‘s functions to perform its task-specific activities in ways that add value to an organization‘s goods and services. global strategy: Selling the same standardized product and using the same basic marketing approach in each national market. hypercompetition: Permanent, ongoing, intense competition brought about in an industry by advancing technology or changing customer tastes.

corporate-level strategy: A plan that indicates in which industries and national markets an organization intends to compete.

importing: Selling products at home that are made abroad.

differentiation strategy: Distinguishing an organization‘s products from the products of competitors on dimensions such as product design, quality, or after-sales service.

joint venture: A strategic alliance among two or more companies that agree to jointly establish and share the ownership of a new business.

diversification: Expanding a company‘s business operations into a new industry in order to produce new kinds of valuable goods or services.

licensing: Allowing a foreign organization to take charge of manufacturing and distributing a product in its country or world region in return for a negotiated fee.

exporting: Making products at home and selling them abroad. focused differentiation strategy: Serving only one segment of the overall market and trying to be the most differentiated organization serving that segment. focused low-cost strategy: Serving only one segment of the overall market and trying to be the lowest-cost organization serving that segment. franchising: Selling to a foreign organization the rights to use a brand name and operating know-how in return for a lump-sum payment and a share of the profits.

low-cost strategy: Driving the organization‘s costs down below the costs of its rivals. mission statement: A broad declaration of an organization‘s purpose that identifies the organization‘s products and customers and distinguishes the organization from its competitors. multidomestic strategy: Customizing products and marketing strategies to specific national conditions. planning: Identifying and selecting appropriate goals and courses of action; one of the four principal tasks of management.

Chapter 06 Planning, Strategy, and Competitive Advantage related diversification: Entering a new business or industry to create a competitive advantage in one or more of an organization‘s existing divisions or businesses.

time horizon: The intended duration of a plan. SWOT analysis: A planning exercise in which managers identify organizational strengths (S) and weaknesses (W) and environmental opportunities (O) and threats (T).

strategic leadership: The ability of the CEO and top managers to convey a compelling vision of what they want the organization to achieve to their subordinates.

synergy: Performance gains that result when individuals and departments coordinate their actions.

strategy: A cluster of decisions about what goals to pursue, what actions to take, and how to use resources to achieve goals.

unrelated diversification: Entering a new industry or buying a company in a new industry that is not related in any way to an organization‘s current businesses or industries.

strategic alliance: An agreement in which managers pool or share their organization‘s resources and know-how with a foreign company, and the two organizations share the rewards and risks of starting a new venture.

vertical integration: Expanding a company‘s operations either backward into an industry that produces inputs for its products or forward into an industry that uses, distributes, or sells its products.

strategy formulation: The development of a set of corporate, business, and functional strategies that allow an organization to accomplish its mission and achieve its goals.

wholly owned foreign subsidiary: Production operations established in a foreign country independent of any local direct involvement.

Chapter 06 Planning, Strategy, and Competitive Advantage

CHAPTER OVERVIEW This chapter explores the manager‘s role both as planner and as strategist. First, we discuss the nature and importance of planning, the kinds of plans managers develop, and the levels at which planning takes place. Second, we discuss the three major steps in the planning process: (1) determining an organization‘s mission and major goals, (2) choosing or formulating strategies to realize the mission and goals, and (3) selecting the most effective ways to implement and put these strategies into action. We also examine several techniques, such as scenario planning and SWOT analysis that can help managers improve the quality of their planning. We discuss a range of strategies managers can use to give their companies a competitive advantage over their rivals. By the end of this chapter, students will understand the vital role managers carry out when they plan, develop, and implement strategies to create a high-performing organization.

Chapter 06 Planning, Strategy, and Competitive Advantage

Management Snapshot New Marriott CEO Plans for Economic Recovery and Growth What Do Successful Managers Consider When They Plan a Way Forward? Anthony (Tony) Capuano, the new CEO at Marriott International, is a good example of an effective planner. Having started his Marriott career 25 years ago, Capuano took over CEO duties in February 2021, after the untimely death of Arne Sorenson, who passed away after a two-year battle with pancreatic cancer. For those in the hospitality industry, Sorenson had been considered a guiding light for not only Marriott‘s 730,000 employees, but for many others in the global hotel/restaurant sector. Certainly big shoes for anyone to fill, but Capuano seems energized by the challenge. When the pandemic started to spread in early 2020, Capuano was part of the management team that made the decision to lay off tens of thousands of Marriott employees around the world (including at corporate headquarters), shutting down hotels, and trying to stop the financial bleeding, as COVID-19 ravaged business operations large and small. At the height of the pandemic, global occupancy for Marriott properties averaged 12% and, a key hotel performance metric, revenue per available room, was down by 90%. In 2020, the company posted a $267 million loss—Marriott‘s first annual lost since the 2009 global financial crisis. Today, the hotel business is coming back slowly. Business travel may never fully reach pre-pandemic levels, thanks to virtual platforms such as Zoom, so Marriott is seeking to encourage travelers to combine business and pleasure. To that end, it has expanded its offerings to include Sunwing‘s Blue Diamond Resorts (19 all-inclusive locations in Mexico, Latin America, and the Caribbean). It has also added Homes & Villas by Marriott to compete with Airbnb and Vrbo. Another challenge brought on by large-scale layoffs during the pandemic is a shortage of talent. Capuano estimates that the company is trying to fill 10,000 job vacancies at 600 of its properties in the United States. Because many of its laid-off workers left the hospitality industry entirely, Marriott is also trying to restore confidence among workers in the travel and tourism industry. With bookings increasing, Capuano remains optimistic about the future. He is pleased with the momentum he sees in the recovery and hopes for a strong return of travel across Marriott‘s various brands. And he believes the best way to honor the legacy of his friend and mentor Arne Sorenson is to keep the company on the path Sorenson established: value the company‘s culture and remain resilient and adaptable regardless of what crisis occurs in the business environment.

Chapter 06 Planning, Strategy, and Competitive Advantage

I. Planning and Strategy LO 6-1: Identify the three main steps of the planning process and explain the relationship between planning and strategy. A. Planning is a process managers use to identify and select appropriate goals and courses of action for an organization. The organizational plan that results from the planning process details how managers intend to attain those goals. The cluster of managerial decisions and actions to help an organization attain its goals is its strategy. Planning is a three-step activity: 1. The first step is determining the organization‘s mission and goals. A mission statement is a broad declaration of an organization‘s purpose that identifies the importance of the organization‘s products to its employees and customers and distinguishes the organization from its competitors. 2. The second step is formulating strategy. 3. The third step is implementing strategy.

II. The Nature of the Planning Process A. To perform the planning task, managers: 1. establish and discover where an organization is at the present time, 2. determine where it should be in the future, and 3. decide how to move it forward to reach that future state. B. Why Planning Is Important 1. Planning is necessary to give the organization a sense of direction and purpose. 2. Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization. 3. Planning helps coordinate managers of the different functions and divisions of an organization to ensure that they all pull in the same direction and work to achieve its desired future state. 4. Planning can be used as a device for controlling managers within an organization. C. Henri Fayol said that effective plans should have four qualities: 1. Unity means that at any time only one central plan is put into operation. 2. Continuity means that planning is an ongoing process.

Chapter 06 Planning, Strategy, and Competitive Advantage 3. Accuracy means that managers should attempt to collect and use all available information. 4. The planning process should have enough flexibility so that the plans can be altered and changed if the situation changes. D. Levels of Planning: In large organizations, planning usually takes place at three levels of management: corporate, business or division, and department or functional. 1. At the corporate level are the CEO, other top managers, and their support staff. 2. At the business level are the different divisions or business units that compete in distinct industries of the company, usually led by a divisional manager. 3. Each division has its own set of functions or departments, such as manufacturing, marketing, R&D, human resources, etc. E. Levels and Types of Planning 1. The corporate-level plan contains top management‘s decisions pertaining to the organization‘s mission and goals, overall strategy, and structure. 2. Corporate-level strategy indicates in which industries and national markets an organization intends to compete and why. 3. At the business level, the managers of each division create a business-level plan detailing long-term divisional goals that will allow the division to meet corporate goals and the division‘s business-level strategy and structure. 4. Business-level strategy states the methods a division or business intends to use to compete against its rivals in an industry. 5. A functional-level plan states the goals that the managers of each function will pursue to help the division attain its business-level goals. 6. Functional-level strategy is a plan of action to improve the ability of each of an organization‘s functions to perform its task-specific activities in ways that add value to an organization‘s goods and services. F. Time Horizons of Plans: Plans differ in their time horizon, the periods of time over which they are intended to apply. 1. Long-term plans have a horizon of five years or more. 2. Intermediate-term plans have a horizon between one and five years. 3. Short-term plans have a horizon of one year or less.

Chapter 06 Planning, Strategy, and Competitive Advantage 4. A corporate-level or business-level plan that extends over several years is typically treated as a rolling plan, a plan that is updated and amended every year to take account of changing conditions in the external environment. G. Standing Plans and Single-Use Plans 1. Standing plans are used in situations in which programmed decision making is appropriate. Standing plans include a policy, a rule, and a standard operating procedure. 2. Single-use plans are developed to handle nonprogrammed decision making. They include: a. Programs, which are integrated sets of plans for achieving certain goals. b. Projects, which are specific action plans created to complete various aspects of a program. TEXT REFERENCE Manager as a Person Walgreens’ CEO Writes Prescription for Growth Rosalind (Roz) Brewer the new CEO at Walgreens Boots Alliance. Hired away from the COO position at Starbucks in February 2021, Brewer continues to put together her management team at the drugstore chain while reviewing and possibly revising corporate strategies. Brewer has a strong track record of getting things done. Trained as a chemist, she worked her way from research technician to the head of global operations for paper manufacturer Kimberly Clark. She left that position to become a vice president at Walmart, eventually becoming the president of Walmart‘s U.S. East business unit, leading a team responsible for more than $100 billion in annual revenues. Ten years ago, she made history when she was named CEO of Sam‘s Club, becoming the first woman and first African American to lead the warehouse company owned by Walmart. Sending a strong signal as to the corporate strategies and direction the company will take, Brewer recently hired several key executives with backgrounds in health care and retail and is committed to Walgreen‘s initiative of tech-based health care for its customers. In addition, the company recently moved more than 100 customized applications for corporate management and planning to the cloud, consolidating apps previously hosted on computers in thousands of Walgreen stores into one single platform. This digital strategy will help speed up inventory management and accounts payable, among other company functions. In addition, Brewer recently added a new CFO to her Walgreens team, Jeff Gruener, who previously worked in various executive positions at Walmart, including head of finance, merchandising, and global procurement over a 12-year tenure. One of only two Black women running Fortune 500 companies, Brewer received criticism and death threats while at Sam‘s Club when she called out the lack of diversity in U.S. companies. She acknowledges that gender and racial bias continue to challenge managers and employees in corporate America today. Her message, particularly to women, is to ―stay steadfast and keep using your voice.‖

Chapter 06 Planning, Strategy, and Competitive Advantage

III. Determining the Organization’s Mission and Goals A. Defining the Business: To determine an organization‘s mission, managers must first define its business by asking three questions: 1. Who are our customers? 2. What customer needs are being satisfied? 3. How are we satisfying customer needs? B. Establishing Major Goals: Once the business is defined, managers must then establish a set of primary goals to which the organization is committed. These goals give the organization a sense of direction or purpose. 1. Strategic leadership, the ability of the CEO and top managers to convey a compelling vision of what they want the organization to achieve to their subordinates. 2. Goals typically possess the following characteristics: a. They are ambitious, that is, they stretch the organization and require managers to improve its performance capabilities. b. They are challenging but realistic—a goal that is impossible to attain may prompt managers to give up. c. The time period in which a goal is expected to be achieved should be stated. This injects a sense of urgency and acts as a motivator.

IV. Formulating Strategy LO 6-4: Describe the vital role managers play in implementing strategies to achieve an organization’s mission and goals. A. In strategy formulation, managers work to develop the set of strategies that will allow an organization to accomplish its mission and achieve its goals. 1. A SWOT analysis is a planning exercise in which managers identify internal organizational strengths (S), weaknesses (W), opportunities (O), and threats (T). Based on a SWOT analysis, managers at each level of the organization identify strategies that will best position the organization to achieve its mission and goals. a. The first step in SWOT analysis is to identify an organization‘s strengths and weaknesses that characterize the present state of the organization. b. The next step requires managers to identify potential opportunities and threats in the environment that affect the organization in the present or may affect it in the future. 6-163 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 Planning, Strategy, and Competitive Advantage c. On completion of the SWOT analysis, managers can begin developing strategies that allow the organization to attain its goals by taking advantage of opportunities, countering threats, building strengths, and correcting organizational weaknesses. 2. The Five Forces Model: Michael Porter‘s five forces model is another well-known model that helps managers focus on the most important competitive forces, or potential threats, in the external environment. They are: a. the level of rivalry among organizations within an industry b. the potential for entry into an industry c. the power of large suppliers d. the power of large customers e. the threat of substitute products. 3. The term hypercompetition applies to industries that are characterized by permanent, ongoing, intense competition brought about by advancing technology or changing customer tastes, fads and fashions.

V. Formulating Business-Level Strategies LO 6-2: Differentiate among the main types of business-level strategies and explain how they give an organization a competitive advantage that may lead to superior performance. A. Michael Porter formulated a theory of how managers can select a business-level strategy to give them a competitive advantage in a particular market or industry. According to Porter, to obtain higher profits, managers must choose between two basic ways of increasing the value of an organization‘s products: 1. Differentiating the product to increase its value 2. Lowering the costs of making the product Porter also argues that managers must choose between serving the whole market or serving just one segment.

B. Low-Cost Strategy 1. With a low-cost strategy, managers try to gain a competitive advantage by focusing the energy of all the organization‘s departments on driving the organization‘s costs down below the costs of its industry rivals. 2. Organizations pursuing a low-cost strategy can sell a product for less than their rivals, and still make a good profit. C. Differentiation Strategy 6-164 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 Planning, Strategy, and Competitive Advantage 1. With a differentiation strategy, managers try to gain a competitive advantage by focusing all the energies of the organization‘s departments on distinguishing the organization‘s products from those of competitors. 2. As the process of making products unique and different is expensive, organizations that successfully pursue a differentiation strategy often charge a premium price for their products. D. “Stuck in the Middle” According to Porter, a company cannot pursue a low-cost and differentiation strategy simultaneously. He refers to managers and organizations that have not selected between the two as being ―stuck in the middle.‖

E. Focused Low-Cost and Focused Differentiation Strategies 1. Porter identified two other business-level strategies used by companies aiming to serve the needs of customers in one or a few segments of the market. 2. A company pursuing a focused low-cost strategy serves one or a few segments of the market and aims to be the lowest-cost company serving that segment. 3. A company pursuing a focused differentiation strategy serves just one or a few segments of the market and aims to be the most differentiated company serving that segment.

TEXT REFERENCE MANAGEMENT INSIGHT Choosing a Strategy: Differentiating Canada Goose Toronto-based Canada Goose makes high-end outerwear, specializing in $1,000 jackets and parkas. The company sells online and in 12 stores, featuring rooms set to below zero temperatures for testing winter gear. Canada Goose operates eight factories in Canada plus nearby schools that train people to sew. Twothirds of its sales are in North America, but sales are increasing in Asia and Europe. The company‘s CEO, Dani Reiss, is the founder‘s grandson. Under Reiss‘s grandfather and father, Canada Goose made mostly private-label clothing—products that other companies sell under their brand names. Reiss‘s father invented a down-filling machine, which led the company to focus on outerwear. As Reiss got more involved, he noticed a strategic opportunity. While visiting trade shows, he discovered that the company‘s name brought respect. Consumers believed that Canadians understand how to cope with cold weather, so they concluded the coats‘ quality was excellent. Reiss got approval to try a new strategy. While other apparel makers in North America were moving operations to low-wage countries in order to compete on price, his company would use the Canada Goose

Chapter 06 Planning, Strategy, and Competitive Advantage brand to differentiate itself. Making clothes in Canada, where wages were five times those of the lowwage countries, would keep costs high. Therefore, Canada Goose would target its products to people who could pay for top quality. Seeing the initial success of that strategy, Canada Goose has reinforced its image with an effort for social good: It has partnered with Inuit seamstresses, who create limited-edition parkas using materials supplied by the company. The distinctive designs are displayed in the company‘s stores, and sales of these parkas generate funds for an organization that advocates for Inuit rights. Focused differentiation has fueled growth in sales and profits. That growth brings challenges. Making top-quality down parkas requires craftsmanship, but sewing skills are hard to find in North America. To develop talent, Canada Goose has built its own schools to teach the use of industrial sewing machines; to attract students, it partners with local governments and employment agencies. Another challenge results from selling to a small segment: When some customers can‘t buy, the hit to revenues is significant, as when an outbreak of a new coronavirus strain disrupted the global economy in 2020. In Reiss‘s view, meeting these challenges is worthwhile. He is proud of building opportunities for Canada‘s workforce and believes the company‘s ―made in Canada‖ message makes it timeless.

VI. Formulating Corporate-Level Strategies LO 6-3: Differentiate among the main types of corporate-level strategies and explain how they are used to strengthen a company’s business-level strategy and competitive advantage. A. Corporate-level strategy is a plan of action that determines the industries and countries an organization should invest its resources in to achieve its mission and goals. B. Concentration on a Single Industry: This is a corporate-level strategy in which a company reinvests its profits to strengthen its competitive position in its current industry.

TEXT REFERENCE Focus on DE&I UPS CEO Uses Experience to Drive Values Carol Tomé says it was ―easy to say yes‖ to becoming CEO of UPS. The company has a well-respected brand and delivers about 25 million packages a day. When Tomé assumed the role, she and her leadership team agreed to continue on the same path but with a fresh expression of the values behind it: ―Moving our world forward by delivering what matters.‖ In keeping with this mission, UPS would grow through continued concentration on package delivery, providing excellent service and value by empowering employees. The team reviewed all its major projects and prioritized those supporting the mission and strategy. Tomé‘s approach worked. UPS increased profit margins through investing in technology and targeting small businesses. Greater profitability led to a rise in stock price, which had been flat for years. UPS also improved on mission-focused measures including share of customers saying they would recommend UPS as a service and share of employees saying they would recommend UPS as a place to work. Tomé credits

Chapter 06 Planning, Strategy, and Competitive Advantage employee empowerment for the company‘s success, especially in meeting the surge in demand following the onset of the COVID-19 pandemic. Tomé‘s focus on values, including those related to diversity, equity, and inclusion, is an outgrowth of her experience. Early in her career, she accepted that executives should focus mainly on company value, measured by its stock price. Then at Home Depot, she saw that investing in employees—respecting them and seeking their well-being—improved how they took care of customers, which increased the company‘s value. She became UPS‘s CEO shortly after the video of the killing of George Floyd jarred the nation and world. Tomé set aside her original ideas for rallying employees and shared her feelings of anger and shame at the injustice and her commitment to values-based action. UPS has followed up on that message with a salary review to inform pay equity, training in bias avoidance and respect, and a revised dress code that is inclusive of diversity in natural and facial hair. The company also has diversified its board with members who are Asian, Black, and female.

C. Vertical Integration: It is the corporate-level strategy that involves a company expanding its business operations either backward into a new industry that produces inputs for the company‘s products (backward vertical integration) or forward into a new industry that uses, distributes, or sells the company‘s products (forward vertical integration). 1. Managers pursue vertical integration because it allows them to either add value to their products by making them special or unique or to lower the costs of making and selling them. 2. Although vertical integration can increase an organization‘s performance, it can also reduce an organization‘s flexibility to respond to changing environmental conditions. 3. Vertical integration may sometimes reduce a company‘s ability to create value when the environment changes. Therefore, many companies divest themselves of units that draw attention and resources away from an organization‘s primary purpose. D. Diversification: It is the strategy of expanding operations into a new business or industry in order to produce new goods or services There are two main types of diversification: related and unrelated. 1. Related Diversification: It is the strategy of entering a new business or industry to create a competitive advantage in one or more of an organization‘s existing divisions or businesses. a. Synergy is obtained when the value created by two divisions cooperating is greater than the value that would be created if the two divisions operated separately. b. To pursue related diversification successfully, managers seek new businesses in which existing skills and resources can be used to create synergies. 6-167 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 Planning, Strategy, and Competitive Advantage 2. Unrelated Diversification: Managers pursue unrelated diversification when they establish divisions or buy companies in new industries that are not related to their current businesses or industries. a. By pursuing unrelated diversification, managers can buy a poorly performing company and use their management skills to turn around its business, thereby increasing its performance. b. Unrelated diversification allows managers to engage in portfolio strategy, which is the practice of apportioning financial resources among divisions to increase financial returns and spread risks among different businesses. E. International Expansion: Corporate-level managers must decide on the appropriate way to compete internationally. 1. If an organization needs to sell its products abroad or compete in more than one national market, managers must ask themselves to what extent should their company customize its product‘s features and marketing campaign to suit different national conditions. 2. Global strategy is selling the same standardized product and using the same basic marketing approach in each national market. 3. If managers decide to customize products and marketing strategies to specific national conditions, they adopt a multidomestic strategy. 4. The major advantage of global strategy is the significant cost savings associated with not having to customize products and marketing approaches. The major disadvantage is that by ignoring national differences, managers are vulnerable to local competitors. 5. The major advantage of multidomestic strategy is that by customizing product offerings and market approaches, managers are able to gain market share or charge higher prices. The major disadvantage is that customization raises production costs and puts the company at a price disadvantage. F. Choosing a Way to Expand Internationally: Before setting up foreign operations, managers must analyze the forces in the environment of a particular country and choose the best method to expand and respond to those forces in the most appropriate way. 1. Exporting and Importing: A company engaged in importing sells products at home

that are made abroad (products it makes itself or buys from other companies). A company engaged in exporting makes products at home and sells them abroad. 2. Licensing and Franchising:

Chapter 06 Planning, Strategy, and Competitive Advantage a. In licensing, a company allows a foreign organization to take charge of both manufacturing and distributing one or more of its products in the licensee‘s country or region of the world in return for a negotiated fee. b. In franchising, a company sells to a foreign organization the rights to use its brand name and operating know-how in return for a lump sum payment and a share of the franchiser‘s profits. 3. Strategic Alliances: In a strategic alliance, managers pool or share their

organization‘s resources and know-how with those of a foreign company, and the two organizations share the rewards or risks of starting a new venture in a foreign company. a. A joint venture is a strategic alliance among two or more companies that agree to jointly establish and share the ownership of a new business. b. Risk is reduced and a capital investment is generally involved. 4. Wholly Owned Foreign Subsidiaries: When managers decide to establish a wholly

owned foreign subsidiary, they invest in establishing production operations in a foreign country, independent of any local direct involvement. This method is much more expensive than the others but also offers high potential returns.

VII. Planning and Implementing Strategy LO 6-4: Describe the vital role managers play in implementing strategies to achieve an organization’s mission and goals. After identifying appropriate strategies, managers confront the challenge of putting those strategies into action. Strategy implementation is a five-step process:

1. Allocating responsibility for implementation to the appropriate individuals or groups. 2. Drafting detailed action plans that specify how a strategy is to be implemented. 3. Establishing a timetable for implementation that includes precise, measurable goals linked to the attainment of the action plan. 4. Allocating appropriate resources to the responsible individuals or groups. 5. Holding specific individuals or groups responsible for the attainment of corporate, divisional, and functional goals.

Chapter 06 Planning, Strategy, and Competitive Advantage

LECTURE ENHANCERS Lecturer Enhancer 6.1 THE IMPORTANCE OF MISSION STATEMENTS Mission statements can be defined as ―enduring statements of purpose that distinguish one organization from similar enterprises.‖ A mission statement should define the exact nature of a company‘s business for each group of stakeholders with which it is involved. Businessweek magazine reports that firms with wellcrafted mission statements have a 30% higher return on certain financial measures than firms that lack such documents. In addition, a number of academic studies suggest there is a positive relationship between mission statements and organizational performance. Researchers suggest that a well-crafted mission statement can ensure unanimity of purpose, arouse positive feelings about the firm, provide direction, serve as a focal point, provide a basis for objectives and strategies, and resolve divergent views among managers. In every organization, there are differing views among managers regarding direction and appropriate strategies. Discussing these issues in the course of developing a mission statement can help resolve these divergent views. This can be especially important to firms facing restructuring, downsizing, or faltering performance. A mission statement should also be inspiring. The reader should want to be a part of an organization after reading it. It should also be enduring, project a sense of worth and intent, and effectively communicate shared organizational expectations. The intrinsic value of the firm‘s product should also be clearly articulated. Some research suggests that there is a great deal of room for improvement in the mission statements of some companies. The expected payoff from improving its mission statement is enhanced communication, understanding, and commitment among managers and employees. This translates into enhanced individual and organizational performance. Adapted from‖ It‘s Time to Redraft Your Mission Statement,‖ Journal of Business Strategy, Vol. 24, No.1, p. 11.

Chapter 06 Planning, Strategy, and Competitive Advantage

Lecturer Enhancer 6.2 SCENARIO PLANNING Consider the horrors of 9/11 and the anthrax scares that followed, the Enron scandal, and the economic jitters caused by heightened tensions in the Middle East. Each of these occurrences has contributed significantly to the turbulence of the current business environment. If scenario planning was unable to help managers foresee and prepare for these specific developments, does that mean that it should be discredited as a managerial activity? Not if you understand what scenario planning is designed to do, believes Paul Schoemaker, a research director at the University of Pennsylvania‘s Wharton School. He says scenario planning was never intended to be substitute for crisis planning. It is, in fact, the opposite of one-track preparation for a single event. If a company is using scenario planning to prepare for specific crises, they are missing the point. The purpose of scenario planning is to broaden the array of possible future paths that are being contemplated by an organization. Those future paths can hold either opportunities or threats. If a company sees that they are on a different path than the one they are expected to be on, scenario planning provides the option to switch. Below are a few examples of companies that have engaged in scenario planning. Past events have taught them to prepare for the future by envisioning a variety of paths that may need to be traveled, given the uncertainty in which we all live. WHAT IF your risk profile shifts dramatically? U.S. insurers rethought risk-sharing in the wake of 1992's Hurricane Andrew, which caused a then-record $16.8 billion in losses. Primary insurers (think Allstate) began to share risk more broadly among themselves and sell off more to reinsurers (think Lloyds of London), which provide surplus coverage for major losses. These insurers upgraded their computer models to predict payouts and avoid overextending themselves. As a result, the insurance industry expects to fare better today even though the damages from future attacks could easily surpass those of Hurricane Andrew. WHAT IF demand suddenly falls off? How can a company quickly find allies who could help it consolidate the industry and save jobs? Arrow Electronics (Melville, N.Y.), a distributor of electronic components and computer products, faced such a dilemma when computer sales flattened in 1985. Arrow, the industry's scrappy No. 2 player, was able to acquire the No. 3 player. This swift move catapulted Arrow to the No.1 position, which it still holds. Chairman Stephen Kaufman says his company's outward focus has enabled it to react more quickly than its competitors. Companies today should take a cue from Arrow, reviewing their competitive landscape and thinking through merger scenarios. WHAT IF global events disrupt your supply chain? Compare General Motors' plight in the days after September 11th to Dell's. GM had to close down factories in Ontario due to parts delays at the Canadian border. Dell, which has built one of the world's best supply chain networks, chartered an airliner to fly parts from Taiwan to its Texas factory, ran factories day and night, and converted three 18-wheel trucks into mobile technology and support facilities in order to supply 24,000 computers to New York City and Washington, D.C.

Chapter 06 Planning, Strategy, and Competitive Advantage WHAT IF prices drop precipitously? The high-cost producer sets the price during boom times, and most competitors make money. In difficult times, the low-cost producer sets the price, thereby controlling the level of competitors' profit margins. Intel has cut prices on its microprocessors by 35%. Dell halved its prices and still makes money—not so for some of its competitors. The speed of the economy's decline underscores the importance of relative cost position. Therefore, firms must scrutinize their purchasing costs and cycle times relative to their competitors, detect the inefficient processes, and fix them. Adapted from ―Five Reasons Why You Still Need Scenario Planning,‖ Harvard Management Update, June 2002 and ―How to Think Strategically in a Recession, Harvard Management Update, November 2001

Chapter 06 Planning, Strategy, and Competitive Advantage

MANAGEMENT IN ACTION Notes for Topics for Discussion and Action DISCUSSION

1. Describe the three steps of planning. Explain how they are related. The first step in planning involves determining the organization‘s mission and goals. The second step is formulating strategy in which managers analyze the organization‘s current situation and then conceive and develop the strategies necessary to attain the organization‘s mission and goals. The third step is strategy implementation, in which managers decide how to allocate the resources and responsibilities required to put those strategies into action so that change will occur within the organization. The first step, determining the organization‘s mission and goals, guides the following two steps in the planning process by defining which strategies are appropriate and which are inappropriate.

2. What is the relationship among corporate-, business-, and functional-level strategies, and how do they create value for an organization? A corporate-level strategy is a plan that indicates in which industries and national markets an organization intends to compete. A business-level strategy indicates how a division intends to compete against its rivals in an industry. A functional-level strategy is a plan of action that managers of individual functions can follow to improve the ability of each function to perform its task-specific activities. In a planning process, it is important that there is a consistency in planning across the three divisions. When consistency is achieved, the organization operates with increasing efficiency and effectiveness.

3. Pick an industry and identify four companies in the industry that pursue one of the four main business-level strategies (low-cost, focused low-cost, etc.). Within the commercial airline industry, American Airlines attempts to differentiate itself by maintaining a reputation of providing superior service on a national level. Jet Blue pursues a focused differentiation strategy, since it also attempts to distinguish itself by providing superior service but only in secondary hubs. Southwest has successfully executed a low-cost strategy for many years. Sprint Airlines is also pursuing a low-cost strategy, but like Jet Blue, is restricted to servicing only secondary hubs.

Chapter 06 Planning, Strategy, and Competitive Advantage 4. What is the difference between vertical integration and related diversification? Related diversification is a strategy that entails entering a new business or industry with the intention of creating a competitive advantage by capitalizing on a current strength or core competency. Related diversification adds value to the company when managers can find ways for its various divisions or business units to share their valuable skills or resources so that synergy is created. Vertical integration is a strategy that entails entering a new business that either produces inputs for the company‘s products (backward vertical integration) or assists in the distribution or selling of the company‘s products (forward vertical integration).

5. Describe the five-step process managers can use to implement organizational strategies. The five-step process managers can use to implement strategy is as follows:

6. Ask a manager about the kinds of planning exercises he or she regularly uses. What are the purposes of these exercises, and what are their advantages or disadvantages? (Note to Instructors: Student answers will vary. The answers could include the techniques given below, or similar planning techniques.) The text discusses two types of strategy planning, SWOT Analysis and the Five Forces Model. SWOT analysis is the process by which managers identify organizational strengths (S), weaknesses (W), environmental opportunities (O) and threats (T.) Based on the results of this analysis, managers at the different levels of the organization then select the corporate-, business-, and functional-level strategies to best position an organization to achieve its mission and goals. Michael Porter created the Five Forces Model to help managers identify forces in the environment that are potential threats. He identified five principal factors that are major threats because they affect how much profit organizations competing with the same industry can expect to make. These five forces include:

1. The level of rivalry among organizations in an industry 2. The potential for entry into an industry 3. The power of the suppliers 4. The power of the customer 6-174 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 Planning, Strategy, and Competitive Advantage 5. Substitute products. 7. Ask a manager to identify the corporate- and business-level strategies used by his or her organization. (Note to Instructors: Students‘ answers should include the following information.) A corporate-level strategy is a plan of action concerning which industries and countries an organization should invest its resources in to achieve its mission and goals. Corporate-level strategies that managers use include: (1) concentration on a single business, (2) diversification, (3) international expansion, and (4) vertical integration. A business-level strategy is a plan to gain a competitive advantage in a particular market or industry. Managers choose to pursue one of four basic kinds of business-level strategies: a low-cost strategy, a differentiation strategy, a focused low-cost strategy or a focused-differentiation strategy.

AACSB: Analytic

Chapter 06 Planning, Strategy, and Competitive Advantage

BUILDING MANAGEMENT SKILLS How to Analyze a Company’s Strategy Pick a well-known business organization that has received recent press coverage and that provides its annual reports at its website. From the information in the articles and annual reports, answer these questions: (Note to Instructors: Prior to assigning this activity, it would be beneficial to ensure that your institution‘s library maintains ten years of stockholder reports. Otherwise, it could be an extremely timeconsuming process for your students to track down this information. An alternative is to reduce the length of time covered by the assignment. Students‘ answers will vary based on the company that they have chosen.)

1. What is (are) the main industry(ies) in which the company competes? (Note to Instructors: Students‘ answers may vary. The answer given below is indicative.) Victory Suitings Inc. was a clothing line established in 1970. It was mainly aimed at businessmen and executives. Its suits and other formal wear were in great demand among the business class. The company began its production with shirts, trousers, and suits, but quickly moved into ties and shoes. In 2004, it decided to expand its market by establishing a clothing line exclusively for children called Victory Kidswear. This establishment focused on casual and formal clothes for children. Today, it attracts many customers toward both its clothing lines.

2. What business-level strategy does the company seem to be pursuing in this industry? Why? When the company first started, it pursued a focused differentiation strategy, in which it only served the business class. Later, it used a differentiation strategy wherein it introduced formal wear for children which was absent in most of its competitors. This allowed the company to appeal to all kinds of consumers and to establish its own brand image.

Chapter 06 Planning, Strategy, and Competitive Advantage 3. What corporate level strategies is the company pursuing? Why? The company is pursuing the corporate-level strategy of concentration on a single industry, wherein it has never detached itself from the clothing line. This allowed the managers to increase its efficiency as it is only focusing on a single industry. It has also used the related diversification strategy, wherein it has tried to create a competitive advantage within its own organization. Through related diversification, the company has obtained synergy, wherein the two divisions coordinate their actions to improve the performance of the company.

4. Have there been any major changes in its strategy recently? Why? The company has not made any recent changes to its strategies because focusing on a single industry has allowed the company to satisfy all the customers‘ needs. If there is an indication of an increased level of competition, the company can pursue other strategies to expands its businesses.

AACSB: Analytic

Chapter 06 Planning, Strategy, and Competitive Advantage

MANAGING ETHICALLY 1. Either by yourself or in a group, decide if this business practice of paying bribes is ethical or unethical. In a market economy, it is assumed that an organization‘s ability to generate revenue is the result of its ability to develop a quality product with an attractive price and successfully market it. By distorting free market mechanisms over the long run, can impede the ability of a nation‘s economy to grow. Bribery also impedes economic growth by discouraging foreign direct investment from investors who are unwilling to incur the additional cost of paying a bribe to a middleman who adds no value to the end product. Allowing a small handful of government officials to benefit at the expense of an entire nation and its economy is clearly an unethical and unbalanced situation.

2. Should WPP allow its foreign divisions to pay bribes if all other companies are doing so? The payment of bribes violates the U.S. Foreign Corruption Practices Act, which forbids payment of bribes by U.S. companies to secure contracts abroad. Companies in violation of this law can be prosecuted in the United States. Allowing the practice of bribery would send the wrong message to its employees. Mature ethical development requires that managers remain committed to their organization‘s values, regardless of what is going on around them.

3. If bribery is common in a particular country, what effect would this likely have on the nation‘s economy and culture? Bribery by its competitors, according to one U.S. government study, cost American business $11 billion in a single year. In Germany, a legislator estimated that companies in his nation spend as much as $5.6 billion a year on bribes. Clearly, the diversion of such a large amount of any nation‘s resources from its production efforts creates inefficiency in its economy and is therefore counterproductive to growth. Bribery also encourages a creeping erosion of honesty, trust, and other human values that rest at the foundation of a healthy culture.

AACSB: Analytic AACSB: Reflective Thinking

Chapter 06 Planning, Strategy, and Competitive Advantage

BE THE MANAGER Questions

1. List the supermarket chains in your city and identify their strengths and weaknesses. Answers to this question will vary, depending upon the area of the country in which the students reside and the size of the local shopping area. You could recommend using a SWOT approach to compare each of the various competitors in your specific area. This industry has many different types of competitors, ranging from mass merchandisers such as Meijers and Kmart to small mom-and-pop grocers and farmers' markets. After identifying all of the competitors, students can begin analysis of each using the planning tools presented in the chapter.

2. What business-level strategies are these supermarkets currently pursuing? Discounters such as Cub and Aldi are using a low-cost strategy. Specialty retailers such as Wild Oats and Whole Foods are using a differentiation strategy.

3. What kind of supermarket would do best against the competition? What kind of business-level strategy should it pursue? The response to this question depends upon the variety of competitors identified in the first question. Answers should include a rationale that explains why a particular strategy would work. For example, if students feel that a new store should use a focused differentiation strategy to compete effectively, possible justifications may include demographic data that is descriptive of households in the surrounding community or awareness of a potentially lucrative market niche currently untapped by the competition.

AACSB: Analytic

Chapter 06 Planning, Strategy, and Competitive Advantage

CASE IN THE NEWS Best Buy Strategies Evolve with the Times Best Buy operates more than 1,000 electronics stores and employs around 125,000 people. It launched in the 1980s as part of the hot retail trend of ―big-box‖ stores offering choice and convenience at low prices. It acquired the Geek Squad in 2002 to offer service for increasingly complex computer equipment. It survived the Great Recession and saw the closing of rival Circuit City. However, it did not survive unscathed. It survived the recession through aggressive cost cutting, including the closing of operations in Europe and China and downsizing at its U.S. corporate headquarters. After the recession came the next big challenge, competition from online retailers. In 2010, Amazon introduced an app for comparing prices across retailers, and Best Buy suddenly found that it was losing comparisons despite its low-price strategy. On top of that, Amazon offered the convenience of shopping anywhere and anytime. In addition to improving its distribution and inventory management and improving employee benefits, Best Buy made the decision to utilize a differentiation strategy, making its face-to-face personal touch and in-home service a distinguishing characteristic. Best Buy also seeks distinctive products to sell. It was a leader in opening boutique-style store departments for Apple, Samsung, and Microsoft; those brands pay rent and use their own salespeople or train Best Buy associates. This way, Best Buy can improve customer service while increasing revenues. Another move was to form a joint venture with Amazon. The two rivals agreed to sell a line of smart televisions equipped with Amazon Fire TV and Alexa voice assistant, available only from Best Buy and Amazon. Incoming CEO Corie Barry, long-time company executive, believes there is more market share to be had. She plans to gain it by continuing to differentiate Best Buy from competitors. The global pandemic forced Best Buy to rethink its strategies again, with many consumers working remotely and not visiting retail stores to purchase goods and services. CEO Corie Barry, who took the top job when Hubert Joly retired in 2019, says the company shifted its strategy to focus on a more digital future with an increased emphasis on online sales and virtual technology services. She says consumers have completely changed the way they think about shopping and ―we have been doing everything we can to adjust to the new reality.‖ Changes have included smaller physical stores with fewer employees, more space within existing stores devoted to warehouse and fulfillment operations, and increased training for store-level staff to allow them to do multiple jobs and ―flex into different work zones‖ as needed. In addition, Best Buy is hiring more workers in the areas of supply chain, small-parcel delivery, and technology. Questions

1. Review the details in this case and identify an example of (a) a corporate-level plan or strategy and (b) a functional-level plan or strategy. Corporate-level strategy is a plan of action that determines the industries and countries an organization should invest its resources in to achieve its mission and goals.

Chapter 06 Planning, Strategy, and Competitive Advantage Business-level strategy describes decisions about how the company will compete. The two main options are low-cost or differentiation, although some organizations opt to try to accomplish both. An example of a functional-level plan/strategy in the article is Best Buy‘s decision to adopt a differentiation strategy, using their enhanced service offerings to provide that differentiation. 2. Which of the changes in Best Buy‘s strategy do you see as being related to its rivalry with Amazon? Explain. As stated in the article, ―[Best Buy] invested in better distribution and inventory management to keep up with Amazon‘s superior customer fulfillment. Best Buy improved employee benefits and training to provide better customer service in stores despite the stiff competition for talent in the labor market. Best Buy also wanted to give consumers something that Amazon didn‘t offer. An online retailer can offer low prices and fast delivery, but the human touch from an online company is rare. Best Buy‘s executives saw an opportunity to deliver that human touch.‖

3. Do you think Best Buy‘s recent strategy shift to focus on the digital marketplace and increased emphasis on technology will pay off? Explain your reasoning. The digital marketplace has grown in popularity even more rapidly due to the COVID pandemic. Best Buy‘s strategy to focus on this channel seems likely to pay off as it enables the company to compete with competitors who are and are not similarly positioned. Consumers are provided with both brick-and-mortar and online options for a growing number of products, including those sold by Best Buy, so it makes sense that they meet consumers where they are.

AACSB: Analytic

Chapter 06 Planning, Strategy, and Competitive Advantage

IN-CLASS ACTIVITY Planning for a Local Restaurant Have students form small groups and give them the following directions: Think of the campus food court (or a nearby mall if no campus food court). Answer the following questions and be prepared to share with the class:

1. Create a list of all the restaurants featured there and describe how each restaurant differentiates itself (speed, food quality, fresh ingredients, specialty food, low cost, etc.) 2. Describe the target market. (Age, gender, income level, lifestyle preferences of likely customers) 3. How would you enter that very competitive market? a. What would be your food specialty or type of food? b. How would you differentiate the new food service? c. How would you deliver the food? (fine dining, fast food, casual fast food, food truck or popup restaurant, other?) d. What response, if any, would you expect from the competition?

Chapter 06 Planning, Strategy, and Competitive Advantage

CONNECT For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect

Case Analysis   

Barbie, Bratz, and SWOT Cisco Rules the Online World Choosing an International Strategy

Manager’s Hot Seat (MHS)  

Planning A Sweet Strategy

Video Case 

Planning and Management at Ford

iSeeIt! Animated Video  

Porter‘s Five Competitive Forces Porter‘s Four Competitive Strategies

Role-Playing (See Application-Based Activities within Connect.) 

Managerial Strategy: Are the Odds in Atlantic Hotels‘ Favor?

Worksheets  

Corporate-Level Strategies (Click and Drag) Business-Level Strategies (Click and Drag)

Chapter 06 Planning, Strategy, and Competitive Advantage

POWERPOINT SLIDES These PowerPoint slides can be used to supplement the lecture material. SLIDE 1 Chapter Title SLIDE 2 Learning Objectives SLIDE 3 Planning and Strategy SLIDE 4 Planning and Strategy: Mission Statement SLIDE 5 Figure 6.1: Three Steps in Planning SLIDE 6 The Nature of the Planning Process SLIDE 7 Topic for Discussion: Planning SLIDE 8 Why Planning is Important SLIDE 9 Why Planning is Important SLIDE 10 Figure 6.2: Levels of Planning at General Electric SLIDE 11 Levels and Types of Planning SLIDE 12 Figure 6.3: Levels and Types of Planning SLIDE 13 Levels and Types of Planning: Business-Level Plan and Strategy SLIDE 14 Levels and Types of Planning: Functional Level Plan and Strategy SLIDE 15 Topic for Discussion: Strategies SLIDE 16 Time Horizons of Plans SLIDE 17 Types of Plans: Standing and Single Use Plans SLIDE 18 Standing Plans SLIDE 19 Single-use Plans SLIDE 20 Determining the Organization‘s Mission and Goals: Defining the Business SLIDE 21 Figure 6.4: Three Mission Statements SLIDE 22 Determining the Organization‘s Mission and Goals: Establishing Major Goals SLIDE 23 Determining the Organization‘s Mission and Goals: Strategic Leadership SLIDE 24 Figure 6.5: Formulating Strategy SLIDE 25 Formulating Strategy: SWOT Analysis Low-cost and Differentiation SLIDE 26 Questions for SWOT Analysis SLIDE 27 The Five Forces Model: Competitive Forces SLIDE 28 The Five Forces Model: Hypercompetition SLIDE 29 Formulating Business-Level Strategies: Porter SLIDE 30 Formulating Business-Level Strategies: Low-cost and Differentiation SLIDE 31 Formulating Business-Level Strategies: Focused Low-cost and Focused Differentiation SLIDE 32 Topic for Discussion: Business Level Strategies

Chapter 07 Designing Organizational Structure SLIDE 33 Formulating Corporate-Level Strategies SLIDE 34 Vertical Integration SLIDE 35 Figure 6.6: Stages in a Vertical Value Chain SLIDE 36 Diversification SLIDE 37 Diversification: Related Diversification SLIDE 38 Diversification: Unrelated Diversification SLIDE 39 Topic for Discussion: Diversification and Integration SLIDE 40 International Expansion: Global Strategy SLIDE 41 International Expansion: Multi-domestic Strategy SLIDE 42 Figure 6.7: Four Ways of Expanding Internationally SLIDE 43 International Expansion: Exporting and Importing SLIDE 44 International Expansion: Licensing and Franchising SLIDE 45 International Expansion: Strategic Alliance and Joint Venture SLIDE 46 International Expansion: Wholly Owned Foreign Subsidiary SLIDE 47 Planning and Implementing Strategy SLIDE 48 Planning and Implementing Strategy SLIDE 49 Be the Manager

Chapter 07 Designing Organizational Structure CHAPTER CONTENTS Learning Objectives

7-2

Key Definitions/Terms

7-3

Chapter Overview

7-5

Lecture Outline

7-6

Lecture Enhancers

7-18

Management in Action

7-20

Building Management Skills

7-25

Chapter 07 Designing Organizational Structure Managing Ethically

7-29

Be the Manager

7-30

Case in the News

7-31

In-Class Activity

7-33

Connect Features

7-34

PowerPoint Slides

7-35

Chapter 07 Designing Organizational Structure

LEARNING OBJECTIVES LO 7-1. Identify the factors that influence managers’ choice of an organizational structure. LO 7-2. Explain how managers group tasks into jobs that are motivating and satisfying for employees. LO 7-3. Describe the types of organizational structures managers can design, and explain why they choose one structure over another. LO 7-4. Explain why managers must coordinate jobs, functions, and divisions using the hierarchy of authority and integrating mechanisms. LO 7-5. Describe how technology continues to help managers build strategic alliances and network structures to increase efficiency and effectiveness.

Chapter 07 Designing Organizational Structure

KEY DEFINITIONS/TERMS authority: The power to hold people accountable for their actions and to make decisions concerning the use of organizational resources.

job enrichment: Increasing the degree of responsibility a worker has over his or her job. job simplification: The process of reducing the number of tasks that each worker performs.

boundaryless organization: an organization whose members are linked by computers, email, computeraided design systems, video teleconferencing and cloud-based software, and who rarely, if ever, see one another face-to-face.

knowledge management system: A companyspecific virtual information system that systematizes the knowledge of its employees and facilitates the sharing and integration of their expertise.

B2B network structure: a series of global strategic alliances that an organization creates with suppliers, manufacturers, and distributors to produce and market a product.

market structure: An organizational structure in which each kind of customer is served by a selfcontained division; also called customer structure. matrix structure: An organizational structure that simultaneously groups people and resources by function and by product.

cross-functional team: A group of managers brought together from different departments to perform organizational tasks.

network structure: A series of strategic alliances that an organization creates with suppliers, manufacturers, and/or distributors to produce and market a product.

decentralizing authority: Giving lower-level managers and nonmanagerial employees the right to make important decisions about how to use organizational resources.

organizational design: The process by which managers make specific organizing choices that result in a particular kind of organizational structure.

divisional structure: An organizational structure composed of separate business units within which are the functions that work together to produce a specific product for a specific customer.

organizational structure: A formal system of task and reporting relationships that coordinates and motivates organizational members so that they work together to achieve organizational goals.

functional structure: An organizational structure composed of all the departments that an organization requires to produce its goods or services.

outsource: To use outside suppliers and manufacturers to produce goods and services.

geographic structure: An organizational structure in which each region of a country or area of the world is served by a self-contained division.

product structure: An organizational structure in which each product line or business is handled by a self-contained division.

hierarchy of authority: An organization‘s chain of command, specifying the relative authority of each manager.

product team structure: An organizational structure in which employees are permanently assigned to a cross-functional team and report only to the product team manager or to one of his or her direct subordinates.

integrating mechanisms: Organizing tools that managers can use to increase communication and coordination among functions and divisions. job design: The process by which managers decide how to divide tasks into specific jobs.

span of control: The number of subordinates who report directly to a manager.

job enlargement: Increasing the number of different tasks in a given job by changing the division of labor.

Chapter 07 Designing Organizational Structure strategic alliance: An agreement in which managers pool or share their organization‘s resources and know-how with a foreign company and the two organizations share the rewards and risks of starting a new venture.

task force: A committee of managers from various functions or divisions who meet to solve a specific, mutual problem; also called ad hoc committee.

Chapter 07 Designing Organizational Structure

CHAPTER OVERVIEW To create high performing organizations, managers must design an organizational structure that maximizes the efficient use of resources. This chapter opens by examining the four critical factors that help managers to determine the most appropriate organizational structure. Next, it discusses three components of organizational design: job design, grouping jobs into functions and divisions, and the coordination of functions and divisions. The chapter closes with a discussion of integrating mechanisms and the growing popularity of global strategic alliances and business-to-business network structures.

Chapter 07 Designing Organizational Structure

LECTURE OUTLINE NOTE ABOUT POWERPOINT SLIDES The PowerPoint slides include most chapter content, along with additional material that can be used to expand the lecture. A list of the PowerPoint slides can be found at the end of this chapter.

Management Snapshot Organizing to Better Manage Banner Health’s Facilities How Can an Effective Organizational Structure Enable High Performance? Phoenix-based Banner Health had a facilities problem. The problem involved facilities management, which maintains conditions such as temperature, humidity, and air pressure, providing an environment that is comfortable and safe for workers and patients. Across the six states where Banner Health operates, each facility had an automated system, and the organization did not have enough facilities management workers with the high-level skills required to maximize the system’s performance. Instead, employees tweaked the systems in various ways, and efficiency tended to deteriorate. The resulting inefficiency cost money and jeopardized meeting regulatory requirements and standards of patient care. This was especially concerning because the organization had an aggressive expansion plan. During a retrocommissioning project, which identifies facilities‘ climate status and needs, the organization decided to centralize operations in a remote operations center with highly trained employees to oversee all facilities. The benefits of this centralization began to accrue immediately, and resulted in a cost savings of almost $12 million within the first few years. This contribution to organizational efficiency contributed to the organization‘s ability to deliver excellent patient care as a result.

Chapter 07 Designing Organizational Structure

I. Designing Organizational Structure LO 7-1: Identify the factors that influence managers’ choice of an organizational structure. A. Organizing is the process by which managers establish the structure of working relationships among employees to allow them to achieve organizational goals efficiently and effectively. 1. Organizational structure is the formal system of task and job reporting relationships that determines how employees use resources to achieve goals. 2. Organizational design is the process by which managers make specific organizing choices about tasks and job relationships that result in a particular organizational structure. 3. According to contingency theory, managers design organizational structures to fit the factors or circumstances that are affecting the company and causing them the most uncertainty. B. Four factors are important determinants of the type of organizational structure or culture managers select: 1. The Organizational Environment: The more quickly the external environment is changing and the greater the uncertainty within it, the greater the need to speed decision-making and communication so that resources can be obtained. a. In such situations, managers make organizing decisions that result in more flexible structures and entrepreneurial cultures. Therefore, they are likely to decentralize authority, empower lower-level employees to make decisions, and encourage values and norms that emphasize change and innovation. b. In contrast, if the external environment is relatively stable, uncertainty is low, and resources are readily available, managers make organizing decisions that bring more stability or formality to the organizational structure. They choose values and norms that emphasize obedience and being a team player. Managers in this situation prefer to make decisions with a clearly defined hierarchy of authority, standard operating procedures, and restrictive norms to guide and govern employees‘ activities. c. In today‘s marketplace, increasing competition is putting pressure on managers to find ways to attract customers and increase efficiency and effectiveness. 2. Strategy: Different strategies often call for the use of different organizational structures and cultures. 7-192 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 Designing Organizational Structure a. A differentiation strategy aimed at increasing quality usually succeeds best in a flexible structure with a culture that values innovation. b. In contrast, a low-cost strategy aimed at driving down costs works best in a more formal structure with more conservative norms, which gives managers greater control. c. At the corporate level, when managers pursue a strategy of vertical integration or diversification, a flexible structure is needed to provide sufficient coordination between different business divisions. d. Managers are also challenged to create organizational structures that allow flexibility on a global level. 3. Technology is the combination of skills, knowledge, machines, and computers that are used in the design, production, and distribution of goods and services. a. The more complicated the technology, the greater the need for a more flexible structure that allows managers to respond quickly to unexpected situations. b. If technology is routine, a formal structure is more appropriate because tasks are simple and procedures to produce goods and services have been outlined in advance. c. According to researcher Charles Perrow, two factors determine how complicated or nonroutine technology is. They are task variety and task analyzability. i. Nonroutine technologies are characterized by high task variety and low task analyzability. ii.Routine technologies are characterized by low task variety and high task analyzability. iii. Examples of nonroutine technology are found in the work of scientists in an R&D laboratory who develop new products. iv. Examples of routine technology include typical mass-production or assembly operations, where workers perform the same task repeatedly and managers identify programmed solutions necessary to perform a task efficiently. 4. Human Resources: The more highly skilled a workforce and the greater the number of employees who work together in groups or teams, the more likely an organization is to use a flexible, decentralized structure and a professional culture based on values and norms that foster employee autonomy and self-control.

Chapter 07 Designing Organizational Structure a. Flexible structures, characterized by decentralized authority and empowered employees, are well suited to the needs of highly skilled people. b. Similarly, when people work in teams, they must be allowed to interact freely and develop norms to guide their own work interactions, which is also possible in a flexible organizational structure. c. The way an organization‘s structure works depends on the organizing choices managers make about three issues: i. How to group tasks into individual jobs ii.How to group jobs into functions and divisions iii. How to allocate authority and coordinate or integrate functions, and divisions.

II. Grouping Tasks into Jobs: Job Design LO 7-2: Explain how managers group tasks into jobs that are motivating and satisfying for employees. A. The first step in organizational design is job design, the process by which managers decide how to divide into specific jobs the tasks that have to be performed. 1. The result of the job design process is a division of labor among employees. Establishing an appropriate division of labor among employees is vital to increasing efficiency and effectiveness. 2. When deciding how to assign tasks to individual jobs, managers must be careful not to oversimplify jobs. Job simplification is the process of reducing the number of tasks that each worker performs. Too much job simplification may reduce efficiency rather than increase it, if workers become bored and unhappy. B. Job Enlargement and Job Enrichment 1. Job enlargement is increasing the number of different tasks in a given job by changing the division of labor. By increasing the range of tasks performed by a worker, managers hope to reduce boredom and increase motivation to perform. 2. Job enrichment is increasing the degree of responsibility a worker has over a job by: a. empowering workers to experiment to find new or better ways of doing the job, b. encouraging workers to develop new skills, 7-194 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 Designing Organizational Structure c. allowing workers to decide how to do the work and giving them the responsibility for deciding how to respond to unexpected situations, and d. allowing workers to monitor and measure their own performance. 3. By enriching an employee‘s job, managers are expecting the employee‘s level of involvement in their work to increase, thereby increasing productivity. 4. Managers who make design choices that increase job enrichment and job enlargement are likely to increase the degree to which workers behave flexibly rather than mechanically. 5. Narrow, specialized jobs lead people to behave in predictable ways. In contrast, workers who perform a variety of tasks and who are encouraged to discover new and better ways to perform their jobs are likely to act flexibly and creatively.

Chapter 07 Designing Organizational Structure TEXT REFERENCE Managing Globally: IKEA Rethinks its “Big Box” Future

IKEA‘s strategy of destination stores with thousands of square feet and sensory displays has made it the top selling furniture store in the world. However, now that consumers are changing how they shop and live, IKEA is restructuring its U.S. stores. The changes are under an umbrella dubbed Operation for Growth (O4G) and include retraining associates into two categories of floor workers, active sellers (who search for customers with questions and offer assistance) and merchandise basics (who are primarily responsible for restocking and are paid less than active sellers). The change has resulted in some confusion, since customers have no way to distinguish the two types of employees, and those employees who manage merchandise basics are not provided incentives to help customers. Globally, IKEA has made changes that have met with more success. They are opening smaller, targeted stores in urban areas and inside some malls. In addition to being smaller, some of them specialize (like kitchen cabinets). IKEA also acquired TaskRabbit, on online marketplace offering furniture assembly.

C. The Job Characteristics Model: J. R. Hackman and G. R. Oldham‘s job characteristics model explains how managers can make jobs more interesting and motivating. According to Hackman and Oldham, every job has five characteristics that determine how motivating the job is: 1. Skill variety is the extent to which a job requires an employee to use a wide range of different skills, abilities, or knowledge. 2. Task identity is the extent to which a job requires an employee to perform all the tasks necessary to complete the job, from the beginning to the end of the production process. 3. Task significance is the degree to which an employee feels their job is meaningful because of its effect on people outside the organization. 4. Autonomy is the degree to which a job gives an employee the freedom and discretion needed to schedule different tasks and decide how to carry them out. 5. Feedback is the extent to which actually doing a job provides an employee with clear and direct information regarding how well they have performed the job. 6. The five job characteristics affect an employee‘s motivation by affecting three critical psychological states: a. feeling that one‘s work is meaningful b. feeling responsible for work outcomes, and 7-196 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 Designing Organizational Structure c. feeling responsible for knowing how those outcomes affect others.

III. Grouping Jobs into Functions and Divisions: Designing Organizational Structure LO 7-3: Describe the types of organizational structures managers can design, and explain why they choose one structure over another. A. After task allocation, the next organizing decision is how to group jobs together to best match the needs of the organization‘s environment, strategy, technology, and human resources. 1. Most top-management teams group jobs into departments and develop a functional structure. 2. As the organization grows, managers design a divisional structure or a matrix or product team structure. B. Functional Structure: A function is a group of people, working together, who possess similar skills or use the same knowledge, tools, or techniques to perform their jobs. A functional structure is a structure composed of all the departments that an organization requires to produce its goods or services. 1. The advantages of grouping jobs according to function are: a. When people who perform similar jobs are grouped together, they can learn from observing one another. b. When people who perform similar jobs are grouped together, it is easier for managers to monitor and evaluate their performance. c. The functional structure allows managers to create the set of functions they need to scan and monitor the competitive environment. 2. As an organization grows, the functional structure may become less efficient and effective for the following reasons: a. Managers in different functions may find it more difficult to communicate and coordinate with one another. b. Functional managers may become so preoccupied with supervising their own specific departments that they lose sight of organizational goals. C. Divisional Structures: Product, Market, and Geographic: As the problems associated with growth and diversification increase over time, most managers of large organizations choose a divisional structure and create a series of business units, each of

Chapter 07 Designing Organizational Structure which produces a specific kind of product for a specific kind of customer. Each division is a collection of functions or departments that work together to produce the product. There are three different forms of divisional structure: product structure, geographic structure, and market structure.

1. Product Structure: When using a product structure, managers place each distinct product line in its own self-contained division and give divisional managers the responsibility for devising an appropriate business-level strategy. a. Each division is self-contained because it has a complete set of all the functions that it needs to produce goods or services. b. It allows functional managers to specialize in only one product area, so they are able to build expertise. Each division‘s managers can become experts in their industry. c. It frees corporate managers from the need to supervise directly each division‘s day-to-day activities. d. The extra layer of management, the divisional management layer, can improve the use of organizational resources. e. It puts divisional managers close to their customers and lets them respond quickly and appropriately. TEXT REFERENCE Ethics In Action: Pfizer’s Prescription for a Healthier Organizational Structure

Drugmakers operate in a challenging environment. They must excel at innovation (or allow competition from generics to erase profits) and quality (lest defects harm patients). Their customer mix is complex, because sales are often not to patients, but to wholesalers, pharmacy benefits companies, and government payers. And since pharmaceuticals restore health and save lives, society judges companies harshly for any action that limits access to their products. How to stay competitive and ethical? Pfizer, a large U.S. pharmaceutical company, ran into trouble when they were accused of making donations to a patient assistance program with the expectation that their donations would be used to purchase their drugs. (They agreed to pay $24 million with no admission of wrongdoing.) They also have failed to prevent drug shortages, especially after Hurricane Maria in Puerto Rico, where many of their injectable drugs are manufactured. Lastly, they are blamed for price increases since patients see prices rising constantly on medicines they sometimes cannot afford. To address these issues, pharma managers need a deep understanding of markets and brands and must be ready to adapt quickly to a changing world. In 2019, Pfizer spun off its Upjohn unit. Next, it agreed

Chapter 07 Designing Organizational Structure to combine its over-the-counter medicine business with GlaxoSmithKline‘s (GSK) to form a new joint venture, which was eventually taken over by GSK. Once the consumer products unit was spun off, Pfizer focused its business into six segments: internal medicine, oncology, anti-infectives, inflammation and immunology, rare disease, and vaccines. The vaccines unit, in partnership with Germany‘s BioNTech, developed a COVID-19 vaccine in record time to help fight the global pandemic, which continues to affect people the world over. (The drug development process typically takes ten years.) In addition to protecting individuals against the deadly virus, the vaccine has contributed nearly $36 billion to Pfizer‘s bottom line in fiscal 2021.

2. Geographic Structure: When organizations expand rapidly both at home and abroad, functional structures can create problems because managers in one central location may find it increasingly difficult to deal with problems arising in other regions of the country or world. a. In such cases, a geographic structure, in which divisions are broken down by geographical location, is chosen. b. Managers are most likely to use a global geographic structure when pursuing a multidomestic strategy, since customer needs vary widely by country or world region. c. In contrast, mangers are most likely to use a global product structure when they pursue a global strategy, since customers abroad are willing to buy the same kind of product or slight variations of it. 3. Market Structure: Sometimes managers group functions according to the type of customer buying the product, in order to tailor an organization‘s products to each customer‘s unique demands. a. A market structure, also called customer structure, is an organizational structure in which each kind of customer is served by a self-contained division. b. It allows managers to be responsive to the needs of customers and allows them to make decisions in response to customers‘ changing needs. D. Matrix and Product Team Designs: Matrix and product team designs are the most flexible type of organization structures. 1. Matrix Structure: In a matrix structure, managers group people and resources in two ways simultaneously: by function and by product. The result is a complex network of reporting relationships that makes the matrix structure very flexible. a. Each person in a product team reports to two managers: 1) a functional boss, who assigns individuals to a team and evaluates their performance, and 2) the boss

Chapter 07 Designing Organizational Structure of the product team, who evaluates their performance on the team. Thus, team members are known as two-boss employees. b. The functional employees assigned to product teams change over time as the specific skills needed by the team change. To keep the matrix flexible, product teams are empowered and team members are responsible for making important decisions. c. Matrix structures have been successfully used for years at high-tech companies, where new product development takes place frequently and the need to innovate quickly is vital to the organization‘s survival. 2. Product Team Structure: The dual reporting relationships of a matrix structure have always been difficult for managers and employees to deal with. To avoid these problems, managers have devised a product team structure to organize people and resources. a. The product team structure differs from a matrix in two ways: (1) it does away with dual reporting relationships and two-boss employees, and (2) functional employees are permanently assigned to a cross-functional team. b. A cross-functional team is a group of managers brought together from different departments to perform organizational tasks. They report only to the product team manager or to one of his or her subordinates. c. Increasingly, organizations are making empowered cross-functional teams an essential part of their organizational architecture to help them gain a competitive advantage in fast-changing organizational environments.

IV. Coordinating Functions and Divisions LO 7-4: Explain why managers must coordinate jobs, functions, and divisions using the hierarchy of authority and integrating mechanisms. A. The more complex the structure a company uses to group its activities, the greater are the problems of linking and coordinating its different functions and divisions. Coordination becomes a problem because each function or division develops a different orientation toward the other groups that affects the way it interacts with them. B. Allocating Authority: To coordinate the activities of people, functions, and divisions and to allow them to work together, managers must develop a clear hierarchy of authority. 1. Authority is the power vested in a manager to make decisions and use resources to achieve organizational goals by virtue of his or her position in an organization.

Chapter 07 Designing Organizational Structure a. The hierarchy of authority is an organization‘s chain of command. Every manager, at every level of the hierarchy, supervises one or more subordinates. b. The term span of control refers to the number of subordinates who report directly to a manager. c. A line manager is someone who is in the direct line or chain of command and has formal authority over people and resources. d. A staff manager is a manager responsible for a specialist function. e. Managers at each level of the hierarchy confer on managers below them the authority to make decisions. By accepting this authority, those lower-level managers are accountable for how well they make those decisions. 2. Tall and Flat Organizations: As an organization grows in size, its hierarchy of authority normally lengthens, making the organizational structure taller. a. A tall organization has many levels of authority relative to company size. b. A flat organization has fewer levels relative to company size. c. As a hierarchy becomes taller, effective communication becomes difficult and expenses rise. i. It can take a long time for decisions to move downward in the hierarchy, causing disconnection between top and middle managers. ii.Also, it can result in the distortion of commands and messages being transmitted up and down the hierarchy. 3. The Minimum Chain of Command: The principle of the minimum chain of command states that top managers should always construct a hierarchy with the fewest levels of authority necessary to efficiently and effectively use organizational resources. a. To ward off the problems associated with tall organizations, top managers must be sure that they are employing the right number of middle and first-line managers. b. Effective managers constantly scrutinize their hierarchies to see if the number of levels can be reduced. 4. Centralization and Decentralization of Authority: Another way in which managers keep the organizational hierarchy flat is by decentralizing authority, that is, giving lower-level managers and non-managerial employees the right to make important decisions about how to use organizational resources. 7-201 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 Designing Organizational Structure a. Decentralizing authority allows the organization to behave in a flexible way as it grows and becomes taller. b. However, too much decentralization has disadvantages, including managers who may begin to pursue their own goals at the expense of organizational goals and a lack of communication among functions or divisions that may prevent possible synergies. c. Top managers must seek a balance between centralization and decentralization of authority that best responds to the four contingencies that they face. d. If managers in a stable environment are using well-understood technology, and are producing stable kinds of products, there is no need to decentralize authority. e. However, in uncertain, changing environments where high-tech companies are producing state-of-the art products, top managers must often empower employees and allow teams to make important strategic decisions.

Chapter 07 Designing Organizational Structure TEXT REFERENCE Management Insight: How Charlie Scharf Streamlined Wells Fargo’s Structure

Charles Scharf took the CEO position with Wells Fargo in 2019, shortly after the company was rocked by scandal. Employees had been caught opening accounts for customers without the customers‘ knowledge or permission. A federal investigation found wrongdoing and resulted in several fines and consent orders between 2016 and 2018. Most serious was a limit on assets the bank could hold, imposed by the Federal Reserve Board in 2018. Scharf worked to restore the company‘s reputation with a series of actions. He replaced much of the top management team and examined the company‘s structure. He found that the company was decentralized to an unusual degree and had a confusing chain of command. In response, Scharf reorganized Wells Fargo to make its structure simpler and its lines of authority unmistakable. He divided it into five divisions, each with a risk officer to ensure everyone in their division was following regulations. At the same time, because of the asset cap, the bank could not grow through its core businesses of consumer and business lending unless it sold off other assets. With his leadership team, Scharf sorted businesses into ―core‖ and ―noncore,‖ then sold off those businesses considered noncore. By the last quarter of 2021, Wells Fargo was posting a gain in share price, signaling investor confidence in Scharf‘s transformation of the troubled banking giant.

C. Integrating and Coordinating Mechanisms: Managers can use various integrating mechanisms to increase communication and coordination among functions and divisions. The greater the complexity of an organization‘s structure, the greater is the need for coordination among functions and divisions. 1. Liaison Roles: When the volume of contacts between two functions increases, one way to improve coordination is to give one manager in each function or division the responsibility for coordinating with the other. a. The responsibility for coordination is a part of the liaison‘s full-time job. b. Usually an informal relationship forms between the people involved, greatly easing strains between functions. 2. Task Forces: If two or more functions share common problems, and direct contact and liaison roles do not provide sufficient coordination, a task force may be appropriate. a. One manager from each relevant function or division is assigned to a task force that meets to solve a specific, mutual problem. b. Members are responsible for reporting to their own departments on the issues addressed and solutions recommended.

Chapter 07 Designing Organizational Structure c. Task forces are often called ad hoc committees because they are temporary. Once the problem is resolved, the task force is disbanded. 3. Cross-Functional Teams: To address recurring problems effectively, managers are increasingly using permanent integrating mechanisms such as cross-functional teams. a. An example of a cross-functional team is a new product development committee that is responsible for the choice, design, manufacturing, and marketing of a new product. 4. Integrating Roles: An integrating role is a role whose only function is to increase coordination and integration among functions or divisions to achieve performance gains from synergies. a. Usually, senior managers who can envisage how to use the resources of the functions or divisions to obtain new synergies are chosen to perform such roles. b. The more complex an organization, the more important integrating roles become.

V. Strategic Alliances, B2B Network Structures, and Technology LO 7-5: Describe how technology continues to help managers build strategic alliances and network structures to increase efficiency and effectiveness. 1. A strategic alliance is a formal agreement that commits two or more companies to exchange or share their resources in order to produce and market a product. Strategic alliances are usually formed because the companies involved have similar interests and believe they can benefit by cooperating. 2. A B2B network structure is a series of global strategic alliances that one or several organizations create with suppliers, manufacturers, and/or distributors to produce and market a product. Network structures allow an organization to manage its global value chain in order to find new ways to reduce costs and increase the quality of products, without incurring the high costs of operating a complex organizational structure. 3. The process of outsourcing—using outside suppliers and manufacturers to produce goods and services—helps to keep the organization‘s structure flat and flexible. 4. The ability of managers to produce and distribute products using a network structure instead of creating a complex organizational structure, has led to the popularity of the idea of a boundaryless organization. Such an organization is composed of people linked by IT—computers, email, computer-aided design systems, 7-204 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 Designing Organizational Structure video-teleconferencing, and cloud-based software—who may rarely, if ever, see each other face-to-face. 5. Large consulting companies utilize their employees in this way. Consultants are connected by laptops to the organization‘s knowledge management system, its company-specific information system that systematizes the knowledge of its employees and facilitates the sharing and integration of their expertise. 6. With the B2B network structure, most or all of the companies in an industry use the same software platform to link to each other and establish industry specifications and standards as well as to solicit bids from thousands of potential suppliers worldwide. Suppliers also use the same software platform, so electronic bidding, auctions, and transactions are possible between buyers and sellers around the

LECTURE ENHANCERS Lecturer Enhancer 7.1 ORGANIZING FOR CUSTOMER SERVICE Traditional formal organization structure can stifle an organization‘s ability to deliver exemplary customer service. To meet the needs of customers, a more fluid approach is needed. An example of this is the customer-supplier relationship developed by Digital Equipment Corporation, which attempts to build lasting partnerships with its customers by anticipating not only the day-to-day requirements of customers, but also by helping them plan for the unexpected. An example of this occurred at 3:30 a.m. January 4, 1988 when an electrical fire in Chase Bank‘s main production site in Manhattan wiped out the fifty-story building‘s power, including all computer systems. This was the first day of the banking new year and Chase expected to process well over its daily average money transfer volume. When Chase purchased its equipment, Digital assisted in planning for the everyday and back-up operations crucial to the bank‘s relationship with its customers. They also supported a secondary site which was fully operational and configured to meet the backup processing requirements of the main production facility. The situation for Chase was potentially threatening. If on-line systems failed to process even one day‘s worth of transactions, the bank could be subject to serious penalties. Two Digital field service crews were on the scene before dawn—one downtown and another at one of the bank‘s contingency sites. Simultaneously, a Digital team from manufacturing, sales, and field service banded together, coordinating overnight delivery of additional parts and peripherals. That same day, the operational site was fully operational, enabling Chase to successfully complete 95 percent of its business volume. Digital continuously worked with bank personnel until the main production site was back in business. For Chase customers, it was business as usual.

Chapter 07 Designing Organizational Structure

Lecture Enhancer 7.2 FLEXIBLE DESIGN EXTENDS TO THE WORKPLACE Businesses, having become convinced of the value of teamwork, are starting to redesign offices to accommodate the teams. Braun Inc., a small appliance manufacturer and a Gillette Co. subsidiary, recently celebrated its move from a traditional office building in Lynnfield, Mass. to a two-story, 38,000square-foot site where employees meet at oases furnished with cafe-style tables and chairs, computer terminals for Internet browsing, and aquariums stocked with exotic fish. ―We wanted to change the rules and create a more open environment that would encourage communication and collaboration,‖ said president Bruce Cleverly. ―We had already restructured our business by creating cross-functional teams that allow our finance, logistics, sales, and marketing people to work together based on specific products. We needed an environment that reflected our new approach.‖ Braun is hardly alone. Over the last decade, International Business Machines Corp., Chrysler Corp., AT&T Co., and Ford Motor Corp. have all redesigned their office spaces with an eye toward flexibility and open communication. Not surprising, the office-furniture industry has capitalized on the trend, aggressively marketing flexible furnishings for the flexible workspace. One example: Personal Harbor, a Steelcase Inc. product that helps companies build their own collaborative office spaces with cabinets on wheels, screens with dual functions, and other portable furnishings. To be sure, the much-maligned cubicle of Dilbert fame still exists. But at Braun, the standard cubicle now includes stylish glass openings that allow employees to see beyond their own gray walls and reflect light from the banks of windows that line the office. Braun‘s Cleverly described the impetus for creating the new, open office. With company sales expected to reach the $500 million-mark next year, the firm needed more space, giving it a ready-made opportunity to move to a more open floor plan. So, Braun hired architects Jung & Brennan Inc. to draw up plans for renovation of some additional leased space. Under the architects‘ direction, contractors tore down walls, connected two floors by way of a spiral staircase, and created a meeting place in the lobby with the look and feel of a living room. Additionally, the new floor plan encouraged socializing by developing islands where the company‘s 170 employees could meet in small groups. The company still uses offices, but windows lessen the isolation that previously characterized the executives‘ old offices. And strategically placed meeting places make it possible for people to gather for impromptu or planned discussions throughout the day. Jim Barter, a Braun product manager, says the new office has encouraged brainstorming and reduced the amount of time it takes to gather information. ―It‘s easier to connect with the people you need and share ideas. You just walk out the office door,‖ he said.

Chapter 07 Designing Organizational Structure

MANAGEMENT IN ACTION Notes for Topics for Discussion and Action (Note to Instructors: Students‘ answers may vary. The answers given below are only indicative.) DISCUSSION:

1. Would a flexible or a more formal structure be appropriate for these organizations: (a) a large department store (b) a Big Four accountancy firm (c) a biotechnology company? Explain your reasoning. A large department store should utilize a formal structure. The retail business is a relatively stable environment. Resources are readily available, and uncertainty is low. Less coordination and communication among people and functions is needed to obtain resources. In a department store, most important decisions can and should be made by top managers within a clearly defined hierarchy of authority. Employees do not need to decide which products to sell, or how the store will market itself. Employee activities should be governed by extensive rules and standard operating procedures. A Big Five accountancy firm should utilize a more flexible structure. Most of these firms are expanding globally, and global expansion is facilitated by a flexible structure that allows for more autonomy at lower levels in the organization. Also, primarily, professionals staff an accounting firm. Flexible structures are best suited to the needs of highly skilled people. Most accountants have learned professional honesty and integrity in their training, and would likely resent close supervision, a distinct feature of a formal structure. A biotechnology firm should also implement a flexible structure, due to the ever-changing and developing environment in which it operates. A flexible structure makes it easier to speed decision making and communication, and makes it easier to obtain resources. In addition to the environment, technology is also a factor. The more complicated the technology, the greater the need for a more flexible structure. Biotechnology firms have incredibly complicated skills, knowledge, tools, machines, and computers used to conduct research and develop products. Many of their human resources are skilled, as scientists or doctors, and do not require close management supervision.

2. Using the job characteristics model as a guide, discuss how a manager can enrich or enlarge subordinates‘ jobs. A university has many different departments and positions, so a typical job may not be easy to identify. Since a secretary would be found in most departments, that will be used as an example.

Chapter 07 Designing Organizational Structure A secretary of a department may have duties like typing, answering the telephone, taking messages, accepting packages, and mailing out information. The skill variety may be sufficient if the secretary feels that a wide range of skills, abilities, and knowledge are being used. Task identity may not be very high for a secretary, since most tasks, such as typing a letter or sending out department information, probably don‘t require a very complicated process. Increased task identity can be gained by having the secretary give input concerning the type of information the department sends out, or having the secretary contribute to the content of this information. Secretaries can often feel that they have task significance when faculty or staff thank them for completing a task and therefore show them that their work is important.

3. How might a salesperson‘s job or a secretary‘s job be enlarged or enriched to make it more motivating? Allowing them to schedule their various activities and be responsible for reporting to management on their progress could enrich a salesperson‘s job. A salesperson could also be charged with the task of finding new ways to approach customers or close a sale that make repeat business more likely. Management might encourage their sales force to develop new skills, such as marketing techniques and knowledge that can be applied to their current jobs. A workshop for salespeople could be arranged to help figure out ways to respond to unexpected situations, with various workshop members offering suggestions and solutions. Giving him or her the opportunity to handle new responsibilities could enrich a secretary‘s job. A manager could encourage a secretary to develop new skills or extend the opportunity to decide how to do the work, for example, developing a new way of organizing files or documents. Allowing a secretary to monitor and measure their own performance might also give him or her a feeling of job involvement, and encourage flexibility rather than rigidity in the work setting.

4. When and under what conditions might managers change from a functional to (a) a product (b) a geographic, or (c) a market structure? A functional structure is a structure that is composed of all the necessary departments that an organization requires to produce its goods or services. A functional structure might be changed to a product structure if growth and diversification in an organization become a problem over time. Managers might create divisions according to the type of product or service they provide if they decide to diversify into new industries or to expand their range of products. By placing each distinct line or business in its own selfcontained division and giving the divisional managers the responsibility for devising the right businesslevel strategy, the division will be in a better position to compete effectively in that industry or market. A geographic structure may be adopted when organizations are expanding rapidly both at home and abroad. Managers find it increasingly difficult to manage, from one central location, the problems and issues that may arise in each region of the country or area of the world. When shifting to this structure, management breaks down divisions by geographic location, giving managers the flexibility they need to best meet the needs of regional customers.

Chapter 07 Designing Organizational Structure A market structure is appropriate when an organization needs to group functions according to the type of customer buying the product. This structure allows managers to be more responsive to the needs of their customers and allows them to act flexibly to make decisions that are needed to quickly respond to changing customer needs. This structure is beneficial in organizations where the time factor is critical.

5. How do matrix structures and product team structures differ? Why is the product team structure more widely used? In a matrix structure, managers group people and resources in two ways simultaneously: by function and by product team. In developing this structure, managers build a network of reporting relationships among product teams and functions. Each person in a product team reports to both a functional and a product team boss (known as two-boss managers.) Matrix structure makes the most use of human resources because people are only part of the team when their skills are needed, and leave the team after they have completed their assignment. A product team structure is different from a matrix structure in that (1) it does away with dual reporting relationships and two-boss managers; and (2) in a product team structure, employees are permanently assigned to a cross-functional team, and the team is empowered to bring a new or redesigned product to market. Members of a cross-functional team report only to the product team manager or one of his/her direct subordinates. The product team structure is more widely used today because dual reporting relationships that characterize the matrix structure are difficult for managers and employees to handle. Often, the two bosses make conflicting demands, leaving employees confused and frustrated. Functional and product team bosses may come into conflict over who is in charge of which team members for how long, since members are not permanently assigned to a cross-functional team in a matrix structure, like they are in a product team structure. A product team structure is used because it allows flexibility with a structure that is easier to operate.

6. As high-powered, low-cost wireless technologies continue to grow, many managers soon may not need to come to an office to do their jobs but may work at home. What are the pros and cons of such an arrangement? Managers who do not come to an office but instead do their jobs at home are taking part in boundaryless organization. Such an organization is composed of people linked by technology who may rarely, if ever, see one another face-to-face. People are utilized when their services are needed, much as in a matrix structure, but they are not formal members of an organization; they are functional experts who form an alliance with an organization, fulfill their contractual obligations, and then move on to the next project. Like the matrix structure, the boundaryless organization offers flexibility, allowing managers to innovate quickly, form teams to meet new and changing needs, and keep pace with an increasingly complex environment. However, a disadvantage of this structure is that people who work for the company will often have little or no loyalty to the firm because they are hired experts. As a result, team chemistry and support will suffer, and workers might not be motivated to do their best job.

Chapter 07 Designing Organizational Structure ACTION

7. Find and interview a manager and identify the kind of organizational structure that his or her organization uses to coordinate its people and resources. Why is the organization using that structure? Do you think a different structure would be more appropriate? Which one? Dr. Miller is the director of a survey research institute affiliated with a large university. The institute uses a functional structure, or one that encompasses all the necessary departments that it needs to produce its goods and services. Departments include sampling, interviewing, data collection, data processing, data programming, and accounting. Departments are arranged so that everyone possesses similar skills and uses the same kind of knowledge, tools, and techniques to perform their jobs. This structure is used so that people can learn from observing one another and can become more specialized and perform at a higher level. It is also easier for managers, or study directors, to monitor and evaluate the performance of their subordinates. Also, it allows study directors to scan and monitor the environment more efficiently. Occasionally, a different structure is used when it is deemed appropriate. In some research organizations, it is necessary to adopt a product structure. This occurs when a department accepts a project that is different from what is normally done by the organization. When this occurs, one team will be responsible for all aspects of one study, from data collection, to sampling, to evaluation, to data processing. This allows the team to concentrate on one project or subject area.

8. With the same or another manager, discuss the distribution of authority in the organization. Does the manager think that decentralizing authority and empowering employees is appropriate? Dr. Miller‘s department is structured hierarchically. Dr. Miller is the director of the department, and study directors report directly to her. Under the study directors, the divisions are similar in terms of authority. Each division has a person in charge of that division, with subordinates reporting to them. Study directors have line authority, that is, they are in the direct chain of command and are directly responsible for making the decisions about the research. Heads of the departments have staff authority, and are responsible for giving the best possible advice to the study directors about how resources and skills should be utilized. Dr. Miller explained that authority was decentralized, though final reports and communications needed to be approved by the director. Employees are somewhat empowered in that they are responsible for monitoring some of their own work, and they receive feedback on their performance. Dr. Miller did not think that more responsibility needed to be given to employees in addition to what they already have, since many grants and contracts are for national clients, who prefer to deal directly with the director and the study directors.

Chapter 07 Designing Organizational Structure 9. What are the advantages and disadvantages of business-to-business networks? Business-to-business networks allow an organization to manage its global value chain and to find new ways to reduce costs while increasing the quality of products—without incurring the high costs of operating a complex organizational structure. The push to reduce costs has led to the development of business-to-business marketplaces in which most or all of the companies in a specific industry use the same platform to link to each other and establish industry specifications and standards. Then these companies jointly list the quantity and specifications of the inputs they require and solicit bids from thousands of potential suppliers from around the world. Suppliers also use the same software platform, so electronic bidding, auctions, and transactions are possible between buyers and sellers on a global basis. The idea is that high-volume, standardized transactions can help drive down costs at the industry level. A disadvantage of the business-to-business networks is that an organization has less direct control over the companies it hires to perform services for the global value chain. These companies are independent, hired firms that might use methods that conflict with the policies of the hiring organization. For example, a hired company might have work conditions that do not meet the standards of the hiring organization or the home nation of the organization.

AACSB: Ethics AACSB: Analytic

Chapter 07 Designing Organizational Structure

BUILDING MANAGEMENT SKILLS Notes for Building Management Skills Understanding the Concept of Organizing Think of an organization with which you are familiar, perhaps one you have worked for—such as a store, restaurant, office, church, or school. Then answer the following questions.

1. Which contingencies are most important in explaining how the organization is organized? Do you think it is organized in the best way? Why or why not? A large university will be used as an example of an organization. The environment is important in explaining why a university is usually operated under a formal structure. Historically, universities have served the purpose of providing higher education, with adequate faculty and support staff. The environment was not subject to a high level of uncertainty, and resources were readily available. Most universities adopted the same strategy, perhaps differentiating some programs, but most were comparable in services and courses offered. Technology has emerged as a new standard, though computers are becoming increasingly prevalent in all aspects of teaching and administration. Human resources are less of a factor because the range is typically great, from professors, to custodial staff, to administrative staff. This formal, functional structure may not be the most appropriate for universities that hope to succeed in the coming years. Students are requiring more from schools, funding is scarce, and many schools need to learn to do more with less. A more flexible structure, at least in some departments, may help universities respond to the changing academic environment.

2. Using the job characteristics model, how motivating do you think the job of a typical employee is in this organization? Based upon the job characteristics model, the job of a professor should be extremely motivating since skill variety, task significance, task identity, autonomy and feedback are high. However, this may not be the case for a member of the university‘s administrative staff, such a secretary of a department. Skill variety may be sufficient if the secretary feels that she uses a wide range of skills, abilities, and knowledge. However, task identity may be low because there is little opportunity to complete a job from start to finish.

Chapter 07 Designing Organizational Structure 3.

Provide examples of how a typical job in this organization could be enlarged or enriched?

A secretary of a department may have duties such as typing, answering the telephone, taking messages, accepting packages, and sending out information. Having the secretary provide input concerning what type of information the department sends out or asking her to contribute to the content of this information can increase task identity. Secretaries can often feel that they have task significance when faculty or other staff members thank them for completing a task and therefore show them that their work is important.

4. What kind of organizational structure does the organization use? If it is part of a chain, what kind of structure does the entire organization use? What other structures discussed in the chapter might allow the organization to operate more effectively? For example, would the move to a product team structure lead to greater efficiency or effectiveness? Why or why not? A university is usually composed of different schools, for example, arts and sciences, engineering, business, and so on. Within each school, there are usually deans and faculty, both senior and associate. Overall, the structure is functional in that departments are made up of people who possess similar skills or use the same kind of knowledge, tools, or techniques to perform their jobs. There are other structures in a university, also. The fact that universities are divided into graduate and undergraduate programs is indicative of a market structure, in that the schools are divided according to the type of student on which they focus. Some universities are also divided into more than one campus, which makes a geographic structure appropriate. This allows schools to focus on the area in which a school is, as is the case when there is an urban and a suburban campus. Students at each of the two schools often have unique needs and issues. A product structure would not lead to more organizational effectiveness in this context because all the divisions or schools in the university should be striving to deliver the same product, which is a quality education. In terms of type of degree, a university could be labeled a product structure in that each faculty member tends to specialize in one school, and they can become experts in their respective fields.

5. How many levels are there in the organization‘s hierarchy? Is authority centralized or decentralized? Describe the span of control of the top manager and of middle or first-line managers. There are many levels in a university‘s hierarchy. The president of the university must report to a board of trustees, and deans of schools must report to both university president and the board. Senior faculty must report to the head of their department, and the heads of departments must report to deans of schools. Associate faculty need to report to senior faculty in their department, as well as the head of the department. Graduate students who work for the university must report to their advisors and department faculty. Authority tends to be centralized at the very top of each division, but becomes more decentralized as you move down the hierarchy. The president of the university cannot make all the decisions about which courses will be offered or which faculty will be hired, but some decisions about budget allocations and strategy are too monumental to be delegated to specific departments.

Chapter 07 Designing Organizational Structure The president has a large span of control, or many subordinates that he or she directly manages. The heads of departments, which can be viewed as middle managers, have large spans of control as well. A professor, which may be viewed as a first line manager, would have a small span of control, perhaps only over a few graduate students.

6. Is the distribution of authority appropriate for the organization and its activities? Would it be possible to flatten the hierarchy by decentralizing authority and empowering employees? The functional structure of a large university is appropriate because divisions like athletics, food service, maintenance and other operation divisions should be separate from the academic departments such as psychology, mathematics, education, and so forth. Authority is decentralized within each department so that the head of the department does not have to make day-to-day decisions, but is still informed of the activities that are being carried out. Within a very large university, sometimes the hierarchy is too formally structured in a way that makes it difficult to get things done. In some cases, a student may need the signature of a head of a department in order to add or drop a class. If the department head is very busy, it may be difficult for a student to fulfill this requirement, possibly causing him or her time and money. If authority was decentralized to faculty for this requirement, it would be easier for the student to fulfill it. Sometimes it is difficult to decentralize authority and empower employees in a situation where those with authority are unwilling to relinquish it to others. This can happen in a university as well as in any organization. Also, if departments or divisions are given too much decision-making authority, there is the danger that they will begin to pursue their own goals at the expense of the university‘s goals. An example might be a department that wants to concentrate heavily on research at the expense of teaching. This may not be in line with the strategy of the university primarily as an educational, rather than a research, institution.

7. What are the principal integrating mechanisms used in the organization? Do they provide sufficient coordination among individuals and functions? How might they be improved? Faculty and departmental meetings are held in which everyone meets to discuss relevant issues and to update one another on the status of their teaching and/or research activities. Different committees are also formed in which representatives of each division meet to address problems or issues that concern everyone. These committees serve as task forces within the academic system. These tools are used so that divisions can increase communication and coordination within themselves, and their departments. The existing integrating mechanisms may not be providing sufficient coordination between people and functions. These mechanisms could be improved by having cross-departmental meetings. In today‘s universities, many students are requesting inter-departmental learning. The boundaries between fields are becoming blurred, and students want to be able to take classes from and specialize in many different fields in order to be successful in their careers. Universities that continue to operate as if each department exists within a vacuum will find that students will look elsewhere for education that takes more of an

Chapter 07 Designing Organizational Structure integrative approach. The environment is changing in that students need to know more and have more diversified experiences. More direct contact with faculty from different divisions, and more cross-functional or cross-departmental teams or committees could promote communication and integration within the academic departments. In addition, liaisons from the ―real-world‖ could be established in order to connect the academic setting with the realities of the working environment. Faculty could meet with these liaisons to establish internships and job opportunities.

8. Now that you have analyzed the way this organization is structured, what advice would you give its managers to help them improve the way it operates? The advice that would be most helpful would be to be flexible. Certain functions need to remain separate, but departments and schools would do well to try to integrate more and become less strict with requirements to take certain classes in certain schools. Students should be allowed and encouraged to build their own curriculum so that they receive the relevant training that they need to succeed in today‘s world. The job opportunities that exist today require people who have many different skills and wide knowledge bases. The environment is very unstable in many industries, and employers are looking for students who possess initiative and creativity. Allowing for more flexibility within our education systems can promote this while providing quality education. AACSB: Analytic

Chapter 07 Designing Organizational Structure

MANAGING ETHICALLY (Note to Instructors: Students‘ answers may vary. The answers given below are only indicative.) QUESTIONS

1. What ethical rules (see Chapter 3) should managers use to decide which employees to terminate when redesigning their hierarchy? When redesigning the hierarchy requires downsizing, managers must be certain that the Justice Model guides their decision making. This model states that an ethical decision is one that is rendered in a fair, impartial, and equitable way and prohibits discrimination between people based on observable appearances or behaviors. Clearly, the strongest performers should be retained since they make the greatest contribution to the company‘s bottom line. Retaining employees based on factors unrelated to job performance, such as friendship or subservient behavior, undermines the organization‘s ability to compete effectively, thereby negatively impacting all stakeholders.

2. Some people argue that employees who have worked for an organization for many years have a claim on the organization at least as strong as that of its shareholders. What do you think of the ethics of this position—can employees claim to ―own‖ their jobs if they have contributed significantly to the organization‘s past success? How does a socially responsible organization behave in this situation? The highest performers should be retained because they make the greatest contribution to the company‘s bottom line, not because their performance has provided them with ―ownership‖ of their jobs. When downsizing long-time employees whose job performance has been mediocre or marginal, the highly ethical and socially responsible organization might provide free job outplacement counseling, generous severance pay, or other services that will help the employee adjust to their new situation. AACSB: Ethics

Chapter 07 Designing Organizational Structure

BE THE MANAGER QUESTIONS

1. Discuss ways in which you can improve how the current functional structure operates so that it speeds website development. Given the project-oriented nature of the firm, the matrix structure would work well. A product team structure with cross-functional roles would expedite the process of website development.

2. Discuss the pros and cons of moving to a (a) multidivisional, (b) matrix, or (c) product-team structure to reduce website development time. A multidivisional structure would help the company organize workers into smaller, more manageable units which would presumably work faster. With a matrix structure, employees from different functional areas would learn from each other and become more skilled and productive. The product team structure would allow employees to work cross-functionally but would do away with the dual reporting relationship of the matrix structure, which can be problematic.

3. Which of these structures do you think is most appropriate, and why? The product team structure appears to be the best alternative. Because they report to two bosses, employees often find the matrix structure frustrating and confusing. A divisional structure does not lend itself to the company‘s project orientation. AACSB: Analytic

Chapter 07 Designing Organizational Structure

CASE IN THE NEWS Case Synopsis: Volkswagen Group Aligns Structure with Strategy Herbert Diess, CEO of Volkswagen, which, along with Toyota, is one of the two largest carmakers describes the company‘s structure as kind of a ―conglomerate of brands.‖ Volkswagen is organized into an automotive division and a financial services division. The automotive division is divided into passenger cars and commercial vehicles. The financial services division provides customer financing, leasing, fleet management, and other services. Within the passenger car division, the various brands have their own independently managed marketing strategies. Volkswagen is the leader in volume sales, while Audi and Porsche offer premium brands. Recently, Volkswagen, like other carmakers, has run into problems with obtaining needed semiconductors on schedule. Pandemic-related factory shutdowns, weather events, and bottlenecks in transportation caused factories to shut down due to missing parts, especially semiconductors. Volkswagen responded by setting up a logistics task force to investigate the problems in its network of 40,000 suppliers and develop solutions. Options include pausing or rescheduling production, identifying new suppliers, and even rewriting vehicle software to run on whatever chips are available. Volkswagen also has standardized more of its components so that the company can use the same parts across vehicles, therefore placing larger orders and perhaps getting more attention from suppliers. Larger orders also make it more practical to set up networks of regional suppliers, rather than relying on one or a few global suppliers, which often are concentrated in distant regions. Before the company could take full advantage of the changes to improve their supply chain, the war in Ukraine began. While they were addressing this new challenge, Diess also turned his vision to electronic and autonomous vehicles of the future. He realized that a vehicle‘s software would be the distinguishing component over any other feature, and hence, the company launched a software subsidiary called CARIAD. Management wanted to control the process of developing vehicle software that is basically the same across brands yet is highly customizable to meet the needs of each brand and its customers, as well as changes in the business environment such as the recent semiconductor shortage. The company also is looking at expanding by adding new divisions at both ends of its supply chain, including more involvement in semiconductors and vehicle rentals. It also is diversifying its product line, which already includes Ducati motorcycles in the Audi business unit. In these and other ways, Volkswagen aims to refashion itself from a vehicle maker to a ―software-driven mobility provider.‖

Chapter 07 Designing Organizational Structure QUESTIONS

1. Volkswagen Group is structured in divisions based on product type. What are some advantages of this type of organization? What, if any, changes would you suggest to make the structure more appropriate for becoming a ―software-driven mobility provider‖? According to the text: Grouping functions into divisions focused on particular products has several advantages for managers at all levels in the organization. First, a product structure allows functional managers to specialize in only one product area, so they are able to build expertise and fine-tune their skills in this particular area. Second, each division‘s managers can become experts in their industry; this expertise helps them choose and develop a business-level strategy to differentiate their products or lower their costs while meeting the needs of customers. Third, a product structure frees corporate managers from the need to supervise directly each division‘s day-to-day operations; this latitude allows corporate managers to create the best corporate-level strategy to maximize the organization‘s future growth and ability to create value. For example, because they are able to take an organizationwide view, corporate managers are likely to make fewer mistakes about which businesses to diversify into or how to best expand internationally. Corporate managers also are likely to evaluate better how well divisional managers are doing, and they can intervene and take corrective action as needed. Student answers will vary regarding recommended changes. Changes could include creating designated integrating roles to coordinate with the CARIAD software division. The company may also need to revise their incentive plans to reward the divisions for working closely and successfully with the software division.

2. To meet two major challenges, Volkswagen set up task forces. Do you think this was an appropriate organizational structure for addressing the challenges? Why or why not? Task forces are appropriate when multiple divisions or functions share common problem. Also called ad hoc committees, they are formed specifically to solve specific, mutual problems and disband after the problem is solved. Due to the complexity and importance of the company‘s two major challenges, task forces were appropriate because they provided the focus and resources needed to tackle the problem.

3. Assume that Volkswagen was addressing the semiconductor situation by creating one task force and the turbulence in Ukraine by creating a second task force. What differences and overlaps might arise in their work? What mechanisms would you suggest the company use to integrate and coordinate the work of the two task forces? Volkswagen was attempting to solve a very similar problem with both task forces. Since they were formed at two different times, it might have been beneficial to use some of the same task force members on both groups. That would have had the benefit of the second task force learning from the experience and research of the first task force. Reassigning members would provide natural integration and coordination.

AACSB: Analytic

Chapter 07 Designing Organizational Structure

IN-CLASS ACTIVITY Change exercise: Pull up the Manager‘s Hot Seat video ―Organizational Structure‖ from the Instructor‘s Resources for Contemporary Management. 1. Lead the class through introductory review of organizing principles found at the beginning of the hot seat. 2. Advance through the exercise stopping at each question and allow the class to discuss with their neighbors and vote for their preferred action/answer. Voting can be accomplished using a remote response system (clickers), colored index cards (4 cards per student, for example, use pink for A, blue for B, yellow for C and green for D) or a simple show of hands. 3. Conclude with an analysis of their decisions and discussion of the complexities of the organization and reorganization process.

Chapter 07 Designing Organizational Structure

CONNECT For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect

Case Analysis  

A Change in Structure Designing Coordinating Elements

Manager’s Hot Seat (MHS) 

Organizational Structure

iSeeIt! Animated Video 

Job Characteristics Model

Self-Assessments and Role-Playing (See Application-Based Activities within Connect.)  

Self-Assessment: Identify Your Preferred Organizational Structure Role-Play: Aligning Organizational Structure and HR: Getting Swole into Shape

Chapter 07 Designing Organizational Structure

POWERPOINT SLIDES These Instructor‘s PowerPoint slides can be used to supplement the lecture material. SLIDE 1 Chapter Title SLIDE 2 Learning Objectives SLIDE 3 Learning Objectives SLIDE 4 Designing Organizational Structure: Organizing SLIDE 5 Designing Organizational Structure: Organizational Structure SLIDE 6 Designing Organizational Design: Organizational Design SLIDE 7 Figure 7.1: Factors Affecting Organizational Structure SLIDE 8 Topic for Discussion: Organizational Structure SLIDE 9 Job Design: Job Design and Job Simplification SLIDE 10 Job Design: Job Enlargement and Enrichment SLIDE 11 The Job Characteristics Model SLIDE 12 Topic for Discussion: Job Characteristics SLIDE 13 Grouping Jobs into Functions: Functional Structure SLIDE 14 Figure 7.2: The Functional Structure of The Home Depot SLIDE 15 Grouping Jobs into Functions: Advantages and Disadvantages SLIDE 16 Divisional Structures SLIDE 17 Types of Divisional Structures SLIDE 18 Product Structure SLIDE 19 Figure 7.3: Product, Geographic, and Market Structures SLIDE 20 Types of Divisional Structures: Geographic Structure and Global Geographic Structure SLIDE 21 Types of Divisional Structures: Global Product Structure SLIDE 22 Figure 7.4: Global Geographic and Global Product Structures SLIDE 23 Market Structure SLIDE 24Topic for Discussion: Structures SLIDE 25 Matrix Design Structure SLIDE 26 Figure 7.5: Matrix and Product Team Structures SLIDE 27 Product Team Structure SLIDE 28 Topic for Discussion: Matrix Structures SLIDE 29 Coordinating Functions and Divisions SLIDE 30 Allocating Authority SLIDE 31 Tall and Flat Organizations 1 SLIDE 32 Tall and Flat Organizations 2: Figure 7.6 Flat Organizational Hierarchy SLIDE 33 Tall and Flat Organizations 3: Figure 7.6 Tall Organizational Hierarchy

Chapter 08 Organizational Control and Change SLIDE 34 Centralization and Decentralization of Authority SLIDE 35 Integrating and Coordinating Mechanisms SLIDE 36 Figure 7.7: Types and Examples of Integrating Mechanisms SLIDE 37 Strategic Alliances SLIDE 38 Strategic Alliances: B2B Network Structure and Outsource SLIDE 39 Strategic Alliances: Boundaryless Organization SLIDE 40 Strategic Alliances: Knowledge Management System SLIDE 41 Topic for Discussion: Boundaryless Organizations SLIDE 42 Be the Manager

Chapter 08 Organizational Control and Change CHAPTER CONTENTS

Learning Objectives

8-2

Key Definitions/Terms

8-3

Chapter Overview

8-4

Lecture Outline

8-4

Lecture Enhancers

8-17

Management in Action

8-21

Building Management Skills

8-25

Managing Ethically

8-27

Be the Manager

8-28

Case in the News

8-29

In-Class Exercise

8-31

Connect Features

8-32

Chapter 08 Organizational Control and Change

PowerPoint Slides

8-33

Chapter 08 Organizational Control and Change LEARNING OBJECTIVES

LO 8-1. Define organizational control, and explain how it increases organizational effectiveness.

LO 8-2. Describe the four steps in the control process and the way it operates over time.

LO 8-3. Identify the main output controls, and discuss their advantages and disadvantages as means of coordinating and motivating employees.

LO 8-4. Identify the main behavior controls, and discuss their advantages and disadvantages as a means of managing and motivating employees.

LO 8-5. Explain how clan control or organizational culture creates an effective organizational architecture.

LO 8-6. Discuss the relationship between organizational control and change, and explain why managing change is a vital management task.

Chapter 08 Organizational Control and Change KEY DEFINITIONS/TERMS benchmarking: The process of comparing one company‘s performance on specific dimensions with the performance of other, high-performing organizations.

feedback control: Control that gives managers information about customers‘ reactions to goods and services so corrective action can be taken if necessary.

bottom-up change: A gradual or evolutionary approach to change in which managers at all levels work together to develop a detailed plan for change.

intrapreneurs: Employees of existing organizations who notice opportunities to develop new or improved products and better ways to make them.

bureaucratic control: Control of behavior by means of a comprehensive system of rules and standard operating procedures.

management by objectives (MBO): A goal-setting process in which a manager and each of his or her subordinates negotiate specific goals and objectives for the subordinate to achieve and then periodically evaluate the extent to which the subordinate is achieving those goals.

clan control: The control exerted on individuals and groups in an organization by shared values, norms, and standards of behavior. concurrent control: Control that gives managers immediate feedback on how efficiently inputs are being transformed into outputs so managers can correct problems as they arise.

operating budget: A budget that states how managers intend to use organizational resources to achieve organizational goals.

control systems: Formal target-setting, monitoring, evaluation, and feedback systems that provide managers with information about how well the organization‘s strategy and structure are working. entrepreneurs: People who notice opportunities and decide how to mobilize the resources necessary to produce new and improved goods and services. entrepreneurship: The mobilization of resources to take advantage of an opportunity to provide customers with new or improved goods and services.

organization change: The movement of an organization away from its present state and toward some desired future state to increase its efficiency and effectiveness. organizational culture: The set of values, norms, standards of behavior that control the way individuals and groups interact and work to achieve organizational goals. top-down change: A fast, revolutionary approach to change in which top managers identify what needs to be changed and then move quickly to implement the changes throughout the organization.

feedforward control: Control that allows managers to anticipate problems before they arise.

Chapter 08 Organizational Control and Change CHAPTER OVERVIEW

This chapter examines the nature of organizational control and describes the four steps of the control process. It also discusses three types of systems available to managers to control and influence organizational members: output control, behavior control, and clan control. Then, the important issue of organizational change is addressed. Organizational change is possible only when managers have put in place a control system that allows them to alter the way people and groups behave.

LECTURE OUTLINE

NOTE ABOUT POWERPOINT SLIDES The PowerPoint slides include most chapter content, along with additional material that can be used to expand the lecture. A list of the Instructor PowerPoint slides can be found at the end of this chapter.

Management Snapshot How Listening to Passengers Kept Delta Airlines Aloft What Controls Can Managers Use to Ensure Organizational Success? After COVID reduced travel to unimagined levels, one of the quickest and most effective responses came from Delta Airlines. In March 2020, it began gathering data on customer attitudes. In calls to corporate clients and surveys of leisure travelers, Delta learned customers felt unsafe sitting near strangers, regardless of any health and safety protocols already in place. Executives prioritized that concern and announced a policy of leaving each plane‘s middle seats vacant. Flying with empty seats would cut revenues, but the company hoped it would offset that loss by wooing a larger share of people back to airports. By measuring performance, Delta discovered in the final months of 2020 that leaving middle seats vacant resulted in 9% fewer seats for passengers than on competitors‘ planes. However, Delta was generating more revenue than its close competitors. Management concluded that Delta‘s customers were willing to pay more to have a greater sense of safety. In addition, the company‘s net promoter score (a measure of customers‘ willingness to recommend Delta) reached an all-time high. Several other airlines blocked off middle seats for weeks or months, but Delta kept the policy in place for an entire year, until COVID vaccines became widely available, and management grew hopeful that travelers were ready to fly again. Although Delta suffered losses during the year, by March 2021, they were close to breaking even. Then, the 2021 holiday season saw storms and new COVID variants that wiped out revenue increases. The year 2021 did have a couple of bright spots. In its annual ranking of top U.S. airlines, The Wall Street Journal

Chapter 08 Organizational Control and Change put Delta in first place for 2021, and the U.S. Bureau of Transportation Statistics said Delta had the best on-time performance in the same year. They forecast a more stable return to profitability in 2022.

I. What Is Organizational Control? LO 8-1: Define organizational control, and identify the main output and behavior controls managers use to coordinate and motivate employees. A. Controlling is the process whereby managers monitor and regulate how efficiently and effectively an organization and its members are performing the activities necessary to achieve organizational goals. 1. In controlling, managers monitor and evaluate whether their organization‘s strategy and structure are working as intended, how they could be improved, and how they might be changed if they are not working. 2. Control involves keeping an organization on track and anticipating events that might occur. 3. It is also concerned with keeping employees motivated, focused on the important problems facing the organization, and working together to make changes that improve organizational performance.

B. The Importance of Organizational Control: A control system contains the measures or yardsticks that allow managers to assess how efficiently the organization is producing goods and services. 1. Without a control system in place, managers have no idea how their organization is performing and how its performance can be improved. 2. Organizational control is important in determining the quality of goods and services because it gives managers feedback on product quality. 3. Effective managers create a control system that consistently monitors the quality of goods and services so that they can make continuous improvements to quality. 4. Managers can make their organizations more responsive to customers by developing a control system to evaluate how well customer-contact employees are performing their jobs, 5. Monitoring employee behavior can help managers find ways to increase employees‘ performance levels. 6. Controlling can raise the level of innovation in an organization by deciding on the appropriate control systems to encourage risk taking.

C. Control Systems and Technology: Control systems are formal target-setting, monitoring, evaluation, and feedback systems that provide managers with information about whether the organization‘s strategy and structure are working efficiently and effectively. 1. An effective control system has three characteristics:

Chapter 08 Organizational Control and Change a. It is flexible enough to allow managers to respond as necessary to unexpected events. b. It provides accurate information. c. It provides managers with the information in a timely manner. 2. New forms of technology have revolutionized control systems because they facilitate the flow of accurate and timely information up and down the organizational hierarchy and between functions and divisions. 3. Control systems are developed to measure performance at each stage in the conversion of inputs into finished goods and services. a. At the input stage, managers use feedforward control to anticipate problems before they arise so that problems do not occur later during the conversion process. At this stage, technology can be used to keep in contact with suppliers, monitor their progress, and control the quality of the inputs received from them. b. At the conversion stage, concurrent control gives managers immediate feedback on how efficiently inputs are being transformed into outputs.

i. Concurrent control through IT alerts managers to the need to react quickly to the source of the problem.

ii. Concurrent control is at the heart of programs to increase quality. c. At the output stage, managers use feedback control to provide information about customers‘ reactions to goods and services so corrective action can be taken if necessary. LO 8-2: Describe the four steps in the control process and the way it operates over time.

D. The Control Process: The control process, whether at the input, conversion, or output stage, can be broken down into four steps. They are: 1. Step 1: Establish the standard of performance, goals, or targets against which performance is to be evaluated. a. The standards of performance that managers select measure efficiency, quality, responsiveness to customers, and innovation. b. Performance standards selected at one level affect those at the other levels, and ultimately the performance of individual managers is evaluated in terms of their ability to reduce costs.

2. Step 2: Measure actual performance. a. Managers can measure or evaluate two things: i. the actual outputs that result from the behavior of their members ii. the behaviors themselves (hence the terms output control and behavior control). b. In general, the more non-routine or complex organizational activities are, the harder it is for managers to measure outputs or behaviors.

Chapter 08 Organizational Control and Change c. Outputs, however, are usually easier to measure than behaviors because they are more tangible and objective.

3. Step 3: Compare actual performance against chosen standards of performance. a. If performance is higher than expected, managers might decide they set performance standards too low and may raise them for the next period to challenge their subordinates.

b. If performance is too low and standards were not reached, or if standards were set so high that employees could not achieve them, managers must decide whether to take corrective action. 4. Step 4: Evaluate the result and initiate corrective action if the standard is not being achieved. TEXT REFERENCE Focus on DE&I Reducing Bias in Customer Service Despite claiming excellent customer service, few companies test for bias in serving all customers, including minorities. Researchers have conducted experiments to test for bias in serving customers—for example, by sending actors to shop in the same places for the same items or sending email requests that were identical except for the sender‘s name. Other studies analyze content posted online. Results include findings that real estate agents avoided certain neighborhoods when customers were Black; department store employees were more likely to accept a returned item if the shopper was female; U.S. hotel concierges were likelier to reply to an email asking for restaurant recommendations if the message was signed by a name that didn‘t sound ―foreign‖; customer service reps were less likely to reply to a service complaint on Twitter if the profile indicated the user was Black; and salespeople were less likely to smile and take time to help shoppers who appeared to be obese. Simply punishing an employee for mistreating a customer fails to utilize the control process effectively, which should include measuring performance to determine what biases exist in the organization. Organizations should talk to customers who represent the scope of diversity in its target markets, asking how easy it is to obtain products and how the customers experience interactions with service providers. In addition, most companies have extensive data about transactions; companies should examine the data to look at measures such as how often customers are put on hold, how many customers get perks, or whether messages include polite language. After identifying where service is not provided equitably across customer groups, an organization can establish controls to improve performance. A starting point is to ensure employees are often exposed to people inclusive of the organization‘s customers. This may include review of training materials to verify that all types of customers are fully represented, as well as ensuring diversity within the organization itself. Standardization, such as scripts for interactions or guidelines for distributing extras, can make service more equitable. Making equity something the company measures and rewards also is critical.

Chapter 08 Organizational Control and Change

II. Output Control LO 8-3: Identify the main output controls and discuss their advantages and disadvantages as means of coordinating and motivating employees. All managers develop a system of output control for their organizations. The three main mechanisms that managers use to assess output or performance are financial measures, organizational goals, and operating budgets. A. Financial Measures of Performance: Top managers use various financial measures to evaluate performance. The most common financial measures are: 1. Profit ratios measure how efficiently managers are using the organization‘s resources to generate profits. a. Return on investment (ROI): This is an organization‘s net income before taxes divided by its total assets, is the most commonly used financial performance measure. b. Operating margin is calculated by dividing a company‘s operating profit by sales revenues. 2. Liquidity ratios measure how well managers have protected organizational resources to be able to meet short-term obligations. a. The current ratio (current assets divided by current liabilities) tells managers whether they have the resources to meet claims for short-term creditors. b. The quick ratio tells whether they can pay these claims without selling inventory. 3. Leverage ratios such as the debt-to-assets ratio and the times-covered ratio measure the degrees to which managers use debt or equity to finance ongoing operations. 4. Activity ratios provide measures of how well managers are creating value from assets. a. Inventory turnover measures how efficiently managers are turning inventory over so excess inventory is not carried.

b. Days sales outstanding provide information on how efficiently managers are collecting revenue from customers. 5. Financial results inform managers about the results of past decisions, but do not tell them how to find new opportunities to build competitive advantage in the future. To encourage a future-oriented approach, organizational goals are needed. B. Organizational Goals: After the top managers have set the organization‘s overall goals, they then establish performance standards for the various divisions and functions. 1. These standards specify for divisional and functional managers the level at which their units must perform if the organization is to achieve its overall goals. 2. Divisional managers then develop a business-level strategy that they hope will allow them to achieve that goal.

Chapter 08 Organizational Control and Change 3. In consultation with functional managers, they specify the functional goals that managers of different functions need to achieve to allow the division to achieve its goals. 4. In turn, functional managers establish goals that first-line managers and non-managerial employees need to achieve to allow the function to achieve its goals. 5. It is vital that the goals set at each level harmonize with the goals set at other levels. 6. Also, goals should be set appropriately so that managers are motivated to accomplish them. 7. The best goals are specific, difficult goals that will challenge and stretch managers‘ ability but are not out of reach. C. Operating Budgets: The next step in developing an output control system is to establish operating budgets. 1. An operating budget is a blueprint that states how managers intend to use organizational resources to achieve organizational goals efficiently. 2. Managers at one level allocate to subordinate managers a specific amount of resources to produce goods and services. 3. These lower-level managers are evaluated on their ability to stay within the budget and to make the best use of resources. 4. Large organizations often treat each division as a stand-alone responsibility center, and then evaluate each division‘s contribution to corporate performance. a. Managers of a division may be given a fixed budget and evaluated on the amount of goods or services they can produce from it (a cost or expense budget approach). b. Or, managers may be asked to maximize the revenues from the sales of goods and services produced (a revenue budget approach). c. They may also be evaluated on the difference between the revenues generated and the budgeted cost of making those goods and services (a profit budget approach). D. Problems with Output Control: When designing an output control system, managers must be sure that the output standards they create motivate managers at all levels and do not encourage inappropriate behavior as a way to achieve organizational goals. 1. Managers must be sensitive to how they use output control and constantly monitor its effects at all levels in the organization. Output controls should serve as a guide to appropriate action. TEXT REFERENCE

Management Insight Wanted: Problem-Solving and Analytical Skills In today‘s job market, strong problem-solving and analytical skills are the top attributes employers are looking for on a college graduate‘s resume. According to the Job Outlook 2022 Survey by the National

Chapter 08 Organizational Control and Change Association of Colleges and Employers (NACE), more than 85% of the employer respondents will be seeking evidence of problem-solving skills on the resumes of students they are recruiting. The next two top skills employers are looking for in 2022 graduates are analytical/quantitative skills and the ability to work as part of a team. These same three traits were in the top three of the 2021 Job Outlook Survey, albeit in a slightly different order of importance. Unlike previous years, the 2022 report fewer than half of employers (46.3%) used a student‘s GPA as a significant screening tool. One of the most influential factors in hiring new college graduates continues to be a candidate‘s internship experience either within the hiring organization or within the organization‘s industry, especially when choosing between two equally qualified candidates. And there is good news for 2022 college grads. NACE estimates that employers plan to hire nearly 27% more new graduates for their U.S. operations than they did in 2021. TEXT REFERENCE Managing Globally Zero-Based Budgeting Helps Control Expenses More and more global businesses are telling investors or researchers that they have adopted a budgeting practice called zero-based budgeting (ZBB). With ZBB, the manager of each group or business division creates each year‘s budget from a blank worksheet. Every amount for every line item is established based on what is necessary for carrying out the year‘s work to accomplish the year‘s goals. This may sound basic, but in practice, most managers have saved both time and effort by starting with the previous year‘s budget and adjusting it upward (or downward) to reflect any changes in goals or circumstances. This tends to leave in place spending done out of habit or provided as a cushion for managers confronting unexpected needs. Creating a budget from scratch is harder, but today‘s information systems are making the use of ZBB more practical because they can quickly deliver detailed data about spending almost in real time. This strategy was extremely useful to many organizations during the global pandemic when finance executives were forced to take a more detailed look at company spending to keep costs and expenses in check. A chief reason for using ZBB is to cut unnecessary spending in the face of international competition for resources and customers. Consultants at Accenture see a bigger future for the principles of ZBB. They believe that the annual process, ground-up planning followed by performance measurement and control, applies to more than budgets. With this mind-set, organizations can look anew at all their processes to see where performance data can help them create a system that does the essentials and does them well.

III. Behavior Control LO 8-4: Identify the main behavior controls, and discuss their advantages and disadvantages as a means of managing and motivating employees.

Chapter 08 Organizational Control and Change Behavior control, along with output control, is a method of motivating employees. There are three mechanisms of behavior control that managers can use: direct supervision, management by objectives, and rules and standard operating procedures. A. Direct Supervision: The most immediate and potent form of behavior control is direct supervision by managers. 1. Under direct supervision, managers actively monitor and observe, teach, and correct subordinates. 2. When managers personally supervise subordinates, they lead by example and in this way, help subordinates develop and increase their own skills. 3. Problems associated with direct supervision include the following: I. It is very expensive because a manager can personally manage only a small number of subordinates effectively. For this reason, output control is usually preferred over behavior control. II. Direct supervision can demotivate subordinates if they feel that they are not free to make their own decisions. III. For many jobs, control through direct supervision is not feasible. The more complex a job is, the more difficult it is for a manager to determine how well an employee is performing. B. Management by Objectives: To provide a framework within which to evaluate subordinates‘ behavior, many organizations implement some version of management by objectives (MBO). 1. Management by objectives is a system of evaluating subordinates on their ability to achieve specific organizational goals or performance standards and to meet operating budgets. It involves three steps. a. Step 1: Specific goals and objectives are established at each level of the organization. b. Step 2: Managers and their subordinates together determine the subordinates‘ goals. c. Step 3: Managers and their subordinates periodically review the subordinates‘ progress toward meeting goals. 2. In companies in which responsibilities have been decentralized to empowered teams, MBO works somewhat differently. a. Managers ask each team to develop a set of goals and performance targets that the team hopes to achieve. b. Managers then negotiate with each team to establish its final goals and the budget the team will need to achieve them. c. Rewards are linked to team performance, not to the performance of any one team member. C. Bureaucratic Control: When direct supervision is too expensive and MBO is inappropriate, managers may use bureaucratic control.

Chapter 08 Organizational Control and Change 1. Bureaucratic control is control of behavior by means of a comprehensive system of rules and standard operating procedures (SOPs) that shape and regulate the behavior of divisions, functions, and individuals. a. Rules and SOPs guide behavior and specify what employees are to do when they confront a problem. b. It is the responsibility of a manager to develop rules that allow employees to perform their activities efficiently and effectively. c. When employees follow the rules, their behavior is standardized—actions are performed in the same way time and time again. There is no need to monitor the outputs of behavior because standardized behavior leads to standardized outputs. D. Problems with Bureaucratic Control: With a bureaucratic control system in place,

managers can manage by exception and intervene and take corrective action only when necessary. 1. However, managers need to be aware of the number of problems associated with bureaucratic control, which can reduce organizational effectiveness. a. Establishing rules is always easier than discarding them. If the amount of red tape becomes too great, decision making slows down. This sluggishness can imperil an organization‘s survival.

b. Because rules constrain and standardize behavior, there is a danger that people become so used to automatically following rules that they stop thinking for themselves. Innovation is incompatible with the use of extensive bureaucratic control.

c. Bureaucratic control is most useful when organizational activities are routine and when employees are making programmed decisions. It is less useful where nonprogrammed decisions have to be made and managers have to react quickly to changes. E. For many of the most significant organizational activities, output control and behavior control are inappropriate, for the following reasons: 1. A manager cannot evaluate the performance of workers such as doctors, research scientists, or engineers by observing their behavior on a day-to-day basis. 2. Rules and SOPs are of little use in telling a doctor how to respond to an emergency situation or a scientist how to discover something new. 3. Output controls such as the amount of time a surgeon takes for each operation or the costs of making a discovery are very crude measure of the quality of performance.

Chapter 08 Organizational Control and Change

IV.Organizational Culture and Clan Control LO 8-5: Explain how clan control or organizational culture creates an effective organizational architecture. A. Organizational culture is the shared set of beliefs, expectations, values, norms, and work routines that influences how members of an organization relate to one another and work together to achieve organizational goals. Clan control is the control exerted on individuals and groups in an organization by shared values, norms, standards of behavior, and expectations.

B. Adaptive Cultures versus Inert Cultures 1. An adaptive culture controls employee attitudes and behaviors. a. Their values and norms help an organization to grow and change as needed to achieve its goals. b. Employees often receive rewards linked directly to their performance. c. It develops an emphasis on entrepreneurship and respect for the employee and allows the use of organizational structures. 2. Inert cultures lead to values and norms that fail to motivate or inspire employees. a. They lead to stagnation and often failure. b. Poor working relationships develop between the organization and its employees, and instrumental values of laziness and noncooperation are common. c. Employees are content to be told what to do and have little incentive or motivation to perform beyond minimum work requirements.

V.Organizational Change LO 8-6: Discuss the relationship between organizational control and change, and explain why managing change is a vital management task. A. If an organization does not have effective control over its activities, it may not be able to change or adapt in response to a changing environment. Organizational change is the movement of an organization away from its present state and toward some desired future state to increase its efficiency and effectiveness. 1. There is a fundamental tension or need to balance two opposing forces in the control process that influences the way organizations change. 2. Even though it is important to adopt the correct set of output and behavior controls to improve efficiency, because the environment is dynamic and uncertain, employees also need to feel that they have the autonomy to depart from routines as necessary to increase effectiveness.

Chapter 08 Organizational Control and Change TEXT REFERENCE Manager as a Person NASA Continues Its Winning Ways For the ninth consecutive year, the National Aeronautics and Space Administration tops the list of the best places to work in the federal government among large agencies, beating out other organizations such as the Intelligence Community, and Departments of Transportation, Health and Human Services, and Commerce. Measures that placed NASA at the top of the list include employees‘ engagement with their work, effective leadership, teamwork, innovation, and overall response to COVID-19. In the Best Places survey, the agency scored high in employees and senior leaders having the right skills to carry out this mission. HR policies for hiring and training also contribute to this winning culture. NASA regularly gathers and acts on employee feedback, which can contribute to an ethical culture in which employees perceive treatment as fair. One effort involved gathering employees‘ ideas for removing barriers to innovation. Recommendations included allowing more resources and rewards for innovation and simplifying the requirements for getting an idea through the development process. NASA‘s current administrator, Bill Nelson, recently appointed by President Biden, sees strong commitment to that mission by the agency‘s nearly 18,000 employees. When Nelson joined the agency, he brought a background in military and government service. He was a captain in the U.S. Army and a U.S. senator from Florida for 18 years. In addition, he spent six days orbiting the Earth as a payload specialist aboard space shuttle Columbia. This experience gave him a new perspective on the Earth‘s environment and a greater appreciation for the importance of the country‘s space exploration program. B. Lewin‘s Force-Field Theory of Change Kurt Lewin developed his Force-Field Theory of Change more than 60 years ago. 1. According to force-field theory, a wide variety of forces arise from the way an organization operates—from its structure, culture, and control systems—that make organizations resistant to change. 2. At the same time, a wide variety of forces arise from a changing task and general environments that push organizations toward change. 3. These two sets of forces are always in opposition in an organization 4. When the forces are equal, there is inertia and the organization does not change. 5. To effect change, managers must increase forces for change or reduce resistance to change, or do both. 6. Lewin‘s three stages of change are unfreezing, changing and refreezing. C. Managing Change

Chapter 08 Organizational Control and Change The need to constantly search for ways to improve efficiency and effectiveness makes it vital that managers develop the skills necessary to manage change effectively. Several experts have proposed a model of change that managers can follow to implement change successfully; that is, to move an organization away from its present state and toward some desired state to increase its efficiency and effectiveness. Assessing the Need for Change 1. Organizational change can affect practically all aspects of organizational functioning, including organization structure, culture, strategies, control systems, and groups and teams, and human resource management systems, as well as critical organizational processes such as communication, motivation, and leadership. 2. It can also bring alterations in the way managers carry out the critical tasks of planning, organizing, leading, and controlling, and the ways they perform their managerial roles. 3. Deciding how to change an organization is a complex matter because change disrupts the status quo and poses a threat, prompting employees to resist attempts to alter work relationships and procedures. 4. Organizational learning, the process through which managers try to increase the ability of organizational members to understand and appropriately respond to changing conditions, can be an important impetus for change. 5. Assessing the need for change calls for two important activities: recognizing that there is a problem and identifying its source. a. Sometimes the need for change is obvious, but at other times, problems develop gradually, making it difficult to recognize that change is needed. b. Thus, during the first step in the change process, managers need to recognize that there is a problem that requires change. c. To discover the source of organizational problems, managers need to look both inside and outside the organization. C. Deciding on the Change to Make: Once managers have identified the source of the problem, they must decide what they think the organization‘s ideal future state would be and begin planning how they are going to attain the organization‘s ideal future state. 1. This step also includes identifying obstacles or sources of resistance to change. Obstacles to change are found at the corporate, divisional, departmental, and individual levels of the organization. 2. Corporate-level changes, even seemingly trivial ones, may significantly affect how divisional and departmental managers behave. For this reason, an organization‘s present strategy and structure can be powerful obstacles to change.

Chapter 08 Organizational Control and Change 3. Whether a company‘s culture is adaptive or inert facilitates or obstructs change. Organizations with entrepreneurial, flexible cultures are much easier to change than organizations with more rigid cultures. 4. The same obstacles to change exist at the divisional and departmental levels as well. a. Division managers may differ in their attitudes toward the changes proposed by top managers, and if their interests and power seem threatened, will resist those changes. b. Managers at all levels usually fight to protect their power and control over resources. 5. At the individual level, people are often resistant to change because change brings uncertainty and stress. 6. Managers must recognize and take into consideration potential obstacles that can make change a slow process. 7. Improving communication and empowering employees by inviting them to participate in the planning for change can help overcome resistance and allay employees‘ fears. a. In addition, managers can sometimes overcome resistance by emphasizing group or shared goals such as increased organizational efficiency and effectiveness. b. The larger and more complex an organization is, the more complex is the change process. D. Implementing the Change: Generally, managers introduce and manage change from the top down or from the bottom up. 1. Top down-change is implemented quickly. Top managers identify the need for change, decide what to do, and then move quickly to implement the changes throughout the organization. 2. Bottom-up change is typically more gradual. a. Top managers consult with middle- and first-line managers, and then over time, managers at all levels work to develop a detailed plan for change. b. A major advantage of bottom-up change is that it can co-opt resistance to change from employees. E. Evaluating the Change: The last step in the change process is to evaluate how successful the change effort has been in improving organizational performance. 1. Using such measures as market share, profits, or the ability of managers to meet their goals, managers can compare how well an organization is performing after the change with its performance prior to the change. 2. Managers also can use benchmarking, which is the comparison of their performance on specific dimensions with the performance of high performing organizations, to decide how successful a change effort has been. Benchmarking is a key tool in total quality management.

Chapter 08 Organizational Control and Change

LECTURE ENHANCERS

Lecture Enhancer 8.1 ANTICIPATING THE NEED TO CHANGE Major shifts in the competitive landscape may seem to appear overnight, but in reality, they usually evolve quietly over a number of years. CEOs usually have enough time to adapt to the shift once they observe uncertainty creep into the competitive picture, but only if they are willing to embrace the need for change. In order to make prudent decisions regarding change within an organization, a manager must first understand how the entire industry is changing, according to Anita McGahan, a professor at Boston University‘s School of Management. As a result of extensive research, she has identified four distinct trajectories of change that industries evolve along – radical, progressive, creative, and intermediating. Dr. McGahan asserts that if CEOs understand the change trajectory of their industry, they can then determine which change strategies are most appropriate for their individual company. Below is a description of each. Radical Change: Radical change occurs when an industry‘s core assets and core activities are both threatened with obsolescence. Under this scenario, the knowledge and brand capital built up in the industry erode, as do customer and supplier relationships. During the 1980s and 1990s, an estimated 19% of U.S. industries went through some stage of radical change. A good example is the travel business. The core activities and core assets of travel agencies came under fire as the airlines implemented systems to enhance direct price competition (such as SABRE and other reservations systems) and as the agencies‘ clients turned to web-based systems that offered new value, such as Expedia, Orbitz, and Travelocity. Progressive Change: When neither core assets nor core activities are threatened, the industry‘s change trajectory is progressive. Over the past twenty years, this has been by far the most common trajectory, with about 43% of U.S. industries changing in this manner. An example is the commercial airline industry. Innovators like Southwest and JetBlue succeeded not because the incumbents‘ strengths became obsolete but because the upstart firms had smart insights about how to optimize efficiency. Intermediating Change: Managing a company that is experiencing intermediating change is extraordinarily difficult. Although the core activities of industries on this change trajectory are threatened, the core assets of these industries, such as knowledge, brand capital, or patents, can retain most of their value if they are used in new ways. Management‘s challenge, therefore, is to find new and sometimes unconventional ways to preserve valuable assets and extract value from core resources while simultaneously restructuring key relationships. In the music industry, for instance, recording companies are beginning to sell their services a la carte to aspiring musicians rather than making huge investments in the artists upfront and incurring all the costs of artist development. The customer and the activities have changed, but the core resource, the recording companies‘ ability to develop new artists, retains its value.

Chapter 08 Organizational Control and Change Creative Change: In industries on a creative change trajectory, relationships with customers and suppliers are generally stable, but assets turn over constantly. The film production industry is a good example. Large production companies enjoy ongoing relationships with actors, agents, theater owners and cable television executives. Within this network, they produce and distribute new films all of the time. This combination of unstable assets (new films) and stable relationships (with buyers and suppliers) makes it possible to deliver superior performance over the long term. Dr. McGahan warns that the four change trajectories are not evenly distributed among industries. Surprising, radical change affects less than one-fifth of all industries, despite the amount of attention given to it. More prevalent are progressive and intermediating change. By understanding these trajectories, a manager can avoid the looming fear of industry change by anticipating how change will unfold in their industry and how to take advantage of opportunities as they emerge. Adapted from ―How Industries Change,‖ by Anita McGahan, Harvard Business Review, October 2004, p. 86.

Chapter 08 Organizational Control and Change

Lecture Enhancer 8.2 USING THE EXIT INTERVIEW AS A CONTROL SYSTEM Feedback on problems is the only way to prevent them from recurring. One often-overlooked way of getting this feedback from employees is through the exit interview. Interviews with employees who voluntarily leave the organization serve a dual purpose. For the employee, exit interviews are a chance to say many things they haven‘t been able to say before. For employers, the interviews can be an excellent source of information. Many companies, however, do not conduct exit interviews or conduct them ineffectively. A good exit interview should consist of structured and unstructured questions. If the employee is counting on a reference, he or she may be unwilling to be too truthful. To put the employee at ease and get honest information, some human resource professionals recommend writing the reference in advance and letting the employee know at the beginning of the interview. Then questions such as the following can be used to get honest information about the company as a whole. ―What did you like most about working here?‖ This helps gain insight into how the employee perceives the corporate culture. At AT&T one of the answers most frequently heard is that they appreciated the benefits package. When exiting employees mention this, it reaffirms to the company that the investment in benefits is paying off. ―What do you feel good about having accomplished?‖ This helps determine what responsibilities gave the employee a sense of accomplishment. ―If you were in charge here, what would you change?‖ This question is used to give the employee a chance to figuratively change the work environment. Prepare for a candid answer. ―What best helped you achieve your goals?‖ This is where managers find out which employee-support systems are working and which are not. If, for example, the vice president‘s open door policy was useful in getting some project underway, the policy could be encouraged among other senior management. ―What did you dislike about the work environment here?‖ An exit interview survey at a Boston hospital showed that twenty percent said they had problems with the work schedule and 15 percent said they disliked their direct supervisor. This information encouraged hospital administrators to implement schedule alternatives and management training for supervisors. Finally, the exit interview information should be used. Managers at AT&T produce a twice-yearly, indepth analysis of exit-interview findings, which are presented to the Senior Vice President of Human Resources. The information is used to reexamine policies, make suggestions for change, and generally help retain skilled employees. Some of the best ideas have come from people who are leaving.

Chapter 08 Organizational Control and Change

Lecture Enhancer 8.3 THE CONTROL EXPERIMENTS In Search for Excellence, the Peters and Waterman study of America‘s excellent corporations, recounted an experiment conducted by an industrial psychologist. The subjects were given some difficult puzzles to solve and some rather dull proofreading to do. While they attempted these chores, a raucous audiotape consisting of one person speaking Spanish, two people speaking Armenian, a mimeograph machine running, a chattering typewriter, and street noise ran in the background. Half the subjects were given a button they could push to suppress the noise. The other half were not. Those with buttons to push solved five times more puzzles and made one-quarter as many proofreading errors as those who had no button. The news was that never once (and the experiment was repeated several times) did anyone ever push his or her button. The mere fact that people perceived that they had a modicum of control over their destiny—the option of pushing the button—led to an enormous improvement in performance. In the follow-up book, A Passion for Excellence, another experiment is described, this one at Edison, New Jersey, site of a Ford Motor assembly plant. They had begun an experiment that parallels the one in the lab. Every person on the line in the huge facility was given access to a button that he or she could push to shut down the line—quite a gutsy move on the part of the plant manager. The results that follow occurred during the first 10 months of the experiment. To begin with, Edison, New Jersey, is not like an industrial psychology lab. People did push their buttons at Edison. To be precise, they shut the facility down 30 times the first day and about 10 times a day thereafter. The good news is that after the first day the average shutdown lasted only about 10 seconds— just enough time to make a quality adjustment, a tweak, a twist, a turn, and to tighten up a nut or bolt. Productivity in the plant did not change. Three other indicators, however, are worthy of note. The number of defects per car produced dropped during the first months of the experiment from 17.1 per car to 0.8 per car. The number of cars requiring rework after they had come off the line fell by 97 percent. And the backlog of union grievances plummeted. Moreover, the change in attitude was as extreme as the numbers. One old pro on the line commented, ―It‘s like someone opened the window and we can breathe.‖

Chapter 08 Organizational Control and Change MANAGEMENT IN ACTION DISCUSSION 1. What is the relationship between organizing and controlling? The text defines controlling as the process whereby managers monitor and regulate how efficiently and effectively an organization and its members are performing the activities necessary to achieve organizational goals. In previous chapters, the text defines planning and organizing as the process whereby mangers develop the organizational strategy and structure that they hope will allow the organization to use resources most effectively to create value for customers. In order to control the organization, managers must monitor and evaluate whether their organization‘s strategy and structure (which was developed during the organizing function) are working as they intended, how they could be improved, and how they might be changed if they are not working.

2. How do output control and behavior control differ? In an output control system managers must first choose the set of goals or output performance standards or targets that they think will best measure efficiency, quality, innovation, and responsiveness to customers for their organization. Then they measure whether or not the performance goals and standards are being achieved at the four main levels in an organization (corporate, divisional, functional, and individual levels.) As its name insinuates, behavior control systems involve providing mechanisms to ensure that workers behave in ways that make the structure work. It concentrates on controlling the behavior of the workers opposed to their output or results. The three kinds of behavior control systems are direct supervision, monitoring progress toward goals, and bureaucratic control.

3. Why is it important for managers to involve subordinates in the control process? It is very important to involve subordinates in the control process in order to achieve success in any organization. If subordinates are involved in setting the goals and standards, they will feel a sense of ownership toward them, which will motivate them to work to achieve those goals. They will be more committed to goals that they helped to design. It will also help to ensure that unrealistic goals are not created.

Chapter 08 Organizational Control and Change 4. What kind of controls would you expect to find most used in (a) a hospital, (b) the Navy, (c) a city police force? Why? A hospital would most likely use output and behavior control systems. Ratios such as the number of days outstanding for receivables are used to determine the economic health of the hospital. Operating budgets are used for each department as well as each function (i.e., marketing and advertising) of the hospital. Organizational goals, such as the desire to achieve the best reputation in the treatment of heart disease, are usually established. Behavior controls, such as direct supervision and bureaucratic control, are also very common. Interns and residents of the hospital are regularly monitored to ensure that they are making the correct diagnosis for patients. Bureaucratic controls are evident in the abundance of rules, policies and procedures that are established and must be obeyed. This is done to ensure safety, health and well-being of the employees and patients of the hospital. The Navy primarily uses behavior and culture control systems. The behavior of enlisted personnel is constantly monitored, and they are expected to follow a plethora of rules, including the way that they should walk, talk, and respond to superiors. There is a deep culture entrenched in the military. Since members of the Navy are representing their country and their arm of the military at all times, there is a high level of behavior that is expected of them, especially when they are in uniform. A city police force uses output, behavior, and clan control systems. Since the city established a budget for the police force, they are under the control of their output. They are expected to keep the crime level below certain levels working within their budget. Behavior controls are used when policemen are expected to follow established procedures in many of their duties. A culture is created within the police force in regard to the way that they fulfill their duties. Because their purpose to protect the people, they should deal with the community in a professional manner and develop a trusting relationship with its members.

5. What is organizational culture, and how does it affect the way employees behave? Organizational culture is the shared set of beliefs, expectations, values, norms, and work routines that influences how members of an organization relate to one another and work together to achieve organizational goals. An organizational culture can be adaptive or inert. An adaptive culture controls employee attitudes and behaviors. It helps an organization to grow and change as needed to achieve its goals. In adaptive cultures, employees often receive rewards linked directly to their performance. They develop an emphasis on entrepreneurship and respect for the employee.

Chapter 08 Organizational Control and Change By contrast, inert cultures are those that lead to values and norms that fail to motivate or inspire employees. The employment practices are based on short-term employment. Employees are not often rewarded for their performance and have little incentive to improve their skills. Poor working relationships develop between the organization and employees, and values of noncooperation and laziness are common. The employees are content to be told what to do and have little motivation to perform beyond minimum work requirements. ACTION 6. Ask a manager to list the main performance measures that he or she uses to evaluate how well the organization is achieving its goals. (Note to Instructors: The following are some examples of performance measures) Managers can use financial measures to determine the performance of the company. These include financial ratios such as profit ratios, leverage ratios and activity ratios (mentioned in the text.) If organizational goals are used, such as the company must be first or second in its industry in terms of level of profit, increase the level of sales, increase the quality of inputs or lower their costs, or develop a number of new products or patents, a manager would need to measure the respective activities and compare them against the goals to evaluate performance. If operating budgets are used to measure performance, then budgets are set for functions, divisions, or products and then actual figures are measured against budgeted figures at different time intervals throughout the budgeted period.

7. Ask the same or a different manager to list the main forms of output control and behavior control that he or she uses to monitor and evaluate employee behavior. (Note to Instructors: Students‘ answers may vary depending on the organization chosen.) To monitor output or performance, managers choose goals or performance standards that they think will best measure efficiency, quality, innovation, and responsiveness to customers at the corporate, divisional, departmental or functional, and individual levels. The main mechanisms that managers use to monitor output are financial measures of performance, organizational goals, and operating budgets.

Depending on the responses the students receive, they could describe the organization‘s behavior control by considering the formality or informality of the organization, the openness to innovation, the style of control (whether bureaucratic, clan, or any other), and whether the culture seems to be adaptive or inert. An adaptive culture controls employee attitudes and behaviors. It helps an organization to grow and change as needed to achieve its goals. In adaptive cultures, employees often receive rewards linked directly to their performance. They develop an emphasis on entrepreneurship and respect for the employee.

AACSB: Ethics

Chapter 08 Organizational Control and Change BUILDING MANAGEMENT SKILLS Understanding Controlling (Note to Instructors: Students‘ answers may vary depending on the organization chosen.) 1. At what levels does control take place in this organization? Control can take place at the corporate, divisional, functional, and individual levels. 2. Which output performance standards (such as financial measures and organizational goals) do managers use most often to evaluate performance at each level? Performance standards include financial measures (such as ratios), organizational goals, and operating budgets. 3. Does the organization have a management by objectives system in place? If it does, describe it. If it does not, speculate about why not. Management by objectives (MBO) is a system of evaluating subordinates by their ability to achieve specific organizational goals or performance standards and to meet operating budgets. Without measuring whether goals or standards are met, it is pointless to establish them because one would never now if they were achieved. A management by objectives system involves the following steps: 1. Specific goals and objectives are established at each level of the organization. 2. All levels of employees participate in the goal-setting process. 3. Periodic reviews are made of progress toward meeting goals. 4. How important is behavior control in this organization? For example, how much of managers‘ time is spent directly supervising employees? How formalized is the organization? Do employees receive a book of rules to instruct them about how to perform their jobs? Behavior control systems are used to enable managers to keep their subordinates on track and make their organizational structures work as they are designed to. Direct supervision is used when managers actively monitor and observe the behavior of their subordinates, teach subordinates the kinds of behaviors that are appropriate and inappropriate, and intervene to take corrective action as needed. It is a very effective way of motivating employees but there are certain problems associated with direct supervision. First, it is very expensive because each manager can only personally manage a small number of subordinates effectively. Second, it can demotivate subordinates if they feel that they are under close scrutiny or are not free to make their own decisions. Third, for many jobs direct supervision is not feasible or possible, such as complex jobs and responsibilities that can only be measured over long periods of time. In some industries it is imperative that a set or book of rules exists. Other industries, however, rely on employees‘ creativity in devising more effective and efficient ways to accomplish tasks and design products. In this case a very formalized environment with a rule book to follow would not be beneficial for success.

Chapter 08 Organizational Control and Change 5. What kind of culture does the organization have? What are the values and norms? What effect does the organizational culture have on the way employees behave or treat customers? There are many different types of organizational culture. One example would be a very conservative culture that is filled with many ―unwritten rules‖ that are followed by the employees. This might include a dress code, where men and women wear dark, conservative suits with white shirts, and men wear wingtipped shoes and do not wear flashy ties. In this organization one must work upwards of 70 hours a week including Saturdays, in order to succeed. In the organization, the values and norms inform employees about what goals they should pursue and how they should behave to reach those goals. An example is an organization where values create an environment where creativity and innovation are encouraged. Norms are in place that allow employees to experiment with new ideas in an attempt to create new ways of doing things or create new products. The culture can have a significant impact on how employees treat customers. For example, in a retail store, employees might be encouraged or required to approach customers in a friendly manner and offer assistance before the customer is able to pose a question. Also, some cultures practice the rule that the customer is always right, so that even if the employee disagrees with the customer, they must behave in a manner that indicates that the customer is right in their conviction. 6. Based on this analysis, do you think there is a fit between the organization‘s control systems and its culture? What is the nature of this fit? How could it be improved? If there is not a good fit between the organization‘s control system and culture, it should be very apparent. There will most likely be a breakdown somewhere in the system where employees do not reach the standards or are very unhappy in their positions. AACSB: Ethics

Chapter 08 Organizational Control and Change MANAGING ETHICALLY

1. Either by yourself or in a group, think about the ethical implications of organizations‘ monitoring and collecting information about their employees. What kind of information is it ethical to collect or unethical to collect? Why? Should managers and organizations inform subordinates they are collecting such information? Nearly three-quarters of all large companies that responded to a survey conducted by the American Management Association said that they actively record and review at least one of the following: employees‘ phone calls, e-mail, Internet connections, or computer files. Reasons given by companies for engaging in these practices include prevention of personal use or abuse of company resources, prevention or investigation of corporate espionage or theft, cooperation with law enforcement officials in investigations, and resolution of technical problems, or other special circumstances. Because their objective is to protect the company‘s best interests, employers feel that their behavior is both legal and ethical. Ideally, companies should only collect information that is job specific. From a pragmatic viewpoint, however, when scanning messages that move through a company‘s server, it may be difficult to distinguish in advance an employee‘s professional from personal correspondence. Often employees are unaware that their telephone and/or computer communications are not confidential. Therefore, if an organization regards all communications sent or received during work hours and using company equipment as corporate property, this should be formally stated as a policy. Again, the most ethical approach is to use monitoring only when the organization has good grounds for suspecting that there is abuse. 2. Similarly, some organizational cultures seem to develop norms and values that cause their members to behave in unethical ways. When and why does a strong norm that encourages high performance become one that can cause people to act unethically? How can organizations prevent their values and norms from becoming ―too strong‖? Enron‘s corporate culture seemed to exemplify risk taking, aggressive growth, and entrepreneurial creativity, which are all positive values. However, these values were not balanced by a genuine concern for corporate integrity, customer needs, and shareholder value. Many believe that this lack of balance, combined with Enron‘s creation of a ―yes‖ culture that squelched any internal complaints or negative feedback, resulted in norms that encouraged overwhelming pressure to conform and an abuse of power. Hard-charging, aggressive cultural norms must always be tempered with a sense of morality and integrity. Careful monitoring and preservation of this delicate balance will help a company avoid ethical breaches.

AACSB: Ethics

Chapter 08 Organizational Control and Change BE THE MANAGER 1. What kind of output controls will best facilitate positive interactions both within the teams and among the teams? Managers and each team should be given organizational goals that are challenging and require them to ―stretch.‖ Each team could be evaluated on the time taken from the start of the project until the website is up and running. Revenues generated by individual websites, or click-through or page-view statistics, could also be used to control output. The teams can also be set timelines or budgets within which to complete their projects, and be evaluated on the basis of whether they achieve those goals. 2. What kind of behavior controls will best facilitate positive interactions both within the teams and among the teams? With the MBO approach, everyone has knowledge of what is going on and what is expected of the teams and of individuals, and managers and employees buy into their goals because they are part of the decision process. 3. How would you go about helping managers develop a culture to promote high team performance? Many people believe that organizations with adaptive cultures promote greater innovation and team performance. Adaptive cultures are cultures whose values and norms help an organization to build momentum and to grow and change as needed to achieve its goals and be effective. In adaptive cultures employees often receive rewards linked directly to their performance and to the performance of the company as a whole. Sometimes, employee stock ownership plans (ESOPs) are developed in which workers as a group are allowed to buy a significant percentage of their company‘s stock. Workers who are owners of the company have additional incentive to develop skills that allow them to perform highly and search actively for ways to improve quality, efficiency, and performance. Researchers have found that organizations with strong adaptive cultures invest in their employees. They demonstrate their commitment to their members by, for example, emphasizing the long-term nature of the employment relationship and trying to avoid layoffs. These companies develop long-term career paths for their employees and invest heavily in training and development to increase employees‘ value to the organization. Moreover, an adaptive culture develops an emphasis on entrepreneurship and respect for the employee and allows the use of organizational structures, such as the cross-functional team structure, that empower employees to make decisions and motivate them to succeed. Depending on the organizational requirements, managers can make use of any or all of these techniques to develop an adaptive culture and improve team performance.

AACSB: Analytic

Chapter 08 Organizational Control and Change CASE IN THE NEWS Case Synopsis: How Stitch Fix Controls Inventory and Customer Experience San Francisco–based Stitch Fix embodies what founder Katrina Lake envisions as the future of apparel retailing. While most retailers function as an online catalogue, Stitch Fix operates more like a personal shopping assistant. Armed with over 80 data scientists working in a group reporting directly to the CEO, Stitch Fix leverages sophisticated data analytics and artificial intelligence to store data and predict the preferences of their more than 2.7 million customers. Customers fill out preference sheets and size information and the company sends out a box of clothing that the customer may either keep or return. Obviously, the more customers return, the less Stitch Fix makes, the more inventory it has to carry and the higher the shipping costs. Each purchase or return adds to the data set not only for each customer but to spot patterns among groups of shoppers. Growth in the number of active clients has slowed, and other retailers have observed Stitch Fix‘s initial success and are preparing to compete. The company has planned an entry into the United Kingdom, where it will hire local stylists who can recommend brands familiar to local consumers. Managers at Stitch Fix also have to figure out how to stay ahead of the curve in anticipating consumers‘ wishes. Lake ceded the CEO‘s role to Elizabeth Spaulding in August 2021, and Spaulding implemented a ―Stitch Fix Freestyle‖ option for customers, which allows them to purchase items directly on the website rather than sign up for curated boxes of products sent on a regular basis. The freestyle approach continues to use customers‘ style profile information but allows shoppers to curate their own personal online shopping experience. Time will tell whether the freestyle approach will add to the company‘s bottom line and increase its customers beyond the nearly 4 million active clients who shop with the retailer. QUESTIONS

1. In general terms, according to the information provided, what measures of efficiency and effectiveness are important for controlling Stitch Fix‘s corporate performance? Stitch Fix uses data analytics to determine things like inventory carrying costs, market growth and customer behavior. Although the article does not specifically mention it, financial controls would also be used by the company.

How can Stitch Fix‘s organizational culture support the achievement of its goals?

Stitch Fix is organized to value data analytics as shown by the direct reporting of the data analytics group to the CEO. That reporting structure would infuse the entire organization with an appreciation and ability to leverage data analytics for feedforward, concurrent and feedback control.

3. How do you think the establishment of Stitch Fix might have created a need for organizational change at other clothing retailers? How might their responses create a need for organizational change at Stitch Fix? An innovation that works for a competitor generates a competitive response from other companies in the industry. With 2.7 million customers, Stitch Fix has demonstrated a working business model. The article states that competitors are preparing to compete with Stitch Fix by offering similar services. Therefore,

Chapter 08 Organizational Control and Change Stitch Fix needs to continue to innovate and find additional ways to differentiate its services. That response may necessitate an organizational change at Stitch Fix, depending on the type of change.

AACSB: Analytic

Chapter 08 Organizational Control and Change IN-CLASS ACTIVITY

Types of Control: The Evidence Review Figure 8.1 from the chapter (Slide 8) with the three types of control illustrated. (Note: you may wish to leave the slide on-screen during the activity.) Have students form into small groups.

1. Thinking of this course, students list as many controls as possible. 2. Once the list is made, they determine the correct control category for each item. (Note to instructor, you may want to create your own lists in advance of this exercise.) 3. After items are all categorized, they add any items they overlooked 4. As groups share their lists, board the responses in three columns (one for each control category). If any items are miscategorized, mark them for discussion and have the class determine into which category the items correctly belong.

Chapter 08 Organizational Control and Change CONNECT

For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect

Case Analysis 

Output Controls

Video Case 

Control and Change at Sprint

Manager’s Hot Seat   

Change: More Pain than Gain Change Control

iSeeIt! Animated Video 

The Control Function

Worksheets   

Types of Control Systems (Click and Drag) The Organizational Control Process (Click and Drag) Entrepreneurship, Control, and Change (Click and Drag)

Role-Playing (See Application-Based Activities within Connect.) 

Managerial Control: A Turbulent Ride

Chapter 08 Organizational Control and Change POWERPOINT SLIDES These Instructor‘s PowerPoint slides can be used to supplement the lecture material. SLIDE 1 Chapter Title SLIDE 2 Learning Objectives SLIDE 3 Learning Objectives SLIDE 4 What Is Organizational Control? SLIDE 5 Control Systems and Technology SLIDE 6 Topics for Discussion: Organizing and Controlling SLIDE 7 Control Systems SLIDE 8 Figure 8.1: Three Types of Control SLIDE 9 Types of Control SLIDE 10 Figure 8.2: Four Steps in Organizational Control SLIDE 11 Topics for Discussion: Controls SLIDE 12 Figure 8.3: Three Organizational Control Systems SLIDE 13 Financial Measures of Performance: Profit and Liquidity Ratios SLIDE 14 Financial Measures of Performance: Leverage and Activity Ratios SLIDE 15 Organizational Goals SLIDE 16 Figure 8.4: Organization-Wide Goal Setting SLIDE 17 Operating Budgets SLIDE 18 Operating Budgets: Three Components SLIDE 19 Problems with Output Control SLIDE 20 Behavior Control: Direct Supervision SLIDE 21 Behavior Control: Management by Objectives SLIDE 22 Management by Objectives SLIDE 23 Topics for Discussion: Output and Behavior Control SLIDE 24 Behavior Control: Bureaucratic Control SLIDE 25 Bureaucratic Control SLIDE 26 Topics for Discussion: Organizational culture SLIDE 27 Organizational Culture and Clan Control: Organizational Culture SLIDE 28 Organizational Culture and Clan Control: Clan control SLIDE 29 Adaptive vs. Inert Culture SLIDE 30 Figure 8.5: Organizational Control and Change SLIDE 31 Organizational Change SLIDE 32 Lewin‘s Force-Field Theory of Change

Chapter 09 Motivation SLIDE 33 Figure 8.6: Four Steps in the Organizational Change Process SLIDE 34 Assessing the Need for Change: Organizational Learning SLIDE 35 Implementing Change Top-Down and Bottom-Up Change SLIDE 36 Topics for Discussion: Control Process SLIDE 37 Evaluating Change: Benchmarking SLIDE 38 Be the Manager

Chapter 09 Motivation CHAPTER CONTENTS Learning Objectives

9-2

Key Definitions/Terms

9-3

Chapter Overview

9-5

Lecture Outline

9-5

Lecture Enhancers

9-19

Management in Action

9-23

Building Management Skills

9-27

Managing Ethically

9-31

Small Group Breakout Exercise

9-31

Be the Manager

9-32

Case in the News

9-33

In-Class Exercise

9-35

Connect Features

9-36 9-257

Chapter 09 Motivation

PowerPoint Slides

9-37

Chapter 09 Motivation

LEARNING OBJECTIVES LO 9-1. Explain what motivation is and why managers need to be concerned about it.

LO 9-2. Describe from the perspectives of expectancy theory and equity theory what managers should do to have a highly motivated workforce.

LO 9-3. Explain how goals and needs motivate people and what kinds of goals are especially likely to result in high performance.

LO 9-4. Identify the motivation lessons that managers can learn from operant conditioning theory and social learning theory.

LO 9-5. Explain why and how managers can use pay as a major motivation tool.

Chapter 09 Motivation

KEY DEFINITIONS/TERMS

distributive justice: A person‘s perception of

the fairness of the distribution of outcomes in an organization. employee stock option: A financial instrument that entitles the bearer to buy shares of an organization‘s stock at a certain price during a certain period or under certain conditions. equity: The justice, impartiality, and fairness to which all organizational members are entitled.

Herzberg’s motivator-hygiene theory: A need theory that distinguishes between motivator needs (related to the nature of the work itself) and hygiene needs (related to the physical and psychological context in which the work is performed) and proposes that motivator needs must be met for motivation and job satisfaction to be high. inequity: Lack of fairness. informational justice: A person‘s perception of the extent to which his or her manager provides explanations for decisions and the procedures used to arrive at them.

equity theory: A theory of motivation that focuses on people‘s perceptions of the fairness of their work outcomes relative to their work inputs.

input: Anything a person contributes to their job or organization.

expectancy: In expectancy theory, a perception about the extent to which effort results in a certain level of performance. expectancy theory: The theory that motivation will be high when workers believe that high levels of effort lead to high performance, and high performance leads to the attainment of desired outcomes.

instrumentality: In expectancy theory, a perception about the extent to which performance results in the attainment of outcomes. interpersonal justice: A person‘s perception of the fairness of the interpersonal treatment they receive from whoever distributes outcomes to them. intrinsically motivated behavior: Behavior that is performed for its own sake.

extinction: Curtailing the performance of dysfunctional behaviors by eliminating whatever is reinforcing them.

learning: A relatively permanent change in knowledge or behavior that results from practice or experience.

extrinsically motivated behavior: Behavior that is performed to acquire material or social rewards or to avoid punishment. goal-setting theory: A theory that focuses on identifying the types of goals that are most effective in producing high levels of motivation and performance and explaining why goals have these effects.

learning theories: Theories that focus on increasing employee motivation and performance by linking the outcomes that employees receive to the performance of desired behaviors and the attainment of goals. Maslow’s hierarchy of needs: An arrangement of five basic needs that, according to Maslow, motivate behavior. Maslow proposed that the lowest level of unmet needs is the prime motivator and that only one level of needs is motivational at a time.

Chapter 09 Motivation merit pay plan: A compensation plan that bases pay on performance.

positive reinforcement: Giving people outcomes they desire when they perform organizationally functional behaviors.

motivation: Psychological forces that determine the direction of a person‘s behavior in an organization, a person‘s level of effort, and a person‘s level of persistence.

procedural justice: A person‘s perception of the fairness of the procedures that are used to determine how to distribute outcomes in an organization.

need: A requirement or necessity for survival and well-being.

prosocially motivated behavior: Behavior that is performed to benefit or help others.

need for achievement: The extent to which an individual has a strong desire to perform challenging tasks well and to meet personal standards for excellence.

punishment: Administering an undesired or negative consequence when dysfunctional behavior occurs. self-efficacy: A person‘s belief about their ability to perform a behavior successfully.

need theories: Theories of motivation that focus on what needs people are trying to satisfy at work and what outcomes will satisfy those needs.

self-reinforcer: Any desired or attractive outcome or reward that a person gives to themself for good performance.

need for affiliation: The extent to which an individual is concerned about establishing and maintaining good interpersonal relations, being liked, and having the people around them get along with each other.

social learning theory: A theory that takes into account how learning and motivation are influenced by people‘s thoughts and beliefs and their observations of other people‘s behavior.

need for power: The extent to which an individual desires to control or influence others.

underpayment inequity: The inequity that exists when a person perceives that their own outcomeinput ratio is less than the ratio of a referent.

negative reinforcement: Eliminating or removing undesired outcomes when people perform organizationally functional behaviors.

valence: In expectancy theory, how desirable each of the outcomes available from a job or organization is to a person.

operant conditioning theory: The theory that people learn to perform behaviors that lead to desired consequences and learn not to perform behaviors that lead to undesired consequences.

vicarious learning: Learning that occurs when the learner becomes motivated to perform a behavior by watching another person performing it and being reinforced for doing so; also called observational learning.

outcome: Anything a person gets from a job or organization. overpayment inequity: The inequity that exists when a person perceives that their own outcomeinput ratio is greater than the ratio of a referent.

Chapter 09 Motivation

CHAPTER OVERVIEW This chapter describes what motivation is, the psychological forces that encourage it, and why managers need to promote high levels of it for an organization to be effective and achieve its goals. It examines important theories of motivation: expectancy theory, needs theories, equity theory, goal-setting theory, and learning theories. The theories are complementary, since each approaches the topic from a different perspective. Only by considering all of the theories together can managers gain a thorough understanding of the many issues involved in encouraging high levels of motivation throughout an organization. Finally, the chapter considers the use of pay as a motivation tool.

Chapter 09 Motivation

Management Snapshot Chieh Huang Makes Working for Boxed More than Just a Job Which Ways of Managing Employees Will Motivate Them Best? After selling the first company he founded—Astro Ape, a creator of games for mobile devices—Chieh Huang wanted to start another kind of business. Looking for an unmet need, he realized that the low-cost advantage of buying goods in bulk at warehouse clubs like Sam‘s Club and Costco was unavailable to many people because they lived too far from an outlet or couldn‘t afford the membership fee. He applied his tech knowledge to developing a way to order bulk items like toilet paper and snacks on a mobile phone and have them delivered at an attractive price. Huang called his company Boxed and defined its mission as making shopping in bulk ―easy, convenient and fun.‖ The company landed a profile on the Today show, and orders began flowing in. Boxed has grown profitably through careful logistical planning, limiting inventory to the most popular products, and adding personal touches such as a handwritten note in each box. Huang then pursued an additional opportunity: selling his software to other retailers seeking a presence on mobile devices. The company now has 500 employees, and in December 2021, it went public, valued at $900 million. For Huang, running a business is about much more than generating profits. He also prioritizes the treatment of Boxed‘s employees. Kindness to employees at Boxed goes beyond treating all with dignity to recognizing that warehouse jobs pay at a level that meets industry norms but is insufficient for covering more than day-to-day needs. Benefits Huang offer to employees include a $500 emergency fund, subsidies for life events such as weddings, tuition benefits for employee‘s children, health insurance, and at-work amenities such as free food. As a result, he enjoys lower-than average employee turnover.

Chapter 09 Motivation

I. The Nature of Motivation LO 9-1: Explain what motivation is and why managers need to be concerned about it. A. Motivation may be defined as psychological forces that determine the direction of a person‘s behavior in an organization, a person‘s level of effort, and a person‘s level of persistence. 1. Motivation is central to management because it explains why people behave the way they do. 2. The direction of a person‘s behavior refers to the many possible behaviors a person could engage in. 3. Effort refers to how hard people work. 4. Persistence refers to whether people keep trying or give up when faced with roadblocks. B. Motivation can come from intrinsic or extrinsic sources. 1. Intrinsically motivated behavior is behavior that is performed for its own sake. The source of motivation is actually performing the desired behavior, and motivation comes from doing the work itself. 2. Extrinsically motivated behavior is behavior that is performed to acquire material or social rewards or to avoid punishment. 3. Prosocially motivated behavior is behavior that is performed to benefit or help others. 4. People join and are motivated to work in organizations to obtain outcomes. a. An outcome is anything a person gets from a job or organization. b. Some outcomes, such as autonomy or a feeling of accomplishment, result in intrinsically motivated behavior. c. Other outcomes, such as pay and job security, result in extrinsically motivated behavior. 5. Organizations hire people in order to obtain inputs. a. An input is anything a person contributes to his or her job or organization. 6. Managers use outcomes to motivate people to contribute their inputs to the organization. 9-264 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 09 Motivation a. Giving people outcomes when they contribute inputs aligns the interests of employees with the goals of the organization. 7. Managers seek to ensure that people are motivated to contribute important inputs to the organization, that these inputs are put to good use or focused in the direction of high performance, and that high performance results in workers obtaining the outcomes they desire.

Chapter 09 Motivation TEXT REFERENCE Focus on DE&I For Diversity to Motivate, It Must Come with Equity Many organizations have sought to hire a diverse workforce to bring more points of view to their decision making and to build stronger relationships with their customers and communities. Some are then surprised when people who differ from the majority group—say, women or nonbinary people in a maledominated workplace or Black people in a predominantly white working environment—are quick to leave. One cause of such turnover may be that these employees are experiencing inequity. Quitting is one way to restore the equity balance. This is a widely reported problem in the tech industry. For example, video game giant Activision Blizzard recently underwent multiple regulatory investigations into alleged sexual assaults and mistreatment of female employees over the past several years. In July 2021, the state of California filed a lawsuit alleging the company ignored numerous complaints by female employees of harassment, discrimination, and retaliation. Shortly thereafter, company employees staged a walkout to protest a company executive‘s statement playing down the lawsuit and to demand the CEO step down. Although companies often express their value for diversity by hiring a diverse workforce, the culture of the company may not support acceptance of diverse individuals. When everyone is expected to adopt a similar tone, the benefits of diversity get lost in the efforts at sameness, and some people are unable to contribute fully and receive the intrinsic and extrinsic rewards associated with valuable contributions. Companies also consider equity in pay and promotions. Equitable treatment, because it empowers and retains an organization‘s workforce, is not only ethical, but also good for business.

II. Expectancy Theory LO 9-2: Describe from the perspectives of expectancy theory and equity theory what managers should do to have a highly motivated workforce. A. Expectancy theory posits that motivation will be high when workers believe that high levels of effort lead to high performance and high performance leads to the attainment of desired outcomes. Expectancy theory identifies three major factors that determine a person‘s motivation level: expectancy, instrumentality, and valence. B. Expectancy: It is a person‘s perception concerning the extent to which effort will result in a certain level of performance. 1. A person‘s level of expectancy determines whether he or she believes that a high level of effort will result in a high level of performance. 2. Members of an organization will be motivated to put forth a high level of effort only if they think that doing so will lead to high performance. Therefore, managers need to make sure their subordinates believe that if they try hard, they can actually succeed. 9-266 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 09 Motivation 3. Managers can also boost subordinates‘ expectancy levels by providing training so that people have the expertise they need for high performance. C. Instrumentality: Instrumentality, the second major concept in expectancy theory, is a person‘s perception concerning the extent to which performance at a certain level will result in the attainment of outcomes. 1. Employees will be motivated to perform at a high level only if they think high performance will lead to desirable outcomes. D. Valence: Expectancy theory acknowledges that people differ in their preferences for outcomes. 1. Valence refers to how desirable each of the outcomes available from a job or organization is to a person. 2. To motivate organizational members, managers need to determine which outcomes have high valence for them. E.Bringing It All Together: High motivation results from high levels of expectancy, instrumentality, and valence. 1. If any one factor is low, motivation is likely to be low. 2. Managers should strive to ensure that employees‘ levels of expectancy, instrumentality, and valence are high so that they will be highly motivated.

III. Needs Theories According to needs theories, people are motivated to obtain outcomes at work that will satisfy their needs.

LO 9-3: Explain how goals and needs motivate people and what kinds of goals are especially likely to result in high performance. A. A need is a requirement or necessity for survival and well-being. 1. Needs theories suggest that, in order to motivate a person to contribute valuable inputs to a job and perform at high level, a manager must determine what needs the person is trying to satisfy at work and ensure that the person receives outcomes that help to satisfy those needs. 2. There are several needs theories. Each attempt to describe needs that people try to satisfy at work.

Chapter 09 Motivation 3. In doing so, they provide managers with insights about what outcomes motivate workers to perform at high levels and contribute inputs to help the organization achieve its goals. B. Maslow's Hierarchy of Needs: Psychologist Abraham Maslow proposed that all people seek to satisfy five basic kinds of needs: physiological, safety, belongingness, esteem, and self-actualization needs. 1. These constitute a hierarchy of needs, with the most basic needs at the bottom. 2. According to Maslow, the lowest level of unmet needs is the prime motivator of behavior. 3. Once a need is satisfied, it ceases to operate as a source of motivation. If and when one level is satisfied, needs at the next highest level will motivate behavior. 4. Research does not support Maslow‘s contention that there is a need hierarchy or that only one level of needs can be motivational at a time. However, a key conclusion still can be drawn from it: People try to satisfy different needs at work. 5. In an increasingly global economy, it is important for managers to understand that citizens of different countries often differ in the needs they seek to satisfy though work. C. Herzberg’s Motivator-Hygiene Theory: Frederick Herzberg focused on two factors: outcomes that can lead to high levels of motivation and job satisfaction and outcomes that can prevent people from being dissatisfied. 1. According to Herzberg‘s motivator-hygiene theory, people have two sets of needs or requirements: motivator needs and hygiene needs. 2. Motivator needs are related to the nature of the work itself and how challenging it is. a. Outcomes such as interesting work and responsibility help to satisfy motivator needs. b. To have a highly motivated and satisfied workforce, managers should take steps to ensure that employees‘ motivator needs are being met. 3. Hygiene needs are related to the physical and psychological context in which the work is performed. a. Hygiene needs are satisfied by outcomes such as pleasant working conditions, pay, and job security. b. When hygiene needs are not met, workers are dissatisfied. 9-268 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 09 Motivation c. However, satisfying hygiene needs alone does not result in high levels of motivation or job satisfaction. d. For motivation and job satisfaction to be high, motivator needs must also be met. 4. Many research studies have failed to support Herzberg‘s propositions. a. Nevertheless, Herzberg‘s formulations have contributed to the understanding of motivation in at least two ways: i. they helped focus the management‘s attention on the distinction between intrinsic motivation and extrinsic motivation, and ii. they helped prompt managers to study how jobs can be designed to be more intrinsically motivating. D. McClelland’s Needs for Achievement, Affiliation, and Power: Psychologist David McClelland has extensively researched the needs for achievement, affiliation, and power. 1. The need for achievement is the extent to which an individual has a strong desire to perform challenging tasks well and to meet personal standards of excellence. 2. The need for affiliation is the extent to which an individual is concerned about establishing and maintaining good interpersonal relations, being liked, and having other people around them who get along with each other. 3. The need for power is the extent to which an individual desires to control or influence others. 4. Research suggests that having high needs for achievement and power are assets to first-line and middle managers, and that a high need for power is especially important for upper managers. 5. A high need for affiliation may not always be desirable in managers and other leaders because it might cause them to focus too much on being liked by others, rather than on high performance. E.Other Needs: Clearly, other needs motivate workers beyond those described by these three theories. 1. For example, more and more workers are feeling the need for work-life balance. 2. Also, recent research indicates that being exposed to nature may be another important need.

Chapter 09 Motivation

IV. Equity Theory LO 9-4: Identify the motivation lessons that managers can learn from operant conditioning theory and social learning theory. Equity theory is a theory of motivation that concentrates on people‘s perception of the fairness of their work outcomes relative to their work inputs. It focuses upon how people perceive the relationship between the outcomes they receive and the inputs they contribute.

A. According to J. Stacy Adams, who formulated the equity theory, what is important in determining motivation is the relative rather than the absolute level of outcomes a person receives and inputs a person contributes. 1. Motivation is influenced by the comparison of one‘s own outcome-input ratio with the outcome-input ratio of a referent. 2. The referent could be another person or a group who are perceived to be similar to oneself. 3. One‘s perceptions of outcomes and inputs, not any objective indicator of them, are the key determinants of motivation. B. Equity: Equity exists when a person perceives his or her own outcome-input ratio to be equal to a referent‘s outcome-input ratio. 1. Under conditions of equity, if a referent receives more outcomes than you, then the referent contributes proportionately more inputs to the organization. 2. When equity exists, people are motivated to continue contributing their current levels of inputs in order to receive their current levels of outcomes. 3. Under conditions of equity, if people wish to increase their outcomes, they are motivated to increase their inputs. C. Inequity: Inequity, or lack of fairness, exists when a person‘s outcome-input ratio is not perceived to be equal to a referent‘s. 1. Inequity creates pressure or tension inside people and motivates them to restore equity by bringing the two ratios back into balance. 2. Underpayment inequity exists when a person‘s own outcome-input ratio is perceived to be less than that of a referent. 3. Overpayment inequity exists when a person perceives that his or her own outcomeinput ratio is greater than that of a referent. 9-270 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 09 Motivation D. Ways to Restore Equity: Both underpayment inequity and overpayment inequity create tension that motivates most people to restore equity. 1. When people experience underpayment inequity, they may be motivated to lower their inputs or they may be motivated to increase their outcomes. 2. When people experience underpayment inequity, they can change their perceptions of their own or the referents‘ inputs or outcomes. 3. When people experience overpayment inequity, they may try to restore equity by changing their perceptions of their own or their referents‘ inputs or outcomes. 4. When experiencing inequities, choosing a more appropriate referent might bring the ratios back into balance. 5. Motivation is highest when as many people as possible in an organization perceive that they are being equitably treated. E. Equity and Justice Organizations: Equity theory is often labeled a theory of distributive justice. 1. Distributive justice is a person‘s perception of the fairness of the distribution of outcomes in an organization. 2. Procedural justice refers to an employee‘s perception of the fairness of the procedures used to determine how to distribute outcomes in an organization. 3. Interpersonal justice refers to an employee‘s perception of the fairness of the interpersonal treatment he or she receives from whoever distributes outcomes to him or her. 4. Informational justice refers to an employee‘s perception of the extent to which his or her manager provides explanations for decisions and the procedures used to arrive at them.

V. Goal-Setting Theory LO 9-5: Explain why and how managers can use pay as a major motivation tool. Goal-setting theory suggests that the goals that organizational members strive to attain are prime determinants of their motivation.

A. A goal is what a person is trying to accomplish through his or her efforts and behaviors. In order to result in high motivation and performance, goals must be specific and difficult. 1. Specific goals are often quantitative. 9-271 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 09 Motivation 2. Difficult goals are hard but not impossible to attain. 3. Both easy and moderate goals have less motivational power than difficult goals. 4. It is important that subordinates accept the goals managers set for them and that they are committed to them. Also, it is important for organizational members to receive feedback concerning how they are doing. 5. Specific, difficult goals motivate people to contribute greater input to their jobs, to be more persistent, and to focus their inputs in the right direction. 6. The fact that their goals are specific and difficult frequently causes people to develop action plans for reaching them. B. Research suggests that specific, difficult goals may detract from performance under certain conditions. 1. When people are performing complicated and very challenging tasks, difficult goals may actually impair performance. 2. All of a person‘s attention must be focused on learning the complicated and difficult tasks 3. Once a person has learned the tasks, the assignment of specific, difficult goals is likely to have its usual effects.

VI. Learning Theories A. Learning theories focus on increasing employee motivation and performance by linking the outcomes that employees receive to the performance of desired behaviors and the attainment of goals. 1. Learning can be defined as a relatively permanent change in a person‘s knowledge or behavior that results from practice or experience. 2. Learning takes place when people learn to perform certain behaviors to receive certain outcomes. B. Operant Conditioning Theory: According to operant conditioning theory, developed by psychologist B. F. Skinner, people learn to perform behaviors that lead to desired consequences and learn not to perform behaviors that lead to undesired consequences. According to Skinner, managers can motivate organizational members to perform in ways that help an organization achieve its goals by linking the performance of specific behaviors to the attainment of specific outcomes.

Chapter 09 Motivation Operant conditioning theory provides four tools that managers can use to motivate high levels of performance and prevent workers from engaging in behaviors that detract from organizational effectiveness.

1. Positive Reinforcement: Positive reinforcement gives people outcomes they desire when they perform organizationally functional behaviors. a. Desired outcomes, called positive reinforcers, include any outcomes that a person desires, such as pay, a promotion, or praise. b. Organizationally functional behaviors are behaviors that contribute to organizational effectiveness. 2. Negative Reinforcement: Negative reinforcement is the elimination or removal of undesired outcomes when people perform organizationally functional behaviors. a. Undesired outcomes are called negative reinforcers. b. When negative reinforcement is used, people are motivated to perform behaviors because they want to avoid undesired outcomes such as criticism, unpleasant assignments, or the threat of losing their job. c. Whenever possible, managers should try to use positive reinforcement, since the use of negative reinforcement can create an unpleasant work environment and a negative culture in the organization. 3. Identifying the Right Behaviors for Reinforcement: It is important that managers identify the right behaviors for reinforcement. Managers must be sure to reinforce only those behaviors over which subordinates have control and that contribute to organizational effectiveness. 4. Extinction: Managers can curtail the performance of dysfunctional behaviors of organizational members by eliminating whatever is reinforcing the behaviors. This is called extinction. 5. Punishment: Managers cannot always use extinction as a means of eliminating dysfunctional behaviors. a. Sometimes they do not have control over whatever is reinforcing the undesired behavior or they cannot afford the time needed for extinction to work. In such cases, punishment may be required. b. Punishment is administering an undesired or negative consequence when dysfunctional behavior occurs. 9-273 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 09 Motivation i. When employees are performing dangerous behaviors or behaviors that are illegal or unethical, their behavior must be eliminated immediately. c. Punishments used by organizations can include verbal reprimands, pay cuts, or firings. d. Sometimes punishment can have unintended side effects, such as resentment, loss of self-respect, or a desire for retaliation. Therefore, it should be used only when necessary. e. To avoid unintended side effects of punishment, managers should: i. Downplay the emotional element involved in punishment. ii.Try to punish dysfunctional behaviors as soon after they occur as possible. iii. Try to avoid punishing someone in front of others. f. Often negative reinforcement and punishment are confused with each other. The major differences between the two are: i. negative reinforcement is used to promote the performance of functional behaviors while punishment is used to stop the performance of dysfunctional behaviors ii. negative reinforcement entails the removal of a negative consequence while punishment entails the administration of negative consequences. C. Social Learning Theory: Social learning theory takes into account how learning and motivation are influenced by people‘s thoughts and beliefs and by their observations of other people‘s behavior. 1. Vicarious learning, also called observational learning, occurs when the learner becomes motivated to perform a behavior by watching another person perform it and being positively reinforced for doing so. a. It is a powerful source of motivation on many jobs in which people learn to perform functional behaviors by watching others. b. People are more likely to be motivated to imitate the behavior of models that are highly competent, receive attractive reinforcers, and are friendly. c. To promote vicarious learning, managers should strive to have the learner meet the following conditions: i. The learner observes the model performing the behavior. 9-274 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 09 Motivation ii. The learner accurately perceives the model‘s behavior. iii. The learner remembers the behavior. iv. The learner has the skills and abilities needed to perform the behavior. v. The learner sees or knows that the model is positively reinforced for the behavior. 2. Self-Reinforcement: Sometimes organizational members motivate themselves through self-reinforcement. a. Self-reinforcement occurs when people control their own behavior by setting goals for themselves and then reinforcing themselves when the goal is achieved. b. Self-reinforcers are any desired or attractive outcomes or rewards that people can give to themselves for good performance, such going to a movie or taking time out for a golf game. c. When members of an organization manage their own behavior, managers do not need to spend as much time trying to motivate and control behavior. 3. Self-Efficacy: Self-efficacy is a person‘s belief about his or her ability to perform a behavior successfully. a. People are not motivated if they do not think they can actually perform at a high level. b. The greater the level of self-efficacy, the greater is the level of motivation and performance. TEXT REFERENCE: Manager as a Person Bernard Olayo’s Mission Is His Motivator Bernard Olayo is a profound example that even company executives need motivation. Olayo, a physician and public-health specialist, formed Hewatele to provide affordable oxygen to hospitals in Kenya. About a year into the pandemic, he came down with COVID-19, and he later said, ―If I didn‘t have a passion for this job, I would never have stepped back into a hospital.‖ He did, however, knowing that his innovative approach was saving lives. The idea for Hewatele (which means ―abundant air‖ in Swahili) came about when Olayo was working in maternal and child medicine in Kenya, Uganda, Tanzania, and Rwanda. In those programs, there was not always enough oxygen for his patients, especially children suffering from pneumonia. Deliveries were erratic, and the price charged by the sole supplier was high. Olayo had to make painful life-and-death choices, which motivated him to start a nonprofit called the Center for Public Health and Development (CPHD) to fund trials of his ideas.

Chapter 09 Motivation After a bit of trial and error, Olayo was able to start an affiliate of CPHD that now works round the clock to supply oxygen to local hospitals. His goal of not allowing a medical professional to make a life-anddeath decision about who lived and died because of a shortage of oxygen has become a reality.

VII. Pay and Motivation 1. Managers often use pay to motivate employees to perform at a high level and attain their work goals. Pay is used to motivate workers at all levels within the organization. Pay can also be used to motivate people to join the organization and remain with the organization. 2. Each of the theories previously discussed in this chapter alludes to the importance of pay. As these theories suggest, pay should be distributed so that high performers receive more pay than low performers. A merit pay plan is a compensation plan that bases pay on performance. 3. Once managers have decided to use a merit pay plan, they face two important choices: a. whether to base pay on individual, group, or organizational performance, and b. whether to use salary increases or bonuses. A. Basing Merit Pay on Individual, Group, or Organizational Performance: Managers can base merit pay on individual, group, or organizational performance. 1. When individual performance can be accurately determined, individual motivation is likely to be highest when pay is based on individual performance. 2. When the attainment of organizational goals hinges on members‘ working closely together, group- or organization-based plans may be more appropriate than individual based plans. 3. It is possible to combine elements of an individual-based plan with a group or organization based plan so that each individual is motivated, while also motivating all individuals to work well together. B. Salary Increase or Bonus? Managers can distribute merit pay in the form of a salary increase or a bonus on top of regular salaries. 1. Bonuses, however, tend to have greater motivational impact because: a. the absolute level of salaries is typically based on factors unrelated to current performance, b. a salary increase may be affected by other factors in addition to performance, and c. salary levels tend to vary less than performance levels. 9-276 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 09 Motivation 2. Bonuses give managers more flexibility because unlike salary increases, bonus levels can be reduced when organizational performance lags. Bonus plans have a greater motivational impact than salary increases because the amount of a bonus can be directly linked to performance and can vary from year to year and from employee to employee. 3. In addition to pay raises and bonuses, high-level managers and executives are sometimes granted employee stock options. a. Employee stock options are financial instruments that entitle the bearer to buy shares of an organization‘s stock at a certain price during a certain period or under certain conditions. C. Examples of Merit Pay Plans: Managers can choose among several merit-pay plans, depending on the work that employees perform and other considerations. 1. When using piece-rate pay, managers base employees‘ pay on the number of units each employee produces. 2. When using commission pay, managers base pay on a percentage of sales. 3. The Scanlon plan focuses on reducing expenses. Organizational members are encouraged to develop and implement cost- cutting strategies because a percentage of the cost savings achieved is distributed back to employees. 4. Under profit sharing, employees receive a share of an organization‘s profits.

Chapter 09 Motivation

LECTURE ENHANCERS Lecture Enhancer 9.1 MOTIVATION AND CREATIVITY In a large studio at the headquarters of Hallmark Cards Inc., Robert Hurlburt bent over a potter‘s wheel. His fingers stained with clay, his face clenched in concentration, Hurlburt was completely out of his element. And in his 17 years at Hallmark, he had never been happier. A metal engraver by trade, Hurlburt was in the midst of a three-month rotation into an artist‘s heaven—carte blanche to do whatever he wanted to regenerate his creative spirit. After three weeks in the ceramics shop, Hurlburt was producing pots and vases that looked like the work of a professional. His work likely will only end up on a shelf at his home, but if Hurlburt‘s mood is any indication, Hallmark is likely to see a payoff when he returns to his regular duties. ―It has given me an opportunity to get back to thinking wild, crazy things,‖ he said. Keeping its artists and writers happy and creative is a top priority at Hallmark, the nation‘s largest greeting card seller with $4 billion in sales in 2016. Each Father‘s Day, Americans snap up approximately 99 million cards. Hallmark traditionally captures about 42 percent of the market. Sabbaticals like Hurlburt‘s are only one way that Hallmark tries to help workers be creative. Staffers can desert Hallmark‘s midtown Kansas City headquarters for a downtown loft, where teams of writers and artists get away from phones to exchange ideas. They may spend days in retreat at a farm in nearby Kearney, Missouri, taking part in fun exercises like building birdhouses. Some go farther afield, sent by the company on trips overseas to soak up atmosphere and culture. Not all the methods are high budget. For the creators of the irreverent Shoebox line, there are free movie passes and daily screenings of the hippest television shows. Hallmark isn‘t the only greeting company that makes a special effort to tweak, coax, and nourish its creative staff. Its biggest competitor, American Greetings Corp., operates similar programs. ―No company, especially one that relies on ideas, can afford to do otherwise,‖ says Calvin Moyer, executive director of the American Creative Association., a nonprofit group in Hockessin, Del., that encourages creativity throughout society. ―Hiring talented people isn‘t enough,‖ Moyer said. ―It‘s like planting blueberries or apple trees in your backyard. They‘ll probably grow and produce fruit, but if you fertilize and prune them, you‘ll have not just fruit, but great fruit.‖ Controlling Hallmark‘s creative staff of about 700 is the responsibility of Marita Wesley-Clough, a 20year company veteran who was named director of creative strategy about a year ago. Wesley-Clough sounded like the philosophy major she was in college as she tried to explain her job, describing herself alternately as a shepherd, a midwife and a water bearer. ―It‘s sort of like catching the wind,‖ she said. ―The road to creative strategy isn‘t a clear one.‖

Chapter 09 Motivation Nurturing the creative spirit reaches its wackiest heights at the Shoebox Cards division, where a team of seven writers and four editors usually starts the day by watching a tape of the previous night‘s David Letterman show. They flip through magazines and sometimes even work out in the middle of the workday. It sounds like fun, but there are deadlines. The group is expected to turn out 70 cards per week. To do that, they generate an average of 150 pieces of writing per day. At the end of the day, the staff‘s efforts are sifted at a raucous conference led by chief editor Steve Finken. With a practiced ear for the staff‘s reaction, Finken reads each card aloud and swiftly separates them into two piles. The reject pile is much larger than the save pile. Hallmark perennially ranks high on lists of the best U.S. companies to work for. Despite massive restructuring to improve efficiency, writers and artists still seem to have a great time. However, the competitive pressure that is typical of any business exists at Hallmark. Each card‘s success is rated through surveys and information gathered by electronic cash registers, and the staff knows exactly how well their work is doing. The appetite for new products must be fed, and the need to be thoughtful, witty, caring, wise, and a dozen other things every day is unceasing. It can be a grind. Hurlburt said he felt his artistic impulses narrowing after 17 years. When he gets back to work after a few more weeks of puttering, he said, ―I don‘t know if I‘ll be a better engraver, but I‘ll be more creatively applied.‖

Lecture Enhancer 9.2 MASLOW’S FURTHER STUDY OF MOTIVATION Anyone who has taken Psychology 101 knows about Abraham Maslow‘s Hierarchy of Needs. People, Maslow found, strive to fulfill progressively higher levels of need, from nourishment, safety, love, and esteem to ―self-actualization.‖ It‘s less well known that Maslow, in the early 1960s, also delved deeply into management and economics. Setting up shop in a southern California electronics plant, he produced a journal that applied the concept of self-actualization to both the workplace and the marketplace. ―This is by far Maslow‘s best book,‖ says Peter Drucker, perhaps the foremost management authority today. ―It had an enormous impact on me.‖ Yet after a limited run, Maslow‘s book slipped into obscurity. What made Maslow‘s book so special—and why did it vanish? In 1962, a few years after postulating the hierarchy of needs, the Brandeis University professor took a summer sabbatical at a company in Del Mar, California called Non-Linear Systems. The company made voltmeters in a converted blimp hangar. The owner, Andy Kay, had noticed that workers were most productive at the end of the line, where the finality of the assembly provided a sense of accomplishment. So Kay broke his work force into teams, each responsible for an entire product.

Chapter 09 Motivation Maslow was amazed at the spirit and productivity of the plant and picked up a tape recorder to capture these reactions. The result was a journal, initially called ―Summer Notes.‖ In these journals, Maslow coined the phrase ―enlightened management‖ to describe the work conditions leading to selfactualization, or the achievement of one‘s full potential, such as trust, teamwork, and recognition. Teams, he found, made better workers, and better workers made better teams. ―Creativity flowing from ambiguity and knowledge breeds knowledge,‖ said Maslow. By 1963, Maslow had given mimeographed copies of ―Summer Notes‖ to several fellow academics. His friend Warren Bennis, a prominent university dean and business theorist, urged him to publish the journal commercially. ―It was very radical for the time,‖ Bennis recalls. Yet, he adds, ―it never caught on.‖ The main reason was its title. Maslow‘s term for a society of self-actualizing people was ―eupsychia,‖ so he gave his book the ghastly title of ―Eupsychian Management: A Journal.‖ Bennis and Drucker tried to dissuade him, but Maslow was proud of his wordsmithing. The book was reprinted several times during the early 1970s, but they were small runs. Only the terms ―synergy‖ and ―enlightened management‖ endured.

Lecture Enhancer 9.3 RECOGNITION: MAKING HEROES Rosabeth Moss Kanter, author of the book The Change Masters, has concluded that companies often make the mistake of equating pay with rewards. Pay is not a reward for outstanding performance; it is a compensation for doing the job in the first place. A reward should be a special gain for special achievements. Compensation is a right; recognition is a gift. Recognition—saying thank you in public and perhaps giving a tangible gift along with the words—has multiple functions beyond simple courtesy. To the employee, recognition signifies that someone noticed and someone cares. To the rest of the organization, recognition creates role models—heroes—and communicates the standards. Kanter‘s management consulting firm has also found a remarkable correlation between recognition and innovation. Some basic rules should be followed in handing out praise and recognition:

1. Deliver recognition and reward in an open and publicized way. If not made public, recognition loses much of its impact and defeats much of its purpose. 2. Timing is crucial. Recognize contribution throughout a project and reward it close to the time an achievement is realized. Time delays weaken the impact of most rewards. 3. Tailor recognition and reward to the unique needs of the people involved. Have several recognition and reward options to enable managers to acknowledge accomplishment in ways appropriate to the particulars of a given situation. 4. Deliver recognition in a personal and honest manner. Avoid providing recognition that is too ―slick‖ or overproduced. 9-280 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 09 Motivation 5. Strive for a clear, unambiguous, and well-communicated connection between accomplishments and rewards. Be sure people understand why they receive rewards and the criteria used to determine rewards. 6. Recognize recognition. That is, recognize people who recognize others for doing what is best for the company. Celebrating and publicizing employee achievements need not be expensive. Professor Kanter suggests some simple, low-cost ways to make employees ―heroes,‖ such as having coffee with an employee or group of employees that you do not normally see, or letting employees attend important meetings in your place when you‘re not available. Other suggestions include:

1. Send a letter to every team member at the conclusion of their work, thanking them for their contribution. 2. Mention an employee‘s outstanding work or ideas during your staff meetings or at meetings with your peers and management. 3. Create a ―Best Accomplishments of the Year‖ booklet, and include everyone‘s picture, name, and statement of their best achievement. 4. Show a personal interest in the development and career of an employee after a special achievement by asking them how you can help them take the next step. 5. Invite employees to your home for special celebrations, and recognize them in front of their colleagues and spouses.

Chapter 09 Motivation

MANAGEMENT IN ACTION Notes for Topics for Discussion and Action DISCUSSION

1. Discuss why two people with similar abilities may have very different expectancies for performing at a high level. Expectancy is a person‘s perception about the extent to which effort (an input) will result in a certain level of performance. Two people with similar abilities may have very different expectancies for performing at a high level. One employee may think that a high level of effort will lead to high performance, while another may think that a high level of effort will not result in high performance. These employees may have similar abilities, but their managers may not provide the same motivation for the two employees. Managers who encourage their employees and express confidence in their ability to perform at a high level will likely have employees with higher expectancies than managers who do not encourage or support their employees. Also, the employees may receive different training, another factor in expectancy level. Managers who provide training to ensure that employees have the expertise needed for high performance, will have employees with higher expectancies than managers who do not provide training for their employees.

2. Describe why some people have low instrumentalities even when their managers distribute outcomes based on performance. Instrumentalities include perceptions that people have about the extent to which performance at a certain level will result in the attainment of outcomes. One important aspect of instrumentality is the linking of outcomes to performance. Employees will only be motivated to perform at a high level if they think high performance will lead to (is instrumental for attaining) rewards and benefits. Besides linking outcomes to performance, managers need to clearly communicate this linkage to subordinates. Managers who only apply the outcome aspect, but do not clearly communicate to employees how this works and the steps necessary to achieve desired outcomes, are missing the other half of the equation. Consequently, these managers may have employees with low instrumentalities, despite their efforts to base outcomes on performance.

3. Analyze how professors try to promote equity to motivate students. Equity theory is a motivation theory that concentrates on fairness and people‘s perception of the fairness of their work outcomes relative to their inputs. Equity is achieved when a person perceives that his or her own outcome-input ratio is equal to a referent‘s outcome-input ratio.

Chapter 09 Motivation Professors try to promote equity to motivate students by establishing standards of performance in their courses. A professor should specify the inputs that will be required for a student to achieve certain outcomes. For example, the amount of work, effort, class participation, and enthusiasm needed to get an ―A‖ in a course should be equal for all students. If one student contributes significantly more inputs that another student, that student should receive a higher grade, or outcome. A student who fails to contribute even minimal requirements of input should not be allowed to pass the course, a desired outcome. By standardizing these specifications and refraining from giving some students ―special treatment,‖ professors can help ensure that students will feel that their input-outcome ratio is equal to a referent‘s ratio, be it another student, or their own ratios in other courses. Motivation is highest when as many people as possible perceive that they are being equitably treated.

4. Describe three techniques or procedures that managers can use to determine whether a goal is difficult. A goal is what a person is trying to accomplish through his or her efforts and behavior. Difficult goals are hard but possible to attain. One technique that managers can use to determine if a goal is difficult is to look at the number of people who achieve the goal. If practically everyone achieves a goal, it is likely an easy rather than a difficult goal. Moderate goals are also more easily attainable than difficult goals, with about half of the people able to attain these goals. By comparison, difficult goals are those that less than half of the people attain. Another technique is for managers to examine how motivation is affected by the goal. Difficult goals motivate people to contribute more inputs to their jobs. They cause people to put forth high levels of effort. Difficult goals cause people to be more persistent when they run into difficulties than easy, moderate, or vague goals. If the goal is having these effects on employee behavior, it is probably a difficult goal. One other technique is to examine the direction toward which employees focus their inputs. Specific, difficult goals let people know on what they should be focusing their attention. Managers can determine if employees are developing action plans to help them attain the goal and effectively manage their time. If the goal is motivating this kind of behavior, it is probably a difficult goal.

5. Discuss why managers should always try to use positive reinforcement instead of negative reinforcement. Positive reinforcement gives people outcomes they want when they perform behavior that contributes to organizational effectiveness. Negative reinforcement also encourages members to perform organizationally functional behavior, but does this by eliminating or removing undesired outcomes once the functional behavior is performed. People are motivated by negative reinforcement because they want to stop receiving undesired outcomes.

Chapter 09 Motivation Managers should always try to use positive reinforcement instead of negative reinforcement for a variety of reasons. Negative reinforcement can create a very unpleasant workplace characterized by threats and control. People do not like to be nagged, threatened, or exposed to other negative outcomes as a ―motivation‖ for doing their jobs. Employees who are subjected to negative reinforcement may resent their managers and try to get back at them through sabotage of their work, if they quit or are fired.

ACTION

6. Interview three people who have the same kind of job (such as salesperson, waiter/waitress, or teacher), and determine what kinds of needs each is trying to satisfy at work. (Note to the instructors: Students‘ answers may vary.) A requirement or necessity for survival and well-being is called a need. People are motivated to obtain outcomes at work that will satisfy their needs. Three waitresses at a mid-priced restaurant were asked about the kinds of needs they are trying to satisfy at work. Each woman said that they were working to pay their rent and bills, which is a physiological need as described by Maslow. Two waitresses are working part-time while they go to school and are not looking to make waitressing a career. The other one is a full-time waitress who desires the security and stability of a consistent income, along with safe working conditions. These are safety needs, as described by Maslow. Besides these ―lower level‖ needs, the waitresses admitted that they valued the friendships they had made in the restaurant, and enjoyed working there because they liked interacting with customers, managers, and other restaurant staff. Maslow would call the needs satisfied through these interactions as belongingness needs. One waitress is training to be a manager, and is trying to fulfill the need to improve her skills and abilities, and engage in meaningful work. This kind of need can be categorized as an esteem need in Maslow‘s hierarchy.

7. Interview a manager in an organization in your community to determine the extent to which the manager takes advantage of vicarious learning to promote high motivation among subordinates. (Note to the instructors: Students‘ answers may vary.) Social learning theory considers how learning and motivation are influenced by people‘s thoughts and beliefs and their observations of other people‘s behavior. One component of this theory is vicarious learning. This is a method by which people are motivated by observing other people perform a behavior and be reinforced for doing so.

Chapter 09 Motivation Jake Bertram is a manager at men‘s clothing store in a large city. He uses vicarious learning to teach his less experienced salespeople how to interact with customers and sell more merchandise. The salespeople are paid on commission, and Jake would like to see his employees sell a lot of clothing to help the store and increase their own paychecks. Jake has new staff members observe the behavior of highly competent and experienced salespeople. The new staffers watch the salesperson approach customers, direct them to certain items, make suggestions, and offer assistance. They accurately perceive this behavior as leading to higher sales and more repeat business. They then commit this information to memory and use it when they interact with their own customers. Since the new staffers have already received formal training, they have the skills and abilities to perform these behaviors. By observing the experienced salesperson, they see that these behaviors lead to positive reinforcements such as higher commissions, praise from the store manager, and bonuses and discounts for clothing.

AACSB: Analytic

Chapter 09 Motivation

BUILDING MANAGEMENT SKILLS Diagnosing Motivation Think about the ideal job that you would like to obtain upon graduation. Describe this job, the kind of manager you would like to report to, and the kind of organization you would be working in. Then answer the following questions: (Note to the instructor: Because students will have unique answers for this exercise, the answers given are helpful for definitions and summaries of the relevant topics.)

1. What would be your levels of expectancy and instrumentality on this job? Which outcomes would have high valence for you on this job? What steps would your manager take to influence your levels of expectancy, instrumentality, and valence? Expectancy is a person‘s perception about the extent to which effort will result in a certain level of performance. Instrumentality is a person‘s perception about the extent to which performance at a certain level will result in the attainment of outcomes. Valence refers to how desirable each outcome available from a job or organization is to a person. High expectancy is the belief that a high level of effort will result in a high level of performance. High instrumentality is the belief that a high level of performance will result in attainment of desired outcomes. High valence is subjective and refers to preferences for certain outcomes over others. Managers can influence levels of expectancy, instrumentality, and valence. High expectancy can be encouraged by expressing confidence in employees‘ abilities, holding employees to high standards, and giving employees autonomy and responsibility. Managers can also provide employees with training to ensure expertise needed for high performance. High instrumentality can be encouraged by linking performance to outcomes and clearly communicating this linkage to all employees. Managers also need to determine which outcomes have high valence for organizational members and make sure that those outcomes are provided when members perform at a high level.

2. Whom would you choose as a referent on this job? What steps would your manager take to make you feel that you were being equitably treated? What would you do if, after a year on the job, you experienced underpayment inequity? A referent is someone to whom comparison is made to determine if treatment is equitable. A referent could be another person or a group of people who are perceived to be similar to oneself. The referent could also be a person from a previous job or one‘s expectations about what outcome-input ratios should be.

Chapter 09 Motivation Employees feel equitably treated when they feel that their outcome-input ratio is equal to a referent‘s outcome-input ratio. Equity has to do with fairness of outcomes relative to inputs. Managers can help employees feel equitably treated by making sure that those who contribute many inputs are rewarded with more outcomes than those who contribute fewer inputs. If a person changes one aspect of his or her ratio, the manager should make sure that the other side of the ratio changes as well. If inputs increase, outcomes should increase. If inputs decrease, outcomes should decrease as well. Underpayment inequity exists when a person‘s own outcome-input ratio is perceived to be less than that of a referent. This happens when an employee compares himself or herself to a referent and feels that he or she is not receiving the outcomes they should, given their inputs. Equity can be restored by trying to increase outcomes (asking for a raise, bonus, or time off) or by decreasing the inputs (not staying late or coming in early, doing fewer tasks), and changing to a more appropriate referent. If these techniques fail, an employee may choose to leave the organization.

3. What goals would you strive to achieve on this job? Why? What role would your manager play in determining your goals? A goal is what a person is trying to accomplish through his or her efforts and behavior. Goal-setting theory suggests that to result in high motivation and performance, goals must be specific and difficult. Goals are usually quantitative, such as an amount of merchandise sold, or time needed to finish a project. Managers may be entirely responsible for setting goals, or employees may participate in the setting of goals to ensure acceptance and commitment to the goals. Regardless of whether specific, difficult goals are set by managers, workers, or both together, they lead to high levels of motivation and performance. Managers also contribute to goal setting by providing feedback about how employees are doing. This feedback allows both managers and employees to determine progress and helps them to reevaluate goals when necessary.

4. What needs would you strive to satisfy on the job? Why? What role would your manager play in helping you satisfy these needs? A need is a requirement or necessity for survival and wellbeing. Maslow identified five basic kinds of needs: physiological, safety, belongingness, esteem, and self-actualization needs. Maslow proposed that people differ in what needs they are trying to satisfy at work. Herzberg focused on two factors: motivator needs related to the nature of the work, and hygiene needs related to the physical and psychological context in which the work is performed. Managers can help employees to satisfy their needs at work by determining which needs a person is trying to satisfy at work. It is the manager‘s responsibility to ensure that the person receives outcomes that help to satisfy those needs when the person performs at a high level and helps the organization achieve its goals. By doing this, managers can motivate employees to perform at a high level. Managers need to align the interests of individual members with the interests of the organization as a whole. In addition, Herzberg‘s model emphasizes the distinction between intrinsic and extrinsic motivation, which is important for managers to consider in designing and enriching jobs.

Chapter 09 Motivation 5. What behaviors would your manager positively reinforce for you on this job? Why? What positive reinforcers would your manager use? Behaviors targeted for positive reinforcement are usually quantitative. When people perform organizationally effective behaviors, they are given outcomes they want. Behaviors that are positively reinforced should be behaviors over which subordinates have control, that is, the freedom and opportunity to perform the behaviors. These behaviors must also contribute to organizational effectiveness. Organizationally functional behaviors can include producing high-quality goods and services, providing high-quality customer service, and meeting deadlines. Positive reinforcers are any outcomes that a person desires, and anything that increases the behavior desired. Specific reinforcers may include time off, bonus pay, praise and recognition, an interesting assignment, or a promotion.

6. Would there be any vicarious learning on this job? Why or why not? Vicarious learning is a component of social learning theory, which proposes that motivation results not only from the receipt of rewards and punishments but also from a person‘s thoughts and beliefs. Vicarious learning occurs when a person (learner) becomes motivated to perform a behavior by watching another person (model) perform the behavior and be positively reinforced for doing so. Vicarious learning is useful when models are available who are highly competent, are experts in the behavior, have high status, receive attractive reinforcers, and are friendly or approachable. The learner must also meet the following conditions: (1) observe the model performing the behavior, (2) accurately perceive the model‘s behavior, (3) remember the behavior, (4) have the skills and abilities needed to perform the behavior, and (5) see or know that the model is positively reinforced for the behavior.

7. To what extent would you be motivated by self-control on this job? Why? Self-control refers to the self-management of behavior, as opposed to management by a manager or other superior. People using self-control set goals for themselves and reinforce them when they achieve their goals. One benefit of employees using self-control is that managers do not need to spend as much time as they ordinarily would trying to motivate and control behavior through the administration of consequences. Instead, subordinates control and motivate themselves. Another advantage of self-control is that it frees managers from having to determine which reinforcers have high valence for employees, and from the job of monitoring the administration of these reinforcers.

8. What would be your level of self-efficacy on this job? Why would your self-efficacy be at this level? Should your manager take steps to boost your self-efficacy? If not, why not? If so, what would these steps be?

Chapter 09 Motivation Self-efficacy is a person‘s belief about his or her ability to perform behavior successfully. Even if outcomes have been closely linked to performance, people will not be motivated if they do not think that they can actually perform at a high level. Employees need to think that they have the capability to reach goals that they and others set for them. Self-efficacy influences motivation both when managers provide reinforcement and when workers themselves provide it. The greater the self-efficacy, the greater is the motivation and performance. If managers want to influence employees‘ self-efficacy, they need to express confidence in their employees‘ abilities to reach challenging goals. Verbal persuasion may help to increase self-efficacy as well. Other factors that play a role in determining a person‘s self-efficacy include a person‘s past performances and accomplishments, and also the accomplishments of other people. These accomplishments can serve as benchmarks for measuring one‘s own abilities.

AACSB: Analytic

Chapter 09 Motivation

MANAGING ETHICALLY (Note to the instructor: Student responses to these questions will vary.)

1. Either individually or in a group, think about the ethical implications of closely linking pay to performance. When closely linking pay to performance, the following conditions must exist: a) the worker must have influence or control over all variables that contribute to improved performance levels, and b) an objective, easily quantifiable means of assessing the level and quality of work performance must exist. If either of these conditions is missing, the meritorious element of the pay-for-performance program can become compromised, and workers will begin to question its fairness.

2. Under what conditions might contingent pay be most stressful, and what steps can managers take to try to help their subordinates perform effectively and not experience excessive amounts of stress? Pay for performance should be something extra, compensation that is above and beyond basic wages and salaries. Ethically speaking, companies should ensure that they are paying all employees a basic wage that, at the minimum, allows employees to support their families at a level above the poverty line. Being forced to rely upon contingent pay in order to meet basic physiological or security needs can create excessive amounts of stress in an employee. Also, failure of management to base incentive determinations on objective performance data or to encourage two-way communication about other potential problems with a pay-for-performance plan can induce excessive employee stress.

AACSB: Ethics

Chapter 09 Motivation

BE THE MANAGER It would appear that the analysts have little motivation to fill out the forms. There appears to be no specific reward for filling out the forms, even though they contain important information on the productivity of each person. You should talk to the analysts and find out why they are not filling out the forms well and why they are late. After talking with the employees, and consulting with your boss, you should try to come up with incentives for the analysts to fill out the forms accurately and on time. Completing the forms should be part of the employee's performance appraisal and linked to merit increases. AACSB standards: Analytic

Chapter 09 Motivation

CASE IN THE NEWS Case Synopsis: DTE Energy Ignites Employees with a Shared Sense of Purpose

Detroit-based DTE Energy serves more than 2 million electricity customers and more than 1 million natural-gas customers in southeastern Michigan. It also owns business units that operate power projects, ship natural gas through pipelines, engage in energy trading, and more. It employs more than 10,000 workers in Michigan and other states. With mediocre performance in the early 2000s, DTE was unprepared to weather the shock of the Great Recession beginning in 2008. With plant closings, the company estimated it would lose $200 million in revenue. CEO Gerry Anderson announced that the company was sticking to its value of continuous improvement, including the principle that layoffs are a last resort. He challenged managers to find ways to cut costs by $200 million so they could avoid layoffs altogether. Newly energized employees found one way after another to operate more efficiently so they could keep everyone employed. By the following year, with zero layoffs, the company had to revise its projected profits upward to reflect the performance improvement. From this experience, Anderson concluded that a shared sense of purpose has a practical value to a company: It energizes employees at all levels to give of themselves because they care. The company continued to respond to Anderson‘s purpose-driven challenge to be the ―lifeblood of communities and the engine of progress.‖ When the purpose-driven approach started to wane years later, Anderson discovered that union employees were dissatisfied due to poor supervision. Rather than respond defensively, Anderson agreed to work on the problem. Encouraged by the cooperative response, the union and management created a shared purpose. Since then, the company has expanded its contributions to community philanthropic efforts and the employees continue to feel engaged. By 2017 the company‘s stock price had tripled and the company was named on the Top 50 Places to Work list. QUESTIONS

1. How could expectancy theory explain the success of DTE Energy‘s approach to motivating employees during the Great Recession? DTE‘s challenge to become more efficient so no one would need to be laid off created intrinsic motivation to achieve the goal. Employees had self-efficacy in that they believed they could work more efficiently, instrumentality in that they believed that hard work would result in the desired results and valence - the reward of knowing no one would lose their job.

Chapter 09 Motivation 2. How well do need theories support Anderson‘s approach to motivating employees? Would these models alone have prepared him to solve this challenge? Why or why not? Needs theories are ―theories of motivation that focus on what needs people are trying to satisfy at work and what outcomes will satisfy those needs.‖ Maslow‘s hierarchy of needs would state that keeping a job provides psychological, safety and belongingness needs, so the challenge to perform to save jobs would be well grounded in that theory. Hertzberg‘s motivator-hygiene theory distinguishes between motivator needs (the nature of the work itself) and hygiene needs (working conditions, pay, job security). The efficiency challenge met not only hygiene needs of keeping jobs but also the motivator needs to help workers and the entire community. McClelland‘s needs theory describes the need for achievement, affiliation, and power. The contribution to the company and community would provide achievement and affiliation. 3. In DTE‘s effort to motivate its employees, what were the goals? What kinds of reinforcement existed? Would you have expected these to be effective? Why or why not? The goals shifted from the initial response to the recession to a continued need to survive in a community with declining employment. The initial goal was to cut costs without layoffs. That goal evolved to one of ―powering communities.‖ Yes, I would have expected these to be effective because they were empowering during difficult times and the alternative was failure of the company or layoffs, which were only too real in their communities.

AACSB: Analytic

Chapter 09 Motivation

IN-CLASS ACTIVITY Fish Philosophy Motivation

Show the Fish Philosophy video Sunday Morning (Creative Business Futures & World Famous Pike Place Fish Market) https://youtu.be/iGwo67vCh4U. Run time: 8:41. (There are several other Fish Philosophy videos available on YouTube if this one is too long). The video introduces Pike Place Fish Market and their four-step philosophy for success. The four fish principles are: 1. Play 2. Make their day 3. Be there 4. Choose your attitude One of the motivational/attitudinal concepts for employees is ―choose your attitude‖ which encourages employees to choose to have a good day and to support coworkers and customers. Discussion prompts include: 

Ask students to list performance motivators they see in the video.



Why would this be a fun place to work? What do they think motivates the fishmongers (who work long hours in cold, wet conditions at low pay) to be so cheerful?



What examples of extrinsic motivation are shown? What examples of intrinsic motivation?



How might this fish philosophy be applied to motivation in a student project team?

Chapter 09 Motivation

CONNECT For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect

Case Analysis 

Salesforce is #1 Place to Work

Video Case 

Building Passion into the Company

Manager’s Hot Seat   

Cyberloafing Clearing Motivation for Takeoff Tidying Up Motivation Concepts

iSeeIt! Animated Video   

Expectancy Theory Contingent Consequences Motivation

Role-Playing: (See Application-Based Activities within Connect.)  

Expectancy Theory: Aloha Motivation! Reinforcement Theory: Delivering Consequences

Chapter 09 Motivation

POWERPOINT SLIDES These Instructor‘s PowerPoint slides can be used to supplement the lecture material.

SLIDE 1 Chapter Title SLIDE 2 Learning Objectives SLIDE 3 The Nature of Motivation: Motivation SLIDE 4 The Nature of Motivation: Direction, Effort, Persistence SLIDE 5 The Nature of Motivation: Intrinsically, Extrinsically and Prosocially Motivated Behavior SLIDE 6 The Nature of Motivation: Outcome and Input SLIDE 7 Figure 9.1: The Motivation Equation SLIDE 8 Expectancy Theory SLIDE 9 Expectancy Theory: Expectancy, Instrumentality and Valence SLIDE 10 Topics for Discussion: Expectancy SLIDE 11 Figure 9.2: Expectancy, Instrumentality, and Valence SLIDE 12 Topics for Discussion: Instrumentalities SLIDE 13 Figure 9.3: Expectancy Theory SLIDE 14 Need Theories SLIDE 15 Maslow‘s Hierarchy of Needs SLIDE 16 Herzberg‘s Motivation-Hygiene Theory SLIDE 17 Herzberg‘s Motivation-Hygiene Theory: Motivator and Hygiene needs SLIDE 18 McClelland‘s Needs for Achievement, Affiliation, and Power: Need for Achievement SLIDE 19 McClelland‘s Needs for Achievement, Affiliation, and Power: Need for Affiliation, and Power SLIDE 20 Equity Theory SLIDE 21 Equity Theory: Equity and Inequity SLIDE 22 Table 9.2: Equity Theory SLIDE 23 Equity Theory: Underpayment and Overpayment Inequity SLIDE 24 Topics for Discussion: Equity Theory SLIDE 25 Equity and Justice in Organizations: Distributive and Procedural Justice SLIDE 26 Equity and Justice in Organizations: Interpersonal and Informational Justice SLIDE 27 Goal-Setting Theory SLIDE 28 Topics for Discussion: Goals SLIDE 29 Learning Theories SLIDE 30 Learning Theories: Learning SLIDE 31 Operant Conditioning Theory

Chapter 10 Leaders and Leadership SLIDE 32 Operant Conditioning Theory: Positive and Negative Reinforcement SLIDE 33 Operant Conditioning Theory: Extinction and Punishment SLIDE 34 Topics for Discussion: Positive Reinforcement SLIDE 35 Social Learning Theory SLIDE 36 Social Learning Theory: Vicarious Learning SLIDE 37 Social Learning Theory: Self-Reinforcer and Self-Efficacy SLIDE 38 Pay and Motivation: Pay as Motivator SLIDE 39 Pay and Motivation: Pay as Motivator SLIDE 40 Merit Pay and Performance SLIDE 41 Salary Increase or Bonus? SLIDE 42 Examples of Merit Pay Plans: Piece-Rate and Commission Pay SLIDE 43 Examples of Merit Pay Plans: Scanlon Plan and Profit-Sharing SLIDE 44 Be the Manager

Chapter 10 Leaders and Leadership CHAPTER CONTENTS Learning Objectives

10-2

Key Definitions/Terms

10-3

Chapter Overview

10-5

Lecture Outline

10-6

Lecture Enhancers

10-17

Management in Action

10-20

Building Management Skills

10-24

Managing Ethically

10-27

Be the Manager

10-28 10-297

Chapter 10 Leaders and Leadership

Case in the News

10-29

In-Class Activity

10-31

Connect Features

10-32

PowerPoint Slides

10-33

Chapter 10 Leaders and Leadership

LEARNING OBJECTIVES LO 10-1. Explain what leadership is, when leaders are effective and ineffective, and the sources of power that enable managers to be effective leaders.

LO 10-2. Identify the traits that show the strongest relationship to leadership, the behaviors leaders engage in, and the limitations of the trait and behavior models of leadership.

LO 10-3. Explain how contingency models of leadership enhance our understanding of effective leadership and management in organizations.

LO 10-4. Describe what transformational leadership is, and explain how managers can engage in it.

LO 10-5. Characterize the relationship between gender and leadership and explain how emotional intelligence may contribute to leadership effectiveness.

Chapter 10 Leaders and Leadership

KEY DEFINITIONS/TERMS

charismatic leader: An enthusiastic, self-confident leader who is able to clearly communicate their vision of how good things could be. coercive power: The ability of a manager to punish others. consideration: Behavior indicating that a manager trusts, respects, and cares about subordinates. developmental consideration: Behavior a leader engages in to support and encourage followers and help them develop and grow on the job. Empowerment: The expansion of employees‘ knowledge, tasks, and decision-making responsibilities. expert power: Power that is based on the special knowledge, skills, and expertise that a leader possesses. initiating structure: Behavior that managers engage in to ensure that work gets done, subordinates perform their jobs acceptably, and the organization is efficient and effective. intellectual stimulation: Behavior a leader engages in to make followers be aware of problems and view these problems in new ways, consistent with the leader‘s vision. leader: An individual who is able to exert influence over other people to help achieve group or organizational goals.

leadership substitute: A characteristic of a subordinate or of a situation or context that acts in place of the influence of a leader and makes leadership unnecessary. legitimate power: The authority that a manager has by virtue of their position in an organization‘s hierarchy. path-goal theory: A contingency model of leadership proposing that leaders can motivate subordinates by identifying their desired outcomes, rewarding them for high performance and the attainment of work goals with these desired outcomes, and clarifying for them the paths leading to the attainment of work goals. position power: The amount of legitimate, reward, and coercive power that a leader has by virtue of their position in an organization; a determinant of how favorable a situation is for leading. referent power: Power that comes from subordinates‘ and coworkers‘ respect, admiration, and loyalty. relationship-oriented leaders: Leaders whose primary concern is to develop good relationships with their subordinates and to be liked by them. reward power: The ability of a manager to give or withhold tangible and intangible rewards. servant leader: A leader who has a strong desire to serve and work for the benefit of others.

leader-member relations: The extent to which followers like, trust, and are loyal to their leader; a determinant of how favorable a situation is for leading.

task-oriented leaders: Leaders whose primary concern is to ensure that subordinates perform at a high level.

leadership: The process by which an individual exerts influence over other people and inspires, motivates, and directs their activities to help achieve group or organizational goals.

task structure: The extent to which the work to be performed is clear-cut so that a leader‘s subordinates know what needs to be accomplished and how to go about doing it; a determinant of how favorable a situation is for leading.

Chapter 10 Leaders and Leadership transactional leadership: Leadership that motivates subordinates by rewarding them for high performance and reprimanding them for low performance.

transformational leadership: Leadership that makes subordinates aware of the importance of their jobs and performance to the organization and aware of their own needs for personal growth and that motivates subordinates to work for the good of the organization.

Chapter 10 Leaders and Leadership

CHAPTER OVERVIEW In this chapter we describe what leadership is and examine the major leadership models that shed light on the factors that contribute to a manager‘s being an effective leader. We look at trait and behavior models, which focus on what leaders are like and what they do, and contingency models—Fiedler‘s contingency model, path-goal theory, and the leader substitutes model—each of which takes into account the complexity surrounding leadership and the role of the situation in leader effectiveness. We also describe how managers can use transformational leadership to dramatically affect their organizations. By the end of this chapter, you will have a good appreciation of the many factors and issues that managers face in their quest to be effective leaders.

Chapter 10 Leaders and Leadership

LECTURE OUTLINE NOTE ABOUT POWERPOINT SLIDES The PowerPoint slides include most chapter content, along with additional material that can be used to expand the lecture. A list of the Instructor PowerPoint slides can be found at the end of this chapter.

Management Snapshot Satya Nadella Leads Microsoft into New Business What Does Effective Leadership Look Like? At Microsoft, it looks as though there is someone who sizes up a situation, sees a better place to be, and gets people moving toward that place. The person doing that for Microsoft is its CEO, Satya Nadella. He had been running Microsoft‘s Azure cloud-computing division when the board of directors asked him to replace retiring CEO Steve Ballmer. At that time, Microsoft‘s growth had stagnated, and more embarrassingly, the company was late to one technology trend after another, including social networking and mobile phones. Nadella interpreted this as a sign of a deeper cultural problem: Microsoft had become self-satisfied with past successes (Windows and Office) and entrenched in old ways, and its people were cautious about change. Trying something new had become too risky. Nadella encouraged employees to adopt a growth mind-set, with everyone learning and growing in a diverse and inclusive company culture. He displayed self-confidence, integrity, and the practicality of his ideas by modeling the new culture he envisioned. He made a point of listening to others and seeking their ideas, rather than merely directing them. When he made mistakes, he acknowledged them. And when others did, he focused on what could be learned, not on judging them. Under Nadella‘s leadership, Microsoft has experienced a kind of rebirth and transformation. Sales and profits are rising again, with the growth fueled by cloud-based computing, with Microsoft stock up more than 50% in 2021. Big customers, including Salesforce, AT&T, and IBM, have signed up for Azure, and the platform is becoming a strong competitor for Amazon‘s cloud services. The company that dominated the PC era of computing is once again taking the lead, this time in the era of the cloud.

Chapter 10 Leaders and Leadership

I. The Nature of Leadership LO 10-1: Explain what leadership is, when leaders are effective and ineffective, and the sources of power that enable managers to be effective leaders. A. Leadership is the process by which a person exerts influence over other people and inspires, motivates, and directs their activities to help achieve group or organizational goals. The person who exerts such influence is a leader. 1. When leaders are effective, the influence they exert helps a group achieve its performance goals. 2. When leaders are ineffective, their influence does not contribute to, and often detracts from, goal attainment. 3. Effective leadership increases an organization‘s ability to meet all challenges, including the need to obtain a competitive advantage, the need to foster ethical behavior, and the need to manage a diverse workforce fairly and equitably. B. Personal Leadership Style and Managerial Tasks: A manager‘s personal leadership style is the specific way in which he or she chooses to influence other people. 1. Managers at all levels and in all kinds of organizations have their own personal leadership styles that determine how they lead subordinates and how they perform other management tasks. a. Although leading is one of the four principal tasks of managing, a distinction is often made between managers and leaders. b. When this distinction is made, managers are thought of as those organizational members who establish and implement procedures and processes to ensure smooth functioning and who are accountable for goal accomplishment. c. Leaders, on the other hand, look to the future, chart the course for the organization, and attract, retain, motivate, and inspire, and develop relationships with employees based on trust and mutual respect. 2. Servant Leaders: Leaders who have a strong desire to work for and serve others. Servant leaders share power with followers and pay attention to those who are least well off in society. C. Leadership Styles across Cultures: Some evidence suggests that leadership styles vary not only among individuals, but also among countries and cultures. 1. Some research suggests that European managers tend to be more humanistic than both Japanese and American managers. 10-304 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 Leaders and Leadership 2. Japan‘s collectivistic culture places its primary emphasis on the group rather than the individual, so the importance of the individual‘s needs, desires, and personality is minimized. 3. In the United States, organizations tend to be very profit oriented and thus downplay the needs and desires of individual employees. 4. Another noted cross-cultural difference is in time horizons. a. U.S. managers tend to have a personal style that reflects the short-run profit orientation of their companies, while Japanese managers tend to have personal styles that reflect a long-run growth orientation. b. Managers in Europe‘s large international firms have a philosophy that lies in between the long-term approach of the Japanese and the short-term approach of the Americans. 5. Research on the global aspects of leadership is in its infancy. As it continues, more cultural differences in managers‘ leadership styles may be discovered. D. Power: The Key to Leadership: A key component of effective leadership is found in the power the leader has to affect other people‘s behavior and get them to act in certain ways. There are several types of power. Effective leaders take steps to ensure that they have sufficient levels of each type and that they use their power in beneficial ways. 1. Legitimate power is the authority a manager has by virtue of their position in an organization‘s hierarchy. 2. Reward power is the ability of a manager to give or withhold tangible rewards such as pay raises, bonuses, and choice job assignments, as well as intangible rewards such as verbal praise, a pat on back, or respect. a. Effective managers use their reward power to show appreciation for subordinates‘ good work and efforts. b. Ineffective managers use rewards in a more controlling manner that signals to subordinates that the manager has the upper hand. 3. Coercive power is the ability of a manager to punish others. a. Punishment may include verbal reprimands, reductions in pay, or actual dismissal. b. Managers who rely heavily on coercive power tend to be ineffective as leaders and sometimes even get themselves fired. TEXT REFERENCE

Chapter 10 Leaders and Leadership Ethics in Action Using Power Ethically Many people join organizations to improve life by making a helpful service available or by developing solutions to problems. Viewed with this mindset, power might seem vaguely unethical—as manipulation or dominance. Indeed, we have all seen power used to seize control or wealth for selfish purposes, but power itself is neutral. It can be a force for good when people use it to change society or organizations for the better. Unfortunately, having power can change some people in ways that make unethical uses of power more likely. Those with power need to guard against hubris (overestimation of one‘s ability to avoid failure) and self-absorption. To use power ethically, managers can inoculate themselves against hubris by practicing humility, that is, an absence of arrogance. Humility is not devaluing oneself but rather involves an accurate perception of oneself and others. Like other ways of thinking, humility gets stronger with practice. To prevent themselves against being overly focused on their own situation, managers can cultivate empathy. In addition to practicing humility and empathy, managers have the power to build these practices into the organization‘s processes and culture. For example, performance feedback measures can include assessments of these qualities, such as the extent to which managers show appreciation for others‘ strengths and contribute to the success of others.

4. Expert power is based on the special knowledge, skills, and expertise that a leader possesses. a. The nature of expert power varies, depending on the leader‘s level in the hierarchy. b. Effective leaders take steps to ensure that they have an adequate amount of expert power to perform their leadership roles. c. Expert power tends to be best used in a guiding or coaching manner rather than in an arrogant, high-handed manner. 5. Referent power stems from subordinates‘ and coworkers‘ respect, admiration, and loyalty to and for their leader. a. Leaders who are likable and whom subordinates admire are likely to possess referent power. b. Because referent power is a function of the personal characteristics of a leader, managers can increase their referent power by taking time to get to know their subordinates and showing interest in them. E. Empowerment: An Ingredient in Modern Management: Empowerment is the process of giving employees at all levels in the organization the authority to make decisions, be responsible for their outcomes, improve quality, and cut costs. 10-306 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 Leaders and Leadership 1. It can contribute to effective leadership for several reasons: a. It increases a manager‘s ability to get things done. b. It often increases workers‘ involvement, motivation, and commitment. c. It gives managers more time to concentrate on their pressing concerns because they spend less time on day-to-day supervisory responsibilities. 2. The personal leadership style of managers who empower subordinates often entails developing subordinates‘ ability to make good decisions as well as being their guide, coach, and source of inspiration.

II. Trait and Behavior Models of Leadership Early approaches to leadership, called the trait model and the behavior model, sought to determine what effective leaders are like as people and what they do that makes them so effective. A. The Trait Model: The trait model of leadership focused on identifying the personal characteristics that are responsible for effective leadership. 1. Decades of research indicate that certain personal characteristics do appear to be associated with effective leadership. 2. However, traits alone are not the key to understanding leader effectiveness. 3. Some effective leaders do not possess all of the traits identified in this model, and some leaders who do possess them are not effective in their leadership roles. 4. This lack of a consistent relationship between leader traits and leader effectiveness led researchers to shift their attention away from what leaders are like (their traits) to what effective managers actually do, i.e., their behaviors. B. The Behavior Model: Researchers at Ohio State University in the 1940s and 1950s identified two basic kinds of leader behaviors that many managers engaged in to influence their subordinates: consideration and initiating structure.

1. Consideration: Leaders engage in consideration when they show their subordinates that they trust, respect, and care about them. a. Managers who truly look out for the well-being of their subordinates and do what they can to help subordinates feel good and enjoy their work perform consideration behaviors.

Chapter 10 Leaders and Leadership 2. Initiating Structure: Leaders engage in initiating structure when they make sure that work gets done, and the organization is effective and efficient. a. Assigning tasks to individuals or work groups, making schedules, and encouraging adherence to rules are examples of initiating structure. 3. Initiating structure and consideration are independent leader behaviors. Leaders can be high on both, low on both, or high on one and low on the other.

III. Contingency Models of Leadership A. Contingency models of leadership take into account the situation or context within which leadership occurs. They propose that whether or not a manager is an effective leader is the result of the interplay between what the manager is like, what he or she does, and the situation in which leadership takes place. B. Fiedler’s Contingency Model: Fiedler‘s contingency model helps explain why a manager may be an effective leader in one situation and ineffective in another. It also suggests which kinds of managers are likely to be most effective in which situations. 1. Leader Style: Fiedler hypothesized that personal characteristics can influence leader effectiveness. He uses the term leader style to refer to a manager‘s characteristic approach to leadership and identified two basic leader styles: relationship-oriented and task-oriented. All managers can be described as having one style or the other. a. Relationship-oriented leaders are primarily concerned with developing good relationships with their subordinates and being liked by them. They get the job done while focusing on maintaining high-quality interpersonal relationships with subordinates. b. Task-oriented leaders are primarily concerned with ensuring that subordinates perform at a high level. 2. Situational Characteristics: According Fielder, leadership style is an enduring characteristic. Managers cannot change their style, nor can they adopt different styles in different kinds of situations. Fielder identified three situational characteristics that are important determinants of how favorable a situation is for leading. If a situation is favorable for leading, it is relatively easy for a manager to influence subordinates so that they perform at a high level. In a situation that is unfavorable for leading, it is much more difficult for a manager to exert influence. a. Leader-member relations describes the extent to which followers like, trust, and are loyal to their leader. Situations are more favorable for leading when leadermember relationships are good. 10-308 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 Leaders and Leadership b. Task structure is the extent to which the work to be performed is clear-cut so that the leader‘s subordinates know what needs to be accomplished and how to go about doing it. When task structure is high, situations are favorable for leading. When task structure is low, the situation is unfavorable for leading. c. Position power is the amount of legitimate, reward, and coercive power a leader has by virtue of their position in an organization. Leadership situations are more favorable for leading when position power is strong. 3. Combining Leader Style and the Situation: By taking all possible combinations of these factors, Fiedler identified eight leadership situations, which vary in their favorability for leading. Based on extensive research, Fielder determined that: a. relationship-oriented leaders are most effective in moderately favorable situations, and, b. task-oriented leaders are most effective in very favorable or very unfavorable situations. 4. Putting the Contingency Model into Practice a. According to Fiedler, managers must be placed in leadership situations that fit their style or the situation must be changed to suit the manager‘s style, if he or she is to be effective. b. Research studies support some aspects of Fiedler‘s model but also suggest that it needs some modifications. TEXT REFERENCE Managing Globally International Differences in Leadership Erin Meyer, a professor of international management, has observed that expectations of a ―leader‖ differ from one country to another. If employees perceive that a manager is not acting like their idea of a leader, they may feel confused or upset. Meyer has seen misunderstandings related to cultural ideas of authority, decision making, and the interactions between them. Authority has to do with how much importance people place on rank and how much they show respect based on rank. Decision making refers to whether leaders issue decisions or the group arrives at a consensus. Some countries use a strict hierarchy, others are more egalitarian. Leaders, especially those of multinational companies must not only learn about but also skillfully navigate those differences. A culturally agile leader can recognize and name those differences in order to identify which cultural style will be effective for particular decisions. Leadership coach Amir Ghannad urges leaders to see their followers first as unique individuals, rather than generic members of a culture. This prepares leaders to expect differences while seeing the other person‘s shared humanity.

Chapter 10 Leaders and Leadership C. House’s Path-Goal Theory: In his path-goal theory, researcher Robert House focused on what leaders can do to motivate their subordinates to achieve group or organizational goals. 1. The premise is that effective leaders motivate subordinates to achieve goals by: a. Clearly identifying the outcomes that subordinates are trying to obtain in the workplace, b. Rewarding subordinates with these outcomes for high performance and the attainment of work goals, and c. Clarifying for subordinates the paths leading to the attainment of work goals. 2. Path-goal theory identifies four kinds of behaviors that leaders can engage in to motivate subordinates. Which behaviors managers should use to lead effectively depends upon the nature of the subordinates and the kind of work they do. The behaviors are: a. Directive behaviors, which are similar to initiating structure and include showing subordinates how to complete tasks, and taking concrete steps to improve performance, b. Supportive behaviors, which are similar to consideration and include looking out for subordinates' best interest, c. Participative behaviors, which give subordinates a say in matters and decisions that affect them, and d. Achievement-oriented behaviors, which motivate subordinates to perform at the highest level possible by setting very challenging goals and believing in subordinates‘ capabilities. D. The Leader Substitutes Model: This model suggests that leadership is sometimes unnecessary because substitutes for leadership are present. 1. A leadership substitute is something that acts in place of the influence of a leader and makes leadership unnecessary. 2. Characteristics of subordinates, such as their skills, abilities, experience, knowledge, and motivation, can be substitutes for leadership. 3. Characteristics of the situation or context, such as the extent to which the work is interesting, can also be substitutes. 4. When managers empower their subordinates or use self-managed teams, the need for leadership influence is decreased because team members manage themselves.

Chapter 10 Leaders and Leadership 5. Substitutes for leadership can increase organizational efficiency and effectiveness because they free up some of the leader‘s valuable time. E.Bringing It All Together: The three contingency models help managers hone in on the necessary ingredients for effective leadership. They are complementary, since each one looks at the leadership question from a different angle.

IV. Transformational Leadership A. Transformational leadership occurs when managers change their subordinates in three important ways. 1. Transformational managers make subordinates aware of how important their jobs are to the organization and how important it is that they perform those jobs as best they can, so that the organization can attain its goals. 2. Transformational managers make their subordinates aware of their own needs for personal growth, development, and accomplishment. 3. Transformational managers motivate their subordinates to work for the good of the organization as a whole, not just for their own personal gain. Managers and other transformational leaders can influence their followers in three ways: by being a charismatic leader, by intellectually stimulating subordinates, and by engaging in developmental consideration.

B. Being a Charismatic Leader: Transformational managers are charismatic leaders. They have a vision of how good things could be in their groups and organizations that is in contrast with the status quo. 1. Their vision usually includes dramatic improvements in both group and organizational performance. 2. Charismatic leaders are excited and enthusiastic about their vision and clearly communicate it to their subordinates. 3. The essence of charisma is having a vision and enthusiastically communicating it to others. C. Stimulating Subordinates Intellectually: Transformational managers openly share information so that subordinates are aware of problems and the need for change. 1. They help subordinates to view problems from a different perspective that is consistent with the manager‘s vision. 10-311 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 Leaders and Leadership 2. They use intellectual stimulation, which leads subordinates to view problems as challenges that they can and will meet and conquer. D. Engaging in Developmental Consideration: When managers engage in developmental consideration, they go out of their way to support and encourage subordinates, giving them opportunities to enhance their skills and excel on the job. E. The Distinction Between Transformational and Transactional Leadership 1. Transformational leadership is often contrasted with transactional leadership. 2. Transactional leadership involves managers using their reward and coercive power to encourage high performance. a. When managers reward high performers, reprimand low performers, and motivate by reinforcing desired behaviors, they are engaging in transactional leadership. b. Many transformational leaders engage in transactional leadership, but at the same time have their eyes on the bigger picture of how much better things could be in their organizations. 3. Research has found that when leaders engage in transformational leadership, subordinates tend to have higher levels of job satisfaction and performance. Also, they are more likely to trust their leaders, trust their organizations, and feel that they are being treated fairly. This, in turn, may positively influence their motivation level.

V. Gender and Leadership A. Although there are relatively more women in management positions today than ten years ago, there are relatively few women in top management, and in some organizations, even in middle management. When women do advance to top management positions, special attention is often focused on the fact that they are women. B. A widespread stereotype of women in management is that they are nurturing, supportive, and concerned with interpersonal relations. 1. Such stereotypes suggest that women tend to be more relationship oriented as managers and engage in more consideration behaviors, whereas men are more task oriented and engage in more initiating structure behaviors. 2. However, research suggests that that male and female managers in leadership positions behave in similar ways. Women do not engage in more consideration than men, and men do not engage in more initiating structure than women. C. However, research does suggest that men and women may differ in leadership style. 10-312 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 Leaders and Leadership 1. Women tend to be more participative than men, involving subordinates in decision making and seeking input. 2. Also, research suggests that men tend to be harsher when they punish their subordinates than women. D. There are at least two reasons why women leaders are more participative than male leaders. 1. First, women must sometimes adopt a participative approach to overcome resistance to their leadership and engender subordinate trust and respect. 2. Second, they sometimes possess stronger interpersonal skills. E. The key finding from research is that male and female managers do not differ significantly in their propensities to perform different leader behaviors, and that across different kinds of organizational settings, male and female managers tend to be equally effective as leaders.

VI. Emotional Intelligence and Leadership A. Preliminary research suggests that emotions and moods of leaders at work influence their behavior and effectiveness as leaders. A leader‘s level of emotional intelligence may play a strong role in leadership effectiveness. Also, emotional intelligence plays a crucial role in how leaders relate to and deal with their followers, particularly when it comes to encouraging followers to be creative. TEXT REFERENCE Management Insight How to Be a High-EQ Leader What behaviors should a manager practice in order to lead with emotional intelligence (EQ)? A good starting point is to become aware of one‘s emotions. When someone puts forth an idea different from what you were advocating, what do you feel? Are you curious to learn more or defensive of an idea you were proud of? Or when you hear a critical remark, do you feel hurt, angry, or interested you might have information that will help you do better in the future? Defining these feelings can help you evaluate your options for action more accurately and fully. Another essential behavior to practice is empathy. The objective is to understand how people feel, not to encourage negative behavior or even necessarily to agree. To practice empathy, when you observe others, try to imagine yourself in their place. If you aren‘t sure how another person feels, ask and try to understand the answer. Empathy increases when you practice listening. Communication skills are a mark of a high-EQ leader, and listening is among the most important of those skills. While listening, practice focusing on understanding rather than judging what the person says. Jumping to a judgment makes it

Chapter 10 Leaders and Leadership harder to get the full message. Listening to learn about others, in contrast, is motivational as well as informative. Finally, emotionally intelligent leaders manage their emotions. Learning to recognize your emotions alerts you to situations in which self-control will help you. Then you can explore the ideas in play and perhaps even steer the group to a creative solution built on a variety of perspectives.

Chapter 11 Effective Team Management

LECTURE ENHANCERS Lecture Enhancer 10.1 WANTED: A GLOBAL BOSS

Any time there‘s a big international merger, there are inevitable worries about ―culture clash.‖ When Marjorie Scardino, a tall, wisecracking Texan, was named to head Britain‘s blue-blooded Pearson Publishing Company in November 1996, the company‘s stock plunged for a day in London. In 1997 Ford Motor named Henry Wallace, a Scottish executive, to take over its Mazda unit. As the first Scot in memory to head a major Japanese company, he faced a nation of skeptics. ―Ford sends people who don‘t speak Japanese at all,‖ grumbled one business leader in Hiroshima, Mazda‘s hometown. But Wallace‘s bad Japanese—he gets tutoring once per week—hardly matters these days. Nor did Scardino‘s Texarkana drawl grate much on British ears after a time. With surprising speed, the big multinationals, and many small ones, have come to speak the same language and inhabit a common culture. The global environment has bred a new kind of executive, the global boss, who is breaking down cultural barriers. How does one qualify as a topnotch global boss? First, learn their language. Global managers speak a combination of straight-shooting American pragmatism, Japanese-inspired management ideas (like kaizen, or continuous improvement), and M.B.A. jargon such as ―strategic resource allocation.‖ They‘re tough, smart, and flexible enough to survive in the global economy. Another must is ―benchmarking.‖ This buzzword means measuring your company against the best practices of other companies worldwide. Smart global bosses personally benchmark themselves against the world‘s most successful multinational managers. Big companies must go global to be near the billions of new consumers and to find the best deal worldwide on wages, taxes, and local talent. That takes a savvy global boss. A New York headhunter once described a search he did for a semiconductor company. ―They were looking for someone [who understands why] the chips were designed in India, water-etched in Japan, diced and mounted in Korea, assembled in Thailand, encapsulated in Singapore, and distributed everywhere,‖ he said. ―About one in a million fits that description.‖ Indeed, there aren‘t enough global bosses to go around, even if many companies haven‘t yet figured out that they need them. Few large U.S. companies, for instance, have foreigners on their boards. The coming of the global boss is less of a revolution than culture creep. For example, why don‘t we hear as much about the Japanese way of doing business as we did in the ‗80s? Because everyone has adopted it. Today, American executives chant ―corporate benchmarking‖ in their sleep and the Japanese idolize Bill Gates. 11-315 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 Effective Team Management For global bosses, even time zones are a competitive edge. An American president of Fujitsu PC in Milpitas, California once told how his team worked nonstop for months to develop software for Fujitsu‘s brand new Lifebook notebook computers, the kind of cutting-edge product that just has to beat the competition to market. ―When the work had been done in Japan, they would ship it here in the morning, our time. We did validation testing, wrote it up, and shipped the results back to them in the evening.‖ ―That sense of cross-border trust was a big step for a Japanese firm,‖ said the U.S. president of Fujitsu. So was Fujitsu‘s decision to put him, a former Apple exec, in charge. He says that his Tokyo bosses ―stopped thinking in terms of local control of worldwide enterprise.‖ Like global bosses everywhere, they can‘t afford to.

Lecture Enhancer 10.2 TYPE A MANAGERS

Up to 80 percent of corporate executives exhibit varying degrees of hostile behavior that, at the extreme, are working against the best interests of their own companies, according to David Glass, a social psychologist. The behavior being exhibited by these managers is called Type A. Type A personalities are compulsive, work-oriented overachievers; Type B personalities are more laid-back. Type A behavior is characterized by impatience, irritation, anger, and aggression. In contrast to the 80 percent among managerial ranks, only 40 to 50 percent of the general population exhibits this type of behavior. Extreme Type A corporate executives are hostile to the employee involvement being used by firms as a means to improve worker morale and to increase productivity. Type A behavior is the reason why more companies have not made a successful transition to effective employee involvement, despite widespread attention that has been devoted to work teams, quality circles, and other cooperative work place measures. Type A managers are involved in a constant struggle to achieve more and more in less and less time. They see their enemies as the clock and other people, and typically try to measure their accomplishments in terms of numbers and speed. In its extreme, Type A behavior is addictive in the same manner of other addictions, such as gambling and excessive use of alcohol. Managers who exhibit this behavior are at increased risk of heart disease and other stress-related illnesses and so are the people who work for them. The fuel for the addiction, in this case, is the body‘s own adrenaline. The individual gets a biochemical ―high‖ by creating crisis or stress situations and then putting out the fires. And just as alcohol often affects others in addition to the alcoholic, extreme Type A behavior often has negative effects upon others. With their aggressive, action-oriented, impatient behavior, Type As are often viewed as the ideal management types. However, they do not always possess the edge in management success. 11-316 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 Effective Team Management When the job involves complex judgment, accuracy rather than speed, and working as part of a team, the more relaxed Type Bs tend to outperform them. This may be one reason why more Type Bs surface at the top levels of management, while the Type As dominate the ranks of middle management. Other reasons have also been advanced. First, it is likely that Type As, because of increased risk of heart attacks and other disabilities, just do not last long enough to rise to the highest levels. Another possibility is that the impatience and irritation that accompany extreme Type A behavior are often incompatible with the long-term decision-making strategies of top management. A third factor is that the hostile behavior of Type As may make them enemies along the way which can count against the managers when promotion time comes. Another alternative is that Type As are more likely to quit organizational life and become entrepreneurs. Type A personalities are two and one-half times more likely to die of heart disease than Type B. Research has found that the poison ingredient is hostility. Chronic anger and hostility are harmful because they cause physical stress, which can lead to illness. Hostile men get angry more often and with greater intensity than others. Every time anger occurs it hits the heart. While specialists in personality believe hostility is a difficult trait to change, it is not impossible.

Chapter 11 Effective Team Management

Management In Action Notes for Topics for Discussion and Action DISCUSSION

1. Describe the steps managers can take to increase their power and ability to be effective leaders. A manager should ensure that he or she has sufficient levels of power. For example, in order to use their legitimate power they must be given the authority or necessary responsibilities within the organization. The other sources of power that help a manager be an effective leader include reward power, coercive power, expert power, and referent power. A manager needs to use the power that he or she has in beneficial ways and not abuse it. For example, when using reward power, managers need to give or withhold tangible and intangible rewards to their subordinates. When using coercive power, they need to punish employees when necessary. This would include verbal reprimands, reductions in pay or working hours, or actual dismissal. When using their expert power, managers must show that they have gained significant knowledge from their experience. And to maintain or increase referent power, a manager should behave in ways that encourage respect, admiration and loyalty from subordinates and coworkers.

2. Think of specific situations in which it might be especially important for a manager to engage in consideration and initiating structure. Leaders engage in consideration when they show their subordinates that they trust, respect, and care about them. A manager is performing consideration behaviors when he/she takes steps that will benefit the well-being of his/her subordinates. It is always important for managers to show their subordinates respect, an example of consideration behavior. Due to the increasing importance of customer service, organizations are beginning to realize that if they are considerate and respectful to their employees, their employees in turn will be considerate and respectful to their customers. Leaders engage in initiating structure when they take steps to make sure that the work gets done, subordinates perform their jobs acceptably, and the organization is efficient and effective. Delegating responsibilities is an example of initiating structure. When a manager assigns projects to subordinates or schedules their working hours and break times, he or she is initiating structure in the organization. 3. Discuss why managers might want to change the behaviors they engage in, given their situation, their subordinates, and the nature of the work being done. Do you think managers are able to readily change their leadership behaviors? Why or why not? 11-318 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 Effective Team Management Because different types of leading behaviors work best in different situations, the manager must understand of the nature of the situation. Subordinates are people with varied personalities, and people respond differently to different leadership behaviors and styles. A manager must also be cognizant of the different types of tasks performed by their subordinates. Some leadership behaviors are more appropriate for certain tasks than for others. It is very important for managers to develop a way for determining what kinds of leader behaviors are likely to work in different situations in order to be effective and efficient managers.

4. Discuss why substitutes for leadership can contribute to organizational effectiveness. A leadership substitute is something that acts in place of the influence of a leader and makes leadership unnecessary. An organization may be fortunate to have extremely motivated employees who are able to perform the majority of their responsibilities without guidance from their managers. If employees are not in need of constant leadership, those who usually perform these functions are then able to spend their time doing other things required to increase the effectiveness of the organization.

5. Describe what transformational leadership is and explain how managers can engage in it. Transformational leadership occurs when a manager has an extremely dramatic effect on their subordinates and/or organizations. Transformational leadership occurs when managers change, or transform, their subordinates in three important ways: (a) The manager makes subordinates aware of how important their jobs are for the organization and how important it is that they perform them as best as they can, so that the organization can obtain its goals. (b) The manager makes subordinates aware of the subordinates‘ own needs for personal growth, development, and accomplishment. (c) The manager motivates subordinates to work for the good of the organization, not just for their own personal gain or benefit.

6. Imagine that you are working in an organization in an entry level position upon graduation and have come up with what you think is a great idea for improving a critical process in the organization that relates to your job. In what ways might your supervisor encourage you to implement your idea? How might your supervisor discourage you from even sharing your idea with others?

Chapter 11 Effective Team Management Effectively managing workers with creative ideas is quite challenging for some leaders. A supportive, uncritical leadership style that offers positive feedback will encourage a creative worker to implement their idea. Too much initiating structure often inhibits creativity and has the opposite effect. ACTION

7. Interview a manager to find out how the three situational characteristics that Fiedler identified affect their ability to provide leadership. When a situation is favorable for leading, it is relatively easy for a manager to influence subordinates so they perform at a high level and contribute to organizational efficiency and effectiveness. Fiedler identified three situational characteristics that are important in determining how favorable a situation is for leading. They include leader-member relations, task structure and position power. Leader-member relations describes the extent to which followers like, trust, and are loyal to their leader. When a manager has good leader-member relations, the situation is more favorable for leading. Task structure describes the extent to which the work to be performed by a leader‘s subordinates is clear-cut, so that they know what needs to be accomplished and how to go about doing it. If an organization possesses high task structure, the situation is more favorable for leading. Position power describes the amount of legitimate, reward, and coercive power a leader has by virtue of their position in an organization. If a manager has strong position power, the situation is more favorable for leading.

8. Find a company that has dramatically turned around its fortunes and improved its performance. Determine whether a transformational manager was behind the turnaround and, if one was, what this manager did. (Note to the instructor: Students‘ answers may vary. The answer given below is merely indicative.) The revolution at Xerox under the leadership of Anne Mulcahy is a fine example of turnaround management. With falling revenues in 1999 and 2000, Xerox trusted its new CEO, Anne Mulcahy, to turn it around. Mulcahy realized that Xerox did not manage its cash well, and did not put it to best use. She encouraged managers to constantly assess their own performance and to receive feedback from associates, both above them and below. Xerox managers now undergo 360-degree assessments from employees at all levels of the company. The company has become selective about the employees who undergo management training. 11-320 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 Effective Team Management The answers of students could vary. Other companies like HP, Nissan, IBM, Polaroid, and McDonalds are some of the other examples that students can cite.

AACSB: Reflective Thinking

Chapter 11 Effective Team Management

BUILDING MANAGEMENT SKILLS Analyzing Failures of Leadership

Think about a situation you are familiar with in which a leader was very ineffective. Then, answer the following questions:

1. What sources of power did this leader have? Did the leader have enough power to influence their followers? (Note to Instructor: Student answers will vary based on their personal experiences. Information is provided to define the terms used in the questions.) The sources of power are legitimate power, reward power, coercive power, expert power, and referent power. Legitimate power is the authority a manager has by virtue of their position in an organization‘s hierarchy. Reward power is based on the ability of a manager to fire or withhold tangible rewards such as pay raises, bonuses or choice job assignments, and intangible rewards such as verbal praise, a pat on the back, or respect. Coercive power comes from the ability of a manager to punish subordinates by means ranging from verbal reprimands to actual dismissal. Expert power is based in the special knowledge, skills, and expertise that a leader possesses. Referent power is a function of the personal characteristics of leader that result in subordinates‘ and coworkers‘ respect, admiration, and loyalty to the leader.

2. What kinds of behaviors did this leader engage in? Were they appropriate for the situation? Why or why not? Leaders who show their subordinates that they trust, respect, and care about them are engaged in consideration behavior. Leaders who are mostly concerned about making sure that the work gets done are engaged in initiating structure behavior. These are independent behaviors. Leaders can be high on both, low on both, or high on one and low on the other. According to Fiedler, it is important that a leader‘s style be correctly matched with the situation in order for the leader to be effective. Task-oriented leaders are most effective in situations in which leader-member relations are good. Task structure can be either high or low and position power can be either weak or strong. In all other situations, a relationship-oriented leader will be more effective.

3. From what you know, do you think this leader was a task-oriented leader or a relationshiporiented leader? How favorable was this leader‘s situation for leading?

Chapter 11 Effective Team Management Relationship-oriented leaders are primarily concerned with developing good relationships with their subordinates and being liked by them, focusing on having high quality interpersonal relationships. Task-oriented leaders are primarily concerned with ensuring that subordinates perform at a high level, focusing on making sure that the job gets done. Fiedler identified three situational characteristics that determine whether the situation is favorable for leading. They include: leader-member relations, task structure, and position power.

4. What steps did this leader take to motivate their followers? Were these steps appropriate or inappropriate? Why? Steps the leader could have taken to motivate their followers include the following: 

Practice open communication.



Be clear of your expectations of followers.



Guide followers in setting reasonable goals and challenging goals.



Reward followers for high performance and goal attainment.



Express confidence in followers‘ abilities.



Provide the support that followers need to obtain goals or fulfill responsibilities.



Look out for best interests of followers.



Allow followers a say in decisions that affect them.

The appropriateness of specific motivational techniques will depend on many factors, including the follower‘s needs, expectancies, and possible concerns about overpayment or underpayment inequity.

5. What signs, if any, did this leader show of being a transformational leader? A transformational leader has an extremely dramatic effect on his/her subordinates and/or organization. They are charismatic, intellectually stimulating to subordinates, and engage in developmental consideration. Transformational leadership occurs when managers change (or transform) their subordinates in three important ways: (a) The manager makes subordinates aware of how important their jobs are for the organization and how necessary it is that they perform them as best as they can, so that the organization can obtain its goals. (b) The manager makes subordinates aware of their own needs for personal growth, development, and accomplishment. 11-323 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 Effective Team Management (c) The manager motivates subordinates to work for the good of the organization, not just for their own personal gain or benefit.

AACSB: Reflective Thinking

Chapter 11 Effective Team Management

MANAGING ETHICALLY (Note to Instructor: Student answers will vary.)

1. Either alone or in a group, think about the ethical implications of the use of coercive power.

A manager that relies heavily upon coercive power to manage his employees must be careful to never ‗cross the line‘ by engaging in behaviors that can be seen by subordinates as unfair, offensive, demeaning, or abusive.

2. To what extent do managers and organizations have an ethical obligation to put limits on the

extent to which coercive power is exercised? Organizations must ensure that all managers, including those who rely upon coercive power, always remain within the boundaries of professional and ethical conduct. This is especially important since as leaders, managers are expected to set an example for subordinates. Behaviors sometimes associated with coercive power that should never be tolerated include yelling, use of profane language, or abrupt, unjustified demotion or dismissals.

AACSB: Ethics

Chapter 11 Effective Team Management

BE THE MANAGER QUESTIONS

What are you going to do to improve the performance and effectiveness of your company? The managers could adapt the transformational leadership approach, making the subordinates aware of how important their jobs are for the organization and how necessary it is for them to perform those jobs as best they can so the organization can attain its goals. Transformational managers make their subordinates aware of the subordinates‘ own needs for personal growth, development, and accomplishment. Transformational managers motivate their subordinates to work for the good of the organization as a whole, not just for their own personal gain or benefit. As a manager, one should not be on the sidelines. It appears that nothing will change. The current leadership strength has been in the area of initiating structure, demonstrated by the implementation of the new action plans. But now, the manager must focus on transforming his subordinates. He can also work on engaging in developmental consideration by going out of his way to support and encourage subordinates and by giving them opportunities to enhance their skills and grow and excel on the job.

AACSB: Reflective Thinking

Chapter 11 Effective Team Management

CASE IN THE NEWS Case Synopsis: CEO’s Leadership Helps Levi Strauss Succeed

When Chip Bergh became CEO of Levi Strauss in 2011, he soon discovered that the company‘s financial condition was unexpected. After almost three decades of managing brands for Procter & Gamble, Bergh expected that an icon like Levi‘s would have greater financial strength. Levi‘s developed a worldwide image associated with the freedom, hard work, and wide-open spaces of the American West. But sales at the privately held company, which had climbed to a peak of $7 billion in 1997, were down to about $4.5 billion annually. Bergh first focused on listening. He met with each of the top 60 managers and held town hall meetings to get an understanding of the situation. Those meetings told him employees thought the company was doing just fine and top managers could not connect their areas of responsibility to the company‘s overall strategy. After replacing many of the top managers, Bergh formed a four-part strategy for the company. First, maintain profitable operations of its core products, second, seek expansion where it had low market share, third, become a leader in omnichannel retailing (selling on the company web site), and fourth, improve efficiency to pay down debt. The company had enough financial success early on to open their Eureka Innovation Lab, which helped the company innovate to improve both the women‘s jeans product as well as the process used to distress the fabric. Those innovations yielded increased revenue and speed to market. The strategy is working. Revenues have grown under Bergh‘s guidance, nearing $5.8 billion in 2021, demonstrating a strong 29% increase year after year. In addition, Levi‘s is in the top slot for sales of jeans. Its market share in women‘s apparel continues to increase, and international sales remain steady. On the omnichannel objective, the company posted greater than a 42% increase in e-commerce sales in a recent quarter, as consumers accelerated their online shopping efforts during the pandemic. Efficiency has improved with the automation of production and other functions, including finance. A recent winner of the Visionary Award given by the National Retail Federation—a signal that his peers see him as a leader in creating positive change—Bergh still has his sights set on increasing revenues to $10 billion—the level he had expected when he first signed on to the run the company. QUESTIONS

1. What traits and behaviors do you think have helped Chip Bergh succeed as a leader at Levi Strauss? Bergh seems to have a transformational leadership style. He displays most of the characteristics of that style: he possesses a clear vision of a better future, demonstrates the ability to share that 11-327 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 Effective Team Management vision, and appears to have a dramatic effect on the company through motivating subordinates to work for the good of the organization.

2. When Bergh arrived at Levi Strauss, he identified a need for the organization to be transformed. Consider the kinds of changes transformational leadership brings about in a leader‘s employees. What are some challenges that Bergh faced in bringing about these changes? Top leaders had no discernable connection to the company strategy or their role in it. Bergh had to replace many of those leaders. The article states that many employees seemed to think the company was doing just fine, despite lackluster results. Bergh clearly had to revise that perception while motivating employees to work to improve results.

3. If you had been coaching Bergh in how to be a transformational leader, what would you have suggested he do to bring about change in the organization‘s people and culture? Bergh did not seem to need much coaching. He started by listening, an excellent way to gain understanding of the company‘s problems as well as its culture. He then crafted a clear vision and by all counts communicated it well. His open communication style enabled him to share his vision and inspire employees to join him on his journey for success, which effectively changed the company culture.

AACSB: Analytic

Chapter 11 Effective Team Management

IN-CLASS ACTIVITY Leadership

Preparation: Download and print a copy of Lee Iacocca‘s Nine C‘s score card: http://leeiacocca.net/scorecard/Default.html. Create a PowerPoint presentation about the 9 C‘s. 1. Ask students to write down the name of their favorite leader (must be a real person, living or dead). Then describe the characteristics that make that person such an excellent leader. 2. Introduce Lee Iacocca‘s Nine Cs of leadership. (After downloading the scorecard, you can create a brief PowerPoint on each of the Cs to make sure students take time to understand each.) 3. Distribute copies of the scorecard and have students form small groups. Groups list each leader on the scorecard and rate them (coming to a consensus) on each of the nine Cs. 4. Groups report on their leader choices and how they rated on the scorecard.

Chapter 11 Effective Team Management

CONNECT For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect

Case Analysis  

Leadership and Power Putting the Contingency Model into Practice

Manager’s Hot Seat   

Leadership and Credibility Leadership Power and Influence

iSeeit! Video Case 

Leadership: Contingency Theory

Role-Play Application-Based Activity 

Leadership: Transactional vs. Transformational Leadership

Chapter 11 Effective Team Management

POWERPOINT SLIDES These Instructor‘s PowerPoint slides can be used to supplement the lecture material. SLIDE 1 Chapter Title SLIDE 2 Learning Objectives SLIDE 3 The Nature of Leadership: Leader SLIDE 4 The Nature of Leadership: Leader SLIDE 5 The Nature of Leadership: Personal Leadership Style SLIDE 6 The Nature of Leadership: Servant Leader SLIDE 7 Leadership Styles Across Cultures SLIDE 8 Figure 10.1: Types of Managerial Power SLIDE 9 Power: The Key to Leadership: Legitimate and Reward Power SLIDE 10 Power: The Key to Leadership: Coercive and Expert Power SLIDE 11 Power: The Key to Leadership: Referent Power SLIDE 12 Topics for Discussion: Effective Leaders SLIDE 13 Empowerment: An Ingredient in Modern Management SLIDE 14 Empowerment: An Ingredient in Modern Management: Empowerment SLIDE 15 Trait and Behavior Models of Leadership SLIDE 16 The Behavior Model SLIDE 17 The Behavior Model: Consideration and Initiating Structure SLIDE 18 Topics for Discussion: Behavior Model SLIDE 19 Contingency Models of Leadership: Contingency Models SLIDE 20 Contingency Models of Leadership: Fiedler’s Model SLIDE 21 Topics for Discussion: Leadership Behavior SLIDE 22 Contingency Models of Leadership: Relationship-Oriented and Task-Oriented Leaders SLIDE 23 Fiedler’s Model: Leader-Member Relations and Task Structure SLIDE 24 Fiedler’s Model: Position Power SLIDE 25 Figure 10.2: Fiedler’s Contingency Theory of Leadership SLIDE 26 House’s Path-Goal Theory SLIDE 27 House’s Path-Goal Theory: Directive and Supportive Behaviors SLIDE 28 House’s Path-Goal Theory: Participative and Achievement-Oriented Behaviors SLIDE 29 Topics for Discussion: Substitutes for Leadership SLIDE 30 The Leader Substitutes Model SLIDE 31 The Leader Substitutes Model: Possible Substitutes SLIDE 32 Transformational Leadership SLIDE 33 Topics for Discussion: Transformational Leadership SLIDE 34 Being a Charismatic Leader SLIDE 35 Stimulating Subordinates Intellectually SLIDE 36 Engaging in Developmental Consideration SLIDE 37 Transactional Leadership SLIDE 38 Gender and Leadership SLIDE 39 Emotional Intelligence and Leadership: The Moods of Leaders SLIDE 40 Emotional Intelligence and Leadership: Emotional Intelligence SLIDE 41 Topics for Discussion: Managing Workers SLIDE 42 Be the Manager

Chapter 11 Effective Team Management

Chapter 11 Effective Team Management CHAPTER CONTENTS Learning Objectives

11-2

Key Definitions/Terms

11-3

Chapter Overview

11-4

Lecture Outline

11-5

Lecture Enhancers

11-17

Management in Action

11-21

Building Management Skills

11-25

Managing Ethically

11-29

Be the Manager

11-30

Case in the News

11-31

In-Class Activity

11-33

Connect Features

11-34

PowerPoint Slides

11-35

Chapter 11 Effective Team Management

LEARNING OBJECTIVES LO 11-1. Explain why groups and teams are key contributors to organizational effectiveness.

LO 11-2. Identify the different types of groups and teams that help managers and organizations achieve their goals.

LO 11-3. Explain how different elements of group dynamics influence the functioning and effectiveness of groups and teams.

LO 11-4. Explain why it is important for groups and teams to have a balance of conformity and deviance and a moderate level of cohesiveness.

LO 11-5. Describe how managers can motivate group members to achieve organizational goals and reduce social loafing in groups and teams.

Chapter 11 Effective Team Management

KEY DEFINITIONS/TERMS

command group: A group composed of subordinates who report to the same supervisor; also called department or unit.

role making: Taking the initiative to modify an assigned role by assuming additional responsibilities.

division of labor: Splitting the work to be performed into particular tasks and assigning tasks to individual workers.

self-managed work team: A group of employees who supervise their own activities and monitor the quality of the goods and services they provide.

formal group: A group that managers establish to achieve organizational goals.

social loafing: The tendency of individuals to put forth less effort when they work in groups than when they work alone.

friendship group: An informal group composed of employees who enjoy one another‘s company and socialize with one another. group: Two or more people who interact with each other to accomplish certain goals or meet certain needs. group cohesiveness: The degree to which members are attracted to or loyal to their group. group role: A set of behaviors and tasks that a member of a group is expected to perform because of their position in the group

synergy: Performance gains that result when individuals and departments coordinate their actions. task force: A committee of managers or nonmanagerial employees from various departments or divisions who meet to solve a specific, mutual problem; also called ad hoc committee. team: A group whose members work intensely with one another to achieve a specific common goal or objective.

group norms: Shared guidelines or rules for behavior that most group members follow.

top-management team: A group composed of the CEO, the president, and the heads of the most important departments.

informal group: A group that managers or nonmanagerial employees form to help achieve their own goals or meet their own needs.

virtual team: A team whose members rarely or never meet in person but, rather, interact by using various forms of information technology such as email, computer networks, telephone, fax, and videoconferences.

interest group: An informal group composed of employees seeking to achieve a common goal related to their membership in an organization. research and development team: A team whose members have the expertise and experience needed to develop new products.

CHAPTER OVERVIEW This chapter examines in detail groups and teams, how they can contribute to increased organizational effectiveness, and the various factors that influence the level of group and team productivity. Different

Chapter 12 Building and Managing Human Resources kinds of groups and teams are described, and the group dynamics that influence the functioning and effectiveness of groups are outlined. The chapter also discusses how managers can motivate group members to achieve organizational goals and how social loafing in groups and teams can be reduced. The chapter also throws light on why the effective management of groups and teams is a key ingredient for organizational performance and effectiveness.

Chapter 12 Building and Managing Human Resources

LECTURE OUTLINE NOTE ABOUT POWERPOINT SLIDES The PowerPoint slides include chapter content, along with additional material that can be used to expand the lecture. A list of the PowerPoint slides can be found at the end of this chapter

Management Snapshot Teamwork Key to Success of Army Futures Command How Can Managers Use Teams to Enhance Performance?

How can managers use teams to enhance performance? When it comes to technology and the development of new weapons, the worst enemy of the U.S. Army is its slow-moving layers of bureaucracy. When the army identifies a need, the process of creating specifications and designing a new product can take several years—so long that by the time the product is available, it is no longer considered advanced technology. The edge the army wants to maintain over any adversaries is all but wiped out. The army‘s leadership identified a solution involving teamwork. They chose several critical projects and established cross-functional teams to complete them. For example, the crossfunction team responsible for tactical networks is working to bring out a system that will survive modern-day threats like cyberattacks. The team is pressing for faster purchases of prototypes and more frequent feedback from soldiers, so the system design can be improved faster. This enables the team to create better requirements than if designers worked on their own. Another team, charged with updating the system for position, navigation, and timing, is working on several areas for improvement. It is rolling out upgrades to solve urgent needs as the system moves forward, rather than waiting to deploy a system that would theoretically be perfect.

Chapter 12 Building and Managing Human Resources Results suggest this team‘s approach continues to be successful. Among the most dramatic results is the acceleration of the pace of work. Secretary of the Army Christine E. Wormuth sees evidence that the types of decisions that used to slowly move up the bureaucratic chain of command now get done in a matter of days. The first woman to hold the Army‘s highest civilian position, Wormuth continues to push for more innovation and collaboration between the military and the business community. Recently, the Command developed Team Ignite, an initiative involving military specialists, concept developers, scientists, and engineers, which will develop capability requirements and future warfighting concepts to integrate warfighting experience with scientific and technological expertise. In addition, the Command has enhanced its use of directhire authority to get the right talent hired faster to assist in modernizing operations. It has also opened the doors to the Army Software Factory, where soldier scholars will learn how to apply modern software development solutions to some of the military‘s most pressing challenges I. Groups, Teams, and Organizational Effectiveness

LO 11-1: Explain why groups and teams are key contributors to organizational effectiveness. A group may be defined as two or more people who interact with each other to accomplish certain goals or meet certain needs. A team is a group whose members work intensely with each other to achieve a specific common goal or objective. 1. All teams are groups, but not all groups are teams. 2. A characteristic that distinguishes teams from groups is the intensity with which team members work together. Members of a group that is not a team do not work intensely together. 3. In this chapter, the term group refers to both groups and teams. 4. Because members of teams do work intensely together, teams can be difficult to form, and it may take time for team members to learn how to effectively work together. 5. Groups and teams can help an organization gain a competitive advantage by: a. enhancing organizational performance b. increasing responsiveness to customers c. increasing innovation d. increasing levels of employee motivation and job satisfaction. A. Groups and Teams as Performance Enhancers: One of the main advantages of using groups is the opportunity to obtain synergy—performance gains that result when individuals and departments coordinate their actions.

Chapter 12 Building and Managing Human Resources 1. People working in a group are able to produce more than would have been produced if each person had worked separately. a. Synergy is described by statement that ‗the whole is more than the sum of its parts.‘ b. To take advantage of the potential for synergy in groups, managers need to make sure that groups are composed of members who have complementary skills and knowledge. c. To promote synergy, managers need to empower their subordinates and be coaches, guides, and resources for groups, while refraining from playing a directive or supervisory role. B. Groups, Teams, and Responsiveness to Customers: Being responsive to customers often requires the wide variety of skills found in different departments. 1. In a cross-functional team, the expertise and knowledge of different organizational departments are brought together into a team environment in order to enhance responsiveness to customers. C. Teams and Innovation: Innovation, the creative development of new products, new services, or even new organizational structures, can be better managed by creating teams of diverse individuals who together have the necessary knowledge for innovation. 1. In addition, team members can often uncover each other‘s errors or false assumptions, critique each other‘s approaches, and complement each other‘s strengths while compensating for weaknesses. 2. To further promote innovation, managers should empower teams by making their members fully responsible and accountable for the innovation process. 3. To speed innovation, managers must form teams in which each member brings a unique resource to the team. 4. Successful innovation sometimes requires that managers form teams with members from different countries and cultures. D. Groups and Teams as Motivators: Members of groups and teams are likely to be more highly motivated and satisfied than they would have been if they were working on their own. 1. This is because working alongside other highly charged people can be stimulating, which allows team members to more readily see how their efforts contribute to achievement of organizational goals. 2. The increased motivation and satisfaction can also lead to other outcomes, such as lower turnover, satisfaction of team members‘ need for social interaction, and improved ability of team members to cope with work stress. 12-338 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 12 Building and Managing Human Resources Effectively managed groups and teams can help managers in their quest for high performance, responsiveness to customers, and employee motivation. TEXT REFERENCE Management Insight Soft Skills Critical to Team Success Teams are often formed for challenging activities: developing products, rolling out software systems, or planning a marketing campaign. These require the expertise of engineers, software developers, marketing researchers, finance professionals, and others. Besides this technical expertise, all teams require ―soft‖ skills. These are the people-related skills that get team members connected with each other and aligned on carrying out a shared purpose. Soft skills include showing empathy, organizing, collaborating, solving interpersonal problems, and communicating (speaking, writing, and above all, listening). Team members with soft skills benefit the team by connecting with the rest of the organization to gather information and other resources. These individuals bring out other members‘ ideas and get them motivated. However, soft skills are hard to measure, so it is difficult to select job candidates with soft skills. Furthermore, employers struggle to teach these skills. The first and most important way to form teams with soft skills is to hire people who have those skills or at least have shown potential to develop them. In addition, training should address development of soft skills. It should extend beyond classroom or coaching sessions by assigning behaviors to practice and situations in which to practice them. Along with training, the employee should have measurable goals, such as giving presentations or restructuring meetings to ensure all voices are heard.

II. Types of Groups and Teams LO 11-2: Identify the different types of groups and teams that help managers and organizations achieve their goals. To achieve their goals, managers can form various types of groups and teams.

1. Formal groups are groups that managers establish to achieve organizational goals. 2. Cross-functional teams are formal groups composed of members from different departments, and cross-cultural teams are composed of members from different cultures or countries. 3. Sometimes organization members form informal groups on their own because they feel that it helps them achieve their personal goals or needs. A. The Top Management Team: A central concern of the CEO and president of a company is to form a top management team to help the company achieve its mission and goals. 1. This team is responsible for developing the strategies that result in an organization‘s competitive advantage.

Chapter 12 Building and Managing Human Resources 2. Most top-management teams have between five and seven members and many are also cross-functional. 3. Diversity within the top management team helps guard against groupthink—faulty group decision making that results when group members strive for agreement at the expense of an accurate assessment of the situation. Research and Development Teams: Managers in high-tech industries often create research and development teams to develop new products. B.

1. Managers select R&D team members on the basis of their expertise and experience in a certain area. 2. Sometimes R&D teams are cross-functional teams with members from many departments. C. Command Groups: A command group is a group composed of subordinates who report to the same supervisor. 1. Often they are called a department or unit. When top managers design an organization‘s structure and establish reporting relationships and a chain of command, they are creating command groups. D. Task Forces: Managers often form task forces to solve a specific problem or accomplish specific goals within a certain period of time. 1. Task forces are also called ad hoc committees. 2. Once the task force accomplishes its goal or resolves its problem, it usually disbands. 3. They can be a valuable tool for busy managers who do not have the time to explore an important issue in depth. E.Self-Managed Work Teams: Self-managed work teams are teams in which team members are empowered with the responsibility and autonomy to complete identifiable pieces of work. 1. Team members decide what the team will do, how it will do it, and which team members will perform which specific tasks. 2. Managers provide teams with overall goals but let team members decide how to meet those goals. 3. Managers usually form self-managed work teams to improve quality, increase motivation and satisfaction, and lower costs. 4. Managers can take a number of steps to ensure that self-managed work teams are effective and help an organization gain a competitive advantage: 12-340 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 12 Building and Managing Human Resources a. Give teams enough responsibility and autonomy to be truly self-managing. Refrain from telling team members what to do or solving problems for them, even if you as manager know what should be done. b. Make sure that a team‘s work is sufficiently complex so that it entails a number of different steps or procedures that must be performed and results in some kind of finished end product. c. Carefully select members of self-managed work teams. Team members should have the diversity of skills needed to complete the team‘s work, have the ability to work with others, and want to be part of a team. d. As a manager, realize that your role vis-à-vis self-managed work teams calls for guidance, coaching, and support, not supervision. You are a resource for teams to turn to when needed. e. Analyze what type of training team members need and provide it. Working in a self-managed work team often requires that employees have more extensive technical and interpersonal skills. f. Self-managed teams can run into trouble if members are reluctant to discipline one another. F. Virtual Teams: Virtual teams are composed of members who rarely or never meet in person and interact by using various forms of information technology. 1. As organizations are becoming increasingly global, virtual teams allow employees to solve problems and explore opportunities without being limited by geographic location. 2. Virtual teams might even include members who are not part of the organization, but who are part of an organization used for outsourcing. 3. Virtual teams rely on two forms of information technology: synchronous and asynchronous technology. a. Synchronous technology enables virtual team members to communicate and interact with each other in real time and simultaneously through videoconferencing, teleconferencing, and electronic meetings. b. Asynchronous technologies delay communication, as with e-mail or Internet websites. 4. One of the challenges virtual team members face is building a sense of camaraderie and trust among each other. a. To address this challenge, some organizations schedule opportunities for virtual team members to meet. 12-341 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 12 Building and Managing Human Resources b. Research suggests that while some virtual teams can be as effective as traditional teams, virtual team members might be less satisfied with teamwork efforts and have fewer feelings of camaraderie or cohesion. c. Research also suggests that it is important for managers to keep track of virtual teams and intervene when necessary. TEXT REFERENCE Manager as a Person Building Strong Relationships on Virtual Teams The COVID-19 pandemic launched a sudden experiment in remote teamwork. Managers succeeded well enough in deploying new processes and technology that many workers want to continue working remotely at least part of the time. But one aspect of work has suffered—the sense of trust that builds when people learn about each other in person. Remote workers report feeling less of a connection, and their pattern of interactions has shifted to smaller networks—a few people they know best. The situation is especially hard on employees who are starting their careers and haven‘t already built strong networks. Fortunately, people can build strong relationships online, but it may take extra planning, leadership, and time. Team members should pay more attention to how they interact with one another and how often. They should keep teammates informed about the status of their contributions to team projects—say, by setting a status message on a team page or employee profile. They should offer and ask for help when needed. Team leaders can support these efforts by frequently checking in one-on-one with team members. They also should foster good teamwork when they lead online and hybrid meetings. Organizations benefit from creative teamwork, so they should support remote collaboration with policies and technology. Companies that have succeeded with virtual teamwork treat it as something worth planning. They prepare guides for using communication tools and set up mentor relationships that ensure someone is hearing team members‘ questions and concerns.

G. Friendship Groups: Friendship groups are informal groups composed of employees who enjoy each other‘s company and socialize with each other. 1. Friendship groups help satisfy employees‘ needs for interpersonal interaction and can provide social support in times of stress. 2. The informal relationships that managers build in these groups can often help them solve work-related problems. H. Interest Groups: Employees form informal interest groups when they seek to achieve a common goal related to their membership in an organization. 1. Interest groups can provide managers with insights into the issues and concerns that are important to employees. 12-342 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 12 Building and Managing Human Resources 2. These groups can also signal the need for change.

III. Group Dynamics LO 11-3: Explain how different elements of group dynamics influence the functioning and effectiveness of groups and teams. The ways in which a group functions depend upon a number of group characteristics and processes known as group dynamics.

A. Group Size and Roles 1. Group Size: The number of members in a group can be an important determinant of members‘ motivation and commitment, as well as overall group performance. a. Members of small groups, between two and nine members, tend to interact more with each other, find it easier to coordinate their efforts, and tend to be more motivated, satisfied, and committed. i. They also find it easier to share information and to see the importance of their personal contributions for group success. ii. A disadvantage of small versus large groups is that members of small groups have fewer resources available to accomplish their goals. b. Large groups with ten or more members offer some advantages. i. They have more resources at their disposal to achieve group goals, such as the knowledge, experience, skills, and abilities of group members. ii. They can also capitalize upon the advantages that stem from the division of labor—splitting the work to be performed into particular tasks and assigning tasks to individual workers. iii. The disadvantages of large groups include problems of communication and coordination and lower levels of motivation, satisfaction, and commitment. c. When deciding upon the appropriate size for any group, managers should attempt to gain the advantages of small group size while also forming groups with sufficient resources to accomplish their goals. i. As a general rule, groups should have no more members than necessary to achieve the required division of labor. ii. In R&D teams, group size is too large when: 1) members spend more time communicating what they know to others than applying what they know to solve problems and create new products, 2) individual productivity decreases, and 3) group performance suffers. 12-343 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 12 Building and Managing Human Resources 2. Group Roles: A group role is a set of behaviors and tasks that a member of a group is expected to perform because of their position in the group. a. Members of cross-functional teams are expected to perform roles relevant to their special areas of expertise. b. Managers need to clearly communicate to group members the expectations for their role in the group, what is expected of them, and how the different roles in the group fit together. c. Managers should encourage role making, taking the initiative to modify an assigned role by assuming additional responsibilities. d. In self-managed work teams, group members themselves are responsible for creating roles. B. Group Leadership: All groups and teams need leadership. 1. Sometimes managers assume the leadership role or appoint a member of a group. 2. In other cases, group or team members may choose their own leaders, or a leader may emerge naturally. 3. Sometimes self-managed work teams rotate the leadership role among members. C. Group Development over Time: It sometimes takes a self-managed work team two or three years to perform up to its true capabilities. 1. What a group is capable of achieving depends in part upon its stage of development. 2. Researchers have identified five stages of group development that many groups seem to pass through. a. In the first stage, forming, members try to get to know each other and reach a common understanding. b. In the second stage, storming, group members experience conflict and disagreements. c. During the third stage, norming, close ties between group members develop. d. In the fourth stage, performing, the real work of the group gets accomplished. e. The last stage, adjourning, applies only to groups that eventually are disbanded. D. Group Norms: Group norms are shared guidelines or rules for behavior that most group members follow. Groups develop norms concerning a wide variety of behaviors, including work hours, sharing information, how tasks are performed, and how members should dress.

Chapter 12 Building and Managing Human Resources Managers should encourage members to develop norms that contribute to group performance and the attainment of group goals.

1. Conformity and Deviance: Group members conform to norms because: a. they want to obtain rewards and avoid punishments b. they want to imitate group members whom they like and admire c. because they have internalized the norms and believe that they are the right and proper way to behave. 2. Failure to conform, or deviance, occurs when a member of a group violates a group norm. a. Deviance signals that the group is not controlling its members‘ behaviors. b. Groups generally respond to members who behave defiantly in one of three ways: i. the group might try to get the member to change their deviant ways and conform ii. the group might expel the member iii. the group might change the norm so that it is consistent with the member‘s behavior. c. The last alternative suggests that some deviant behavior can be functional for a group. Deviance is functional when it causes group members to stop and evaluate norms that may be dysfunctional but taken for granted. 3. Encouraging a Balance of Conformity and Deviance: In order for groups and teams to be effective, they need to have the right balance of conformity and deviance. a. A group needs a certain level of conformity to control members‘ behavior. b. A group also needs a certain level of deviance to ensure that dysfunctional norms are discarded and replaced by functional ones. c. Managers can take steps to ensure that there is some tolerance of deviance in groups. They can: i. be role models for the group ii. let employees know that there are always ways to improve group processes iii. encourage members of groups and teams to assess existing norms. E.Group Cohesiveness: Group cohesiveness is the degree to which members are attracted or loyal to their group. 1. When group cohesiveness is high, individuals strongly value their group membership.

Chapter 12 Building and Managing Human Resources 2. When group cohesiveness is low, group members have little desire to retain their group membership. 3. Research indicates that managers should strive to have a moderate level of cohesiveness in the groups. 4. Consequences of Group Cohesiveness: There are three major consequences of group cohesiveness: levels of participation within the group, levels of conformity to group norms, and emphasis on group goal accomplishment. a. Level of Participation Within a Group: As group cohesiveness increases, the extent of group members‘ participation within the group increases. A moderate level of group cohesiveness helps to ensure that group members actively participate in the group. Too much cohesiveness can reduce efficiency. b. Level of Conformity to Group Norms: Increasing levels of group cohesiveness result in increasing levels of conformity to norms. Too much conformity may result in conforming to norms even when they are dysfunctional. Low cohesiveness can result in too much deviance and can undermine group control. c. Emphasis on Group Goal: As group cohesiveness increases, emphasis on group goal accomplishment increases within the group. For an organization to be effective, the different groups need to cooperate with each other and to be motivated to achieve organizational goals. d. Success: As groups become more successful, their cohesiveness tends to increase. A moderate level of cohesiveness motivates group members to accomplish both group and organizational goals. 5. Factors Leading to Group Cohesiveness: Four factors contribute to the level of group cohesiveness. These determinants of group cohesiveness are group size, effectively managed diversity, group identity and healthy competition, and success. a. Group Size: Members of small groups tend to be more motivated and committed. To promote cohesiveness in groups, managers should form groups that are small to medium in size. b. Effectively Managed Diversity: Although people tend to like and get along with others who are similar to them, diversity in groups, teams, and organizations can help an organization gain a competitive advantage. Diverse groups often come up with more innovative and creative ideas. TEXT REFERENCE Focus on DE&I

Chapter 12 Building and Managing Human Resources Leveraging Team Members’ Diverse Population To enable teams to draw on all team members, not just the ones who dominate the meeting or who are comfortable speaking their minds, consultants at Deloitte developed a team training program. They built on research about brain chemistry to develop and test profiles of four primary ways that people work. The resulting system, named Business Chemistry, defines four styles: Pioneers inspire creativity; they look at the big picture and are open to new ideas, willing to take risks, and comfortable basing decisions on intuition. Guardians are cautious about risk and value stability; they want to learn from experience and look for detailed data to back decisions. Drivers care about results and winning; they get the team moving and want data so they can solve problems and tackle challenges. Integrators focus on relationships; they seek consensus and try to strengthen the team. This model assumes that teams need all of these perspectives at various times. Teams with diverse profiles should be creative, and their decisions should be well thought out. In practice, diversity poses challenges. For example, if a Driver opens the floor to debate an issue, an Integrator might hesitate to speak up and provoke an argument. If Guardians raise concerns about an idea, a Driver might feel frustrated about being slowed down, even though the concerns might be valid and significant. Team members who are unaware of these differences might work ineffectively. A Guardian might come prepared with pages of data that won‘t capture the imaginations of the team‘s Pioneers. Business Chemistry can help team members address these issues constructively.

c. Group Identity and Healthy Competition: Managers can increase group cohesion by encouraging groups to develop their own identities and engage in healthy competition. Healthy competition among groups is promoted by displaying measures of each team‘s performance and the extent to which they have met their goals to others. Cohesiveness improves when a group can achieve some visible success. Conversely, managers can decrease cohesiveness by promoting organizational identity rather than group identity, reducing or eliminating competition between groups, and rewarding cooperation between groups.

IV. Managing Groups and Teams for High Performance LO 11-4: Explain why it is important for groups and teams to have a balance of conformity and deviance and a moderate level of cohesiveness. LO 11-5: Describe how managers can motivate group members to achieve organizational goals and reduce social loafing in groups and teams. A. Motivating Group Members to Achieve Organizational Goals: When work is difficult, tedious, or requires a high level of commitment, managers cannot assume that group members will always be motivated to work toward the organizational goals. 1. Managers can motivate members by making sure that the members themselves benefit when the group or team performs highly.

Chapter 12 Building and Managing Human Resources 2. Managers often rely on some combination of individual and group-based incentives to motivate members of groups. a. A major challenge is to develop a fair pay system that will lead to high individual motivation and high group performance. 3. Other benefits that managers can use include providing extra resources, bestowing awards and recognition, and offering a choice of future work assignments. B. Reducing Social Loafing in Groups: Social loafing is the tendency of individuals to put forth less effort when they work in groups than when they work alone. It can result in lower group performance and may even prevent the group from attaining its goals. To reduce or eliminate social loafing, managers can: 1. Make individual contributions to a group identifiable. a. Group members should perceive that low and high levels of effort will be noticed and individual contributions evaluated. b. Managers can assign specific tasks to group members and hold them accountable for their completion. c. Sometimes the members of a group can cooperate to eliminate social loafing by making individual contributions identifiable. d. However, in some teams, individual contributions cannot be made identifiable. 2. Emphasize the valuable contributions of individual members. a. People sometimes think that their efforts are unnecessary or unimportant when they work in a group. b. When managers form groups, they should assign individuals to groups on the basis of the valuable contributions that each person can make. 3. Keep group size at an appropriate level. c. As size increases, members are more likely to think that their individual contributions are not important. d. Managers should form groups with no more members than are needed to accomplish group goals.

Chapter 12 Building and Managing Human Resources

LECTURE ENHANCERS Lecture Enhancer 11.1 TEAMWORK AND NASCAR New MBA students at Wake Forest University‘s Babcock Graduate School of Management learned teambuilding skills on the fast track by participating in the Richard Petty Ultimate Racing Experience at Lowe‘s Motor Speedway in Concord, North Carolina. The university used NASCAR driver and pit crew techniques to instill the value of teamwork by providing students with an opportunity to participate in a team-building exercise. Here‘s how the exercise worked: Each team member was assigned a series of responsibilities. For example, one team member was responsible for leading the racecar toward the pit stop while another took a turn riding in a car with a professional driver. Students were not allowed to drive; the cars raced around the track for a series of eight to ten laps. Then team member roles were switched. Every student had the opportunity to perform each of the various assigned tasks. Team members who failed to complete the assignment correctly had to start over, thus setting the team back. The winning team was recognized at the end of the evening. In addition to building team skills, these students gained exposure to a booming business enterprise that has become one of the nation‘s fastest-growing sports. As with other winning enterprises, NASCAR drivers and crews rely on solid teamwork to succeed. Even with all of the emphasis that NASCAR places upon high-performing equipment, the best racecar cannot consistently perform well without a team that is focused on common goals and is using common processes for accomplishing their tasks. Some of the characteristics of teamwork observed in NASCAR auto racing organization include: Common goals: Daily plans and schedules, weekly plans and schedules, race objectives Common processes: Daily morning meetings, Tuesday evening post-race meetings, pit crew practice sessions, checklists for each car Regular feedback: Daily discussions about the prior day‘s accomplishments, immediate feedback on the performance of the car and the team‘s efforts every time the car takes a lap and finishes a race Rewards and recognition: Team members sharing in the winnings and awards, congratulatory messages, and tokens of appreciation after each race; sponsor recognition of the team; media appearances Focused leadership: Leaders provide common focus for the team, facilitating timely feedback on individual and collective performance, providing needed resources for accomplishing responsibilities, holding team and individuals accountable for assigned tasks, walking the talk, committed to openness and honesty, listening, listening, listening Individual strengths: Specialized skills and knowledge respected within the team and continually improved in ‗multi-skill‘ job roles Ownership: A sense of team ownership for everything they do rather that singling out an individual

Chapter 12 Building and Managing Human Resources Adapted from ―Wake Forest MBA students Learn Teamwork from NASCAR Pit Crew Techniques, Business Wire, August 16, 2004 and Robert M. Williamson, ―NASCAR: A Model for Equipment Reliability and Teamwork,‖ MRO Today, Copyright 2000.

Lecture Enhancer 11.2 REWARDS AND CHALLENGES OF WORKING IN A TEAM

A common type of team is the temporary unit, usually composed of members from different departments and job levels, formed to make policy, re-engineer operations, or design products, among other tasks. Team members may or may not leave their old jobs. Working in a team environment can be tricky. On one hand, you get to showcase your skills to team members from all corners of the company, often including influential senior executives. And team assignments tend to be critical and closely watched. But that also means that if the team flops, you flop, whatever the reason. Meanwhile, while you are focusing on your new team duties, some young gun in your department is showing how easily you can be replaced. And because teams often challenge traditional departmental roles, the potential for a political tug-of-war is high. Shaunna Sowell‘s team experiences at Texas Instruments led to promotions and a better career path than she ever envisioned. But she also burned some bridges with a boss. Sowell was leading a plant design team in 1988 when she was tapped for a product-quality steering committee that was loaded with managers. She initially was intimidated, but her confidence grew with her experience. ―I left one meeting thinking, ‗I‘ve ruined my career‘,‖ she recalls. ―I‘d just told a guy four levels above me that he was wrong.‖ Actually, she impressed an executive on the team who was looking around for a vice president of Corporate Environmental Safety. ―You have to be a great individual contributor,‖ she says, ―that‘s how you get picked for the next team.‖ Her team involvement, she says, earned her recognition, job offers, and mentoring from senior executives she never would have gotten in the days before teams. But the experience also created friction. ―My visibility was getting wider than that of my boss,‖ she said. ―It was pretty uncomfortable.‖ The relationship cooled and eventually she moved to another position, although still working on teams. Mary Kinnear feared she risked her career at Boston Gas by joining a re-engineering team. The gamble paid off, but not without some uncomfortable moments. In leading a team charged with redesigning Boston Gas‘s distribution operation, Ms. Kinnear, a human resources specialist, also knew she risked offending some influential executives whose turf was being threatened. Some had already voiced skepticism about her abilities to do effective work on the team, she said. ―We were all assured there would be some kind of amnesty for team members,‖ she says, ―but there were no guarantees.‖ 12-350 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 12 Building and Managing Human Resources When the project ended, however, she was eventually named general manager of one of the eight regional operating divisions created by the project team. Without the project team, she says, she wouldn‘t have had the experience or the exposure to land her current job. Sometimes the fears are real. Deloitte & Touche consultant Boris Lukan was part of a joint reengineering team working with a client, when animosity over cutbacks proposed by the project team forced one team member from the client company to leave. ―For people who want to be recognized, projects that drive change are great places to be,‖ he says, ―but you‘ve got to be ready for the potential impacts that could come out of upsetting how other people do their work.‖ Still, such influence became so seductive to Margaret Colquhoun, who was on a team reshaping the work processes at her hospital, that she found it difficult to go back to the humdrum routine of her manager‘s job, even after a promotion. She left to join a consulting firm that specializes in team development. These managers offer some advice to others working in teams: •

Be an expert, not an advocate. The team needs your specialized knowledge, but doesn‘t want an obstructionist who continually says, ―You just don‘t understand how we do things in finance.‖

•

Research the team as you would any job opportunity. Are there cliques? Is there one person who dominates? What happens to team members after they leave the team? How strong is management support?

•

Make sure you keep up your performance in your department. ―You cannot fail at your core hierarchical work, succeed at your team work, and be successful overall,‖ Ms. Sowell says. Also, she urges, keep your department boss informed of your team activities. In most companies, that person still has the most influence on your career.

•

Stay balanced. ―Overload and burnout are more of a problem in teams,‖ Ms. Sowell says. Being sought after for influential teams is flattering, but you must be careful about overcommitting. Each year, Ms. Sowell drafts a contract detailing what she‘s committing to do that year and shares it with her staff.

•

See yourself as an equal. Be diplomatic, but don‘t hold back your opinions. This is your stage, with an audience that often includes some of the company‘s most influential people. Don‘t waste it.

Lecture Enhancer 11.3 SOCIAL LOAFING

Professor Bibb Latane, a professor of psychology, conducted research on social loafing at Ohio State University in the 1980s. Latane concluded people tend to slack off, or loaf, more when they work in a group than when working alone.

Chapter 12 Building and Managing Human Resources Much of Latane‘s experimentation was done by him and his colleagues in his offices under the stands of the Ohio Stadium. There the researchers organized Buckeye student volunteers into groups of varying sizes and asked them to clap or shout as loud as they could. In this and other experiments, the researchers found that when subjects either were in a group or were led to believe that they were (through the use of blindfolds and headphones), they consistently made less noise per person than when they shouted or clapped alone. Mr. Latane concluded from this and earlier research that there is a ―diffusion of responsibility‖ in groups. Each person feels less responsible for helping because others are present. The applications to a work environment are unclear. Another research psychologist noted that ―those people [who were clapping] weren‘t out earning money to pay their mortgages or feed their families.‖

Chapter 12 Building and Managing Human Resources

MANAGEMENT IN ACTION Notes for Topics for Discussion and Action DISCUSSION

1. Why do all organizations need to rely on groups and teams to achieve their goals and gain a competitive advantage? All organizations need to rely on groups and teams to achieve their goals and gain a competitive advantage because groups can enhance performance, increase responsiveness to customers, increase innovation, and increase employees‘ motivation and satisfaction. People working in groups are able to produce more or higher-quality outputs than would have been produced if each person had worked separately and all their individual inputs were combined. Being responsive to customers often requires the wide variety of skills and experience found in different departments, which can be combined in cross-functional teams. Managers can better encourage innovation by creating teams of diverse individuals who together have the knowledge relevant to a particular type of innovation, rather than relying on individuals working alone. Also, employees who work in teams are more likely to be more highly motivated and satisfied. As a result, the organization may experience lower levels of turnover.

2. What kinds of employees would prefer to work in a virtual team? What kinds of employees would prefer to work in a team that meets face-to-face? Employees who prefer working in a virtual team would likely be independent, self-starters. They would also already possess a high degree of skills and would, therefore, not require intensive training or close supervision. Employees preferring to work face-to-face, on the other hand, would tend to enjoy social interaction and to be motivated by working closely with others. Employees with fewer skills or less experience would also be likely to need more face-to-face contact for training purposes. 3. Think about a group that you are a member of, and describe that group‘s current stage of development. Does the development of this group seem to be following the forming-stormingnorming-performing-adjourning stages described in the chapter?

Chapter 12 Building and Managing Human Resources The stages of development that groups go through in the process of achieving their goals include forming, storming, norming, performing, and adjourning. When team members initially get to know each other and establish a group objective and understanding of the goal, it is ―forming.‖ Storming often occurs within groups, characterized by conflict and disagreement between group members. The third stage, norming, occurs when close ties form between group members and feelings of friendship and camaraderie emerge. Performing is when the work is done and the group effectively completes their task or objective. Adjourning applies only to groups that are eventually dissolved, and group members leave the group, perhaps to work in other groups where their services are needed.

4. Discuss the reasons why too much conformity can hurt groups and their organizations. There are several reasons why people conform to group norms: they want to obtain rewards and avoid punishments, they want to imitate group members they admire, or they have internalized group norms and believe that is the right way to behave. Conformity is necessary for a group to succeed in achieving its goals, but too much conformity can hurt both groups and their organizations. Too much conformity may limit team members in their thinking, and they may not stop to evaluate norms that may be dysfunctional but are taken for granted by the group. Norms often need to be adjusted over time, and too much conformity may limit the new ideas that would otherwise emerge in a more flexible environment. If a group fails to perform at a high level due to dysfunctional norms, the group performance and organizational performance will suffer. 5. Why do some groups have very low levels of cohesiveness? Group cohesiveness, or the degree to which members are attracted or loyal to their group or team, is affected by four factors. Some groups have very low levels of cohesiveness, which may be caused by one or more factors. Group size is one factor, with members of small groups more motivated and committed than members of large groups. A group with low cohesiveness may simply be too large. Second, in forming groups, managers need to select members with diversity in knowledge, skills, and experience. Managers need to make sure that diversity is effectively managed, because if it is not, it may lead to low cohesiveness. Groups also need to have identities. Those groups with low cohesiveness may simply need to develop their own identities and personalities, and engage in healthy competition with other groups. Finally, a group with low cohesiveness may need to experience some success in order to raise their cohesiveness level. When a group achieves noticeable and visible success, it contributes substantially to its feelings of cohesiveness and camaraderie.

Chapter 12 Building and Managing Human Resources 6. Imagine that you are the manager of a hotel. What steps will you take to reduce social loafing by members of the cleaning staff who are responsible for keeping all common areas and guest rooms spotless? Social loafing occurs in groups when individuals put forth less effort because they believe that their individual contribution will not be noticed within the context of the group. This behavior can result in lower group performance and may prevent a group from attaining its goals. A manager can take several steps to reduce social loafing. One tactic is to make individual contributions to the group identifiable, so that group members perceive that low and high levels of effort will be noticed and individual contributions evaluated. Staff may be assigned room numbers at random and common areas that they are responsible for, which would help identify the worker responsible when a task has not been completed. Managers may also emphasize the valuable contributions of each staff member and assign individuals to groups on the basis of the valuable contributions that each person can make to the group as a whole. A manager could emphasize and communicate why a maid, a bellhop, a desk clerk, and a laundry attendant are each unique, and how each contributes important skills to the group. Finally, a manager can overcome social loafing by limiting the size of the group. The hotel should have no more cleaning staff than are needed to keep all common areas and guest rooms spotless. ACTION

7. Interview one or more managers in your community to identify the types of groups and teams that the organization uses to achieve its goals. What challenges do these groups and teams face? (Note to the instructor: Due to the nature of this question, student answers will vary. The following answer illustrates the main points that each student should include.) There are various types of groups and teams created by managers and organizational members. Formal groups are groups that managers establish to achieve organizational goals. This category includes cross-functional teams, cross-cultural teams, top management teams, research and development teams, command groups, task forces, and self-managed work teams. Crossfunctional teams are made up of members from different departments, and cross-cultural teams have members from different cultures or countries. Top management teams have a variety of managers on their teams, with the hopes of helping the organization achieve its mission and goals. Subordinates who report to the same supervisor compose command groups. Task forces are formed to address specific problems or accomplish specific goals. Self-managed work teams have members who are empowered to complete identifiable pieces of work. Formal groups like these are usually established by managers interested in improving organizational performance, efficiency, and effectiveness.

Chapter 12 Building and Managing Human Resources Organizational members form informal groups, such as friendship groups and interest groups, because they feel that these groups will help them achieve their own goals or meet their own needs. These groups are formed when employees wish to socialize with each other, or achieve a common goal related to their membership in an organization.

AACSB: Reflective Thinking

Chapter 12 Building and Managing Human Resources

BUILDING MANAGEMENT SKILLS Diagnosing Group Failures

Think about the last dissatisfying or discouraging experience you had as a member of a group or team. Perhaps the group did not accomplish its goals, perhaps group members could agree about nothing, or perhaps there was too much social loafing. Now answer the following questions: (Note to the instructor: Due to the nature of this question, student answers will vary. The following answers illustrate the main points that each student should include.)

1. What type of group was this? Groups may be formal or informal. Formal groups are established to achieve organizational goals, and include cross-functional teams, cross-cultural teams, top management teams, research and development teams, command groups, task forces, and self-managed work teams. Informal groups are created by organizational members because they feel that groups will help them achieve their own goals or meet their own needs. These groups include friendship groups and interest groups.

2. Were group members motivated to achieve group goals? Why or why not? Many factors contribute to the motivation of group members to achieve group goals. Group members who are given autonomy and variety in their task assignments are more likely to be highly motivated. Groups that encourage diversity and communication will also have highly motivated members. Members may also be more motivated if they have formed the group themselves, as is the case in friendship and interest groups. Smaller groups often have more motivated and committed members than larger groups. A number of other factors may contribute to motivation, such as pay level and determination of bonuses based on individual and group performance.

3. How large was the group and what group roles did members play? The size of a group can be an important determinant of motivation, commitment, and team performance. Large groups have ten or more members, and offer the advantage of increased resources and division of labor. Small groups, those with between two and nine members, often have members who are more motivated, satisfied, and committed. Small groups also make it easier for members to communicate ideas, coordinate activities, and share information.

Chapter 12 Building and Managing Human Resources A group role is a set of behaviors and tasks that a member of a group is expected to perform because of their position in the group. Often, group roles are related to each member‘s area of expertise. 4. What were the group‘s norms? How much conformity and deviance existed in the group? Group norms are developed in order to control members‘ behaviors to ensure that the group performs effectively and meets its goals. Group members are expected to follow these shared guidelines or rules for behaviors. Moderate conformity to these norms is necessary to achieve high performance. Low conformity and high deviance or failure to conform can result in low performance because the group cannot control its members‘ behaviors. Too much conformity and not enough deviance can result in low performance because the group is reluctant to change existing dysfunctional norms. A balance of conformity and deviance can be achieved by managers who act as role models of tolerance and acceptance for the groups and teams they oversee. Managers can also communicate to members of a team that improvement is always possible, and that opportunities to replace existing norms should be considered a means of achieving group goals and high performance. 5. How cohesive was the group? Why do you think the group‘s cohesiveness was at this level? What consequences did this level of group cohesiveness have for the group and its members? Group cohesiveness is the degree to which members are attracted or loyal to their groups or teams. Cohesiveness can be high, moderate, or low. When cohesiveness is high, members value their group membership and wish to remain members. When cohesiveness is low, group members do not value the group and do not care to stay in the group. Research suggests that a moderate level of cohesiveness is optimal and is most likely to contribute to an organization‘s competitive advantage. Group cohesiveness can be affected by the size of the group, the way that diversity is managed within the group, and whether the group has its own identity and engages in healthy competition with other groups.

Chapter 12 Building and Managing Human Resources The level of cohesiveness within a group or team can have several consequences for the group and its members. As group cohesiveness increases, the extent of group members‘ participation within the group increases. A moderate level ensures that group members interact and communicate with one another, though not so much that they do not perform their roles. Increasing levels of cohesiveness can also increase conformity to group norms. Too much cohesiveness may discourage deviance needed to change dysfunctional norms, and moderate cohesiveness is recommended. Additionally, group cohesiveness increases result in an increase in emphasis placed on group goal accomplishment. A moderate level of cohesiveness is best, allowing a group to achieve organizational goals in addition to those of the group.

6. Was social loafing a problem in this group? Why or why not? Social loafing occurs when individuals put forth less effort when they work in groups than when they work alone. It may be a problem in groups where it is difficult to identify individual performance. In order to counter the effects of social loafing, managers need to make individual contributions identifiable so that group members perceive that low and high levels of effort will be noticed and individual contributions evaluated. Managers may also assign individuals to groups on the basis of the valuable and unique contributions that each person can make to the group as a whole. In addition, groups should be kept as small as possible. Small groups allow individual contributions to be more easily recognized and valued. 7. What could the group‘s leader or manager have done differently to increase group effectiveness? Managers can take many steps to increase group effectiveness. Some examples include: making sure that groups are diverse in terms of expertise and knowledge; empowering subordinates and acting as coaches, guides, and resources; making teams responsible and accountable for their progress; limiting the size of groups; encouraging improvement and periodic evaluation of the ―status quo‖; acting as effective leaders and good examples; creating self-managed teams that are responsible for a whole set of tasks that yields an identifiable output; giving teams autonomy and responsibility.

8. What could group members have done differently to increase group effectiveness? Group members can also take certain steps to increase their group effectiveness. Some examples include: bringing motivation and commitment to the group; bringing diverse and unique knowledge and skills to the group; communicating with other group members and sharing information; cooperating with other group members when there is a disagreement; performing 12-359 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 12 Building and Managing Human Resources their share of the work and exerting as much effort as they would if they were working alone; encouraging other members to do their best and helping poor performers to improve; conforming to group norms enough to achieve the common goal, but deviating enough to change dysfunctional norms.

AACSB: Analytic

Chapter 12 Building and Managing Human Resources

MANAGING ETHICALLY 1. Either individually or in a group, think about the ethical implications of social loafing in a self-managed team. It certainly does seem not seem fair to allow one team member to work harder than others, especially if all team members are receiving the same level of recognition and reward. However, social loafing may occur for a variety of reasons, and therefore we should not jump to the conclusion that laziness it the cause of this behavior. For instance, if there is a redundancy of skill sets within the group, a team member may assume that their individual contribution isn‘t really needed. In such a situation, we would hope that this employee would make fellow team members aware of the predicament, so that adjustments can be made be in team member roles. However, if the team‘s task is not sufficiently complex or if communication problems exist between team members, such adjustments may be difficult to make.

2. Do managers have an ethical obligation to step in when they are aware of social loafing in a self-managed team? Why or why not? Do other team members have an obligation to try to curtail the social loafing? Why or why not? Because it is the responsibility of the entire team to ensure that it functions as efficiently as possible, members must attempt to curtail any social loafing that occurs. Although some team members may find it uncomfortable to discipline another member, failure to do so may result in a decline in team motivation. As a coach that provides guidance and support to the self-managed team, the manager should assist in resolution of this problem, if team members are unable to work it out on their own.

AACSB: Ethics

Chapter 12 Building and Managing Human Resources

BE THE MANAGER Although you feel your other responsibilities are going well, you know your virtual team is not operating like a team at all; and no matter what you try, discussions in virtual team meetings are forced and generally unproductive. What are you going to do to address this problem? The manager needs to read some information on groups, group dynamics, and the formation of groups. Even though this group is virtual, it still will go through the same formation sequences as any kind. There is also the added complexity of both national culture and the company‘s internal culture. The manager must first make sure that the group members know each other and trust in the process. Consider creating a chat room that everyone in the group can use to exchange information they see of value or just to get acquainted. In addition, the compensation and incentive structure needs to be known by all and designed so all group members will help, not hinder each other. If too much competition develops within the group because the rules are not clear, it will never get past the storming stage.

AACSB: Reflective Thinking

Chapter 12 Building and Managing Human Resources

CASE IN THE NEWS Case Synopsis: Novartis Speeds R&D with Project Teams Novartis, an international pharmaceutical company, has an innovation-based strategy. According to the company, its purpose is ―to reimagine medicine to improve and extend people‘s lives,‖ using science and technology to ―develop breakthrough treatments and find new ways to deliver them.‖ Among its products are gene therapies and cancer treatments. To enable this kind of work, Novartis fosters a culture in which people are ―Inspired, Curious, and Unbossed.‖ The inspiration comes from the company‘s mission, its emphasis on innovation and training makes the company attractive for curious employees, and ―unbossed‖ means employees can choose flexible work arrangements and are encouraged to promote their ideas. Building on a suggestion from a Novartis scientist, head of research and development Jay Bradner launched Project Genesis, a team-based process for accelerating innovation. The project invites R&D employees to network with colleagues across scientific disciplines, sharing their dream research projects. Those who build interest in their ideas can form teams to prepare project proposals, and on a predetermined day, all the teams present their ideas to a panel of scientists, including Bradner, in front of the whole company. The panel selects a few ideas with the greatest potential, and the company funds those projects to move forward within Novartis for 18 months. If a team‘s progress is favorable, their project can earn a place in Novartis‘s R&D pipeline. Coordinating this effort is the Genesis Labs program lead—currently Ian Hunt, the scientist who had suggested the idea to Bradner. Besides designing and launching each round of invitations to submit and promote ideas, the program lead fosters collaboration across Novartis‘s divisions and with scientists in academia. Project Genesis is much more than a contest on the sidelines of Novartis. The contest has clear rules and a schedule. To help individuals with ideas find potential team members across disciplines, Novartis created an internal social-media platform and hosts practice sessions for idea generation. Before the day of the presentations, the panel reviews all the ideas and creates a shortlist of contenders; for these teams, the company offers coaching on writing a business plan and training in presentation skills. After the presentations are made and the panel selects teams to fund, Novartis assigns a mentor to guide each team. Within weeks of being selected, teams have the resources they need to get started, which stimulates rapid innovation at little cost to Novartis. Not only are more projects now moving through the company‘s pipeline, but Novartis also observes a greater degree of collaboration across disciplines and improved employee engagement. The company‘s leaders are optimistic about the future, pointing to more than 20 potential new products on track to enter the market over the next few years.

1. In general, how can teams increase a company‘s innovation performance? In the description of Novartis, what evidence do you see of Project Genesis teams contributing to greater innovation?

Chapter 12 Building and Managing Human Resources When group norms include values and practices such as high performance, commitment to the team and company, valuing critical thinking and problem-solving, those norms can continue to drive improvement. Evidence of Project Genesis teams contributions are the more than 20 potential new products on their way to market.

2. How can the program lead who manages Genesis Labs contribute to the cohesiveness of the teams selected to receive funding? The Genesis Labs program lead can encourage scientists to participate by taking an interest in budding projects and encouraging scientists to form teams and participate in the contest. The assigned mentor can focus on team cohesiveness as they advise the team after the award.

3. What factors do you think would be important for motivating the members of the Project Genesis team? Personal satisfaction at the success of a pet project would be motivational, as would recognition by the company and peer. Monetary rewards would also be very motivational. In addition, the satisfaction of working on a productive, successful team would be motivating and satisfying to team members.

AACSB: Analytic

Chapter 12 Building and Managing Human Resources

IN-CLASS ACTIVITY Team Communication: Yes, But

This activity helps students understand the power of communication in teams. It also shows them the effects of unconscious negative language on team progress and decision-making. Step 1: Pairs or small groups try to plan an end of semester celebration. One person speaks at a time. The first person makes a suggestion. Each team member takes turn responding to the other member ideas by saying ―YES, BUT‖ and continuing with another suggestion. (Do this for 3 to 5 minutes, maximum.) Ask the class how many groups successfully planned a good end of semester celebration. Step 2: Pairs /small groups repeat exercise, but team members respond to each other by saying ―YES, AND‖ and continuing. (Do this for 3 to 5 minutes, maximum.) Take away? What was the difference between the two experiences? How did it feel to be in each discussion? How does our communication affect team success? Have students ever experienced this in team meetings?

Chapter 12 Building and Managing Human Resources

CONNECT For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect

Case Analysis  

Teams at Cisco Deviance at IDEO

Manager’s Hot Seat   

Working in Teams: Cross-Functional Dysfunction Teams Virtual Disruption

Application-Based Activity  

Buzzer-Beating Cohesion (Role-play) Team Role Preference Scale (Self-Assessment)

Chapter 12 Building and Managing Human Resources

POWERPOINT SLIDES These Instructor‘s PowerPoint slides can be used to supplement the lecture material. SLIDE 1 Chapter Title SLIDE 2 Learning Objectives SLIDE 3 Groups, Teams, and Organizational Effectiveness SLIDE 4 Topic for Discussion: Groups and Teams SLIDE 5 Groups, Teams, and Organizational Effectiveness SLIDE 6 Groups and Teams as Performance Enhancers: Synergy SLIDE 7 Groups and Teams as Performance Enhancers: Synergy Factors SLIDE 8 Figure 11.1: Groups’ and Teams’ Contributions… SLIDE 9 Teams and Innovation SLIDE 10 Groups and Teams as Motivators SLIDE 11 Figure 11.2: Types of Groups and Teams in Organizations SLIDE 12 Types of Groups and Teams: Formal Group SLIDE 13 Types of Groups and Teams: Informal Group SLIDE 14 Types of Groups and Teams: Top Management and Research & Development Teams SLIDE 15 Types of Groups and Teams: Command Group SLIDE 16 Types of Groups and Teams: Task force SLIDE 17 Types of Groups and Teams: Self-Managed Work Team SLIDE 18 Types of Groups and Teams: Virtual Team SLIDE 19 Topic for Discussion: Virtual Teams SLIDE 20 Types of Groups and Teams: Friendship Group SLIDE 21 Types of Groups and Teams: Interest Group SLIDE 22 Group Dynamics SLIDE 23 Group Size SLIDE 24 Group Size: Division of Labor SLIDE 25 Group Roles SLIDE 26 Stages of Group Development: Forming and Storming SLIDE 27 Stages of Group Development: Norming, Performing & Adjourning SLIDE 28 Figure 11.3: Five Stages of Group Development SLIDE 29 Topic for Discussion: Stages of Development SLIDE 30 Group Norms SLIDE 31 Conformity and Deviance SLIDE 32 Topic for Discussion: Conformity SLIDE 33 Figure 11.4: Balancing Conformity and Deviance in Groups SLIDE 34 Group Cohesiveness SLIDE 35 Topic for Discussion: Cohesiveness SLIDE 36 Figure 11.5: Sources and Consequences of Group Cohesiveness SLIDE 37 Factors Leading to Group Cohesiveness SLIDE 38 Managing Groups and Teams for High Performance: Motivating Group Members SLIDE 39 Managing Groups and Teams for High Performance: Social Loafing SLIDE 40 Figure 11.6: Three Ways to Reduce Social Loafing SLIDE 41 Topic for Discussion: Social Loafing SLIDE 42 Be the Manager

Chapter 12 Building and Managing Human Resources

Chapter 12 Building and Managing Human Resources CHAPTER CONTENTS Learning Objectives

12-2

Key Definitions/Terms

12-3

Chapter Overview

12-5

Lecture Outline

12-6

Lecture Enhancers

12-21

Management in Action

12-25

Building Management Skills

12-28

Managing Ethically

12-31

Be the Manager

12-32

Case in the News

12-33

In-Class Activity

12-35

Connect Features

12-38

PowerPoint Slides

12-39

Chapter 12 Building and Managing Human Resources

LEARNING OBJECTIVES LO 12-1. Explain why strategic human resource management can help an organization gain a competitive advantage. LO 12-2. Describe the steps managers take to recruit and select organizational members. LO 12-3. Discuss the training and development options that ensure organizational members can effectively perform their jobs. LO 12-4. Explain why performance appraisal and feedback are such crucial activities, and list the choices managers must make in designing effective performance appraisal and feedback procedures. LO 12-5. Explain the issues managers face in determining levels of pay and benefits. LO 12-6. Understand the role that labor relations play in the effective management of human resources.

Chapter 12 Building and Managing Human Resources

KEY DEFINITIONS/TERMS cafeteria-style benefit plan A plan from which employees can choose the benefits that they want. collective bargaining Negotiations between labor unions and managers to resolve conflicts and disputes about issues such as working hours, wages, benefits, working conditions, and job security. development Building the knowledge and skills of organizational members so that they are prepared to take on new responsibilities and challenges. equal employment opportunity (EEO) The equal right of all citizens to the opportunity to obtain employment regardless of their gender, age, race, country of origin, religion, or disabilities. formal appraisal An appraisal conducted at a set time during the year and based on performance dimensions and measures that were specified in advance.

needs assessment An assessment of which employees need training or development and what type of skills or knowledge they need to acquire. objective appraisal An appraisal that is based on facts and is likely to be numerical. on-the-job training Training that takes place in the work setting as employees perform their job tasks. outsource To use outside suppliers and manufacturers to produce goods and services. pay level The relative position of an organization‘s pay incentives in comparison with those of other organizations in the same industry employing similar kinds or workers. pay structures The arrangement of jobs into categories reflecting their relative importance to the organization and its goals, levels of skill required, and other characteristics.

human resource management (HRM) Activities that managers engage in to attract and retain employees and to ensure that they perform at a high level and contribute to the accomplishment of organizational goals. human resource planning Activities that managers engage in to forecast their current and future needs for human resources. informal appraisal An unscheduled appraisal of ongoing progress and areas for improvement.

performance appraisal The evaluation of employees‘ job performance and contributions to their organization. performance feedback The process through which mangers share performance appraisal information with subordinates, give subordinates an opportunity to reflect on their own performance, and develop, with subordinates, plans for the future. recruitment Activities that managers engage in to develop a pool of qualified candidates for open positions.

job analysis Identifying the tasks, duties, and responsibilities that make up a job and the knowledge, skills, and abilities needed to perform the job.

reliability The degree to which a tool or test measures the same thing each time it is used.

labor relations The activities that managers engage in to ensure that they have effective working relationships with the labor unions that represent their employees‘ interests.

selection The process that mangers use to determine the relative qualifications of job applicants and their potential for performing well in a particular job. strategic human resource management The process by which managers design the components of an HRM system to be consistent with each other, with other elements of organizational architecture, and with the organization‘s strategy and goals.

lateral move A job change that entails no major changes in responsibility or authority levels.

Chapter 12 Building and Managing Human Resources subjective appraisal An appraisal that is based on perceptions of traits, behaviors, or results.

training Teaching organizational members how to perform their current jobs and helping them acquire the knowledge and skills they need to be effective performers.

360-degree appraisal A performance appraisal by peers, subordinates, superiors, and sometimes clients who are in a position to evaluate a manager‘s performance.

validity The degree to which a tool or test measures what it purports to measure.

Chapter 13 Effective Communication

CHAPTER OVERVIEW This chapter examines how managers can tailor their human resource management system to their organization‘s strategy and structure. We discuss in particular the major components of human resource management: recruitment and selection, training and development, performance appraisal, pay and benefits, and labor relations. By the end of this chapter, students will understand the central role human resource management plays in creating a high-performing organization.

Chapter 13 Effective Communication

LECTURE OUTLINE NOTE ABOUT POWERPOINT SLIDES The PowerPoint slides include most chapter content, along with additional material that can be used to expand the lecture. A list of the Instructor PowerPoint slides can be found at the end of this chapter.

Management Snapshot Recruiting and Retaining Truck Drivers How Can Managers Effectively Meet the Need for Human Resources? Trucking companies and other organizations with truck fleets for years have struggled to find and keep enough qualified drivers. While the situation worsened during the economic and health disruptions of the COVID-19 pandemic, with reports of U.S. companies being short by 80,000 or more drivers, other factors had already been at work. Many truck drivers are reaching retirement age and turnover in the industry is high. The work is tiring and can involve safety and health hazards and long stretches away from home. Despite options such as hiring contractors and hauling double loads, most trucking companies have positions to fill, so they need to recruit qualified, interested candidates. In a competitive labor market, they must get creative in their recruitment. Applicant tracking systems that collect information and communicate with job applicants on their mobile phones can speed the hiring process. Many trucking firms are seeking out training programs and schools that target women and people of color as they become more diverse and inclusive to broaden their applicant pool. Some employers are adjusting benefits packages and work schedules to accommodate the needs of drivers with family responsibilities. Drivers under 21 might become an additional source of diversity. These drivers are not allowed to cross state lines, but a federal program is testing a plan that prepares young drivers in trucks equipped with cameras, automated manual transmissions, systems designed to prevent collisions, and states that keep speeds under 65 miles per hour. If the test is successful, the safety technology and a change in regulations could expand the pool of young drivers. Company training programs also attract candidates. Finally, companies can use technology to track schedules and loads to make sure drivers meet their goals for higher pay and more time at home, helping to reduce turnover.

I. Strategic Human Resources Management LO 12-1: Explain why strategic human resource management can help an organization gain a competitive advantage. Human resource management includes all the activities managers engage in to attract and retain employees and to ensure that they perform at a high level and contribute to the accomplishment of organizational goals.

Chapter 13 Effective Communication Strategic human resource management is the process by which managers design the components of an HRM system to be consistent with each other, with other elements of organizational architecture, and with the organization‘s strategy and goals. The objective of strategic HRM is the development of an HRM system that enhances efficiency, quality, innovation, and responsiveness—the four building blocks of competitive advantage. As part of strategic human resources management, some managers have adopted ―Six Sigma‖ quality improvement plans. These plans ensure that its organization‘s products and services are as free of error or defects as possible through a variety of human resources-related initiatives.

A. Overview of the Components of HRM 1. Managers use recruitment and selection to attract and hire new employees who have the abilities, skills, and experiences that will help an organization to achieve its goals. a. Careful attention to the selection process can contribute to a company‘s competitive advantage. 2. After recruiting and selecting employees, managers use training and development to ensure that organizational members develop needed skills and abilities. a. Training and development is an ongoing process because of changes in technology, the environment, and organizational goals and strategies. 3. Performance appraisal and feedback serve two purposes in HRM. a. Performance appraisal can provide managers with the information they need to make good human resources decisions. b. It also allows managers to regularly evaluate their subordinates‘ performance in order to provide them with valuable information about their strengths and weaknesses. c. On the basis of performance appraisals, managers distribute pay to employees. d. By rewarding high-performing organizational members, managers increase the likelihood that these human resources are motivated to continue their high level of performance and are more likely to stay with the organization. 4. Benefits such as health insurance are important outcomes that employees receive by virtue of their membership in an organization. 5. Labor relations encompass the steps that managers may take to develop and maintain good working relationships with the labor unions that may represent their employees‘ interests. a. Managers must ensure that all five of these components fit together and complement their company‘s structure and control systems. Each of the five components of HRM influences the others. 13-374 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 Effective Communication

Chapter 13 Effective Communication TEXT REFERENCE

Management Insight Strategic HRM Helps Build Strong Future For Home Depot, which operates home improvement stores and the eighth-largest ecommerce business in the United States, the trends shaping the retail and construction industries are bringing tremendous challenges and opportunities. It competes in brick and mortar and online, as do most retail outlets. Unemployment means Home Depot faces heavy competition for workers. Seasonal demand is not just restricted to holidays for the construction business, but work picks up in the spring and slows down as weather turns colder. Home Depot‘s CEO, Ted Decker, has been following a strategy of using recessions as a time for investing in efficiency and growth to reap the benefits of delivering better service. During the last recession, Home Depot improved the online shopping experience, renovated stores, and trained workers, with the result that its stores were outselling Lowe‘s, a key competitor. To stand out as a superior employer Home Depot has raised wages (as have other employers after years of economic expansion) and increased wages and health and personal benefits. In addition, over the past few years, the company says its associates have received more than $1 billion in Success sharing awards. It has simplified its job application process (it set a hiring target of more than 100,000 seasonal workers) by creating an app that not only allows applicants to submit their application but also to self-schedule an interview. They also offer a text-to-apply feature. These changes increased their applicant pool by 50% more than previous years and three quarters of applicants have set up their own interviews using the selfscheduling tool. With seasonal employees, training is even more important. The company created a ―PocketGuide‖ training app for mobile devices that allows employees to access information on products real time. That helps employees succeed on the job and increases customer satisfaction. Looking towards the future, Home Depot‘s charitable foundation has committed to supporting training programs for construction workers. Partnering with the Home Builders Institute, the foundation has donated funds to train 20,000 construction workers over 10 years, preparing them for careers as carpenters, electricians, and plumbers. The program is available to veterans and to high school students in underserved communities. Support for preparing the next generation of construction workers not only boosts Home Depot‘s reputation as a business that cares about the community, but also builds a customer base for the years ahead.

II. The Legal Environment of HRM 1. Effectively managing human resources is a complex task for managers. The local, state, and national laws and regulations that organizations must follow add to the complexity. 2. The U.S. government‘s commitment to equal employment opportunity (EEO) has resulted in a number of laws that managers must follow.

Chapter 13 Effective Communication 3. The goal of EEO is to ensure that all citizens have an equal opportunity to obtain employment regardless of their sex, age, race, country of origin, religion, age, or disabilities. 4. Other laws, such as the Occupational Safety and Health Act of 1970, require managers to ensure that employees‘ health is protected from workplace hazards and safety standards are met. 5. EEO laws and their enforcement make the effective management of diversity a legal imperative. a. The Equal Employment Opportunity Commission (EEOC) is the division of the Department of Justice that enforces most of the EEO laws and handles discrimination complaints. b. The EEOC also issues guidelines for managers to follow to ensure that they are abiding by EEO laws. 6. Contemporary challenges that managers face related to the legal environment include how to eliminate sexual harassment, how to make accommodations for disabled employees, and how to deal with employees with addiction problems.

III. Recruitment and Selection LO 12-2:

Describe the steps managers take to recruit and select organizational members.

Recruitment includes all the activities that managers engage in to develop a pool of qualified candidates for open positions. Selection is the process by which managers determine the relative qualifications of job applicants. Before actually recruiting and selecting employees, managers need to engage in human resources planning and job analysis.

A. Human Resource Planning includes all the activities managers engage in to forecast their current and future needs for human resources. Current human resources are the employees an organization needs today. Future human resources are the employees the organization will need at some later date. 1. Managers must make both demand forecasts and supply forecasts. a. Demand forecasts estimate the qualifications and numbers of employees an organization will need, given its goals and strategies. b. Supply forecasts estimate the availability and qualifications of current employees now and in the future, as well as the supply of qualified workers in the external labor market. 13-377 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 Effective Communication 2. Managers sometimes decide to outsource to fill some HR needs. Outsourcing is when managers contract with people who are not members of their organization to provide goods and services. a. Managers sometimes outsource because it provides them with increased flexibility and allows them to use human resources at a lower cost. c. Outsourcing does have disadvantages; managers may lose some control over the quality of goods and services. d. Individuals may have less knowledge of organizational practices and goals and less commitment to the organization. Also, unions resist outsourcing because it has the potential to eliminate some members‘ jobs. e. A major trend reflecting the increasing globalization of business is the outsourcing of office work, computer programming, and technical jobs from the United States and western European countries to countries with lower labor costs, such as India and China. B. Job Analysis: Job analysis is the process of identifying: 1) the tasks, duties, and responsibilities that make up a job (the job description), and 2) the knowledge, skills, and abilities needed to perform the job (the job specifications). 1. A job analysis needs to be done for each job in the organization. 2. A job analysis can be done in a number of ways, including observing current employees as they perform the job or interviewing them. a. Often managers rely on questionnaires compiled by jobholders and their managers that ask about the skills and abilities needed to perform the job, job tasks and the amount of time spent on them, responsibilities, supervisory activities, equipment used, reports prepared, and decisions made. C. External and Internal Recruitment 1. External Recruiting: When managers recruit externally, they look outside the organization for people who have not worked for the organization previously. a. In spite of the many downsizings and corporate layoffs that have taken place in recent years, external recruiting remains a difficult task because job seekers often do not have the skills and abilities to fill positions that are open. i. Both job seekers and employees are relying with increasing frequency upon employment websites on the Internet to make connections with each other. b. The advantages of external recruiting are having access to a potentially large applicant pool, being able to attract people who have the skills and knowledge 13-378 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 Effective Communication desired, and being able to bring in newcomers who may have a fresh approach to problems and be up to date with technology. c. Disadvantages include the high cost of external recruitment, the external recruit‘s lack of knowledge about the inner workings of the organization, and the uncertainty as to whether they will actually be good performers. 2. Internal Recruiting: When recruiting is internal, managers turn to existing employees to fill open positions. Those internal employees are seeking either a lateral move, which is a job change that entails no major changes in responsibility or authority levels, or a promotion. a. Internal recruiting has several advantages. i. Internal applicants are already familiar with the organization, managers already have information about candidates‘ skills and actual behavior, and it can help boost levels of employee motivation. ii. For those who may not be ready for a promotion, a lateral move can alleviate boredom. iii. Also, internal recruiting is normally less time-consuming and expensive. c. Disadvantages of internal recruiting include a pool of candidates that may be limited, a tendency among those candidates to be ―set‖ in the organization‘s ways, and a lack of suitable internal candidates. D. The Selection Process: Managers need to find out whether each applicant is qualified for the position and whether he or she is likely to be a good performer. If multiple candidates meet these two conditions, managers must determine which are likely to be better performers than the others. They have several selection tools to help them sort out the relative qualifications and appraise their potential to be good performers. 1. Background Information: To aid in the selection process, managers obtain background information from resumes and job applications. a. This information can be helpful both to screen out applicants who are lacking key qualifications and to determine which qualified applicants are more promising than others. b. An increasing number of organizations are performing background checks, which often report inaccuracies on applications. 2. Interviews: Almost all organizations use interviews during the selection process. a. In a structured interview, managers ask each applicant the same standard questions. 13-379 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 Effective Communication b. An unstructured interview proceeds more like an ordinary conversation. Instead of asking fixed questions, the interviewer asks probing questions to determine what the candidate is like. c. Structured interviews are superior to unstructured interviews because they are more likely to yield information that will help identify qualified candidates, and they are less subjective. d. When conducting interviews, managers cannot ask questions that are irrelevant to the job in question. If they do, their organizations run the risk of costly lawsuits. 3. Paper-and-Pencil Tests: Two kinds of paper-and-pencil tests are used for selection purposes. a. Ability tests assess the extent to which applicants possess skills necessary for job performance, such as verbal comprehension. b. Personality tests measure personality traits and characteristics relevant to job performance. Use of personality tests for hiring is controversial. c. Before using any paper-and-pencil tests, managers should have sound evidence that the tests are actually good predictors of performance. 4. Physical Ability Tests: For jobs that require physical abilities, such as firefighting, garbage collecting, and packaging delivery, physical ability tests can measure strength and stamina. 5. Performance Tests: Performance tests measure job applicants‘ performance on actual job tasks. a. Assessment centers take performance tests a step further by having applicants participate in a variety of activities over a few days. b. Throughout the process, current managers observe the candidates‘ behavior and measure performance. 6. References: Applicants for many jobs are required to provide references from former employers or other sources who know the applicants‘ skills, abilities, and other characteristics. These individuals are asked to provide candid information about the applicant. a. References are often used at the end of the selection process to confirm a decision to hire. b. Several recent lawsuits filed by applicants have caused managers to be increasingly wary of providing any kind of negative information in a reference, even if it is accurate. 13-380 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 Effective Communication 7. The Importance of Reliability and Validity: Whatever the selection tools a manager uses, they need to be both reliable and valid. a. Reliability is the degree to which a tool or test measures the same thing each time it is administered. i. Scores on a selection test should be very similar if the same person is assessed with the same test on two different days. ii. The reliability of interviews can be increased if two or more different interviewers interview the same candidate. b. Validity is the degree to which a tool or test measures what it claims to measure. c. Managers have an ethical and legal obligation to use reliable and valid selection tools. However, reliability and validity are a matter of degree, rather than all-ornothing characteristics. TEXT REFERENCE

Focus on DE&I Recruiting a Diverse Workforce Many organizations have a policy of valuing diversity. A basic step is to review recruiting sources and messages. Recruiting in schools where many students are the same race or gender narrows the pool of candidates in terms of racial and gender diversity. Language also matters. Diversity-strategy consultant Joelle Emerson finds that women are less likely to respond to an ad looking for top performers described as ―rock stars‖ than to an ad looking for someone who ―seeks challenges.‖ Employers should also consider the image projected by their recruiters and interviewers. A person of color interviewed by a series of white male managers in a company would likely form the impression that the organization lacks diversity. For the selection process, companies should focus on bona-fide job requirements. When considering desirable candidate attributes, managers should ask themselves, ―Is this a preference, a tradition, or a job requirement?‖ Job requirements are essentials; preferences and traditions may be a plus, but they could limit selections to people who are so much alike that new ideas rarely surface.

IV. Training and Development LO 12-3: Discuss the training and development options that ensure organizational members can effectively perform their jobs. 1. Training and development helps to ensure that organizational members have the knowledge and skills needed to perform jobs effectively, take on new responsibilities, and adapt to changing conditions. 13-381 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 Effective Communication 2. Training primarily focuses on teaching organizational members to perform their current jobs and helping them acquire the knowledge and skills they need to be effective performers. 3. Development focuses on building the knowledge and skills of organizational members so that they will be prepared to take on new responsibilities. 4. Training tends to be used more often at lower levels in the organization. Development tends to be used more frequently with professionals and managers. 5. Before creating training and development programs, managers should perform a needs assessment to determine which employees need training or development and what type of skills or knowledge to need to acquire. A. Types of Training: There are two types of training: classroom instruction and on-the-job training. 1. Classroom Instruction: Through classroom instruction, employees acquire knowledge and skills in a classroom setting. a. This may take place within the organization or outside it. b. Some organizations establish their own formal instruction divisions – some are even called colleges—to provide classroom instruction. c. Classroom instruction frequently includes use of videos and role-plays in addition to written materials, lectures, and group discussions. i. Videos can be used to demonstrate appropriate and inappropriate job behaviors. ii. During role-playing, trainees either directly participate in or watch others perform actual job activities in a simulated setting. iii. In a simulation, key aspects of the work situation and job tasks are duplicated as closely as possible in an artificial setting. 2. On-the-job training: In on-the-job training, learning occurs in the work setting as employees perform their jobs. a. Co-workers or supervisors can provide on-the-job training, or it occurs simply as jobholders gain experience doing the job. b. Managers often use on-the-job training on a continuing basis to ensure that their subordinates keep up to date with changes in goals, technology, products, or customer needs and desires.

Chapter 13 Effective Communication B. Types of Development: Although both classroom instruction and on-the-job training can be used for development purposes as well as training, development often includes additional activities such as varied work experiences and formal education. 1. Varied Work Experiences: Top managers need to understand and have expertise in different functions, products and services, and markets. a. To develop managers who will have this expertise, employees with high potential are given a wide variety of job experiences in both line and staff positions. b. With organizations becoming more global, managers need to develop an understanding of the different values, beliefs, and cultures, regions, and the way of doing business in different countries. c. Having a mentor can help managers seek out work experiences and assignments that will contribute to their development and gain the most they can from varied work experiences. While some mentors and protégés connect informally, organizations have found that formal mentorship programs can make valuable contributions to the development of managers and employees. 2. Formal Education: Many large corporations reimburse employees for tuition expenses they incur while taking college courses and obtaining advanced degrees. a. This is an effective way to develop employees who are able to take on new responsibilities and more challenging positions. b. To save time and travel costs, managers are increasingly relying on long distance learning to formally educate and develop employees. c. Videoconferencing technologies are being used to teach courses on video screens in corporate conference rooms and business schools are customizing courses and degrees to fit the development needs of employees in a particular company. C. Transfer of Training and Development: Whenever training and development takes place off the job or in a classroom setting, it is vital for managers to promote transfer of the knowledge and skills to the actual work situation.

V. Performance Appraisal and Feedback LO 12-4: Explain why performance appraisal and feedback is such a crucial activity, and list the choices managers must make in designing effective performance appraisal and feedback procedures. Performance appraisal is the evaluation of employees‘ job performance and contributions to the organization.

Chapter 13 Effective Communication Performance feedback is the process through which managers share performance appraisal information with their subordinates. Performance appraisal must first take place first, in order for performance feedback to occur. Performance appraisal and feedback contribute to effective management in several ways.

a. Performance appraisal gives managers information on which to base human resources decisions. b. Performance appraisal can help managers determine which workers are candidates for training and development. c. Performance feedback encourages high levels of employee motivation and performance. d. Performance feedback can provide both good and poor performers with insight into their strengths and weaknesses. A. Types of Performance Appraisal: Performance appraisal focuses on the evaluation of traits, behaviors, and results. 1. Trait Appraisals: When trait appraisals are used, mangers assess subordinates on personal characteristics that are relevant to job performance, such as skills, abilities, or personality. a. The disadvantages of trait appraisals are as follows: i. Possessing a certain trait does not ensure that the characteristic will actually be used on the job and result in high performance. ii. Because traits do not show a direct association with performance, workers and courts may view them as unfair and potentially discriminatory. iii. They often do not enable managers to provide employees with feedback they can use. b. These disadvantages suggest that managers should use trait appraisals only when they can demonstrate that the assessed traits are accurate and important indicators of job performance. 2. Behavior Appraisals: Through behavior appraisals, managers assess how workers perform their jobs—the actual actions and behaviors that workers exhibit on the job. a. Behavior appraisals are especially useful when how workers perform their jobs is important. b. Behavior appraisals have the advantage of providing employees with clear information about what they are doing right and wrong and how they can improve their performance. 13-384 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 Effective Communication c. Also, performance feedback from behavior appraisals is more likely to lead to performance improvements since behaviors are much easier for behaviors to change than traits. 3. Results Appraisals: With results appraisals, managers appraise performance in terms of results or the actual outcomes of work behaviors. 4. Objective and Subjective Appraisals: The information upon which appraisals are based is either objective or subjective. a. Objective appraisals are based on facts and are likely to be numerical. i. Managers often use objective appraisals when results are being appraised because results tend to be easier to quantify than traits or behaviors. b. Subjective appraisals are based on managers‘ perceptions of traits, behaviors, or results. i. Because subjective appraisals rest on managers‘ perceptions, there is always the chance that they are inaccurate. ii. Managers and researchers have devoted considerable time and effort to determine the best way to develop reliable and valid subjective measures of performance. B. Who Appraises Performance? Supervisors are the most common appraisers of performance. Performance appraisal is an important part of most managers‘ job duties. However, appraisals by managers can be augmented by appraisals from other sources. 1. Self, Peer, Subordinates, and Clients a. Self-appraisals involve an employee assessing their own performance. i. The self-appraisal is a supplement to the manager‘s appraisal. b. Peer appraisals are provided by an employee‘s co-workers and can be motivational to employees who work in groups or teams. i. Many companies are now asking subordinates to appraise their managers‘ performance. c. Sometimes customers provide assessments of employee performance in terms of responsiveness to customers and quality of service. d. Although appraisals from each of these sources can be useful, there are drawbacks. Subordinates sometimes may be inclined to inflate self-appraisals. Managers who are appraised by their subordinates may fail to take needed but unpopular actions out of fear that their subordinates will appraise them negatively.

Chapter 13 Effective Communication 2. 360-Degree Performance Appraisals: In a 360-degree appraisal, a performance is appraised by peers, subordinates, superiors, and sometimes clients. This appraisal is often used for managers. a. The manager receives feedback based on evaluations from these sources. b. Trust is a critical ingredient if this type of performance appraisal is going to be effective. c. Research suggests that 360-degree appraisals should focus on behaviors rather than traits or results, and that managers need to carefully select appropriate raters. d. Appraisals tend to be more accurate when made anonymously and when raters have been trained in how to use 360-degree appraisal forms. e. Managers need to think carefully about the extent to which 360-degree appraisals are suitable for certain jobs and be willing to modify any system they implement when they become aware of unintended problems the appraisal system may create. C. Effective Performance Feedback: In order for the performance appraisal and feedback to encourage and motivate high performance, managers must provide their subordinates with performance feedback. Managers can use both formal and informal appraisals. 1. Formal appraisals are conducted at set times during the year and are based on performance dimensions and measures that have been specified in advance. a. An integral part of a formal appraisal is a meeting between the manager and the subordinate in which the subordinate is given feedback on performance. b. Because they realize the value of performance appraisals, large corporations have committed substantial resources to updating their performance appraisal systems and teaching employees how to correctly use them. 2. Because employees often want feedback on a more frequent basis, many companies supplement formal performance appraisal with frequent informal appraisals, during which managers and their subordinates meet informally to discuss ongoing progress. 3. Guidelines for effectively giving performance feedback include the following: a. Be specific and focus on behaviors or outcomes that are correctable and within a worker‘s ability to improve. b. Approach performance appraisal as an exercise in problem solving and solution finding, not criticizing. c. Express confidence in a subordinate‘s ability to improve. d. Provide performance feedback both formally and informally. 13-386 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 Effective Communication e. Praise instances of high performance and areas of a job in which a worker excels. f. Avoid personal criticisms and treat subordinates with respect. g. Agree to a timetable for performance improvements.

VI. Pay and Benefits LO 12-5:

Explain the issues managers face in determining levels of pay and benefits.

Pay includes employees‘ base salaries, pay raises, and bonuses. It is determined by a number of factors, including characteristics of the organization and of the job and levels of performance. Employee benefits are based on membership in an organization. They include paid time off, company holidays, medical and life insurance.

A. Pay Level: Pay level is a broad, comparative concept that refers to how an organization‘s pay incentives compare, in general, with those of other organizations in the same industry employing similar kinds or workers. 1. Managers must decide whether they want to offer relatively high, average, or low wages. High wages help ensure that the organization will be able to recruit and retain high performers, but high wages also raise costs. 2. Low wages give a company a cost advantage but may undermine the organization‘s ability to select and recruit high performers and to motivate current employees to perform at a high level. 3. In determining pay levels, managers should take into account their organization‘s strategy. B. Pay Structure: Managers have to establish a pay structure for the different jobs in the organization. 1. A pay structure clusters jobs into categories reflecting their relative importance to the organization and its goals, levels of skill required, and other characteristics. a. Pay ranges are established for each job category. An individual employees‘ pay within job categories is then determined by factors such as performance, seniority, and skill levels. b. Large U.S. corporations tend to pay their top managers higher salaries than do European or Japanese counterparts. c. There also is a much greater pay differential between employees at the bottom and those high in the hierarchy in U.S. companies.

Chapter 13 Effective Communication 2. Concerns have been ranged over whether it is equitable or fair for CEOs of large companies in the United States to make huge sums when their companies are restructuring or laying off a good portion of their workforces. C. Benefits: Organizations are legally required to provide mandated benefits to their employees, including worker‘s compensation, Social Security, and unemployment insurance. 1. Workers‘ compensation provides employees with financial assistance if they are unable to work because of a work-related injury or illness. 2. Social Security provides financial assistance to retirees and disabled former employees. 3. Unemployment insurance provides financial assistance to workers who lose their jobs through no fault of their own. 4. Other benefits such as life insurance, pension plans, and flexible working hours are provided at the option of employers. 5. In some organizations, top managers decide which benefits best suit the employees. 6. Other organizations offer cafeteria-style benefit plans that let employees themselves choose the plan they want. 7. More and more mangers are viewing benefits as a way to attract and retain valued employees.

VII.

Labor Relations

LO 12-6: Understand the role that labor relations play in the effective management of human resources. Labor relations are the activities that managers engage in to ensure that they have effective working relationships with labor unions that represent their employees‘ interests.

1. Although the U.S. government has created and enforced laws regulating employment, some workers believe that a union will help ensure that their interests are fairly represented in the organization. 2. In 1938, the government passed the Fair Labor Standards Act, which prohibited child labor and made provision for minimum wages, overtime pay, and maximum working hours. In 1963, the Equal Pay Act mandated that men and women performing equal work receive equal pay. In 1970, the Occupational Safety and Health Act mandated procedures for managers to follow to ensure workplace safety. A. Unions: Unions exist to represent workers‘ interest in organizations.

Chapter 13 Effective Communication 1. The U.S. Congress passed the National Labor Relations Act of 1935 that made it legal for workers to organize into unions to protect their rights and interests. 2. The Act also established the National Labor Relations Board to oversee union activity. The NLRB conducts certification elections, makes judgments concerning unfair labor practices, and specifies practices from which managers must refrain. 3. Employees might vote to have a union for a variety of reasons. a. They may feel that their wages and working conditions need improvement, managers are not treating them with respect, or they may be dissatisfied with management and find it difficult to communicate their concerns. 4. Some workers are reluctant to join unions for a variety of reasons. a. There is a perception that union leaders are corrupt, while others feel that belonging to a union might not do them much good. b. Employees may not want to be obligated to do something against their will, such as strike. c. Also many employees realize that although unions can be a positive force in organizations, sometimes they can be a negative force, impairing organizational effectiveness. 5. The percentage of U.S. workers represented by unions today is smaller than in the 1950s. a. Although union influence in manufacturing and heavy industry has been on the decline, they have recently made inroads in other segments of the workforce. B. Collective Bargaining: Collective bargaining is negotiation between labor unions and managers to resolve conflicts and disputes about important issues such as working hours, wages, benefits, and job security. 1. Once an agreement that union members support has been reached, union leaders and

managers sign a contract spelling out its terms of that agreement.

Chapter 13 Effective Communication

LECTURE ENHANCERS Lecturer Enhancer 12.1 SCREENING EXECUTIVE LEVEL APPLICANTS James Baughman was imprisoned for stealing money from student funds while he was a high school principal. He lied about earning a doctorate at Stanford. He eventually became director of recruitment for Lucent Technologies. Max Phillips & Son fired Al Dunlap in 1973 after only seven weeks of employment. Three years later, he was fired by Nitec Paper Corporation, which soon went broke, over allegations of financial fraud. Twenty years later, he surfaced as chairman and CEO of the Sunbeam Corporation. George O‘Leary lied on his resume about earning a master‘s degree in education from New York University. He lied about lettering in football for three years at the University of New Hampshire. He later was hired as Notre Dame‘s football coach. How does this happen? ―Sometimes companies don‘t screen executive-level applicants as closely as they should. At some companies, there is definitely a good ‗ol boy network that prevails. Executives tend to hire their friends, and they hold the integrity of those friends above that of anybody else in the company. Unfortunately, that sometimes backfires,‖ says Douglas Hahn, president of HRplus, a background screening firm based in Colorado. ―You‘d think the logic would be that the higher the position, the more screening companies would do,‖ says Les Rosen, an attorney and president of Employment Screening Resources in California. ―But from what we‘ve seen, that‘s not true. Somehow, there is a sense of impropriety in challenging the credentials of people higher up.‖ While it might be impossible to safeguard a company against every potential act of dishonesty, HR professionals can minimize the chances for unscrupulous behavior by understanding who it is they really are hiring. This means developing and using more effective screening tools for top-level applicants. Here are some steps that HR managers may want to consider.

1. Dig deeper with executive candidates by going beyond the standard security check to perform what Rosen calls ―an integrity check.‖ An integrity check involves looking at such things as involvement in lawsuits, the financial performance of the person‘s pervious firm, and when and why the candidate might have appeared in the local and national newspapers. 2. Don‘t rely upon search firms to conduct a thorough background check. Thorough background checks can be time consuming, and search firms have a vested interest in placing the candidate as soon as possible, since they typically are not paid their contingency fee until a candidate has been placed in the job. 3. Don‘t have interviewers conduct the background checks. They may become prejudiced and ask questions differently about a candidate whom they liked, according to Hahn. For example, instead of asking a reference if there is anything in a person‘s history that would prevent you from hiring them, you might say, ―There are not problems with this person, right?‖ 13-390 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 Effective Communication Along with more detailed reference checks, many companies put candidates for senior posts through a battery of tests designed to measure intelligence, problem solving ability, people skills, management style, and fit with a particular corporate culture. Group interviews remain popular, as are workplace simulations in which a candidate may have to assemble facts for a boardroom presentation. Biodata testing, in which testers gather biographical and personal information and match it against normative databases to predict a potential employee‘s future performance, is also gaining popularity. Proctor & Gamble, which has used biodata testing on job candidates at all levels for decades, began marketing the measurements to other business during late 2003. Benchmarking is another practice that works. DuBois Medical Center in rural Pennsylvania hired a consultant to develop an intensive pre-employment screening process for its organization. The consultant created benchmarks based upon the characteristics of current executives. The benchmarked characteristics included high levels of integrity, strategic thinking, innovation, a passion for customer service, and a workaholic nature. Applicants for top-level management positions cannot progress to an interview with senior executives unless they pass this screening and meet the benchmarks. The results have been outstanding. The hospital‘s ability to successfully pick top performers has from risen 30 to 50 percent in the past four years. Adapted from ―Who are You Really Hiring,‖ by Shari Caudron, Workforce, November 2002 and ―Screening Out Bad High-level Hires, by Michelle Rafter, Workforce Management, May 2004.

Lecturer Enhancer 12.2 MEMORABLE JOB INTERVIEWS The world's largest temporary personnel service for accounting, bookkeeping and information systems, Accountemps, recently conducted a nationwide survey of executives about the most unusual job interview they ever conducted. Some of the results:

 ―The applicant apologized for being late, said he accidentally locked his clothes in his closet.‖  ―The applicant walked in and inquired why he was here.‖  ―Shortly after sitting down, she brought out a line of cosmetics and started a strong sales pitch.‖  ―The applicant brought in his five children and cat.‖  ―The applicant said if I hired him, I'd soon learn to regret it.‖  ―The applicant arrived with a snake around her neck and said she took her pet everywhere.‖  ―When asked about loyalty, the applicant showed a tattoo of his girlfriend's name.‖

Chapter 13 Effective Communication

Lecture Enhancer 12.3 THE COMPLICATED LEGACY OF HENRY FORD Henry Ford founded the Ford Motor Company in 1903, producing an inexpensive, all-purpose car, the Model T. His company grew rapidly after the Model T became an instant success. The close relationship he enjoyed with his skilled workers deteriorated as he installed the assembly line and hired unskilled workers. In 1913, dissatisfaction among workers resulted in worker turnover of over 380 percent in one year alone. A small number of workers joined the International Workers of the World, which served as an outlet for the workers' hostility. On January 14, 1914, Henry Ford shocked the industry by raising the average wage for his workers from $2.34 to $5.00 per day. Although this, overnight, made Ford known as the defender of the worker, Ford's motives were more complex. He believed that the more money he paid to workers, the more of his cars would be purchased. Although he paid his workers attractive salaries when they worked, he felt little responsibility for their continued employment and laid them off when necessary. During this early period, Ford instituted other worker benefits that were revolutionary. He created a Safety and Health Department in 1914 and opened the Henry Ford Trade School in 1916, so that boys could learn a trade while attending school. Another farsighted policy was the hiring of partially handicapped workers, ex-criminals, epileptics, and former mental patients. In 1934, approximately 34 percent of Ford workers were physically handicapped. Also instituted was the Ford Sociology Department, which counseled workers and management alike. It gave workers advice on how to budget money and served as a protection for them when unscrupulous salesmen descended on them after they had received their paychecks. The Sociology Department also conducted a Language School to teach foreign-born workers the English language. Labor appreciated his reforms, and supported Ford in his unsuccessful campaign for the U.S. Senate in 1918. Many experts feel that Ford's reforms were the only labor reforms in the early part of the century. But Ford was inconsistent in his dealings with his workers. During the 1920s, Ford instituted a costsaving campaign. The assembly line was increased in speed so that workers performed their jobs in less time. Discipline was strict and workers were driven to work as hard as possible. Even the Sociology Department was disbanded. The Ford Service Police, a 3,000-person group, was created to enforce the speed-up of work and other discipline measures. Workers who were involved in union activities were often physically assaulted. Ford, who was once hailed as the workers' hero, was now viewed as a reactionary. During the Great Depression, layoffs in all industries resulted in massive unemployment. In March 1932, the Ford Hunger March took place. Several hundred workers marched on Ford, demanding a six-hour work day, two daily rest periods, and an unemployment bonus of $50 per man. The marchers were greeted by gunfire that resulted in four deaths. Henry Ford steadfastly maintained a hostile attitude toward any union activities. The Wagner Act was passed in 1935, establishing a national policy of protecting the rights of workers to organize and collectively bargain. Under the protection of the Wagner Act, the United Automobile Workers began a systematic campaign to organize the automobile industry and bb 1937 they had succeeded.

Chapter 13 Effective Communication In May 1937, the UAW began its campaign to unionize Ford. Walter Reuther headed the campaign and planned to distribute circulars to Ford workers on their way home. The union members stationed themselves on a bridge over a road leading to the Ford Rouge River plant. Ford Service Police ordered them to leave, and when the union supporters started to comply, the police attacked them. The Battle of the Bridge ended with Reuther and several others, including women, requiring hospitalization. Even though Ford prevented unionization one more time, time was running out. When the UAW began another organizing effort in 1941, they succeeded. After the head of the Ford Service Police fired eight Rouge River workers for union activities, the workers spontaneously walked off their jobs. They surrounded the plant and refused to let food and water be sent in to the Ford Service Police in the plant. On April 11, 1941 Henry Ford agreed to recognize the union.

Chapter 13 Effective Communication

MANAGEMENT IN ACTION Notes for Topics for Discussion and Action DISCUSSION

1. Discuss why it is important for human resources management systems to be in sync with an organization's strategy and goals and with each other. Human resources management systems include recruitment and selection, training and development, performance appraisal and feedback, pay and benefits, and labor relations. These systems need to be consistent with an organization's strategy and goals so that the organization can increase efficiency and effectiveness, quality, innovation, and responsiveness to customers. These objectives are the building blocks of competitive advantage, and therefore directly contribute to an organization‘s success and survival. If an organization chooses to pursue a low-cost strategy, the human resources systems need to be responsive to this strategy and need to contain costs and find ways to do more with less. If an organization, instead, pursues a differentiation strategy and wishes to distinguish itself from the competition, human resources must attract, select, and retain the employees that will enable the organization to achieve its goal. Employees in every organization must be trained with the skills and abilities they need, as well as be rewarded and motivated to ensure high performance at all levels.

2. Discuss why training and development are ongoing activities for all organizations. Training focuses primarily on teaching organizational members how to perform their current jobs and helping them acquire the knowledge and skills they need to be effective performers. Development focuses on building organizational members' knowledge and skills so that they will be prepared to take on new responsibilities and challenges. Organizations need to continuously train and develop their human resources, especially in today's global environment. Training is more frequently used in lower levels of an organization, for example, with new hires and entry-level positions. In today's economy, these positions experience high turnover, and employees tend to move quickly between jobs and organizations, requiring new skills and knowledge in different industries and settings. Development tends to be utilized at higher levels in organizations. People who know their jobs find they need new skills when they are given more responsibility, as is the case when jobs are enriched and organizations become decentralized. The speed of business is increasing every day, and new technology and competition make training and development necessary ongoing activities in organizations that want to survive and succeed.

Chapter 13 Effective Communication 3. Describe the type of development activities that you think middle managers are most in need of. Managers need development activities to help them adjust to new responsibilities and challenges in today's organizations. Many organizations have downsized, and managers need to be able to perform many duties and functions within an organization. For this reason, managers need to be exposed to a variety of work experiences. Top managers need to develop understanding of and expertise in a variety of functions, products and services, and markets. A manager cannot narrow their focus to only their product line or region of the country. An opportunity to experience different roles in an organization can help a manager to understand how each function fits into the organization as a whole. Managers can also benefit from formal education, such as executive MBA programs, where they can learn the latest in business and management techniques and practices. Whether managers receive development on-the-job or in a classroom, transfer of knowledge and skills to the workplace is crucial. A manager must be able to successfully apply what he or she has learned and use the development experience in ways that benefit the organization and allow it to reach its goals.

4. Evaluate the pros and cons of 360-degree performance appraisals and feedback. Would you like your performance to be appraised in this manner? Why or why not? Performance appraisal and feedback are vital components of human resources management systems. Through appraisal and feedback, performance is evaluated and information is provided to employees that enables them to reflect on their performance and develop plans for the future. The 360-degree approach allows a wider range of people to evaluate and give feedback on an employee‘s performance. A manager might conduct a self-appraisal, as well as receive feedback from peers, subordinates, superiors, and even customers and clients. Some advantages of 360-degree appraisal are that employees are able to get more than one perspective, and that people who work closely with the employee on a day-to-day basis can give feedback on overall performance, not just once a month or once a year. It is also a useful technique for meeting customer needs. It is sometimes easy for members within an organization to lose sight of the customers‘ perspectives, and 360-degree appraisal brings the customers‘ viewpoints into the larger picture. Some disadvantages include the possibility of spiteful evaluations from disgruntled subordinates, especially if evaluations are anonymous, coerced positive evaluations from intimidated employees, or misguided evaluations from employees who are not knowledgeable enough about the job they are evaluating.

5. Discuss why two restaurants in the same community might have different pay levels. A pay level is a broad term that refers to how an organization's pay incentives compare, in general, to those of other organizations in the same industry, employing similar kinds of workers.

Chapter 13 Effective Communication Two restaurants in the same community might have different pay levels if they are pursuing different organizational strategies. An expensive French restaurant may value the competitive advantage that is gained through superior, quality food and excellent service. This restaurant would likely adopt a high pay level, paying its chefs, servers, and staff comparatively more than other restaurants. Though high pay levels raise costs, they also help ensure that the restaurant managers will be able to recruit, select, and retain high performers. A neighborhood diner, on the other hand, may adopt a low-cost strategy, and pay its cooks, wait staff, and managers relatively low wages in order to keep costs down. The diner may gain a cost advantage, but the disadvantages may include the inability to select and recruit high performers, or motivate current employees to perform at a high level. ACTION

6. Interview a manager in a local organization to determine how that organization recruits and selects employees. Joan Scott is a manager of a local branch of a large bank. She is responsible for recruiting and selecting the tellers that will be employed at the bank. Recruitment involves development of a pool of qualified candidates for open positions. Selection is the process by which Jill determines the relative qualifications of the job applicants and their potential for being good performers in the teller position. Joan first performs a job analysis, in which she determines the tasks, duties, and responsibilities that make up the job of a teller, and the knowledge, skills, and abilities needed to perform the job. Joan receives job descriptions from managers at higher levels in the organization that help guide her in her recruitment and selection processes. Joan is also a former teller herself, and she is familiar with the tasks and responsibilities required by the position. Joan recruits at local community colleges and training institutes through their career planning services. She also places advertisements in the local newspaper classified sections. Both of these activities are external recruiting, which involves looking outside the organization to fill open positions. Joan also looks within the organization at existing employees, known as internal recruiting, to fill open positions. Joan strives to present an honest assessment of both advantages and disadvantages of a job within the bank, also called a realistic job preview. In order to select from her pool of qualified applicants, Joan uses many techniques. She checks background information given on applications, conducts personal interviews with each applicant that meets the minimum requirements, and also gives performance tests to those who pass the initial screening process. Applicants are tested on their ability to do simple calculations and their comprehension of certain financial terms. Finally, Joan always checks references with former employers or professors of the applicants in order to obtain more information about the applicant and their work habits.

AACSB: Analytic

Chapter 13 Effective Communication

BUILDING MANAGEMENT SKILLS Analyzing Human Resources Systems Think about your current job or a job that you had in the past. If you have never had a job, then interview a friend or family member who is currently working. Answer the following questions about the job you have chosen.

1. How are people recruited and selected for this job? Are the recruitment and selection procedures that the organization uses effective or ineffective? Why? Leslie Miller is a lifeguard at a local YMCA pool. She has worked at the pool for five years, and has experienced firsthand many of the organization's human resources management activities. Recruitment is the process of developing a pool of qualified applicants, and selection involves choosing among them and determining their potential for being good performers. Lifeguards are recruited through lifeguard training course classes. Notices are posted in the classrooms, and representatives from the YMCA visit classes to inform the trainees of opportunities for employment. In order to receive a job, applicants must provide proof of certification in various courses, such as lifeguard training, First Aid, and CPR. Applicants also take written and physical tests to determine their knowledge and skill levels. Those who score the highest on the performance tests are invited to complete applications listing previous job experience, school information, and references. After a background check, reference check, and a group interview, the most suitable candidates are offered positions.

2. What training and development do people who hold this job receive? Are the training and development appropriate? Why or why not? Lifeguards must come to the job with certain training, but development and practice of skills are very important to the maintenance of a safe facility. Lifeguards are required to attend at least two training sessions a month, where skills are reviewed and practiced, and techniques are refreshed. These sessions are conducted both in a classroom setting and in the pool. Classroom instruction includes videos of rescue procedures and paper-and-pencil tests of knowledge of first aid procedures and techniques. Periodic onthe-job training includes rescue drills, where lifeguards simulate an emergency situation and review all procedures and skills as if it were an actual emergency. Lifeguards also receive training in swimming instruction. Many lifeguards teach swimming lessons as part of their job requirement, and this training helps them to develop the techniques needed to teach a variety of skills to a variety of age groups and ability levels. This classroom and drill exercise training is appropriate because pool lifeguards do not constantly utilize skills such as CPR and rescue techniques. Although accidents do not occur very frequently, it is a matter of life and death when they do, and patrons and management need to be sure that the staff will be able to carry out their duties when it is necessary. Also, swimming instruction is a job that requires patience and understanding, and the instructors need to be trained to teach effectively.

Chapter 13 Effective Communication 3. How is performance of this job appraised? Does performance feedback contribute to motivation and high performance on this job? Performance appraisal is the accurate evaluation of employees' job performance and contributions to their organization. Performance feedback is the process through which managers share performance appraisal information with their subordinates, give subordinates an opportunity to reflect on their own performance, and develop, with subordinates, plans for the future. Their supervisors appraise the lifeguards‘ performance once a month. Supervisors rate each lifeguard on teaching skills, customer service and attitude, timeliness, and neatness and appropriateness of appearance. These are subjective appraisals that are based on the supervisors‘ perceptions of traits, behaviors, and results. Supervisors also monitor the number of training sessions that lifeguards attend, and the physical conditioning that each lifeguard completes during the month. This is a more objective appraisal because it is based on number of sessions attended, and not on perceptions of supervisors. Lifeguards are also observed during swimming instruction by both supervisors and parents of the students in the lessons. Evaluations are given at the end of each course, which includes feedback from both supervisors and parents. These behavior appraisals do not rely on self-reports, rather, they let supervisors assess how the staff performs their jobs—the actual actions and behaviors that are exhibited on the job. This is a more comprehensive appraisal because it involves customers as well as superiors. This feedback is helpful for the lifeguards because they can develop the skills that supervisors have targeted for improvement, as well as set goals for performance improvement. The feedback is helpful for supervisors because they can assess the training needs of their staff and plan on-the-job and classroom instruction around these needs. Ultimately, the patrons of the facility benefit from a well-trained and motivated staff.

4. What levels of pay and benefits are provided for this job? Are these levels of pay and benefits appropriate? Why or why not? Lifeguards receive hourly pay, with additional pay given to those lifeguards who teach swimming lessons or coach youth swim leagues. Lifeguards are given raises at the end of each season if they receive exceptional ratings on their performance appraisal evaluations. Pay level is comparable to pay for lifeguards at other indoor facilities, though lower than that of beachfront lifeguards. Lifeguards do not receive benefits, such as health insurance, social security, or unemployment insurance. Most lifeguards work seasonally and have other jobs or attend school in addition to their lifeguard positions. This level of pay is appropriate because lifeguards who work at indoor facilities typically do not have as much responsibility as beachfront lifeguards. Also, lifeguards do not perform administrative duties, which would necessitate a higher pay range. Finally, since most lifeguards are part-time or seasonal employees, they do not need benefits that would be more important to someone who is completely dependent on the job for their entire income.

Chapter 13 Effective Communication AACSB: Analytic

Chapter 13 Effective Communication

MANAGING ETHICALLY 1. Either individually or in a group, think about the ethical implications of managers becoming friendly with subordinates. The concerns mentioned in connection with this question raise the same issues highlighted by the Justice Model of ethical decision making in Chapter 3. Can a manager ensure that he or she will fairly distribute outcomes or rewards among all employees, if friendlier with some than others? Managers must not give people they like larger raises than they give to people they do not like or bend the rules to help their favorites.

2. Do you think that managers should feel free to socialize and become good friends with their subordinates outside of the workplace if they desire? Why or why not? Some managers may feel that they are capable of forming close social relationships with subordinates without allowing such friendships to impact their fairness or objectivity toward all. However, psychologists tell us otherwise. Cognitive biases often operate at a subconscious level, causing otherwise capable managers to sometimes make very bad decisions. Also, as a leader setting an example for subordinates, managers should avoid creating any situation that may give the appearance of unfairness or impropriety.

AACSB: Ethics

Chapter 13 Effective Communication

BE THE MANAGER Apparently, you tried to develop this system in a vacuum. You need to solicit input from the other managers regarding the behaviors to be rated by the 20-item scale. Now that you have some feedback, you might want to do the following:

 Send an e-mail to all employees and managers in the organization apologizing for any confusion and ill will that might have been created by your actions. You can explain that you were only trying to improve the system for everyone but apparently did not communicate that very well.  Next, you could ask the managers how to improve the 20-item scale. You do not need to back down from using the 360-degree or the new performance system. However, you need to educate the managers about how it could work better using their own ideas, asking for their input now and in the future and training them in how to use the instruments fairly.  Having gathered the information, you can now revise the form‘s instructions, make appropriate changes, and send out a prototype of the new forms for comments by all managers.  Once changes are incorporated, you should conduct training sessions on using the new forms. Training sessions should include the guidelines for giving effective performance feedback.

AACSB: Analytic

Chapter 13 Effective Communication

CASE IN THE NEWS Case Synopsis: How Strategic HR Keeps Southwest Airlines Flying

Despite turbulence in its business environment, which included a global pandemic over the past several years, Southwest Airlines has a well-qualified, highly engaged workforce to help keep the company aloft. Linda Rutherford, executive vice president and chief people officer of the Dallas-based company, leads efforts to provide this workforce. She promotes the culture espoused by late Southwest founder Herb Kelleher: happy employees making customers happy, which makes shareholders happy. The HR strategy is to select, develop, and reward people who put that vision into practice, despite challenges like worsening storms and delays in the delivery of new jets. Rutherford‘s team builds its engaged workforce by hiring based on people‘s commitment to ensuring that customers have a great experience. Besides technical skills, Southwest looks for people who want to be part of Southwest‘s fun- and people-oriented culture and then prepares them to move up in the organization as they gain experience. Because these people love being part of Southwest, turnover has been low. To address a persistent pilot shortage, Southwest has responded with Destination 2250, a program that creates four pathways to a pilot‘s license while teaching Southwest‘s values. The cadet pathway is for interested candidates without previous flying experience, the university pathway partners with several universities to prepare students studying for a bachelor‘s degree, the military pathway gives military helicopter pilots experience with fixed-wing aircraft, and the employee pathway connects existing employees with pilot training that is appropriate for their background. Those who complete the training are eligible to apply to fly for Southwest. For pilots and flight attendants, Southwest training programs are critical and require sophisticated facilities. Southwest recently built a pilot training center in Dallas with 18 flight simulators, as well as a training center for flight attendants. Every year, thousands of employees visit Dallas for training. Many of Southwest‘s employees are union members, so those workers‘ pay is based on the terms of their contract. Pilots, for example, are paid per trip and based on number of years with the company, plus an additional amount based on their time away from their home base. A highly motivating employee benefit is the profit-sharing plan that allocates about 15% of profits before taxes to employees, divided according to the relative size of their pay. In 2019, when the grounding of Boeing‘s 737 MAX caused the company to cut flights, profits shrank through no fault of Southwest‘s people. However, Southwest negotiated with Boeing to pay damages for lost profits, and allocated $125 million to profit sharing, bringing the total up to $667 million, higher than the year before. Each employee‘s profit sharing was equivalent to more 13-402 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 Effective Communication than six weeks‘ pay. As Southwest grappled with the impact of COVID-19 on its overall business, close to 28% of its workforce signed up for partially paid extended leave or outright buyouts, which helped reduce the airline‘s labor expense. The company was grateful to employees who opted to take leave or company buyouts, and management also realized that keeping passengers safe and employees satisfied will help the airline rebound as the virus becomes manageable and people get back to traveling. June 2021 was the first month since March 2020 that the company made a net profit without funding from the federal government. Questions

1. What conditions present challenges to Southwest Airlines as it tries to fill its need for people who give customers a happy flying experience? What conditions help meet these challenges? There is a national pilot shortage in the United States and many existing pilots are reaching the mandatory retirement age of 65. To address this shortage the company has partnered with entities to train pilots to fill those jobs. Southwest also wants friendly, loyal employees, so they look for those qualities in addition to other job requirements.

2. Southwest used some of the settlement money from Boeing to increase employees‘ profit sharing above the previous year‘s amount, even though company profits were down. Do you agree that this was a smart HR decision? Why or why not? This was a smart decision because the drop in profit was outside employees‘ control and should not have reduced their bonuses.

3. Besides the examples described in the case, what other HR efforts could enable or encourage Southwest employees to live out the vision of making customers happy? Employee benefits are mentioned in the case, but pay structures that are fair and meet or exceed competitors are an effective employee reward. Programs that specifically reward high levels of customer service encourage employees to make customers happy. Surveying customers and rewarding employees based on those results can also provide a positive climate. AACSB: Analytic

Chapter 13 Effective Communication

IN-CLASS ACTIVITY What’s My Raise?

This mini case can be used to engage the class in setting performance criteria and making salary recommendations. The information on each employee is intentionally minimal and contains personal information intended to tempt students to consider non-compensable factors in their pay decisions.

The exercise works well with small groups. Distribute copies of the case and have groups decide on criteria for raises, determine the total raise pool (some will make the assumption the pool is $4,000), and then recommend raises for each employee. Using the board, document camera or projector; enter the recommended raises from each group along with a note of criteria.

After boarding all recommendations, lead a discussion about the differences in allocations, any issues with criteria (use of non-compensable factors such as personal situation or need) and their reaction to conditions of pay transparency versus non-transparency.

------------What’s My Raise?

Gina Hernandez was promoted to supervisor just three months ago for the bookkeeping department for a large Midwestern property management company. Gina has been told by human resources that her annual performance reviews must be completed for all her employees in the next week. She doesn‘t feel comfortable in making salary recommendations since she has been in her job only a short time. Sadly, the previous supervisor she replaced has left the company and is unavailable for consultation. To make matters worse, that supervisor kept incomplete records regarding employee performance. HR has told Gina that she has quite a bit of flexibility as there are no hard and fast rules about what raises can be awarded to each individual employee. Gina‘s boss told her that her team‘s share of total amount of money available for raises would be 4 percent of the group‘s total payroll for the past year. In other words, if the sum total of the salaries for all of Gina‘s employees was $100,000 Gina would have $4,000 to allocate for raises. Gina is free to distribute the raises just about any way she wants, within reason. After doing quite a bit of digging in her predecessor‘s files, Gina has found the following information on each of her employees. She has also made notes on her observations during her short time as supervisor.

Chapter 13 Effective Communication Keisha Battle. As far as Gina can tell, Keisha is one of her best employees. Her previous performance appraisals also indicate she is a superior performer. In addition, Gina knows Keisha badly needs a substantial salary increase due to some personal problems. In addition, all of Gina‘s employees are aware of Keisha‘s problems. She appears to be well respected by her coworkers. Present salary: $35,000. Barbara Carrera. Barbara has been on the job for three years. Her previous performance appraisals have indicated superior performance. However, Gina does not believe the previous evaluations are accurate. She thinks Barbara‘s performance is average at best. Barbara appears to be well liked by all of her coworkers. Just last year she became widowed and is presently the sole supporter of her five-year-old child. Present salary: $38,000. Rathin Patel. Rathin has been with Gina‘s department for only four months. In fact, he was hired just before Gina was promoted into the supervisor‘s job. Rathin is single and seems to be a carefree bachelor. His job performance so far has been above average, but Gina has received some negative comments about Rathin from his coworkers. Present salary: $36,000. Edgar Whitcome. Edgar has been performing his present job for eight years. The job is more technical than that of other members of the work group, and Edgar would be difficult to replace. However, as far as Gina can discern, Edgar is not a good employee. He is irritable and hard to work with. In spite of this, Edgar has received above-average pay increases for the past two years. Present salary: $40,000. Iris White. Iris has been on the job for four years. Her previous performance appraisals were all average. In addition, she has received below-average increases for the past two years. However, Iris recently approached Gina and told him she feels she was discriminated against in the past due to both her age and her sex. Gina believes Iris‘s work so far has been satisfactory but not superior. Most employees do not seem to sympathize with Iris‘s accusations of sex and age discrimination. Present salary: $34,000. QUESTIONS

How much is the total pool of raises available to Gina?

What criteria should Gina use in determining the size of the raises?

If you were Gina, what size raise would you give each of these employees?

How would the employees feel about the raises you allocated if they discovered the amount everyone received?

If you knew the raise figures would be shared with all employees, would that change your recommendations? Why or why not? If yes, how? 13-405

Chapter 13 Effective Communication

CONNECT For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect

Case Analysis   

What Levels of Pay and Benefits Should You Offer? Developing a Promising Manager Labor Relations and Unions

Video Case 

Human Resource Management at Allstate

Manager’s Hot Seat 

Performance Management

Worksheets  

Choosing the Appropriate Selection Tool (Click and Drag and Matching) Ignorance of the Law Is No Excuse (Click and Drag)

Application-Based Activities   

Knowledge About Unions (Self-Assessment) Performance Appraisal Characteristics Questionnaire (Self-Assessment) Materializing Motivation through Strategic HR

Chapter 13 Effective Communication

POWERPOINT SLIDES These PowerPoint slides can be used to supplement the lecture material. SLIDE 1 Chapter Title SLIDE 2 Learning Objectives SLIDE 3 Learning Objectives SLIDE 4 Strategic Human Resource Management SLIDE 5 Strategic Human Resource Management SLIDE 6 Topic for Discussion: Strategies and Goals SLIDE 7 Figure 12.1: Components of a Human Resource Management System SLIDE 8 The Legal Environment of HRM: EEO SLIDE 9 The Legal Environment of HRM: Contemporary Challenges SLIDE 10 Table 12.1: Major EEO Laws SLIDE 11 Recruitment and Selection SLIDE 12 Figure 12.2: The Recruitment and Selection System SLIDE 13 Human Resource Planning SLIDE 14 Human Resource Planning: Outsource SLIDE 15 Job Analysis SLIDE 16 Job Analysis: Job Analysis Methods SLIDE 17 Recruitment: External Recruiting SLIDE 18 Recruitment: Internal Recruiting SLIDE 19 Recruitment: Lateral Move SLIDE 20 Figure 12.3: Selection Tools SLIDE 21 The Selection Process SLIDE 22 Reliability and Validity SLIDE 23 Training and Development SLIDE 24 Topic for Discussion: Training and Development SLIDE 25 Training and Development: Needs Assessment SLIDE 26 Types of Training SLIDE 27 Types of Development SLIDE 28 Topic for Discussion: Development Activities SLIDE 29 Figure 12.4: Training and Development SLIDE 30 Performance Appraisal and Feedback SLIDE 31 Figure 12.5: Who Appraises Performance? SLIDE 32 Who Appraises Performance?

Chapter 13 Effective Communication SLIDE 33 Topic for Discussion: 360-Degree Performance and Feedback SLIDE 34 Effective Performance Feedback SLIDE 35 Effective Feedback Tips SLIDE 36 Effective Feedback Tips SLIDE 37 Pay and Benefits SLIDE 38 Pay and Benefits: Pay Level SLIDE 39 Topics for Discussion: Pay Levels SLIDE 40 Pay and Benefits: Pay Structure SLIDE 41 Pay and Benefits: Benefits SLIDE 42 Labor Relations SLIDE 43 Unions SLIDE 44 Unions: Collective Bargaining SLIDE 45 Be the Manager

Chapter 13 Effective Communication CHAPTER CONTENTS

Learning Objectives

13-2

Key Definitions/Terms

13-3

Chapter Overview

13-4

Lecture Outline

13-5

Lecture Enhancers

13-14

Management in Action

13-17

Building Management Skills

13-20

Managing Ethically

13-21

Be the Manager

13-22

Case in the News

13-23 13-409

Chapter 13 Effective Communication

In-Class Activity

13-25

Connect Features

13-26

PowerPoint Slides

13-22

Chapter 13 Effective Communication LEARNING OBJECTIVES

LO 13-1. Explain why effective communication helps an organization gain a competitive advantage.

LO 13-2. Describe the communication process.

LO 13-3. Explain the information richness of communication media available to managers.

LO 13-4. Describe the communication networks that exist in organizations.

LO 13-5. Describe important communication skills that managers need as senders and receivers of messages.

Chapter 13 Effective Communication KEY DEFINITIONS/TERMS

artificial intelligence Behavior performed by a machine that, if performed by a human being, would be called ―intelligent.‖

extent to which the medium enables the sender and receiver to reach a common understanding. management by wandering around A face-toface communication technique in which a manager walks around a work area and talks informally with employees about issues and concerns.

blog A website on which an individual, group, or organization posts information, commentary, and opinions and to which readers can often respond with their own commentary and opinions. communication The sharing of information between two or more individuals or groups to reach a common understanding. data Raw, unsummarized, and unanalyzed facts. decoding Interpreting and trying to make sense of a message.

medium The pathway through which an encoded message is transmitted to a receiver. message The information that a sender wants to share. noise Anything that hampers any stage of the communication process.

encoding Translating a message into understandable symbols or language.

nonverbal communication The encoding of messages by means of facial expressions, body language, and styles of dress.

information Data that are organized in a meaningful fashion.

receiver The person or group for which a message is intended.

information distortion Changes in the meaning that occur as information passes through a series of senders and receivers.

sender The person or group wishing to share information.

information overload A superabundance of information that increases the likelihood that important information is ignored or overlooked and tangential information receives attention.

social networking site A website that enables people to communicate with others with whom they have some common interest or connection. verbal communication The encoding of messages into words, either written or spoken.

information richness The amount of information that a communication medium can carry and the

Chapter 13 Effective Communication CHAPTER OVERVIEW This chapter describes the nature of communication and the communication process and explains why all managers and their employees need to be effective communicators. It points out the communication media available to managers and the factors they need to consider in selecting a communication medium for each message they send. It then considers the communication networks organizational members rely on. Finally, it describes the communication skills that help managers be effective senders and receivers of messages.

Chapter 13 Effective Communication LECTURE OUTLINE NOTE ABOUT POWERPOINT SLIDES The PowerPoint slides include most chapter content, along with additional material that can be used to expand the lecture. A list of the PowerPoint slides can be found at the end of this chapter.

Management Snapshot Insights on Communicating in the Digital Age How Can Managers Communicate Effectively as Digital Tools Proliferate? As technology adds to the options for sending and receiving messages, human beings still inhabit the bodies that evolved to gather information through in-person interactions. Whether we silently watch others or engage in conversation, we observe facial expressions, tone of voice, and gestures for signs of others‘ attitudes and intentions. Nowadays, however, business communications often travel through digital channels that omit these sources of information, resulting in misunderstandings, anxiety, and wasted time. Erica Dhawan has made it her life‘s work to study technology‘s impact on workplace communication and to teach others what she learns. She developed this interest as a child of immigrants, navigating life between a home where the family spoke Hindi and a school where the children and teachers spoke English. As she struggled to master both languages, she observed others‘ body language—gestures, postures, and so on. Later, at MIT and Harvard, she made this topic the object of her research and began applying what she learned by consulting with organizations. In her consulting work, Dhawan observed that many communication challenges involve the use of online tools such as texting, instant messaging, and online meeting apps that combine video, audio, and messaging. Dhawan concluded that our online behaviors send messages that take the place of body language in face-to-face interactions. She calls these behaviors ―digital body language‖ and developed four principles for using it effectively. The first principle is to ―value others visibly,‖ because employees who don‘t see nods and smiles of approval will look for other cues. Second is to use care in communicating. Managers demonstrate care when they read employees‘ messages carefully, not jumping to conclusions, and construct requests and questions clearly. Dhawan recommends thoughtful use of emojis to clarify emotional content. Third, managers and employees should collaborate well. Finally, communicators need to foster and show trust. Being open and honest with information builds trust, as does keeping promises, such as scheduling a meeting at a specific time. Managers can enable better digital body language by establishing norms for online communication. If a department has a norm to respond to phone calls the same day and to texts within an hour, people understand what to prioritize and when to be patient. Dhawan sees a major payoff from setting norms and expectations: online channels can include employees from wide geographic areas and remove the significance of cultural differences in body language, so creative, inclusive thinking can flourish.

Chapter 13 Effective Communication

I. Communication and Management LO 13-1: Explain why effective communication helps an organization gain a competitive advantage. Communication is the sharing of information between two or more people or groups to reach a common understanding. First, communication, no matter how electronically based, is a human endeavor and involves individuals and groups sharing information and coordinating their actions. Second, communication does not take place unless a common understanding is reached.

A. The Importance of Good Communication 1.Because good communication is essential for obtaining efficiency, quality, responsiveness to customers, and innovation, it is a necessity for gaining a competitive advantage. 2.Good communication is necessary so that managers can increase efficiency by learning to take advantage of new and more efficient technologies and by training workers to operate the new technologies. 3.Improving quality hinges on effective communication, because managers need to communicate to employees the importance of high quality and the ways of attaining it. a. Subordinates also need to communicate quality problems and suggestions for improving quality to their superiors. b.Likewise, self-managed teams must share their ideas for improving quality with fellow team members. 4. Good communication can help increase responsiveness to customers.

II. The Communication Process LO 13-2: Explain why effective communication helps an organization gain a competitive advantage, and describe the communication process. Communication is the sharing of information between two or more individuals or groups to reach a common understanding.

1.Communication, including that which is electronically based, is a human endeavor and involves individuals and groups sharing information and coordinating their actions. 2.Communication does not take place unless a common understanding is reached. B. The Communication Process 1.The communication process consists of two phases. 13-415 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 Effective Communication a. In the transmission phase, information is shared between two or more individuals or groups. b.In the feedback phase, a common understanding is reached. 2.To start the transmission state, the sender, the person or group wishing to share information with some other person, decides on the message, what information to communicate. 3.The sender translates the message into symbols or language, a process called encoding. 4.Noise refers to anything that hampers any stage of the communication process. 5.Once encoded, a message is transmitted through a medium to the receiver, the person or group for which the message is intended. 6.A medium is the pathway through which a message is transmitted to a receiver. 7.At the next stage, the receiver interprets and tries to make sense of the message, a process called decoding. 8.The feedback phase is begun when the receiver decides what message to send to the original sender, encodes it, and transmits it. 9.The original sender decodes the message and makes sure that a common understanding has been reached. a. If a common understanding has not been reached, the sender and receiver repeat this process as times as needed to reach a common understanding. 10. The encoding of messages into words, written or spoken, is verbal communication. 11. Nonverbal communication shares information by means of facial expressions, body language, and even style of dress. a. Nonverbal communication can be used to reinforce verbal communication. b.People tend to have less control over nonverbal communication and can inadvertently send a message they did not intend to. c. Sometimes nonverbal communication is used to send messages that cannot be sent through verbal channels.

Chapter 13 Effective Communication C. The Dangers of Ineffective Communication 1.Because managers must communicate with others to perform their various roles and tasks, they devote a lot of time to this activity. 2.Managers also must help their subordinates become effective communicators. a. When all members of an organization are able to communicate effectively, the organization is more likely to perform highly. 3. When managers are ineffective communicators, organizational performance suffers, and any competitive advantage is likely to be lost. TEXT REFERENCE

Ethics in Action Questions Can Lead to Honest, Open Communication Managers might assume that their most valuable communications deliver information and instructions. Research, however, supports the value of asking questions, listening to answers, and probing for details. Question-oriented communication builds trust and rapport, so it motivates employees, strengthens teamwork, and stimulates creativity. Thoughtful use of questioning also is associated with greater effectiveness in personal selling. A practice of asking questions and listening respectfully builds one‘s character because it demonstrates concern for others. Ken Sterling, executive vice president of BigSpeak, embraces questions as part of his policy of ―radical candor,‖ which involves caring about employees personally and challenging them directly. For the first objective, Sterling‘s meeting agendas include time for questions about employees‘ personal goals and concerns. The second objective, to challenge directly, involves offering honest feedback about what is and is not working. Here, too, Sterling asks questions in regular meetings. Specifically, he has teams identify areas of success, problems, and ideas for improvement. Making these questions routine teaches team members that questions are about problem solving, not criticism. This frees them to be honest.

III. Information Richness and Communication Media LO 13-3: Explain the information richness of communication media available to managers. A. To be effective communicators, managers need to select an appropriate communication medium for each message they send. 1.There is no one best communication medium for managers to rely upon. 2.When choosing a communication medium, managers should consider three factors. a. The most important consideration is the level of information richness that is needed. Information richness is the amount of information a communication 13-417 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 Effective Communication medium can carry and the extent to which the medium enables the sender and receiver to reach a common understanding. Media high in information richness are able to carry a lot of information. b.The second factor is the amount of time needed for communication. c. The third factor is the need for a paper or electronic trail to serve as evidence that a document was sent or received. B. Face-to-Face Communication 1.Face-to-face communication is the medium that is highest in information richness. 2.When managers communicate face-to-face, they take advantage of verbal communication, interpret each other‘s nonverbal signals, and receive instant feedback. 3.Management by wandering around is a face-to-face communication technique that many managers find effective at all levels in an organization. a. Managers walk around work areas and talk informally with employees about the issues and concerns of each. b.These informal conversations provide managers with important information and foster the development of positive relationships. 4.Face-to-face communication should not always be the medium of choice for managers because of the large amount of time it consumes and the lack of a paper or electronic trail. a. For messages that are important, personal, or likely to be misunderstood, managers should use face-to-face communication and supplement it with some form of written communication. 5.Many organizations are using videoconferences to allow for face-to-face communication while also saving time and money. a. Videoconferencing allows managers in two or more locations to communicate with each other over video screens. C. Spoken Communication Electronically Transmitted 1.After face-to-face communication, spoken communication electronically transmitted over phone lines is second highest in information richness.

Chapter 13 Effective Communication 2.Although telephone communication does not allow access to body language and facial expressions, managers are able to pay attention to the tone of voice, the parts of the message that the sender emphasizes, and the actual words spoken. 3.Managers also can get quick feedback over the telephone and answer questions, thereby ensuring that a mutual understanding is reached. 4.Voice mail systems also allow managers to send and receive verbal electronic messages. a. Such systems are a necessity when managers are away from their desks or out of the office.

Chapter 13 Effective Communication TEXT REFERENCE

Manager as a Person A Tough Lesson in Communication Vishal Garg, founder and CEO of Better, which provides homebuying services including mortgage lending, shocked employees by announcing in a Zoom meeting that he was laying them off. Millions more people watched a replay of this episode after someone posted a recording of the meeting on social media. In the recording, Garg said, ―This is the second time in my career that I‘m doing this, and I do not, do not, want to do this. The last time I did it, I cried.‖ He announced that the employees were ―part of the unlucky group that is being laid off. Your employment here is terminated effective immediately.‖ Some of the 900 employees laid off (9% of Better‘s workforce) missed the meeting; one posted on LinkedIn that she discovered something was happening when her computer shut down while she was communicating with a client. The next day, Better‘s website posted a letter from Garg in which he apologized for how he had communicated the layoffs. He said, ―I own the decision‖ but ―blundered the execution.‖ A week later, the company‘s board of directors announced Garg would be taking time off and an outside firm would analyze Better‘s culture and leadership. One month later, the board announced in an email to employees that Garg would be returning to his position after reflecting on his leadership and working with a coach. Separately, Garg wrote a letter in which he apologized again and promised to be more conscious of the impact of his words. The company also planned to hire a chief human resource officer and provide training in building a respectful workplace. These efforts were tested two months later: Better announced another round of layoffs in response to a slowing of the real estate market. This time, a letter to employees announced the company would lay off 35% of its workforce, saying those terminated employees would be contacted personally. The announcement described plans to provide severance pay and medical insurance. In a possible sign of the CEO‘s new leadership style, the head of HR announced that Garg would ―personally cover‖ health insurance costs of expecting parents who were let go and couldn‘t find employment or health insurance.

D. Personally Addressed Written Communication 1.Although lower in information richness, personally addressed written communication such as memos or letters has the advantage of demanding attention, as does face-to-face communication and verbal communication electronically submitted. 2.Because personally addressed written communication is addressed to a specific person, there is a good chance that the person will open and read it. Also, the sender can write the message in a way that the receiver is most likely to understand. 3.Like voice mail, written communication does not enable a receiver to have their questions answered immediately. 13-420 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 Effective Communication 4.Even if managers use face-to-face communication, a follow-up in writing is often needed. 5.Email also fits into this category because senders and receivers are communicating through personally addressed written words. 6.Email has enabled many workers and managers to become telecommuters. a. Telecommuters are people who are employed by organizations and work out of offices in their own homes. Many telecommuters say the flexibility of telecommuting enables them to be more productive while giving them a chance to be closer to their families. 7.The widespread use of email has been accompanied by its growing abuse. a. To avoid email abuse, managers need to develop a clear policy specifying what company e-mail should be used for and what is out of bounds. b.Managers also should clearly communicate this policy to all members of an organization. c. Employees should also be informed of procedures that will be used when email abuse is suspected and the consequences that will result when e-mail abuse is confirmed. E. Impersonal Written Communication 1.Impersonal written communication is lowest in information richness and is suited for messages that need to reach a large number of receivers. 2.Feedback is unlikely, so managers must make sure that messages are written clearly in language that all receivers will understand. 3.Managers often find company newsletters to be useful vehicles for reaching large number of employees. 4.Managers can use impersonal written communication to send various types of messages, including rules, regulations, and policies, newsworthy information, the arrival of new organizational members, and announcements of changes of procedure. 5.The paper trail left by this communication medium can be invaluable. Also, impersonal written communication can be delivered and retrieved electronically. 6.Unfortunately, the ease with which electronic messages can be spread has led to their proliferation, and electronic mailboxes of organizational members are often backlogged.

Chapter 13 Effective Communication 7.The problem with such information overload is the possibility that important information will be overlooked and productivity will be lost due to time wasted on tangential information. 8.Some manager use blogs to communicate with employees, customers, investors, and the general public. A blog is a website in which an individual, group, or organization posts information, commentary, or opinions and to which readers typically can respond with their own commentary and opinions. 9.A social networking site is a website that enables people to communicate with others with whom they have some common interest or connection. Although it can be used for business purposes, some managers are concerned that employees will waste time using these sites for personal purposes.

IV. Communication Networks LO 13-4:

Describe the communication networks that exist in organizations.

Computer-based information technology can greatly facilitate and improve the communication process.

A. Internal Communication Networks 1. Formal: communication that occurs through the reporting relationships and pathways in an organization. 2. Informal: more common form of communication that flows around issues, ideas and projects. 3. Vertical: communication that occurs up and down the hierarchy. 4. Horizontal: communication among employees at the same level in the organization. 5. Grapevine: informal communication network along which information flows. B. External Communication Networks Managers, employees, and those with work-related ties outside their organization often are part of external networks that span multiple organizations and companies. 1. External networks can be helpful when an employee wants to change jobs, locate suppliers or recruit talent.

V. Communication Skills for Managers LO 13-5: Describe important communication skills that managers need as senders and receivers of messages. To effectively communicate with others, managers must have certain communication skills. Some skills are important when sending messages; others are critical when receiving messages. These skills help ensure that managers can share information, possess the information they need to make effective decisions and take appropriate action, and have the ability to reach a common understanding with others.

Chapter 13 Effective Communication A. Communication Skills for Managers as Senders 1. Send clear and complete messages 2. Encode messages in symbols the receiver understands 3. Select an appropriate medium for the message 4. Use a medium the receiver monitors 5. Avoid filtering and information distortion 6. Include a feedback mechanism in messages 7. Provide accurate information to ensure that misleading rumors are not spread.

Chapter 13 Effective Communication B. Communication Skills for Managers as Receivers 1. Pay attention 2. Be a good listener 3. Be empathetic TEXT REFERENCE

Management Insight Make That First Impression Count Many business and daily life situations involve introducing yourself to others. Some examples are job interviews, first meetings with customers or clients, and presentations to a group including strangers. In these contexts, a first impression carries a great deal of weight. What the other person first observes in the first few seconds will shape how the person interprets the communicator and their message. Managers cannot control every aspect of a first impression. They cannot overcome prejudices by changing their sex, race, or age and they cannot change their facial features, but there are effective ways to communicate a message of being trustworthy and agreeable. Facial expressions matter. A relaxed and smiling face is appealing. Posture and gestures make a difference as well. People tend to respond well to erect but not stiff posture, with hands visible and arms uncrossed. Taking a minute to slow one‘s breathing, stand firmly, and think confident thoughts can help. First impressions include verbal communication, too. One way to make a positive and lasting impression is to greet people with questions that demonstrate a genuine interest. For example, if appropriate for the situation, a person might ask, ―What has been the highlight of your day so far?‖ or ―Has anything exciting been happening in your life?‖ And then, of course, the questioner should listen carefully to the answer.

Chapter 14 Operations Management: Managing Operations and Processes LECTURE ENHANCERS

Lecturer Enhancer 13.1 BODY LANGUAGE

Your inner feelings and personality are often revealed by the way you move your body, experts are determining. Confidence or insecurity is telegraphed very well by nonverbal behavior. Take the simple handshake. If a person‘s hand is cold and clammy, there‘s a good chance he or she is very tense and nervous. A confident person moves about with a certain steadiness, while quick movements characterize an insecure or nervous person. People who stand erect are probably more confident and more comfortable than people who slouch or shift their body weight from one foot to the other. Even the position of a person‘s eyebrows when he or she speaks or looks at another can reveal something about that person‘s mood or feelings. If you say a perfectly innocuous sentence to someone but you say it without any sign of a smile on your face and with your brows lowered, you will convey a hostile impression. Stares accompanied by lowered brows show anger, aggression, or assertiveness, while raised brows show fear, surprise, questioning, or retreat. Body language is also important in the business world. When a respected executive talks to a subordinate, the lower-ranking person will listen intently with his eyes riveted on the executive‘s face. To look around would be a sign of disrespect. On the other hand, when the subordinate is speaking, it is considered perfectly appropriate if the boss looks about or glances at their watch. The high-status person might also take the liberty of patting the low-status person on the back or shoulder, something the subordinate would never do. The high-status person always takes the lead. If he or she is standing, the other person will stand. If he sits, then perhaps the other will feel free to sit. And, of course, the high-status person directs the topics of conversation and how long the talk will last. It‘s the same with office visits. The higher-ranking person can exert their status by simply dropping into a subordinate‘s office without notice. The subordinate, of course, calls for an appointment.

Lecture Enhancer 13.2 EMAIL ETIQUETTE

Many of us are awash in e-mail. There‘s no question that email helps us to be more efficient but misuse can hurt. Some compare email to the Interstate highway system: it works well because motorists observe common rules and courtesies, such as staying out of the left lane when not passing, that allow for faster, more efficient travel. Those common rules and courtesies for email are evolving slowly.

Chapter 14 Operations Management: Managing Operations and Processes Bill Howard, columnist for PC Magazine, knows the frustration first hand. By his own estimate, he gets 50 to 100 messages a day. Howard recently outlined a proposal for e-mail etiquette. Good e-mail starts with a useful subject line and a short message. The subject line should make sense to both the sender and the recipient. For instance, a subject line ―Meeting‖ may make perfect sense to the sender, but the recipient may go to half a dozen meetings a day—which meeting does it refer to? Short messages are best, especially when it is very important. Keep them so the message and header fit on one screen. Keep the typesetting clean. The Internet dutifully reduced most e-mail to a single font, but inhouse electronic mail systems allow senders to use multiple fonts, colors, and clip art. How can you claim to have a lean organization when the annual notice-of-carpet-shampooing memo includes purple headlines and a clip art of a guy in a blue, zip-up service jacket? Bill Howard suggests a special place in e-mail purgatory for people who send messages longer then ―OKAY‖ in all caps. It is the Internet equivalent of shouting. Finally, unless the matter is really urgent, don‘t respond too quickly. People who respond to every message within five or ten minutes probably are paying more attention to their e-mail than to their job. A hasty reply can also be dangerous because you may be too passionate, forceful, or hostile. Let the draft response cool off for an hour or so before sending it.

Chapter 14 Operations Management: Managing Operations and Processes

Lecture Enhancer 13.3 LEARNING CORPORATE LANGUAGE

Despite the best efforts of English professors, business communication consultants, and other horrified bystanders, obfuscation in business lingo appears to be a growing and troublesome phenomenon. This may mean big trouble for inexperienced or naive employees who take business talk at face value. Those relatively new to management sometimes fail to comprehend the overstatement, understatement, and evasion that characterize much business talk. ―You won‘t succeed if you don‘t pick up the language,‖ says Felice Schwartz, president of Catalyst, a New York resource center for career women. Subordinates, the counselors say, should pay especially close attention to management ―suggestions.‖ When the boss says, ―Please finish that job when you have a chance,‖ more often than not he or she really means, ―Do the job now, or else.‖ Analysts of business language say executives often disguise orders as suggestions to avoid seeming tyrannical. An assistant office manager at an auto-parts manufacturer discovered the perils of understatement. She was told by her boss of ―an impromptu meeting at 4 o‘clock—but it‘s nothing to worry about.‖ She passed up the meeting to learn afterward that it dealt with the reorganization of her department and the cutting back of her staff and responsibilities. One consultant says a good rule to follow is that when the boss says, ―Don‘t worry,‖ then do worry. ―Management deals with change with studied casualness,‖ she says. ―The bigger things are, the more people try to speak of them casually.‖ Recruits are often misled from the beginning by such observations as, ―We don‘t punch the clock around here.‖ That‘s probably true. Who needs a time clock when employees always come in early and work late? When employees are told of ―challenges‖ or ―opportunities,‖ should they expect high adventure and the heights of achievement? No, the counselors say. They should expect a lot of headaches and no spare Excedrin.

Chapter 14 Operations Management: Managing Operations and Processes MANAGEMENT IN ACTION Notes for Topics for Discussion and Action DISCUSSION

1. Why is face-to-face communication between managers still important in an organization? Face-to-face communication is the medium that is highest in information richness. When managers communicate face-to-face, they not only can take advantage of verbal communication but they also can interpret each other‘s nonverbal signals, such as facial expressions and body language. Managers can respond to these nonverbal signals on the spot. Face-to-face communication also enables managers to receive instant feedback. Points of confusion, ambiguity, or misunderstanding can be resolved, and managers can cycle through the communication process as many times as they need in order to reach a common understanding. State-of-the art information systems can improve the competitiveness of an organization. Indeed, the search for competitive advantage is driving much of the rapid development and adoption of IT systems. By improving the decision-making capability of managers, management information systems should help an organization enhance its competitive position.

2. What is the relationship between information systems and competitive advantage? To achieve high performance, managers in various functions and divisions must have access to information concerning the activities in other functions and divisions. The greater the flow of information and knowledge between functions and divisions, the more learning that can take place. Such knowledge and expertise is often the source of competitive advantage and profitability. State-of-the art information systems can improve the competitiveness of an organization. Indeed, the search for competitive advantage is driving much of the rapid development and adoption of IT systems. By improving the decision-making capability of managers, management information systems should help an organization enhance its competitive position.

3. Which medium (or media) do you think would be appropriate for each of the following kinds of messages a subordinate could receive from their boss: (a) a raise, (b) not receiving a promotion, (c) an error in a report prepared by a subordinate, (d) additional job responsibilities, and (e) the schedule for company holidays for the upcoming year? Explain your choices. (a) A raise should be communicated face-to-face and then followed up in writing (b) Not receiving a promotion should be communicated face-to-face

Chapter 14 Operations Management: Managing Operations and Processes (c) An error in a report should be communicated face-to-face because nonverbal cues are important in this case. (d) Additional job responsibilities should be originally communicated face-to-face to ensure that the subordinate understands the change and then followed up in writing (e) The holiday schedule should be sent to employees by e-mail or memo, enabling them to keep the document for further reference.

4. Do you think an organization‘s grapevine is an effective communication channel? Why or why not? The grapevine could be considered an efficient, but not always effective communication channel. It is information shared by word of mouth but it is not always correct. It can be information concerning business or personal matters. Grapevines tend to carry news quickly.

5. Why do some managers find it difficult to be good listeners? Listening is an important communication skill that not all managers possess. To be a good listener, managers need to pay attention, which can be difficult if they are overloaded with diverse responsibilities. They also need to allow the speaker to complete their message without interruption, maintain good eye contact and focus on the speaker, ask questions to clarify any points of confusion and finally, they should repeat back to the speaker a paraphrased version of what they heard to check understanding. If managers are distracted or under pressure, it can be difficult to use good listening skills.

6. Explain why employees might filter and distort information about problems and performance shortfalls when communicating with their bosses. What steps can managers take to eliminate filtering and information distortion? Filtering, when a sender withholds part of a message because they mistakenly thinks the receiver does not need the information or will not want to receive it, is likely to take place when the message is perceived to contain bad news or when the sender is afraid they will be blamed for the problem. Distortion occurs when the message changes as it is passed through several senders and receivers. Some distortion is accidental and some may be intentional. Both filtering and distortion can be reduced when the level of trust in managers and the organization increases.

Chapter 14 Operations Management: Managing Operations and Processes ACTION

7. Interview a manager in an organization in your community to determine with whom he or she communicates on a typical day, what communication media he or she uses, and which typical communication problems the manager experiences. Answers will vary depending on the manager, the type of work being done and the work environment. AACSB: Analytic

Chapter 14 Operations Management: Managing Operations and Processes BUILDING MANAGEMENT SKILLS Diagnosing Ineffective Communication

Think about the last time you experienced very ineffective communication with another person— someone you work with, a classmate, a friend, a member of your family. Describe the incident. Then answer these questions: (Note to Instructors: Student answers will vary based on their experience. Following is some information to aid your understanding of the terminology referenced in the questions.) 1. Why was your communication ineffective in this incident? There are many reasons for ineffective communication. Too much noise may have prevented communication from being processed or perhaps the wrong type of medium was used, given the richness of the information in the message. Also, perceptual biases can hamper or prevent communication. Ultimately, communication is ineffective if there is a failure to reach a common understanding. 2. What stages of the communication process were particularly problematic and why? The communication process consists of two phases, the transmission phase in which information is shared between two or more people, and the feedback phase in which a common understanding is reached. 3. Describe any filtering or information distortion that occurred. Filtering is a barrier to effective communication that occurs when senders withhold part of a message because they mistakenly think the receiver doesn‘t need the information or won‘t want to receive it. Information distortion occurs when the meaning of a message changes as it passes through a series of senders and receivers. 4. How could you have handled this situation differently so that communication would have been effective? Effective managers must strive to perceive other people accurately. Accurate perceptions, in turn, contribute to effective communication. To be effective communicators, managers must select an appropriate communication medium for each message they send. They must also make sure that errors have not occurred during the encoding or decoding stages of the communication process. AACSB: Analytic

Chapter 14 Operations Management: Managing Operations and Processes MANAGING ETHICALLY

(Note: Student answers will vary.) 1. Either by yourself or in a group, explore the ethics of using company communications systems for personal uses at work. Should employees have some rights to use these resources? When does their behavior become unethical? Employees often feel that they should be allowed to use their company‘s e-mail or Internet connection for personal reasons they deem legitimate, as long as it does not detract from their productivity as a worker and they are not engaging in inappropriate or immoral behavior. Employee behavior becomes unethical when job responsibilities are being neglected, technology tools are being used to harass other employees or otherwise detract from organizational effectiveness, or employees are visiting socially unacceptable websites.

2. Some companies keep track of the way their employees use email and the Internet. Is it ethical for managers to read employees private email or to record websites that employees visit online? Although it may seem unethical, companies are within their legal boundaries when reading employee e-mail or monitoring the websites employees have visited. The most ethical approach to this matter is for companies to engage in such monitoring only when it has good grounds for suspecting that there has been abuse. Also, companies should make employees explicitly aware of their policy regarding the use of corporate technology resources for personal reasons. AACSB: Ethics

Chapter 14 Operations Management: Managing Operations and Processes BE THE MANAGER

Perhaps you are not using your technological communication tools to the fullest extent. E-mail can be sent with an urgent notice or it can be sent as a task assignment with a required response. Using the task assignment feature would allow you to receive feedback from your employees and monitor where they are at any given time on a project. You also need to meet personally with your employees to set up a prioritizing system and seek more opportunities for face-to-face communication. Your employees appear to respond well to direct communication and may feel isolated from you if you only on e-mail. AACSB: Reflective Thinking

Chapter 14 Operations Management: Managing Operations and Processes CASE IN THE NEWS Case Synopsis: Exxon Mobil Rides a Communication Wave in Turbulent Waters

In the oil industry, demand can swing abruptly in either direction at any time. The industry also faces public pressure to address climate change, along with the impacts of a global pandemic and Russia‘s invasion of Ukraine. For managers, uncertainty and change on this scale make communication effectiveness critical. Managers must communicate with their employees and investors about how the company intends to weather change. Neither group likes to be caught by surprise and the company will suffer if employees lose faith and quit or if investors lose faith and take their funds elsewhere. To manage the downturn in demand, Exxon reduced spending. It delayed some capital projects, reduced staff by 14,000, and closed two Houston office towers. It announced it would identify the bottom 5% to 10% performing employees and help them improve performance to avoid layoffs. CEO Dan Wood tried to keep the message positive, but there were higher-than-average voluntary employee departures during the time of layoffs. When prices and demand rebounded, Exxon announced no plans to resume capital spending, rather they would use the increase in revenue to reduce debt. Due to the increased uncertainty after COVID, the company planned to budget conservatively for the next five years. Another demand from investors is to reduce dependence on fossil fuels. Exxon has added three ―activist investors‖ to the board along with a climate expert. This will enable the company to address their goal of net-zero greenhouse gas emissions by 2050. QUESTIONS

1. Based on the examples given, how does managers‘ communication with employees and investors support Exxon‘s strategy (or interfere with it)? Exxon‘s strategy is not specifically explained in the article, although there is a reference to the critical importance of communications with investors and employees during such a time of uncertainty. Their communications with investors apparently come in the form of announcements, which do not identify communication media. Email seems to be a routine way of communicating with employees, which may be a little impersonal during such uncertain times. The in-person town hall held by the CEO seemed to be a good choice for calming nervous employees. 2. What communication media are described in this case? What, if any, other media would you recommend that Exxon managers use for these messages? The communication media mentioned in the article include email messages, a town hall meeting, and ―announcements to investors‖ where media is not specified. Exxon managers could also task 14-434 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 Operations Management: Managing Operations and Processes each work group manager with holding meetings to explain the company‘s plans, which would open the door for more informal, two-way communications. 3. Suggest two ways CEO Woods could improve his communication effectiveness. CEO Woods could hold more regular town hall meetings to increase his personal connection with employees. He could also utilize video announcements to communicate some messages so that he personally would be delivering them. AACSB: Analytic Thinking

Chapter 14 Operations Management: Managing Operations and Processes IN-CLASS ACTIVITY Communications Exercise for The Classroom

Preparation/materials: Prior to class, print two sheets of paper with different geometric shapes on them. 1. Ask for 2 volunteers (1 leaves the room, but will re-enter later) 2. First volunteer is given a card with a geometric figure on it. Standing or sitting at the front of the room, this volunteer turns their back on the class and describes the figure in detail. The class must remain silent, asking no questions and making no comments or noises, while each class member attempts to draw the figure described. 3. The volunteer has completed his/her explanation, he/she turns around and shows the drawing to the class. (How long did this take? How many participants were able to accurately reproduce the figure during the exercise? How did the volunteer feel about the experience? How about class members?) 4. The second volunteer returns and is given the second shape. They stand in front, facing the class, and describe the figure (which only they can see). The class can ask questions and the volunteer can answer them and elaborate on their descriptions. 5. Afterwards, the second figure is revealed to the class. (How long did this take? How many participants were able to accurately reproduce the figure during the exercise?) 6. Compare the results of the two methods of communicating. Did one method produce superior results? Did that method cost more or less time than the other? What conclusions can be drawn from the difference in the two experiences?

Chapter 14 Operations Management: Managing Operations and Processes Connect

For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect

Case Analysis 

Global Communication

Manager’s Hot Seat  

Listening Skills: Yeah, Whatever Serving Up Communication Mishaps

iSeeIt! Animated Video 

Communication

Worksheets 

Communication

Application-Based Activity 

Cyberloafing: Balancing Communication Priorities (Role Playing)

Chapter 14 Operations Management: Managing Operations and Processes PowerPoint Slides These PowerPoint slides can be used to supplement the lecture material.

SLIDE 1 Chapter Title SLIDE 2 Learning Objectives SLIDE 3 Communication and Management SLIDE 4 Importance of Good Communication SLIDE 5 The Communication Process: Transmission & Feedback Phase SLIDE 6 The Communication Process: Sender, Message, Encoding, & Noise SLIDE 7 The Communication Process: Receiver, Medium, & Decoding SLIDE 8 Figure 13.1: The Communication Process SLIDE 9 The Communication Process SLIDE 10 The Dangers of Ineffective Communication SLIDE 11 Information Richness and Communication Media SLIDE 12 Figure 13.2: Information Richness of Communication Media SLIDE 13 The Information Richness of Communication Media: Face-to-Face Communication SLIDE 14 The Information Richness of Communication Media: Management by Wandering Around SLIDE 15 Topic of Discussion: Communications SLIDE 16 The Information Richness of Communication Media: Spoken Communication Electronically Transmitted SLIDE 17 The Information Richness of Communication Media: Personally Addressed Written Communication SLIDE 18 The Information Richness of Communication Media: Impersonal Written Communication SLIDE 19 Impersonal Written Communication: Information Overload SLIDE 20 Impersonal Written Communication: Blog & Social Networking Site SLIDE 21 Topics for Discussion: Communication Media SLIDE 22 Communication Networks SLIDE 23 Informal Networks SLIDE 24 External Communication Networks SLIDE 25 Table 13.1: Communication Skills for Managers SLIDE 26 Communication Skills for Managers as Receivers SLIDE 27 Be the Manager

Chapter 14 Operations Management: Managing Operations and Processes

Chapter 14 Operations Management: Managing Operations and Processes CHAPTER CONTENTS Learning Objectives

14-2

Key Definitions/Terms

14-3

Chapter Overview

14-4

Lecture Outline

14-5

Lecture Enhancers

14-14

Management in Action

14-16

Building Management Skills

14-19

Managing Ethically

14-21

Be the Manager

14-22

Case in the News

14-23

In-Class Exercise

14-26

Connect Features

14-27

PowerPoint Slides

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Chapter 14 Operations Management: Managing Operations and Processes

LEARNING OBJECTIVES LO 14-1. Explain the role of operations management in achieving superior quality, efficiency, and responsiveness to customers.

LO 14-2. Describe how information and technology help managers make better decisions.

LO 14-3. Describe what customers want, and explain why it is so important for managers to be responsive to their needs.

LO 14-4. Explain why achieving superior quality is so important.

LO 14-5. Explain why achieving superior efficiency is so important.

Chapter 14 Operations Management: Managing Operations and Processes

KEY DEFINITIONS/TERMS

Customer relationship management (CRM): A technique that uses IT to develop an ongoing relationship with customers to maximize the value an organization can deliver to them over time.

operations manager: A manager who is responsible for managing an organization‘s production system and for determining where operating improvements might be made.

facilities layout: The operations management technique whose goal is to design the machineworker interface to increase production system efficiency.

operations management: The management of any aspect of the production system that transforms inputs into finished goods and services.

flexible manufacturing: Operations management techniques that attempt to reduce the setup costs associated with a production system. Inventory: The stock of raw materials, inputs, and component parts that an organization has on hand at a particular time. just-in-time inventory system: A system in which parts or supplies arrive at an organization when they are needed, not before.

process reengineering: The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical measures of performance such as cost, quality, service, and speed. production system: The system that an organization uses to acquire inputs, convert the inputs into outputs, and dispose of the outputs.

Chapter 14 Operations Management: Managing Operations and Processes

CHAPTER OVERVIEW To achieve superior quality, efficiency, responsiveness to customers, and innovation, managers at all levels in an organization must understand the significance of operations management. The contribution of effective operations management to the attainment of each of the four building blocks of competitive advantage is discussed. The chapter then explains how managers can use operations management practices and techniques such as facilities layout, flexible manufacturing, JIT, self-managed teams, and process reengineering to build and sustain a competitive advantage.

Chapter 14 Operations Management: Managing Operations and Processes

Management Snapshot Redesigning Mattel for the Digital Generation How Do Managers Ensure That Activities in Their Company Add Value? For Mattel‘s CEO, Ynon Kreiz, the answer begins with what customers want. Mattel—whose brands include American Girl, Barbie, Fisher-Price, and Hot Wheels, as well as games such as Uno and Pictionary—is making toys and games at a time when more children and adults are seeking their fun online. In recent years, demand for formerly popular items, like Fisher-Price preschool toys and American Girl dolls, has been weak. Upon taking the helm, Kreiz interpreted the company‘s slumping sales as a sign that Mattel‘s future would depend on doing two things: making more of what today‘s consumers want and containing costs while maintaining quality so that the company can remain profitable in a less favorable environment. Focusing on cost containment, the company simplified its supply chain, added automation and streamlined work. It started using information systems to estimate product demand. In addition, the company cut unprofitable low-selling products, closed four factories and eliminated about 25% of its nonmanufacturing employees. The company also continues to innovate to allow customers to connect with its brands in their choice of ways, a doll, a video game or a full-length movie. At the heart of the innovations are staying connected to the way children play. The changes have resulted in increased sales, higher profits, and stock prices. Stock prices hit a five-year high in 2022.

I. Operations Management and Competitive Advantage LO 14-1: Explain the role of operations management in achieving superior quality, efficiency, and responsiveness to customers. A. Operations management is the management of any aspect of the production system that transforms inputs into finished goods and services. B. A production system is the system that an organization uses to acquire inputs, convert inputs into outputs, and dispose of the outputs. 14-443 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 Operations Management: Managing Operations and Processes C. Operations managers are responsible for managing an organization‘s production system. 1. Their job is to manage the three stages of production and determine where improvements might be made to increase quality, efficiency and responsiveness to customers. 2. Achieving superior efficiency and quality is part of attaining superior responsiveness to customers and a competitive advantage.

II. Information and the Managers Job LO 14-2: decisions.

Describe how information and technology help managers make better

Managers cannot plan, organize, lead, and control effectively unless they have access to information. Information is the source of the knowledge and intelligence that they need to make the right decisions. Data is raw, unsummarized facts; information is data that is organized in a meaningful way.

 Attributes of Useful Information For information to be useful, it must have four characteristics, quality, timeliness, completeness and relevance.

1. Quality. The information is accurate and reliable. 2. Timeliness. The information is available before a manager makes a decision. 3. Completeness. The information gives managers all they need to exercise control, achieve coordination or make a decision. 4. Relevance. The information is useful and suits the managers needs and circumstances.

 What Is Information Technology? Information technology (IT) is the set of methods or techniques for acquiring, organizing, storing, manipulating, and transmitting information. A management information system (MIS) is a specific form of technology that managers select and use to generate the specific, detailed information they need to perform their roles effectively.

 Information and Decisions To make effective decisions, managers need information both from inside the organization and from external stakeholders. BIG DATA is the collection and analysis of large sets of data from consumers, competitors, employees, suppliers, and others.

Chapter 14 Operations Management: Managing Operations and Processes  Information and Control Managers achieve control over organizational activities by taking four steps: (1) establishing measurable standards of performance; (2) measuring actual performance; (3) comparing actual performance against established goals; and (4) evaluating the results and take corrective action if necessary.

1. Cybersecurity. Keeps information protected against unauthorized access and use. 2. Data Privacy. Keeps information private and secure.  Information and Coordination Coordinating department and divisional activities to achieve organizational goals is another basic task of management that relies on high quality, reliable, timely and complete information. TEXT REFERENCE Ethics in Action Kroger’s Strategic Use of Consumer Data Kroger, the largest U.S. supermarket chain, operates under its own name and several others, including Fred Meyer, Harris Teeter, Ralphs, and Mariano‘s. It has about 2,800 stores plus websites for its chains, together generating millions of transactions every day. In the past, the recordkeeping for this sales volume would have been just a major expense, but with today‘s advanced information technology, it generates valuable insights into customer behavior. Kroger treats data as a key part of its growth strategy. The company operates a data intelligence division called 84.51°, the longitude of its location in Cincinnati. The name alludes to the division‘s use of ―longitudinal‖ research, looking at the activities of consumers or stores over a stretch of time. In its stores, Kroger collects data from customers on sales, loyalty card use, and videos of their behavior in front of shelves, such as the time they spend looking for but not finding items. Consumers who visit Krogerowned websites generate data about which products they view and purchase. Analyzing the data increases Kroger‘s power relative to its suppliers: consumer packaged goods (CPG) companies. CPG makers used to be the experts, with insights into what consumers buy and when. They would plan how their products should be arranged on the shelves and would pay for a desired bit of store real estate. But Kroger today sees better growth opportunity from using its own data to determine the shelf displays that will generate the best sales growth—including of its own store brands, made in dozens of Kroger-owned factories. It also sells data to suppliers. For example, CPG companies can purchase data showing how ads on Kroger-owned websites are associated with purchases of their products online or in stores. With Kroger‘s Stratum tool, they can learn about their products‘ sales, inventory levels, customer segments, and more. And through a Kroger alliance with Pinterest, a CPG company can purchase data about how Pinterest users react to the company‘s ads on the site.

Chapter 14 Operations Management: Managing Operations and Processes All this data collection, analysis, and selling has obvious benefits for Kroger, but how are consumers affected? They may not even realize that Kroger is tracking their Pinterest searches, purchases of overthe-counter remedies, or time spent perusing the cereal aisle. Emily Gibbons, the vice president of data science for 84.51°, agrees about the advantages to Kroger but adds that providing an optimal assortment at the right price ultimately results in a better shopping experience for customers. TEXT REFERENCE Management Insight At Helps Managers Do a Better Job How can information technology enable managers to get better results? Imagine, for example, the challenges a fast-growing company faces in managing employees. When the company is small, a few people handle their area of expertise independently. As it grows, those people need help, individual projects become group projects, and someone familiar with the work becomes the manager. The demand for operating on a larger scale often outstrips the new managers‘ ability to pick up the people skills necessary for leadership, motivation, and control. The organization then wants to develop its managers, but doing so takes time, and training efforts can be difficult to target to the specific needs of a leader at a particular time. Information technology offers solutions, including software that applies artificial intelligence—typically software that has ―learned,‖ through massive amounts of trial and error, to analyze situations and propose responses that are associated with good outcomes. The more data the software processes, the better its recommendations become. An example is Butterfly, software that gathers anonymous data from an organization‘s instant messaging system and analyzes the data to identify situations calling for more active leadership. The three partners who founded Butterfly were inspired with their own difficulties in learning to lead their teams in prior jobs. Butterfly‘s creators describe their product as a management coaching system; the feedback from employees becomes the basis for defining the areas in which a manager needs to improve their leadership. This analysis, in turn, becomes the basis of recommendations for improvement. The system also can be set up to deliver alerts when managers need additional support. Because the software uses artificial intelligence to improve its results based on experience, it is designed to increase in value as the company signs on more clients.

III. Improving Responsiveness to Customers LO 14-3: Describe what customers want, and explain why it is so important for managers to be responsive to their needs. A. Organizations produce outputs (goods and services) that are consumed by customers. Because customers are vital to the organization‘s survival, managers must correctly identify customers and pursue strategies that result in products that best meet their wants and needs.

Chapter 14 Operations Management: Managing Operations and Processes B. What Do Customers Want? Although there may be some variation from product to product, it is possible to identify some general product attributes or qualities that most customers want. Other things being equal, most customers prefer: 1. A lower price to a higher price. 2. Higher quality products to low-quality products. 3. Quick service to slow service. 4. Products with many features to products with few features. 5. Products that is customized or tailored to their unique needs. C. The problem this presents for managers is that customers‘ demands for these attributes typically conflict with their demand for low prices. For this reason, managers as well as customers must make a price/attribute trade-off. D. Designing Production Systems to Be Responsive to Customers 1. Because satisfying customers is so important, managers try to design production systems that can produce outputs that have the desired attributes – quality, cost, and features. 2. Examples of these include: flexible manufacturing systems, just-in-time inventory, and new information systems and technologies discussed in Chapter 13. E.Customer Relationship Management: Customer relationship management is a technique that uses IT to develop an ongoing relationship with customers to maximize the value an organization can deliver to them over time. It has become a vital tool used to maximize responsiveness to customers. 1. CRM systems have three interconnected components: sales and selling, after-sales service and support, and marketing. 2. Today, sales and selling CRM software contains best sales practices that analyze information and then recommends ways to improve the way the sales process operates.

III. Improving Quality LO 14-4:

Explain why achieving superior quality is so important.

A. High-quality products possess attributes such as superior design, features, reliability, and after-sales support; these products are designed to better meet customer requirements. Quality is a concept that can be applied to both manufacturing and service organizations. Managers seek to control and improve the quality of their organization for two reasons:

Chapter 14 Operations Management: Managing Operations and Processes 1. Customers usually prefer a higher-quality product to a lower-quality product. By providing, for the same price, a product of higher quality than the competition, a company is being responsive to customers. 2. Achieving high product quality lowers operating costs because of the impact on employee productivity, since less time is devoted to making products that must be discarded or reworked. TEXT REFERENCE Focus on DE&I Genentech Sets Diversity Goals to Improve Research Genentech, a biotechnology company that now operates independently as a subsidiary of Roche, focuses on discovering and developing new medicines. The company has literally written diversity into its mission statement: ―Our mission is to deliver scientific innovations that drive better outcomes for our people, patients, business, and communities by advancing and boldly championing diversity, equity, and inclusion.‖ Key reasons are that management sees a diverse, included workforce as likely to bring new ideas and, furthermore, that serving diverse patient populations will result in more rigorous research. To build, retain, and develop a diverse workforce Genentech sets targets for diversity and inclusion; among these is doubling the number of Black and Latinx directors and top management. It also regularly updates senior leaders on performance and recently began publishing an annual Diversity & Inclusion Report to make Genentech‘s progress a matter of public record. Quita Highsmith, Genentech‘s chief diversity officer, explains that the process begins with recruiting and hiring diverse talent and then providing training, development, and career paths. Genentech‘s Future of Working initiative allows flexible working arrangements, whose objectives include retaining diverse employees. Genentech sets itself apart in also having DE&I goals to improve the quality of its research data. In a policy the company calls Advancing Inclusive Research, Genentech seeks to address the issue that clinical trials do not always succeed at—or even try to—recruit a diverse population. For a company that, like Genentech, applies genetic data, this means that work on medicines relies on data that reflects only a segment of the world‘s population. Genentech therefore is re-examining its practices for selecting study sites and identifying ways to recruit study participants more broadly in terms of race, ethnicity, and gender. The company‘s efforts to diversify its workforce and suppliers contributes to more diverse research data by improving the company‘s reputation among people of color, whose relatively low participation in research is partly an outcome of lower-than-average trust of the pharmaceutical industry. The goal of all these efforts is an improved product line: treatments that can be personalized to reflect knowledge about how different kinds of people respond.

IV. Improving Efficiency LO 14-5:

Explain why achieving superior efficiency is so important.

Chapter 14 Operations Management: Managing Operations and Processes A. The third goal of value chain management is to increase the efficiency of an organization‘s production system. Managers can measure efficiency in two ways: 1. Total factor productivity looks at how well an organization utilizes all of its resources—such as labor, capital, materials, or energy—to produce its outputs. 2. Labor productivity is most commonly used to draw efficiency comparisons between different organizations. B. Facilities Layout, Flexible Manufacturing, and Efficiency 1. The strategies used by managers to lay-out or design an organization‘s physical work facilities, helps determine efficiency. This is important for two reasons: a. The way in which machines and workers are organized or grouped together in work stations affects the efficiency of the production system. b. Also, a major determinant of efficiency is the cost associated with setting up the equipment to make a particular product. 2. Facilities layout is the operations management strategy whose goal is to design the machine-worker interface to increase production system efficiency. 3. Flexible manufacturing is the operations management techniques that attempt to reduce the setup costs associated with a production system. C. Facilities Layout: The way in which machines, robots, and people are grouped together affects how productive they can be. There are three ways of arranging workstations: product layout, process layout, and fixed-position layout. 1. In a product layout, machines are organized so that each operation needed to manufacture a product or process a service is performed at workstations arranged in a fixed sequence. In manufacturing, workers are stationary and a moving conveyor belt takes the product to the next workstation. Mass production is the familiar name for this layout. a. The introduction of modular assembly lines controlled by computers has made mass production an efficient means of making products in small batches. 2. In a process layout, workstations are not organized in a fixed sequence. Each workstation is relatively self-contained, and a product goes to whichever workstation is needed to perform the next operation. a. Process layout is often suited to manufacturing a variety of custom-made products, each tailored to the needs of a different kind of customer.

Chapter 14 Operations Management: Managing Operations and Processes b. Process layout provides flexibility, but often reduces efficiency because it is expensive. 3. In a fixed-position layout, the product stays in a fixed position. a. Component parts are produced in remote workstations and brought to the production area for final assembly. b. Different teams assemble each component part and then send the parts to the final assembly team, which makes the final product. D. Flexible Manufacturing: In a manufacturing company, a major source of costs is setting up the equipment needed to make a particular product. If setup times for complex production equipment can be reduced, efficiency will rise. 1. Flexible manufacturing aims to reduce the time required to set up production equipment. 2. Setup time and its accompanying cost can be dramatically reduced if equipment used for manufacturing one product can be quickly replaced with equipment used for manufacturing a second product. 3. Flexible manufacturing also allows a company to produce many more varieties of a product in the same amount of time, thereby increasing responsiveness to customers. E.Just-in-Time Inventory and Efficiency: Inventory is the stock of raw materials, inputs, and component parts that an organization has on hand at a particular time. Just-in-Time inventory systems get components to the organization when they are needed, not before. 1. An advantage of JIT systems is that defective inputs can be quickly spotted. 2. A drawback of JIT systems is that they leave an organization without a buffer stock of inventory. 3. Major cost savings can result from increasing inventory turnover and reducing inventory holding costs. F. Self-Managed Work Teams and Efficiency: Another functional strategy to increase efficiency is the use of self-managed work teams (see Chapter 11). 1. The typical team consists of from five to fifteen employees who produce an entire product instead of just parts of it. 2. Team members learn all team tasks and move from job to job. The result is a flexible workforce.

Chapter 14 Operations Management: Managing Operations and Processes 3. Team members also assume responsibility for work and vacation scheduling, ordering materials, and hiring new members. 4. Traditionally, each of these was the responsibility of first line managers. 5. The effect of introducing self-managed teams is often an increase in efficiency of 30% percent of more. 6. Cost savings also arise from eliminating supervisors and creating a flatter organizational hierarchy, which increases efficiency. G. Process Reengineering and Efficiency: Process reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical measures of performance such as cost, quality, speed, and service. 1. Order fulfillment for example, can be thought of as a business process. 2. Process reengineering boosts efficiency because it eliminates the time devoted to activities that do not add value. 3. Another example of process reengineering is Ford Motor Company‘s decision to simplify its procurement process. a. The reengineering of that process has come close to eliminating the need for an accounts payable department, thereby increasing the efficiency of the total organization.

V. Operations Management: Some Remaining Issues A. Achieving superior responsiveness to customers through quality and efficiency often requires a profound shift in management operations and in the culture of an organization. B. Failure of management to understand the dramatic culture shift required may result in disillusionment with JIT, flexible manufacturing, or reengineering. C. None of these systems is a quick panacea to cure industrial ills. Making these techniques work can pose a significant challenge that calls for hard work and persistence by the sponsoring managers. D. Managers also need to understand the ethical implications of the adoption of many of these techniques. The increases in organizational performance they yield often come at great cost to employees. Employees may see the demands of their job increase or they may see themselves reengineered out of a job. E. Continually increasing the demands placed on employees regardless of human costs in terms of job stress raises ethical concerns. 14-451 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 Operations Management: Managing Operations and Processes

LECTURE ENHANCERS Lecturer Enhancer 14.1 KEEPING THE CUSTOMER HAPPY What should a company do for angry customers? According to experts, just about anything it can. Studies show customers tell twice as many people about bad experiences as good ones, so complainers left unhappy can send a company‘s image crashing. Simply listening to complaints boosts brand loyalty and a customer‘s tendency to buy again. One research firm calculated the return on company dollars invested in resolution of customer complaints and inquiries. The average return for makers of consumer durables like washing machines and refrigerators was 100 percent. In other words, if manufacturers spent $1 million handling consumer complaints, they reaped $2 million in benefits. For banks, it was as high is 170 percent.

Lecturer Enhancer 14.2 PRODUCTIVITY BOTTLENECK IN THE OFFICE: THE KEYBOARD The modern office is likely to be equipped with personal computers linked through local area networks to each other and to a host of specialized equipment, from laser printers to data bases storing millions of customer records. Within this state-of-the-art operating system is a turn-of-the-century bottleneck—the computer keyboard. The computer keyboard is simply a transplanted typewriter keyboard, the same keyboard that has been used since the 1890s. While the arrangement of keys is familiar, it is far from efficient. When the first typewriters were introduced, keys were arranged alphabetically (vestiges of this arrangement can be seen on the second row of keys—D F G H J K L.) Printing bars were mechanically pushed against the paper by the pressure on the keys. Typists soon became proficient enough to cause jams as they typed faster than the mechanical bars could move. Typewriter manufacturers went back to the drawing boards and designed a new keyboard to slow typists down to speeds within the limits of the crude mechanism. The resulting keyboard is referred to as ―Qwerty,‖ named for the first six keys of the top row. Keys were placed awkwardly to force slower typing. The ―A,‖ for instance, one of the most frequently used keys, was placed under a typist‘s left-hand little finger, the weakest finger on the hand. ―E‖ requires an awkward reach using the middle finger of the left hand. Results were encouraging—typing speeds declined. Today mechanical keys have been replaced by electronic ones, but the keyboard arrangement has remained unchanged. In the 1930s August Dvorak designed a better keyboard that groups the most frequently used letters on the home row and eliminates many awkward reaches. The Dvorak system is faster to learn, easier to type, less tiring, and less likely to cause errors than Qwerty. Using it increases typing speed by more than 20 percent. Yet the system never caught on—typists did not want to learn a

Chapter 14 Operations Management: Managing Operations and Processes new system when their typewriters all used Qwerty, and manufacturers did not want to produce Dvorak typewriters as long as typists used Qwerty.

Lecturer Enhancer 14.3 THE NEW REALITY: REEVALUATING JUST-IN-TIME INVENTORY TECHNIQUES One of the business techniques imported from Japan in the 1980s was the concept of just-in-time (JIT) inventory. It entails having raw materials and components delivered to the user just at the time they are needed for production. Effective use of JIT requires close coordination between the supplier and the organizational buyer. The cost of materials and other goods and services needed to produce a product is about half the revenue received for it. Reducing this cost, even a small amount, can create a significant improvement in a company‘s bottom line. Statistics from the U.S. Department of Commerce show a steady decline in the amount of inventory carried by producers, relative to the sales of their products or services. Just-in-time inventory and delivery have become the reality for organizational marketers. When marketers and suppliers cooperate as partners, JIT has often worked well. Montreal-based Future Electronics is hooked up by an electronic data interchange system to Bailey Controls, an Ohio-based supplier of control systems. Every week, Bailey electronically sends Future its latest forecasts of what materials the Canadian company will need for the next six months. Future Electronics can then stock up in time. Wal-Mart Stores Inc. is widely cited as one of the best practitioners of inventory management. The Bentonville, Arkansas based discount retailer is constantly trying to better its performance. Among its current projects is an inventory-reporting system it is developing with W&H Systems Inc. in Carlstadt, N.J., and Rank Video Systems of America in Northbrook. Since the bulk of movie videotape sales are on weekends, Wal-Mart will take an electronic inventory of its shelves nationwide every Sunday night and automatically notify the video distributor, which will then place an order with Rank early Monday morning to manufacture the replacement tapes for delivery to stores on Thursday before rentals pick up again. When cooperation has been lacking, JIT has become something of a corporate shell game in many industries as companies vie to keep their inventory on some other companies‘ books. And there is evidence that despite all the money companies have spent on computers to track sales and inventory, justin-time inventory doesn‘t always work. ―The reality today is that with just-in-time, there are still a lot of empty shelves in the stores,‖ says Perry Caicco, president of Toronto-based Consumers.

Chapter 14 Operations Management: Managing Operations and Processes

MANAGEMENT IN ACTION Notes for Topics for Discussion and Action DISCUSSION

1. Why is it important for managers to pay close attention to their organization‘s production system if they wish to be responsive to their customers? The attributes of an organization‘s outputs—their quality, cost, and features—are determined by the organization‘s production system. The ability of an organization to satisfy the demands of its customers is derived from its production system. By monitoring this system, managers can find ways to improve quality while keeping prices low, as well as find ways to increase efficiency. Customers want value for their money, and an organization whose efficient operating system creates high-quality, low-cost products is best able to deliver this value.

2. What is big data and how do managers use it to improve productivity?? Big data is the collection and analysis of large sets of data from consumers, competitors, employees, suppliers, and others. It is used to uncover hidden patterns, unknown correlations, market trends, and customer preferences that help managers make good decisions that will advance the business.

3. What is CRM, and how can it help improve responsiveness to customers? CRM is a technique that uses IT to develop an ongoing relationship with customers to maximize the value an organization can deliver to them over time. CRM IT monitors, controls, and links each of the functional activities involved in marketing, selling, and delivering products to customers, such as monitoring the delivery of products through the distribution channel, monitoring salespeople‘s selling activities, setting product pricing, and coordinating after-sales service. When a company implements after-sales service and supports CRM software, salespeople are required to input detailed information about their follow-up visits to customers. Because the system tracks and documents every customer‘s case history, salespeople have instant access to a record of everything that occurred during previous phone calls or visits. They are in a much better position to respond to customers‘ needs and build customer loyalty, so a company‘s after-sales service improves. A CRM system can also identify the top 10 reasons for customer complaints. Finally, as a CRM system processes information about changing customer needs, this improves marketing in many ways. Marketing managers, for example, have access to detailed customer profiles, including data about purchases and the reasons why individuals were or were not attracted to a company‘s products.

Chapter 14 Operations Management: Managing Operations and Processes Producing high quality product or services serves customers better, which enhances the product and company‘s reputation, which enables the company to charge a premium price, which improves the company‘s bottom line. In addition, improved quality improves efficiency, which lowers operating costs, which contributes to the company‘s bottom line.

5. What is efficiency, and what are some of the techniques that managers can use to increase it? Efficiency refers to the amount of inputs required to produce a given output. Inputs may include labor, component parts, skills, knowledge, or time. Outputs can be any good or service that the customer wants. These may be products or they may be intangibles, such as customer service. Managers can increase efficiency in several ways. One way is to improve quality. When quality rises, less employee time is spent making defective products that have to be discarded or repaired. Designing products with fewer parts can increase efficiency, since fewer parts to assemble reduces the total assembly time and makes products easier to assemble. Managers can also change their facilities layout— the way in which machines, robots, and people are grouped together. One layout may be more effective than another, depending on the product. Flexible manufacturing can also increase efficiency by reducing the time required to set up production equipment. Yet another tactic is just-in-time inventory, which reduces inventory holding costs and frees capital that would otherwise be tied up in inventory. Another way is to implement self-managed teams. ACTION

6. Ask a manager how quality, efficiency, and responsiveness to customers are defined and measured in their organization. (Note: Student responses to this question will vary. The following is an example of an appropriate response.) I interviewed a manager at a women‘s specialty store located in a very upscale shopping mall in a major U.S. city. For this retailer, responsiveness to customers means that all customers must be acknowledged and offered assistance. During peak shopping periods, approximately 75 people enter and leave the store each hour. There is a greeter at the front door at all times. The store is divided into four zones and associates rotate to different zones each hour. This is an effective way to ensure that there is always an associate nearby to assist a customer who may need help. This retailer has a reputation for selling high-quality apparel. All employees are required to wear the brand during work hours as a means of showing off its superior tailoring and craftsmanship, as well as its stylishness. Because the retailer is very confident in the durability of its products, they accept returns at any time. Efficiency means that all operations are completed expeditiously, according to the store‘s manager. Daily activities need to be done with minimal mistakes. Employees are expected to be on time for their shifts, closings need to be quick, cash registers need to balance, and management needs to keep payroll at a minimum when traffic is slow.

Chapter 14 Operations Management: Managing Operations and Processes In this company, innovation is considered to be anything that will attract new customers and reinforce the interest of existing customers. To this end, some type of exclusive holiday product line is introduced each holiday season. Last year, it was baby apparel. This innovation brought in so many new customers that the company is now considering selling baby apparel permanently.

7. Go to a local store, restaurant, or supermarket, and list the ways in which you think the organization is being responsive or unresponsive to the needs of customers. How could this business‘s responsiveness to customers be improved? (Note: Student responses to this question will vary. The following is an example of an appropriate response.) There is mid-sized health food store in my neighborhood that I often visit. It has four different locations within a 50-mile radius and is family owned. Typically, the store is quite responsive to the needs of its customers. They carry a wide variety of both organic and nonorganic food stuffs. It also has a deli that prepares fresh juices, soups, salads, and sandwiches on a daily basis. In general, the store is clean and neatly organized. Shelves are always fully stocked and customers can navigate aisles easily. In-store signage makes it relatively easy to locate items. The parking lot is well lit and its size is ample. However, there is room for a few improvements. Occasionally, when checkout lines grow long, it takes an excessive amount of time for the manager to respond by having an additional cashier re-open her lane. The store‘s managers are not as skilled as those of some of their competitors at estimating the ebb and flow of customer demand, and as a result sometimes fresh produce that as begun to wilt is allowed to remain available for sale. Sometimes there is also a shortage of shopping carts, forcing customers to limit their purchase to what they are able to carry by hand to the checkout counter.

AACSB: Analytic

Chapter 14 Operations Management: Managing Operations and Processes

BUILDING MANAGEMENT SKILLS Managing a Production System

1. What is the output of the organization? The organization that is the focus of these questions is a housecleaning service. The service provides cleaning for residential buildings and private houses. Services include vacuuming, dusting, bed making, cleaning of windows and floors, straightening of furniture, sweeping, and other cleaning activities.

2. Describe the production system that the organization uses to produce this output. The value chain that is in place requires each cleaning person to perform all cleaning tasks individually. When the person arrives at the house, he or she starts in one end of the house and performs all the tasks in one room before moving on to another area of the house. All of the cleaning service's staff are part-time workers who work flexible hours and do not receive benefits. After cleaning an entire house, the cleaning person computes the amount of time it took to complete all the tasks and submits a time sheet to the manager at the home office. Members of the cleaning staff are paid by the hour, not by salary. The manager then bills the house for the number of hours required for cleaning.

3. What product attributes do customers of the organization desire? Customers prefer a lower price to a higher price. They prefer higher-quality cleaning service to lowquality service, especially since many customers only use the service once or twice a week. They are willing to pay a little more so that the service is not needed as often. Customers also want quick service. They prefer that the cleaning staff not be there any longer than is necessary. Customers also like that the cleaning service provides several services, as opposed to a small number of services that might be limited to certain areas of the house or certain tasks. Finally, customers like to feel that their service is tailored to them and their unique needs. Members of the cleaning staff go out of their way to provide customers with service that meets their schedules and demands.

4. Does its production system allow the organization to deliver the desired product attributes? The production system allows the organization to keep prices low because employees are part-time workers that do not receive benefits. Also, overhead is low since there is no need for a large amount of office space. High-quality service is delivered because the organization carefully screens its employees and trains them intensely. A new employee must accompany a more experienced employee for a few weeks before the new employee is allowed to work on their own. The cleaning service does not always

Chapter 14 Operations Management: Managing Operations and Processes deliver quick service, though, since some houses are larger and require more cleaning than others. This creates a large amount of work for one person to do on their own.

5. Try to identify improvements that might be made to the organization‘s production system to boost the organization‘s responsiveness to customers, quality, and efficiency. The organization may try using self-managed teams to clean the houses that repeatedly require more effort, time, and resources. If teams of cleaning staff are formed, they could go to the houses together, with each team member performing one task in all areas of a house. For example, one person could be responsible for vacuuming all rooms, while another is responsible for dusting all rooms. This way, less time would be spent cleaning a house and more houses could be cleaned in the same amount of time it normally takes to clean fewer houses. This strategy would improve the efficiency of the cleaning staff. Also, managers could devise a system that charges each house according to the amount of resources needed to clean it. This way, the houses that required more would be charged more, and the houses that required less would be charged less. This would increase the organization‘s responsiveness to customers in that the service would be customized to the unique needs of each house, without sacrificing efficiency.

AACSB: Analytic

Chapter 14 Operations Management: Managing Operations and Processes

MANAGING ETHICALLY (Note: Student responses will vary.)

1. Either by yourself or in a group, discuss how to think through the ethical implications of using an operations management technique to improve organizational performance. The implementation of new operations techniques, such as JIT, TQM, or flexible engineering, often require a substantial shift in organizational culture for which employees must be prepared. The human cost of improving productivity must be acknowledged and thoughtfully balanced against other stakeholder concerns, since employee support is vital to the new undertaking.

2. What criteria would you use to decide what kind of technique is ethical to adopt and/or how far to push employees to raise the level of their performance? Pushing employees to raise their level of performance often induces stress. Reasonable levels of stress can sometimes yield positive consequences. However, when employees begin to exhibit signs indicating that they are physiologically or psychologically overwhelmed by management-induced pressures, the new operational techniques that have created this unacceptable level of tension must be immediately reevaluated.

3. How big a layoff, if any, would be acceptable? If layoffs are acceptable, what could be done to reduce their harm to employees? Improved operations techniques, as well as technological advances and the cyclical nature of a market economy, often make layoffs inevitable. However, providing ample forewarning can reduce harm to employees by layoffs, so that they have time to plan and prepare. Also reasonable severance packages, outplacement assistance, and if necessary, retraining often helps to reduce the trauma inflicted upon employees by layoffs.

AACSB: Ethics

Chapter 14 Operations Management: Managing Operations and Processes

BE THE MANAGER How to Build Flat-Screen Displays

1. What kinds of techniques discussed in the chapter can help these managers to increase efficiency? When hiring people, it will be important to screen for teamwork skills and the ability to work in a cross functional type of team setting. The production facility should be designed to incorporate flexible manufacturing technologies and use a just-in-time inventory system, in order to adapt to changing market conditions and customer demands.

2. In what ways can these managers go about developing a program to increase quality? The attempt to improve quality requires finding ways to measure quality, setting quality improvement goals, and soliciting input from employees concerning potential improvements in product design and the manufacturing process.

3. What critical lessons can these managers learn from operations management? Lesson #1: The goal of most start-ups is to break even and begin earning profits as soon as possible. Therefore, management of efficiency is extremely important because increased efficiency lowers production costs that, in turn, lead to profit generation. Lesson #2: In its eagerness to please its new customers, managers of this start-up must be careful not to promise a level of responsiveness to their customers that their company cannot yet profitability sustain. Lesson #3: Be cautious of the temptation to continually increase the demands placed on employees to increase productivity. Do not impose unreasonable levels of stress upon employees.

AACSB: Reflective Thinking

Chapter 14 Operations Management: Managing Operations and Processes

CASE IN THE NEWS Case Synopsis: Two Disc Golf Companies’ Spin on Quality and Responsiveness On courses laid out in parks, people of all ages are tossing plastic discs into chain-link baskets. They‘re playing disc golf, which is based on the same principle as golf played with a club: following an 18-hole course, you propel your object (disc or ball) into each target (basket or hole) in as few attempts as possible. The discs are more angular and denser than the Frisbees used for playing catch, and they come in a variety of designs. Enthusiasts buy a variety of discs for different flight paths and distances, plus bags to carry them in. Some compete in tournaments sponsored by the Professional Disc Golf Association (PDGA). Players can get started with just one or a few $15 discs and park admission fees, if any. With this low cost of entry, the number of players increased steadily at about 10% a year through the late 1990s and 2000s. Videos and social-media posts then accelerated the growth. Now millions of people play the game every year, creating a market for more than 20 million discs. But in 2020, the pandemic completely changing the market dynamics. During social distancing, people were looking for something to do outside without close contact, and disc golf offered a way to have fun with family or friends of all ages. New players bought discs, and membership in the PDGA doubled between 2019 and 2021. For the providers of equipment, this surge in players was an opportunity combined with all the challenges that have made operations management difficult. Orders were flooding manufacturers, which added greatly to revenues, but supply chains were disrupted and employees difficult to hire and keep. Makers of discs scrambled to compete with other kinds of manufacturers for scarce supplies of plastic. Two Michigan-based companies that did all they could to keep customers satisfied were Discraft, the secondlargest maker of discs, and MVP Disc Sports, a more recent and smaller industry entrant. Discraft was founded by a husband-and-wife team in 1978, when the idea of making competition-quality discs was a new concept. The company makes discs for both disc golf and the game of ultimate (soccer played with discs, originally known as ultimate Frisbee). It has reinforced its strong position in the market by negotiating endorsement deals, including one with Paige Pierce, the world‘s top-rated female pro disc golfer, and a $10 million 10-year deal with five-time PDGA world champion Paul McBeth. When the surge in demand for disc golf hit, Discraft paused manufacturing of ultimate discs to focus on the more distanced sport of disc golf. When finding plastic became difficult, the company bought a machine for recycling used plastic and began converting scrap discs into plastic pellets it could use for making new discs. Discraft also doubled the number of machines it owned and hired as many people as it could find to run three shifts. By running full tilt, it increased disc golf production sixfold. Although it stopped adding new retail customers, Discraft was only able to send existing customers whatever it could make, rather than filling special orders.

MVP Disc Sports is a later entrant in the marketplace and holds a market share of less than 10%. The company was started in 2010 by two brothers who wanted to apply two-step molding processes to make a

Chapter 14 Operations Management: Managing Operations and Processes superior line of discs. MVP skyrocketed in popularity after James Conrad used its Electron Envy disc to make what players still call the ―Holy Shot‖: during the 2021 world championships, the disc sailed 247 feet to the basket, and Conrad won the final round, beating the five-time champion. Already dealing with pandemic-related challenges, MVP found itself in an operations nightmare. Customers wanted their own Envy discs, and the company had just one mold—a common practice among manufacturers to maintain consistency. Making one disc per minute, the company ran its production process 24 hours a day for three months but couldn‘t keep up with orders. It increased its payroll to more than 100 employees, up from 20 before the pandemic, and it ordered 15 new disc-manufacturing machines in 2020–21. As orders surged, the company dedicated all its production processes to making existing products, eventually increasing 2021 production tenfold over 2020. According to MVP, it produced more discs in 2021 than in the previous 11 years combined. However, many retailers received a large share of the discs only after the initial surge of enthusiasm among consumers around Electron Envy and the Holy Shot had faded. QUESTIONS

(Note to instructor: Responses to these questions will vary, since they will require students to apply imaginative thinking to their fundamental understanding of business operations and management decision making.)

1. Based on the description, would you say the managers of Discraft and MVP Disc Sports had timely and complete information for planning operations during the pandemic years? Why or why not? Both companies were reacting to an unexpected surge in demand due to the COVID pandemic. The article mentioned several challenges for the company managers, including supply chain disruptions, employees being difficult to hire and keep, and the main component of discs, plastic, was scarce. Because they could not know how or when these conditions might change, neither company‘s managers had timely or complete information for planning operations during the pandemic years.

2. Discraft and MVP have two kinds of customers: (a) the retailers that sell discs to players and (b) the players themselves. For each kind of customer, list what you think customers wanted from the two companies in 2020–21. The article does not specifically address the interests or preferences of the two classes of customers, however, some inferences can be made. Retail customers presumably wanted a supply of discs to sell to their customers. Discraft was unable to provide ―new‖ customers with custom orders but was able to send product to existing customers, which apparently refers to existing retail customers.

Chapter 14 Operations Management: Managing Operations and Processes 3. How might improving efficiency help Discraft and MVP better provide what their customers want? Describe one measure for improving efficiency that you would recommend to these companies. One limitation that stands out is operating with only one mold, another was access to plastic. Reproducing the mold, if possible, would enable production to increase. Planning to recycle plastic for the material to make the discs seems like an excellent way to control supplies.

AACSB: Reflective Thinking

Chapter 14 Operations Management: Managing Operations and Processes

IN-CLASS ACTIVITY Mini: Process Improvement Break the class into small groups. Their challenge, thinking about satisfying customers through a quality management process, assess the consumer focus of one of the dining halls. How well are they serving customer needs and preferences? Groups evaluate the dining service and make recommendations for improvement. Ask for volunteers to share their assessments and recommendations. Are the changes easy or difficult to make? What were the variations if more than one group chose the same dining hall? Assuming the changes were implemented, what changes in consumer behavior would likely result? How could Customer Relationship Management be used to benefit customer focus?

Chapter 14 Operations Management: Managing Operations and Processes

CONNECT For more information and instructions for Connect, visit https://www.mheducation.com/highered/connect

Case Analysis  

The Human Cost of Improving Productivity Choosing the Best Facility Layout

Video Case 

Operations Management at Home Run Inn Pizza

Chapter 14 Operations Management: Managing Operations and Processes

POWERPOINT SLIDES These PowerPoint slides can be used to supplement the lecture material.

SLIDE 1 Chapter Title SLIDE 2 Learning Objectives SLIDE 3 Operations Management and Competitive Advantage: Operations Management SLIDE 4 Operations Management and Competitive Advantage: Production System SLIDE 5 Operations Management and Competitive Advantage: Operations Manager SLIDE 6 Operations Management and Competitive Advantage: Quality, Efficiency, & Responsiveness to Customers SLIDE 7 Figure 14.1 - The Purpose of Operations Management SLIDE 8 Topics for Discussion: Production System SLIDE 9 Information and the Manager’s Job SLIDE 10 What Is Information Technology? SLIDE 11 Information, Decisions, Control, Coordination SLIDE 12 Improving Responsiveness to Customers SLIDE 13 What Do Customers Want? SLIDE 14 Topics for Discussion: Customer Service SLIDE 15 Designing Production Systems to Be Responsive to Customers SLIDE 16 Customer Relationship Management SLIDE 17 Topics for Discussion: CRM SLIDE 18 Improving Quality SLIDE 19 Figure 14.3 Impact of Increased Quality on Organizational Performance SLIDE 20 Improving Efficiency SLIDE 21 Facilities Layout, Flexible Manufacturing, and Efficiency SLIDE 22 Figure 14.3: Three Facilities Layouts SLIDE 23 Facilities Layouts: Product Layout SLIDE 24 Facilities Layouts: Process Layout SLIDE 25 Facilities Layouts: Fixed Position Layout SLIDE 26 Facilities Layout, Flexible Manufacturing, and Efficiency

Chapter 14 Operations Management: Managing Operations and Processes SLIDE 27 Facilities Manufacturing SLIDE 28 Just-in-Time Inventory and Efficiency: Inventory SLIDE 29 Just-in-Time Inventory and Efficiency: Just In Time (JIT) Inventory SLIDE 30 Just-in-Time Inventory and Efficiency SLIDE 31 Self-Managed Work Teams SLIDE 32 Process Reengineering and Efficiency: Process Reengineering SLIDE 33 Process Reengineering and Efficiency SLIDE 34 Topics for Discussion: Efficiency SLIDE 35 Operations Management: Some Remaining Issues SLIDE 36 Be the Manager SLIDE 37 End Slide