Management, 12th Edition Binder Ready Version By Schermerhorn
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Instructor’s Guide
Chapter 1:
INTRODUCING MANAGEMENT CHAPTER 1 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4. 5.
What are the challenges of working in the new economy? What are organizations like in the workplace? Who are the managers and what do they do? What is the management process? How do you learn essential managerial skills and competencies?
CHAPTER 1 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • •
Describe how intellectual capital, ethics, diversity, globalization, technology, and the changing nature of careers influence working in the new economy. Define intellectual capital, workforce diversity, and globalization. Explain how prejudice, discrimination, and the glass ceiling effect can hurt people at work. Describe how organizations operate as open systems. Explain productivity as a measure of organizational performance. Distinguish between performance effectiveness and performance efficiency. List several ways in which organizations are changing today. Describe the various types and levels of managers. Define accountability and quality of work life, and explain their importance to managerial performance. Discuss how managerial work is changing today. Explain the role of managers in the upside-down pyramid view of organizations. Define and give examples of each of the management functions—planning, organizing, leading, and controlling. Explain Mintzberg’s view of what managers do, including the 10 key managerial roles. Explain Kotter’s points on how managers use agendas and networks to fulfill their work responsibilities. Define three essential managerial skills—technical, human, and conceptual skills. Explain Katz’s view of how these skills vary in importance across management levels. Define emotional intelligence as an important human skill. List and give examples of personal competencies important for managerial success.
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CHAPTER 1 OVERVIEW Work in the new economy is increasingly knowledge based, and people, with their capacity to bring valuable intellectual capital to the workplace, are the ultimate foundation of organizational performance. The chapter begins with a section on understanding the challenges of working today. The world of work is undergoing dynamic and challenging changes that provide great opportunities along with tremendous uncertainty. These changes are due to the impact of important trends regarding worker talent, technological change, globalization, ethical standards, workforce diversity, and careers. After setting up this framework for the changing environment in which organizations operate, the chapter goes on to describe organizations as open systems which interact with their environments in the process of transforming resource inputs into finished goods and services as product outputs. From this point, the bulk of the chapter describes managers and their work; detailing that managers directly support, supervise, facilitate and help activate the work efforts of other people in organizations. Next, the chapter explores the management process consisting of the four functions of planning, organizing, leading, and controlling, followed by the roles and skills managers need for success. The chapter concludes with a discussion of the learning framework that is provided in Management 12/e.
CHAPTER 1 LECTURE OUTLINE Teaching Objective: To increase awareness of how a dynamic and changing environment affects organizations, managers, and the management process in the new workplace. Suggested Time: Two to three hours of class time is recommended to present this chapter. Attempts to cover the material in less time are discouraged since this introductory chapter serves as a foundation for subsequent topics. I.
Takeaway Question 1: What are the challenges of working in the new economy? Talent Technology Globalization Ethics Diversity Careers
II.
Takeaway Question 2: What are organizations like in the new workplace? What is an organization? Organizations as systems Organizational performance Changing nature of organizations
III.
Takeaway Question 3: Who are managers and what do they do? What is a manager?
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Levels of managers Types of managers Managerial performance Changing nature of managerial work IV.
Takeaway Question 4: What is the management process? Management functions Managerial roles and activities Managerial agendas and networks
V.
Takeaway Question 5: How do you learn essential managerial skills and competencies? Essential managerial skills Developing managerial potential
CHAPTER 1 SUPPORTING MATERIALS Textbook Inserts Learning from Others • Smart people create their own futures Learning about Yourself • Self-Awareness Figures • Figure 1.1: Organizations as Open Systems Interacting with Their Environments • Figure 1.2: Productivity and the Dimensions of Organizational Performance • Figure 1.3: Management Levels in Typical Business and Nonprofit Organizations • Figure 1.4: The Organization as an Upside-Down Pyramid • Figure 1.5: Four Functions of Management – Planning, Organizing, Leading, and Controlling • Figure 1.6: Katz’s Essential Managerial Skills – Technical, Human, and Conceptual • Figure 1.7: Management 12/e Learning Model for Developing Managerial Skills and Competencies Thematic Boxes • Salesforce.com Puts Software in the Cloud • Teach for America Offers Chance to Do Good While Gaining Experience • Ethics on the Line: It May Be a Way to Gain Visibility with the Big Boss: But Is It the Right Thing to Do? • Facts for Analysis: Women Among New College Graduates= 54%; Female CEOs in Fortune 500 Firms = 3.6% • Management Smarts: Early Career Survival Skills
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Recommended Reading: Delivering Happiness: A Path to Profits, Passion and Purpose Follow the Story: We Have to Make Sure What Corporations Do Doesn’t Add Costs to Society Research Brief: Worldwide Study Identifies Success Factors in Global Leadership
Applications • Self-Test • Further Reflections: Self-Awareness • Self-Assessment: Career Readiness • Team Exercise: My Best Manager • Case 1: Trader Joe’s: Keeping a Cool Edge
CHAPTER 1 LECTURE NOTES LEARNING FROM OTHERS on page 2 of the text discusses how college graduates need to take future employment into their own hands, whether it be using an online job service, such as, Monster.com, or starting their own business. Ask students what they are doing about a future career. Will they, or have they, used a website like Monster.com, or are they planning to strike out on their own? LEARNING ABOUT YOURSELF on page 3 discusses self-awareness and how it affects one’s ability to learn, grow, and develop. Utilizing the Johari Window, get students to reflect on how each quadrant can help or hinder self-awareness.
TAKEAWAY QUESTION 1: WHAT ARE THE CHALLENGES OF WORKING IN THE NEW ECONOMY? Today’s working environment has changed dramatically due to the complex world in which we live. No longer can one be complacent, unskilled, or even expect job security. Innovation, cost competitiveness, and technology are the driving forces today. Career advancement today demands initiative and self-awareness, as well as continuous learning. TALENT According to management scholars Charles O’Reilly and Jeffrey Pfeffer, high performing companies achieve success by being better than competitors by getting extraordinary results from the people working for them. People –– what they know, what they learn, and what they do with it –– are the ultimate foundations of organizational performance.
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People represent intellectual capital, which is the collective brainpower or shared knowledge of a workforce that is used to create value. The intellectual capital equation of Intellectual Capital = Competency x Commitment defines today’s workplace. Workers’ talents and capabilities represent competency, while willingness to work hard defines commitment. A knowledge worker is someone whose mind is a critical asset to employers and who adds to the intellectual capital of the organization. TECHNOLOGY The world is driven by technology, so one must develop a high Tech IQ, that is, the ability to use technology and commitment to stay informed on the latest technological developments. We hold meetings in virtual space, eliminating physical distances. Work is done from home or anywhere we might be. We meet as virtual teams, sharing files and information, all without ever meeting face-to-face. GLOBALIZATION The national boundaries of world business have largely disappeared due in part to globalization, which is the worldwide interdependence of resource flows, product markets, and business competition that characterizes the new economy. As such, countries and peoples are now interconnected through news, travel, lifestyles, employment, along with, financial and business dealings. ETHICS Ethics set moral standards of what is “good” and “right” in the conduct of a person or group. Every week, we learn about the unethical behavior of business executives that cause great harm to those who entrust them to do the right thing. Much of this is due to the lack of active oversight of management decisions and company actions by boards of directors. As such, it is imperative that students realize integrity is the key to leadership and the responsibility for setting the ethical tone of the organization comes from the top. ETHICS ON THE LINE on page 8 of the text describes a scenario where a young executive at a competitive company of Coke was offered the secret formula but has to decide what to do. Have some students play the part of the young executive making the decision, and then discuss the behavior in terms of being ethical or not.
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DIVERSITY Workforce diversity describes the composition of the workforce in terms of differences among members. Today’s increasingly diverse and multicultural workforce should be an asset that, if tapped, creates opportunities for performance gains. Unfortunately, positive diversity messages do not always reflect work realities due to prejudice, discrimination, and the glass ceiling effect. • Prejudice is the display of negative, irrational attitudes toward members of diverse populations. • Discrimination actively denies minority members the full benefits of organizational membership. • The glass ceiling effect is an invisible barrier or “ceiling” that prevents women and minorities from rising above a certain level of organizational responsibility. FACTS FOR ANALYSIS on p. 10 of the text presents statistics that support the existence of a glass ceiling for women in terms of senior management positions and salaries. CAREERS College students who are looking for their first full-time job in a tight economy will find the task challenging. To improve one’s chances, however, internships are often the pathway to success. British scholar Charles Handy uses the analogy of the shamrock organization to describe the career implications for employees in today’s dynamic environment. Each leaf of the shamrock has a different career implication. Workers must be prepared to prosper in any of the shamrock’s three leaves. 1. The first leaf is a core group of full-time employees who follow standard career paths. This group is shrinking. 2. The second leaf consists of contract or free-lance workers that provide specialized skills and talents on a contract basis, and then change employers when projects are completed. This group is replacing a part of those in the first leaf. 3. The third leaf contains part-time workers who are hired only as needed and for only the number of hours needed. Even though these workers replace some in the first leaf, they are also the first to lose their jobs during economic downturns. Should current trends continue, as a member of the free-agent economy, job changing and flexible contracts will become a staple of everyday life. MANAGEMENT SMARTS on page 10 of the text describes critical skills for the new workplace: • Mastery: You need be good at something; you need to be able to contribute something of value to your employer.
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• • • • •
Networking: You need to know people; links with peers and others within and outside the organization are essential to get things done. Entrepreneurship: You must act as if you are running your own business, spotting ideas and opportunities and acting to embrace them. Technology: You have to embrace technology; you must be willing and able to fully utilize what becomes newly available. Marketing: You need to be able to communicate your successes and progress, both yours personally and those of your work team. Passion for renewal: You need to be continuously learning and changing, always updating yourself to best meet future demands.
DISCUSSION TOPIC Conduct a brainstorming session with students to identify recent examples of each of the preceding characteristics of 21st century work environments (i.e., talent, technology, globalization, ethics, diversity, and careers). After generating a sufficient number of examples, focus class discussion on the implications of these examples for managerial activities.
TAKEAWAY QUESTION 2: WHAT ARE ORGANIZATIONS LIKE IN THE NEW WORKPLACE? WHAT IS AN ORGANIZATION? An organization is a collection of people working together to achieve a common purpose. The broad purpose of any organization is to provide quality products and services to customers in a socially responsible way, while ensuring customer satisfaction. ORGANIZATIONS AS SYSTEMS Organizations are open systems that interact with their environments in the continual process of transforming resource inputs into product outputs in the form of finished goods and/or services. Figure 1.1 on page 12 of the text illustrates organizations as open systems. The external environment is a critical element of the open systems view of organizations because it is both a supplier of resources and the source of customers, and has a significant impact on the organization’s operations and outcomes. Feedback from the environment tells an organization how well it is doing in meeting the needs of customers.
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ORGANIZATIONAL PERFORMANCE Using resources well and serving customers is a process of value creation through organizational performance. When operations add value to the original cost of resource inputs, then: 1. a business organization can earn a profit—that is, sell a product for more than the cost of making it 2. a nonprofit organization can add wealth to society—that is, provide a public service that is worth more than its cost (e.g., fire protection in a community) A common way to describe how well an organization is performing overall is productivity, which is a summary measure of the quantity and quality of work performance with resource utilization taken into account. Performance effectiveness is an output measure of task or goal accomplishment. Performance efficiency is an input measure of the resource costs associated with goal accomplishment. Figure 1.2 on p. 12 of the text illustrates the relationship between performance effectiveness and performance efficiency CHANGING NATURE OF ORGANIZATIONS Among recent trends in changes in organizations, the following organizational transitions are especially relevant to your study of management: • Focus on valuing human capital • Demise of “command-and-control” • Emphasis on teamwork • Preeminence of technology • Importance of networking • New workforce expectations • Priorities on sustainability
TAKEAWAY QUESTION 3: WHO ARE THE MANAGERS AND WHAT DO THEY DO? WHAT IS A MANAGER? A manager is a person in an organization who directly supports, supervises, and helps activate the work efforts and performance accomplishments of others.
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The people who are supported and helped by managers are usually called direct reports, team members, work associates or subordinates. These people are the essential human resources whose tasks represent the real work of the organization. LEVELS OF MANAGERS At the highest levels of business organizations, as shown in Figure 1.3 on page 14 of the text, we find a board of directors whose members are elected by the stockholders to represent their ownership interests. Below the board level, top managers are responsible for the performance of an organization as a whole or for one of its larger parts. 1. Common job titles for top managers are chief executive officer (CEO), president, and vice-president. 2. Top managers scan the environment, create and communicate long-term vision, and ensure that strategies and performance objectives are consistent with the organization’s purpose and mission. Reporting to top managers are middle managers, who are in charge of relatively large departments or divisions consisting of several smaller work units. 1. Common job titles for middle managers are clinic directors in hospitals; deans in universities; and division managers, plant managers, and regional sales managers in businesses. 2. Middle managers work with top managers and coordinate with peers to develop and implement action plans to accomplish organizational objectives. The first job in management is typically a team leader or supervisor, who is in charge of a small work group composed of non-managerial workers. Though job titles for these managerial positions vary greatly, some of the more common ones are department head, group leader, and unit manager.
DISCUSSION TOPIC To illustrate the differences among different levels management, ask students to identify people they know who have been or are now managers. Have these students describe the nature of the work done by the managers they know. Then have the students analyze these descriptions and classify them according to top managers, middle managers, and team leaders and supervisors.
TYPES OF MANAGERS In addition to serving at different levels of authority, managers work in different capacities within organizations. • Line managers are responsible for work that makes a direct contribution to the organization’s outputs.
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• • • •
Staff managers use special technical expertise to advise and support the efforts of line workers. Functional managers have responsibility for a single area of activity, such as finance, marketing, production, human resources, accounting, or sales. General Managers are responsible for activities covering many functional areas. Administrators are managers who work in public or nonprofit organizations.
DISCUSSION TOPIC Ask the students if they have had any experience as team leaders or supervisors. After having those with such experience describe their jobs, relate the job components to the list of performance responsibilities of team leaders and supervisors that is presented in MANAGEMENT SMARTS 1.2. Compare the students’ responses to the items on this list.
MANAGERIAL PERFORMANCE All managers help others, working individually and in groups, to achieve productivity while using their talents to accomplish organizational goals. Accountability is the requirement of one person to answer to a higher authority for performance results in his or her area of responsibility. Boards of directors instill corporate governance, by holding top management accountable for organizational performance. All managers should try to be effective managers, by helping others achieve high performance outcomes while maintaining a high quality of work life environment. Quality of work life is the overall quality of human experiences in the workplace. A high quality of work life is one that offers the individual worker such things as: 1. Fair pay. 2. Safe working conditions. 3. Opportunities to learn and use new skills. 4. Room to grow and progress in a career. 5. Protection of individual rights and wellness. CHANGING NATURE OF MANAGERIAL WORK Many trends in organizations require new thinking from those who serve as managers. We are in a time when the best managers are known more for “helping” and “supporting” than for “directing” and “order giving.” There is less and less tolerance for managers who simply sit back and tell others what to do.
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FIGURE 1.4, on page 17 of the text, illustrates the concept of the “upside-down pyramid.” The operating workers are at the top of the upside-down pyramid, just below the customers and clients they serve. They are supported in their work efforts by managers below them. These managers clearly are not just order-givers; they are there to mobilize and deliver the support others need to do their jobs best and serve customer needs. RECOMMENDED READING on p. 16 of the text highlights the unique management and organizational culture at Zappos.com.
TAKEAWAY QUESTION 4: WHAT IS THE MANAGEMENT PROCESS? The ultimate “bottom line” in every manager’s job is to help an organization achieve high performance by best utilizing its human and material resources. FUNCTIONS OF MANAGEMENT FIGURE 1.5 on page 18 of the text illustrates the four functions of management The management process of planning, organizing, leading, and controlling is the use of resources to accomplish performance goals. • Planning is the process of setting objectives and determining what should be done to accomplish them. • Organizing is the process of assigning tasks, allocating resources, and coordinating work activities. • Leading is the process of arousing enthusiasm and inspiring efforts to achieve goals. • Controlling is the process of measuring performance and taking action to ensure desired results.
DISCUSSION TOPIC Divide students into discussion groups of five to six members. Have each group select a different campus organization to analyze. Each group should explore how the chosen campus organization exhibits planning, organizing, leading, and controlling.
RESEARCH BRIEF on page 18 of the text describes a worldwide study that identifies success factors in global leadership. FOLLOW THE STORY on page 19 of the text provides an example of integrating social responsibility and sustainability into the managerial process at PepsiCo.
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MANAGERIAL ROLES AND ACTIVITIES Henry Mintzberg’s ten different managerial roles are organized as: • • •
Interpersonal roles (i.e., figurehead, leader, and liaison) involve interactions with people inside and outside the work unit. Informational roles (i.e., monitor, disseminator, and spokesperson) involve giving, receiving, and analyzing information. Decisional roles (i.e., entrepreneur, disturbance handler, resource allocator, and negotiator) involve using information to make decisions in order to solve problems or address opportunities.
There is no doubt that managerial work is a busy, demanding, and stressful type of work. A summary of research on the nature of managerial work finds the following about managerial work: • Managers work long hours. • Managers work at an intense pace. • Managers work at fragmented and varied tasks. • Managers work with many communication media. • Managers accomplish their work largely through interpersonal relationships.
DISCUSSION TOPIC Have students draw on their work, educational, athletic team, or other extracurricular experiences to identify examples of how people in managerial and leadership positions enact the various interpersonal, informational, and decisional roles.
MANAGERIAL AGENDAS AND NETWORKING According to management scholar John Kotter, there are two basic challenges that effective managers must master: 1. Agenda setting involves managers’ development of action priorities for their jobs; these action priorities include goals and plans spanning long and short time frames. 2. Networking is the process of building and maintaining positive relationships with people whose help may be needed to implement one’s work agendas, creating social capital – a capacity to attract support and help from others in order to get things done.
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TAKEAWAY QUESTION 5: HOW DO YOU LEARN ESSENTIAL MANAGERIAL SKILLS AND COMPETENCIES? Workers everywhere are expected to become involved, participate fully, demonstrate creativity, and find self-fulfillment in their work. These expectations place a premium on lifelong learning, which is the process of continuously learning from our daily experiences and opportunities. LEARNING HOW TO MANAGE Learning is a change in behavior that results from experience. This is a lifelong continuous process. ESSENTIAL MANAGERIAL SKILLS A skill is the ability to translate knowledge into action that results in desired performance. A technical skill is the ability to use expertise to perform a task with proficiency. A human skill is the ability to work well in cooperation with other people. Emotional intelligence is the ability to manage ourselves and our relationships effectively. A conceptual skill is the ability to think analytically and solve complex problems. It is based on cognitive intelligence – a competency to think systematically, identify cause and effect links, and recognize patterns in events and data.
DISCUSSION TOPIC Have students discuss the roles that technical skills, human skills, and conceptual skills play in their professors’ performance of their jobs. Then have the students think of their own educational pursuits as a job. What roles do technical skills, human skills, and conceptual skills play in the students’ performance of their jobs?
FIGURE 1.6 on page 23 of the text describes Katz’s essential managerial skills and illustrates how these changes in relative importance as management responsibility increases. DEVELOPING MANAGERIAL POTENTIAL Managerial skills and competencies are developed through:
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Experience and self-assessment – engaging experience and coming to terms with where you presently stand in respect to skills, personal characteristics, and understandings. Inquiry and reflection – the process of discovering, thinking about, and understanding the knowledge base of management. Analysis and application – engaging in critical thinking, putting theory into practice and problem-solving.
FIGURE 1.7 on p. 25 of the text illustrates the learning model for developing managerial skills and competencies.
CHAPTER 1 TAKEAWAY QUESTIONS SUMMARY Takeaway Question 1: What are the challenges of working in the new economy? • Work in the new economy is increasingly knowledge based, and intellectual capital is the foundation of organizational performance. • Organizations must value the talents and capabilities of a workforce whose members are increasingly diverse with respect to gender, age, race and ethnicity, able-bodiedness, and lifestyles. • The forces of globalization are bringing increased interdependencies among nations and economies, as customer markets and resource flows create intense business competition. • Ever-present developments in information technology are reshaping organizations, changing the nature of work, and increasing the value of knowledge workers. • Society has high expectations for organizations and their members to perform with commitment to high ethical standards and in socially responsible ways. • Careers in the new economy require great personal initiative to build and maintain skill “portfolios” that are always up-to-date and valuable in a free agent economy. FOR DISCUSSION: How is globalization creating career risks and opportunities for today’s college graduates? Takeaway Question 2: What are organizations like in the new workplace? • Organizations are collections of people working together to achieve a common purpose. • As open systems, organizations interact with their environments in the process of transforming resource inputs into product and service outputs. • Productivity is a measure of the quantity and quality of work performance, with resource costs taken into account. • High-performing organizations achieve both performance effectiveness in terms of goal accomplishment, and performance efficiency in terms of resource utilization. FOR DISCUSSION: Is it ever acceptable to sacrifice performance efficiency for performance effectiveness?
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Takeaway Question 3: Who are the managers and what do they do? • Managers directly support and facilitate the work efforts of other people in organizations. • Top managers scan the environment, create strategies, and emphasize long-term goals; middle managers coordinate activities in large departments or divisions; team leaders and supervisors support performance of front-line workers at the team or work-unit level. • Functional managers work in specific areas such as finance or marketing; general managers are responsible for larger multifunctional units; administrators are managers in public or nonprofit organizations. • The upside-down pyramid view of organizations shows operating workers at the top, serving customer needs while being supported from below by various levels of management. • The changing nature of managerial work emphasizes being good at “coaching” and “supporting” others, rather than simply “directing” and “order-giving.” FOR DISCUSSION: In what ways could we expect the work of a top manager to differ from that of a team leader? Takeaway Question 4: What is the management process? • The management process consists of the four functions of planning, organizing, leading, and controlling. • Planning sets the direction; organizing assembles the human and material resources; leading provides the enthusiasm and direction; controlling ensures results. • Managers implement the four functions in daily work that is often intense and stressful, involving long hours and continuous performance pressures. • Managerial success requires the ability to perform well in interpersonal, informational, and decision-making roles. • Managerial success also requires the ability to build interpersonal networks to use them to accomplish well-selected task agendas. FOR DISCUSSION: How might the upside-down pyramid view of organizing affect a manager’s approach to planning, organizing, leading, and controlling? Takeaway Question 5: How do you learn the essential managerial skills and competencies? • Careers in the new economy demand continual attention to lifelong learning from all aspects of daily experience and job opportunities. • Skills considered essential for managers are broadly described as technical—ability to use expertise; human—ability to work well with other people; and conceptual—ability to analyze and solve complex problems. • Human skills are equally important for all management levels: while conceptual skills gain importance at higher levels and technical skills gain importance at lower levels. FOR DISCUSSION: Among the various managerial skills and competencies, which do you consider the most difficult to develop, and why?
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CHAPTER 1 KEY TERMS Accountability (p. 15): the requirement of one person to answer to a higher authority for performance results in his or her area of work responsibility. Administrator (p. 15): a manager in a public or nonprofit organization. Agenda setting (p.22): develops action priorities for accomplishing goals and plans. Board of directors (p. 14): members, elected by stock holders, ensure an organization is run properly. Conceptual skill (p. 24): the ability to think analytically to diagnose and solve complex problems. Controlling (p. 20): the process of measuring performance and taking action to ensure desired results. Corporate governance (p.16): occurs when a board of directors holds top management accountable for organizational performance. Discrimination (p. 9): occurs when minority members are unfairly treated and denied the full benefits of organizational membership. Effective manager (p. 16): a manager who helps others achieve high performance and satisfaction at work. Emotional intelligence (p. 24): the ability to manage ourselves and our relationships effectively. Ethics (p. 7): a code of moral principles that sets standards of what is “good” and “right” as opposed to “bad” or “wrong” in the conduct of a person or group. Free-agent economy (p, 10): an economy where people change jobs more often, and many work on independent contracts with a shifting mix of employers. Functional managers (p. 15): managers who have responsibility for a single area of activity, such as finance, marketing, production, personnel, accounting, or sales. General Managers (p. 15): managers responsible for complex multifunctional units. Glass ceiling effect (p. 9): an invisible barrier or “ceiling” that prevents women and minorities from rising above a certain level of organizational responsibility. Globalization (p. 6): the worldwide interdependence of resource flows, product markets, and business competition that characterizes our economy. Human skill (p. 24): the ability to work well in cooperation with other people. Intellectual capital (p. 5): the collective brainpower or shared knowledge of a workforce that can be used to create value. Intellectual Capital Equation p. 5): Intellectual Capital = Competency X Commitment. Knowledge worker (p. 5): someone whose mind is a critical asset to employers. Leading (p. 19): the process of arousing enthusiasm and inspiring efforts to achieve goals. Learning: (p. 23): a change in behavior that results from experience. Lifelong learning (p. 23): the process of continuous learning from all of our daily experiences and opportunities. Line managers (p. 15): managers who are responsible for work activities that make a direct contribution to the organization’s outputs. Management process (p. 17): the process of planning, organizing, leading, and controlling the use of resources to accomplish performance goals. Manager (p. 14): a person in an organization who supports, activates, and is responsible for the work of others.
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Middle managers (p. 15): managers who oversee the work of large departments or divisions. Networking (p. 22: the process of building and maintaining positive relationships with people whose help may be needed to implement one’s agenda. Open system (p. 11): a system that interacts with its environment, transforming resource inputs from the environment into product outputs. Organization (p. 11): a collection of people working together to achieve a common purpose. Organizing (p. 18): the process of assigning tasks, allocating resources, and coordinating work activities. Performance effectiveness (p. 12): an output measure of task or goal accomplishment. Performance efficiency (p. 13): an input measure of the resource cost associated with goal accomplishment. Planning (p. 18): the process of setting objectives and determining what should be done to accomplish them. Prejudice (p. 9): the display of negative, irrational attitudes toward members of diverse populations. Productivity (p. 12): the quantity and quality of work performance, with resource utilization considered. Quality of work life (p. 16): the overall quality of human experiences in the workplace. Self-management (p. 10): the ability to understand oneself, exercise initiative, accept responsibility, and learn from experience. Skill (p. 23): the ability to translate knowledge into action that results in desired performance. Shamrock organization (p. 10: an organization that operates with a core group of full-time long-term workers supported by others who work on contracts and part-time. Social capital (p. 22): a capacity to get things done with support and help from others. Staff managers (p. 15): managers who use special technical expertise to advise and support the efforts of line workers. Team leader (p. 15): someone in charge of a small work group composed of nonmanagerial workers. Tech IQ (p. 6): the ability to use technology and commitment to stay informed on the latest technological developments. Technical skill (p. 23): the ability to use expertise to perform a task with proficiency. Top managers (p. 14): guide the performance of an organization as a whole or of one of its major parts. Upside-down pyramid (p. 17): an alternative way of showing operating workers at the top serving customers while managers are at the bottom supporting these workers. Workforce diversity (p. 9): describes differences among workers in gender, race, age, ethnicity, religion, sexual orientation, and able-bodiedness.
SELF TEST ANSWERS 1.
The process of management involves the functions of planning, _________ leading, and controlling. (a) accounting (b) creating (c) innovating (d) organizing
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2.
An effective manager achieves both high-performance results and high levels of _________ among people doing the required work. (a) turnover (b) effectiveness (c) satisfaction (d) stress
3.
Performance efficiency is a measure of the _________ associated with task accomplishment. (a) resource costs (b) goal specificity (c) product quality (d) product quantity
4.
The requirement that a manager answer to a higher-level boss for results achieved by a work team is called __________. (a) dependency (b) accountability (c) authority (d) empowerment
5.
Productivity is a measure of the quantity and _________ of work produced, with resource utilization taken into account. (a) quality (b) cost (c) timeliness (d) value
6.
_________ managers pay special attention to the external environment, looking for problems and opportunities and finding ways to deal with them. (a) Top (b) Middle (c) Lower (d) First-line
7.
The accounting manager for a local newspaper would be considered a _________ manager, whereas the plant manager in a manufacturing firm would be considered a __________ manager. (a) general, functional (b) middle, top (c) staff, line (d) senior, junior
8.
When a team leader clarifies desired work targets and deadlines for a work team, he or she is fulfilling the management function of __________. (a) planning (b) delegating (c) controlling (d) supervising
9.
The process of building and maintaining good working relationships with others who may help implement a manager’s work agendas is called __________. (a) governance (b) networking (c) authority (d) entrepreneurship
10.
In Katz’s framework, top managers tend to rely more on their _________ skills than do first-line managers. (a) human (b) conceptual (c) decision-making (d) technical
11.
The research of Mintzberg and others concludes that managers __________. (a) work at a leisurely pace (b) have blocks of private time for planning (c) are never free from the pressures of performance responsibility (d) have the advantages of flexible work hours
12.
When someone with a negative attitude toward minorities makes a decision to deny advancement opportunities to a Hispanic worker, this is an example of __________. (a) discrimination (b) emotional intelligence (c) performance efficiency (d) prejudice
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13.
Among the trends in the new workplace, one can expect to find __________. (a) more order-giving (b) more valuing people as human assets (c) less teamwork (d) reduced concern for work-life balance
14.
The manager’s role in the “upside-down pyramid” view of organizations is best described as providing __________ so that operating workers can directly serve _________. (a) direction, top management (b) leadership, organizational goals (c) support, customers (d) agendas, networking
15.
The management function of __________ is being performed when a retail manager measures daily sales in the women’s apparel department and compares them with daily sales targets. (a) planning (b) agenda setting (c) controlling (d) delegating
16.
Discuss the importance of managerial ethics in the relationship between managers and the people they supervise. Managers must value people and respect subordinates as mature, responsible, adult human beings. This is part of their ethical and social responsibility as persons to whom others report at work. The work setting should be organized and managed to respect the rights of people and their human dignity. Included among the expectations for ethical behavior would be actions to protect individual privacy, provide freedom from sexual harassment, and offer safe and healthy job conditions. Failure to do so is socially irresponsible. It may also cause productivity losses due to dissatisfaction and poor work commitments.
17.
Explain how “accountability” operates in the relationship between (a) a manager and her subordinates, and (b) the same manager and her boss. The manager is held accountable by her boss for performance results of her work unit. The manager must answer to her boss for unit performance. By the same token, the manager’s subordinates must answer to her for their individual performance. They are accountable to her.
18.
Explain how the “glass ceiling effect” may disadvantage newly hired African-American college graduates in a large corporation. If the glass ceiling effect were to operate in a given situation, it would act as a hidden barrier to advancement beyond a certain level. Managers controlling promotions and advancement opportunities in the firm would not give them to African-American candidates, regardless of their capabilities. Although the newly hired graduates might progress for a while, sooner or later their upward progress in the firm would be halted by this invisible barrier.
19.
What is “globalization” and what are its implications for working in the new economy? Globalization means that the countries and peoples of the world are increasingly interconnected and that business firms increasingly cross national boundaries in acquiring resources, getting work accomplished, and selling their products. This internationalization of work will affect most everyone in the new economy. People will be working with others from different countries, working in other countries, and certainly buying and using
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products and services produced in whole or in part in other countries. As countries become more interdependent economically, products are sold and resources purchased around the world, and business strategies increasingly target markets in more than one country. 20.
You have just been hired as the new head of an audit team for a national accounting firm. With four years of experience, you feel technically well prepared for the assignment. However, this is your first formal appointment as a “manager.” Things are complicated at the moment. The team has 12 members of diverse demographic and cultural backgrounds, as well as work experience. There is an intense workload and lots of performance pressure. How will this situation challenge you to develop and use essential managerial skills and related competencies to successfully manage the team to high levels of auditing performance? One approach to this question is through the framework of essential management skills offered by Katz. At the first level of management, technical skills are important, and I would feel capable in this respect. However, I would expect to learn and refine these skills through my work experiences. Human skills, the ability to work well with other people, will also be very important. Given the diversity anticipated for this team, I will need good human skills. Included here would be my emotional intelligence, or the ability to understand my emotions and those of others when I am interacting with them. I will also have a leadership responsibility to help others on the team develop and utilize these skills so that the team itself can function effectively. Finally, I would expect opportunities to develop my conceptual or analytical skills in anticipation of higher-level appointments. In terms of personal development, I should recognize that the conceptual skills will increase in importance relative to the technical skills as I move upward in management responsibility. The fact that the members of the team will be diverse, with some of different demographic and cultural backgrounds from my own, will only increase the importance of my abilities in the human skills area. It will be a challenge to embrace and value differences to create the best work experience for everyone and to fully value everyone’s potential contributions to the audits we will be doing. Conceptually I will need to understand the differences and try to utilize them to solve problems faced by the team, but in human relationships I will need to excel at keeping the team spirit alive and keeping everyone committed to working well together over the life of our projects.
MANAGEMENT SKILLS AND COMPETENCIES: FURTHER REFLECTION: SELF-AWARENESS Students’ answers will vary based upon their individual experiences
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SELF ASSESSMENT: CAREER READINESS If students are realistic and honest with themselves and/or obtain feedback from another person’s assessment of their career readiness, this exercise can be used to motivate students to apply the theory and concepts learned from this course directly to their personal growth, which will increase their managerial competence.
TEAM EXERCISE: MY BEST MANAGER An icebreaker or two at the beginning of the semester will help students connect with one another. Here are two icebreakers that will get students talking to each other. The outcome of the exercises is that students will know at least two other people in the class. Hopefully, better acquaintance with one another will lead to more comfort in speaking up about issues important to the learning of the material in class. •
Introduce your group: Have students get into groups of 3 or 4. Ask each student in the group to talk about themselves to the other members of the group for 3 minutes without interruption. The instructor keeps time and calls out when three minutes are up. Then each group allows another member to talk for 3 minutes without interruption. After each member of each group has done so, have the group members introduce one another to the whole class and tell one interesting thing about each person in their group. For example, the first person might stand up and say: My name is Jane. This is Joe and he’s from Montana. This is Judy and she has a poodle named Jake. This is John and he likes to ski. Then the next group member would stand up and say. Hi my name is Joe. This is Jane and she….
•
Put students in groups of three and ask them to discover three things that they have in common. These three things should not be too obvious – like all three live in the same town, go to the same school and take the same class. The three things in common could include favorite types of music, a favorite restaurant in town, common vacation spots, having the same birth order, all having older brothers, having played sports in high school, etc. Have the students report to the class the more uncommon things they discovered that they had in common.
CAREER SITUATIONS: WHAT WOULD YOU DO? 1. The Foreign Employer 2. Interview for Dream Job 3. New Manager Supervising Old Friends Students’ answers will vary based upon their personal views and individual experiences.
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REVIEW QUESTIONS FOR CASE 1: TRADER JOE’S: KEEPING A COOL EDGE The case for this chapter describes Trader Joe’s, a gourmet, specialty and natural foods store with a unique culture and devoted customers. Instructors may consider suggesting students visit the Trader Joe’s website at www.traderjoes.com for further preparation as they prepare case answers. If there isn't a Trader Joe's in your area, consider showing one of the videos posted on YouTube by customers and people that would like Trader Joe's to locate in their community. Case discussion questions and suggested answers: 1. In what ways does Trader Joe’s demonstrate the importance of each responsibility in the management process – planning, organizing, leading and controlling? Planning is the process of setting performance objectives and actions taken to accomplish them. References to their commitment to thrift, cost savings and “relentless pursuit of value” (“Every penny we save is a penny you save”) and ways they demonstrate that commitment are numerous in the case. Their simple four-part philosophy and approach to stocking guides purchasing plans. Organizing involves arranging resources to accomplish organizational goals efficiently. Compensation at Trader Joes is high for the industry. This usually allows employers to hire better qualified employees even in a tight labor market, reducing training and turnover expenses. Their training programs (Trader Joe’s University) help develop employee potential to support their “promote-from-within” policy. Leading inspires people to work hard to achieve high performance. One responsibility of leadership that Trader Joe’s takes seriously is establishing a strong culture. Employees and customers alike are drawn to the chain’s “charming blend of low prices, tasty treats and laid-back but enthusiastic customer service.” Not only is the attitude casual, employee dress and store décor are a nautical and tropical theme. The company hires employees to fit the culture with desired soft skills such as “ambitious, adventurous, enjoy smiling and have a strong sense of values.” Controlling measures performance to ensure the desired results. Control, hand in hand with planning measure the success of the plan by measuring results. Store size, inventory control and aggressive cost cutting are measured and adjusted as necessary. 2. This is a German company operating in America and sourcing products from around the world. What are the biggest risks that international ownership and global events pose for Trader Joe’s performance effectiveness and performance efficiency? The risks would include economic risks like recession, currency valuation risk and problems with global sourcing such as the issues with Chinese food imports. Globalization also presents opportunities like the ability to work with providers worldwide to find low cost products.
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3. Problem Solving - At the age of 22 and newly graduated from college, Hazel has just accepted a job with Trader Joe's as a shift leader. She'll be supervising 4 team members who fill part-time jobs in the produce section. Given Trader Joe's casual and nontraditional work environment, what should she do and what should she avoid doing in the first few days of work to establish herself as an effective manager of this team? Hazel needs to study the unique culture of Trader Joe's to reduce the perception that she has arrived as an outsider. With a culture as strong as Trader Joe's, she needs to fit in quickly and learn the way they do things. Hazel also should study her job description and the job descriptions of her team members so she understands their roles. Trader Joe's has a promote-from-within policy. If Hazel is a new Trader Joe's employee, she needs to understand that she may have received the job in place of an employee that had applied for a promotion. Sensitivity should be used in dealing with existing employees. Learning as much as she can from other supervisors should be top priority. Hazel needs to avoid making new policies or changing procedures. Existing employees are more familiar with the way things are done at Trader Joe's than she is at this point. This is an opportunity to learn from her employees. 4. Further Research – Study news reports to find more information on Trader Joe’s management and organization practices. Look for comparisons with its competitors and try to identify whether or not Trader Joe’s has the right management approach and business model for continued success. Are there any internal weaknesses or external competitors or industry forces that might cause future problems? Students are directed to research Trader Joe’s and make comparisons with competitors. Caution students to conduct their online research with objective media sources. The college library may offer free searches such as EBSCO Host that access a large number of periodicals including industry publications that may provide thorough and accurate comparisons as well as current industry trends.
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Chapter 2:
MANAGEMENT LEARNING PAST TO PRESENT CHAPTER 2 TAKEAWAY QUESTIONS • • •
What can be learned from classical management thinking? What are the insights come from the behavioral management approaches? What are the foundations of modern management thinking?
CHAPTER 2 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • •
State the underlying assumption of the classical management approaches. List the principles of Taylor’s scientific management. List three of Fayol’s “principles” for guiding managerial action. List the key characteristics of bureaucracy and explain why Weber considered it an ideal form of organization. Identify possible disadvantages of bureaucracy in today’s environment. Explain Follett’s concept of organizations as communities. Define the Hawthorne effect. Explain how the Hawthorne findings influenced the development of management thought. Explain how Maslow’s hierarchy of needs operates in the workplace. Distinguish between Theory X and Theory Y assumptions, and explain why McGregor favored Theory Y. Explain Argyris’s criticism that traditional organizational practices are inconsistent with mature adult personalities. Define system, subsystem, and open system. Apply these concepts to describe the operations of an organization in your community. Define contingency thinking, knowledge management, and a learning organization. List characteristics of learning organizations. Describe evidence-based management and its link with scientific methods.
CHAPTER 2 OVERVIEW Historical records indicate that people have been “getting things done through others” since at least biblical times. In all likelihood, prehistoric people also practiced management in order to secure shelter, direct hunting expeditions, and cultivate the land. The systematic study of management through the use of the scientific method, however, is a relatively recent development. Contemporary managers can benefit from the organized body of knowledge we call “management.” It is a source of theories that managers can use to guide their actions. This chapter outlines the historical evolution of management thought. The systematic study of management as a science began in earnest with the classical management approaches. Individuals such as Frederick Taylor, Frank and Lillian Gilbreth, Henri Fayol, Mary Parker Follett, and Max Weber contributed greatly to the development of the scientific management, administrative principles, and bureaucratic organization branches of classical management. The theories and ideas of these individuals are discussed in detail along with the lessons that were .
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learned from these branches of the classical approach. Many of these lessons have value for managers in contemporary businesses. With the advent of the human resources (or behavioral management) approaches, the assumptions of management theory shifted away from the notion that people are rational toward the idea that people are social and self-actualizing. The Hawthorne studies and Abraham Maslow’s hierarchy of needs provided the impetus for this shift. Douglas McGregor’s Theory X and Theory Y and Chris Argyris’ ideas regarding worker maturity further refined the notions regarding the social and psychological motivations of workers. W. Edwards Deming brought about the quality movement in management, leading to the emergence of total quality management with the concept of continuous improvement. The chapter provides a thorough discussion of the contributions and insights of these behavioral management approaches. The chapter then examines modern approaches to management. The use of analytics, management science and operations management investigate how quantitative techniques can improve managerial decision making. Systems theory contributes to the modern perspective by providing managers with an appreciation for the complexity and dynamic interplay of organizations and their environments. Contingency thinking tries to match management practices with situational demands. Learning organizations continuously change and improve, using the lessons of experience. Finally, high-performance organizations consistently achieve excellence while creating a high-quality work environment. CHAPTER 2 LECTURE OUTLINE Teaching Objective: The purpose of this chapter is to expose students to the historical roots of management theory and practice. By understanding the theoretical foundations for modern management, students can develop a greater appreciation of the concepts advanced in subsequent chapters. Suggested Time: A minimum of 2 hours of class time is required to thoroughly present this chapter. I.
Study Question 1: What can be learned from classical management thinking? Scientific management Administrative principles Bureaucratic organization
II.
Study Question 2: What insights come from the behavioral management approaches? Organizations as communities The Hawthorne studies Maslow’s theory of human needs McGregor’s Theory X and Theory Y Argyris’s theory of adult personality
III.
Study Question 3: What are the foundations of modern management thinking? Quantitative analysis and tools Organizations as systems Contingency thinking Quality management Knowledge management and organizational learning Evidence-based management
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CHAPTER 2 SUPPORTING MATERIALS Textbook Inserts Learning from Others • There Are Many Pathways to Goal Achievement Learning about Yourself • Learning Style o Your Learning Style Figures • Figure 2.1: Major Branches in the Classical Approach to Management • Figure 2.2: Foundations in the Behavioral or Human Resource Approaches to Management • Figure 2.3: Maslow’s Hierarchy of Human Needs • Figure 2.4: Organizations as Complex Networks of Interacting Subsystems Thematic Boxes • Management Smarts 2.1: Practical Insights from Scientific Management • Taco Bell Wraps Things Up with Scientific Management • Facts for Analysis: Millennials Tend to Give Their Bosses Higher Ratings Than Do Gen Xers and Baby Boomers • Ethics on the Line: CEO Golden Parachutes Fly in the Face of Public Outrage • Follow the Story: His Life Changed and Its “Second Chapter” Started after Trekking in Nepal • Research Brief: Setting Personal Goals Improves Academic Performance • Recommended Reading: Great by Choice: Uncertainty, Chaos and Luck-Why Why Some Thrive Despite Them All by Jim Collins and Morten T. Hansen Applications • Self-Test • Further Reflection: Learning Style • Self-Assessment: Managerial Assumptions • Team Exercise: Evidence-Based Management Quiz • Career Situations: What Would You Do? • Case 2: Zara International CHAPTER 2 LECTURE NOTES LEARNING FROM OTHERS on page 32 of the text describes the different employment philosophies of Mark Zuckerberg of Facebook and Tony Hsieh of Zappos. Zuckerberg wants employees who join the company to learn and then leave, while Hsieh wants employees who plan to stay long term. LEARNING ABOUT YOURSELF on page 33 explains that every person has a particular way of learning, be it by watching, doing, experimenting, or thinking. Students are asked to think about the implications of their learning style and how it affects their relationships with others.
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Today’s managers can draw on management theory to guide their actions; they can learn from the insights of people throughout history who have thought about effective management. David Wren’s The Evolution of Management Thought notes that early management thinking began with the ancient Sumerian civilization in 5000 B. C. and evolved through many subsequent civilizations. During the Industrial Revolution, Adam Smith established the principles of specialization and division of labor. Henry Ford and others further popularized these principles through their emphasis on mass production. DISCUSSION TOPIC One way to introduce this chapter is to ask students, “Why do we bother to study management history?” Students are quick to point out that we can learn from the experiences of others, and can capitalize on their successes and avoid their mistakes. After all, those who are “ignorant of history are doomed to repeat it.”
TAKEAWAY QUESTION1: WHAT CAN BE LEARNED FROM CLASSICAL MANAGEMENT THINKING? FIGURE 2.1 on page 35 of the text depicts the major branches of the classical approach to management, which include scientific management, administrative principles, and bureaucratic organization. Classical approaches share a common assumption: People at work act in a rational manner that is primarily driven by economic concerns. Workers are expected to rationally consider opportunities made available to them and to do whatever is necessary to achieve the greatest personal and monetary gain. SCIENTIFIC MANAGEMENT Frederick Taylor is known as the “father” of scientific management, which emphasizes careful selection and training of workers and supervisory support. He advocated the following four principles of scientific management 1. Develop for every job a “science” that includes rules of motion, standardized work implements, and proper working conditions. 2. Carefully select workers with the right abilities for the job. 3. Carefully train workers to do the job and give them the proper incentives to cooperate with the job “science.” 4. Support workers by carefully planning their work and by smoothing the way as they go about their jobs. Although Taylor called his approach “scientific” management, contemporary scholars question his reporting and the scientific rigor underlying his studies.
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ENRICHMENT ACTIVITY Students can appreciate Taylor’s work better if they understand that since his youth he looked for the “one best way” of doing things. For example, he searched for the “best way” to take crosscountry walks. At Bethlehem Steel, Taylor searched for the “best way” to do various jobs. He studied the job of loading 92 pound “pigs of iron ore,” found a husky volunteer named Schmidt, and showed him the “best way” to load the ore. Interestingly, he told Schmidt to rest 58% of the time. The amount he could load rose from 12.5 to 47.5 tons per day and his wages rose 60%. In telling this story, ask a muscular student to load a mock pig of ore (use a moderately heavy object) before showing how to do so using fewer motions. This example illustrates the power of scientific management. Taylor popularized this approach, and its impact on manufacturing is still apparent. (Source: Wren, D.A. The Evolution of Management Thought, New York: The Ronald Press Company, 1972, pp. 112-133.)
MANAGEMENT SMARTS on page 36 of the text summarizes the following practical lessons from scientific management: 1. 2. 3. 4. 5.
Make results-based compensation a performance incentive. Carefully design jobs with efficient work methods. Carefully select workers with the abilities to do these jobs. Train workers to perform jobs to the best of their abilities. Train supervisors to support workers so they can perform jobs to the best of their abilities.
Frank and Lillian Gilbreth pioneered motion study –– the science of reducing a job or task to its basic physical motions. Wasted motions are eliminated to improve performance. As the text indicates, Worthington Industries in Ohio currently uses one of the techniques of motion study – time clocks. Each workstation has a clock that shows the goal time for the task, and the actual time it takes, which allows a worker to improve productivity. DISCUSSION TOPIC You may also want to point out to students that Henry Gantt, another contemporary of Frederick Taylor, made important contributions, including: (a) an innovative task and bonus wage scheme in which workers and supervisors received bonuses for exceeding standards; and (b) the Gantt chart which graphically depicts the scheduling of tasks required to complete a project. ADMINISTRATIVE PRINCIPLES Henri Fayol was a French executive who advanced the following five “rules” of management: 1. Foresight –– to complete a plan of action for the future. 2. Organization –– to provide and mobilize resources to implement the plan.
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3. Command –– to lead, select, and evaluate workers to get the best work toward the plan. 4. Coordination –– to fit diverse efforts together and ensure information is shared and problems solved. 5. Control –– to make sure things happen according to plan and to take necessary corrective action. Note the similarity of these “rules” to the contemporary management functions of planning, organizing, leading, and controlling. Fayol believed that management could be taught, and formulated principles to guide management practice. Fayol introduced the following key principles of management: 1. Scalar chain principle –– there should be a clear and unbroken line of communication from the top to the bottom of the organization. 2. Unity of command principle –– each person should receive orders from only one boss. 3. Unity of direction principle –– one person should be in charge of all activities that have the same performance objective. BUREAUCRATIC ORGANIZATION Max Weber, a German intellectual, introduced bureaucracy as an organizational structure that promotes efficiency and fairness. Weber viewed a bureaucracy as an ideal, intentionally rational, and very efficient form of organization founded on principles of logic, order, and legitimate authority. Characteristics of bureaucratic organizations include the following • Clear division of labor: Jobs are well defined, and workers become highly skilled at performing them. • Clear hierarchy of authority: Authority and responsibility are well defined for each position, and each position reports to a higher-level one. • Formal rules and procedures: Written guidelines direct behavior and decisions in jobs, and written files are kept for historical record. • Impersonality: Rules and procedures are impartially and uniformly applied, with no one receiving preferential treatment. • Careers based on merit: Workers are selected and promoted on ability and performance, and managers are career employees of the organization. Possible disadvantages of bureaucracy: • Excessive paperwork or “red tape.” • Slowness in handling problems. • Rigidity in the face of shifting customer or client needs. • Resistance to change. • Employee apathy. DISCUSSION TOPIC Modern management theory does not consider bureaucracy to be appropriate or inappropriate for all situations; instead, the bureaucratic structure is recommended for simple and stable
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environments, while more flexible structures are suggested for dynamic and complex environments. Ask students to explain why a bureaucratic organization would be an inappropriate structure for organizations operating in very dynamic and complex environments.
TAKEAWAY QUESTION 2: WHAT INSIGHTS COME FROM BEHAVIORAL MANAGEMENT APPROACHES? Behavioral approaches to management maintain that people are social and self-actualizing. People at work are assumed to seek satisfying social relationships, respond to group pressures, and search for personal fulfillment. Figure 2.2 on page 38 of the text depicts the foundations of the human resource approaches to management. These are the Hawthorne studies, Maslow’s theory of human needs, McGregor’s Theory X and Theory Y, Follett’s organizations as communities and Argyris’ theory of adult personality. The historical foundations set by these approaches are found in the field of organizational behavior, which is devoted to the study of individuals and groups in organizations. FOLLETT ON ORGANIZATIONS AS COMMUNITIES Mary Parker Follett describes organizations as communities within which managers and workers should labor in harmony, without one party dominating the other and with the freedom to talk over and truly reconcile conflicts and differences. FACTS FOR ANALYSIS on p. 39 Contrasts the differences between Millennials and Baby Boomers when these workers rate their bosses’ performance. THE HAWTHORNE STUDIES These studies started off as scientific management experiments designed to determine how economic incentives and the physical conditions of the workplace affected the output of workers. Despite repeated efforts, however, no consistent relationship was found. The researchers concluded that psychological factors had influenced the results. Social Setting and Human Relations Elton Mayo and his associates manipulated physical work conditions to assess their impact on output. Experiments were designed to minimize the “psychological factors” associated with previous experiments in the Hawthorne studies. Once again, output increased regardless of the changes made. Mayo and his colleagues concluded that increases arose from a group atmosphere that fostered pleasant social relations, and from the participative supervision found in the experimental groups. Employee Attitudes and Group Processes Interviews with employees revealed that some things (e.g., wages or working conditions) satisfied some workers but did not satisfy other workers.
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The final study showed that workers would restrict their output to satisfy group norms, even if this meant reduced pay. Lessons of the Hawthorne Studies People’s feelings, attitudes, and relationships with co-workers influence their performance. The Hawthorne effect was identified as a tendency of people who are singled out for special attention to perform as anticipated merely because of expectations created by the situation. The Hawthorne studies contributed to development of the human relations movement during the 1950s and 1960s, which asserted that managers who use good human relations in the workplace would achieve productivity. In turn, the human relations movement became the precursor of contemporary organizational behavior, the study of individuals and groups in organizations. DISCUSSION TOPIC To the Hawthorne researchers’ surprise, the workers in the Bank Wiring Room established an informal group norm regarding the quantity of output that was below the standard set by management. Output was restricted despite a group incentive plan that rewarded each worker on the basis of the total output of the group. Group members enforced this output restriction norm by using disciplinary devices such as sarcasm, ridicule, ostracizing co-workers, and “binging.” For fun, ask the students if they know what “binging” means; chances are they won’t. Then find a volunteer for a demonstration. Pretend that you are going to “bing” the student by punching him or her in the arm but stop short before making contact. This amuses the class while demonstrating the lengths that groups will go to in enforcing norms. Wrap up the demonstration by noting the contribution of the Hawthorne Studies in revealing these subtle group processes. ETHICS IN THE LINE on page 41 of the text examines the ethics of excessive CEO compensation packages and golden parachutes. MASLOW’S THEORY OF HUMAN NEEDS FIGURE 2.3 on page 42 of the text illustrates Maslow’s hierarchy of needs. A need is a physiological or psychological deficiency that a person feels compelled to satisfy. Maslow’s hierarchy identifies five levels of human needs: physiological, safety, social, esteem, and self-actualization. The deficit principle states that people act to satisfy “deprived” needs –– that is, needs for which a satisfaction deficit exists; conversely, a satisfied need is not a motivator of behavior.
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The progression principle states that the five needs exist in a hierarchy of prepotency, and that a need at any level only becomes activated once the preceding lower-level need is satisfied. The deficit and progression principles cease to operate at the self-actualization level. MCGREGOR’S THEORY X AND THEORY Y The Hawthorne studies and Maslow’s theory of human needs heavily influenced Douglas McGregor, the developer of Theory X and Theory Y. He argued that managers should devote more attention to people’s social and self-actualizing needs at work. McGregor asserted that managers must shift their perspective from Theory X assumptions to Theory Y assumptions. Theory X – managers assume that subordinates: 1. 2. 3. 4. 5.
Dislike work. Lack ambition Are irresponsible Resist change. Prefer to be led rather than to lead.
Theory Y – managers assume that subordinates are: 1. 2. 3. 4. 5.
Willing to work. Capable of self-control. Willing to accept responsibility. Imaginative and creative. Capable of self-direction. DISCUSSION TOPIC
Once you have presented the assumptions held by Theory X and Theory Y managers, ask students to think about supervisors they worked for and to indicate if the supervisors seemed to make Theory X or Theory Y assumptions about their subordinates. Then ask: “How did these supervisors treat their employees?” “Do you consider them to be good or bad managers?” McGregor believed that managers who hold either set of assumptions can create selffulfilling prophecies — that is, through their behavior they create situations where subordinates act to confirm their expectations. Theory X managers create situations where workers become dependent and reluctant. Theory Y managers create situations where workers respond with initiative and high performance. Theory Y assumptions are central to contemporary ideas about employee participation, involvement, empowerment, and self-management. FOLLOW THE STORY on p. 43 details the efforts of John Woods to bring literacy to Nepal through social entrepreneurship.
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ARGYRIS’ THEORY OF ADULT PERSONALITY Argyris asserts that some classical management principles such as task specialization, hierarchy of authority, and unity of direction inhibit worker maturation by discouraging independence, initiative, and self-actualization. Thus, these classical management principles are inconsistent with the mature adult personality. Argyris’ advice is to expand job responsibilities, allow more task variety, and adjust supervisory styles to allow more participation and promote better human relations. He believes that the common problems of employee absenteeism, turnover, apathy, alienation, and low morale may be signs of a mismatch between management practices and mature adult personalities. TAKEAWAY QUESTION 3: WHAT ARE THE FOUNDATIONS OF MODERN MANAGEMENT THINKING? QUANTITATIVE ANALYSIS AND TOOLS Today, managers use data to solve problems and make informed decisions using systematic analysis. This technique is known as analytics. The terms management science and operations research are often used interchangeably to describe the scientific applications of mathematical techniques to management problems. Operations management is the study of how organizations produce goods and services. Management science applications include: • • • • •
Mathematical forecasting which helps make future projections that are useful in the planning process. Inventory analysis helps control inventories by mathematically establishing how much to order and when. Queuing theory which helps allocate service personnel or workstations to minimize customer waiting time and service cost. Linear programming which is used to calculate how best to allocate scarce resources among competing uses. Network models break large tasks into smaller components to allow for better analysis, planning, and control of complex projects.
ORGANIZATIONS AS SYSTEMS A system is a collection of interrelated parts that function together to achieve a common purpose. A subsystem is a smaller component of a larger system. An open system interacts with its environment in a continual process of transforming inputs from suppliers into outputs for customers.
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FIGURE 2.4 on page 46 of the text shows organizations as complex networks of interacting subsystems. CONTINGENCY THINKING Contingency thinking tries to match managerial responses with the problems and opportunities specific to different situations, particularly those posed by individual and environmental differences. Contingency approaches to management assert that there is no one best way to manage. Instead, managers should understand situational differences and respond to them in appropriate ways. QUALITY MANAGEMENT W. Edwards Deming is the cornerstone of the quality movement in management. His approach to quality emphasizes constant innovation, use of statistical methods, and commitment to training in the fundamentals of quality assurance. Total quality management is a process of making a commitment to quality part of all operations. Continuous improvement is a process of always looking for new ways to improve. RESEARCH BRIEF on page 48 of the text describes research that shows how students engaged in personal goal setting will show academic improvement; therefore telling academic institutions that 1st year students should be helped in establishing goals. KNOWLEDGE MANAGEMENT AND ORGANIZATIONAL LEARNING Knowledge management is the process of using intellectual capital for competitive advantage and it consists of such things as patents, intellectual property rights, trade secrets, special processes and methods, and the accumulated knowledge and understanding of the entire workforce. Peter Senge, author of The Fifth Discipline, describes a learning organization as one that “by virtue of people, values, and systems is able to continuously change and improve its performance based upon the lessons of experience. Senge also states that the core ingredients of a learning organization are: • • • • •
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Mental models - everyone sets aside old ways of thinking. Personal mastery- everyone becomes self-aware and open to others. Systems thinking - everyone learns how the whole organization works. Shared vision - everyone understands and agrees to a plan of action. Team learning - everyone works together to accomplish the plan.
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DISCUSSION TOPIC Using the above core ingredients of learning organizations, have students analyze a business firm, a volunteer organization, or a college/university with which they are familiar. Make sure that they provide examples to illustrate each of the core ingredients. Also, you may wish to have them discuss how the presence or absence of these core ingredients seems to have affected the focal organization’s effectiveness, efficiency, and ability to compete. EVIDENCE-BASED MANAGEMENT Many of today’s scholars are critical of the scientific rigor used in establishing the historical foundations of management. Many past research studies are based on weak or questionable evidence, leading to questionable results. Jeffrey Pfeffer and Robert Sutton make the case for evidence-based management, which involves making decisions based on hard facts about what really works. Accordingly, managers should make decisions based on: • • • •
Practitioner experience and judgment Evidence from local content Critical evaluation of the best available research evidence Perspectives of those people who might be affected by the decision
Managers can have more confidence in accepting and applying research that satisfies the following criteria: • • • • •
A research question or problem is clearly identified. One or more hypotheses is stated to describe possible explanations. The research design provides for a good test of the hypothesis. Data are rigorously gathered, analyzed, and interpreted. Hypotheses are accepted or rejected and conclusions made based on the evidence.
CHAPTER 2 TAKEAWAY QUESTIONS SUMMARY Takeaway Question 1: What can be learned from classical management thinking? • • •
Frederick Taylor’s four principles of scientific management focused on the need to carefully select, train, and support workers for individual task performance. Henri Fayol suggested that managers should learn what are now known as the management functions of planning, organizing, leading, and controlling. Max Weber described bureaucracy with its clear hierarchy, formal rules, and well-defined jobs as an ideal form of organization.
FOR DISCUSSION: Should Weber’s notion of the ideal bureaucracy be scrapped, or is it still relevant today?
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Takeaway Question 2: What insights come from the behavioral management approaches? • • • • • •
The behavioral approaches shifted management attention toward the human factor as a key element in organizational performance. Mary Parker Follett describes organizations as communities within which people combined talents to work for a greater good. The Hawthorne studies suggested that work behavior is influenced by social and psychological forces and that work performance may be improved by better “human relations.” Abraham Maslow’s hierarchy of human needs introduced the concept of self-actualization and the potential for people to experience self-fulfillment in their work. Douglas McGregor urged managers to shift away from Theory X and toward Theory Y thinking, which views people as independent, responsible, and capable of self-direction in their work. Chris Argyris pointed out that people in the workplace are adults and may react negatively when constrained by strict management practices and rigid organizational structures.
FOR DISCUSSION: How can a manager still benefit by using insights from Maslow’s hierarchy of needs theory? Takeaway Question 3: What are the foundations of modern management thinking? • • • • • •
Analytics that use advanced quantitative techniques in decision sciences and operations management can help managers solve complex problems. Organizations are open systems that interact with their external environments, while consisting of many internal subsystems that must work together in a coordinated way to support the organization’s overall success. Contingency thinking avoids “one best way” arguments, instead recognizing the need to understand situational differences and respond appropriately to them. Quality management focuses on making a total commitment to product and service quality throughout an organization, maintaining continuous improvement and meeting world-wide quality standards such as ISO certification. Knowledge management is a process for developing, organizing, sharing, and using knowledge to facilitate organizational performance and create an environment for ongoing organizational learning. Evidence-based management uses findings from rigorous scientific research to identify management practices for high performance.
FOR DISCUSSION: Can system and subsystem dynamics help describe and explain performance problems for an organization in your community? CHAPTER 2 KEY TERMS Analytics (p. 45): the systematic use and analysis of data to solve problems and make informed decisions. Bureaucracy (p. 37): a rational and efficient form of organization founded on logic, order, and legitimate authority. Continuous improvement (p. 47): involves always searching for new ways to improve work quality and performance. Contingency thinking (p. 47): tries to match management practices with situational demands. Deficit principle (p. 41): a principle that says a satisfied need does not motivate behavior.
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Evidence-based management (p. 49): involves making decisions based on hard facts about what really works. Hawthorne effect (p. 41): the tendency of persons singled out for special attention to perform as expected. Human relations movement (p. 40): based on the viewpoint that managers who used good human relations in the workplace would achieve productivity. ISO certification (p. 48): indicates conformance with a rigorous set of international quality standards. Knowledge management (p. 49): the process of using intellectual capital for competitive advantage. Learning organization (p. 49): an organization that continuously changes and improves, using the lessons of experience. Motion study (p. 36): the science of reducing a task to its basic physical motions. Need (p. 41): a physiological or psychological deficiency that a person wants to satisfy. Open system (p. 46): interacts with its environment and transforms resource inputs into outputs. Organizational behavior (p. 38): the study of individuals and groups in organizations. Progression principle (p. 42): a principle that says a need is activated only when the next lower level need is satisfied. Scientific management (p. 35): emphasizes careful selection and training of workers and supervisory support. Self-fulfilling prophecies (p. 44): occurs when a person acts in ways that confirm another’s expectations. Subsystem (p. 46): a smaller component of a larger system. System (p. 46): a collection of interrelated parts working together for a purpose. Theory X (p. 43): assumes people dislike work, lack ambition, are irresponsible, and prefer to be led. Theory Y (p. 43): assumes people are willing to work, accept responsibility, and are selfdirected and creative. Total quality management (p. 47): an organization-wide commitment to continuous improvement, product quality, and customer needs.
SELF TEST ANSWERS 1.
The assumption that people are complex with widely varying needs is most associated with the ______________ management approaches. (a) classical (b) neoclassical (c) behavioral (d) modern
2.
The father of scientific management is ______________. (a) Weber (b) Taylor (c) Mintzberg (d) Katz
3.
When the registrar of a university deals with students by an identification number rather than a name, which characteristic of bureaucracy is being displayed and what is its intended benefit? (a) division of labor . . . competency (b) merit-based careers . . . productivity (c) rules and procedures . . . efficiency (d) impersonality . . . fairness
4.
If an organization was performing poorly and Henri Fayol was called in as a consultant, what would he most likely suggest to improve things?
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(a) teach managers to better plan and control (b) teach workers more efficient job methods (c) promote to management only the most competent workers (d) find ways to increase corporate social responsibility 5.
One example of how scientific management principles are applied in organizations today would be: (a) conducting studies to increase efficiencies in job performance. (b) finding alternatives to a bureaucratic structure. (c) training managers to better understand worker attitudes. (d) focusing managers on teamwork rather than individual jobs.
6.
The Hawthorne studies raised awareness of how __________________ can be important influences on productivity. (a) structures (b) human factors (c) physical work conditions (d) pay and rewards
7.
Advice to study a job, carefully train workers to do that job, and link financial incentives to job performance would most likely come from ______________. (a) scientific management (b) contingency management (c) Henri Fayol (d) Abraham Maslow
8.
The highest level in Maslow’s hierarchy includes ______________ needs. (a) safety (b) esteem (c) self-actualization (d) physiological
9.
A possible misfit between the mature adult personality and rigid practices of a bureaucratic organization was a major concern of ______________. (a) Argyris (b) Follett (c) Gantt (d) Fuller
10. When people perform in a situation as they are expected to, this is sometimes called the ______________ effect. (a) Hawthorne (b) systems (c) contingency (d) open-systems 11. Resource acquisition and customer satisfaction are important when an organization is viewed as a(n) ______________. (a) bureaucracy (b) closed system (c) open system (d) pyramid 12. The loan-processing department would be considered a ______________ of your local bank (a) subsystem (b) closed system (c) resource input (d) value center 13. When a manager notices that Sheryl has strong social needs and assigns her a job in customer relations and gives Kwabena lots of praise because of his strong ego needs, the manager is displaying ______________. (a) systems thinking (b) Theory X (c) motion study (d) contingency thinking 14. Which is the correct match? (a) Senge-motion study (b) McGregor-analytics (c) Deming-quality management (d) Maslow-Theory X and Y
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15. When managers try to avoid hearsay and make decisions based on solid facts and information, this is known as ______________. (a) continuous improvement (b) evidence-based management (c) TQM (d) Theory X management 16. Explain how McGregor’s Theory Y assumptions can create self- fulfilling prophecies consistent with the current emphasis on participation and involvement in the workplace. Theory Y assumes that people are capable of taking responsibility and exercising selfdirection and control in their work. The notion of self-fulfilling prophecies is that managers who hold these assumptions will act in ways that encourage workers to display these characteristics, thus confirming and reinforcing the original assumptions. The emphasis on greater participation and involvement in the modern workplace is an example of Theory Y assumptions in practice. Presumably, by valuing participation and involvement, managers will create self-fulfilling prophecies in which workers behave this way in response to being treated with respect. The result is a positive setting where everyone gains. 17. How do the deficit and progression principles operate in Maslow’s hierarchy-of-needs theory? According to the deficit principle, a satisfied need is not a motivator of behavior. The social need will only motivate if it is not present, or in deficit. According to the progression principle, people move step-by-step up Maslow’s hierarchy as they strive to satisfy needs. For example, once the social need is satisfied, the esteem need will be activated. 18. Define contingency thinking and give an example of how it might apply to management. Contingency thinking takes an “if-then” approach to situations. It seeks to modify or adapt management approaches to fit the needs of each situation. An example would be to give more customer contact responsibility to workers who want to satisfy social needs at work, while giving more supervisory responsibilities to those who want to satisfy their esteem or ego needs. 19. Explain why the external environment is so important in the open-systems view of organizations. The external environment is the source of the resources an organization needs to operate. In order to continue to obtain these resources, the organization must be successful in selling its goods and services to customers. If customer feedback is negative, the organization must make adjustments or risk losing the support needed to obtain important resources. 20. Enrique Temoltzin has just been appointed the new manager of your local college bookstore. Enrique would like to make sure the store operates according to Weber’s bureaucracy. Describe the characteristics of bureaucracy and answer this question: Is the bureaucracy a good management approach for Enrique to follow? Discuss the possible limitations of bureaucracy and the implications for managing people as key assets of the store. A bureaucracy operates with a strict hierarchy of authority, promotion based on competency and performance, formal rules and procedures, and written documentation. Enrique can do all of these things in his store, since the situation is probably quite stable and most work requirements are routine and predictable. However, bureaucracies are quite
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rigid and may deny employees the opportunity to make decisions on their own. Enrique must be careful to meet the needs of the workers and not to make the mistake—identified by Argyris—of failing to treat them as mature adults. While remaining well organized, the store manager should still be able to help workers meet higher-order esteem and selffulfillment needs, as well as assume responsibility consistent with McGregor’s Theory Y assumptions.
MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: LEARNING STYLE Students’ answers will vary according to their individual learning styles. SELF-ASSESSMENT: MANAGERIAL ASSUMPTIONS Instructions Read the following statements. Use the space to the left to write “Yes” if you agree with the statement, or “No” if you disagree with it. Force yourself to take a “yes” or “no” position. Do this for every statement. ___ 1. Are good pay and a secure job enough to satisfy most workers? ___ 2. Should a manager help and coach subordinates in their work? ___ 3. Do most people like real responsibility in their jobs? ___ 4. Are most people afraid to learn new things in their jobs? ___ 5. Should managers let subordinates control the quality of their own work? ___ 6. Do most people dislike work? ___ 7. Are most people creative? ___ 8. Should a manager closely supervise and direct work of subordinates? ___ 9. Do most people tend to resist change? ___ 10. Do most people work only as hard as they have to? ___ 11. Should workers be allowed to set their own job goals? ___ 12. Are most people happiest off the job? ___ 13. Do most workers really care about the organization that they work for? ___ 14. Should a manager help subordinates advance and grow in their jobs?
Scoring Count the number of “yes” responses to items 1, 4, 6, 8, 9, 10, and 2; write that number here as [X = _____]. Count the number of “yes” responses to items 2, 3, 5, 7, 11, 13, and 14; write that score here [Y = _____].
Interpretation This assessment provides insight into your orientation toward Douglas McGregor’s Theory X (your “X’ score) and Theory Y (your “Y” score) assumptions. You should review the discussion of McGregor’s thinking in Chapter 4 and consider further the ways in which you are likely to behave toward other people at work. Think, in particular, about the types of “self-fulfilling prophecies” you are likely to create.
Instructor’s Note The key to this assessment is for students to recognize the implications of their scores, particularly with respect to their behavior towards subordinates. You may want to provide students with an opportunity to discuss their scores with the classmate sitting next to them or in groups, before opening the discussion up to the class as a whole. Either way, it is a good idea to tell students that their scores are for their own
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benefit and it is not necessary to divulge them unless they want to do so. For those students who do wish to share their scores, however, be sure to ask them why they answered as they did. What kind of experiences have they had which lead to their assumptions about people? How might their scores affect them in their roles as group members? Leaders? What would it take to change their assumptions? Some students are likely to report mixed scores. These students will probably argue that their assumptions vary depending upon the types of people they would be managing. This provides you with a good opportunity to discuss the contingency approach to management. In other words, you might argue that the validity of Theory X and Theory Y assumptions, and the consequent ability of the manager to delegate depend upon the subordinates and the situation.
TEAM EXERCISE: EVIDENCE-BASED MANAGEMENT Answers: 1. T 2. F 3. F 4. T 5. T 6. F 7. T 8. T 9. T 10. T All answers and additional notes are found on research findings summarized on p. 988 of the Rynes, Giluk and Brown article from Academy of Management Journal; and p. 57 of the Allan, Bryant, and Vardaman article from Academy of Management Perspectives.
CAREER SITUATIONS: WHAT WOULD YOU DO? Although this chapter provides theoretical support for certain viewpoints, students’ answers will vary due to their own personal viewpoints. The class discussion provides an opportunity to discuss the importance of recognizing the issues that arise at work due to individual differences in perspectives between workers and managers.
CHAPTER 2 CASE: ZARA INTERNATIONAL: FASHION AT THE SPEED OF LIGHT Discussion Questions 1. In what ways are elements of the classical management and behavioral management approaches evident in how things are done at Zara International? Classical management finds the best way to produce a product or service so both workers and employers benefit from increased efficiencies. Zara seems to have embraced the efficiencies found in Weber's bureaucratic form of organizations. The rapid response to
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fashion trends requires efficient design, production, distribution and inventory management. All departments must clearly know their purpose with a clear division of labor, levels of authority are clearly defined, rules and procedures facilitate the fast turnaround necessary to get fresh fashions in the store within days of design. Fayol's administrative principles are in evidence in Zara's clear foresight or plan of action, organization allows fast mobilization of resources, command is evident in the vision and leadership of founder and chairman Amancio Ortega Gaona over the 80,000 workers, coordination requires close communication and efficient operations, and control is seen in their ambitious goals for growth. Behavioral management advocates that managers remember that people are social and selfactualizing. They respond to a group atmosphere and want to feel like they are making a contribution. Although there is little coverage of how Zara's management interacts or motivates workers, they are certainly appreciative of their contribution to bringing high fashion items to customers at affordable prices. 2. How can systems concepts and the notion of contingency thinking explain the success of some of Zara’s distinctive practices? Systems interact with their environments to obtain resources that are transformed into outputs for consumers. Zara uses fabrics, labor and the latest fashion trends from other designers to create high fashion at an affordable price. The subsystems at Zara include purchasing and inventory, distribution, information and technology, operations management and accounting and financial systems to transform the ideas and raw materials into fashionable garments. Zara chooses to keep most of these subsystems within the company rather than outsource them to outside contractors. Zara's organizational network of subsystems is designed to be responsive to new fashion trends and consumer buying patterns. They seem to be specifically designed to respond quickly to change. Contingency thinking is the process of adapting management to the unique circumstances of the organization. Management at Zara seems to have responded to the necessity for fast response to fashion trends and need for cost efficiencies to achieve their goals of low cost high fashion. In fact, their ability to respond quickly seems to be a strong competitive advantage. Problem Solving Inditex states that its existing logistics system can handle the company’s current pace of growth but will need updating soon. How could Inditex employ the concept of evidence-based management to inform its next logistics system? Inditex states that its existing logistics system can handle the company’s current pace of growth but will need updating soon. How could Inditex employ the concept of evidence-based management to inform its next logistics system? Although there is no arguing with Zara’s sales success, which is based on a tightly controlled supply chain that produces trendy clothing from the fabric to the retail floor in two weeks, in this model there is considerable pressure to make quick decisions. Evidence-based management involves making decisions based on “hard facts, which are sometimes difficult to obtain and fully analyze when there is so little time to gather external data. For example, currently 70% of Zara’s revenues come from Europe but its growth is predicted to come from online retailing and Asian markets. Inditex needs to be careful that its next logistics system allows sufficient time to
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integrate information from these new markets and their sales patterns into its decision making processes, rather than assuming that its current model is applicable. Evidence-based management would require studying these new market opportunities and possibly integrating some changes into their sales forecasting process. (See Zara Uses Operations Research to Reengineer Its Global Distribution Process, Interfaces; Jan/Feb2010, Vol. 40 Issue 1, p71-84, 14p for additional information)
Further Research Gather the latest information on competitive trends in the apparel industry, and on Zara's latest actions and innovations. Is the firm continuing to do well? Is it adapting in ways needed to stay abreast of both its major competition and the pressures of a changing global economy? Is Inditex still providing worthy management benchmarks for other firms to follow? Students should be encouraged to research Inditex as well as Zara. Caution students to conduct their online research with objective media sources. The college library may offer free searches such as EBSCO Host that access a large number of periodicals including industry publications that may provide thorough and accurate comparisons as well as current industry trends.
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Chapter 3:
ETHICS AND SOCIAL RESPONSIBILITY CHAPTER 3 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4.
What is ethical behavior? How do ethical dilemmas complicate the workplace? How can high ethical standards be maintained? What are social responsibility and corporate governance?
CHAPTER 3 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • • • •
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Define ethics. Explain why obeying the law is not always the same as acting ethically. Explain the difference between terminal and instrumental values. Identify the four alternative views of ethics. Contrast cultural relativism with universalism. Define ethical dilemma and give workplace examples. Identify Kohlberg’s stages of moral development. Explain how ethics intensity influences ethical decision making. Explain how ethics decisions are influenced by an organization’s culture and the external environment. List four common rationalizations for unethical behavior. Differentiate between amoral, immoral, and moral management. Compare and contrast ethics training and codes of ethical conduct as methods for encouraging ethical behavior in organizations. Identify common barriers to whistleblowing and the factors to consider when determining whether whistleblowing is appropriate. Define sustainability and corporate social responsibility. Discuss stakeholder management and identify key organizational stakeholders. Summarize arguments for and against corporate social responsibility. Define stewardship and explain its relationship to the triple bottom line. Explain the classical, socioeconomic and shared values approaches to corporate social responsibility Explain four possible social responsibility strategies. Discuss the importance of corporate self-governance and ethics self-governance.
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CHAPTER 3 OVERVIEW Ethical behavior and corporate social responsibility are critical issues for contemporary managers. This chapter seeks to make students aware of various ethical dilemmas they may face in their careers, while encouraging them to adopt high ethical standards. It also examines the role of social responsibility and governance in contemporary business. The chapter begins by defining key terms such as ethics and ethical behavior before considering these terms in a managerial context. The utilitarian, individualism, moral-rights, and justice views of ethical behavior are examined next. Opposing viewpoints on the relationship between culture and ethics are identified, as is the notion of universal ethical values for guiding the operations of multinational companies. Ethical dilemmas faced by managers are then described, along with a checklist for ethical decision-making. The person, situation, organization, and environment influences are discussed as factors for ethical behavior, along with four rationalizations for unethical behavior. Also considered are various approaches for maintaining high ethical standards, including ethics training, codes of ethical conduct, moral management, and whistleblower protection. The differences between immoral, amoral, and moral managers are also examined. From here, the focus of the chapter shifts to the related topics of sustainability and corporate social responsibility. The stakeholder model is introduced as a useful way for viewing corporate social responsibility efforts. Also provided is a summary of the beliefs that guide socially responsible business practices. The arguments “against” and “for” social responsibility, as well as four criteria for evaluating social performance are discussed. Finally, consideration is given to the social responsibility and organizational performance impacts of both boards of directors via corporate governance and the company’s managers via daily activities.
CHAPTER 3 LECTURE OUTLINE Teaching Objective: To expose students to the issues of managerial ethics and organizational social responsibility and to encourage them to adopt high ethical standards. In your discussion of these issues, be sure to stress the long-term benefits of ethical behavior and corporate social responsibility. Suggested Time: Two hours of class time are typically required to present the material in this chapter. I.
Takeaway Question 1: What is ethical behavior? Laws and values as determinants of ethical behavior Alternative views of ethics Cultural issues in ethical behavior
II.
Takeaway Question 2: How do ethical dilemmas complicate the workplace? Ethics in the workplace
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Ethical dilemmas Influences on ethical decision making Rationalizations for unethical behavior III.
Takeaway Question 3: How can high ethical standards be maintained? Moral Management Ethics training Codes of ethical conduct Whistleblower protection
IV.
Takeaway Question 4: What are social responsibility and corporate governance? Stewardship and the triple bottom line Stakeholders and stakeholder management Perspectives on corporate social responsibility Evaluating corporate social performance Corporate governance
CHAPTER 3 SUPPORTING MATERIALS Textbook Inserts Learning from Others • Everyone Gains When Our Planet Is A Priority Learning about Yourself • Individual Character o Self-Check for Signs of Hyper-competitiveness Figures • Figure 3.1: Four views of ethical behavior • Figure 3.2: Cultural relativism and universalism in international business ethics • Figure 3.3: Kohlberg’s levels of individual moral development • Figure 3.4: The many stakeholders of organizations • Figure 3.5: Four strategies of corporate social responsibility ⎯ from obstructionist to proactive behavior • Figure 3.6: Ethics self-governance in leadership and the managerial role Thematic Boxes • Selections from Universal Declaration of Human Rights • Child Labor Controversies Are an International Business Reality • Management Smarts: Quick Check for Dealing with Ethical Dilemmas • Facts for Analysis: The Most Common Unethical Acts by Managers Involve Verbal, Sexual, and Racial Harassment • Bernie Madoff’s Ponzi Scheme
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• • • • •
Ethics on the Line: Want a Car Loan? Get a Credit Check. Want a Job? Get a Social Media Check Management in Popular Culture: Ambition on the line in The Social Network Follow the Story: Business Education Must Reframe the “Winner Takes All Mentality” Research Brief: Prioritizing Stakeholders for Organizational Action IBM Finds That Shared Value Links Better Cities with Business Profits
Applications • Self-Test • Further Reflections: Individual Character • Self-Assessment: Terminal Values • Team Exercise: Confronting Ethical Dilemmas • Career Situations: What Would You Do? • Case Study 3: Patagonia—Leading a Green Revolution
CHAPTER 3 LECTURE NOTES LEARNING FROM OTHERS on page 56 tells the story of how Stonyfield Farm, the world’s largest maker of organic yogurt, is committed to the triple bottom line of being economically, socially, and environmentally responsible in all it does. LEARNING ABOUT YOURSELF on page 57 describes how some individuals change their character when in the business world and become hypercompetitive, thinking that winning is the only thing that matters. Ask students if they have ever been hypercompetitive in anything they have ever done, such as playing sports or achieving grades in school.
DISCUSSION TOPIC You can start the discussion of this chapter by asking students to identify examples of ethical and unethical business practices that they have read about, heard about, personally witnessed or experienced. Ask the students how these practices seem to have been viewed by the public at large. Also, have the students discuss how these practices seem to have affected the organization and relevant stakeholders in both the short term and the long term. To bring ethical and unethical behavior closer to home, discuss students’ behavior within the college/university context. Topics may include cheating, adherence to campus regulations, plagiarism, maintenance of the physical environment, or unauthorized use of materials or equipment.
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TAKEAWAY QUESTION 1: WHAT IS ETHICAL BEHAVIOR? Ethics can be defined as the code of moral principles that sets standards of good or bad, or right or wrong, in one’s conduct and thereby guides the behavior of a person or group. Ethical behavior is behavior that is accepted as “good” and “right” as opposed to “bad” or “wrong” in the context of the governing moral code. LAWS AND VALUES AS DETERMINANTS OF ETHICAL BEHAVIOR Anything legal is not necessarily ethical, since there may be different cultures with competing ethical frameworks within the same country, or even legislation that lags behind changes in moral positions within a society. What one considers ethical varies according to personal values –– the underlying beliefs and attitudes that help determine individual behavior. Types of values that influence ethical judgments: • Terminal values are preferences about desired end states. • Instrumental values are preferences regarding the means for accomplishing desired ends. ALTERNATIVE VIEWS OF ETHICS FIGURE 3.1 on page 59 of the text illustrates the four views of ethical behavior. Utilitarian view –– ethical behavior is that which delivers the greatest good to the most people. Individualism view –– ethical behavior is that which advances long-term self-interests. Moral-rights view –– ethical behavior is that which respects and protects the fundamental rights of all people. Justice view –– ethical behavior is that which is impartial and fair in treating people according to legal rules and standards. • • • •
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Procedural justice –– the degree to which policies and rules are fairly applied. Distributive justice –– the degree to which people are treated the same regardless of individual characteristics based on ethnicity, race, gender, age, or other particularistic criteria. Interactional justice –– the degree to which others are treated with dignity and respect. Commutative justice – the degree to which an exchange or a transaction is fair to all parties.
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All of these ethical views have drawbacks. • Utilitarian view – relies on the assessment of future outcomes that are difficult to predict and measure accurately. • Individualism view – presumes that individuals are self-regulating. • Moral-rights view – provides for individual rights, but does not ensure that the outcomes associated with protecting those rights are beneficial to the majority of society. • Commutative Justice view – places an emphasis on fairness and equity, but this viewpoint raises the question of which type of justice is paramount.
DISCUSSION TOPIC Ask students for examples of each of the above views of ethical behavior. These can be either hypothetical examples, from current events or situations they have encountered in their own lives. Ask them to indicate which view they think is the most useful in business, and why. Also ask them to indicate which view they think is the most useful in their personal lives, and why. Compare and contrast the two sets of answers, exploring the nature and reasons for any differences in the two sets.
CULTURAL ISSUES IN ETHICAL BEHAVIOR Ethical management in a global environment is challenged by the complexities of different cultures and value systems throughout the world. Cultural relativism is the notion that there is no one right way to behave and that ethical behavior is always determined by the cultural context. Moral Absolutism suggests ethical standards apply universally across all cultures Critics claim moral absolutism is a form of ethical imperialism or the attempt to impose one’s ethical standards on others. FIGURE 3.2 on page 62 of the text contrasts cultural relativism and moral absolutism. Business ethicist Thomas Donaldson argues instead that certain fundamental rights and ethical standards, or “hyper-norms” should transcend cultural boundaries. Even with a commitment to the core values underlying a trans-cultural ethical umbrella, international business behaviors can be tailored to local and regional cultural contexts.
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TAKEAWAY QUESTION 2: HOW DO ETHICAL DILEMMAS COMPLICATE THE WORKPLACE? ETHICAL DILEMMAS An ethical dilemma occurs when someone must choose whether or not to pursue a course of action that, although offering the potential of personal or organizational benefit or both, may be considered unethical. Potential sources of ethical dilemmas include: • discrimination • sexual harassment • conflicts of interest • product safety • organizational resources According to one survey, 56% of U.S. workers feel pressured to act unethically in their jobs, and 48% said they had committed questionable acts within the past year.
DISCUSSION TOPIC A good way to get students thinking about ethical dilemmas and to generate a lively discussion is to ask students how they would respond to the following three dilemmas. The range of student responses is likely to be quite broad. Next, you can present the results of the Harvard Business Review survey from which they were taken. Case 1: foreign payment. A governmental official of a foreign nation asks you to pay a $200,000 consulting fee. In return for the money, the official promises special assistance in obtaining a $100 million contract that would produce at least a $5 million profit for your company. The contract will probably go to a foreign competitor if not won by you. Survey results: 42% of the responding managers would refuse to pay; 22% would pay, but consider it unethical; 36% would pay and consider it ethical in a foreign context. Case 2: competitor’s employee. You learn that a competitor has made an important scientific discovery. It will substantially reduce, but not eliminate, your profit for about a year. There is a possibility of hiring one of the competitor’s employees who knows the details of the discovery. Survey results: 50% would probably hire the person; 50% would not. Case 3: expense account. You learn that a manager in your company who earns $50,000 a year has been padding his expense account by about $1,500 a year. Survey results: 89% feel padding is okay if superiors know about it; 9% feel it is unacceptable regardless of the circumstances. (Source: Brenner, S.N., and Mollander, E.A. “Is the Ethics of Business Changing?” Harvard Business Review, January-February 1977, Volume 55, p. 60.)
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MANAGEMENT SMARTS on page 64 of the text provides a checklist for dealing with ethical dilemmas. Step 1. Recognize the ethical dilemma. Step 2. Get the facts and identify your options. Step 3. Test each option: Is it legal? Is it right? Whom does it affect? Who benefits? Who gets hurt? Step 4. Decide which option to follow. Step 5. Double-check with the spotlight questions: “How will I feel if my family finds out about my decision?” “How will I feel if my decision is reported in the local newspaper or posted on the Internet? Step 6. Take action.
DISCUSSION TOPIC Ask small groups of students to identify an ethical dilemma that commonly occurs for students as they pursue their educations. Each group should focus on a different dilemma. Then have each group discuss how their dilemma should be handled, given the checklist contained in Management Smarts
INFLUENCES ON ETHICAL DECISION MAKING Increased awareness of typical influences on ethical behavior can help you better deal with future ethical pressures and dilemmas. The illustration on page 64 of the text illustrates factors influencing ethical managerial behavior – the person, situation, organization, and the external environment. Factors influencing ethical managerial behavior: •
The person: o Family influences, religious values, personal standards, and personal needs, financial and otherwise, will help determine a person’s ethical conduct in any given circumstance. o Those with solid ethical frameworks, personal rules or strategies for ethical decision-making, will be more consistent and confident. o Personal values that give priority to such virtues as honesty, fairness, integrity, and self-respect provide ethical anchors that help people make correct decisions even when circumstances are ambiguous and situational pressures are difficult. Figure 3.3 on page 65 of the text describes Lawrence Kohlberg’s three levels of moral development:
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Preconventional – the individual is self-centered. Conventional – the individual is social-centered. Postconventional – the individual is principle-centered. •
The situation: o Ethical dilemmas can catch individuals off guard, or cause one not to see a dilemma at all. o Depending on the circumstances, behavior is controlled by ethics intensity, which indicates the degree to which an issue or a situation is recognized to pose important ethical challenges. In essence, the greater the ethical intensity of the situation, increased awareness will more likely cause the decision maker to act in an ethical way.
•
The organization: o Supervisors can have a major impact on their subordinates’ behaviors by what is requested of the subordinate, and how a subordinate’s actions are rewarded or punished. o Peers and group norms have a similar impact. o Formal policy statements and written rules are also helpful.
•
The environment: o Organizations operate in competitive environments influenced by government laws and regulations as well as social norms and values. o Laws interpret social values to define appropriate behaviors for organizations and their members; regulations help governments monitor these behaviors and keep them within acceptable standards. The SarbanesOxley Act of 2002 now makes it easier for corporate executives to be tried and sentenced to jail for financial misconduct. o The climate of competition in an industry also sets a standard of behavior for those who hope to prosper within it.
RATIONALIZATIONS FOR UNETHICAL BEHAVIOR Convincing yourself that the behavior is not really illegal. • This rationalization is particularly common in ambiguous situations. A good rule of thumb is “When in doubt, don’t do it.” Convincing yourself that the behavior is in everyone’s best interest. • This rationalization involves the mistaken belief that because someone may benefit, the behavior is also in the interest of the individual or the organization. When asking, “How far can I push matters to obtain this performance goal?” the best answer is “Don’t try to find out.” Convincing yourself that nobody will ever find out what you’ve done. • This argument assumes no crime is committed unless it is discovered. To deter this view, make sure that sanctions for wrongdoing are public.
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Convincing yourself that the organization will “protect” you. • This implies the organization will condone the practice, but organizational norms should not be put above the law or social morality.
DISCUSSION TOPIC Ask students for examples of rationalizations for unethical behavior that they have used themselves or have observed others using. Discuss the individual and organizational effects of these rationalizations.
TAKEAWAY QUESTION 3: HOW CAN HIGH ETHICAL STANDARDS BE MAINTAINED? MORAL MANAGEMENT An immoral manager chooses to behave unethically. An amoral manager fails to consider the ethics of his or her behavior, but does so unintentionally. A moral manager makes ethical behavior a personal goal. Management scholar Archie Carroll suggests that most managers are amoral, in that they remain mostly uninformed or undisciplined in considering the ethical aspect of behavior. ETHICS TRAINING Ethics training refers to structured programs that help participants understand the ethical aspects of decision-making, and help people incorporate high ethical standards into their daily behaviors. Ethics training helps people deal with ethical issues while under pressure. CODES OF ETHICAL CONDUCT A code of ethics is a formal statement of an organization’s values and ethical standards that provide guidelines on how to behave in situations susceptible to ethical dilemmas. Most codes of ethical conduct identify expected behavior in terms of • General organizational citizenship • The avoidance of illegal or improper acts in one’s work • Good relationships with customers.
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Areas often covered in written codes of ethics include the following: • Bribes and kickbacks. • Political contributions. • Honesty of books or records. • Customer-supplier relationships. • Coworker relationships. • Confidentiality of corporate information. Ethical codes cannot cover all situations; nor are they automatic insurance for universal ethical conduct. WHISTLEBLOWER PROTECTION A whistleblower is a person who exposes the misdeeds of others in organizations to preserve ethical standards and protect against wasteful, harmful, or illegal acts. Federal and state laws increasingly offer whistleblowers some protection from retaliatory discharge. Still, legal protection can be inadequate. Top reasons for not reporting wrongdoing are • The belief that no corrective action would be taken. • The fear that reports would not be kept confidential. Organizational barriers to whistleblowing include: • A strict chain of command that makes it difficult to bypass the boss. • Strong work group identities that encourage loyalty and self-censorship. • Ambiguous priorities that make it difficult to distinguish right from wrong.
DISCUSSION TOPIC Ask students to describe what they would do if they happened to be in a situation where they could become whistleblowers. Then share the following practical tips for whistleblowers: 1. Do make sure you really understand what is happening and that your allegation is absolutely correct. 2. Do not assume the law automatically protects you. 3. Do talk to an attorney to ensure that your rights will be protected and proper procedures are followed. 4. Do not talk first to the media. 5. Do keep accurate records to document your case; keep copies outside of your office. 6. Do not act in anticipation of a big financial windfall if you end up being fired. 7.
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TAKEAWAY QUESTION 4: WHAT ARE SOCIAL RESPONSIBILITY AND CORPORATE GOVERNANCE? SOCIAL RESPONSIBILITY Sustainability is acting in ways that support a high quality of life for present and future generations Corporate social responsibility (CSR) is the obligation of the organization to act in ways that serve both its own interests and the interests of society at large. A commitment to social responsibility highlights the importance of the triple bottom line of a firm’s economic, social, and environmental performance. Follow the Story on page 72 of the text describes how business school students are challenged to serve the greater good by abandoning a “winner task all mentality” for the collective good of society. In view of the many corporate scandals plaguing society today, college students, who will be seeking future jobs, favorably view organizations that follow ethical and socially responsible practices. STAKEHOLDERS AND STAKEHOLDER MANAGEMENT Stakeholders are the persons, groups, and other organizations directly affected by the behavior of the organization and hold a stake in its performance. Commonly cited stakeholders are: • employees • educational institutions • suppliers • legal institutions • customers • financial institutions • owners/stockholders • public interest groups • labor unions • future generations • competitors • federal, state and local governments These stakeholders are similar to those of any organization. As shown in the Research Brief on page 74 of the text, the needs of stakeholders with the most power are given priority versus those with urgency or legitimacy. Select an
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organization where a student works or volunteers and ask which stakeholders are viewed as the most powerful, and which demands would be seen as urgent or legitimate. PERSPECTIVES ON CORPORATE SOCIAL RESPONSIBILITY While the classical and socioeconomic views of corporate social responsibility have stimulated debate in academic and public policy circles, the notion of a shared values approach advocated by Porter and Kramer advocates that decisions should be made that produce win-win solutions, i.e., both economic progress for the firm and social progress for the broader community. • • •
The classical view of corporate social responsibility holds that management’s only responsibility in running a business is to maximize profits. The socioeconomic view of corporate social responsibility holds that management of any organization must be concerned with the broader social welfare and not just with corporate profits. The shared value view of corporate social responsibility holds that business should focus on broader social welfare as well as profits.
The arguments of the classical view “against” social responsibility and the arguments of the socioeconomic view “in favor of” social responsibility are summarized below. Arguments against corporate social responsibility Reduced business profits. Higher business costs. Dilution of business purpose. Too much social power for businesses.
In favor of corporate social responsibility Will add long-run profits for businesses. Improve public image of businesses. Help businesses to avoid more governmental regulation. Businesses have the resources and ethical obligation to act responsibly.
Lack of business accountability to the public. In today’s world, the public at large expects businesses and other organizations to act with genuine social responsibility. Research indicates that high performance in social responsibility can be associated with strong financial performance and, at worst, has no adverse financial impact. Indeed, evidence suggests there is a virtuous circle regarding the relationship between improved financial performance and additional emphasis on corporate social responsibility. EVALUATING CORPORATE SOCIAL PERFORMANCE A social responsibility audit is a systematic assessment and reporting of an organization’s accomplishments in areas of social responsibility. .
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Social performance is driven by either compliance (i.e., acting to avoid adverse consequences) or conviction (i.e., acting to create positive impact). FIGURE 3.5 on p. 76 of the text describes four strategies of social responsibility in terms of level of commitment to social responsibility. These strategies are: • The obstructionist strategy (“fight the social demands”) meets the organization’s economic responsibility. • The defensive strategy (“do the minimum legally required”) meets the organization’s economic and legal responsibilities. • The accommodative strategy (“do the minimum ethically required”) meets the organization’s economic, legal, and ethical responsibilities. • The proactive strategy (“take leadership in social initiatives”) meets all the criteria of social performance –– economic, legal, ethical, and discretionary responsibilities. FIGURE 3.6 on page 77 of the text illustrates ethics self-governance in leadership and the managerial role. While working to fulfill our accountability for achieving performance objectives, we must be certain to do so in an ethical and socially responsible manner.
DISCUSSION TOPIC Discuss ways in which businesses can protect the environment and save money at the same time, such as grocery stores selling low-priced canvas bags to replace paper or plastic ones; coffee shops encouraging patrons to bring in their own cups; and fast food restaurants providing recycling bins so customers can sort their trash. Ask students for other examples.
CORPORATE GOVERNANCE Corporate governance is the oversight of the top management of an organization by a board of directors. Governance typically involves hiring, firing, and compensating the CEO; assessing strategy; and verifying financial records. Considerable pressure exists for corporate governance to be the key guarantor that businesses and other organizations run properly. When governance is weak and corporate scandals occur, sometimes the government will step in with laws such as the Sarbanes-Oxley Act. Ethics self-governance is making sure day-to-day performance is achieved ethically and in socially responsible ways. Many industries today have developed self-governance policies to police themselves, resulting in enhanced industry reputations and limited government regulation.
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CHAPTER 3 TAKEAWAY QUESTIONS SUMMARY Takeaway Question 1: What is ethical behavior? • • • • •
Ethical behavior is that which is accepted as “good” or “right” as opposed to “bad” or “wrong.” Because an action is not illegal does not necessarily make it ethical in a given situation. Because values vary, the question “What is ethical behavior?” may be answered differently by different people. The utilitarian, individualism, moral-rights, and justice views offer alternative ways of thinking about ethical behavior. Cultural relativism argues that no culture is ethically superior to any other; universalism argues that certain ethical standards apply everywhere.
FOR DISCUSSION: Is there ever a justification for cultural relativism in international business ethics? Takeaway Question 2: How do ethical dilemmas complicate the workplace? • • •
An ethical dilemma occurs when someone must decide whether to pursue a course of action that, although offering the potential for personal or organizational benefit or both, may be unethical. Managers report that their ethical dilemmas often involve conflicts with superiors, customers, and subordinates over such matters as dishonesty in advertising and communications, as well as pressure from bosses to do unethical things. Common rationalizations for unethical behavior include believing the behavior is not illegal, is in everyone’s best interests, will never be noticed, or will be supported by the organization.
FOR DISCUSSION: Are ethical dilemmas always problems, or can they also be opportunities? Takeaway Question 3: How can high ethical standards be maintained? • • • •
Ethics training can help people better deal with ethical dilemmas in the workplace. Written codes of ethical conduct formally state what an organization expects of its employees regarding ethical behavior at work. Immoral managers intentionally choose to behave unethically; amoral managers do not really pay attention to or think through the ethics of their actions or decisions; moral managers consider ethical behavior a personal goal. Whistleblowers expose the unethical acts of others in organizations, even while facing career risks for doing so.
FOR DISCUSSION: Is it right for organizations to require employees to sign codes of conduct and undergo ethics training?
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Takeaway Question 4: What are social responsibility and corporate governance? • • • • • •
Social responsibility is an obligation of the organization to act in ways that serve both its own interests and the interests of its many stakeholders. The triple bottom line for assessing organizational performance evaluates how well organizations are doing on economic, social, and environmental performance. The argument against corporate social responsibility says that businesses should focus on making profits; the argument for corporate social responsibility says that businesses should use their resources to serve broader social concerns. An organization’s social performance can be evaluated on how well it meets economic, legal, ethical, and discretionary responsibilities. Corporate strategies in response to demands for socially responsible behavior include obstruction, defense, accommodation, and proaction. Corporate governance is the responsibility of a board of directors to oversee the performance of the organization’s top management.
FOR DISCUSSION: What questions would you include on a social audit for an organization in your community?
CHAPTER 3 KEY TERMS Accommodative strategy (p. 76): a social responsibility strategy that meets the organization’s economic, legal, and ethical responsibilities by “doing the minimum that is ethically required.” Amoral manager (p. 69): a manager who fails to consider the ethics of his or her behavior, but does so unintentionally. Classical view of corporate social responsibility (p. 74): a view that management’s only responsibility in running a business is to maximize profits. Code of ethics (p. 70): a formal statement of an organization’s values and ethical principles that provides guidelines on how to behave in situations susceptible to ethical dilemmas. Commutative justice (p. 61): the degree to which an exchange or a transaction is fair to all parties. Corporate governance (p. 77): the oversight of the top management of an organization by a board of directors. The obligation of an organization to serve the interests of society in addition to its own interests. Corporate social responsibility (p. 71): the obligation of an organization to serve the interests of society in addition to its own interests. Cultural relativism (p. 62): the notion that there is no one right way to behave and that ethical behavior is always determined by the cultural context. Defensive strategy (p. 76): seeks to protect the organization by doing the minimum legally necessary to satisfy expectations of social responsibility. Demand legitimacy (p. 73): refers to the extent to which a stakeholder’s demand is perceived to be valid. Distributive justice (p. 61): focuses on the degree to which outcomes are distributed fairly.
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Ethical behavior (p. 58): behavior that is accepted as “good” and “right” as opposed to “bad” or “wrong” in the context of the governing moral code. Ethical dilemma (p. 63): a situation that requires a choice regarding a possible course of action that, although offering the potential of personal or organizational benefit or both, may be considered unethical. Ethical framework (p. 64): a personal rule or strategy for making ethical decisions. Ethical imperialism (p. 62): the attempt to impose one’s ethical standards on other cultures. Ethics (p. 58): establish standards of good or bad, or right or wrong in one’s conduct. Ethics intensity (p. 65): describes the extent to which an issue or a situation is perceived to pose important ethics challenges. Ethics self-governance (p. 77): making sure day-to-day performance is achieved ethically and in socially responsible ways. Ethics training (p. 70): structured programs to help participants understand the ethical aspects of decision-making and to incorporate high ethical standards into their daily behavior. Immoral manager (p. 69): a manager who chooses to behave unethically. Individualism view (p. 60): ethical behavior is that advances long-term self-interests. Instrumental values (p. 59): preferences regarding the means for accomplishing desired ends. Interactional justice (p. 61): the degree to which others are treated with dignity and respect. Issue urgency (p. 73): the extent to which a stakeholder’s demand requires immediate attention. Justice view (p. 60): ethical behavior that is impartial and fair in treating people according to legal rules and standards. Moral absolutism (p. 62): applying ethical standards universally across all cultures. Moral manager (p. 69): a manager who makes ethical behavior a personal goal. Moral-rights view (p. 60): ethical behavior that respects and protects the fundamental rights of people. Obstructionist strategy (p. 76): avoids social responsibility and reflects mainly economic priorities of an organization. Proactive strategy (p. 76): a social responsibility strategy that meets the organization’s economic, legal, ethical, and discretionary responsibilities by “taking leadership in social initiatives.” Procedural justice (p. 60): the degree to which policies and rules are fairly applied to all individuals. Shared value view (p. 75): approaching business decisions with the understanding that economic and social progress are interconnected. Social responsibility audit (p. 76): assesses an organization’s accomplishments in areas of social responsibility. Socioeconomic view of corporate social responsibility (p. 75): a view that management of any organization must be concerned with social welfare and not just corporate profits. Stakeholder power (p. 73): refers to the capacity of the stakeholder to affect positively or negatively the operations of the organization. Stakeholders (p. 73): persons, groups, and other organizations that are directly affected by the behavior of the organization and that hold a stake in its performance. Stewardship (p. 72): taking personal responsibility to always respect and protect the interests of society at large. Sustainability (p. 71): acting in ways that support a high quality of life for present and future generations.
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Terminal values (p. 59): preferences about desired end states. The 3 Ps of organizational performance (p. 73): are profit, people and planet. Triple bottom line (p. 73): evaluates organizational performance on economic, social, and environmental criteria. Utilitarian view (p. 60): ethical behavior is that which delivers the greatest good to the most people. Values (p. 59): the underlying beliefs and attitudes that help determine individual behavior. Virtuous circle (p. 75): occurs when corporate social responsibility improves the financial performance of a firm, which in turn leads to more socially responsible actions in the future. Whistleblower (p. 71): individual who exposes the misdeeds of others in organizations to preserve ethical standards and protect against wasteful, harmful, or illegal acts.
SELF TEST ANSWERS 1.
Values are personal beliefs that help determine whether a behavior will be considered ethical or unethical. An example of terminal value is __________. (a) ambition (b) self-respect (c) courage (d) imagination
2.
Under the __________ view of ethical behavior, a business owner would be considered ethical if she reduced a plant’s workforce by 10% in order to cut costs to keep the business from failing and thus save jobs for the other 90%. (a) utilitarian (b) individualism (c) justice (d) moral-rights
3.
A manager’s failure to enforce a late-to-work policy the same way for all employees on the day shifts and night shifts is an ethical violation of __________ justice. (a) ethical (b) moral (c) distributive (d) procedural
4.
The Sarbanes-Oxley Act of 2002 makes it easier for corporate executives to __________. (a) protect themselves from shareholder lawsuits (b) sue employees who commit illegal acts (c) be tried and sentenced to jail for financial misconduct (d) shift blame for wrongdoing to boards of directors
5.
Two “spotlight” questions for conducting the ethics double-check of a decision are (a) “How would I feel if my family found out about this?” and (b) “How would I feel if _________?” (a) my boss found out about this (b) my subordinates found out about this (c) this was printed in the local newspaper (d) this went into my personnel file
6.
Research on ethical dilemmas indicates that __________ is/are often the cause of unethical behavior by people at work. (a) declining morals in society (b) lack of religious beliefs (c) the absence of whistleblowers (d) pressures from bosses and superiors
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7.
Customers, investors, employees, and regulators are examples of __________ that are important in the analysis of corporate social responsibility. (a) special-interest groups (b) stakeholders (c) ethics advocates (d) whistleblowers
8.
A(n) __________ is someone who exposes the ethical misdeeds of others. (a) whistleblower (b) ethics advocate (c) ombudsman (d) stakeholder
9.
A proponent of the classical view of corporate social responsibility would most likely agree with which of these statements? (a) Social responsibility improves the public image of business. (b) The primary responsibility of business is to maximize business profits. (c) By acting responsibly, businesses avoid government regulation. (d) Businesses can and should do “good” while doing business.
10.
An amoral manager __________. (a) always acts in consideration of ethical issues (b) chooses to behave unethically (c) makes ethics a personal goal (d) takes action without considering whether or not the behavior is ethnical.
11.
An organization that takes the lead in addressing emerging social issues is being __________, showing the most progressive corporate social responsibility strategy. (a) accommodative (b) defensive (c) proactive (d) obstructionist
12.
The criterion of __________ responsibility identifies the highest level of conviction by an organization to operate in a responsible manner. (a) economic (b) legal (c) ethical (d) discretionary
13.
Which viewpoint emphasizes that business can find ways to profit by doing things that advance the well being of society? (a) classical (b) shared value (c) defensive (d) obstructionist
14.
A manager shows self-governance when he or she always tries to achieve performance objectives in ways that are __________. (a) performance effective (b) cost efficient (c) quality oriented (d) ethical and socially responsible
15.
The triple bottom line of organizational performance focuses on the “3 Ps” of profit, people and _________. (a) principle (b) procedure (c) planet (d) progress
16.
Explain the difference between the individualism and justice views of ethical behavior. The individualism view is that ethical behavior is that which best serves long-term interests. The justice view is that ethical behavior is fair and equitable in its treatment of people.
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17.
List four common rationalizations for unethical managerial behavior. The rationalizations are believing that: (1) the behavior is not really illegal, (2) the behavior is really in everyone’s best interests, (3) no one will find out, and (4) the organization will protect you.
18.
What are the major arguments for and against corporate social responsibility? The socioeconomic view of corporate social responsibility argues that socially responsible behavior is in a firm’s long-run best interest. It should be good for profits, it creates a positive public image, it helps avoid government regulation, it meets public expectations, and it is an ethical obligation.
19.
What is the primary difference between immoral and amoral management? Management scholar Archie Carroll describes the immoral, ammoral, and moral manager this way. An immoral manager does bad things on purpose, choosing to behave unethically. The ammoral manager does bad things sometimes, but this is not intentional or calculated; it happens because the ammoral manager just doesn't incorporate ethics into his or her analysis of the situation. The moral manager, by contrast, always includes ethics as a criterion for evaluating his or her approach to decisions and situations. This manager strives to act ethically and considers ethical behavior a personal goal.
20.
A small outdoor clothing company has just received an attractive offer from a business in Bangladesh to manufacture its work gloves. The offer would allow for substantial cost savings over the current supplier. The company manager, however, has read reports that some Bangladeshi businesses break their own laws and operate with child labor. How would differences in the following corporate responsibility strategies affect the manager’s decision regarding whether to accept the offer: obstruction, defense, accommodation, and proaction? The manager could make a decision based on any one of the strategies. As an obstructionist, the manager may assume that Bangladesh needs the business and that it is a local matter as to who will be employed to make the gloves. As a defensive strategy, the manager may decide to require the supplier to meet the minimum employment requirements under Bangladeshi law. Both of these approaches represent cultural relativism. As an accommodation strategy, the manager may require that the supplier go beyond local laws and meet standards set by equivalent laws in the United States. A proactive strategy would involve the manager in trying to set an example by operating in Bangladesh only with suppliers who not only meet local standards, but also actively support the education of children in the communities in which they operate. These latter two approaches would be examples of universalism.
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MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: INDIVIDUAL CHARACTER Students’ answers will vary based upon their individual experiences. SELF ASESSMENT: TERMINAL VALUES Interpretation Terminal values reflect a person’s preferences concerning the “ends” to be achieved. They are the goals individuals would like to achieve in their lifetimes. Following the scoring instructions in the text, encourage students to share their answers to the questions. Cultural differences among students may produce some interesting variations in the rankings.
TEAM EXERCISE: CONFRONTING ETHICAL DILEMMAS Preparation Read and indicate your response to each of the situations below. A. Ron Jones, vice president of a large construction firm, receives in the mail a large envelope marked “personal.” It contains a competitor’s cost data for a project that both firms will be bidding on shortly. The data are accompanied by a note from one of Ron’s subordinates saying: “This is the real thing!” Ron knows that the data could be a major advantage to his firm in preparing a bid that can win the contract. What should he do? B. Kay Smith is one of your top-performing subordinates. She has shared with you her desire to apply for promotion to a new position just announced in a different division of the company. This will be tough on you since recent budget cuts mean you will be unable to replace anyone who leaves, at least for quite some time. Kay knows this and in all fairness has asked your permission before she submits an application. It is rumored that the son of a good friend of your boss is going to apply for the job. Although his credentials are less impressive than Kay’s, the likelihood is that he will get the job if she doesn’t apply. What will you do? C. Marty Jose got caught in a bind. She was pleased to represent her firm as head of the local community development committee. In fact, her supervisor’s boss once held this position and told her in a hallway conversation, “Do your best and give them every support possible.” Going along with this, Marty agreed to pick up the bill (several hundred dollars) for a dinner meeting with local civic and business leaders. Shortly thereafter, her supervisor informed everyone that the entertainment budget was being eliminated in a cost-saving effort. Marty, not wanting to renege on supporting the community development committee, was able to charge the dinner bill to an advertising budget. Eventually, an internal auditor discovered the mistake and reported it to you, the personnel director. Marty is scheduled to meet with you in a few minutes. What will you do?
Instructions Working alone, make the requested decisions in each of these incidents. Think carefully about your justification for the decision. Meet in a group assigned by your instructor. Share your decisions and justifications in each case with other group members. Listen to theirs. Try to reach a group consensus on
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what to do in each situation and why. Be prepared to share the group decisions, and any dissenting views, in general class discussion.
Instructor’s Note This is an extremely useful exercise for exposing students to the kinds of ethical dilemmas that they can expect to experience in their careers. As such, it provides them with an opportunity to consider how they will respond to such dilemmas. During in-class discussions of these dilemmas, allow all students to discuss their anticipated responses. There will likely be considerable variability in their answers, with some students selecting much more “ethical” responses than others. During your discussion, emphasize the long-term advantages of selecting highly ethical responses (e.g., maintaining one’s integrity, demonstrating to others that you can be trusted, and having a clear conscience), since these advantages may not be immediately apparent to all members of the class. Finally, instruct students to use the following checklist for making ethical decisions to evaluate their initial responses to each of these dilemmas. Doing so should prove to be beneficial in separating unethical from ethical responses to these dilemmas. A Quick Check for Dealing with Ethical Dilemmas (from Management Smarts in the text p.64)
Step 1. Recognize the ethical dilemma. Step 2. Get the facts and identify your options. Step 3. Test each option: Is it legal? Is it right? Whom does it affect? Who benefits? Who gets hurt? Step 4. Decide which option to follow. Step 5. Double-check with the spotlight questions: “How will I feel if my family finds out about my decision?” “How will I feel if my decision is reported in the local newspaper or posted on the Internet? Step 6. Take action.
CAREER SITUATIONS: WHAT WOULD YOU DO? Students’ answers will vary based upon their individual experiences and ethical perspectives. Expect some discussion based upon cultural differences in ethics and values.
CHAPTER 3 CASE: PATAGONIA: LEADING A GREEN REVOLUTION Discussion Questions 1. While Patagonia has a history of putting sustainability ahead of profits, it cannot do so at the expense of operating capital. Based on what you learned about Patagonia’s ideals, how do you think the company determines what possible ventures will be both practical and environmentally friendly? Chouinard has said that when they make decisions that are good for the environment, it turns out profitable every time. For example, the decision to use only organic cotton in their products wasn’t profitable at first, but when other manufacturers and retailers followed their lead, more .
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growers went organic, supply increased and prices went down to the point where it is now used in garments made for Wal-Mart. It seems that choices are made with the environment in mind first with the assumption that profitability will follow. It’s conceivable that if their practices were to ever face criticism for not being environmentally sound, there could be a consumer backlash. 2. What could Patagonia do today to confirm that Yvon Chouinard’s ideals become a permanent part of the company’s culture after he leaves the company? Chouinard is clearly the heart of the culture, much as Herb Kelleher is at Southwest Airlines and Steve Jobs is at Apple. None will live forever, so they need to establish core values that everyone believes in and build a culture around them that is reinforced and taught to new employees. Elements of culture are covered more thoroughly in chapter 12. Problem Solving It seems Yvon Chouinard is never satisfied. He comes to you and asks for a proposal on a new— “forward looking”—sustainability agenda for the firm. What would you include in this agenda that will stretch the firm beyond what it is already doing, and why? Students can let their imaginations run wild on this one. Suggestions may include sponsoring sustainable food products, sustainable eco-friendly travel and adventure tours that include a stop to help underprivileged people along the way, extending their clothing recycling to include other fibers and consulting services that help other businesses or even communities mimic their sustainable practices. Further Research Business decisions can often be a compromise between ethics and profitability, even for a company with the idealism of Patagonia. Research Patagonia and see if you can find a business decision that appeared to put profits ahead of the company’s publicly stated environmental goals. Explain why you think that company made this decision and the competing factors you believe were involved. Caution students to conduct their online research with objective media sources. The college library may offer free searches such as EBSCO Host that access a large number of periodicals including industry publications that may provide thorough and accurate comparisons as well as current industry trends.
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Chapter 4:
ENVIRONMENT AND SUSTAINABILITY CHAPTER 4 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: • • • •
What is the general or macro environment of the organization? What are key elements and issues in specific or task environments of organizations? How do organizations accomplish innovation? What are the emerging issues of sustainability and the environment?
CHAPTER 4 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • •
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List key elements in the general and task environments of organizations. Describe how a business can create value for key stakeholders. Give examples of potential conflicting interests among stakeholders for a business in your community. Define competitive advantage and give examples of how a business might achieve it. Analyze the uncertainty of an organization’s external environment using degree of complexity and rate of change. Describe the systems resource, internal process, goal, and strategic constituencies’ approaches to organizational effectiveness. Define innovation. List and explain the characteristics of innovative organizations. Discuss the differences between process, product, business model, and social business innovations. List the five steps in Hamel’s wheel of innovation. Understand how technology causes disruptive innovation. Define sustainable business. Define the terms sustainable development, environmental capital, and the triple bottom line. Explain and give examples of sustainable or green innovations issues today. Discuss human sustainability as a management concern.
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CHAPTER 4 OVERVIEW With the 21st century upon us, the old ways of management are not good enough anymore. The best of the past must be combined with new thinking to lead organizations of tomorrow to real “competitive advantage” –– having a unique product or process that makes it hard for competitors to duplicate organizational performance in the marketplace. This chapter examines how environmental relationships and innovation affect the sustainability of an organization. The chapter begins by examining both the “general” and “specific” aspects of the external environment that influences and poses challenges for modern organizations. Next, competitive advantage and the role that environmental uncertainty plays in challenging managers and their organizations to be flexible and responsive to new and changing conditions is considered. Also, the effect of customer and supplier relationships along with organizational effectiveness is presented. At this point, the focus of the chapter shifts to innovation, by showing the types of innovation, the innovation process, and the characteristics of innovative organizations. The chapter finishes with an examination of sustainability by exploring the triple bottom line, the three P’s of organizational performance, and the innovative practices of organizations in these areas. A section on the emerging issues green management and human sustainability follow.
CHAPTER 4 LECTURE OUTLINE Teaching Objective: To familiarize students with the environmental challenges they will face in managing quality, sustainability, and innovation for competitive advantage in the 21st century. Suggested Time: Two hours of class time are recommended for presenting the material in this chapter. Depending on your objectives, however, the chapter can be presented in as little as one hour or as much as three hours. I.
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Take away question 1: What is in the general or macro environment of organizations? Economic conditions Legal-Political conditions Socio-cultural conditions Technological conditions Natural environment
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Takeaway Question 2: What are key elements and issues in the specific or task environment of organizations? Stakeholders and value creation Competitive advantage Uncertainty, complexity, and change Organizational effectiveness
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Takeaway Question 3: How do organizations accomplish innovation? Types of innovations The innovation process Disruptive innovation and technology Characteristics of innovative organizations
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Takeaway Question 4: What are the emerging issues of sustainability and the environment? Sustainable development Sustainable business Sustainability goals, measurement and reporting Human sustainability
CHAPTER 4 SUPPORTING MATERIALS Textbook Inserts Learning from Others • A Keen Eye Spots Lots of Opportunities Learning about Yourself • Risk Taking o Walking the Fine Line of Risk Taking Figures • Figure 4.1: Sample Elements in the General Environment of Organizations • Figure 4.2: Dimensions of Uncertainty in the External Environments of Organizations • Figure 4.3: The Five Steps in Hamel’s “Wheel of Innovation” • 4: The Process of Commercializing Innovation; an Example of New Product Development Thematic Boxes • Facts for Analysis: Younger Workers Paying the Price as Lack of Job Alternatives Keeps Them Where They Are • Nobel Prize Recognizes Women for Leadership Roles in Peace-Building and Human Rights • Research Brief: Generations Show Differences on Important Values . 4-3
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Follow the Story: Disruptive Innovation the Steve Jobs Way (1955-2011) Ethics on the Line: Offshore E-Waste Graveyards Bury a Problem Management in Popular Culture: Sustainability Warms the Heart in Chipotle Commercial Management Smarts: Assessing Organizational Impact on Human Sustainability
Applications • Self-Test • Further Reflection: Risk Taking • Self-Assessment: Tolerance for Ambiguity • Team Exercise: Organizational Commitment to Sustainability Scorecard • Career Situations for a Complex Environment: What Would You Do? • Case 4: Timberland
CHAPTER 4 LECTURE NOTES LEARNING FROM OTHERS on page 84 of the text describes how Marc Benioff predicted and took the risk that cloud computing would be the next innovative way organizations would do business. Instead of owning and maintaining software, Benioff bet that organizations would be willing to rent instead. He was quite correct. Get students to think about the problems faced by society today, and see if any might have some ideas for an innovative solution. SELF-ASSESSMENT: TOLERANCE for AMBIGUITY on page 104 addresses the subject of risk-taking, showing both the positive and the negative sides. Ask students how they see themselves – risk-taker, or risk-averse.
TAKEAWAY QUESTION 1: WHAT IS IN THE GENERAL OR MACRO
ENVIRONMENT OF ORGANIZATIONS? THE GENERAL OR MACROENVIRONMENT The general environment consists of all the external conditions that set the context for managerial decision making. FIGURE 4.1 on p. 87 illustrates the elements of the general environment. Economic Conditions The economic conditions of the general environment detail the health of the economy in terms of inflation, income levels, gross domestic product, unemployment, and job out-look.
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Lower labor costs in foreign locations may result in the offshoring or outsourcing of work and jobs to these locations. With rising labor costs in some foreign lands, onshoring or reshoring is occurring as companies establish new domestic operations. With activist citizens and government leaders claiming that the local economy benefits more in job gains and amount of money circulating when people shop at local businesses vs. big chains, chain stores are now unbranding, which is where these chains are advertised with local nonbranded names. FACTS for ANALYSIS on p. 88 explains how the current economic environment has effected workers’ career options in the current job market. Legal-Political Conditions By staying abreast of the legal-political conditions of the general environment, managers are aware of the prevailing philosophy and objectives of the political party or parties running the government, as well as laws and government regulations. One dilemma faced by global firms is that of internet censorship, where a deliberate blockage and denial of public access to information posted on the Internet varies around the world. Sociocultural Conditions Changes in the norms, customs, and social values on such matters as human rights, ethics, gender roles, and life styles, along with environmental trends in education and related social institutions, as well as demographic patterns, all will affect how organizations are managed. One age demographic managers need to pay attention to is that of generational cohorts, where people born within a few years of one another experience somewhat similar life events during their formative years. One group may have to learn about technology as it became available, whereas, another may have “grown up” with it as a natural event. RESEARCH BRIEF on page 90 of the text details research findings among the generational cohorts of Baby Boomers, Generation X, and Millennials and how each values leisure in light of work-life balance. Technological Conditions With the development and availability of new technologies in the general environment, managers need to constantly monitor how these advances affect the work being done by employees, including the loss of productive work time, called social notworking.
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Natural Environment Conditions With organizations “going green,” how a firm becomes a sustainable business that meets the needs of its customers while advancing the well-being of the natural environment is a management concern. The public will judge a business on how it operates to protect and preserve this natural environment.
DISCUSSION TOPIC Have the students identify the background environmental conditions that are affecting organizations in general at the present point in time. Place emphasis on how these conditions are likely to affect businesses in the short term and the long term.
TAKEAWAY QUESTION 2: WHAT ARE THE KEY ELEMENTS AND ISSUES IN THE SPECIFIC OR TASK ENVIRONMENT OF ORGANIZATIONS? THE SPECIFIC OR TASK ENVIRONMENT The specific environment, or task environment, consists of all the actual organizations, groups, and persons with whom an organization interacts and conducts business. Stakeholders and Value Creation The specific environment is often described in terms of stakeholders — the persons, groups, and institutions who are affected by the organization’s performance. Illustrated on p. 92 are Starbucks’ multiple stakeholders which include customers, suppliers, regulators/government, future generations, local communities, owners, and employees that can influence the organization. Customers are always key stakeholders; they sit at the top when an organization is viewed as the upside-down pyramid described in Chapter 1. They primarily want four things in the goods and services they buy: 1. high quality 2. low price 3. on-time delivery 4. great service A Harvard Business Review survey reported that American business leaders rank customer service and product quality as the first and second most important goals in the success of their organizations.
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DISCUSSION TOPIC Ask students to describe their own experiences as: (1) customers of organizations that provided good customer service, and (2) customers of organizations that provided poor customer service. The instructor can then use this input to reinforce lecture comments regarding what customers want and don’t want from organizations.
COMPETITIVE ADVANTAGE Competitive advantage refers to a core competency that clearly sets an organization apart from competitors and gives it an advantage over them in the marketplace. Competitive advantage may be achieved through • Cost – operating with lower costs than one’s competitors and thus earning profits with prices that competitors have difficulty matching. • Quality – creating products and services that are consistently higher quality for customers than what is being offered by the competition. • Delivery – outperforming competitors by delivering products and services to customers faster and on-time, while continuing to develop timely new products. • Flexibility – adjusting and tailoring products and services to fit customer needs in ways that are difficult for competitors to match.
DISCUSSION TOPIC Ask the students to identify companies with which they are familiar, and then have them describe what they perceive to be the competitive advantage of each of these companies.
UNCERTAINTY, COMPLEXITY, AND CHANGE Environmental uncertainty means that there is a lack of complete information regarding what exists and what developments may occur in the external environment. This makes it difficult to analyze constituencies and their needs, and to predict future states of affairs and to understand their potential implications for the organization. FIGURE 4.2 on page 93 of the text shows the two dimensions of environment uncertainty: • Degree of complexity – low or high • Rate of change – stable or dynamic
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TAKEAWAY QUESTION 3: HOW DO ORGANIZATIONS ACCOMPLISH INNOVATION? ENVIRONMENT and INNOVATION Change, uncertainty and complexity require constant innovation. Innovation is the process of creating new ideas and putting them into practice, and it must be nurtured, championed, and supported as a core organizational value. TYPES OF INNOVATIONS Innovation by organizations has traditionally been addressed in three broad forms: 1. Product innovations which result in the creation of new or improved goods and services. 2. Process innovations which result in better ways of doing things. 3. Business model innovations which result in new ways of making money for the firm. 4. Social business innovations which result in finding ways to use business models to address important social problems. Today social business innovation finds ways to use business models to address important social problems such as poverty, famine, literacy, and diseases. THE INNOVATION PROCESS Process and product innovations require active encouragement and support of invention and application. • •
Invention is the act of discovery. Application is the act of use.
The innovation process can be described as the wheel of innovation. The five steps in this process are as follows: 1. Imagining –– thinking about new possibilities. 2. Designing –– building initial models, prototypes, or samples. 3. Experimenting –– examining practicality and financial value through experiments and feasibility studies. 4. Assessing –– identifying strengths and weaknesses, potential costs and benefits, and potential markets or applications. 5. Scaling –– implementing what has been learned and commercializing new products or services. One of the newer developments in the innovation process is reverse innovation or trickle-up innovation, which recognizes the potential for valuable innovations to be
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launched from lower organizational levels and diverse locations, including emerging markets.
DISCUSSION TOPIC To illustrate the value of creativity and innovation to organizations, share with students the classic story on the origins of “Post-It” notes in the 3M Corporation. To embellish the information provided, explain how Art Fry, a 3M employee, got the idea for “Post-It” notes while attempting to mark pages in his Sunday hymnal. He found that a light adhesive developed by a colleague, Spencer Silver, was perfect for the task. To this point, Spencer’s adhesive had been considered a failure because it wasn’t sticky enough. Even after the “PostIt” application of the adhesive was identified, Fry had trouble getting the full support of management. To win them over, he distributed “Post-It” notes throughout the company. Within a short time, top executives were hooked on them. When market tests proved successful, the product received the green light. Ultimately, “Post-It” notes became one of the five best selling office products in history. Innovations such as this are encouraged at 3M through formal practices such as “bootlegging” in which small groups of researchers and marketers work together to bring new products to market. (Source: A Passion for Excellence, New York: Random House, 1985; Breakthroughs!, New York: Rawson Associates, 1986; C. Knowlton, “What Makes America Best, Fortune, March 28, 1988, pp. 40-54; B. Dumaine, “Ability to Innovate,” Fortune, January 29, 1990; pp. 43, 46; S. Weiner, “A Hard Way to Make a Buck,” Forbes, April 29, 1991, pp. 134-137; The Economist, November 30, 1991, pp. 70-72.)
DISRUPTIVE INNOVATION and TECHNOLOGY Disruptive innovation creates a product or service that becomes so widely used that it replaces prior practices or competitors. Examples of disruptive technology include telephone books, wrist watches, land telephone lines, etc. Ask students to provide additional examples. FOLLOW THE STORY on p. 96 details the example of Steve Jobs as a disruptive innovator.
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TAKEAWAY QUESTION 4: WHAT ARE THE EMERGING ISSUES OF SUSTAINABILITY AND THE ENVIRONMENT? ENVIRONMENT AND SUSTAINABILITY Sustainability is a commitment to protect the rights of present and future generations as costakeholders of the world’s resources. ETHICS ON THE LINE on p. 97 examines the ethical and sustainability issues involving the disposal of e-waste. SUSTAINABLE DEVELOPMENT Sustainable development makes use of environmental resources to support societal needs today, while also preserving and protecting them for future generations. Environmental or natural capital is the storehouse of natural resources that exist in the form of atmosphere, land, water, and minerals that we use to sustain life and produce goods and services for society. The triple bottom line of organizational responsibility assesses the economic, social, and environmental performance of organizations. In essence, the triple bottom line focuses on the 3 Ps of organizational performance of profits, people, and planet, which are highlighted by ISO 14001, a global quality standard that requires certified organizations to: • Set environmental objectives and targets. • Account for the environmental impact of their activities, products or services. • Continuously improve environmental performance. SUSTAINABLE BUSINESS Sustainable or green innovations reduce an organization’s negative impact and enhance its positive impact on the natural environment MANAGEMENT IN POPULAR CULTURE on p. 99 of the text provides an example of sustainable practices at Chipotle Mexican restaurants. SUSTAINABILITY GOALS, MEASUREMENT AND REPORTING • • •
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Organizations need to be accountable for their sustainability targets. Top management needs to support sustainability policies and practices. It is important for organizations to document and report on their sustainability efforts.
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HUMAN SUSTAINABILITY According to scholar Jeffrey Pfeffer, businesses need to be mindful of the impact of management practices on human resources. Managers should keep job satisfaction and quality of work life issues in mind. Management Smarts on page 100 of the text details the questions that should be asked to determine whether management decisions and organizational practices support and advance human health and well-being, or hinder it. The questions include: • Provision of health insurance to employees? • Provision of health and wellness programs for employees? • Avoiding job layoffs? • Structuring work hours to reduce stress? • Structuring work hours to avoid and minimize work-family conflict? • Designing jobs to reduce stress? • Designing jobs to give people control over their work? • Being transparent and fair in handling wage and status inequalities?
CHAPTER 4 TAKEAWAY QUESTION SUMMARY Takeaway Question 1: What is in the general or macro environment of organizations? • • • • • •
The general environment includes background economic, sociocultural, legal-political, technological, and natural environment conditions. The economic environment influences organizations through the health of the local, domestic, and global economies in terms of such things as financial markets, inflation, income levels, unemployment, and job outlook. The legal-political environment influences organizations through existing and proposed laws and regulations, government policies, and the philosophy and objectives of political parties. The socio-cultural environment influences organizations through the norms, customs, demographics of a society or region, as well as social values on such matters as ethics, human rights, gender roles and lifestyles. The technological environment influences organizations through continuing advancement of information and computer technologies that affect the way we work, how we live, and how we raise our children. The natural environment conditions influence organizations through the abundance of natural resources provided, and the need for organizational practices that both meet the needs of customers and protect future well-being.
FOR DISCUSSION: If interests of a firm’s owners/investors conflict with those of the community, which stakeholder gets preference? Takeaway Question 2: What are the key elements and issues in the specific or task
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environments of organizations? • • •
The specific environment or task environment consists of suppliers, customers, competitors, regulators, and other stakeholders with which as organization reacts. A competitive advantage is achieved when an organization does something very well and that allows it to outperform competitors. Environmental uncertainty is created by the rate of change of factors in the external environment and the complexity of this environment in terms of the numbers of factors that are relevant and important.
FOR DISCUSSION: Which among the two or three retail stores that you shop at weekly has the strongest competitive advantage, and why? Takeaway Question 3: How do organizations accomplish innovation? • • • • • •
Product innovations deliver new products and services to customers; process innovations improve operations; and business model innovations find new ways of creating value and making profits. Social business innovations use social business models to help address social problems like poverty, famine, disease, and literacy The innovation process involves moving from the stage of invention that involves discovery and idea creation all the way to final application that involves actual use of what has been created. The process of commercializing innovation turns new ideas into outcomes that add value or increase profits for organizations. Reverse innovation finds innovation opportunities in diverse locations, such as taking products and services developed in emerging markets and finding ways to utilize them elsewhere. Disruptive innovation, often involving technological advancements, is the creation of a new product or service that starts out small scale and then becomes so widely used that it displaces prior practices and competitors.
FOR DISCUSSION: Can a creative person prosper in an organization that doesn’t have an innovation–driven culture? Takeaway Question 4: What are the emerging issues of sustainability and the environment? • • • •
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The concept of sustainable describes a commitment to recognize and protect the rights of both present and future generations as co-stakeholders of the world’s natural resources. The triple bottom line evaluates how well organizations perform on economic, social, and environmental performance criteria; this is also called the 3 Ps of organizational performance – profits, people, and planet. Sustainable development used environmental resources to support society today while also preserving and protecting those resources for use by future generations. Sustainable innovations pursue new ways for minimizing the negative impact and
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maximizing positive impact of organizations on the natural environment by reducing energy and natural resource consumption. FOR DISCUSSION: When the costs of pursuing sustainability goals reduce business profits, which stakeholder interest should take priority, business owners or society at large?
CHAPTER 4 KEY TERMS Business model innovations (p. 94): result in ways for firms to make money. Commercializing innovation (p. 96): the process that turns new ideas into actual products, services, or processes, to increase profits through greater sales or reduced costs. Competitive advantage (p. 93): something that an organization does extremely well, is difficult to copy, and gives it an advantage over competitors in the marketplace. Disruptive innovation (p. 96): creating products or services that become so widely used that they largely replace prior practices and competitors. Environmental capital (p. 98): the storehouse of natural resources – atmosphere, land, water, and minerals that we use to sustain life and produce goods and services for society. This is also known as natural capital. Environmental uncertainty (p. 93): the lack of complete information regarding what exists in the environment and what developments may occur. General environment (p. 86): is comprised of economic, legal-political, technological, sociocultural, and natural environment conditions. Generational cohorts (p. 89): consists of people born within a few years of one another and who experience somewhat similar life events during their formative years. Green innovations (p. 98): help reduce the carbon footprints and environmental impacts of organizations, their practices, and products. This is also known as sustainable innovations. Innovation (p. 94): the process of taking a new idea and putting it into practice. Internet censorship (p. 89): the deliberate blockage and denial of public access to information posted on the Internet. Natural capital (p. 98): the storehouse of natural resources – atmosphere, land, water, and minerals that we use to sustain life and produce goods and services for society. This is also known as environmental capital. Offshoring (p. 87): the outsourcing of jobs to foreign locations. Onshoring (p. 87): the return of jobs from foreign locations as companies establish new domestic operations. This is also known as reshoring. Organizational effectiveness (p. 88): a measure of how well an organization performs while using resources to accomplish mission and objectives. Process innovations (p. 94): result in better ways of doing things. Product innovations (p.94): result in new or improved goods or services. Reshoring (p. 87): the return of jobs from foreign locations as companies establish new domestic operations. This is also known as onshoring. Reverse innovation (p. 95): recognizes the potential for valuable innovations to be launched from lower organizational levels and diverse locations, including emerging markets. Social business innovation (p. 95): finds ways to use business models to address important social problems.
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Specific environment (p. 92): the actual organizations, groups, and persons with whom an organization interacts and conducts business. This is also known as task environment. Stakeholders (p. 92): the persons, groups, and institutions directly affected by an organization’s performance. Sustainability (p. 97): a commitment to protect the rights of present and future generations as co-stakeholders of the world’s resources. Sustainable business (p. 98): meets the needs of customers and protects the well-being of our natural environment for future generations. Sustainable development (p. 98): describes practices that make use of environmental resources to support societal needs today while also preserving and protecting them for future generations. Sustainable innovations (p. 98): help reduce the carbon footprints and environmental impacts of organizations, their practices, and products. This is also known as green innovations. 3 Ps of organizational performance (p. 98): consists of profit, people, and planet. Triple bottom line (p. 98): assesses the economic, social and environmental performance of organizations.
SELF TEST ANSWERS 1.
The general environment of an organization would include _________. (a) population demographics (b) activist groups (c) competitors (d) customers
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Internet censorship faced in foreign countries by firms such as Google is an example of how differences in _________ factors in the general environment can cause complications for global business executives (a) economic (b) legal-political (c) natural (d) demographic
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If the term offshoring is used to describe an aspect of the economic environment that involves outsourcing of work and jobs to foreign locations, what is it called when firms like Caterpillar move jobs back into the United States form foreign locations? (a) protectionism (b) reshoring (c) relocating (d) upscaling
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Work preferences of different generations and public values over things like high pay for corporate executives are examples of developments in the ____________environment of organizations. (a) task (b) specific (c) socio-cultural (d) economic
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A business that has found ways to use technology to outperform its rivals in the marketplace can be said to have gained ____________________. (a) environmental capital (b) competitive advantage (c) sustainable development (d) environmental certainty
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Apps for an Apple iPhone or Google Android phone are examples of _______________ innovations, whereas the use of robotics in performing manufacturing tasks previously done by humans is an example of ______________ innovation. (a) cost-benefit, process (b) product, cost-benefit (c) value-driven, service driven
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(d) product, process 7.
Micro-credit lending that makes it possible for poor people to get small loans so they can start small businesses is an example of a business model innovation that is also a __________________innovation. (a) social business (b) technological (c) disruptive (d) green
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Two dimensions that determine the level of environmental uncertainty are the number of factors in the external environment and the __________ of these factors. (a) location (b) rate of change (c) importance (d) interdependence
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One of the ways that corporations might better take into account their responsibility for being good environmental citizens is to redefine the notion of profit as: revenue - cost of goods sold -____________. (a) operating expenses (b) dividends (c) costs to society (d) loan interest.
10. The three P’s of organizational performance are Profit, People, and ______________. (a) Philanthropy (b) Principle (c) Potential (d) Planet 11. What organizational stakeholder must be considered in any serious discussion about how a firm can better fulfill its obligation for sustainable development? (a) owners or investors (b) customers (c) suppliers (d) future generations 12. The first step in Hamel’s wheel of innovation is _________. (a) imagining (b) assessing (c) experimenting (d) scaling 13. When a medical device is developed in India so that it can sell at a low price and still deliver high-quality results, and then that device is transferred for sale in the United States also at a low price, this is an example of ____________. (a) trickle-down innovation (b) disruptive innovation (c) reverse innovation (d) sustainable innovation. 14. What term is used to describe the world’s storehouse of natural resources, things like land, water and minerals? (a) sustainable development (b) global warming (c) climate justice (d) environmental capital 15. Health insurance for employees, flexible work hours, to balance work and family responsibilities, and programs to help employees deal with stress in their lives, are ways organizations might try to improve their accomplishments in respect to ________________. (a) profits (b) human sustainability (c) innovation (d) natural capital 16. Who and/or what should be considered as key stakeholders by a business executive when mapping the task environment for her organization? When it comes to organizational stakeholders, the list should always begin with customers
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and suppliers to establish the output/input players in the value chain. Employees should be included as well as shareholders/investors to identify the interests of the "producers" and the "owners." Given the importance of sustainability it is important to include society at large and future generations in the stakeholder map; it is also important to include the local communities in which the organization operates. Beyond these basic map components the stakeholders for any given organization will include a broad mix of people, groups, and organizations from regulators to activist organizations to government agencies, and more. 17. Exactly how should “sustainability” be best defined when making it part of a goal statement or performance objective for a business or organization? To make "sustainability" part of any goal statement or objective for an organization the basic definition should reflect the concept of sustainable development. That is: the organization should act in ways that while making use of the environment to produce things of value today the potential for that environment to meet the needs of future generations is also being protected and ideally being enhanced. 18. How do product, process, and business model innovations differ from one another? Product innovations affect what goods and services an organization offers to its customers. Process innovations affect how the organization goes about its daily work in producing goods and services. Business model innovations affect the way the organization makes money and adds value to society. 19. How does the process of reverse innovation work? Reverse innovation means finding innovations in alternative settings such as emerging markets and moving them into uses in established markets. An example would be portable and low cost medical diagnostic equipment developed in markets like India and China and then brought to the U.S. and sold there. 20. At a reunion of graduates from a college of business at the local university, two former roommates engaged in a discussion about environment and sustainability. One is a senior executive with a global manufacturer, and the other owns a sandwich shop in the college town. Global executive: “We include sustainability in our corporate mission and have a chief sustainability officer on the senior management team. The CSO is really good and makes sure that we don’t do anything that could cause a lack of public confidence in our commitment to sustainability.” Sandwich shop owner: “That’s all well and good, but what are you doing on the positive side in terms of environmental care. If sounds like you do just enough to avoid public scrutiny. Shouldn’t the CSO be a real advocate for the environment rather than just a protector of the corporate reputation? We, for example, use only natural foods and ingredients, recycle everything that is recyclable, and compost all possible waste.” Question: If you were establishing a new position called Corporate Sustainability Officer, what would you include in the job description as a way of both clarifying the responsibilities
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of the person hired and establishing clear accountability for what sustainability means to your organization? First of all it sounds like a good idea to have a Chief Sustainability Officer, or CSO, in order to focus attention on sustainability goals and also bring some point of accountability at the senior executive level for their accomplishment. In terms of the job description, I would argue that things like this would need to be reflected. First, there should be some acknowledgement of the "triple bottom line" of economic, social, and environmental performance. Second there should be a clear focus on sustainable development in respect to moving the organization forward in ways that while making use of the environment and its resources, the capacity of the environment to nurture and serve future generations is also being protected. This sets the foundation for further priorities or objectives to be set in the areas of pushing for green management practices that support sustainability in all aspects of an organization's operations. And finally, there should be a responsibility to serve as the "champion" for sustainable innovations that advance the capability of the organization to be sustainable by green products, green processes and even green business models.
MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: RISK TAKING Students’ answers will vary according to their tolerance for uncertainty and comfort level with taking risks.
SELF ASSESSMENT: TOLERANCE FOR AMBIGUITY After scoring this assessment, students should be encouraged to discuss the implication of their scores in terms of their tolerance or lack of tolerance for uncertainty and the implications of these scores in terms of their career choices.
TEAM EXERCISE: ORGANIZATIONAL COMMITMENT TO SUSTAINABILITY SCORECARD Instructions In your assigned work teams do the following: 1. Agree on a definition of “sustainability” that should fit the operations of any organization. 2. Brainstorm and agree on criteria for an Organizational Commitment to Sustainability Scorecard (OCSS) that can be used to audit the sustainability practices of an
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organization. Be sure that an organization being audited would not only receive scores on individual dimensions or categories of sustainability performance, but also receive a total overall “Sustainability Score” that can be compared with results for other organizations. 3. Present and defend OCSS to the class at large. 4. Use feedback from the class presentation to revise your OCSS to be used in the actual sustainability audit. 5. Use your OCSS to conduct a sustainability audit for a local organization. 6. Present the results of your audit to the instructor and class at large. Be sure to include in the presentation not only the audit scores and total, but also (a) any recommendations for how this organization could improve its sustainability practices in the future (b) any benchmarks from this organization that might be considered as sustainability “best practices” for others to follow. Instructor’s Note When asked to perform original research with an actual organization, students sometimes struggle with gaining access. Remind them that their workplaces, internship sites, friends and relatives can often facilitate making contact at prospective sites which illustrates the value of having and using effective networks. Step #3 is an excellent opportunity for helping students to understand how to set measurable criteria for evaluation. These are an important part of the critical thinking process.
CAREER SITUATIONS FOR A COMPLEX ENVIRONMENT: WHAT WOULD YOU DO? These answers will vary according to differences in students’ experiences, perceptions and values.
CASE STUDY: TIMBERLAND Discussion Questions 1. Who would Timberland identify as its stakeholders? Does its stakeholder map contain stakeholders that aren’t on the maps of other apparel companies? Like most organizations, Timberland’s stakeholders would include customers, suppliers, competitors, regulators, advocacy/government groups, investors and employees. However, because of its strong commitment to social responsibility, social justice, and environmental sustainability, Timberland also would include local communities, and future generations.
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Additionally, having strong core values may cause Timberland to prioritize its stakeholders’ interests differently than many other companies. For example, policies such as the paid time for employee volunteer work and reimbursements for the purchase of a hybrid car may increase product cost or lower shareholder returns but they are done because of the value placed on social responsibility and environmental sustainability. 2. What competitive advantages does Timberland’s focus on environmental sustainability offer the company? List three examples. A competitive advantage is a core competency that sets a business apart from its competitors and provides a business advantage. Timberland produces a high quality product, has a commitment to environmental sustainability, and a solid reputation for social responsibility. Consequently, the organization’ s unique mission and values set it apart from the competition and give the organization a positive image for stakeholders. For example: Today, these values resonate with many loyal customers who also want to be environmentally responsible. So, they may focus less on price and more on these values in their purchasing decisions. This clearly defined focus may help the organization attract and retain quality employees who share these beliefs. This provides a clear focal point for promotional campaign messages. Problem Solving Like many other American manufactures, Timberland is heavily reliant on offshore production facilities. Be a global supply chain consultant. How would you describe the environmental uncertainty Timberland exposes itself to by sending work overseas? What might you suggest as ways to manage supply chain risks to the firm’s profits with principles strategy? Environmental uncertainty is a lack of information regarding what exists in the environment and what developments may occur. There is always more complexity (number of different environmental factors) and change (rapid or slow) in global business. The more uncertain the environment is, the greater the risk. However, Timberland has taken steps to minimize these risks by manufacturing in thirty-eight different countries, getting manufacturing partners involved in reducing pollution and erosion, and trying to be perceived abroad as a socially responsible business rather than a capitalist organization only interested in profits. Supply chain risks can be minimized is by carefully selecting global partners who will support Timberland’s values and by linking profitability with local socially responsibility causes. Many cultures Further Research Timberland’s acquisition by VF Corporation puts the company at a pivotal point in its history. Research other apparel companies held by VF as well as the corporation itself. Describe how you think Timberland’s emphasis on Earthkeeping will help or hinder its integration into the VF family of brands. All corporate acquisitions eventually involve some strategic and operational changes and present the challenge of maintaining the uniqueness of the acquired company. Being a highly
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principled leader, Swartz deliberated long and hard over the decision to sell. VF tried to purchase Timberland as far back as the 1980’s. Nike and Adidas also made purchase inquiries. Before selling, Swartz exercised due diligence by visiting a North Face (a VF subsidiary ) factory in Bangladesh where he was told that North Face took environmental and labor rights seriously. He has been quoted as saying that ultimately, he based his decision on his fiduciary responsibility to shareholders but he also believed that VF’s own sense of corporate responsibility came closer to Timberland’s than any other of the suitors. In this case, VF may be trying to learn from and move closer to the long entrenched sustainability and social responsibility philosophies of some of its subsidiaries such as The North Face, Timberland. VF’s corporate responsibility statement has the title “At VF, integrity never goes out of fashion” (see vcf.com/corporate-responsibility) but notes that they are “in the early stages of our sustainability journey”. While VF today, may not be as far along as Timberland, it appears that based on their three pillars: social, environmental, and economic impact on the global community, they are making progress and plan to continue to do so. There also appears to be an integration of a consistent social responsibility and sustainability message across the range of VF brands. If you go to the websites of any of the VF brands, (Nautica, Jeanswear/Wrangler, etc.) and click on the social responsibility link on the main page, it takes you to the same VF corporate social responsibility site mentioned above.
Relevant YouTube Videos: Eco-Conscious Store Design Elements http://www.youtube.com/watch?v=RES6QS9ehkU
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Chapter 5:
GLOBAL MANAGEMENT AND CULTURAL DIVERSITY CHAPTER 5 TAKEAWAY QUESTIONS 1. 2. 3. 4.
What are the management challenges of globalization? What are global businesses, and what do they do? What is culture, and how does it impact global management? How can we benefit from global management learning?
CHAPTER 5 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • •
Define globalization and discuss its implications for international management. List five reasons companies pursue international business opportunities. Describe and give examples of global sourcing, exporting/importing, franchising/licensing, joint ventures, and foreign subsidiaries. Discuss how differences in legal environments can affect businesses operating internationally. Explain the goals of the WTO. Discuss the significance of regional economic alliances such as NAFTA, the EU, ASEAN, and SADC. Differentiate a multinational corporation from a transnational corporation. List at least three host-country complaints and three home-country complaints about global business operations. Give examples of corruption, sweatshops, and child labor in international business. Define culture. Explain how ethnocentrism can create difficulties for people working across cultures. Differentiate between low-context and high-context cultures, and monochronic and polychronic cultures and tight and loose cultures. List and illustrate Hofstede’s five dimensions of value differences among national cultures. Answer this question: “Do management theories apply universally around the world?” Describe the concepts of global organizational learning and intercultural competencies.
CHAPTER 5 OVERVIEW Students of management must understand the global economy in order to meet the challenges of the 21st century. Indeed, the likelihood of students engaging in or being affected by some form of international operations is extremely high. This chapter considers the obstacles and opportunities
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facing managers of international activities and provides practical advice for meeting these challenges. The chapter begins by considering the international business challenges of globalization. Among the challenges, students are asked to consider global management, the global economy, market entry and direct investment strategies. Next, the chapter describes the global business environment with its legal and political systems, trade agreements and barriers, and economic alliances. Global businesses and what they do follows, including the advantages and disadvantages of global corporations for host countries. Ethical problems such as corruption, sweatshops and child labor are examined. Next, the chapter examines culture and its link to global diversity. Here students will learn about the details of culture through Edward T. Hall’s “silent” language of culture and Geert Hofstede’s dimension of value differences. The chapter wraps up with a discussion of comparative management and its implications for intercultural competency.
CHAPTER 5 LECTURE OUTLINE Teaching Objective: To sensitize students to the impact of international activities on management practices and to provide guidelines for effective management in the global arena. Suggested Time: Two hours of class time are recommended for this chapter. I.
Takeaway Question 1: What are the management challenges of globalization? Management and globalization Global management Why companies go global How companies go global Global business environments
II.
Takeaway Question 2: What are global businesses, and what do they do? Types of global businesses Pros and cons of global businesses Ethics challenges for global businesses
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Takeaway Question 3: What is culture, and how does it impact global management? Cultural intelligence Silent languages of culture Values and national cultures
IV.
Takeaway Question 4: How can we benefit from global management learning? Are management theories universal? Intercultural competencies Global learning goals
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CHAPTER 5 SUPPORTING MATERIALS Textbook Inserts Learning from Others • With Globalization, Fashion Businesses are World Travelers Learning about Yourself • Confucian Values in Asian Cultures Figures • Figure 5.1: Common Forms of International Business – From Market Entry to Direct Investment Increasing Involvement in Ownership and Control of Foreign Operations Strategies • Figure 5.2: What Should Go Right and What Can Go Wrong in Global Corporation HostCountry Relationships • Figure 5.3: How Countries’ Short-term Thinking and Long-term Thinking Compare on Hofstede’s Dimensions of National Culture Thematic Boxes • Recommended Reading: The Fair Trade Revolution • How to Choose a Joint Venture Partner • Ethics on the Line: When Nationalism Meets Protectionism, Who Wins? • Focus on What You Do Best and Gain from the World of Comparative Advantage • Big Mac Index 2011 • Facts for Analysis: Corruption and Bribes Haunt Global Business • Management Smarts: Culture Shock: Stages in Adjusting to a New Culture • Let Silent Language Skills Do Your Talking in China • Research Brief: Personality Traits: Behavioral Competencies, and Expatriate Effectiveness • Management in Popular Culture: Cultural Awareness Helps to Find the Finish Line in The Amazing Race • Follow the Story: Wal-Mart Finds It Holds a Chinese Tiger by the Tail Applications • Self – Test • Further Reflections: Cultural Awareness • Self – Assessment: Global Intelligence • Team Exercise: American Football • Career Situations in Global Management: What Would You Do? • Case 5: Harley-Davidson: Style and Strategy Have Global Reach
CHAPTER 5 LECTURE NOTES LEARNING FROM OTHERS on page 108 of the text describes the success of Limited Brands in the global economy. The company’s success is based on sourcing its products from around the world while expecting its foreign suppliers to meet its ethical standards. LEARNING ABOUT YOURSELF on page 107 of the text challenges students’ awareness of other cultures. Concentrating on Asian cultures, a list of Confucian values is presented.
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TAKEAWAY QUESTION 1: WHAT ARE THE MANAGEMENT CHALLENGES OF GLOBALIZATION? MANAGEMENT AND GLOBALIZATION The global economy is making the diverse countries of the world increasingly interdependent regarding resource supplies, product markets, and business competition. Globalization is the process of growing interdependence among the components of the global economy. World 3.0 is a world where nations cooperate in the global economy while still respecting different national characters and interests. The graphic on page 109 of the text traces the “travels” of a t-shirt from the cotton fields of Texas in the USA to the store in Tanzania, which shows how globalization works today.
DISCUSSION TOPIC Prior to discussing this chapter in class, have each student find a recent newspaper or magazine article that relates to globalization issues. Articles can easily be found in business publications such as The Wall Street Journal, Business Week, Fortune, and Forbes, as well as many other publications such as the “Money” section of USA Today, or popular magazines such as Time and Newsweek. Each student should be prepared to discuss his/her article in class. Choose several students to talk about the key ideas in their selected articles, and ask the entire class to help identify how these ideas relate to the challenges of globalization.
GLOBAL MANAGEMENT Global management involves managing operations in more than one country. A global manager is a manager who is informed about international developments, transnational in outlook, competent in working with people from other cultures, and always aware of regional developments in a changing world. WHY COMPANIES GO GLOBAL An international business conducts commercial transactions of goods and/or services across national boundaries. Reasons businesses go international: • Profits: global operations offer profit potential • Customers: global operations offer new markets to sell products. • Suppliers: global operations offer access to needed raw materials. • Capital: global operations offer access to financial resources.
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Labor: global operations offer lower labor costs. Risk: global operations spread assets among multiple countries.
HOW COMPANIES GO GLOBAL FIGURE 5.1 from p. 111 in the text identifies the two common forms of international business strategies – Market Entry and Direct Investment. Global Sourcing A common first step into international business is global sourcing, which is the process of purchasing materials, manufacturing components, or business services from around the world. Exporting and Importing A second form of international business involves exporting and/or importing. Exporting is a form of international business that involves selling locally made products in foreign markets. Importing is a form of international business that involves buying foreign-made products and selling them in domestic markets. Licensing and Franchising Other forms of international business include the licensing agreement and franchising. A licensing agreement occurs when another firm pays a fee for the rights to make or sell another company’s products in a specified region. Franchising involves buying the rights to use another’s name and operating methods in its home country. Joint Ventures and Strategic Alliances Foreign direct investment strategies require major capital commitments but create rights of ownership and control over operations in the foreign country. Local job creation, called insourcing, results from foreign direct investment. A joint venture establishes business operations in a foreign country through coownership arrangements that pool resources and share risks and control of business operations. International joint ventures are types of global strategic alliances in which foreign and domestic firms work together for mutual benefit. Foreign Subsidiaries A foreign subsidiary is a local operation completely owned and controlled by a foreign firm. While the subsidiary can be acquired, it may also be a greenfield venture, i.e., a foreign subsidiary built from the ground up by the foreign owner.
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GLOBAL BUSINESS ENVIRONMENTS Legal and Political Systems Global operations managers must be prepared to deal with the differences between home-country and host-country laws and politics. By using the planning technique of political-risk analysis, companies are able to forecast a country’s political risk, which is the possible loss in value of a foreign investment due to instability and political changes in the host country, Trade Agreements and Trade Barriers The World Trade Organization is an international organization that monitors international trade and tries to resolve disputes among countries about tariffs and trade restrictions. The WTO members agree to give one another most favored nation status which gives a trading partner most favorable treatment for imports and exports. Even with most favored nation status, trade barriers still exist in the form of: Tariffs: taxes that the government imposes on imports. Nontariffs: quotas, import restrictions and protectionism, which is a call for tariffs and favorable treatment to protect domestic industries from foreign competition. Ethics on the Line on p. 115 of the text describes the conflict caused when a government nationalizes an industry owned by foreign investors. Regional Economic Alliances Regional economic alliances are growing around the world and represent a significant challenge for global managers. NAFTA (the North American Free Trade Agreement) is a trade agreement that links Canada, Mexico, and the United States in a regional economic alliance. The European Union is a political and economic alliance of 27 European countries that have agreed to support mutual economic growth by removing barriers that previously limited cross-border trade and business development. The Euro is the common currency used in the European Union. APEC (Asia Pacific Economic Cooperation) promotes free trade and investment among its 21 members in the Pacific region. ASEAN (Association of Southeast Asian Nations) has a goal of promoting economic growth and progress among its 10 member nations.
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SADC (South Africa Development Community) links 14 countries of southern Africa in trade and economic development efforts.
DISCUSSION TOPIC Divide the class into small discussion groups. Assign each group one of the following four geographic regions: Europe, the Americas, Asia and the Pacific Rim, or Africa. Have the groups spend 10-12 minutes identifying the potential challenges and opportunities that these areas face in the context of the global economy. Have each group report out to the entire class with a brief summary of its key discussion points.
TAKEAWAY QUESTION 2: WHAT ARE GLOBAL BUSINESSES AND WHAT DO THEY DO? A typical global corporation, also called multinational enterprise (MNE) and multinational corporation (MNC), operates in many countries but has corporate headquarters in one home or host country. TYPES OF GLOBAL BUSINESSES A transnational corporation is a multinational corporation that operates worldwide without being identified with one national home. Executives of transnational organizations view the entire world as their domain for acquiring resources, locating production facilities, marketing goods and services, and communicating brand image.
DISCUSSION TOPIC An easy way to get students involved in a discussion at this point is to ask them to provide examples of global corporations or MNCs. Students should be able to quickly generate a long list of MNCs. Engage in some discussion of where these firms have their operations and what types of products or services they provide.
PROS AND CONS OF GLOBAL CORPORATIONS Multinational host-country relationships provide shared opportunities with potential for growth, income, learning and development Host-Country Issues Host-country complaints about MNC: Excessive profits, economic domination, interference with government, hire best local talent, limited technology transfer, and disrespect for local customs.
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Host-country benefits: larger tax bases, increased employment opportunities, technology transfers, the introduction of new industries, and the development of local resources. Home-County Issues Multinational corporation complaints about host countries: profit limitations, overpriced resources, exploitative rules, foreign exchange restrictions, and failure to uphold contracts. FIGURE 5.2 on page 118 of the text describes what should go right and what can go wrong in global corporation and host country relationships. ETHICS CHALLENGES FOR GLOBAL BUSINESSES The ethical aspects of international business deserve special attention. Corruption Corruption involves engaging in illegal practices to further one’s business interests. Bribery and other forms of corruption can pose significant challenges for a global business. The Foreign Corrupt Practices Act prohibits U.S. businesses and their representatives from engaging in corrupt practices abroad. Child labor and Sweatshops Child labor is the full-time employment of children for work otherwise done by adults. Sweatshops are business operations that employ workers at low wages for long hours and in poor working conditions. FACTS for ANALYSIS on page 119 of the text explains Transparency International’s efforts to document and publish the corruption and bribery rates in countries around the world.
TAKEAWAY QUESTION 3: WHAT IS CULUTRE, AND HOW DOES IT IMPACT GLOBAL MANAGEMENT? Culture is a shared set of beliefs, values, and patterns of behavior common to a group of people. Culture shock is the confusion and discomfort that a person experiences when in an unfamiliar culture. CULTURAL INTELLIGENCE Ethnocentrism is the tendency to consider one’s culture as superior to others.
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Cultural intelligence is the ability to accept and adapt to new cultures. MANAGEMENT SMARTS on page 120 of the text describes stages in adjusting to a new culture. These stages are: • • • • •
Confusion: first contacts with the new culture leave you anxious, uncomfortable, and in need of information and advice. Small victories: continued interactions bring some “successes,” and your confidence grows in handling daily affairs. The honeymoon: a time of wonderment, cultural immersion, and even infatuation, with local ways viewed positively. Irritation and anger: a time when the “negatives” may overwhelm the “positives and the new culture becomes a target of your criticism. Reality: a time of rebalancing; you are able to enjoy the new culture while recognizing less desirable elements.
DISCUSSION TOPIC If any of your students have lived or traveled abroad, ask them to describe their experiences and relate them to the stages of adjusting to a new culture.
SILENT LANGUAGES OF CULTURE The dimensions of Edward T. Hall’s “silent languages of culture” include context, time orientation, and the use of space. Context In a low-context culture most communication takes place via the written or spoken word. In a high-context culture much communication takes place through nonverbal and situational cues in addition to the written or spoken word. Time In a monochronic culture people tend to do one thing at a time. In a polychronic culture time is used to accomplish many different things at once. Space Proxemics is how people use space to communicate.
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TIGHT AND LOOSE CULTURES In tight cultures, norms are strong and clear and guide behavior. Deviations from the norm are noticed, discouraged and even sanctioned. Examples of tight cultures include Malaysia, India and Japan. In loose cultures social norms are mixed and less clear cut and conformity may vary a great deal. Examples of loose cultures include Ukraine, Hungary and Brazil. RESEARCH BRIEF on page 123 of the text describes the link between personality traits and behavioral competencies with expatriate effectiveness. MANAGEMENT IN POPULAR CULTURE on p. 124 of the text illustrates how participants in television’s The Amazing Race show experience foreign cultures in their quest to win the contest. VALUES AND NATIONAL CULTURES Geert Hofstede’s work is often considered a benchmark for how cultural differences can influence management and organizational practices. FIGURE 5.3 on page 125 of the text describes how countries compare on Hofstede’s five dimensions of national culture. Five dimensions of value differences in national culture from Hofstede are: 1. Power distance: the degree to which a society accepts or rejects the unequal distribution of power among people in organizations and the institutions of society. 2. Individualism-collectivism: the degree to which a society emphasizes individual accomplishments and self-interests, versus collective accomplishments and the interests of groups. 3. Uncertainty avoidance: the degree to which a society is uncomfortable with risk, change, and situational uncertainty, versus having tolerance for them. 4. Masculinity-femininity: the degree to which a society values assertiveness and material success, versus feelings and concern for relationships. 5. Time orientation: the degree to which a society emphasizes the short-term versus greater concern for the future.
DISCUSSION TOPIC Focus again on the students who, in the previous Discussion Topic, identified themselves as having lived or traveled abroad. Ask them to identify the nation(s) and attempt, on the basis of their experiences, to characterize those nations in terms of Hofstede’s dimensions of culture. If
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enough nations are represented, a comparative analysis could be fruitful. Also compare these nations to the United States. You could also try to link this analysis to Figure 5.3.
TAKEAWAY QUESTION 4: HOW CAN WE BENEFIT FROM GLOBAL MANAGEMENT LEARNING? Comparative management studies how management perspectives and practices systematically differ among countries and cultures. ARE MANAGEMENT THEORIES UNIVERSAL? The management process must be used appropriately and applied with sensitivity to local cultures and situations. Management practices are influenced by cultural values; practices that are successful in one culture may work less well in others. FOLLOW THE STORY on p. 127 of the text details how Wal-Mart was penalized by the Chinese government for not adhering to the food labeling laws in China. INTERCULTURAL COMPETENCIES Intercultural competencies are skills and personal characteristics that help us to be successful in cross cultural situations. GLOBAL LEARNING GOALS One’s intercultural competency is strengthened by combining intercultural knowledge with management skills and applying these principles in a culturally relative way.
CHAPTER 5 TAKEAWAY QUESTIONS SUMMARY What are the management challenges of globalization? • • • • • • •
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Global managers are informed about international developments and are competent in working with people from different cultures. The forces of globalization create international business opportunities to pursue profits, customers, capital, and low-cost suppliers and labor in different countries. Market entry strategies for international business include global sourcing, exporting and importing, and licensing and franchising. Direct investment strategies of international business establish joint ventures or wholly owned subsidiaries in foreign countries. General environment differences, including legal and political systems, often complicate international business activities. Regional economic alliances, such as NAFTA, the EU, and SADC link nations of the world with the goals of promoting economic development. The World Trade Organization (WTO) is a global institution that promotes free trade and open markets around the world.
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FOR DISCUSSION: What aspects of the U.S. legal-political environment could prove difficult for a Chinese firm setting up a factory in America? What are global businesses and what do they do? • A global corporation is a multinational enterprise or multinational corporation with extensive operations in multiple foreign countries. • A transnational corporation tries to operate globally without a strong national identity and with a worldwide mission and strategies. • Global corporations can benefit host countries by offering broader tax bases, new technologies, and employment opportunities. • Global Corporations can cause problems for host countries if they interfere in local government, extract excessive profits, and dominate the local economy. • The U.S. Foreign Corrupt Practices Act prohibits American multinational corporations from engaging in bribery and corrupt practices abroad. FOR DISCUSSION: Is the Foreign Corrupt Practices Act unfair to American firms trying to compete for business around the world? What is culture, and how does it impact global management? • Culture is a shared set of beliefs, values, and behavior patterns common to a group of people. • Culture shock is the discomfort people sometimes experience when interacting with persons from cultures different from their own. • Cultural intelligence is an individual capacity to understand, respect, and adapt to cultural differences. • Hall’s “silent” languages of culture include the use of context, time, and interpersonal space. • Hofstede’s five dimensions of value differences in national cultures are power distance, uncertainty avoidance, individualism-collectivism, masculinity-femininity, and time orientation. FOR DISCUSSION: Should religion be included on Hall’s list of the silent languages of culture? How can we benefit from global management learning? • The field of comparative management studies how management is practiced around the world and how management ideas are transferred from one country or culture to the next. • The foundations for intercultural competency are found in perception management relationship management and self-management. • Because management practices are influenced by cultural values, global management learning must recognize that successful practices in one culture may work less well in others. FOR DISCUSSION: Even though cultural differences are readily apparent, is the tendency today for the world’s cultures to converge and become more alike?
CHAPTER 5 KEY TERMS Child labor (p. 119): the employment of children for work otherwise done by adults. Comparative management (p. 126): the study of how management systematically differs among countries and cultures. Corruption (p. 119): engaging in illegal practices to further one’s business interests. Cultural intelligence (p. 121): the ability to accept and adapt to new cultures.
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Culture (p. 120): a shared set of beliefs, values, and patterns of behavior common to a group of people. Culture shock (p. 120): the confusion and discomfort a person experiences when in an unfamiliar culture. Ecological fallacy (p.125): assumes that a generalized cultural value applies equally well to all members of the culture. Ethnocentrism (p. 120): the tendency to consider one’s culture superior to others. Euro (p. 116): the common European currency. European Union (p. 115): a political and economic alliance of European countries that have agreed to support mutual economic growth by removing barriers that previously limited crossborder trade and business development. Exporting (p. 112): a form of international business that involves selling locally made products in foreign markets. Foreign Corrupt Practices Act (p. 119): makes it illegal for U.S. firms and their representatives to engage in corrupt practices overseas. Foreign subsidiary (p. 113): a local operation completely owned and controlled by a foreign firm. Franchising (p. 112): a form of licensing in which the foreign firm buys the rights to use another’s name and operating methods in its home country. Global corporation (p. 117): a multinational enterprise (MNE) or multinational corporation (MNC) with extensive operations in many foreign countries. Global management (p. 109): involves managing operations in more than one country. Global manager (p. 109): a manager who is culturally aware and informed on international affairs. Global sourcing (p. 111): the process of purchasing materials, manufacturing components, or business services from around the world. Global strategic alliance (p.112): a partnership in which foreign and domestic firms share resources and knowledge for mutual gains. Globalization (p. 108): the process of growing interdependence among the elements of the global economy. Greenfield venture (p. 113): a foreign subsidiary built from the ground up by the foreign owner. High-context culture (p. 121): a culture where much communication takes place through nonverbal and situational cues in addition to the written or spoken word. International business (p. 110): conducts for-profit transactions of goods and services across national boundaries. Importing (p. 112): a form of international business that involves buying foreign-made products and selling them in domestic markets. Individualism – collectivism (p. 125): the degree to which a society emphasizes individuals and their self-interests. Insourcing (p.112): describes job creation through foreign direct investment. Intercultural competencies (p. 128): are skills and personal characteristics that help us to be successful in cross cultural situations. Joint venture (p. 112): a co-ownership arrangement in which the foreign and local partners agree to pool resources, share risks, and jointly operate the new business. Licensing agreement (p. 112): a form of international business whereby foreign firms pay a fee for rights to make or sell another company’s products in a specified region. Low-context culture (p. 121): a culture in which most communication takes place via the written or spoken word. Masculinity-femininity (p. 125): the degree to which a society values assertiveness and materialism.
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Monochronic cultures (p. 121): cultures in which people tend to do one thing at a time. Most favored nation status (p. 114): gives a trading partner most favorable treatment for imports and exports. NAFTA (p. 115): a trade agreement that links Canada, Mexico, and the United States in a regional economic alliance. Nontariff barriers (p. 114): discourage imports in nontax ways such as quotas and government import restrictions. Political risk (p. 114): the potential loss in value of a foreign investment due to instability and political changes in the host country. Political risk analysis (p. 114): tries to forecast political disruptions that can threaten the value of a foreign investment. Polychronic cultures (p. 121): cultures in which time is used to accomplish many different things at once. Power distance (p.125): the degree to which a society accepts unequal distribution of power. Protectionism (p. 114): calls for tariffs and favorable treatments to protect domestic firms from foreign competition. Proxemics (p. 121): how people use space to communicate. Sweatshops (p. 120): business operations that employ workers at low wages for long hours and in poor working conditions. Tariffs (p. 124): taxes governments levy on imports from abroad. Time orientation (p. 125): the degree to which a society emphasizes short-term or long-term goals. Transnational corporation (p. 117): a global corporation that operates worldwide without being identified with one national home. Uncertainty avoidance (p. 125): the degree to which a society tolerates risk and uncertainty. World 3.0 (p. 108): is a world where nations cooperate in the global economy while still respecting different national characters and interests. World Trade Organization (p. 114): a global organization established to promote free trade and open markets around the world, and to resolve disputes among countries about tariffs and trade restrictions.
SELF TEST ANSWERS 1.
The reasons why businesses go international include gaining new markets, finding investment capital, and reducing _______________. (a) political risk (b) protectionism (c) lower labor costs (d) most favored nation status
2.
When shoemaker, Rocky Brands decided to buy full ownership of a manufacturing company in the Dominican Republic, Rocky was engaging in which form of international business? (a) import/export (b) licensing (c) foreign subsidiary (d) joint venture
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3.
A form of international business that falls into the category of a direct investment strategy is ___________. (a) exporting (b) joint venture (c) licensing (d) global sourcing
4.
The World Trade Organization, would most likely become involved in disputes between countries over ___________. (a) exchange rates (b) ethnocentrism (c) nationalization (d) tariffs
5.
Business complaints about copyright protection and intellectual property rights in some countries illustrate how differences in ______ can impact international operations. (a) legal environments (b) political stability (c) sustainable development (d) economic systems
6.
In ______ cultures, members tend to do one thing at a time; in ______ cultures, members tend to do many things at once. (a) monochronic, polychronic (b) polycentric, geocentric (c) collectivist, individualist (d) neutral, affective
7.
A culture that places great value on expressing meaning in the written or spoken word is described as ___________by Hall. (a) monochronic (b) proxemic (c) collectivist (d) low-context
8.
It is common in Malaysian culture for people to value teamwork and to display great respect for authority. Hofstede would describe this culture as high in both ________________. (a) uncertainty avoidance and feminism (b) universalism and particularism (c) collectivism and power distance (d) long-term orientation and masculinity
9.
In Hofstede’s study of national cultures, America was found to be the most ___________ compared with other countries in his sample. (a) individualistic (b) collectivist (c) feminine (d) long-term oriented
10. It is _________ when a foreign visitor takes offense at a local custom such as dining with one’s fingers, considering it inferior to practices of his or her own culture. (a) universalist (b) prescriptive (c) monochronic (d) enthnocentric 11. When Limited Brands buys cotton in Egypt, has tops sewn from it in Sri Lanka according to designs made in Italy, and then offers them for sale in the United States, this form of international business is known as ______. (a) licensing (b) importing (c) joint venturing (d) global sourcing 12. The difference between an international business and a transnational corporation is that the transnational __________. (a) tries to operate around the world without a strong national identity (b) does business in only one or two foreign countries (c) is led by ethnocentric managers (d) is based outside of North America
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13. The Foreign Corrupt Practices Act makes it illegal for ______________. (a) Americans to engage in joint ventures abroad (b) foreign businesses to pay bribes to U.S. government officials (c) U.S. businesses to make “payoffs” abroad to gain international business contracts (d) foreign businesses to steal intellectual property from U.S. firms operating in their countries 14. When a member of a cross-cultural team is hesitant to speak up and offer ideas, defers to the team leader and avoids accepting praise for individual work, the person is displaying characteristics consistent with a ________________ culture. (a) monochronic (b) low context (c) tight (d) loose 15. Hofstede would describe a culture whose members respect age and authority and whose workers defer to the preferences of their supervisors as ______. (a) low masculinity (b) high particularism (c) high power distance (d) monochromic 16. Why do host countries sometimes complain about how global corporations operate within their borders? The relationship between a global corporation and a host country should be mutually beneficial. Sometimes, however, host countries complain that MNCs take unfair advantage of them and do not include them in the benefits of their international operations. The complaints against MNCs include taking excessive profits out of the host country, hiring the best local labor, not respecting local laws and customs, and dominating the local economy. Engaging in corrupt practices is another important concern. 17. Why is the “power-distance” dimension of national culture important in management? The power-distance dimension of national culture reflects the degree to which members of a society accept status and authority inequalities. Since organizations are hierarchies with power varying from top to bottom, the way power differences are viewed from one setting to the next is an important management issue. Relations between managers and subordinates, or team leaders and team members, will be very different in high-power-distance cultures than in low-power-distance ones. The significance of these differences is most evident in international operations, when a manager from a high-power-distance culture has to perform in a low-power-distance one, or vice versa. In both cases, the cultural differences can cause problems as the manager deals with local workers. 18. What is the difference between a culture that is tight and a culture that is loose? In tight cultures, like Malaysia, there is an expectation that people will know and conform to expected norms. If one deviates from these norms, his behavior will be noticed, discouraged or even sanctioned. Consequently, people from tight cultures are more reluctant to volunteer, seek individual praise, or stand out as an individual. In contrast, in loose cultures, like the Ukraine, social norms are less clear cut and lack of conformity is more tolerated. As a result, workers from loose cultures are more accepting of emotions, personal criticism, and have an expectation that their work will be recognized.
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19. How do regional economic alliances impact the global economy? For each region of the world you should identify a major economic theme, issue, or element. For example: Europe—the European Union should be discussed for its economic significance to member countries and to outsiders; the Americas—NAFTA should be discussed for its current implications, as well as its potential significance once Chile and other nations join; Asia—the Asia-Pacific Economic Forum should be identified as a platform for growing regional economic cooperation among a very economically powerful group of countries; Africa—the new nonracial democracy in South Africa should be cited as a stimulus to broader outside investor interest in Africa. 20. Kim has just returned from her first business trip to Japan. While there, she was impressed with the intense use of work teams. Now back in Iowa, she would like to totally reorganize the workflows and processes of her canoe manufacturing company and its 75 employees around teams. There has been very little emphasis on teamwork, and she now believes this is “the way to go.” Based on the discussion of culture and management in this chapter, what advice would you offer Kim? Kim must recognize that the cultural differences between the United States and Japan may affect the success of group-oriented work practices such as quality circles and work teams. The United States was the most individualistic culture in Hofstede’s study of national cultures; Japan is much more collectivist. Group practices such as the quality circle and teams are natural and consistent with the Japanese culture. When introduced into a more individualistic culture, these same practices might cause difficulties or require some time for workers to get used to them. At the very least, Kim should proceed with caution, discuss ideas for the new practices with the workers before making any changes, and then monitor the changes closely, so that adjustments can be made to improve them as the workers gain familiarity with them and have suggestions of their own.
MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: CULTURAL AWARENESS Students’ answers will vary according to the degree of global diversity on your campus. The more diverse the student body, the more opportunities students will have for interaction and a richer learning experience. It may be helpful to reinforce text material by encouraging students to use this chapter’s terminology and frameworks such as Hofstede’s in their answers. If your institution is not diverse, students could use their work sites, neighborhoods, etc. for this assignment. SELF-ASSESSMENT: GLOBAL INTELLIGENCE Through this self-assessment, students can reflect on their readiness to interact and work with persons from other cultures. A high score would suggest that they deem themselves to be well prepared for intercultural relations; a low score would reveal a need to better prepare themselves for the global workplace. Such insights can be very useful for students as they consider their preparedness for their careers, and identify areas for self improvement.
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TEAM EXERCISE: AMERICAN FOOTBALL This exercise is easy to script and do in class since students get right into it. It is especially good if students from other countries are included in the teams. The exercise basically takes care of itself. Ask students to apply Hofstede's framework once they have worked a bit on the exercise. Discussion can then use Hofstede's model to analyze possible implications of other sports - e.g. cricket, soccer.
CAREER SITUATIONS: WHAT WOULD YOU DO? 1. Paying a Summer Worker 2. No Pay Raises for Good Performance 3. I’ve Got this Great Idea Student answers will vary based on personal experience, work ethic, and personal productivity.
REVIEW QUESTIONS FOR CASE 5: HARLEY DAVIDSON: STYLE AND STRATEGY HAVE GLOBAL REACH Discussion Questions 1. If you were CEO of Harley-Davidson, how would you compare the advantages and disadvantages of using exports, joint ventures, and foreign subsidiaries as ways of expanding international sales? Here are some of the advantages and disadvantages for Harley-Davidson in expanding international sales: ADVANTAGES DISADVANTAGES Using Exports • expansion into other markets • potential modification of the increasing both sales and product to meet local profits. regulations. • a reduced dependency on its • additional transportation existing domestic market. costs. • sale of excess capacity. • need for an export license or special permits. • longer wait time for customer payments. Joint Ventures • more production capacity • a sharing of power and and access to expertise in a profits. given market. • may take a long time to
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• •
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Foreign Subsidiaries
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a sharing of risks with a partner. business flexibility, in that the venture partners can limit the life span and the areas the venture covers. ease of exit from the business. complete control of the foreign operation. no risk of losing technical expertise to a foreign competitor.
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form. lack of cooperation between the partners. an imbalance of expertise or financial risk. risk of giving away technical expertise to a competitor. company bears complete financial risk. long learning curve with the country’s culture and customs and marketplace.
In America and Japan, Harley has shifted the positioning of its products away from simply being motorcycles and toward representing status symbols of a particular way of life. Can this positioning succeed in Asia, Africa, and South America? Why or why not? With Asian, African, and South American societies leaning toward Western culture and all it has to offer, Harley’s positioning itself as a “way of life” instead of a producer of products fits well. Appealing to the ‘rebel’ side of human nature, those customers in Asia, Africa, and South America show their individuality and non-conformity by owning and riding a Harley. As such, just as in the United States, Harley will see success in these other markets, not by being a producer of motorcycles, but rather as a “way of life.”
Problem Solving Assume the CEO of Harley has decided to set up new manufacturing facilities in both China and India. Which of the general environment conditions should be analyzed before Harley makes strategic investments in each country? And to get started, should Harley set up wholly owned subsidiaries to do the manufacturing, or would it be better off entering into joint ventures with local partners? The general environment factors students must consider include economic, legal-political, technological, socio-cultural and natural environmental conditions. The most influential factors would probably be economic and legal-political. With most of the world's economies experiencing a recession, the economic conditions might positively influence the willingness of the host countries to accommodate a new industry and employer. India is more receptive to private industry than China, but China is increasingly receptive to foreign investment. Both countries would have legal-political factors to consider including regulation of labor, wages, unions, exports and taxes. Both countries would probably welcome a joint venture with fewer restrictions than a wholly owned foreign subsidiary. Further Research
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Is it accurate to say that Harley is still “on top of its game”? How is the company doing today in both domestic and global markets? Who are its top competitors in other parts of the world, and how is Harley faring against them? Students are directed to research Harley Davidson and research how well it is doing. Evidence of company performance requires more digging than the basic information about the company's products students will find with most search engines. Consider discussing the type of criteria they should be looking for in their research before they begin. Caution students to conduct their online research with objective media sources. The college library may offer free searches such as EBSCO Host that access a large number of periodicals including industry publications that may provide thorough and accurate comparisons as well as current industry trends.
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Chapter 6:
ENTREPRENEURSHIP AND NEW VENTURES CHAPTER 6 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: • • •
What is entrepreneurship and who are the entrepreneurs? What is special about small businesses entrepreneurship? How do entrepreneurs start and finance new ventures?
CHAPTER 6 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • •
Define entrepreneurship and differentiate between classic and serial entrepreneurs. List key personal characteristics of entrepreneurs. Explain the influence of background and experience on entrepreneurs. Define social entrepreneurship. Define necessity-based entrepreneurship. Discuss motivations for entrepreneurship by women and minorities. Give the SBA definition of small business. Illustrate opportunities for entrepreneurship on the Internet. Discuss the succession problem in family-owned businesses and possible ways to deal with it. List several reasons why many small businesses fail. Explain how business incubators work and how both they and SBDC’s can help new small businesses. Explain the concept of first-mover advantage. Illustrate the life-cycle of an entrepreneurial firm. Identify the major elements in a business plan. Differentiate sole proprietorship, partnership, and corporation. Differentiate debt financing and equity financing. Explain the roles of venture capitalists, angel investors and equity based crowd funding in new venture financing.
CHAPTER 6 OVERVIEW The objective of this chapter is to familiarize a student with the nature of entrepreneurship, small business, and new venture creation, so one can consider starting a business and, by doing so, make a personal contribution to society. Entrepreneurship is an important aspect of the contemporary business world. It occurs for individuals and within organizations, both large and small. Entrepreneurship fuels success in a highly competitive business environment. The chapter begins by defining the terms entrepreneurship and entrepreneur, and then discusses the characteristics, attitudes, background and interests of entrepreneurs. The roles of women and .
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minorities in entrepreneurship are described next, and common myths about entrepreneurs are examined. The unique form of social entrepreneurship is examined, along with the entrepreneurs who are in this movement. The chapter then focuses on ways of establishing small businesses, with particular emphasis being placed on entrepreneurial opportunities that may be developed through the Web, and with family businesses. Consideration is also given to the reasons for small business failures, and the types of aid available to these start-ups. Next, the chapter discusses important issues that arise in the creation of new business ventures, and describes the life cycle of the entrepreneurial firm and the managerial challenges that are encountered at each stage of the life cycle. The chapter concludes by examining practical managerial matters, such as, the mechanics of writing a business plan, the choice of a legal form of business ownership, and the options for financing the business. CHAPTER 6 LECTURE OUTLINE Teaching Objective: The goal of this chapter is to provide students with a solid understanding of entrepreneurship and the nature and dynamics of new venture creation. Suggested Time: One to two hours of class time is suggested for presenting this material. I.
Takeaway Question 1: What is entrepreneurship and who are the entrepreneurs? Who are the entrepreneurs? Characteristics of entrepreneurs Women and minority entrepreneurs Social entrepreneurship
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Takeaway Question 2: What is special about small business entrepreneurship? Why and how to get started Web based models Family businesses Why small businesses fail Small business development
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Takeaway Question 3: How do entrepreneurs start and finance new ventures? New venture creation Life cycles of entrepreneurial firms Writing the business plan Choosing the form of ownership Financing the new venture
CHAPTER 6 SUPPORTING MATERIALS Textbook Inserts Learning from Others • Entrepreneurs Are Changing Our World Learning about Yourself • Self-Management Tips for Career Success
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Figures • Figure 6.1: Personality Traits and Characteristics of Entrepreneurs • Figure 6.2: Eight Reasons Why Many Small Businesses Fail • Figure 6.3: Stages in the Life Cycle of an Entrepreneurial Firm Thematic Boxes • Management Smarts: Challenging the Myths About Entrepreneurs • Facts for Analysis: Minority Entrepreneurs Provide Six Million Jobs But Attract Less Than1% of Venture Capital • Follow the Story: Frugal Living in a Rural Home Plus Entrepreneurial Skills Launched an Alternative Energy Business • Etsy Turns “Handmade” into Entrepreneurship • Research Brief: Do Founders of New Ventures Take Less Compensation Than Other Senior Managers in Their Firms? • Ethics on the Line: For Each Pair of Shoes It Sells, This Caring Capitalism Firm Donates Another Pair to Needy Children • Grad School Startup Takes on Big Competitors • Management Smarts: Why You Need a Business Plan • Management in Popular Culture: Self-Management Beats Mistreatment and Deception in the Slumdog Millionaire Applications • Self-Test • Further Reflection: Self-Management • Self-Assessment: The Entrepreneurial Orientation Inventory • Team Exercise: Entrepreneurs Among Us • Case Study: In-N-Out Burger CHAPTER 6 LECTURE NOTES LEARNING FROM OTHERS on page 134 of the text tells how Zynga, an organization that creates apps for smart phones, runs its business in a unique way, which has resulted in revenue growth of over $150 million in three years. LEARNING ABOUT YOURSELF on page 135 of the text explains how self-management can enhance career success. Ask students how they approach the college experience, from academics to extracurricular activities? Are they in balance? TAKEAWAY QUESTION 1: WHAT IS ENTREPRENEURSHIP AND WHO ARE THE ENTREPRENEURS? Entrepreneurship describes strategic thinking and risk-taking behavior that results in the creation of new opportunities, WHO ARE THE ENTREPRENEURS? The classic entrepreneur is a risk-taking individual who takes action to pursue opportunities and situations others may fail to recognize as such or may even view as problems or threats.
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A serial entrepreneur starts and runs new ventures, over and over, moving from one interest and opportunity to the next. To illustrate the wide-ranging ventures and backgrounds of entrepreneurs, the text briefly profiles the accomplishments of four entrepreneurs: Mary Kay Ash, Caterina Fake, Earl Graves, and David Thomas. CHARACTERISTICS OF ENTREPRENEURS Entrepreneurs are found in a variety of settings, including: • Founders of new business enterprises that achieve large-scale success. • People who buy a local franchise outlet, open a small retail shop, or go into a selfemployed service business. • People who assume responsibility for introducing a new product or a change in operations in an existing organization. MANAGEMENT SMARTS on p. 139 of the text describes the myths about entrepreneurs, including: • • • • •
Entrepreneurs are born, not made. Not true! Talent gained and enhanced by experience is a foundation for entrepreneurial success. Entrepreneurs are gamblers. Not true! Entrepreneurs are risk takers, but the risks are informed and calculated. Money is the key to entrepreneurial success. Not true! Money is no guarantee of success. There’s a lot more to it than that; many entrepreneurs start with very little. You have to be young to be an entrepreneur. Not true! Age is no barrier to entrepreneurship; with age often comes experience, contacts, and other useful resources. You have to have a degree in business to be an entrepreneur. Not true! You may not need a degree at all. Although a business degree is not necessary, it helps to study and understand business fundamentals.
ATTITUDES AND PERSONAL INTERESTS FIGURE 6.1 from page 140 in the textbook identifies typical personality traits and characteristics of entrepreneurs. These traits and characteristics include: • • • • • • • •
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Internal locus of control –– entrepreneurs believe that they control their own destiny; they are self-directing and like autonomy. High energy level –– entrepreneurs are persistent, hard working, and willing to exert extraordinary efforts to succeed. High need for achievement –– entrepreneurs are motivated to act individually to accomplish challenging goals; they thrive on performance feedback. Tolerance for ambiguity –– entrepreneurs are risk takers; they tolerate situations with high degrees of uncertainty. Self-confidence –– entrepreneurs feel competent, believe in themselves, and are willing to make decisions. Passion and action-orientation –– entrepreneurs try to act ahead of problems; they want to get things done and not waste valuable time. Self-reliance and desire for independence –– entrepreneurs want independence; they are self-reliant; they want to be their own bosses, not work for others. Flexibility ⎯ entrepreneurs are willing to admit problems and errors, and are willing to change a course of action when plans are not working.
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DISCUSSION TOPIC To make the discussion of entrepreneurship more personally meaningful for students, ask them to describe themselves in terms of each of the above characteristics of entrepreneurs. Also ask if any of the students are thinking about becoming entrepreneurs and whether there are any students who are not likely or interested in becoming entrepreneurs. Have these two opposing groups of students describe themselves to the class in terms of the above characteristics, and then have the class examine the two descriptions for any differences. BACKGROUND, EXPERIENCES, AND INTERESTS Entrepreneurs also tend to have unique backgrounds and experiences, including: •
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Childhood experiences and family environment • Entrepreneurs tend to have parents who were entrepreneurs or self-employed. • Entrepreneurs tend to be raised in families that encourage responsibility, initiative, and independence. Career or work history • Entrepreneurs often try more than one business venture. • Entrepreneurs tend to have prior career or personal experience in the business area or industry in which they develop an entrepreneurial venture. Windows of career opportunity • Most entrepreneurs start their businesses between the ages of 22 and 45; however, age is no barrier. Deeply embedded life interests • Entrepreneurs have strong interests in creative production and enterprise control. • Entrepreneurs seek independence and the sense of mastery that comes with success. DISCUSSION TOPIC
Ask the students if they know any entrepreneurs. If they do, have them describe their perceptions of these entrepreneurs with respect to the above myths. Do the myths fit or not? Why or why not? WOMEN AND MINORITY ENTREPRENEURS When economists speak about entrepreneurs they differentiate between those who are driven by the quest for new opportunities and those who are driven by absolute need. Those in the latter group pursue necessity-based entrepreneurship; they start new ventures because they have few or no employment and career options elsewhere. The National Foundation for Women Business Owners notes that women own close to 8 million businesses, which account for over 6% of U.S. employment and are forecast to create one third of the 15+ million new jobs predicted by 2018. Among women leaving the private sector employment to work on their own • 33% said they were not being taken seriously by their prior employer.
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29 % had experienced glass-ceiling issues.
Women of color often seek entrepreneurial opportunities as a result of: • Glass ceiling problems that are most frequently traced to not being recognized or valued by their prior employers. • Not being taken seriously. • Seeing others promoted ahead of them. Minority-owned businesses are one of the fastest growing sectors of the United States economy. ▪ The census identified almost 2 million small firms owned by AfricanAmericans, a growth of 60% over prior numbers and representing 7% of all businesses. ▪ Among 2010 start-ups, 9% were led by African Americans and 23% by Latinos. ▪ Less than 1% of the venture capital in the U.S. goes to minority entrepreneurs. FACTS FOR ANALYSIS on p. 142 of the text details the growth of minority owned businesses in spite of less financial support from venture capitalists. SOCIAL ENTREPRENEURS Social entrepreneurship is a unique form of ethical entrepreneurship that seeks novel ways to solve pressing social problems. Social entrepreneurs that take risks to find new ways to solve social problems share many characteristics with other entrepreneurs. However, they are motivated by a social mission and pursue innovations that help make lives better for people who are disadvantaged. Social problems include poverty, illiteracy, poor health, and social oppression. FOLOW THE STORY on p. 143 of the text tells the story of Third Sun Solar Wind and Power, Ltd. TAKEAWAY QUESTION 2: WHAT IS SPECIAL ABOUT SMALL BUSINESS ENTREPRENEURSHIP? A small business is commonly defined as one with 500 or fewer employees, is independently owned and operated, and does not dominate its industry. Almost 99 percent of American businesses are classified as small. WHY AND HOW TO GET STARTED Some of the reasons why entrepreneurs launch their own businesses include: • Wanting to be your own boss and control your future. • Going to work for a family-owned business. • Seeking to fulfill a dream. .
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ETSY TURNS “HANDMADE” INTO ENTREPRENEURSHIP on p. 144 of the text explains how three entrepreneurs developed the idea for this unique web based business. The common ways for an entrepreneur to become involved in a small business are: • Start a small business. • Buy an existing small business. • Buy and run a franchise –– where a business owner sells to another person the right to operate the same business in another location, under the original owner’s business name and guidance. A small business startup is a new venture that the entrepreneur is hoping will take shape and be successful as things move forward. Startups that take advantage of things like open-source software and free Web services, while staying small and striving to keep all operations as simple as possible are called lean startups. WEB-BASED BUSINESS MODELS Web access has created numerous entrepreneurial possibilities, called Internet entrepreneurship, the direct use of the Internet to pursue an entrepreneurial venture. Some of the proven business models include the: • • • • • • • •
Advertising model – providing free information or services and then generating revenues from paid advertising made available to viewers. Brokerage model – bringing buyers and sellers together for online business transactions and taking a percentage from the sales. Community model – providing a meeting point sold by subscription or supported by advertising Freemium model – offering a free service and encouraging users to buy extras Infomediary model – providing a free service in exchange for collecting information on users and selling it to users Merchant model –e-tailing or selling products direct to customers through the web Referral model – providing free listings and getting referrals fees from online merchants for directing potential customers to them. Subscription model – selling access to high-value content through a subscription website.
According to the Small Business Association (SBA) some 85% of small firms are conducting business over the Internet. Some of these businesses have both a bricks-andmortar and Internet presence while others are Internet-based only. FAMILY BUSINESSES Family businesses are owned and financially controlled by family members. Family businesses represent the largest percentage of businesses operating worldwide. The Family Firm Institute reports that, in the United States, family businesses account for 78% of new job creation and 60% of the nation’s employment.
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DISCUSSION TOPIC Ask the students if any of their families have their own businesses. For those students whose families do have their own businesses, ask them to describe for the class some of the challenges and joys that they have witnessed or experienced with a family-owned business. This discussion can be used as a bridge to the following material. RESEARCH BRIEF on page 146 of the text explores whether founders of new business ventures compensate themselves better than senior managers in the firm. When everything works properly, the family firm is almost an ideal situation. While family businesses must solve the same problems of other small or large businesses, they must also address a set of unique problems. ▪ The family business feud occurs when members of the controlling family get into disagreements about work responsibilities, business strategy, operating approaches, finances, or other matters. ▪ The succession problem involves transferring leadership from one generation to the next. The key management question in the succession problem is: How will the assets be distributed and who will run the business when the current head leaves? About 30% of family firms survive to the second generation; only about 12% survive to the third; and only 3% are expected to survive beyond the third generation. The succession problem should be addressed ahead of time with a succession plan, which is a formal statement that describes how the leadership transition and related financial matters will be handled when the time for changeover arrives. The succession plan should include: • Procedures for choosing or designating the firm’s new leadership. • Legal aspects of any ownership transfer. • Any financial and estate plans relating to the transfer. WHY SMALL BUSINESSES FAIL Small businesses have a high failure rate –– 60 to 80% of new businesses fail in their first five years of operation. As shown in FIGURE 6.2 on page 147 of the text, the reasons for small business failure include: • • • •
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Insufficient financing—not having enough money available to maintain operations while still building the business and gaining access to customers and markets. Lack of experience—not having sufficient know-how to run a business in the chosen market or geographical area. Lack of expertise—not having expertise in the essentials of business operations, including finance, purchasing, selling, and production. Lack of strategy and strategic leadership—not taking the time to craft a vision and mission, nor to formulate and properly implement a strategy.
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Poor financial control—not keeping track of the numbers, and failure to control business finances and use existing monies to best advantage. Growing too fast—not taking the time to consolidate a position, fine-tune the organization, and systematically meet the challenges of growth. Lack of commitment—not devoting enough time to the requirements of running a competitive business. Ethical failure—falling prey to the temptations of fraud, deception, and embezzlement.
ETHICS ON THE LINE on p. 148 of the text describes the philanthropy business model followed by TOMS Shoes. SMALL BUSINESS DEVELOPMENT To help overcome the challenges of starting a small business there is assistance available. A business incubator offers space, shared administrative services, and management advice at reduced costs with the goal of helping new businesses become healthy enough to survive on their own. The Small Business Administration (SBA) works with state and local agencies to set up Small Business Development Centers, which offers business owners guidance on how to set up and manage business operations. TAKEAWAY QUESTION 3: HOW DO ENTREPRENEURS START AND FINANCE NEW VENTURES? Can the entrepreneur identify a market niche or a new market that is being missed by other established firms? Can the entrepreneur generate a first-mover advantage by exploiting a niche or entering a market before competitors? LIFE CYCLES OF ENTREPRENEURIAL FIRMS FIGURE 6.3 on page 150 of the text describes the stages that are common in the life cycles of entrepreneurial firms: • • •
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Birth stage –– the entrepreneur struggles to get the new venture established and survive long enough to test the viability of the underlying business model in the marketplace. Breakthrough stage –– the business model begins to work well, growth is experienced, and the complexity of managing the business operation expands significantly. Maturity stage –– the entrepreneur experiences the advantages of market success and financial stability, while also facing continuing management challenges of remaining competitive in a changing environment.
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WRITING THE BUSINESS PLAN New venture creation can benefit greatly from having a good business plan that describes all the details necessary to set the direction for a new business and to obtain the necessary financing to operate it. MANAGEMENT SMARTS on page 152 of the text explains why you need a business plan: • • • • • •
It makes you identify and confront the potential strengths and weaknesses of your proposed business. It makes you examine the market potential for your business’s products or services. It makes you examine the strengths and weaknesses of the competitors for your proposed business. It helps you clarify the mission and key directions for the business, helping you to stay focused. It helps you determine how much money will be needed to launch and operate the business. It helps you communicate more confidently and credibly with potential lenders and investors.
Every business plan should include the following items: • • • • • • • • • • •
Executive summary—overview of the business purpose and highlight of key elements of the plan. Industry analysis—nature of the industry, including economic trends, important legal or regulatory issues, and potential risks. Company description—mission, owners, and legal form. Products and services description—major goods or services, with competitive uniqueness. Market description—size of market, competitor strengths and weaknesses, five-year sales goals. Marketing strategy—product characteristics, distribution, promotion, pricing, and market research. Operations description—manufacturing or service methods, supplies and suppliers, and control procedures. Staffing description—management and staffing skills needed and available, compensation, human resource systems. Financial projection—cash flow projections for one to five years, break-even points, and phased investment capital. Capital needs—amount of funds needed to run the business, amount available and amount requested from new sources. Milestones—a timetable of dates showing when key stages of new venture will be completed.
CHOOSING THE FORM OF OWNERSHIP One of the important decisions in starting a new business venture is choosing the legal form of ownership. Alternative ownership forms include the following: •
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A sole proprietorship is an individual or a married couple pursuing business for a profit. The business owner is personally liable for business debts and claims.
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A partnership is formed when two or more people agree to contribute resources to start and operate a business together. Business partners agree on the contribution of resources and skills to the new venture, and on the sharing of profits and losses. 1. In a general partnership, the partners share management responsibilities. 2. In a limited partnership, a general partner manages the business and one or more “limited” partners do not participate in day-to-day management of the business. 3. In a limited liability partnership, limits are placed on the liability of one partner for the negligence of another partner. A corporation is a legal entity that exists separate from its owners. This separates the owners from personal liability and gives the firm a life of its own beyond that of its owners. A limited liability corporation (LLC) is a hybrid legal form of business that combines the advantages of the sole proprietorship, partnership, and corporation. For liability purposes, the LLC functions like a corporation. For tax purposes, the LLC functions like a proprietorship or partnership, depending on the number of owners.
MANAGEMENT IN POPULAR CULTURE on p. 153 of the text presents an example of rags-to-riches success from the movie Slumdog Millionaire FINANCING THE NEW VENTURE There are two major ways the entrepreneur can obtain outside financing for a new venture: • Debt financing involves going into debt by borrowing money from another person, a bank, or financial institution and repaying it over time with interest. • Equity financing involves exchanging ownership shares in the business to outsiders in return for outside investment monies. Equity financing is usually obtained from venture capitalists –– companies that pool capital and make investments in new ventures in return for an equity stake in the business. Venture capitalists tend to focus on relatively large investments and they usually take a management role in order to grow the business and add value as soon as possible. Sometimes an entrepreneurial venture becomes a candidate for an initial public offering (IPO), in which shares of stock in the business are first sold to the public and then begin trading on a major stock exchange. A successful IPO enhances the value of the original investments of the venture capitalist and the entrepreneur. When venture capital is not available to the entrepreneur, the angel investor, a wealthy individual who is willing to invest a portion of this wealth in return for equity in a new venture, is a financing option. The presence of angel investors can help attract venture capital funding that might not be available otherwise. A new alternative is equity-based crowd funding which involves new ventures going online to sell equity stakes in their businesses to crowds of investors.
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CHAPTER 6 TAKEAWAY QUESTIONS SUMMARY Takeaway Question 1: What is entrepreneurship and who are the entrepreneurs? • Entrepreneurship is risk-taking behavior that results in the creation of new opportunities. • A classic entrepreneur is someone who takes risks to pursue opportunities in situations others may view as problems or threats. • A serial entrepreneur is someone who starts and runs businesses and other organizations one after another. • Entrepreneurs tend to be creative people who are self-confident, determined, resilient, adaptable, and driven to excel; they like to be masters of their own destinies. • Women and minorities are well represented among entrepreneurs, with some being driven by necessity or the lack of alternative career options. • Social entrepreneurs set up social enterprises to pursue novel ways to help solve social problems. For Discussion: Given that “necessity is the mother of invention,” can we expect that the poor economy we have been dealing with will result in lots if new and successful small business entrepreneurship? Takeaway Question 2: What is special about small business entrepreneurship? • Entrepreneurship results in the founding of many small businesses that offer job creation and other benefits to local economies. • The Internet has opened a whole new array of entrepreneurial possibilities for small businesses. • Family businesses, ones owned and financially controlled by family members, represent the largest percentage of businesses operating worldwide; they sometimes suffer from the succession problem. • Small businesses have a high failure rate with as many as 60 to 80% failing within five years; many failures are the result of poor management. • Entrepreneurs and small business owners can often get help in the start-up stages by working with business incubators and Small Business Development Centers in their local communities. For Discussion: Given that so many small businesses fail due to poor management practices, what type of advice and assistance should a Small Business Development Center offer? Takeaway Question 3: How do entrepreneurs start and finance new ventures? • Entrepreneurial firms tend to follow the life-cycle stages of birth, breakthrough, and maturity, with each stage offering different management challenges. • A new start-up should be guided by a good business plan that describes the intended nature of the business, how it will operate, and how financing will be obtained. • An important choice is the form of business ownership for a new venture, with the proprietorship, corporate, and limited liability forms offering different advantages and disadvantages. • Two basic ways of financing a new venture are through debt financing – by taking loans, and equity financing – exchanging ownership shares in return for outside investment. • Venture capitalists pool capital and make investments in new ventures in return for an equity stake in the business; an angel investor is a wealthy individual who is willing to invest money in return for equity in a new venture.
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For Discussion: If an entrepreneur has a good idea and his or her startup is starting to take off, is it better to take an offer for equity financing from an angel investor or try to get a business loan from a bank? CHAPTER 6 KEY TERMS Advertising model (p. 145): a proven business model that creates a website attractive to visitors and then advertisers pay to be displayed there. Angel investor (p. 154): a wealthy individual who is willing to make a personal investment in return for equity in a new venture. Brokerage model (p. 145): bringing buyers and sellers together for online business transactions and taking a percentage from the sales. Business incubator (p.149): a special facility that offers space, shared services, and advice to help get small businesses started. Business model (p.144): a web-based model for making a profit by generating revenues that are greater than costs. Business plan (p. 146): a plan that describes all the details necessary to obtain start-up financing and operate a new business. Classic entrepreneur (p. 137): someone willing to pursue opportunities in situations others view as problems or threats. Community model (p. 145): a web-based business model that provides a meeting point sold by subscription or supported by advertising. Corporation (p. 152): a legal entity that exists separate from its owners. Debt financing (p. 153): involves going into debt by borrowing money from another person, a bank, or financial institution and repaying it over time with interest. Entrepreneurship (p. 137): describes strategic thinking and risk-taking behavior that results in the creation of new opportunities. Equity based crowd funding (p. 154): new ventures going on line to sell equity stakes in their businesses to crowds of investors. Equity financing (p. 152): involves exchanging ownership shares in the business to outsiders in return for outside investment monies. Family business (p. 146): a business that is owned and financially controlled by family members. Family business feud (p. 147): occurs when family members have major disagreements over how the business should be run. First-mover advantage (p. 137): entrepreneurial skill in moving quickly to spot, exploit, and deliver a product or service to a new market or an unrecognized niche in an existing one. Franchise (p. 144): a business owner sells to another the right to operate the same business in another location, under the original owner’s business name and guidance. Freemium model (p. 145): a web-based business model that offers a free service and encourages users to buy extras. Infomediary model (p. 145): a web-based business model that provides free service in exchange for collecting information on users and selling it to other businesses. Intermediary model (p.145): a proven business model that creates a website that collects a fee for bringing buyers and sellers together. Intrapreneurs: (p. 136): people within larger organizations that step forward and take risk to introduce a new product or process, or pursue innovations that can change the organization in significant ways. Initial public offering (IPO): (p. 154): an initial selling of shares of stock to the public at large. Internet entrepreneurship (p. 145): the use of the Internet to pursue an entrepreneurial venture. Lean startups (p.145): a startup that uses things like open-source software, while staying small and striving to keep operations as simple as possible.
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Limited liability corporation (p. 152): a hybrid legal form of business combining advantages of a sole proprietorship or a partnership with the liability advantages of a corporation. Merchant model (p. 145): a web-based business model that sells products directly to customers through the Web. Mompreneurs (p. 136): those who pursue business opportunities they spot as mothers. Necessity-based entrepreneurship (p. 141): takes place because other employment options do not exist. Partnership (p. 152): formed when two or more people agree to contribute resources to start and operate a business together. Referral model (p. 145): a web-based business model that provides free listings and gets referral fees from online merchants by directing potential customers to them. Serial entrepreneur (p. 137) starts and runs businesses and nonprofits over and over again, moving from one interest and opportunity to the next. Small business (p.144): commonly defined as one with 500 or fewer employees, that is independently owned and operated, and that does not dominate its industry. Small Business Development Centers (p. 149): organizations founded by the U.S. Small Business Administration to provide advice to new and existing small businesses. Social entrepreneur (p.142): a person that takes risks to find new ways to solve pressing social problems. Social entrepreneurship (p. 142): a unique form of ethical entrepreneurship that seeks new ways to solve pressing social problems. Startup (p.145): a new and temporary venture that is trying to discover a profitable business for future success. Sole proprietorship (p. 152): an individual pursing business for a profit. Subscription model (p.141): a proven business model that creates a website offering value that visitors are willing to pay to view. Succession plan (p. 147): a formal statement that describes how the leadership transition and related financial matters will be handled when the time for changeover arrives. Succession problem (p. 147): involves transferring leadership from one generation to the next. Venture capitalists (p. 154): companies or individuals that make investments in new ventures in return for equity stake in the business.
SELF TEST ANSWERS 1.
____________ is among the personality characteristics commonly found among entrepreneurs. (a) External locus of control (b) Inflexibility (c) Self-confidence (d) Low self-reliance
2.
When an entrepreneur is comfortable with uncertainty and willing to take risks, these are indicators of someone with a (n) ____________. (a) high tolerance for ambiguity (b) internal locus of control (c) need for achievement (d) action-orientation
3.
Somewhere around ____________ % of American businesses meet the definition of “small business” used by the Small Business Administration. (a) 40 (b) 99 (c) 75 (d) 81
4.
When a business owner sells to another person the right to operate that business in another location, this is a business form known as ____________.
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(a) conglomerate (b) franchise (c) joint venture (d) limited partnership 5.
A small business owner who is concerned about passing the business on to heirs after retirement or death should prepare a formal ____________ plan. (a) retirement (b) succession (c) franchising (d) liquidation
6.
What is one of the most common reasons why new small business start-ups often fail? ____________. (a) The founders lack of business expertise. (b) The founders are too strict with financial controls. (c) The founders don’t want fast growth. (d) The founders don’t have high ethical standards.
7.
When a new business is quick to act and captures a market niche before competitors, this is called ____________. (a) intrapreneurship (b) an initial public offering (c) succession planning (d) first-mover advantage
8.
When a small business is just starting up, the business owner is typically most focused on ____________. (a) gaining acceptance in the marketplace (b) an initial public offering (c) succession planning (d) first mover advantage
9.
At which stage in the life cycle of an entrepreneurial firm does the underlying business model begin to work well and growth starts to occur? (a) birth (b) early childhood (c) maturity (d) breakthrough
10. A venture capitalist who receives an ownership share in return for investing in a new business is providing ________________ financing. (a) debt (b) equity (c) corporate (d) partnership 11. In ____________ financing, a business owner borrows money as a loan that must eventually be repaid, along with agreed-upon interest. (a) debt (b) equity (c) partnership (d) limited 12. The people who take ownership shares in a new venture in return for providing the entrepreneur with critical start-up funds are called _____________. (a) business incubators (b) angel investors (c) SBDCs (d) intrapreneurs 13. The __________ form of small business ownership protects the owners from any personal losses greater than their original investments; while the _____________ form separates them completely from any personal liabilities. (a) sole proprietorship, partnership (b) general partnership, sole proprietorship (c) limited partnership, corporation (d) corporation, general partnership 14. The first component of a good business plan is usually a/an ____________. (a) industry analysis (b) marketing strategy (c) executive-summary of mission and business
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model (d) set of financial milestones 15. If a new venture has reached the point where it is pursuing an IPO, the firm is most likely ____________. (a) going into bankruptcy (b) trying to find an angel investor (c) filing legal documents to become a LLC (d) successful enough that the public at large will want to buy its shares 16. What is the relationship between diversity and entrepreneurship? Entrepreneurship is rich with diversity. It is an avenue for business entry and career success that is pursued by many women and members of minority groups. Data show that almost 40% of U.S. businesses are owned by women. Many report leaving other employment because they had limited opportunities. For them, entrepreneurship made available the opportunities for career success that they had lacked. Minority-owned businesses are one of the fastest-growing sectors, with the growth rates highest for Hispanic-owned, Asianowned, and African American-owned businesses, in that order. 17. What are the major stages in the life cycle of an entrepreneurial firm, and what are the management challenges at each stage? The three stages in the life cycle of an entrepreneurial firm are birth, breakthrough, and maturity. In the birth stage, the leader is challenged to get customers, establish a market, and find the money needed to keep the business going. In the breakthrough stage, the challenges shift to becoming and staying profitable and managing growth. In the maturity stage, a leader is more focused on revising/maintaining a good business strategy and more generally managing the firm for continued success, and possibly for more future growth. 18. What are the advantages of a limited partnership form of small business ownership? The limited partnership form of small business ownership consists of a general partner and one or more “limited partners.” The general partner(s) play an active role in managing and operating the business; the limited partners do not. All contribute resources of some value to the partnership for the conduct of the business. The advantage of any partnership form is that the partners may share in profits, but their potential for losses is limited by the size of their original investments. 19. What is the difference, if any, between a venture capitalist and an angel investor? A venture capitalist, often a business, makes a living by investing in and taking large ownership interests in fledgling companies, with the goal of large financial gains eventually, when the company is sold. An angel investor is an individual who is willing to make a financial investment in return for some ownership in the new firm. 20. Assume for the moment that you have a great idea for a potential Internet-based start-up business. In discussing the idea with a friend, she advises you to be very careful to tie your business idea to potential customers and then describe it well in a business plan. “After all,” she says, “you won’t succeed without customers, and you’ll never get a chance to succeed if you can’t attract financial backers through a good business plan.” With these words to the wise, you proceed. What questions will you ask and answer to ensure that you are customerfocused in this business? What are the major areas that you would address in writing your
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initial business plan? My friend is right—it takes a lot of forethought and planning to prepare the launch of a new business venture. In response to the question of how to ensure that I am really being customer-focused, I would ask and answer for myself the following questions. In all cases I would try to frame my business model so that the answers are realistic, but still push my business toward a strong customer orientation. The “customer” questions might include: “Who are my potential customers? What market niche am I shooting for? What do the customers in this market really want? How do these customers make purchase decisions? How much will it cost to produce and distribute my product/service to these customers? How much will it cost to attract and retain customers?” After preparing an overall executive summary, which includes a commitment to this customer orientation, I would address the following areas in writing up my initial business plan: a company description—mission, owners, and legal form—as well as an industry analysis, product and services description, marketing description and strategy, staffing model, financial projections with cash flows, and capital needs.
MANAGEMENT SKILLS AND COMPETENCIES FURTHER EEFLECTION: SELF-MANAGEMENT Students’ answers will vary according to their individual experiences. SELF ASSESSMENT: THE ENTREPRENEURIAL ORIENTATION INVENTORY Scoring Give yourself 10 points for each of the following answers: 1a, 2a, 3c, 4a, 5a, 6a, 7c, 8a, 9c, 10c, 11b, and 12c; total the scores and enter the results here [I = _____]. Give yourself 8 points for each of the following answers: 3b, 8b, and 9b; total the scores and enter the results here [II = _____]. Give yourself 6 points for each of the following answers: 2b and 5b; total the scores and enter the results here [III = _____ ]. Give yourself 5 points for this answer: 1b; enter the result here [IV = _____]. Give yourself 4 points for this answer: 5c; enter the result here [V = _____]. Give yourself 2 points for each of the following answers: 2c, 3a, 4b, 6c, 9d, 10b, 11a, and 12b; total the scores and enter the results here [VI = _____]. Any other scores are worth 0 points. Total your summary scores for I + II + III + IV + V + VI and enter the result here [EP = _____].
Interpretation This assessment offers an impression of your entrepreneurial profile, or EP. It compares your characteristics with those of typical entrepreneurs. Your instructor can provide further information on each question, as well as some additional insights into the backgrounds of entrepreneurs. You may locate your EP score on the following grid. 100+ = Entrepreneur extraordinaire 80–99 = Entrepreneur 60–79 = Potential entrepreneur 0–59 = Entrepreneur in the rough
Instructor’s Note
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In discussing this assessment, emphasize that “capitalist societies depend on entrepreneurs to provide the drive and risk-taking necessary for the system to supply people with the goods and services they need.” Point out that “entrepreneurs have some common characteristics, including independence, willingness to take risks, self-confidence, eagerness to see results, energy, and good organizational abilities. In a phrase, they are high achievers. Driven by these personal characteristics, entrepreneurs establish and manage small businesses in order to gain control over their lives, become self-fulfilled, reap unlimited profits, and gain recognition from society.” “Although most entrepreneurs are men, U.S. Department of Labor statistics show that women are opening businesses at a rate five times faster than men. Many of these women entrepreneurs are ‘baby boomers,’ frustrated with the discrimination and the barriers of corporate cultures. Curiously, entrepreneurs ⎯ both men and women ⎯ tend to be shorter than average. The average age of entrepreneurs has declined steadily over the last two decades. Most launch their business when they reach their 30s, after gaining enough capital and experience to step out on their own. The National Federation of Independent Businesses (NGIB) found that 45 percent of all new businesses were started by people 30 years old or younger. Most studies found that 75 percent of all entrepreneurs are married. Some researchers conclude that successful entrepreneurs must have very supportive spouses. Studies also show that entrepreneurs are often the oldest children in their families. Only children also rank high in entrepreneurial potential. “Survey results support the stereotype of the immigrant entrepreneur who has come to ‘the land of opportunity’ to build a business. Often, immigrants believe they do not fit in with American culture, and business ownership can help bridge the cultural gap. Furthermore, entrepreneurs often come from backgrounds where the family struggled to make ends meet. Perhaps this is how many entrepreneurs acquired the ability to gain maximum benefits from limited resources. It appears that meager beginnings are a source of motivation for many. Entrepreneurs also appear to learn by example. Children whose parents (or at least one parent) are self-employed are much more likely to create businesses of their own. In the ‘nature vs. nurture’ argument in entrepreneurship, ‘nurture’ wins hands down. “Most entrepreneurs complete four years of college. Although the stereotype of the high school dropout who builds a business empire is popular, it is not usually true. In fact, a growing number of entrepreneurs have earned master’s degrees. Entrepreneurs appear to recognize the value of an education in helping them launch their businesses” (Scarborough and Zimmerer, 1991). Relevant information on each question included in this assessment is provided below. 1. “Most entrepreneurs work while in school, earning at least one-half of their college expenses. Not only do they work while attending school, many head their own business ventures. Campus entrepreneurship has become so popular that students have formed a national Association of Collegiate Entrepreneurs, and its ranks are swelling.” 2. “Despite their busy work schedules in school, entrepreneurs manage to keep their grades up. One recent survey found that only 38 percent were average or below-average performers.” 3. “It is a myth that the primary motivating force behind most entrepreneurs is profit. Of course, earning a profit is necessary for business survival, but it is not the driving force. Today, entrepreneurs are most likely to cite dissatisfaction with working for someone else or lack of control over their lives as key reasons for starting businesses.” 4. “Entrepreneurs are not afraid of hard work. They are willing to do whatever it takes to get the job done. Further, entrepreneurs do not separate work and play. Their work is a source of fun and excitement.” 5. “Entrepreneurs usually are good organizers. Building a business from scratch requires valuable organizing skills. Putting together the pieces of a business puzzle ⎯ employees, financing, inventory, and so on⎯requires someone who can visualize the proper way to organize them.” 6. “No doubt about it, entrepreneurs are optimistic. Sometimes, however, their excessive optimism gets them into trouble.”
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7. “Entrepreneurs are fiercely independent. They are extremely reluctant to ask for outside professional help. When faced with a difficult problem, most entrepreneurs simply roll up their sleeves and get to work. And, they don’t quit until the problem has been solved.” 8. “Entrepreneurs are intense competitors, and losing is not an acceptable outcome. Many embrace the feeling expressed by Vince Lombardi, who said ‘Winning isn’t everything; it’s the only thing.’ Of course, entrepreneurs don’t always win, but when they fail, they tend to view it as a learning experience. Many owners of successful businesses failed at least once before establishing a foothold. The threat of failure seems to motivate many entrepreneurs to do everything in their power to avoid it.” 9. “Entrepreneurs are risk-takers, and they recognize that failure is a possibility (although most believe it a small one).” 10. “Entrepreneurs are definitely self-starters. They are much more energetic and enthusiastic than average, especially where their work is concerned.” 11. “Entrepreneurs have a need to be in control of a situation. They are much more likely to take a chance on events they can affect themselves rather than on some externally imposed situation. Bold self-confidence allows an entrepreneur to believe that she can turn the odds in her favor if given the opportunity.” 12. “Despite widely held beliefs to the contrary, entrepreneurs are not extreme risk-takers. Studies show that they set reasonable, attainable goals and take calculated risks to reach them. They gamble only when they believe the odds of winning are in their favor.” (Source: Instrument adapted from Scarborough, N.M, and Zimmerer, T.W. Effective Small Business Management, 3rd ed. Columbus: Merrill, 1991, pp. 26--27. Used by permission.)
TEAM EXERCISE: THE ENTREPRENEURS AMONG US Student experience will affect answers and outcomes thus team answers and deliverables will vary by group and individual. CAREER SITUATIONS FOR ENTREPRENEURS: WHAT WOULD YOU DO? Student answers may vary based upon their orientation towards entrepreneurship, their tolerance for risk and ambiguity, and their personal values. CHAPTER 6 CASE: IN-N-OUT BURGER: BUILDING A BETTER BURGER Discussion Questions 1. Rich Snyder was twenty-four years old when he assumed leadership of In-N-Out after his father passed away. In what ways do you think his young age was an asset or a liability for his leadership? Does age really matter in the first place? A company with a strong culture won't be as quickly affected by an immature leader; however Snyder seems to have all of the qualifications mentioned in the chapter including a family background in entrepreneurship, so his young age may have been an energizing factor. 2. In an era of jalapeño poppers and extreme fajitas, how risky is In-N-Out’s long-term strategy of offering only four simple food items? Is the strategy still on track?
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This organization has minimized this risk and actually turned it into a competitive advantage. Technically the company offers only four food items on its menu. However, the not so secret “secret menu” offers many additional items that allow patrons to customize their meals. Although there are copies of this secret menu for sale on E-Bay at a suggested bid of $14.99, InN-Out-Burger actually lists these choices on its website. These options go far beyond those offered at most fast food chains and include such selections as half of a burger (ideal for children) and no salt added to one’s fries. Problem Solving A would-be entrepreneur walks into your bank and asks to receive financing for a business plan modeled after In-N-Out’s approach and extremely simple menu. But all the ingredients would come from local suppliers and growers within a 30-mile radius of town. Is this a winning recipe deserving of financing from your bank? As a banker, I would know that the restaurant business has the highest rate of failure among all types of small businesses. I would be interested in how much research this person had done on the consumer demand for this type of restaurant and the availability of local suppliers. Fast food is a mature over capacity industry that has many strong, well-capitalized competitors. An additional consideration would be the viability and limitations of using only suppliers located within thirty miles. With today’s transportation efficiencies and effective supply chain distribution systems, this may unnecessarily limit the entrepreneur’s ability to purchase goods at competitive prices. Low pricing in consumer minds is almost synonymous with fast food. While this is an interesting concept, it is probably better suited to a traditional style restaurant where he could appeal to this niche target market than to the fast food sector. As this business plan was presented, I would not risk the bank’s funds supporting this proposal. Further Research Imagine you were asked by In-N-Out Burger to modernize its advertising mix while maintaining the modesty and simplicity that’s characterized its brand for over sixty years. Do research on the current industry and social trends, and consumer values and tastes. Craft an advertising concept that fits the scene and speaks to In-N-Out’s core values: quality, consistency, friendliness, and cleanliness. How would you illustrate this concept to consumers? Explain why you would choose to include or exclude TV, print, radio, or online advertising based on your premise. How would you pitch this concept to In-N-Out’s marketing department in a way that would emphasize In-NOut’s core values? While students’ answers may vary depending on where they obtain their information on fast food industry trends, this organization has “promoted” itself quite successfully through sales promotion such as T-shirts, bumper stickers, etc. and word of mouth from satisfied customers. Students need to keep in mind that these techniques have helped to hold down costs and should be utilized to the fullest especially through the use of social media.
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Chapter 7:
INFORMATION AND DECISION MAKING CHAPTER 7 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4.
What is the role of information in the management process? How do managers use information to make decisions? What are the steps in the decision-making process? What are the current issues in managerial decision making?
CHAPTER 7 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • • • • • • •
Describe computer, information, and analytical competencies Differentiate data and information List the criteria of useful information Describe the roles of business analytics and business intelligence in organizations Discuss how IT is breaking barriers within organizations and between organizations and their external and internal environments Describe how IT influences the four functions of management Define problem solving and decision making Explain systematic, intuitive, and multi-dimensional thinking List four cognitive styles in decision making Differentiate programmed and nonprogrammed decisions Describe the challenges of crisis decision-making Explain decision making in certain, risk, and uncertain environments List the steps in the decision-making process Apply these steps to a sample decision-making situation Explain cost-benefit analysis in decision making Discuss differences between the classical and behavioral decision models Define the terms optimizing and satisficing Explain how the lack-of-participation error can hurt decision making List useful questions for double checking the ethical reasoning of a decision Explain the availability, representativeness, anchoring, and adjustment heuristics Illustrate framing error, confirmation error, and escalating commitment in decision making Define big-C creativity, little- C creativity, and design thinking Identify key personal and situational creativity drivers
CHAPTER 7 OVERVIEW As rapid advances in information technology sweep through modern organizations, innovations in learning, problem solving, and decision making have occurred. This chapter describes the opportunities and challenges that information technology (IT) creates and the impact of IT and analytics on managerial decision making. The chapter begins by examining how IT is changing .
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business practices, organizations, and the ways in which work is accomplished. The chapter then discusses how managers use information to make decisions and the types of environments in which decisions are made. Attention is given to the different problem-solving styles that managers may adopt. A detailed discussion of the steps in the decision-making process ensues. These steps include: (1) identifying and defining the problem; (2) generating and evaluating alternative solutions; (3) choosing a preferred course of action; (4) implementing the decision; and 5) evaluating results and at all steps checking ethical reasoning. Decision-making traps –– including availability bias, representative bias, anchoring and adjustment bias, the framing error, the confirmation error, and escalating commitment –– are identified and their potential biasing effects are described. The chapter concludes with a description of how creativity and design thinking are used in decision making along with personal and situational creativity drivers. CHAPTER 7 LECTURE OUTLINE Teaching Objective: To familiarize students with the roles that information, information systems, and information technology play in the problem solving and decision-making processes. Suggested Time: Two or more hours of class time are recommended to present the material in this chapter. I. Takeaway Question 1: What is the role of information in the management process? What is useful information? Information systems and business intelligence Information needs in organizations How information technology is changing organizations II.
Takeaway Question 2: How do managers use information to make decisions? Managers as information processors Managers as problem solvers Types of managerial decisions Decision conditions
III.
Takeaway Question 3: What are the steps in the decision-making process? Step 1 - identify and define the problem Step 2 - generate and evaluate alternative course of action Step 3 - choose a preferred course of action Step 4 - implement the decision Step 5 - evaluate results At all steps - check ethical reasoning
IV.
Takeaway Question 4: What are the current issues in managerial decision making? Decision errors and traps Creativity in decision making
CHAPTER 7 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Decisions turn potential into achievement
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Learning About Yourself • Self-confidence Figures • Figure 7.1: Internal and External Information Needs in Organizations • Figure 7.2: Information Technology is Breaking Barriers and Changing Organizations • Figure 7.3: The Manager as an Information-Processor and Nerve Center For Planning, Organizing, Leading, and Controlling • Figure 7.4: Three Environments for Managerial Decision Making • Figure 7.5: Steps in the Decision-Making Process • Figure 7.6: Differences in the Classical and Behavioral Models Decision-Making Models Thematic Boxes • What’s the Fastest Way to Board Passengers on a Plane? • Facts for Analysis: Analytics Driven Managers Know How to Get the Data to Tell Them the Things That Matter (And Not the Things That Don’t)” • Recommended Reading: Analytics at Work: Smarter Decisions, Better Results • Video Games May Be Good for Decision Making • Management Smarts: Six Rules for Crisis Management • Follow the Story: No. 2 at Facebook Is a Good Fit for Sheryl Sandburg • Ethics on the Line: “Human Life Is Far More Important Than Just Getting to the Top of a Mountain” • Research Brief: Escalation Increases Risk of Unethical Decisions • Management Smarts: How to Avoid the Escalation Trap in Decision Making • What Creativity? Don’t Punish Mistakes, Reward Them Applications Self-Test Further Reflections: Self-Confidence Self-Assessment: Cognitive Style Team Exercise: Lost at Sea Career Situations for Decision Makers: What Would You Do? Case 7: Amazon: One E-Store to Rule Them All CHAPTER 7 LECTURE NOTES LEARNING FROM OTHERS on page 160 of the text describes how Tom Szaky’s company TerraCycle upcycles a variety of waste products, thought to be non-recyclable, into new products. LEARNING ABOUT YOURSELF on page 161 of the text explains the necessity of selfconfidence for managers. The stories of Jeff McCraken, the chief engineer for Norfolk Southern Railroad and Ram Charan, a management consultant, who have the selfconfidence not only to make decisions but to take the actions required to implement them.
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TAKEAWAY QUESTION 1: WHAT IS THE ROLE OF INFORMATION IN THE MANAGEMENT PROCESS? Society is information-driven, digital, networked, and continuously evolving. As such, career success depends on three “must have” competencies: 1. Computer competency- the ability to understand computers and to use them to their best advantage. 2. Information competency- the ability to utilize technology to locate, retrieve, evaluate, organize, and analyze information for decision making. 3. Analytical competency- the ability to evaluate and analyze information to make actual decisions and solve real problems. WHAT IS USEFUL INFORMATION? Data are raw facts and observations. Information is data made useful for decision making. The systematic gathering and processing of data to make informed decisions is called management with analytics or business analytics. Organizations need to make sure that data from different parts of the organization’s system finds its way to others parts that can benefit from it. Information that is truly useful meets the test of these five criteria: 1. Timely—the information is available when needed; it meets deadlines for decision making and action. 2. High quality—the information is accurate, and it is reliable; it can be used with confidence. 3. Complete—the information is complete and sufficient for the task at hand; it is as current and up-to-date as possible. 4. Relevant—the information is appropriate for the task at hand; it is free from extraneous or irrelevant materials. 5. Understandable—the information is clear and easily understood by the user; it is free from unnecessary detail. INFORMATION SYSTEMS AND BUSINESS INTELLIGENCE Management information systems use IT to collect, organize, and distribute data for use in decision making. Business intelligence systems organize and display data, often in the form of dashboards, so that patterns and trends are evident to decision makers. Business intelligence is the process of tapping or mining information systems to extract data that is most useful to decision makers. Executive dashboards visually display graphs, charts, and scorecards of key performance indicators and information on a real time basis. INFORMATION NEEDS IN ORGANIZATIONS
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Within organizations the increasing use of information technology or IT helps one acquire, store process, analyze, and transmit information. Information and the External Environment Through the use of IT, managers gather and use intelligence information to deal with customers, competitors, government agencies, creditors, suppliers, and stockholders. Organizations also send large amounts of public information to stakeholders and the external environment for image building, product advertising, and financial reporting. Information and the Internal Environment IT’s ability to gather and move information quickly in an organization allows employees to: • make decisions and solve problems in their daily work. • act individually and in teams. • keep top management informed about the nature of the business. FIGURE 7.1 on page 165 of the text shows how internal and external information flows are essential to problem solving and decision making in organizations. Facts for Analysis on p. 166 of the text illustrates the utility of data and analytics. HOW INFORMATION TECHNOLOGY IS CHANGING ORGANIZATIONS As shown in FIGURE 7.2 on page 167 of the text, organizations today are not only using information technology, they are being changed by it. People in different departments, organizational levels, and physical locations more easily communicate and share information. The key players in an organization’s external environment are now connected. Customer needs, preferences, and satisfactions information is readily available to help in making decisions. Information technology helps in supply chain management by controlling costs and in logistical planning. TAKEAWAY QUESTION 2: HOW DO MANAGERS USE INFORMATION TO MAKE DECISIONS? Information helps a leader sense the need for a decision, frame an approach to the decision, and communicate about the decision with others. MANAGERS AS INFORMATION PROCESSORS FIGURE 7.3 on page 168 of the text shows the manager as an information-processing nerve center. All aspects of the managing process – planning, organizing, leading, and controlling – involve communication and information processing: MANAGERS AS PROBLEM SOLVERS . 7-5
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Problem solving is the process of identifying a discrepancy between an actual and desired state of affairs and then taking action to resolve the deficiency or take advantage of the opportunity. A decision is a choice among possible alternative courses of action. A performance threat is a situation where something is already wrong or has the potential to go wrong. A performance opportunity occurs when an actual situation either turns out better than anticipated or offers the potential to do so. Openness to Problem Solving – managers differ in their openness to problem solving approaches. Problem avoiders –– managers who ignore information that would otherwise signal the presence of a performance opportunity or threat; they are inactive in information gathering and do not want to make decisions or deal with the problem. Problem solvers –– managers who are willing to make decisions and try to solve problems, but only when they are forced to by the situation; they are reactive in gathering information and in responding to problems after they occur. Problem seekers –– managers who actively process information and constantly look for problems to solve; they are proactive in anticipating problems and opportunities and take appropriate action to gain an advantage. Recommended Reading on p. 169 of the text points out that Davenport, Harris and Morison’s Analytics at Work (Harvard Business Press, 20099) is a book that details the importance of gathering, sorting, and using data to make better organizational decisions Systematic and Intuitive Thinking Managers who use systematic thinking approach problems in a rational, step-bystep, and analytical fashion. Managers who employ intuitive thinking approach problems in a flexible and spontaneous fashion. They also may be quite creative. DISCUSSION TOPIC Ask students to raise their hands if they think that they rely predominantly on systematic thinking. Make a note of these students. Do the same for those who believe that they use intuitive thinking most often. From here, several approaches to generating discussion of these alternative ways of thinking are available. For example, you may ask students who believe that they rely more on systematic (or intuitive) thinking to elaborate on the ways in which they typically make decisions. What do they consider to be the advantages of their approach? The disadvantages? Another option is to create panels of intuitive and systematic thinkers to engage each other in a debate on the relative merits of their thinking styles. Or you could create panels of intuitive and .
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systematic thinkers, but instead of having them debate one another, you could instruct them to ask the students with alternative styles questions about the ways in which they typically approach various problems. Any of these options can be used to generate a lively discussion of the relative strengths and weaknesses of systematic and intuitive thinking. Multidimensional Thinking Senior managers, in particular, should be capable of approaching problems from the perspectives of both systematic thinking and intuitive thinking. Doing so requires multidimensional thinking, which is the ability to view many problems at once, in relationship to one another, and across long and short time horizons. Effective multidimensional thinking requires skill at strategic opportunism –– the ability to remain focused on long-term objectives while being flexible enough to resolve short-term problems and opportunities in a timely manner. Cognitive Styles People with different cognitive styles approach problems and decisions in different ways. The chart on page 171 of the text shows the cognitive styles in decision making as: Sensation Thinkers – tend to emphasize the impersonal rather than the personal and take a realistic approach to problem solving. They like hard “facts,” clear goals, certainty, and situations of high control. Intuitive Thinkers – are comfortable with abstraction and unstructured situations. They tend to be idealistic and prone toward intellectual and theoretical positions. They are logical and impersonal, but also avoid details. Intuitive Feelers – prefer broad and global issues. They are insightful and tend to avoid details, being comfortable with intangibles; they value flexibility and human relationships. Sensation Feelers – tend to emphasize both analysis and human relations. They tend to be realistic and prefer facts; they are open communicators and sensitive to feelings and values. TYPES OF MANAGERIAL DECISIONS Programmed and Nonprogrammed Decisions Programmed decisions apply solutions that are already available from past experiences to solve structured problems ⎯ ones that are familiar, straightforward, and clear with respect to information needs. Programmed decisions apply best to routine problems that, while not necessarily predictable, can be anticipated. Nonprogrammed decisions develop novel solutions to meet the demands of unique situations that present unstructured problems ⎯ ones that are full of ambiguities and information deficiencies.
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Most problems faced by higher-level managers are unstructured and most of their decisions are nonprogrammed. DISCUSSION TOPIC To stimulate discussion of the programmed decisions and structured problems versus nonprogrammed decisions and unstructured problems, ask students to provide examples of each type. You can either solicit student examples as a prelude to your own illustrations, or present your examples first to get them started. Crisis Decisions A crisis involves the occurrence of an unexpected problem that can lead to disaster if it is not resolved quickly and appropriately. A crisis creates the conditions for making an extreme type of nonprogrammed decision. The Chilean mine disaster, Toyota’s recall of 5 million vechicles, Post-9/11 terrorism, workplace violence, man-made environmental disasters, ethical scandals, and IT failures are good examples of crisis situations. Information, assistance, and teamwork are especially crucial for the manager in solving a crisis situation. MANAGEMENT SMARTS on page 172 of the text provides six rules for crisis management: 1. Figure out what is going on ⎯ Take the time to understand what’s happening and the conditions under which the crisis must be solved. 2. Remember that speed matters ⎯ Attack the crisis as quickly as possible, trying to catch it when it is as small as possible. 3. Remember that slow counts, too ⎯ Know when to back off and wait for a better opportunity to make progress with the crisis. 4. Respect the danger of the unfamiliar ⎯ Understand the danger of all-new territory where you and others have never been before. 5. Value the skeptic ⎯ Don’t look for and get too comfortable with agreement; appreciate skeptics and let them help you see things differently. 6. Be ready to “fight fire with fire” ⎯ When things are going wrong and no one seems to care, you may have to start a crisis to get their attention. DISCUSSION TOPIC To embellish your discussion of crisis situations, consider presenting the following Guidelines for Taking Quick Action in Response to Crisis Situations. 1. 2. 3.
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Prepare for action by knowing as much as possible about all phases of the operation for which you are responsible. Build a network of reliable sources of information and advice, and be willing to use them when needed. Do not accept the problem as delivered; acquire information quickly to confirm and define it for yourself. 7-8
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Test your responses before acting ⎯ whenever possible –– even if just with one or more key people. Do not shirk your responsibility; address the problem, even in the face of risk and incomplete information. Remember to learn from the situation; think about what can be done to keep it from happening the next time.
DECISION CONDITIONS Risk and uncertainty are more common at higher management levels. Figure 7.4 on page 173 of the text identifies three environments for managerial decision making and problem solving. These three environments involve certainty, risk, and uncertainty. Certain Environment A certain environment offers complete information about possible action alternatives and their outcomes. Few managerial problems occur in certain environments. Risk Environment Risk environments lack complete information about action alternatives and their consequences, but offer some estimates of probabilities ⎯ or the degree of likelihood ⎯ of the outcomes for possible action alternatives. Risk is typical for entrepreneurs and organizations that depend on ideas and continued innovation for their success. Uncertain Environment An uncertain environment occurs when information is so poor that managers are unable even to assign probabilities to the likely outcomes of known alternatives. High uncertainty forces managers to rely heavily on creativity in problem solving. TAKEAWAY QUESTION 3: WHAT ARE THE STEPS IN THE DECISION-MAKING PROCESS? The decision-making process involves a set of activities that begin with the identification of a problem, include making a decision, and end with the evaluation of implemented solutions. FIGURE 7.5 on page 175 of the text identifies five steps in the decision-making process: 1. 2. 3. 4. 5.
Identify and define the problem. Generate and evaluate alternative courses of action Decide on a preferred course of action. Implement the decision. Evaluate results.
STEP 1 – IDENTIFY AND DEFINE THE PROBLEM .
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The first step in decision making is to find and define the problem. This is a stage of information gathering, information processing, and deliberation. It is important to clarify goals by identifying exactly what a decision should accomplish. Three common mistakes occur in this critical first step in decision making. 1. Defining the problem too broadly or too narrowly. 2. Focusing on symptoms instead of causes. 3. Choosing the wrong problem to deal with at a certain point in time. Follow the Story on p. 176 of the text examines the career fit for Sheryl Sandburg at Facebook. STEP 2–GENERATE AND EVALUATE ALTERNATIVE COURSES OF ACTION Several potential solutions are formulated at this stage. More information is gathered, data are analyzed, and the advantages and disadvantages associated with possible alternative courses of action are identified. A useful approach for evaluating alternatives is the cost-benefit analysis which involves the comparison of what an alternative will cost in relationship to the expected benefits. At a minimum, the benefits should exceed the costs. Criteria for evaluating alternatives: • • • • •
Costs: What are the “costs” of implementing the alternative, including resource investments as well as potential negative side effects? Benefits: What are the “benefits” of using the alternative to solve a performance deficiency or take advantage of an opportunity? Timeliness: How fast can the alternative be implemented and a positive impact achieved? Acceptability: To what extent will the alternative be accepted and supported by those who must work with it? Ethical soundness: How well does the alternative meet acceptable ethical criteria in the eyes of the various stakeholders?
Common mistakes in generating and evaluating possible solutions include: 1. Selecting a particular solution too quickly. 2. Choosing a convenient alternative that may have damaging side effects or may not be as good as other alternatives that might be discovered with some extra effort. STEP 3 – CHOOSE A PREFERRED COURSE OF ACTION Management theory recognizes two major models of decision making: the classical decision model and the behavioral decision model. Differences in these two models are highlighted in FIGURE 7.6 on page 178 of the text. The classical decision model views the manager as acting rationally in a certain world. It assumes that the manager faces a clearly defined problem and has knowledge of all possible action alternatives and their consequences. In this model, an optimizing decision is made, whereby the decision maker chooses the absolute best solution to the problem. .
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The behavioral decision model, which is perhaps best represented by the work of Nobel Prize winner Herbert Simon, assumes that people act only in terms of what they perceive about a given situation. The behavioral decision model recognizes limits to human information-processing capabilities. 1. Cognitive limitations make it hard for managers to become fully informed and make perfectly rational decisions. 2. Bounded rationality occurs such that managerial decisions are rational only within the boundaries defined by the available information. In this model, decision makers make satisficing decisions by choosing the first alternative that appears to provide a satisfactory resolution to the problem. DISCUSSION TOPIC Ask students to provide examples of when they have used optimizing decision making and examples of when they have used satisficing decision making. These examples should help students to understand the conditions under which these two approaches usually occur. STEP 4 – IMPLEMENT THE DECISION Implementation involves taking action to make sure the solution decided upon becomes a reality. Managers need to have the determination and creativity to reach a decision, as well as the ability and willingness to implement it. The lack-of-participation error ⎯ the failure to adequately involve in the process those persons whose support is necessary to implement a decision ⎯ is a common implementation difficulty. To ensure a successful implementation, the manager must use participation appropriately and wisely. ETHICS ON THE LINE on page 179 of the text describes the decision made by mountain climbing team to leave an injured climber behind, resulting in his death. It asks whether this was right or wrong, and reminds students to be mindful of this story during their career aspirations. STEP 5 – EVALUATE RESULTS Evaluation involves comparing the actual and desired results to insure that the problem has really been solved or that no undesired side effects have occurred. Both positive and negative consequences of the chosen course of action should be examined. If actual results fall short of desired results, the manager needs to return to earlier steps in the decision-making process, thereby making it a dynamic and ongoing activity. AT ALL STEPS – CHECK ETHICAL REASONING
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Choices made at each step of the decision-making process often have a moral dimension that is overlooked. To help in checking ethical reasoning, systematically ask and answer the following questions: 1. 2. 3. 4.
Utility – Does the decision satisfy all constituents or stakeholders? Rights – Does the decision respect the rights and duties of everyone? Justice – Is the decision consistent with the canons of justice? Caring – Is the decision consistent with my responsibilities to care?
The spotlight questions describe in Chapter 3 test the ethics of a decision by exposing it to scrutiny through the eyes of family, community members, and ethical role models. The spotlight questions include: • • •
How would I feel if my family found out about this decision? How would I feel if this decision were published in the local newspaper or posted on the Internet? What would the person you know or know of who has the strongest character and best ethical judgment do in this situation? DISCUSSION TOPIC Illustrative Case: Tough Decision at Ajax Aluminum
To provide students with an example of the decision-making process, review the five steps of this process using a real world example that is described in the text chapter. For your convenience, a discussion of the decisions that Ajax Aluminum made in response to this problem is provided below. Background information. Ajax Aluminum had decided to close its Murphysboro, Illinois plant because of poor market conditions. A buyer could not be found. Step 1: identify and define the problem. Closing the Ajax plant will put a substantial number of people from the small community of Murphysboro out of work. The unemployment created will have a negative impact on individuals, their families, and the community as a whole. The loss of the Ajax tax base will further hurt the community. The local financial implications of the plant closure will be great. The problem for Ajax management is how to minimize the adverse impact of the plant closing on the employees, their families, and the community. Step 2: generate and evaluate possible solutions. You can generate class discussion of this case by asking students to identify potential alternatives. The alternatives identified by Ajax’s management included: • Simply closing the plant on schedule. • Delaying the plant closing until all efforts have been made to sell it to another firm. • Offering to sell the plant to the employees and/or local interests. • Closing the plant and offering transfers to other Ajax plants. • Closing the plant, offering some transfers, and helping employees find new jobs in the local area. Ask students for their opinions on the advantages and disadvantages of each of these alternatives.
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Step 3: choose a preferred course of action and conduct the “ethics double check.” Ask students to indicate which alternative they would have selected. Ajax’s management selected the fifth option because they thought it was most consistent with company values and most likely to solve the problem. Management also conducted an “ethics double check” to ensure that this option was consistent with prevailing moral standards. Of the five options, the last is clearly the most ethical. It recognizes the reality that the plant is no longer viable, as well as the company’s responsibilities to its employees, and attempts to find alternative employment for the workers. Step 4: implement the decision. Ajax ran an ad in the local newspaper for 15 days at a cost of $2600 informing local employers of the skills and availability of the firm’s employees. Step 5: evaluate results. A substantial number of Ajax’s employees were able to relocate in new jobs in the Southern Illinois area.
TAKEAWAY QUESTION 4: WHAT ARE THE CURRENT ISSUES IN MANAGERIAL DECISION MAKING? DECISION ERRORS AND TRAPS People sometimes make bad decisions because they use simplifying strategies –– heuristics –– for making decisions when faced with limited time, information, and energy. Framing Error •
A framing error occurs when a problem is evaluated and resolved in the context in which it is perceived ⎯ either positive or negative.
Availability Bias •
The availability bias occurs when people use information “readily available” from memory as a basis for assessing a current event or situation. Example: deciding whether or not to invest in a new product based upon your recollection of how well similar new products have performed in the recent past. The potential bias is that the readily available information may be fallible and irrelevant.
Representation Bias •
The representativeness bias occurs when people assess the likelihood of something happening based upon its similarity to a stereotyped set of occurrences. Example: deciding to hire someone for a job vacancy simply because he/she graduated from the same school attended by your last and most successful new hire. The potential bias is that the representative stereotype may fail to identify important and unique factors relevant to the decision.
RESEARCH BRIEF on page 182 of the text describes how escalation increases the risk of ethical breaches in decision making. Anchoring and Adjustment Bias
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•
The anchoring and adjustment bias involves making decisions based on adjustments to a previously existing value or starting point. Example: deciding on a new salary level for an employee by simply adjusting upward the prior year’s salary by a reasonable percentage. The potential bias is that the decision may be inappropriately biased toward only incremental movement from the starting point.
Confirmation Error •
A confirmation error occurs when we notice, accept, and even seek out information that is confirming or consistent with a decision we have just made.
Escalating Commitment •
Escalating commitment –– the tendency to increase effort and perhaps apply more resources to pursue a course of action that is not working –– is another source of potential decision-making error.
MANAGEMENT SMARTS on page 183 of the text identifies actions that a person can take to avoid the escalation trap in making decisions. 1. Set advance limits on your involvement and commitment to a particular course of action; stick with these limits. 2. Make your own decisions; don’t follow the lead of others, since they are also prone to escalation. 3. Carefully assess just why you are continuing a course of action; if there are no good reasons to continue, don’t. 4. Remind yourself of what a course of action is costing; consider saving these costs as a reason to discontinue. 5. Watch for escalation tendencies in your behaviors and those of others. DISCUSSION TOPIC Explain to students that escalating commitment is encouraged by the popular saying, “If at first you don’t succeed, try, and try again.” Current wisdom supports an alternative view, illustrated in this quote by the late W.C. Fields: “If at first you don’t succeed, try, try again. Then quit. No use being a damn fool about it.” CREATIVITY IN DECISION MAKING Creativity is one of our greatest personal assets and is used every day in problem solving. Sometimes trying to solve a problem creatively leads to new discoveries. Big-C creativity occurs when extraordinary things are done by exceptional people. Little-C creativity occurs when average people come up with unique ways to deal with daily events and situations. Design thinking is unlocking creativity in decision making through a process of experiencing (defining problems by research and observation), ideation (visualizing and brainstorming potential solutions in collaboration with others), and prototyping (testing and modifying the solution to achieve the best outcome).
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Personal Creativity Drivers Creative decisions are more likely to occur when the person or team: • • •
has a lot of task expertise. is highly task-motivated. has strong creativity skills.
Creative people exhibit the following characteristics: • • • • • •
work with high energy hold ground in face of criticism act resourceful in difficult situations good at synthesizing and finding correct answers look at diverse ways to solve problems think “outside the box”
Situational Creativity Drivers Innovative organizations operate with the strong situational creativity drivers of: • • •
team creativity skills – teams well staffed with creative members management support – leaders recognize need for creativity and support it accordingly organizational culture – the organization fosters an air of creativity
CHAPTER 7 TAKEAWAY QUESTIONS SUMMARY Takeaway Question 1: What is the role of information in the management process? • • • • • •
Technological information and analytical competencies are all needed to take advantage of information technology in decision making. Data are raw facts and figures; information is data made useful for decision making; useful information is timely, high quality complete, relevant, and understandable. Analytics is the systematic evaluation and analysis of information for decision making. Management information systems collect, organize, store, and distribute data to meet the information needs of managers. Business intelligence systems organize and display data, often in the form of dashboards, so that patterns and trends are evident to decision makers. Information technology is breaking barriers within and between organizations as rapidly expanding developments help speed workflows and cut costs.
FOR DISCUSSION: What are the potential downsides to the ways IT is changing organizations? Takeaway Question 2: How do managers use information to make decisions? • Managers serve as information nerve centers in the process of planning, organizing, leading, and controlling activities in organizations. • Managers can display problem avoidance, problem solving, and problem seeking in facing problems. • Managers vary in the use of systematic and intuitive thinking, and in tendencies toward multidimensional thinking.
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• • • •
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Managers must understand the different cognitive styles people use in decision-making. Programmed decisions are routine solutions to recurring and structured problems; nonprogrammed decisions are unique solutions to novel and unstructured problems. Crisis problems occur unexpectedly and can lead to disaster if not handled quickly and properly. Managers face problems and make decisions under conditions of certainty, risk, and uncertainty.
FOR DISCUSSION: When would a manager be justified in acting as a problem avoider? Takeaway Question 3: What are the steps in the decision-making process? • The steps in the decision-making process are: (1) find and define the problem, (2) generate and evaluate alternatives, (3) decide on the preferred course of action, (4) implement the decision, and (5) evaluate the results. • An optimizing decision, following the classical model, chooses the absolute best solution from a known set of alternatives. • A satisficing decision, following the behavioral model, chooses the first satisfactory alternative to come to attention. • To check the ethical reasoning of a decision at any step in the decision-making process, it is helpful to ask the ethics criteria questions of utility, rights, justice, and caring. • To check the ethical reasoning of a decision at any step in the decision-making process, it is helpful to ask the spotlight questions that expose the decision to transparency in the eyes of family, community members, and ethical role models. FOR DISCUSSION: Do the steps in the decision-making process have to be followed in order? Takeaway Question 4: What are the current issues in managerial decision making? • Common decision errors and traps include the availability, representation, and anchoring and adjustment biases, as well as framing error, confirmation error, and escalating commitment. • Creativity in decision making can be enhanced by the personal creativity drivers of individual creativity skills, task expertise, and motivation. • Creativity in decision making can be enhanced by the situational creativity drivers of group creativity skills, management support, and organizational culture. FOR DISCUSSION: Which decision trap seems most evident as an influence on bad choices made by business CEO’s today? CHAPTER 7 KEY TERMS Analytical competency (p. 163): the ability to evaluate and analyze information to make actual decisions and solve real problems. Anchoring and adjustment bias (p. 182): bases a decision on incremental adjustments from a prior decision point. Availability bias (p. 178): bases a decision on recent information or events. Behavioral decision model (p. 178): a model of decision making that describes decision making in situations of limited information and bounded rationality. Big-C creativity (p. 183): occurs when extraordinary things are done by exceptional people. Bonded rationality (p. 178): making decisions within the constraints of limited information and alternatives. Business intelligence systems (p. 164): organize and display data, often in the form of dashboards, so that patterns and trends are evident to decision makers.
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Certain environment (p. 173): a decision environment that offers complete information on possible action alternatives and their consequences. Classical decision model (p. 178): a model of decision making that views the manager as acting rationally in a certain world. Cognitive styles (p. 170): the ways individuals deal with information while making decisions. Confirmation error (p. 183): occurs when focusing only on information that confirms a decision already made. Cost-benefit analysis (p. 177): an analysis that involves comparing the costs and benefits of each potential course of action. Creativity (p. 183): the generation of a novel idea or unique approach that solves a problem or crafts an opportunity. Crisis decision (p.172): occurs when an unexpected problem arises that can lead to disaster if not resolved quickly and appropriately. Data (p. 163): raw facts and observations. Decision (p. 169): a choice among possible alternative courses of action. Decision-making process (p. 174): a set of activities that begins with the identification of a problem and ends with the evaluation of implemented solutions. Design thinking (p. 183): is unlocking creativity in decision making through a process of experiencing, ideation, and prototyping. Escalating commitment (p. 183): the continuation of a course of action, even though it is not working. Executive dashboards (p. 164): visually display graphs, charts, and scorecards of key performance indicators and information on a real time basis. Framing error (p. 181): occurs when a problem is evaluated and resolved in the context in which it is perceived ⎯ either positively or negatively. Heuristics (p. 181): strategies for simplifying decision making when people are faced with limited time, information, and energy. Information (p. 163): data made useful and meaningful for decision making. Information competency (p. 163): the ability to gather, analyze, and use information for decision making and problem solving. Intuitive thinking (p. 169): approaching problems in a flexible and spontaneous fashion. Lack-of-participation error (p. 179): failure to involve in a decision the persons whose support is needed to implement it. Little-C creativity (p. 183): occurs when average people come up with unique ways to deal with daily events and situations. Management information systems (p. 164): use IT (information technology) to collect, organize, and distribute data for use in decision making. Management with analytics (p.163): the systematic gathering and processing of data to make it useful as information. Multidimensional thinking (p. 170): an ability to address many problems at once. Nonprogrammed decision (p. 171): applies a specific solution crafted for a unique problem. Optimizing decision (p. 178): a decision that occurs when a manager chooses an alternative that gives the absolute best solution to a problem. Performance opportunity (p. 168): a situation that offers the chance for a better future if the right steps are taken. Performance threat (p. 168): a situation in which something is obviously wrong or has the potential to go wrong. Problem solving (p. 168): the process of identifying a discrepancy between the actual and desired state of affairs and then taking action to resolve it. Programmed decision (p. 171): applies a solution from past experience to a routine problem. Representativeness bias (p. 181): bases a decision on similarity to other situations.
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Risk environment (p. 173): a decision environment that lacks complete information about action alternatives and their consequences, but offers probabilities of the likely outcomes of each action alternative. Satisficing decision (p. 178): choosing the first alternative that appears to provide a satisfactory solution to the problem. Spotlight questions (p. 180): tests the ethics of a decision by exposing it to scrutiny through the eyes of family, community members, and ethical role models. Strategic opportunism (p. 170): the ability to remain focused on long-term objectives while being flexible enough to resolve short-term problems and opportunities in a timely manner. Structured problems (p. 171): problems that are familiar, straightforward, and clear with respect to information needs. Systematic thinking (p. 169): approaching problems in a rational, step-by-step, and analytical fashion. Technological competency (p. 163): the ability to understand new technologies and to use them to their best advantage. Uncertain environment (p. 174): a decision environment in which information is so poor that managers are unable to assign probabilities to the likely outcomes of known alternatives. Unstructured problems (p. 171): problems full of ambiguities and information deficiencies.
SELF TEST ANSWERS 1.
Among the ways information technology is changing organizations today, ______is one of its most noteworthy characteristics. (a) eliminating need for top managers (b) reducing information available for decision making (c) breaking down barriers internally and externally (d) decreasing need for environmental awareness
2.
Whereas management information systems use the latest technologies to collect, organize, and distribute data, _________ involves taping the available data to extract and report it in organized ways that are most useful to decision makers. (a) analytics (b) business intelligence (c) anchoring and adjustment (d) optimizing
3.
A manager who is reactive and works hard to address problems after they occur is known as a ______. (a) problem seeker (b) problem avoider (c) problem solver (d) problem manager
4.
A(n) _______thinker approaches problems in a rational and analytic fashion. (a) systematic (b) intuitive (c) internal (d) external
5.
A person likes to deal with hard facts and clear goals in a decision situation: she also likes to be in control and keep things interpersonal. This person’s cognitive style tends toward ________________. (a) sensation thinking (b) intuitive thinking (c) sensation feeling (d) intuitive feeling.
6.
The assigning of probabilities for action alternatives and their consequences indicates the presence of ___________ in the decision environment. (a) certainty (b) optimizing (c) risk (d) satisficing
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7.
The first step in the decision making process is to ____________. (a) identify alternatives (b) evaluate results (c) find and define the problem (d) choose a solution
8.
Being asked to develop a plan to increase international sales of a product is an example of the types of _______________ problems that managers must be prepared to deal with. (a) routine (b) unstructured (c) crisis (d) structured
9.
Costs, timeliness, and ________are among the recommended criteria for evaluating alternative courses of action. (a) ethical soundness (b) competitiveness (c) availability (d) simplicity
10.
A common mistake made by managers in crisis situations are that they ______. (a) try to get too much information before responding (b) rely too much on group decision making (c) isolate themselves to make the decision alone (d) forget to use their crisis management plan
11.
The _______ decision model views managers as making optimizing decisions, whereas the ________ decision model views them as making satisficing decisions. (a) behavioral, human relations (b) classical, behavioral (c) heuristic, humanistic (d) quantitative, behavioral
12.
When a manager makes a decision about someone’s annual pay raise only after looking at their current salary, the risk is that the decision will be biased because of ________. (a) a framing error (b) escalating commitment (c) anchoring and adjustment (d) strategic opportunism
13.
When a problem is addressed according to the positive or negative context in which it is presented, this is an example of _________. (a) framing error (b) escalating commitment (c) availability and adjustment (d) strategic opportunism
14.
When a manager decides to continue pursuing a course of action that facts otherwise indicate is failing to deliver desired results, this is called ________. (a) strategic opportunism (b) escalating commitment (c) confirmation error (d) the risky shift
15.
Personal creativity drivers include creativity skills, task expertise, and ________. (a) emotional intelligence (b) management support (c) organizational culture (d) task motivation
16.
What is the difference between an optimizing decision and a satisficing decision? An optimizing decision is one that represents the absolute “best” choice of alternatives. It is selected from a set of all known alternatives. A satisficing decision selects the first
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alternative that offers a “satisfactory” choice, not necessarily the absolute best choice. It is selected from a limited or incomplete set of alternatives. 17.
18.
How can a manager double-check the ethics of a decision? The ethics of a decision can be checked with the “spotlight” question: “How would you feel if your family found out?” “How would you feel if this were published in the local newspaper?” Also, one can test the decision by evaluating it on four criteria: (1) Utility— does it satisfy all stakeholders? (2) Rights—does it respect everyone’s rights? (3) Justice—is it consistent with fairness and justice? (4) Caring—does it meet responsibilities for caring? How would a manager use systematic thinking and intuitive thinking in problem solving? A manager using systematic thinking is going to approach problem solving in a logical and rational fashion. The tendency will be to proceed in a linear, step-by-step fashion, handling one issue at a time. A manager using intuitive thinking will be more spontaneous and open in problem solving. He or she may jump from one stage in the process to another and deal with many different things at once.
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How can the members of an organization be trained in crisis management? It almost seems contradictory to say that one can prepare for crisis, but it is possible. The concept of crisis management is used to describe how managers and others prepare for unexpected high-impact events that threaten an organization’s health and well-being. Crisis management involves both anticipating possible crises and preparing teams and plans ahead of time for how to handle them if they do occur. Many organizations today, for example, are developing crisis management plans to deal with terrorism and computer “hacking” attacks.
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As a participant in a new mentoring program between your university and a local high school, you have volunteered to give a presentation to a class of sophomores on the challenges in the new “electronic office.” The goal is to sensitize them to developments in information technology and motivate them to take the best advantage of their high school academics so as to prepare themselves for the workplace of the future. What will you say to them? This is what I would say in the mentoring situation: continuing developments in information technology are changing the work setting for most employees. An important development for the traditional white-collar worker falls in the area of office automation—the use of computers and related technologies to facilitate everyday office work. In the “electronic office” of today and tomorrow, you should be prepared to work with and take full advantage of the following: smart workstations supported by desktop computers; voice messaging systems, whereby computers take dictation, answer the telephone, and relay messages; database and word processing software systems that allow storage, access, and manipulation of data, as well as the preparation of reports; electronic mail systems that send mail and data from computer to computer; electronic bulletin boards for posting messages; and computer conferencing and videoconferencing that allow people to work with one another every day over great distances. These are among the capabilities of the new workplace. To function effectively, you must be prepared not only to use these systems to full advantage, but also to stay abreast of new developments as they become available.
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MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: SELF-CONFIDENCE Students’ answers will vary according to individual differences. Because those with lower levels of self-confidence may need more encouragement to share their answers, this would also make an excellent writing assignment. SELF ASSESMENT: COGNITIVE STYLE This assessment is designed to get an impression of your cognitive style, based on the work of psychologist Carl Jung. For each of the following 12 pairs, place a “1” next to the statement that best describes you. Do this for each pair even though the description you chose may not be perfect. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.
a. b. a. b. a. b. a. b. a. b. a. b. a. b. a. b. a. b. a. b. a. b. a. b.
I prefer to learn from experience. I prefer to find meanings in facts and how they fit together. I prefer to use my eyes, ears and other senses to find out what is going on. I prefer to use imagination to come up with new ways to do things. I prefer to use standard ways to deal with routine problems. I prefer to use novel ways to deal with new problems. I prefer to learn from experience. I prefer to find meanings in facts and how they fit together. I am patient with details, but get impatient when they get complicated. I am impatient and jump to conclusions, but am also creative, imaginative, and inventive. I enjoy using skills already mastered more than learning new ones. I like learning new skills more than practicing old ones. I prefer to decide things logically. I prefer to decide things based on feelings and values. I like to be treated with justice and fairness. I like to be praised and to please other people. I sometimes neglect or hurt other people’s feelings without realizing it. I am aware of other people’s feelings. I give more attention to ideas and things than to human relationships. I can predict how others will feel. I do not need harmony; arguments and conflicts don’t bother me. I value harmony and get upset by arguments and conflicts. I am often described as analytical, impersonal, unemotional, objective, critical, hard-nosed, and rational. I am often described as sympathetic, people-oriented, unorganized, uncritical, understanding, ethical.
Scoring Sum your scores as follows and record them in the space provided. (Note that the sensing and Feeling scores will be recorded as negatives.) ____ Sensing (S Type) = 1a + 2a + 3a + 4a + 5a + 6a ____ Intuitive (N Type) = 1b + 2b + 3b + 4b + 5b + 6b
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____ Thinking (T Type) = 7a + 8a + 9a + 10a + 11a + 12a ____ Feeling (F Type) = 7b + 8b + 9b + 10b + 11b + 12b Plot your scores on the following graph. Place an “X” at the point that indicates your suggested problem-solving style.
Interpretation This assessment examines cognitive style through the contrast of personal tendencies toward information gathering (sensation vs. intuition) and information evaluation (feeling vs. thinking) in one’s approach to problem solving. The result is a classification of four master cognitive styles, with the following characteristics. Read the descriptions and consider the implications of your suggested style, including how well you might work with persons whose styles are very different. Sensation Thinkers: STs tend to emphasize the impersonal rather than the personal, and take a realistic approach to problem solving. They like hard “facts,” clear goals, certainty and situations of high control. Intuitive Thinkers: NTs are comfortable with abstraction and unstructured situations. They tend to be idealistic, prone toward intellectual and theoretical positions; they are logical and impersonal, but also avoid details. Intuitive Feelers: NFs prefer broad and global issues. They are insightful and tend to avoid details, being comfortable with intangibles; they value flexibility and human relationships. Sensation Feelers: SFs tend to emphasize both analysis and human relations. They tend to be realistic and prefer facts; they are open communicators, and sensitive to feelings and values.
TEAM EXERCISE: LOST at SEA Consider This Situation You are adrift on a private yacht in the South Pacific when a fire of unknown origin destroys the yacht and most of its contents. You and a small group of survivors are now in a large raft with oars. Your location is unclear, but you estimate being about 1,000 miles south-southwest of the nearest land. One person has just found in her pockets five $1 bills and a packet of matches. Everyone else’s pockets are empty. The following items are available to you on the raft.
Available Items
A
B
C
Sextant
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Shaving mirror 5 gallons water Mosquito netting 1 survival meal Maps of Pacific Ocean Floatable seat cushion 2 gallons oil-gas mix Small transistor radio Shark repellant 20 square feet black plastic 1 quart 120-proof rum 15 feet nylon rope 24 chocolate bars Fishing kit
Instructions 1. Working alone, rank in Column A the 15 items in order of their importance to your survival (“1” is most important and “15” is least important). 2. Working in an assigned group, arrive at a “team” ranking of the 15 items, and record this ranking in Column B. Appoint one person as group spokesperson to report your group rankings to the class. 3. Do not write in Column C until further instructions are provided by your instructor.
Answers and Rationale According to the “experts,” the basic supplies needed when a person is stranded in mid-ocean are articles to attract attention and articles to aid survival until rescuers arrive. Articles for navigation are of little importance: even if a small life raft were capable of reaching land, it would be impossible to store enough food and water to subsist during that period of time. Therefore, of primary importance are the shaving mirror and the two-gallon can of oil-gas mixture. These items could be used for signaling air-sea rescue. Of secondary importance are items such as water and food, e.g., the survival meal. The “experts” rankings are provided below.
Rank Sextant Shaving mirror 5 gallons of water Mosquito netting 1 survival meal Maps of Pacific Ocean Floatable seat cushion 2 gallons of oil-gas mix Small transistor radio Shark repellent 20 square feet black plastic 1 quart 120-proof rum 15 feet nylon rope 24 chocolate bars Fishing kit
15 1 3 14 4 13 9 2 12 10 5 11 8 6 7
A brief rationale is provided for the ranking of each item. These brief explanations obviously do not represent all of the potential uses for the specified items but, rather, the primary importance of each.
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1 ⎯ Shaving mirror: Critical for signaling air-sea rescue. 2 ⎯ Two-gallons oil-gas mix: Critical for signaling⎯the oil-gas mixture will float on the water and could be ignited with a dollar bill and a match (obviously, outside the raft). 3 ⎯ Five gallons of water: Necessary to replenish fluid loss by perspiring, etc. 4 ⎯ One survival meal: Provides basic food intake. 5 ⎯ Twenty square feet of black plastic: Utilized to collect rainwater, provide shelter from the elements. 6 ⎯ Twenty-four chocolate bars: A reserve food supply. 7 ⎯ Fishing kit: Ranked lower than the candy bars because “one bird in the hand is worth two in the bush.” There is no assurance that you will catch any fish. 8 ⎯ Fifteen feet of nylon rope: May be used to lash equipment together to prevent it from falling overboard. 10 ⎯ Shark repellent: Obvious. 11 ⎯ One quart of 120-proof rum: Contains alcohol⎯enough to use as a potential antiseptic for any injuries incurred; of little value otherwise; will cause dehydration if ingested. 12 ⎯ Small transistor radio: Of little value since there is no transmitter (unfortunately, you are out of range of your favorite AM radio stations). 13 ⎯ Maps of the Pacific Ocean: Worthless without additional navigational equipment⎯it does not really matter where you are but where the rescuers are. 14 ⎯ Mosquito netting: There are no mosquitoes in the mid-Pacific. 15 ⎯ Sextant: Without tables and a chronometer, relatively useless. The basic rationale for ranking signaling devices above life-sustaining items (food and water) is that without signaling devices there is almost no chance of being spotted and rescued. Furthermore, most rescues occur during the first thirty-six hours, and one can survive without food and water during this period.
Instructor’s Note This exercise can be extremely useful in illustrating the importance of creativity to both individual and group decision making. As part of your discussion of this exercise, ask students to score their individual and group responses by summing their personal and group absolute deviations from the expert’s rankings. Next, instruct them to calculate the mean for the individual group members’ responses. Typically, “the best individual” score will be superior to the group score; nevertheless, the group score is normally superior to the mean of the individual scores. These tendencies provide two important lessons. First, a creative individual, who may or may not have some relevant expertise, can often outperform a group on a problem-solving task. Second, the group will typically obtain a superior solution than will most individuals. Thus, while some people are capable of outperforming a group on a task, the capability of groups to share information and varied perspectives typically results in some improvement in the quality of solutions generated by most individuals. As such, there are clearly benefits of both individual decision making (for creative or expert persons) and group decision making. (Source: Adapted from “Lost at Sea: A Consensus-Seeking Task,” in The 1975 Handbook for Group Facilitators. Used with permission of University Associates, Inc.)
CAREER SITUATIONS FOR DECISION MAKERS: WHAT WOULD YOU DO? These answers may differ according to students’ decision making styles and biases. . 7-24
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REVIEW QUESTIONS FOR CASE 7: AMAZON.COM Discussion Questions 1. In what ways does Bezos’s decision to develop and deliver the Kindle and Kindle Fire show systematic and intuitive thinking? Systematic thinking includes identifying and analyzing the problem, formulating multiple solution options, defining selection criteria, and, finally, making a decision. Bezos determined that while music and video, and short-form reading was digitized, no one had yet moved long-form reading into a digital format. Knowing an opportunity for such a device existed, Bezos settled on these devices that met his criteria as an e-book reader and part wireless computer that could store e-books, RSS feeds, Microsoft Word documents and digital pictures. Intuitive thinking has no set boundaries and allows one to respond spontaneously and creatively to a situation. Bezos had a hunch the market was ripe for a device that allowed the reading and storage of multiple books, so he charged his engineers at Lab 126, an Amazon.com subsidiary, to develop the product based on his creative thought. 2. How do you describe the competitive risk in Amazon’s environment as Wal-Mart, Barnes and Noble, and other retailers strengthen their online offerings? Competitive risk is the probability of loss due to a decline in a firm’s ability to compete in a given market or industry. Wal-Mart clearly dominates nearly every market it enters, so the competitive risk is huge. Amazon must find a competitive advantage that Wal-Mart cannot match. Students will easily see the difficulty of competing head-to-head with Wal-Mart. Encourage them to think beyond Wal-Mart's competitive advantages of size, price and distribution system and look for ways they may be vulnerable. Problem Solving Amazon is continuously looking for new markets to exploit. As CEO Bezos addresses the strategic opportunity of delivering streaming video, he calls on you for advice. Amazon’s presence and technology are already established in this market. But what decision error and traps might cause him to make the wrong decisions regarding Amazon’s future moves, and why? What can he do to best avoid these mistakes? Student answers will vary. Point out that Bezos success could be affected by a couple of errors and traps, such as: • representativeness bias – based on his past successes, he may assume that anything Amazon.com decides to do will also be successful. • escalating commitment – due to past successes, Bezos may continue to support a product or service that is not working. Further Research What are the latest initiatives coming out of Amazon? How do they stack up in relation to actual or potential competition? How has the decision to produce the Fire turned out? Is Bezos making the right decisions as he guides the firm through today's many business challenges? Amazon does a good job of foreseeing consumer needs and wants and providing products and services to meet those needs in a convenient online format. Kindle is clearly an .
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innovative product offering that has seen strong competition from Apple's I-Pad and Barnes and Noble's Nook. Challenge students to evaluate not only these products, but services and customer relationship management when determining how Amazon stacks up to the competition. As students research Amazon's new products caution them to conduct their online research with objective media sources. The college library may offer free searches such as EBSCO Host that access a large number of periodicals including industry publications that may provide thorough and accurate comparisons as well as current industry trends.
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Chapter 8:
PLANNING PROCESSES AND TECHNIQUES CHAPTER 8 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. Why and how do managers plan? 2. What types of plans do managers use? 3. What are the useful planning tools and techniques? 4. How can plans be well implemented? CHAPTER 8 LEARNING OBJECTIVES After completing this chapter, students should be able to: • Explain the importance of planning as the first of four management functions • List the steps in the formal planning process • Illustrate the benefits of planning for an organization familiar to you • Illustrate the benefits of planning for your personal career development • List at least three things you can do now to improve your time management • Differentiate between short-range and long-range plans • Differentiate between strategic and operational plans and explain how they relate to one another • Define policy and procedure and give an example of each in a university setting • Explain how a zero-based budgeting works • Define forecasting, contingency planning, scenario planning, and benchmarking • Explain the benefits of contingency planning and scenario planning • Describe pros and cons of using staff planners • List the criteria of great goals • Describe the value of a hierarchy of objectives • Give examples of improvement and personal development objectives • Explain how goal alignment can take place between a team leader and team members CHAPTER 8 OVERVIEW Through planning, managers attempt to look into the future and make decisions that will facilitate goal accomplishment. Planning thus serves as the primary management function, setting the stage and providing a foundation for the manager’s efforts to organize, lead, and control. The fundamentals of planning are presented in this chapter along with guidelines for good planning. The chapter begins by examining the role of planning as a management function, including its relationships with the other functions. The formal planning process and the benefits of planning, along with time management are then discussed. Next, the chapter discusses the types of plans that managers use; these include short-range and long-range plans; followed by strategic, tactical, and operational plans. The chapter also describes the planning tools and techniques of forecasting, contingency planning, scenario planning, benchmarking, and the use of staff planners. .
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The chapter then shifts to a discussion of goal setting and goal alignment. The chapter ends with an examination of how participation in the planning process by all employees in an organization is integral to a plan’s success. CHAPTER 8 LECTURE OUTLINE Teaching Objective: The purpose of this chapter is to teach students the fundamentals of planning. These fundamentals include the planning process, different types of plans, and various planning tools. Suggested Time: Two or more hours of class time are recommended to present the material in this chapter. I.
Takeaway question 1: Why and how do managers plan? Importance of planning The planning process Benefits of planning Planning and time management
II.
Takeaway question 2: What types of plans do managers use? Short-range and long-range plans Strategic and tactical plans Operational plans
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Takeaway question 3: What are some useful planning tools and techniques? Forecasting Contingency planning Scenario planning Benchmarking Staff planners
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Takeaway question 4: How can plans be well implemented? Goal setting Goal alignment Participation and involvement
CHAPTER 8 SUPPORTING MATERIALS Learning From Others • Think Now and Embrace the Future Learning About Yourself • Time Management Figures • Figure 8.1: The Roles of Planning and Controlling in the Management Process • Figure 8.2: A Sample Hierarchy of Objectives for Quality Management • Figure 8.3: How Participation and Involvement Help Build Commitment to Plans .
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Thematic Boxes • Follow the Story: A Lot of Corporate Executives Have Little Time for Those Below Them. Don Makes Everyone a Part of the Process • Management Smarts: Personal Time Management Tips • Plan Drives Rolls Royce into High-Wage Countries • Research Brief: You’ve Got to Move Beyond Planning by the Calendar • Facts for Analysis: Some Employees Sign “Love Contracts” Saying Office Relationships Won’t Interfere With Their Work • Recommended Reading: The Shift: The Future of Work is Already Here • Ethics in the Line: We Really Aren’t Interested in the More-Aid Less-Aid Debate. We’re Interested in Seeing What Works and What Doesn’t.” • Goal Setting in Project Quark Helps Ford Preserve Supply Chains Applications • Self-Test • Further Reflection: Time Management • Self-Assessment: Time Management Profile • Team Exercise: The Future Workplace/Personal Career Planning • Career Situations for Planners: What Would You Do? • Case 8: Walgreen’s-Staying One Step Ahead CHAPTER 8 LECTURE NOTES LEARNING FROM OTHERS on page 192 of the text describes how Oprah Winfrey’s $40 million donation toward starting the Oprah Winfrey Leadership Academy for young women in South Africa is an example of how great things can happen with good insight and the right plans. LEARNING ABOUT YOURSELF on page 193 of the text describes why time management is an essential skill in today’s high-pressure and fast-paced world. TAKEAWAY QUESTION 1: WHY AND HOW DO MANAGERS PLAN? Planning is the process of setting objectives and determining how to best accomplish them. Planning sets the stage for organizing, leading, and controlling by providing direction. IMPORTANCE OF PLANNING As shown in FIGURE 8.1 on page 195 of the text, planning is central to the management process. It involves deciding where you want to go and the best way to go about it. THE PLANNING PROCESS Objectives identify the specific results or desired outcomes that one intends to achieve. Stretch goals are performance targets that we have to work extra hard and really stretch to reach. A plan is a statement of action steps to be taken in order to accomplish the objectives.
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The five steps in the systematic planning process are as follows: 1. Define your objectives –– Identify desired outcomes or results in very specific ways. Know where you want to go; be specific enough that you will know you have arrived when you get there, or know how far off the mark you are at various points along the way. 2. Determine where you stand vis-à-vis objectives –– Evaluate current accomplishments relative to the desired results. Know where you stand in reaching the objectives; know what strengths work in your favor and what weaknesses may hold you back. 3. Develop premises regarding future conditions –– Anticipate future events. Generate alternative “scenarios” for what may happen; identify for each scenario things that may help or hinder progress toward your objectives. 4. Analyze alternatives and make a plan –– List and evaluate the possible actions. Choose the alternative most likely to accomplish your objectives; describe what must be done to follow the chosen course of action. 5. Implement the plan and evaluate results –– Take action and carefully measure your progress toward objectives. Follow through by doing what the plan requires; evaluate results, take corrective action, and revise plans as needed. Planning is an ongoing process that managers do even while dealing with an otherwise busy and demanding work setting. FOLLOW THE STORY on p. 196 of the text tells the story of Don Thompson, the President and chief operating officer of McDonald’s success with goal setting and planning. BENEFITS OF PLANNING Planning Improves Focus and Flexibility Focus and flexibility are important to the performance of both people and organizations in highly competitive and dynamic environments. An organization with focus knows what it does best, knows the needs of its customers, and knows how to serve them well. An individual with focus knows where he or she wants to go in a career or situation and is able to retain that objective even in difficult circumstances. An organization with flexibility is willing and able to change and adapt to shifting circumstances and operates with an orientation toward the future rather than the past. An individual with flexibility adjusts career plans to fit new and developing opportunities. Planning Improves Action Orientation Planning keeps people and organizations focused on the actions that are needed to stay competitive and to become better at what they are doing. It helps avoid the complacency trap—simply being carried along by the flow of events. According to management consultant Stephen R. Covey, planning helps make people and organizations proactive rather than reactive by making them more: • .
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• • •
priority oriented –– making sure the most important things get first attention. advantage oriented –– ensuring that all resources are utilized to best advantage. change oriented –– anticipating problems and opportunities so they can be best dealt with.
Planning Improves Coordination and Control Planning helps individuals, groups, and subsystems within organizations make meaningful contributions to the organization as a whole, even as they pursue their specific tasks and objectives. Planning facilitates control by defining objectives and desired performance results, and identifying specific actions through which they are to be pursued. Planning and controlling should work closely together in the management process. Controlling provides the follow-through that is required to ensure that things work out as intended. PLANNING AND TIME MANAGEMENT Managers work in a setting that has many commitments and opportunities. Consequently, managers need to use their time wisely; plans help to accomplish that. Managers can easily lose track of time and fall prey to what consultants identify as “time wasters.” Management Smarts on p. 198 of the text outlines the following personal time management tips: • • • • • • •
Do say “No” to requests that divert you from what you really should be doing. Don’t get bogged down in details that you can address later or leave for others. Do have a system for screening telephone calls, e-mails, and requests for meetings. Don’t let drop-in visitors or instant messages use too much of your time. Do prioritize what you will work on in terms of importance and urgency. Don’t become calendar-bound by letting others control your schedule. Do follow priorities; work on the most important and urgent tasks first. DISCUSSION TOPIC
Many students often juggle classes, study time, part-time work, and extracurricular activities, along with other commitments. Doing this requires the use of time management skills. To generate discussion, ask students how they manage their time so as to deal with their various commitments.
TAKEAWAY QUESTION 2: WHAT TYPES OF PLANS DO MANAGERS USE? LONG-RANGE AND SHORT-RANGE PLANS Long-term plans look three or more years into the future.
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Short-term plans cover one year or less. DISCUSSION TOPIC To generate discussion, ask students to identify their short-, intermediate-, and long-range career plans. Many students will be able to quickly identify and distinguish between these types of plans. For example, some students may express a long-term career objective of owning their own business. Their intermediate-range plans for achieving this goal may include obtaining a college degree and then working in a large corporation for a number of years to “learn the ropes” of a particular industry. Their short-range plans will most likely include detailed plans for completing this course as well as other relevant courses. Elliot Jaques, a management researcher, suggests that people vary in their capability to think out, organize, and work through events of different time horizons. • •
Jaques believes that most people work comfortably with only three-month time spans, a smaller group works well with a one-year span, and only the rare person can handle a 20-year time frame. Career progress to higher management levels requires the conceptual skills to work well with longer-range time frames.
With the increasing complexities and uncertainties of today’s environments, globalization, and impact of the information age, even long-range planning is becoming shorter and shorter. STRATEGIC AND TACTICAL PLANS Strategic Plans Strategic plans set broad, comprehensive, and longer-term action directions for the entire organization. They are based on an organization’s vision, which clarifies the purpose of the organization and expresses what it hopes to be in the future. Even though strategic plans are long term, they are also dynamic. Tactical Plans Tactical plans define what needs to be done in specific areas to implement strategic plans. Typical functional plans include the following: • Production plans –– dealing with work methods and technologies. • Financial plans –– dealing with money and capital investments. • Facilities plans –– dealing with facilities and work layouts. • Logistics plans –– dealing with suppliers and acquiring resource inputs. • Marketing plans –– dealing with selling and distributing goods or services. • Human resource plans –– dealing with building a talented workforce.
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RESEARCH BRIEF on page 200 of the text finds that organizations that use “continuous review” instead of annual strategic planning are more consistent with the way executives actually make decisions. OPERATIONAL PLANS Operational plans describe what needs to be done in the short term and in response to different situations. They include: •
Standing plans – plans, such as policies and procedures that are used over and over. • Single-use plans – plans, such as budgets, that apply to one specific task or time period. Policies and Procedures A policy is a standing plan that communicates broad guidelines for making decisions and taking action in specific circumstances. Facts for Analysis on p. 201 of the text summarizes a survey on organizational policies that prohibit romantic office relationships. Rules or procedures are standing plans that describe exactly what actions are to be taken in specific situations. Rules or procedures are often found in employee handbooks or manuals as standard operating procedures (SOPs). Budgets Budgets are single-use plans that commit resources to activities, projects, or programs. • Financial budgets project cash flows and expenditures. • Operating budgets plot anticipated sales or revenues against expenses. • Nonmonetary budgets allocate resources like labor, equipment, and space. • Fixed budgets allocate a stated amount of resources for a specific purpose. • Flexible budgets allow resources to vary in proportion with various levels of activity. Zero-based budgets allocate resources to projects or activities as if they were brand new in each budget cycle. Ongoing and newly proposed programs are forced to compete on an equal footing for funding. TAKEAWAY QUESTION 3: WHAT ARE SOME USEFUL PLANNING TOOLS AND TECHNIQUES? FORECASTING Forecasting is the process of making assumptions about what will happen in the future. • •
Qualitative forecasting uses expert opinions to predict the future. Quantitative forecasting techniques use mathematical and statistical analyses of historical data and surveys to predict future events.
All forecasts rely ultimately on human judgment; even highly sophisticated quantitative analyses require interpretation by humans.
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CONTINGENCY PLANNING Contingency planning identifies alternative courses of action that can be implemented to meet the needs of changing circumstances. Contingency plans anticipate that things can go wrong, that changes in the environment will eventually occur, and that crises and emergencies may occur. Recommended Reading on p. 204 of the text describes the premise of The Shift: five key forces (technology, globalization, demography, society, and energy resources) will shape the future of work. SCENARIO PLANNING Scenario planning is a long-term version of contingency planning which involves identifying several alternative future scenarios or states of affairs that may occur, and then making plans to deal with each should it actually occur. While scenario planning can never be inclusive of all future possibilities, it does condition an organization to think about the future and to better prepare for future shocks. Ethics on the Line on p. 205 of the text asks the question of whether or not plans are working based on feel-good evaluations, or on solid scientific evaluations.
DISCUSSION TOPIC To reinforce the ideas of contingency planning and scenario planning, ask the students to consider what might happen in their own lives during the next five years. Have them develop the parameters of different personal scenarios and describe how they would deal with these different scenarios. This could be used as an out-of-class written assignment. BENCHMARKING Benchmarking is a technique that finds out what other people and organizations are doing well and then incorporates those ideas into one’s own operations. Best practices refer to a benchmarking technique that involves identifying those things that help both competitors and noncompetitors achieve superior performance. Well run organizations will use: • •
Internal benchmarking – encourages members and work units to learn and improve by sharing one another’s best practices. External benchmarking – to learn from competitors and non-competitors what works best.
STAFF PLANNING Staff planners are persons who coordinate the planning function for the total organization or one of its major components.
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Communication gaps may develop between the staff planners and line management. TAKEAWAY QUESTION 4: HOW CAN PLANS BE WELL IMPLEMENTED? GOAL SETTING Goal setting can make a big difference in how well an organization does, from sales, increased market share, and meeting earnings estimates. Organizations can go from no-goals to average goals to great goals. Great goals are: • • • • •
Specific – clearly target key results and outcomes to be accomplished. Timely – linked to specific timetables and “due dates.” Measurable – described so results can be measured without ambiguity. Challenging – include a stretch factor that moves toward real gains. Attainable – although challenging, realistic and possible to achieve.
GOAL ALIGNMENT Goals set anywhere in the organization should ideally help advance the overall mission or purpose of an organization, so it is important that goals and plans are well integrated across the many people, work units, and levels of an organization as a whole. Regular conversations between team leaders and team members at each step in the hierarchy are essential to goal achievement and will lead to agreements on: • Performance objectives for a given time period. • Plans through which the performance objectives will be accomplished. • Standards for measuring whether the performance objectives have been accomplished. • Procedures for reviewing performance results. The above is also known at management by objectives or MBO. Figure 8.2 on page 208 of the text shows a sample hierarchy of objectives for quality management. This hierarchy helps with goal alignment, in that lower-level goal accomplishment leads to the accomplishment of higher-level ones. The need to make performance objectives measurable involves agreement on a measurable end product. When the end product is difficult to quantify, it is often possible to agree on performance objectives that are stated as verifiable work activities. PARTICIPATION AND INVOLVEMENT Participatory planning requires that the planning process include people who will be affected by the resulting plans and asked to help implement them. Figure 8.3 on page 210 of the text illustrates the importance of participation and involvement for building commitment to plans throughout all phases of the planning process.
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Participation can increase the creativity and information used in planning as well as generating understanding, acceptance, and commitment of people to the final plan. CHAPTER 8 TAKEAWAY QUESTIONS SUMMARY Takeaway question 1: Why and how do managers plan? • • •
•
Planning is the process of setting performance objectives and determining what should be done to accomplish them. A plan is a set of intended actions for accomplishing important objectives. Five steps in the planning process are: (1) define your objectives, (2) determine where you stand vis-à-vis your objectives, (3) develop your premises regarding future conditions, (4) identify and choose among alternative ways of accomplishing objectives, and (5) implement action plans and evaluate results. The benefits of planning include better focus and flexibility, action orientation, coordination, control, and time management.
FOR DISCUSSION: Which step in the planning process is likely to cause the most difficulties for managers? Takeaway question 2: What types of plans do managers use? • • • • •
Short-range plans tend to cover a year or less, while long-range plans extend up to three years or more. Strategic plans set critical long-range directions; operational plans are designed to implement strategic plans. Policies, such as a sexual harassment policy, are plans that set guidelines for the behavior of organizational members. Procedures and rules are plans that describe actions to be taken in specific situations, such as the steps to be taken when persons believe they have been subjected to sexual harassment. Budgets are plans that allocate resources to activities or projects.
FOR DISCUSSION: Is there any real value to long-term planning in today’s rapidly changing environment? Takeaway question 3: What are some of the useful planning tools and techniques? • • • • •
Forecasting, which attempts to predict what might happen in the future, is a planning aid but not a planning substitute. Contingency planning identifies alternative courses of action that can be implemented if and when circumstances change. Scenario planning analyzes the implications of alternative versions of the future. Planning through benchmarking utilizes external and internal comparisons to identify best practices for possible adoption. Staff planners with special expertise are often used to assist in the planning process, but the risk is a lack of involvement by managers and others who must implement the plants.
FOR DISCUSSION: Shouldn’t all plans be supported by contingency plans? Takeaway question 4: How can plans be well implemented? •
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A hierarchy of objectives helps to align goals from top to bottom in organizations. Goal alignment is facilitated by a participative process that clarifies performance objectives for individuals and teams, and identifies support that can and should be provided by managers. Participation and involvement open the planning process to valuable inputs from people whose efforts are essential to the effective implementation of plans.
FOR DISCUSSION: Given its potential advantages, why isn’t goal alignment a characteristic of all organizations? CHAPTER 8 KEY TERMS Benchmarking (p. 206): using external comparisons to better evaluate current performance and identify possible ways to improve for the future. Best practices (p. 206): a benchmarking technique that identifies things people and organizations do that help them create superior performance. Budget (p. 202): a single-use plan that commits resources for specific time periods to activities, projects, or programs. Complacency trap (p. 197): is being carried along by the flow of events. Contingency planning (p. 203): identifies alternative courses of action that can be implemented if circumstances change. Forecasting (p. 201): attempting to predict what will happen in the future. Functional plans (p. 191): indicate how different operations within the organization will help advance the overall strategy. Goals (p. 195): the specific results or desired outcomes that one intends to achieve. These are also known as objectives. Hierarchy of goals (p. 208): a means-ends chain where lower-level goals and objectives lead to the accomplishment of higher-level ones. This is also known as a hierarchy of objectives. Hierarchy of objectives (p. 208): a means-ends chain where lower-level goals and objectives lead to the accomplishment of higher-level ones. This is also known as a hierarchy of goals. Long-term plans (p. 199): plans that typically look three or more years into the future. Objectives (p. 195): the specific results or desired outcomes that one intends to achieve. These are also known as goals. Operational plan (p. 201): identifies short-term activities to implement strategic plans. Participatory planning (p. 209): the planning process that includes the people who will be affected by the plans and/or those who will implement them. Plan (p. 195): a statement of action steps to be taken in order to accomplish the objectives. Planning (p. 194): the process of setting objectives and determining how to accomplish them. Policy (p. 202): a standing plan that communicates broad guidelines for making decisions and taking action in specific circumstances. Procedure (p. 202): a rule describing actions that are to be taken in specific situations. Scenario planning (p. 204): a long-term version of contingency planning which involves identifying several alternative future scenarios or states of affairs that may occur. Short-term plans (p. 199): plans that typically cover one year or less. Strategic plan (p. 200): a long-term plan that sets broad directions for an organization. Stretch goals (p.195): performance targets that we have to work extra hard and really stretch to reach. Tactical plan (p.201): helps to implement all or parts of a strategic plan. Vision (p. 200): clarifies the purpose of the organization and expresses what it hopes to be in the future Zero-based budget (p. 202): a budget that allocates resources to projects or activities as if they were brand new in each budget cycle.
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SELF TEST ANSWERS 1.
Planning is the process of ________ and ________. (a) developing premises about the future, evaluating them (b) measuring results, taking corrective action (c) measuring past performance, targeting future performance (d) setting objectives, deciding how to accomplish them.
2.
The benefits of planning include ________. (a) improved focus (b) lower labor costs (c) more accurate forecasts (d) higher profits
3.
In order to help implement its corporate strategy, a business firm would likely develop a (an) ______ plan for the marketing department. (a) functional (b) single-use (c) production (d) zero-based
4.
______ planning identifies alternative courses of action that can be taken if and when certain situations arise. (a) Zero-based (b) Participative (c) Strategic (d) Contingency
5.
The first step in the control process is to ______. (a) measure actual performance (b) establish objectives and standards (c) compare results with objectives (d) take corrective action
6.
A sexual harassment policy is an example of ______ plans used by organizations. (a) long-range (b) single-use (c) standing-use (d) operational
7.
When a manager is asked to justify a new budget proposal on the basis of projected activities rather than past practices, this is an example of ______ budgeting. (a) zero-based (b) variable (c) fixed (d) contingency
8.
One of the benefits of participatory planning is ______. (a) reduced time for planning (b) less need for forecasting (c) greater attention to contingencies (d) more commitment to implementation
9.
The ideal situation in a hierarchy of objectives is that low- level plans become the ______________for accomplishing higher-level plans. (a) means (b) ends (c) scenarios (d) benchmarks
10.
When managers use the benchmarking approach to planning they ___________. (a) use flexible budgets (b) identify best practices used by others (c) are seeking the most accurate forecasts that are available (d) focus more on the short term than the long term
11.
One of the problems in relying too much on staff planners is _____. (a) a communication gap between planners and implementers (b) lack of expertise in the planning process (c) short-term rather than long-term focus (d) neglect of budgets as links between resources and activities
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12.
The planning process isn’t complete until _______. (a) future conditions have been identified (b) stretch goals have been set (c) plans are implemented and results evaluated (d) budgets commit resources to plans
13.
When a team leader is trying to follow an approach known as management by objectives, who should set a team member’s performance objectives? (a) the team member (b) the team leader (c) the team leader and the team member (d) the team leader, the team member, and a lawyer
14.
A good performance objective is written in such a way that it _________. (a) has no precise timetable (b) is general and not too specific (c) is almost impossible to accomplish (d) can be easily measured
15.
Which type of plan is used to guide resource allocations for long-term advancement of the organization’s mission or purpose? (a) tactical (b) operational (c) strategic (d) functional
16.
List five steps in the planning process and give examples of each. The five steps in the formal planning process are: (1) define your objectives, (2) determine where you stand relative to objectives, (3) develop premises about future conditions, (4) identify and choose among action alternatives to accomplish objectives, (5) implement action plans and evaluate results.
17.
How might planning through benchmarking be used by the owner of a local bookstore? Benchmarking is the use of external standards to help evaluate one’s own situation and develop ideas and directions for improvement. The bookstore owner/manager might visit other bookstores in other towns that are known for their success. By observing and studying the operations of those stores and then comparing her store to them, the owner/manager can develop plans for future action.
18.
How does planning help to improve focus? Planning helps improve focus for organizations and for individuals. Essential to the planning process is identifying your objectives and specifying exactly where it is you hope to get in the future. Having a clear sense of direction helps keep us on track by avoiding getting sidetracked on things that might not contribute to accomplishing our objectives. It also helps us to find discipline in stopping periodically to assess how well we are doing. With a clear objective, present progress can be realistically evaluated and efforts refocused on accomplishing the objective.
19.
Why does participatory planning facilitate implementation? Very often plans fail because the people who make the plans aren’t the same ones who must implement them. When people who will be implementing are allowed to participate in the planning process, at least two positive results may happen that help improve implementation: (1) through involvement they better understand the final plans, and (2) through involvement they become more committed to making those plans work.
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Put yourself in the position of a management trainer. You have been asked to make a short presentation to the local Small Business Enterprise Association at its biweekly luncheon. The topic you are to speak on is “How Each of You Can Use Objectives to Achieve Better Planning and Control.” What will you tell them and why? I would begin the speech by describing MBO as an integrated planning and control approach. I would also clarify that the key elements in MBO are objectives and participation. Any objectives should be specific, timely, measurable, challenging, and attainable. In addition, these objectives should be set with the full involvement and participation of the employees; they should not be set by the manager and then told to the employees. That understood, I would describe how each business manager should jointly set objectives with each of his or her employees and jointly review progress toward their accomplishment. I would suggest that the employees should work on the required activities while staying in communication with their managers. The managers, in turn, should provide any needed support or assistance to their employees. This whole process could be formally recycled at least twice per year.
MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: TIME MANAGEMENT Students’ answers will vary according to their personal levels of skill in managing their time. SELF-ASSESSMENT: TIME MANAGEMENT PROFILE Instructions Complete the following questionnaire by indicating “Y” (yes) or “N” (no) for each item. Force yourself to respond with a yes or no. Be frank and allow your responses to create an accurate picture of how you tend to respond to these kinds of situations. _____1. When confronted with several items of similar urgency and importance, I tend to do the easiest one first. _____ 2. I do the most important things during that part of the day when I know I perform best. _____ 3. Most of the time I don’t do things someone else can do; I delegate this type of work to others. _____ 4. Even though meetings without a clear and useful purpose upset me, I put up with them. _____ 5. I skim documents before reading them, and don’t complete any that offer a low return on my time investment. _____ 6. I don’t worry much if I don’t accomplish at least one significant task each day. _____ 7. I save the most trivial tasks for that time of day when my creative energy is lowest. _____ 8. My workspace is neat and organized. _____ 9. My office door is always “open”; I never work in complete privacy. _____ 10. I schedule my time completely from start-to-finish every workday. _____ 11. I don’t like “to do” lists, preferring to respond to daily events as they occur. _____ 12. I “block” a certain amount of time each day or week that is dedicated to high-priority activities.
Scoring Count the number of “Y” responses to items 2, 3, 5, 7, 8, and 12. [Enter that score here _____]. Count the number of “N” responses to items 1, 4, 6, 9, 10, and 11. [Enter that score here _____].
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Add the two scores together. ______________ Interpretation The higher the total score, the closer your behavior matches recommended time management guidelines. Reread those items where your response did not match the desired one. Why don’t they match? Do you have reasons why your behavior in this instance should be different from the recommended time management guideline? Think about what you can do (and how easily it can be done) to adjust your behavior to be more consistent with these guidelines. For further reading Alan Lakein, How to Control Your Time and Your Life (New York: David McKay, no date), and William Oncken, Managing Management Time (Englewood Cliffs, N.J.: PrenticeHall, 1984).
TEAM EXERCISE: THE FUTURE WORKPLACE/PERSONAL CAREER PLANNING THE FUTURE WORKPLACE Instructions Form groups as assigned by the instructor. Brainstorm to develop a master list of the major characteristics you expect to find in the workplace in the year 2020. Use this list as background for completing the following tasks: 1. Write a one-paragraph description of what the typical “Workplace 2020” manager’s workday will be like. 2. Draw a “picture” representing what the “Workplace 2020” organization will look like. 3. Summarize in list form what you consider to be the major planning implications of your future workplace scenario for management students today. That is, explain what this means in terms of using academic and extracurricular activities to best prepare for success in this future scenario. 4. Choose a spokesperson to share your results with the class as a whole and explain their implications for the class members. Instructor’s Note This exercise can be extremely useful for stimulating students to seriously consider what their future jobs and workplaces may be like. While student “pictures” can and should vary depending upon their perspectives and their expectations for the future, their “pictures” of the manager may reflect some of the following desirable characteristics: 1. Global strategist ⎯ understands interconnections among nations, cultures, and economies; plans and acts with due consideration of them. 2. Master of technology ⎯ comfortable with information technology; understands technological trends and their implications, able to technology to best advantage. 3. Effective politician ⎯ understands growing complexity of government regulations and the legal environment; able to relate them to the interests of the organization. 4. Inspiring leader ⎯ attracts highly motivated and inspires them with a high-performance culture where individuals and teams can do their best work. Moreover, future managers will require the personal competencies for managerial success that are summarized below: 1. Communication –– demonstrates the ability to share ideas and findings clearly in written and oral expression.
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2. Teamwork –– demonstrates the ability to work effectively as a team member and team leader. 3. Self-management –– demonstrates the ability to evaluate oneself, modify behavior, and meet performance obligations. 4. Leadership –– demonstrates the ability to influence and support others to perform complex and sometimes ambiguous tasks. 5. Critical thinking –– demonstrates the ability to gather and analyze information for creative problem solving. 6. Professionalism –– demonstrates the ability to sustain a positive impression, instill confidence, and maintain career advancement. The “picture” of the organization, may reflect the following trends in workforce demographics: 1. The size of the workforce is growing more slowly. 2. The available pool of younger workers is shrinking. 3. The average age of workers is rising. 4. More women are entering the workforce. 5. The proportion of ethnic minorities in the workforce is increasing. 6. The proportion of immigrants in the workforce is increasing. Finally, the “picture” of the organization may reflect the following characteristics of vanguard organizations: 1. Vanguard organizations are people-oriented. 2. Vanguard organizations have visible leadership. 3. Vanguard organizations seek employment stability. 4. Vanguard organizations have a consumer orientation. 5. Vanguard organizations are future-oriented.
PERSONAL CAREER PLANNING Preparation Complete the following three activities, and bring the results to class. Your work should be in a written form suitable for your instructor’s review. Step 1: Strengths and Weaknesses Inventory Different occupations require special talents, abilities, and skills if people are to become really good in their work. Each of us, you included, has a repertoire of existing strengths and weaknesses that are “raw materials” we presently offer a potential employer. Of course, actions can (and should!) be taken over time to further develop current strengths, and turn weaknesses into strengths. Make a list that identifies your most important strengths and weaknesses at the moment in relation to the career direction you are most likely to pursue upon graduation. Place a * next to each item that you consider most important to address in your courses and student activities before graduation. Step 2: Five-Year Career Objectives Make a list of three to five career objectives that are appropriate given your list of personal strengths and weaknesses. Limit these objectives to ones that can be accomplished within five years of graduation. Step 3: Five-Year Career Action Plans Write a specific action plan for accomplishing each of the five objectives. State exactly what you will do, and by when, in order to meet each objective. If you will need special support or assistance, identify it and state how you will obtain it. Remember, an outside observer should be able to read your action plan for each objective and end up feeling confident that (a) he or she know exactly what you are going to do, and (b) why.
Instructions
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Form into groups as assigned by the instructor. Share your career planning analysis with the group; listen to those of others. Participate in a discussion that examines any common patterns and major differences among group members. Take advantage of any opportunities to gather feedback and advice from others. Have one group member prepared to summarize the group discussion for the class as a whole. Await further class discussion led by the instructor.
Instructor’s Note This exercise can be done with a minimum of at-home preparation time and in a normal class period. It forces students to be somewhat precise in looking five years ahead into their futures, and trying to anticipate not only their preferred work positions but also their strengths and weaknesses in being able to succeed in those positions. The exercise can be done as an individual written assignment to be turned in as a concluding requirement for the course. It is also very easy to turn the exercise into a short classroom activity. Students can convene in small groups to share career goals and discuss some of the problems and opportunities that are expected along the way. Brief classroom presentations by each group help bring a sense of closure to the course, and also help students explore some of the differences between their viewpoints, opinions and aspirations and those of their colleagues. Most students find career planning activities to be valuable and interesting. For most of them (even part-time MBAs), this will be the first real attempt to set a specific career objective and develop a plan for reaching the objective. The exercise will have quite a different flavor, depending upon whether it is done with younger undergraduates or older participants already embarked on a career. Younger students need more help with the self-exploration aspects of the exercise. Older students may find it a little more difficult to be open about their weaknesses, depending on what the norms about openness are at your school. If you are teaching an undergraduate course, you may do well to use this exercise toward the end of the course. You could assign it early in the year and point out that some students may want to use the library, visit the placement center, and perhaps interview people in the occupation they are considering. You can exercise some control over this by requiring that they write a “Career Plan” paper covering all aspects of their planning. Possible Discussion Questions and Answers 1. Why should a person plan their career now? Wouldn’t it be better to wait until one needs to make changes? Changes should be planned for, if you want to make them work to your advantage. Unplanned changes may be crisis events that make planning difficult. Stress, insecurity, or uncertainty may cause a person to respond to strong (but temporary) needs, and make it difficult to think patiently and systematically about the future. (Source: Bowen, D.D., and Hall, D.T. “Career Planning for Employee Development: A Primer for Managers,” California Management Review, Winter 1977, pp. 23-25.)
2.
3.
4.
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Is it better to plan your career by building on your strengths or by remedying your deficiencies? The primary focus should be on your strengths, since using your abilities is enjoyable and likely to motivate you further. Attention should be paid to deficiencies only in those instances where the deficiency stands in the way of progress toward your objective. How frequently should you revise your career plans? Clearly, any time your needs or circumstances change, you should revise your career plan. In addition, it is probably a good idea to systematically review your plan every two or three years, even if there have been no major changes to cause you to do it more often. Is there any evidence that preparing career plans helps people to achieve their objectives? The research of Locke and his colleagues (Locke, E.A., and Latham, G.P. Goal Setting: A Motivational Technique that Works! Englewood Cliffs, NJ: Prentice-Hall, 1984) demonstrates clearly that goal setting increases task performance. Managers who set career goals seem to weather crises better and achieve greater success (Bowen and Hall, 1977).
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Why might management want to provide a career planning service for employees? There are several reasons why a large number of more progressively managed organizations are providing career planning assistance to their employees. These include: (a) a recognition that an employee with a strong career commitment is likely to be more highly motivated to produce; (b) a growing awareness that certain types of employees (college recruits, mid-career employees, and so forth) have special needs for career planning; and (c) the desire to comply with court orders on affirmative action programs requiring career planning for minorities or women (Bowen and Hall, 1977).
(Source: Developed in part from Lewicki, R.J., Bowen, D.D., Hall, D.T., and Hall, F.S. Experiences in Management and Organizational Behavior, 3rd ed. New York: John Wiley & Sons, 1988, pp. 261-267. Used by permission.)
CAREER SITUATIONS FOR PLANNERS: WHAT WOULD YOU DO? Students’ answers will vary. CHAPTER 8 CASE: WALGREEN’S – STAYING ONE STEP AHEAD Discussion Questions 1. What planning objectives and goals can you identify in CEO Gregory Wasson’s plans to revitalize Walgreens? Wasson’s planning goals and objectives include: changing Walgreens’ image in terms of its core business by remodeling stores and adding services such as giving shots and selling health insurance; divesting unprofitable businesses such as selling off its PBM segment; growing through acquisitions such as buying Drugstore.com; increasing sales by utilizing technology to make the prescription renewal process more efficient; implementing environmentally friendly practices, and in general being a fierce competitor in the retail pharmacy market segment. 2. What benchmarks can Walgreens use to measure its success and control process in pursuit of these plans? Benchmarking involves external comparisons to better evaluate one’s current performance. Walgreens needs to do research and learn from the best practices of other retailers by benchmarking its progress against companies that have been successful in similar highly competitive markets by adding services to their product mix, implemented successful new technology into the customer re-ordering process, developed successful customer loyalty programs, formed successful strategic alliances, gone green, etc. Problem Solving You’ve got a great assignment to serve as special assistant to Walgreen’s CEO during a summer internship. But the first task you are assigned is a bit daunting. The CEO says “You’re my conscience. You are going to be present for every decision I make. I want you to be critical and to make sure my decisions and plans stay on track. Be ready to speak out and defend yourself.” What planning errors will you be watching for? What planning techniques will you be ready to recommend if the CEO seems to be straying off course?
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If the CEO is sincere, Walgreens could benefit from your impartial expertise. It is crucial for a CEO to set attainable goals that are specific, timely, measurable and challenging. It would be important to encourage the CEO to stay focused on his primary goals and not be sidetracked by the day to day problems of running such a large corporation. Forecasting that involves studying and taking advantage of future trends and contingency planning which develops alternative courses of action could be useful planning techniques to recommend. Further Research Imagine that you have been retained by Walgreens CEO, Gregory Watson, as a scenario planning consultant. Research what is happening to describe three possible long term scenarios in which Walgreens could face environmental, competitive, and strategic challenges. Explain from where Walgreens threats emerge, possible weaknesses these threats exploit, and strengths Walgreens can draw upon to counter these challenges. Answers will vary according to the scenarios that students select. However, some long term challenges that students could research might include increasing energy costs, new environmental regulations that increase expenses, competition from global drug store chains, less expensive drugs imported from other countries, decreasing health care prescription benefits, less government funding for Medicare and Medicaid programs, more online retailers selling discount over the counter health and beauty products and filling prescriptions, medical advances that negate the need for many popular prescriptions, etc.
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Chapter 9:
CONTROL PROCESSES AND SYSTEMS CHAPTER 9 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. Why and how do managers control? 2. What are the steps in the control process? 3. What are the common control tools and techniques? CHAPTER 9 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • •
Define controlling as a management function Explain benefits of after-action reviews Explain why planning is important to controlling Illustrate how a fast-food restaurant utilizes feedforward, concurrent, and feedback controls Discuss internal control and external control systems Give examples of bureaucratic, clan, and market controls List the steps in the control process Differentiate between output and input standards State the control equation Define management by exception Explain how Gantt charts and CPM/PERT analysis assist in project management Define economic order quantity and just-in-time scheduling inventory control methods Calculate a breakeven point List and explain common ratios used in financial control Identify the four main balanced scorecard components
CHAPTER 9 OVERVIEW The chapter begins with a discussion of controlling which is a process of measuring performance and taking action to ensure desired results. Management requires control in order to ensure goal accomplishment and to avoid chaos. The discussion of controlling begins with an examination of the importance of controlling and the elements of the control process. Specific types of controls are then described before moving on to examining internal and external control approaches. Next, steps in the control process are examined. These are establishing objectives and standards, measuring performance results, comparing results with objectives and standards, and taking corrective action. Finally, various organizational systems that facilitate control are discussed. These systems include project management, inventory control, financial controls and the balanced scorecard.
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CHAPTER 9 LECTURE OUTLINE Teaching Objective: The purpose of this chapter is to teach students the fundamentals of controlling. These fundamentals cover the control process and the systems through which managers achieve control. Suggested Time: Two or more hours of class time are recommended to present the material in this chapter. I.
Takeaway Question 1: Why and how do managers control? • Importance of controlling • Types of controls • Internal and external control
II.
Takeaway Question 2: What are the steps in the control process? • Establish objectives and standards • Measure actual performance • Compare results with objectives and standards • Take corrective action
III.
Takeaway Question 3: What are the common control tools and techniques? • Project management and control • Inventory control • Financial controls • Balanced scorecards
CHAPTER 9 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Control Leaves No Room For Complacency Learning About Yourself • Resiliency Quick Test Figures • Figure 9.1: The Role of Controlling in the Management Process • Figure 9.2: Feedforward, Concurrent, and Feedback Controls • Figure 9.3: Four Steps in the Control Process • Figure 9.4: Use of Breakeven Analysis to Make Informed “What IF” Decisions • Figure 9.5: Basic foundations of a balance sheet and income statement Thematic Boxes • Members of the Elsewhere Class Blend Worlds of Work and Leisure • Facts for Analysis: Many Firms Planning to Spend More to Defend Against Theft, Fraud, and Cyberspys • Many Wonder What Took Apple So Long to Act • Ethics on the Line: Who Wins )and Looses) when Global Internet Firms and Local Governments Battle for Control
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• •
Follow the Story: The Average American is Surprised to End Up Short $250,000 at Retirement Time Research Brief: Restating Corporate Financial Performance Foreshadows Significant Executive Turnover.
Applications • Self-Test • Further Reflection: Resiliency • Self-Assessment: Internal/External Control • Team Exercise: Defining Quality • Team Exercise: After Meeting Project Remorse • Career Situations for Management Control: What Would You Do? • Case 9: Electronic Arts: Inside Fantasy Sports CHAPTER 9 LECTURE NOTES LEARNING FROM OTHERS on page 216 of the text describes that continuous improvement is always important, especially in the quick-service industry as customer needs are constantly fluctuating and firms need to keep up with them. One way to do this is evident at Chick-fil-A where customer service flows from a positive culture rather than from fear. LEARNING ABOUT YOURSELF on page 217 of the text notes that in today’s world of work and personal living, we must be resilient to meet the demands of both. Those who are can face and identify their challenges by turning them into opportunities to improve the future. STUDY QUESTION 1: WHY AND HOW DO MANAGERS CONTROL?
DISCUSSION TOPIC A humorous way to introduce this chapter is to ask students if they have ever seen the old television series or the movie, Get Smart. You can then ask those who are familiar with this show the name of the organization that employed the series’ hero, Maxwell Smart. The answer, of course, is “Control.” Next, ask for the name of the villainous organization that Maxwell battled against. The answer to this question is “C.H.A.O.S.” From here, you can point out that while the series was a farcical comedy, managers share with Maxwell Smart the desire to maintain control and to avoid organizational chaos. IMPORTANCE OF CONTROLLING Controlling is a process of measuring performance and taking action to ensure desired results. While control has a negative connotation, it plays a positive and necessary role in the management process by ensuring that things are going according to plan. Controlling sees to it that the right things happen, in the right way, at the right time.
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FIGURE 9.1 on page 219 of the text illustrates the role of controlling in the management process. Effective control is important to organizational learning. A control technique that contributes to organizational learning is the after-action review that identifies lessons learned and results accomplished in a completed project, task force, or special operation. Improving performance through learning is one of the opportunities offered by the control process; however, benefits are realized only when learning is translated into corrective action. TYPES OF CONTROLS FIGURE 9.2 on page 219 of the text illustrates three major types of controls: feedforward, concurrent, and feedback. Each is relevant to a different phase of the organization’s input-throughput-output cycle. Feedforward Controls Feedforward controls or preliminary controls: • • • • •
Are employed before a work activity begins. Ensure that objectives are clear. Ensure proper directions are established. Ensure the right resources are available to accomplish the controls. Are used to solve problems before they begin, by asking the often-neglected question: “What needs to be done before we begin?”
Concurrent Controls Concurrent controls or steering controls: • • • •
Focus on what happens during the work process. Monitor operations and activities to make sure things are being done according to plan. Solve problems as they occur. Address the question: “What can we do to improve things right now?”
Feedback Controls Feedback controls or post-action controls: • • • •
Take place after work is completed. Focus on the quality of end results rather than on inputs or activities. Focus on the question: “Now that we are finished, how well did we do?” Provide useful information for improving future operations.
INTERNAL AND EXTERNAL CONTROL Self- Control Self-control or internal control allows motivated individuals and groups to exercise self-discipline in fulfilling job expectations.
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The potential for self-control is increased when: • •
Capable people have a clear sense of organizational mission, know their performance objectives, and have the necessary resources to do the job. The organization has a participative culture.
Self-control is based on how good you are at taking control of your time and maintaining a healthy work-life balance. DISCUSSION TOPIC Ask the students to provide examples of when they have exercised self-control. Seek to determine the extent to which the students’ self-management was preceded and facilitated by some form of objective setting Bureaucratic Control Bureaucratic control or external control uses authority, policies, procedures, job descriptions, budgets, and day-to-day supervision to make sure people’s behavior is consistent with organizational interests. The organization’s external environment also affects bureaucratic control through laws and regulations. Clan Control Clan control influences behavior through norms and expectations set by the organizational culture. People who share values and identify strongly with one another tend to behave in ways that are consistent with one another’s expectations. Market Control Market control is essentially the influence of market competition on the behavior of organizations and their members. Firms adjust products, pricing, promotions, and other practices based on feedback from customers and the actions of competitors. FACTS FOR ANALYSISs on p. 222 of the text provides examples of cyberspying in the corporate sector.
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STUDY QUESTION 2: WHAT ARE THE STEPS IN THE CONTROL PROCESS?
DISCUSSION TOPIC Before you formally present the steps in the control process, you may want to solicit student input by asking them to identify some examples of controls that are used in organizations. You can simply record these controls on the chalkboard or overhead projector as they are offered. Students typically provide many examples ranging from a minimum GPA requirement to liquor laws to shoplifting guards. You can then use one or more of the examples provided to illustrate the control process presented below. For instance, using the example of the minimum GPA requirement, you could point out that this requirement is a standard against which actual student performance is compared. When students’ GPAs fall below this standard, they are placed on academic probation and counseled to improve their performance. If they remain below the standard, they are suspended from the program. Through this process, the quality of students who graduate from a program is maintained. Students who do exceptionally well are also singled out for special attention in the form of awards and honors. An example such as this can make the control process more tangible to students. FIGURE 9.3 on page 224 of the text illustrates the four steps in the control process: 1. 2. 3. 4.
Establish performance objectives and standards. Measure actual performance. Compare actual performance with objectives and standards. Take necessary action.
STEP 1: ESTABLISH OBJECTIVES AND STANDARDS The control process begins with planning. Performance objectives and the standards for measuring them are set. Output Standards Output standards measure performance results in terms of quantity, quality, cost, or time. ETHICS ON THE LINE on p. 225 of the text asks students to consider whether companies have any choice but to comply with the requests of governments and at what point they should stand up and challenge “laws and regulations.” Input Standards Input standards measure effort in terms of the amount of work expended in task performance. STEP 2: MEASURE PERFORMANCE RESULTS During this step, attention is devoted to accurately measuring actual performance results (output standards) and/or performance efforts (input standards).
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Measurement must be sufficiently accurate to identify significant differences between actual results and the original plan. Without measurement, effective control is not possible. STEP 3: COMPARE RESULTS WITH OBJECTIVES AND STANDARDS The comparison made at this step is summarized by the following control equation: Need for Action = Desired Performance – Actual Performance Methods of comparing desired and actual performance: 1. An engineering comparison uses engineered standards set scientifically through such methods as time and motion studies. 2. A historical comparison uses past experience as a baseline for evaluating current performance. 3. A relative comparison uses the performance of other persons, work units, or organizations as the evaluation standard. FOLLOW THE STORY on page 227 of the text tells how Roger Ferguson, president and CEO of TIAA-CREF, believes in providing strategic leadership for retirement security considering research shows the average American is presently short $250,000 at retirement time. STEP 4: TAKE CORRECTIVE ACTION This step involves taking any action necessary to correct problems or make improvements. Management by exception is the practice of giving attention to situations showing the greatest need for action. This practice can save the manager time, energy, and other resources by focusing attention on high-priority areas. Managers need to be alert to two types of exceptions: 1. A problem situation where actual performance is less than desired. 2. An opportunity situation in which actual performance turns out higher than desired. STUDY QUESTION 3: WHAT ARE THE COMMON CONTROL TOOLS AND TECHNIQUES?
DISCUSSION TOPIC Ask the students to cite examples of reprimands they have encountered, and then analyze them in light of the preceding criteria.
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PROJECT MANAGEMENT AND CONTROL Projects are one-time activities that have clear beginning and end points. Project management involves making sure that the activities required to complete a project are completed on time, within budget, and in ways that otherwise meet objectives. Gantt Charts A Gantt chart graphically displays the scheduling of tasks required to complete a project. See p. 228 for an illustration of a simplified Gantt chart which provides a visual overview of what needs to be done on the project. CPM/PERT Techniques A CPM/PERT can handle greater complexity than a Gantt chart. A CPM/PERT is a combination of the critical path method and the program evaluation and review technique. See p. 228 of the text for a sample CPM/PERT Network Activity-on-Node Diagram. When the events associated with various activities are plotted, the result is a diagram showing the necessary interrelationships that are required for successful completion of the project. INVENTORY CONTROL One way to achieve cost controls is through inventory control, i.e., ensuring that the inventory is only big enough to meet customer needs. Two popular approaches to inventory control are the economic order quantity method which automatically places an order when inventory levels fall to a predetermined level and just-in-time scheduling (JIT) which routes materials to work stations just in time for use. BREAKEVEN ANALYSIS Breakeven analysis allows managers to perform what-if calculations under different revenue and cost conditions by determining the breakeven point where revenue just equals cost. The formula for the breakeven point is Breakeven Point = Fixed Costs ÷ (Price-Variable Costs) FINANCIAL CONTROLS Financial analysis information is important in exercising managerial control over resource utilization and organizational performance. FIGURE 9.5 on page 230 of the text shows the foundation financial controls of the: • •
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Balance sheet – shows assets and liabilities at a point in time. Income statement – shows profits or losses at a point in time.
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It is important for managers to understand the financial performance measures of • • • •
Liquidity –– the ability to generate cash to pay bills. Leverage –– the ability to earn more in returns than the cost of debt. Asset management –– the ability to use resources efficiently and operate at minimum cost. Profitability –– the ability to earn revenues greater than costs.
The financial ratios that are commonly used for assessing liquidity, leverage, asset management, and profitability are: Liquidity: measures the ability to meet short-term obligations. (Higher is better: you want more assets and fewer liabilities.) • Current Ratio = Current Assets / Current Liabilities • Quick Ratio = Current Assets – Inventory / Current Liabilities Higher is better: You want more assets and fewer liabilities Leverage: measures use of debt. (Lower is better: you want fewer debts and more assets.) •
Debt Ratio = Total Debts / Total Assets
Lower is better: You want fewer debts and more assets Asset management: measures asset and inventory efficiency. (Higher is better: you want more sales and fewer assets or lower inventory.) • Asset Turnover = Sales / Total Assets • Inventory Turnover = Sales / Average Inventory Higher is better: You want more sales relative to assets and inventory Profitability: measures ability to earn revenues greater than costs. (Higher is better: you want more profit for sales, assets, and equity.) • Net Margin = Net Profit After Taxes / Sales • Return on Assets (ROA) = Net Profit After Taxes / Total Assets • Return on Equity (ROE) = Net Income / Owners Equity Higher is better: You want high net income relative to sales, assets and equity. BALANCED SCORECARDS A balanced scorecard tallies organizational performance in financial, customer service, internal process, and innovation and learning areas. When using a balanced scorecard, “what gets measured happens.” Development of a balanced scorecard begins with the mission and vision of an organization followed by these questions: • •
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Financial performance – To improve financially, how should we appear to our shareholders? Customer satisfaction – To achieve our vision, how should we appear to our customers?
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Internal process improvement – To satisfy our customers and shareholders, at what internal business processes should we excel? Innovation and learning – To achieve our vision, how will we sustain our ability to change and improve?
When balanced scorecard measures are taken and routinely recorded for critical management review, organizations are expected to perform in the four above listed areas. RESEARCH BRIEF on page 232 of the text describes research that finds restating corporate financial performance foreshadows significant turnover among corporate executives and directors. CHAPTER 9 TAKEAWAY QUESTIONS SUMMARY Takeaway Question 1: Why and how do managers control? • Controlling is the process of measuring performance and taking corrective action as needed. • Feedforward controls are accomplished before a work activity begins; they ensure that directions are clear, and that the right resources are available to accomplish them. • Concurrent controls make sure that things are being done correctly; they allow corrective actions to be taken while the work is being done. • Feedback controls take place after an action is completed; they address the question “Now that we are finished, how well did we do, and what did we learn for the future?” • Internal control is self-control and occurs as people take personal responsibility for their work. • External control is based on the use of bureaucratic, clan and market control systems. FOR DISCUSSION: Can strong input and output controls make up for poor concurrent controls? Takeaway Question 2: What are the steps in the control process? • The first step in the control process is to establish performance objectives and standards that create targets against which later performance can be evaluated. • The second step in the control process is to measure actual performance and specifically identify what results are being achieved. • The third step in the control process is to compare performance results with objectives to determine if things are going according to plans. • The fourth step in the control process is to take action to resolve problems or explore opportunities that are identified when results are compared with objectives. FOR DISCUSSION: What are the potential downsides to management by exception? Takeaway Question 3: What are common control tools and techniques? • A project is a unique event that must be completed by a specified date; project management is the process of ensuring that projects are completed on time, on budget, and according to objectives. • Gantt charts assist in project management and control by displaying how various tasks must be scheduled in order to complete a project on time. • CPM/PERT analysis assists in project management and control by describing the complex networks of activities that must be completed in sequences for a project to be completed successfully. • Economic order quantities and just-in-time deliveries are common approaches to inventory cost control.
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• • • •
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The breakeven equation is: Breakeven Point = Fixed Costs ÷ (Price - Variable Costs). Breakeven analysis identifies the points where revenues will equal costs under different pricing and cost conditions. Financial control of business performance is facilitated by a variety of financial ratios, such as those dealing with liquidity, leverage, assets, and profitability. The balanced scorecard measures overall organizational performance in four areas: financial, customers, internal processes, and innovation.
FOR DISCUSSION: Should all employees of a business be regularly informed of the firm’s overall financial performance? CHAPTER 9 KEY TERMS After action review (p. 219): a systematic assessment of lessons learned and results accomplished in a completed project. Balance sheet (p. 230): shows assets and liabilities at one point in time. Balanced scorecard (p. 231): tallies organizational performance in financial, customer service, internal process, and innovation and learning areas. Breakeven analysis (p. 229): performs what-if calculations under different revenue and cost conditions. Breakeven point (p. 229): occurs where revenues just equal costs. Bureaucratic control (p. 222): influences behavior through authority, policies, procedures, job descriptions, budgets, and day-to-day supervision. Clan control (p. 223): influences behavior through norms and expectations set by the organizational culture. CPM/PERT (p.228): a combination of the critical path method and the program evaluation and review technique. Concurrent control (p. 220): a control that focuses on what happens during the work process. Control equation (p. 226): states: Need for action = Desired performance – Actual performance. Controlling (p. 219): the process of measuring performance and taking action to ensure desired results. Economic order quantity (p. 229): a method of placing new orders when inventory levels fall to predetermined points. Feedback control (p. 220): a control that takes place after work is completed. Feedforward control (p. 220): a control that takes place before a work activity begins to ensure that objectives are clear, that proper directions are established, and that the right resources are available to accomplish the objectives. Gantt chart (p. 228): graphical display of the scheduling of tasks required to complete a project. Income statement (p. 230): shows profits or losses at one point in time. Input standard (p. 226): measures work efforts that go into a performance task. Inventory control (p. 229): ensures that inventory is only big enough to meet immediate needs. Just-in-time scheduling (JIT) (p. 229): routes material to work stations just in time for use. Management by exception (p. 226): the practice of giving attention to situations showing the greatest need for action. Market control (p. 223): is essentially the influence of market competition on the behavior of organizations and their members. Output standard (p. 224): measures performance results in terms of quantity, quality, cost, or time. Projects (p. 228): one-time activities with many component tasks that must be completed in proper order and according to budget. Project management (p. 228): makes sure that the activities required to complete a project are planned well and accomplished on time. Self-control or internal control (p. 221): occurs through self-discipline in fulfilling work and personal responsibilities.
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SELF TEST ANSWERS 1.
After objectives and standards are set, what step comes next in the control process? _________ (a) measure results (b) take corrective action (c) compare results with objectives (d) modify standards to fit circumstances
2.
When a soccer coach tells her players at the end of a losing game: “I am pleased you stayed with the game plan,” she is using a/an _________ as a measure of performance. (a) input standard (b) output standard (c) historical comparison (d) relative comparison
3.
When an automobile manufacturer is careful to purchase only the highest-quality components for use in production, this is an example of an attempt to ensure high performance through _________ control. (a) concurrent (b) statistical (c) inventory (d) feedforward
4.
Management by exception means _________. (a) managing only when necessary (b) focusing attention where the need for action is greatest (c) the same thing as concurrent control (d) the same thing as just-in-time delivery
5.
When a supervisor working alongside an employee corrects him or her when a mistake is made, this is an example of _________ control. (a) feedforward (b) concurrent (c) internal (d) clan
6.
If an organization’s top management visits a firm in another industry to learn more about its excellent record in hiring and promoting minority and female candidates, this is an example of using _________ for control purposes. (a) a balanced scorecard (b) relative comparison (c) management by exception (d) progressive discipline
7.
The control equation states: _________ = Desired Performance – Actual Performance. (a) Problem Magnitude (b) Management Opportunity (c) Planning Objective (d) Need for Action
8.
When a UPS manager compares the amount of time a driver takes to make certain deliveries against a standard set through quantitative analysis of her delivery route, this is known as _________. (a) a historical comparison (b) an engineering comparison (c) relative benchmarking (d) concurrent control
9.
Projects are unique one-time events that _________. (a) have unclear objectives (b) must be completed by a specific time (c) have unlimited budgets (d) are largely self-managing
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10. The _________ chart graphically displays the scheduling of tasks required to complete a project. (a) exception (b) Taylor (c) Gantt (d) after-action 11. When one team member advises another team member that “your behavior is crossing the line in terms of our expectations for workplace civility”, she is exercising a form of _____________ control over other’s inappropriate behavior. . (a) clan (b) market (c) internal (d) preliminary 12. In a CPM/PERT analysis the focus is on _________ and the event _________ that link them together with the finished project. (a) costs, budgets (b) activities, sequences (c) timetables, budgets (d) goals, costs 13. If fixed costs are $10,000, variable costs are $4 per unit, and the target selling price per unit is $8, what is the breakeven point? (a) 2 (b) 500 (c) 2500 (d) 4800 14. Among the financial ratios used for control. Current Assets/Current Liabilities is known as the _________. (a) debt ratio (b) net margin (c) current ratio (d) inventory turnover ratio 15. In respect to return on assets (ROA) and the debt ratio, the preferred directions when analyzing them from a control standpoint are _________. (a) decrease ROA, increase debt (b) increase ROA, increase debt (c) increase ROA, decrease debt (d) decrease ROA, decrease debt 16. List the four steps in the controlling process and give examples of each. The four steps in the formal planning process are: (1) establish objectives and standards, (2) measure actual performance, (3) compare actual performance with objectives and standards, and (4) take necessary action. 17. How might feedforward control be used by the owner/manager of a local bookstore? Feedforward control involves the careful selection of system inputs to ensure that outcomes are of the desired quality and up to all performance standards. In the case of a local bookstore, one of the major points of influence over performance and customer satisfaction is the relationship between the customers and the store’s employees who serve them. Thus, a good example of feedforward control is exercising great care when the manager hires new employees and then trains them to work according to the store’s expectations. 18. How does Douglas McGregor’s Theory Y relate to the concept of internal control? Douglas McGregor’s concept of Theory Y involves the assumption that people can be trusted to exercise self-control in their work. This is the essence of internal control—people controlling their own work by taking personal responsibility for results. If managers approach work with McGregor’s Theory Y assumptions, they will, according to him, promote more self control— or internal control—by people at work.
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19. What four questions could be used to organize the presentation of an up-to-the-moment balanced scorecard in the executive dashboard for a small business? The four questions to ask when developing a balanced scorecard for inclusion on an executive dashboard are: (1) Financial Performance—To improve financially, how should we appear to our shareholders? (2) Customer Satisfaction—To achieve our vision, how should we appear to our customers? (3) Internal Process Improvement—To satisfy our customers and shareholders, at what internal business processes should we excel? (4) Innovation and Learning—To achieve our vision, how will we sustain our ability to change and improve? 20. Assume that you are given the job of project manager for building a new student center on your campus. List just five of the major activities that need to be accomplished to complete the new building in two years. Draw an AON network diagram that links the activities together in required event scheduling and sequencing. Make an estimate for the time required for each sequence to be completed and identify the critical path. There are a very large number of activities required to complete a new student center building on a college campus. Among them, one might expect the following to be core requirements: (1) land surveys and planning permissions from local government, (2) architect plans developed and approved, (3) major subcontractors hired, (4) site excavation completed, (5) building exterior completed, (6) building interior completed and furnishings installed. Use the CPM/PERT diagram on p. 228 of the chapter as a guide for developing your AON diagram.
MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: RESILIENCY Students’ answers will vary according to their degree of resiliency. SELF-ASSESSMENT: INTERNAL/EXTERNAL CONTROL Instructions Circle either “a” or “b” to indicate the item you most agree within each pair of the following statements. 1. (a) Promotions are earned through hard work and persistence. (b) Making a lot of money is largely a matter of breaks. 2. (b) Many times the reactions of teachers seem haphazard to me. (a) In my experience I have noticed that there is usually a direct connection between how hard I study and the grades I get. 3. (a) The number of divorces indicates that more and more people are not trying to make their marriages work. (b) Marriage is largely a gamble. 4. (a) It is silly to think that one can really change another person’s basic attitudes. (b) When I am right I can convince others. 5. (a) Getting promoted is really a matter of being a little luckier than the next guy. (b) In our society an individual’s future earning power is dependent upon his or her ability. 6. (a) If one knows how to deal with people, they are really quite easily led.
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(b) I have little influence over the way other people behave. 7. (a) In my case the grades I make are the results of my own efforts; luck has little or nothing to do with it. (b) Sometimes I feel that I have little to do with the grades I get. 8. (a) People like me can change the course of world affairs if we make ourselves heard. (b) It is only wishful thinking to believe that one can really influence what happens in society at large. 9. (a) Much of what happens to me is probably a matter of chance. (b) I am the master of my fate. 10. (a) Getting along with people is a skill that must be practiced. (b) It is almost impossible to figure out how to please some people.
Scoring Give 1 point for 1b, 2a, 3a, 4b, 5b, 6a, 7a, 8a, 9b, and 10a. 8–10 = high internal locus of control, 6–7 = moderate internal locus of control, 5 = mixed locus of control, 3–4 = moderate external locus of control, 0-2 = high external locus of control.
Interpretation This instrument offers an impression of your tendency toward an internal locus of control or external locus of control. Persons with a high internal locus of control tend to believe they have control over their own destinies. They may be most responsive to opportunities for greater self-control in the workplace. Persons with a high external locus of control tend to believe that what happens to them is largely in the hands of external people or forces. They may be less comfortable with self-control and more responsive to external controls in the workplace.
Instructor’s Note By providing students with insight into their locus of control, this assessment can serve as a valuable tool for increasing their self-awareness. You can supplement your discussion of locus of control with the following summary of key research findings regarding the differences between internals and externals. Some Ways in Which Internals Differ from Externals Information processing: Internals make more attempts to acquire information, are less satisfied with the amount of information they possess, and are better at utilizing information. Job satisfaction: Internals are generally more satisfied, less alienated, less rootless, and there is a stronger job satisfaction/performance relationship for them. Performance: Internals perform better on learning and problem-solving tasks, when performance leads to valued rewards. Self-control, risk, and anxiety: Internals exhibit greater self-control, are more cautious, engage in less risky behavior, and are less anxious. Motivation, expectancies, and results: Internals display greater work motivation, see a stronger relationship between what they do and what happens to them, expect that working hard leads to good performance, and feel more control over their time. Response to others: Internals are more independent, more reliant on their own judgment, and less susceptible to the influence of others; they are more likely to accept information on its merit. (Source: Instrument from Rotter, J.P. “External Control and Internal Control,” Psychology Today, June 1971, p. 42. Used by permission.)
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TEAM EXERCISE: AFTER MEETING/PROJECT REMORSE This exercise provides an opportunity for students to conduct an after action review by applying feedback control principles to their experiences with group meetings and projects. This exercise illustrates the importance of including control measuring into the project management process. The discussion allows students to a plan for corrective action. The often neglected learning point here is that without reflecting on one’s performance and implementing changes in the future, there is less apt to be any improvement in the outcome of their next group meeting or project.
CAREER SITUATIONS FOR MANAGEMENT CONTROL: WHAT WOULD YOU DO? Students’ answers may vary according to their degree of internal or external locus of control scores.
CHAPTER 9 CASE: ELECTRONIC ARTS Discussion Questions 1.
How can feedforward, concurrent, and feedback controls help Electronic Arts meet its quality goals for video games? Feedforward, Concurrent and Feedback controls are three types of managerial controls that illustrate how organizations react with their environments as they control internal processes. For EA, these types of control would help achieve quality goals for video games by: • Feedforward or preliminary controls ensure that EA is producing the correct products to achieve their mission and excite their target market. To do this they must keep track of their own product sales, track the sales of competing products and keep on top of the popularity of the celebrity players depicted in the sports games they develop. Students may have many other suggestions such as new gaming technology or economic trends. It is also important to use the right resource inputs. This might include talented programmers, licensing of the NFL, rights to use player likeness. • Concurrent Controls ensure that the right things are being done in the work-flow process to make sure that a quality product is being produced. For EA, this would include accurate development and programming of the game to prevent glitches. • Feedback Controls ensure that the final results are up to desired standards. Product testing and customer feedback would be two ways to effectively test games. Students with a strong background in testing prototype games are very likely to have much greater insight into this process than all but the most game-savvy instructor or professor!
2. Can you see the principle of management by exception at play in any of EA’s recent business decisions? Why or why not? Management by exception means that managers turn their attention to situations that need their immediate attention. Recent sales have been below expectations, in the case, the
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company has fallen from first to third place in the gaming industry and competitors such as Wii and Apple are changing the nature and delivery of the product. Clearly, Electronic Arts is aware of these factors and as a result is turning its attention to trying to regain market share. Problem Solving Control is an essential and important management function. It’s also something that even the best managers and organizations can always improve upon. Break the video game production process down into its various components, a start-to-finish workflow model so to speak. Now identify for each phase in the process the control standards that could be set so that managers make the process work best overall. First, work inputs should involve market research on the latest trends in gaming technology and turnings attention to product development and/or strategic alliances. Here feed forward controls ensure that the organization is headed in the right direction and has people, resources and technology needed to compete. Next, they need to implement concurrent controls by ensuring that gamest are manufactured according to high quality standards and pre-tested to correct any glitches before the products are released. Lastly, Electronic Arts needs to put in place a feedback control system that gathers data from retailers, consumers, social media sites, etc. to determine what needs to be changed going forward. The control process involves: 1.) establishing objectives and standards; 2.) measuring actual performance; 3.) comparing actual performance with objectives and standards; 4.) taking necessary action as needed. The gaming business operates in a rapidly changing environment. Today’s best seller is on the mark-down rack tomorrow. However, difficult it is to plan methodically in this industry, it needs to be done. Electronic Arts appears to be more reactive to its external environment (new technologies, consumer demands, and increasing competition) than proactive. Further Research What is the latest in Electronic Arts’ quest to regain its former glory as the top gaming publisher? How well is EA positioned for future competitive advantage? Overall, is EA’s executive team still on “top of its game”? How well is EA positioned for future competitive advantage? Overall, is EA’s executive team still on “top of its game?” Students’ responses may be somewhat influenced by their personal experiences with Electronic Arts products. However, since this case was written, the company has slipped from 3rd to 4th place (behind Sega, Konami and Nintendo) in the video game industry. Students may also find blogs online that detail quality problems and complaints with Electronic Arts products. Currently, their best-selling games are Wing Commander (a spaceship cockpit flight simulator), Sim City and its variations, and Need for Speed (a racing game). It does not appear that Electronic Arts is moving forward fast enough into newer types of game delivery and taking advantage of emerging markets and changes in technology.
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Chapter 10:
STRATEGY AND STRATEGIC MANAGEMENT CHAPTER 10 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. What is strategic management? 2. What are the essentials of strategic analysis? 3. What are corporate-level strategies and how are they formulated? 4. What are business-level strategies and how are they formulated? 5. What are the foundations for strategy implementation? CHAPTER 10 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • • • • • • • •
Define competitive advantage, strategy, and strategic intent Explain the concept of sustainable competitive advantage Differentiate corporate, business and functional strategies Differentiate strategy formulation from strategy implementation List the major phases in the strategic management process Explain what a mission statement is and illustrate how a good mission statement helps organizations List several operating objectives of organizations Define core competency Explain SWOT analysis Explain how Porter’s five forces model can be used to assess the attractiveness of an industry Describe the BCG matrix as a type of strategic portfolio planning tool List and explain the major types of growth and diversification strategies List and explain the major types of retrenchment and restructuring and diversification strategies List and give examples of global strategies Define strategic alliance and explain cooperation as a business strategy List and explain the four competitive strategies in Porter’s model Clarify the roles of both price and cost in a cost leadership strategy Explain the differences between focused differentiation and focused cost leadership strategies Illustrate how Porter’s competitive strategies apply to products in a market familiar to you Explain how the management process supports strategy implementation Define corporate governance Explain why boards of directors sometimes fail in their governance responsibilities Define strategic control and strategic leadership List the responsibilities of a strategic leader in today’s organizations
CHAPTER 10 OVERVIEW Strategies set critical directions for organizations and guide the allocation of their resources. This chapter focuses on strategic management and the role that strategy plays in achieving competitive advantage and organizational performance. The chapter begins by defining the key .
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terms and concepts in strategic management and describing the strategic management process. Emphasis is placed on strategy formulation and strategy implementation. The importance of strategic management for gaining a competitive advantage is also discussed. This is followed by a discussion of the different levels of strategies used by an organization. Considerable attention is then devoted to both corporate-level and business-level strategy formulation. The chapter’s focus then shifts to the process of strategy implementation, with emphasis being placed on common strategic planning failures that hinder strategy implementation and the importance and roles of corporate governance and strategic leadership. CHAPTER 10 LECTURE OUTLINE Teaching Objective: The goal of this chapter is to provide students with a solid understanding of strategic management. The process of strategy formulation and implementation is emphasized. Suggested Time: Because this chapter contains many concepts, at least two hours of class time are required to present this material. Additional time may be needed if the video and/or case enhancements are employed. I.
Takeaway Question 1: What is strategic management? Competitive advantage Strategy and strategic intent Levels of strategy Strategic management process
II.
Takeaway Question 2: What are the essentials of strategic analysis? Analysis of mission, values, and objectives SWOT analysis of organization and environment Five forces analysis of industry attractiveness
III.
Takeaway Question 3: What are corporate-level strategies and how are they formulated? Portfolio planning model Growth and diversification strategies Retrenchment and restructuring strategies Global strategies Cooperative strategies
IV.
Takeaway Question 4: What are business-level strategies and how are they formulated? Competitive strategies model Differentiation strategy Cost leadership strategy Focus strategy
V.
Takeaway Question 5: What are the foundations for strategy implementation? Management practices and systems Strategic corporate and corporate Strategic leadership
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CHAPTER 10 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Passion and Values Make for Strategic Success Learning About Yourself • Critical Thinking Figures • Figure10.1: Three Levels of Strategy in Organizations – Corporate, Business, and Functional Strategies • Figure10.2: Major Elements in the Strategic Management Process • Figure10.3: External Stakeholders as Strategic Constituencies in an Organization’s Mission Statement • Figure10.4: SWOT Analysis of Strengths, Weaknesses, Opportunities, and Threats • Figure10.5: Porter’s Model of Five Strategic Forces Affecting Industry Competition • Figure10.6: The BCG Matrix Approach for Portfolio Planning in Corporate-Level Strategy Formulation • Figure10.7: Porter’s Competitive Strategies Framework With Soft Drink Industry Examples Thematic Boxes • LivingSocial Chases First-Mover Groupon in an Industry of Copycats • Follow the Story: Ursula Burns Sets Strategic Directions for Xerox • Growth is a Glamour Strategy for Louis Vuitton • Ethics on the Line: Life and Death at an Outsourcing Factory • Facts for Analysis: Wage and Benefits as a Competitive Issue in the Auto Industry • Recommended Reading: Behind the Cloud: The Untold Story of How a Salesforce.com Went from Idea to a Billion-Dollar Company and Revolutionized an Industry • Research Brief: Female Directors on Corporate Boards Linked with Positive Management Practices. Applications Self-Test Further Reflection: Critical Thinking Self-Assessment: Intuitive Ability Team Exercise: Strategic Scenarios Career Situations for Strategic Management: What Would You Do? Case10: Dunkin’ Donuts: Betting Dollars on Donuts CHAPTER 10 LECTURE NOTES LEARNING FROM OTHERS on page 238 of the text describes how Patagonia has stayed true to its values and mission of sustainability and a commitment to the natural environment while maintained earnings consistently above the industry average. LEARING ABOUT YOURSELF on page 239 of the text examines the importance of developing critical thinking skills for problem solving, especially in view of strategic management.
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TAKEAWAY QUESTION 1: WHAT IS STRATEGIC MANAGEMENT? Today’s management environment places a premium on competitive advantage and how it is achieved, or not, through strategy and strategic management. COMPETITIVE ADVANTAGE Competitive advantage is the ability to do something so well that the organization outperforms its rivals. Typical sources of competitive advantage include: • • • • •
Technology – using technology to gain operating efficiencies, market exposure and customer loyalty Cost and quality – operating with greater efficiency and product or service quality. Knowledge and speed – doing better at innovation and speed of delivery to market for new ideas. Barriers to entry – creating a market stronghold that is protected from entry by others. Financial resources – having better investments or loss absorption potential than competitors.
Developing a sustainable competitive advantage is desired as this shows durability and is difficult for others to copy or imitate. STRATEGY AND STRATEGIC INTENT A strategy is a comprehensive action plan that identifies long-term direction for an organization and guides resource utilization to accomplish goals with sustainable competitive advantage. A strategy provides the plan for using resources with consistent strategic intent ⎯ that is, with all organizational energies directed toward a unifying and compelling target or goal. Customers and flexibility increasingly drive strategy in contemporary businesses. LivingSocial Chases First-Mover Groupon in an Industry of Copycats on p. 242 illustrates the necessity of having a sustainable competitive advantage. LEVELS OF STRATEGY FIGURE10.1 on page 242 of the text identifies three levels of strategy that are covered in the strategic management process. These levels are corporate strategy, business strategy, and functional strategy. Corporate-Level Strategy Corporate strategy directs the organization as a whole toward sustainable competitive advantage.
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Corporate strategy answers the strategic question: “In what industries and markets should we compete? Typical strategic decisions at the corporate level relate to the allocation of resources for acquisitions, new business development, divestitures, and the like. Business-Level Strategy Business strategy sets the strategic direction for a single business unit or product line. The selection of a business strategy answers the strategic question: “How are we going to compete for customers in this industry and market?” Typical business strategy decisions involve choices about product/service mix, facilities locations, new technologies, and the like. In large conglomerates like Xerox, which are composed of many different businesses, the term strategic business unit (SBU) is used to describe a single business firm or a component that operates with a separate mission within a larger business enterprise. In single-business enterprises, business strategy is the corporate strategy. Functional Strategy Functional strategy guides the use of resources to implement business strategy; this level of strategy focuses on activities within a specific functional area of operations. The strategic question to be answered in selecting functional strategies is: “How can we best utilize resources within a function to implement our business strategy?” Decisions about functional strategy usually involve attempts to improve operating efficiency, product or service quality, customer service, or innovativeness. THE STRATEGIC MANAGEMENT PROCESS Every strategy maker must remember that at the same time he/she is trying to create a competitive advantage for an organization, competitors are attempting to do the same. Successful strategic management occurs when good strategies are crafted from insightful understandings of the competitive environment of the organization, and these strategies are well implemented. Strategic management is the process of formulating and implementing strategies to accomplish long-term goals and sustain competitive advantage. FIGURE10.2 on page 244 of the text describes the steps involved in fulfilling the three major responsibilities of the strategic management process, which are: •
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Strategic analysis, first step of the strategic management process, is the process of analyzing the organization, the environment, and the organization’s competitive position and current strategies.
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Strategy formulation is the process of creating strategy. It involves assessing existing strategies, organization, and environment to develop new strategies capable of delivering future competitive advantage.
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Strategy implementation is the process of allocating resources and putting strategies into action.
What Peter Drucker says about strategy implementation is: 1. 2. 3. 4.
It requires decision – now. It imposes risk – now. It requires action – now. It demands allocation of resources, and above all it requires work – now.
TAKEAWAY QUESTION 2: WHAT ARE THE ESSENTIALS OF STRATEGIC ANALYSIS? ANALYSIS OF MISSION, VALUES, AND OBJECTIVES The strategic management process begins with a careful assessment and clarification of organizational mission, values, and objectives. Mission and Stakeholders The mission (or purpose) of any organization may be described as its reason for existence. An important test of a mission is how well it serves the organization’s stakeholders — the individuals and groups who are directly affected by the organization and its strategic accomplishments. FIGURE10.3 on p. 245 of the text provides an example of how external stakeholders’ interests can be linked with the mission of a business firm. Core Values Core values are broad beliefs about what is or is not appropriate behavior. Organizational culture reflects the predominant value system of the organization as a whole. Organizational culture: • • • •
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Helps build organizational identity. Gives character to the organization in the eyes of employees and external stakeholders. Backs up the mission statement. Guides the behavior of organizational members in meaningful and consistent ways.
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DISCUSSION TOPIC Discuss with students the following quotation: “These builders [of the great early American corporations like IBM, Procter & Gamble, and Johnson & Johnson] saw their role as creating an environment –– in effect a culture –– in their companies in which employees could be secure and thereby do the work necessary to make the business a success.” What does this quotation reveal about the core values of these companies? (Source: Deal, T.E. and Kennedy, A.A. Corporate Cultures, Addison-Wesley, 1982.)
Objectives Whereas a mission statement sets forth an organization’s purpose and core values for accomplishing in, operating objectives direct activities toward key performance areas. The common operating objectives for a business might include the following: • Profitability –– operating with a net profit. • Sustainability – helping to preserve, not exploit, the environment. • Social responsibility –– acting as a good community citizen. • Financial health –– acquiring capital and earning positive returns. • Cost efficiency –– using resources well to operate at low cost. • Customer service — meeting customer needs and maintaining loyalty • Product quality –– producing high-quality goods or services. • Market share –– gaining a specific share of possible customers. • Human talent –– recruiting and maintaining a high-quality workforce. • Innovation –– developing new products and processes. SWOT ANALYSIS OF ORGANIZATION AND ENVIRONMENT Two critical steps in the strategic process are analysis of the organization and analysis of the environment. These two steps may be approached with a technique known as SWOT analysis; that is, an internal analysis of Strengths and Weaknesses as well as an external analysis of Opportunities, and Threats.
DISCUSSION TOPIC To prompt a lively discussion, engage the students in a SWOT analysis of your college or university. They will typically have a lot of opinions ⎯ some quite insightful ⎯ about the strengths and weakness of the institution. They are likely to be less well informed about the opportunities and threats that exist in your institution’s external environment. This activity provides students with a real-life application of SWOT analysis that will help them to better understand how to use this analytical tool. FIGURE10.4 on page 247 of the text identifies the types of questions that are typically asked in a SWOT analysis. For an internal assessment of the organization, these questions are:
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What are our strengths? Manufacturing efficiency? Skilled workforce? Good market share? Strong financing? Superior reputation? What are our weaknesses? Outdated facilities? Inadequate R&D? Obsolete technologies? Weak management? Past planning failures?
Organizational Strengths and Weaknesses A major goal of the SWOT analysis is to identify core competencies in the form of special strengths that the organization has or things it does exceptionally well in comparison with competitors. Potential sources of core competencies: • • • •
Special knowledge or expertise Superior technologies Efficient supply chains. Unique distribution systems
Organizational weaknesses inhibit performance and hold the organization back from fully accomplishing objectives. Potential sources of organizational weaknesses: • • • •
Outdated products Lack of financial capital Shortage of talented workers Poor or poorly used technology
After weaknesses are identified, organizations can work to turn them into strengths. Environmental Opportunities and Threats Environmental factors leading to opportunities include new markets, a strong economy, weaknesses in competitors and emerging technologies. Environmental threats may be such things as the emergence of new competitors, resource scarcities, changing customer tastes, new government regulations, and a weak economy. Refer back to FIGURE10.4, on p.247 of the text when analyzing the industry and environment in a SWOT analysis. These questions are: • •
What are our opportunities? Possible new markets? Strong economy? Weak market rivals? Emerging technologies? Growth of existing market? What are our threats? New competitors? Shortage of resources? Changing market tastes? New regulations? Substitute products?
FIVE FORCES ANALYSIS OF INDUSTRY ATTRACTIVENESS Harvard scholar and consultant, Michael Porter, points to the nature of rivalry and competition, when evaluating an industry from a strategic point of view. Competition is classified as:
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Monopoly – this is the ideal condition as the business has no competitors. Oligopoly – a reality condition where a business faces a few competitors. Hypercompetition – another reality condition where a business faces several direct competitors.
FIGURE10.5 on page 248 of the text describes Porter’s five strategic forces that should be considered in conducting an industry analysis. These forces include: • • • • •
Industry competition –– the intensity of rivalry among firms in the industry and the ways they behave competitively toward one another. New entrants –– the threat of new competitors entering the market, based on the presence or absence of barriers to entry. Substitute products or services –– the threat of substitute products or services, or ability of customers to get what they want from other sellers. Bargaining power of suppliers –– the ability of resource suppliers to influence the price that one has to pay for their products or services. Bargaining power of customers –– the ability of customers to influence the price that they will pay for the firm’s products or services.
Using the forces described in FIGURE10.5, one can assess the strategic implications of an industry and an organization’s position within it. An unattractive industry is one in which intense rivalry already exists among competitors, there are substantial threats in terms of new competitors and substitute products, and suppliers and buyers are very powerful in bargaining over prices and quality. An attractive industry is one with less intense competition, few threats from new entrants or substitutes, and low bargaining power among suppliers and buyers. TAKEAWAY QUESTION 3: WHAT ARE CORPORATE-LEVEL STRATEGIES AND HOW ARE THEY FOMRULATED? PORTFOLIO PLANNING MODEL In a single-product or single-business firm, corporate strategy and business strategy are identical. When firms operate in multiple industries with many products or services, strategy formulation involves portfolio planning to allocate scarce resources among competing uses. FIGURE10.6 on page 250 of the text summarizes a popular portfolio planning approach known as the BCG matrix. The BCG matrix, developed by the Boston Consulting Group, ties strategy formulation to an analysis of business opportunities according to industry or market growth rate (low versus high growth rate) and market share (low versus high share). The BCG matrix has four combinations of business conditions, each of which has a particular strategic implication.
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Grow the stars because they have high-market share in high-growth businesses. They produce large profits through a dominant competitive position in a growing market. The preferred strategy is growth and future resource investments in them. Milk the cash cows have high-market share in low-growth businesses. They produce large profits and a strong cash flow but offer little growth opportunity. The preferred strategy is stability or modest growth. Grow or retrench the question marks because they have low-market share in highgrowth businesses. They do not produce much profit but do compete in rapidly growing markets. The preferred strategies are growth for promising question marks and restructuring or divestiture for the other question marks. Retrench the dogs because they have low-market share in low-growth businesses. They do not produce much profit and show little potential for future improvement.
FOLLOW THE STORY on p. 251 of the text details Xerox’s strategic shift from the photocopier business to providing business processes and document handling services under the leadership of CEO, Ursula Burns. GROWTH AND DIVERSIFICATION STRATEGIES Growth strategies seek an increase in size and the expansion of current operations in respect to such things as total sales, market shares, and operating locations. Specific types of growth strategies include: Concentration––growth occurs through expansion within the same business area. Diversification––growth occurs through the acquisition of or investment in new and different business areas. • •
Related diversification involves growth by acquiring new businesses or entering business areas that are related to what the organization already does. Unrelated diversification involves growth by acquiring new businesses or entering business areas that are different from what the organization already does.
Diversification also occurs through vertical integration where a business acquires suppliers (backward vertical integration) or distributors (forward vertical integration). Any growth strategy must be well planned and well managed to achieve the desired results. Growth Is a Glamour Strategy for Louis Vuitton on p. 253 of the text illustrates the challenges of maintaining a quality image while pursuing a diversification strategy. RENTRENCHMENT AND RESTRUCTURING STRATEGIES When organizations are in trouble, some form of readjustment often takes place, through a rentrenchment and restructuring strategy, which pursues radical changes to solve problems. Restructuring may take the form of bankruptcy, where an organization is protected under Chapter 11 while they reorganize to restore solvency. If this is not possible, then the firm goes into liquidation by ceasing operations and selling all assets to pay creditors.
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Restructuring is sometimes accomplished through downsizing –– an action that reduces the size of operations with the intent of reducing costs and improving operating efficiency. Downsizing with a strategic focus is sometimes called rightsizing. Restructuring by divestiture involves selling off parts of the organization to refocus on core competencies, cut costs, and improve operating efficiency. Restructuring by turn-around focuses on fixing specific performance problems. GLOBAL STRATEGIES A globalization strategy views the world as one large market, trying as much as possible to standardize products and their advertising for use everywhere. A multidomestic strategy tries to customize products and their advertising as much as possible to fit the local needs of different countries or regions. A transnational strategy seeks balance among efficiencies in global operations and responsiveness to local markets. COOPERATIVE STRATEGIES One of the current trends in strategic management is toward the formation of strategic alliances in which two or more organizations join together in partnership to pursue an area of mutual interest. Types of strategic alliances include: • Outsourcing alliances –– a firm contracting to purchase important services from another organization. • Supplier alliances –– the development of preferred supplier relationships to guarantee a smooth and timely flow of quality materials among alliance partners. • Distribution alliances –– firms join together to sell and distribute products or services. Co-opetition is the strategy of working with rivals on projects of mutual benefit. ETHICS ON THE LINE on page 255 of the text asks students to consider the ethics of poor employee working and living conditions at overseas locations when outsourcing work. TAKEAWAY QUESTION 4: WHAT ARE BUSINESS-LEVEL STRATEGIES, AND HOW ARE THEY FORMULATED? Michael Porter says that “a company without a strategy is willing to try anything,” but a business with a good strategy in place can achieve superior profitability or above-average returns within its industry. COMPETITIVE STRATEGIES MODEL According to Michael Porter, business-level strategic decisions are driven by two factors: • •
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Market scope –– how broad or narrow the target market is. Source of competitive advantage –– whether the advantage is sought through product cost or uniqueness in the market. 10-11
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As shown in FIGURE10.7 on page 256 of the textbook, Porter’s generic strategies framework combines the market scope and source of competitive advantage variables to generate the following four generic strategies that an organization can pursue in seeking to gain a strategic advantage. • • • •
Cost leadership –– where the organization’s resources and attention are directed toward minimizing costs to operate more efficiently than the competition. Differentiation –– where the organization’s resources and attention are directed toward making its products appear different from those of the competition. Focused differentiation –– where the organization concentrates on one special market segment and tries to offer customers in that segment a unique product. Focused cost leadership –– where the organization concentrates on one special market segment and tries in that segment to be the provider with lowest costs.
DIFFERENTIATION STRATEGY Organizations pursuing a differentiation strategy seek competitive advantage through uniqueness. The objective is to attract customers who become loyal to the organization’s products and lose interest in those of competitors. COST LEADERSHIP STRATEGY Organizations pursuing a cost leadership strategy try to have lower costs than competitors and therefore achieve higher profits. The objective is to continuously improve the operating efficiencies of production, distribution, and other organizational systems. FACTS FOR ANALYSIS on p. 257 explores lowering labor and benefit costs by relocating manufacturing plants to southern states to gain a competitive advantage in the auto industry. FOCUS STRATEGY Organizations pursuing a focus strategy concentrate on a special market segment with the objective of serving its needs better than anyone else. In the focused differentiation strategy, a firm offers a unique product to a special market segment; whereas a firm pursuing a focused cost leadership strategy seeks the lowest costs of operations within a special market segment. DISCUSSION TOPIC If you used the Discussion Topic regarding a SWOT analysis of your college or university, you can continue with that scenario in this Discussion Topic. Have the students discuss which of Porter’s generic strategies that your college or university uses. Make sure that the students fully explain their reasoning.
TAKEAWAY QUESTION 5: WHAT ARE THE FOUNDATIONS FOR STRATEGY IMPLEMENTATION?
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The selection of a correct strategy is imperative for success. However, mistakes will sometimes be made in the selection process and at other times in the implementation process. MANAGEMENT PRACTICES AND SYSTEMS In order to successfully put strategies into action, the entire organization and all of its resources must be mobilized to support them. Poor management practices that hinder strategy implementation include: • • • •
Failures of substance – poor strategic analysis and bad strategy formulation. Failures of process – poor handling of the ways in which strategic management is accomplished. The lack of participation error – failure to include key persons in the strategic planning. Goal displacement – the process gets so bogged down in details that the planning process becomes an end in itself instead of a means to an end.
RECOMMENDED READING on p. 259 Behind the Cloud: The Untold Story of How a Salesforce.com Went from Idea to Billion Dollar Company and Revolutionized an Industry details the story of Marc Benioff’s strategic success in building a business around cloud computing. STRATEGIC CONTROL and CORPORATE GOVERNANCE While a board of directors is expected to exercise its governance, top leadership is expected to exercise strategic control by making sure strategies are well implemented and that poor strategies are scrapped or modified. Corporate governance is the system of control and performance monitoring of top management that is maintained by boards of directors and boards of trustees. Boards of directors are formally charged with ensuring that strategic management of the organization is successful. As such, boards must not be compliant or uncritical of top management. The current trend is toward greater emphasis on corporate governance, as top managers are held more accountable for performance by boards of directors and other stakeholder interest groups. When corporate governance fails, controversies often arise over the role of inside directors, who are chosen from the senior management of the organization, and outside directors, who are chosen from other organizations and positions external to the organization. • •
Inside directors may be accused of having too much control Outside directors may be criticized for being friends of top management or at least sympathetic to them.
RESEARCH BRIEF on page 260 of the text describes research that finds gender diversity on boards of directors may bring about positive organizational changes that make firms better places to work. Ask students to consider why the presence of more female directors would have that effect? .
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DISCUSSION TOPIC Ask students to pick an industry and find examples of companies that seem to be using strategic control as opposed to those who are not. Discuss these in light of the corporate bailouts being sought by corporations vs. those who are not. STRATEGIC LEADERSHIP Effective strategic management requires strategic leadership –– the capability to inspire people to successfully engage in a process of continuous change, performance enhancement, and implementation of organizational strategies. A strategic leader has to maintain strategic control. The leader can do this by: • Being a guardian of tradeoffs –– it is the leader’s job to make sure that the organization’s resources are allocated in ways consistent with the strategy. • Creating a sense of urgency –– the leader can’t allow the organization and its members to grow slow and complacent. • Ensuring that everyone understands the strategy –– unless strategies are understood, the daily tasks and contributions of people lose context and purpose. • Being a teacher and communicator –– it is the leader’s job to teach the strategy and make it a “cause.” DISCUSSION TOPIC If you used the preceding Discussion Topic regarding the strategic analysis of your college or university, you can continue with that scenario in this Discussion Topic. Have the students discuss how your college or university implements its strategy through management practices and systems, institutional governance, and strategic leadership.
CHAPTER 10 TAKEAWAY QUESTIONS SUMMARY Takeaway Question 1: What is strategic management? • Competitive advantage is achieved by operating in ways that allow an organization to outperform its rivals; a competitive advantage is sustainable when it is difficult for competitors to imitate. • A strategy is a comprehensive plan that sets long-term direction and guides resource allocation for sustainable competitive advantage. • Corporate strategy sets direction for an entire organization; business strategy sets direction for a business division or product/service line; functional strategy sets direction for the operational support of business and corporate strategies. • Strategic management is the process of formulating and implementing strategies that achieve goals in a competitive environment. FOR DISCUSSION: Can an organization have a good strategy and still fail to achieve competitive advantage?
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Takeaway Question 2: What are the essentials of strategic analysis? • The strategic management process begins with analysis of mission, clarification of core values, and identification of objectives. • A SWOT analysis systematically assesses organizational strengths and weaknesses, and environmental opportunities and threats. • Porter’s five forces model analyzes industry attractiveness in terms of competitor rivalry, new entrants, substitute products, and the bargaining powers of suppliers and buyers. FOR DISCUSSION: Would a monopoly get a perfect score for industry attractiveness in Porter’s five forces model? Takeaway Question 3: What are corporate-level strategies, and how are they formulated? • Growth strategies pursue greater sales and broader markets by concentration that expands in related product or business areas, and diversification that expands in new and different product business areas. • Restructuring strategies pursue ways to correct performance problems by such means as liquidation, bankruptcy, downsizing, divestiture and turnaround. • Global firms take advantage of international business opportunities through globalization, multi-domestic, and transnational strategies. • Cooperative strategies create strategic alliances with other organizations to achieve mutual gains, including such things as outsourcing alliances, supplier alliances, and even coopetition among competitors • The BCG matrix is a portfolio planning approach that classifies businesses or product lines as “stars,” “cash cows,” “question marks,” or “dogs” for purposes of strategy formulation. FOR DISCUSSION: Is it good news or bad news for investors when a firm announces it is restructuring? Takeaway Question 4: What are business-level strategies, and how are they formulated? • Potential sources of competitive advantage in business-level strategy formulation are found in lower costs, better quality, more knowledge, greater speed, and strong financial resources. • Porter’s model of competitive strategy bases the choice of business-level strategies on two major considerations – market scope of product or service, and source of competitive advantage for the product or service. • A differentiation strategy seeks competitive advantage by offering unique products and services that are clearly different from those of competitors. • A cost leadership strategy seeks competitive advantage by operating at low costs that allow products and services to be sold to customers at low prices. • A focus strategy seeks competitive advantage by serving the needs of a special market segment or niche better than anyone else; it can be done as focused differentiation or focused cost leadership. FOR DISCUSSION: Can a business ever be successful with a combined cost leadership and differentiation strategy? Takeaway Question 5: What are the foundations for strategy implementation? • Management practices and systems—including the functions of planning, organizing, leading, and controlling— must be mobilized to support strategy implementation. • Pitfalls that inhibit strategy implementation include failures of substance—such as poor analysis of the environment; and failures of process—such as lack of participation by key players in the planning process. • Boards of directors play important roles in control through corporate governance, including monitoring how well top management fulfills strategic management responsibilities.
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Top managers exercise strategic control by making sure strategies are well implemented, and are changed if not working. Strategic leadership inspires the process of continuous evaluation and improvement of strategies and their implementation.
FOR DISCUSSION: Is strategic leadership by top managers capable of making up for poor corporate governance by board members? CHAPTER 10 KEY TERMS BCG matrix (p. 249): a strategic portfolio planning approach developed by the Boston Consulting Group that ties strategy formulation to an analysis of business opportunities according to industry or market growth rate and market share. Business strategy (p. 243): a strategy that sets the strategic direction for a single business unit or product line. Competitive advantage (p. 241): operating with an attribute or set of attributes that allows an organization to outperform its rivals. Concentration (p. 252): growth that occurs through expansion within the same business area. Co-opetition (p. 254): the strategy of working with rivals on projects of mutual benefit. Core competency (p. 246): a special strength that gives an organization a competitive advantage. Core values (p. 245): broad beliefs about what is or is not appropriate behavior. Corporate governance (p. 259): the system of control and monitoring of top management performance exercised by boards of directors and boards of trustees. Corporate strategy (p. 242): a strategy that directs the organization as a whole toward sustainable competitive advantage. Cost leadership strategy (p. 257): seeks to operate with low cost so that products can be sold at low prices. Differentiation strategy (p. 256): offers products that are unique and different from the competition. Diversification (p. 252): growth that occurs through the acquisition of or investment in new and different business areas. Divestiture (p. 253): selling off parts of the organization to refocus on core competencies, cut costs, and improve operating efficiency. Downsizing (p. 253): is a restructuring strategy that decreases the size of operations, often by reducing the workforce. Focus strategy (p. 258): concentrates on serving a unique market segment better than anyone else. Focused cost leadership (p. 258): a strategy that seeks the lowest costs of operations within a special market segment. Focused differentiation (p. 258): a firm sells a unique product to a special niche market. Functional strategy (p. 243): a strategy that guides the use of resources to implement business strategy; this level of strategy focuses on activities within a specific functional area of operations. Globalization strategy (p. 254): views the world as one large market, making most decisions from the corporate home base and trying as much as possible to standardize products and advertising for use everywhere. Growth strategy (p. 252): a strategy that seeks to expand the size and scope of operations in respect to such things as total sales, market shares, and operating locations. Lack of participation error (p. 259): a failure to include key persons in strategic planning. Liquidation (p. 253): a retrenchment strategy where a business ceases and assets are sold to pay creditors.
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Mission (p. 245): an organization’s reason for existing in society. Multidomestic strategy (p. 254): tries to customize products and their advertising as much as possible to fit the local needs of different countries or regions. Operating objectives (p. 246): specific results that organizations try to accomplish. Organizational culture (p. 246): the predominant value system of the organization as a whole. Retrenchment and restructuring strategies (p. 253): strategies that pursue radical changes to solve problems. Stakeholders (p. 245): the individuals and groups who are directly affected by the organization and its strategic accomplishments. Strategic alliance (p. 254): two or more organizations joining together in partnership to pursue an area of mutual interest. Strategic analysis (p. 244): the process of analyzing the organization, the environment, and the organization’s competitive position and current strategies. Strategic control (p. 259): makes sure strategies are well implemented and that poor strategies are scrapped or modified. Strategic formulation (p. 244): the process of crafting strategies to guide the allocation of resources. Strategic implementation (p. 244): the process of putting strategies into action. Strategic intent (p. 244): focusing and applying all organizational energies on a unifying and compelling goal. Strategic leadership (p. 261): the capability to inspire people to successfully engage in a process of continuous change, performance enhancement, and implementation of organizational strategies. Strategic management (p. 243): the process of formulating and implementing strategies to accomplish long-term goals and sustain competitive advantage. Strategy (p. 241): a comprehensive action plan that identifies long-term direction for an organization and guides resource utilization to achieve sustainable competitive advantage. Strategy formulation (p. 244): the process of crafting strategies to guide the allocation of resources. Strategy implementation (p. 244): the process of putting strategies into action. Sustainable competitive advantage (p. 241): the ability to outperform rivals in ways that are difficult or costly to imitate. SWOT analysis (p. 246): examines organizational strengths and weaknesses and environmental opportunities and threats. Transnational strategy (p. 254): a firm tries to operate without a strong national identity and blend seamlessly with the global economy. Turn-around (p. 253): a strategy that focuses of fixing specific performance problems. Vertical integration (p. 252): diversification that occurs through the acquisition of suppliers (backward vertical integration) or distributors (forward vertical integration).
SELF TEST ANSWERS 1.
The most appropriate first question to ask in strategic planning is ___________. (a) “Where do we want to be in the future?” (b) “How well are we currently doing?” (c) “How can we get where we want to be?” (d) “Why aren’t we doing better?”
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The ability of a firm to consistently outperform its rivals is called ___________. (a) vertical integration (b) competitive advantage (c) incrementalism (d) strategic intent
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In a complex conglomerate business such as General Electric, a(n) ___________ level
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strategy sets strategic direction for a strategic business unit. (a) institutional (b) corporate (c) business (d) functional 4.
The ___________ is a predominant value system for an organization as a whole. (a) strategy (b) core competency (c) mission (d) corporate culture
5. Cost efficiency and product quality are two examples of ______________ objectives of organizations. (a) official (b) operating (c) informal (d) institutional 6. An organization that is downsizing to reduce costs is implementing a grand strategy of ___________. (a) growth (b) cost differentiation (c) retrenchment (d) vertical integration 7.
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When PepsiCo acquired Tropicana, a maker of orange juice, the firm’s strategy was growth by ___________. (a) related diversification (b) concentration (c) vertical integration (d) cooperation In Porter’s five forces framework, having ___________ increases industry attractiveness. (a) many rivals (b) many substitute products (c) low bargaining power of suppliers (d) few barriers to entry
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A ________________ in the BCG matrix would have a high market share in a low-growth market, and the correct grand or master strategy is _____________. (a) Dog, growth b) cash cow, stability (c) question mark, stability (d) star, retrenchment
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The alliances that link together firms in supply chain management relationships are examples of how businesses try to use ____________ strategies. (a) B2C (b) growth (c) cooperation (d) concentration
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The two questions asked by Porter to identify competitive strategies for a business or product line are: 1 – What is the market scope? 2 What is the ____________? (a) market share (b) source of competitive advantage (c) core competency (d) industry attractiveness
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According to Porter’s model of competitive strategies, a firm that wants to compete with its rivals in a broad market by selling a very low-priced product would need to successfully implement a ___________ strategy. (a) retrenchment (b) differentiation (c) cost leadership (d) diversification
13.
When Coke and Pepsi spend millions on ads trying to convince customers that their products are unique, they are pursuing a/an ___________ strategy. (a) transnational (b) concentration (c) diversification (d) differentiation
14.
The role of the board of directors as an oversight body that holds top executives
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accountable for the success of business strategies is called ___________. (a) strategic leadership (b) corporate governance (c) logical incrementalism (d) strategic opportunism 15.
An example of a process failure in strategic planning is ___________. (a) lack of participation (b) weak mission statement (c) incorrect core values (d) insufficient financial resources
16.
What is the difference between corporate strategy and functional strategy? A corporate strategy sets long-term direction for an enterprise as a whole. Functional strategies set directions so that business functions such as marketing and manufacturing support the overall corporate strategy.
17.
What would a manager look at in a SWOT analysis? A SWOT analysis is useful during strategic planning. It involves the analysis of organizational strengths and weaknesses, and of environmental opportunities and threats.
18.
What is the difference between focus and differentiation as competitive strategies? The focus strategy concentrates attention on a special market segment or niche. The differentiation strategy concentrates on building loyalty to a unique product or service.
19.
What is strategic leadership? Strategic leadership is the ability to enthuse people to participate in continuous change, performance enhancement, and the implementation of organizational strategies. The special qualities of the successful strategic leader include the ability to make trade-offs, create a sense of urgency, communicate the strategy, and engage others in continuous learning about the strategy and its performance responsibilities.
20.
Kim Harris owns and operates a small retail store selling the outdoor clothing of an American manufacturer to a predominately college-student market. Lately, a large department store outside of town has started selling similar, but lower-priced clothing manufactured in China, Thailand, and Bangladesh. Kim believes she is starting to lose business to this store. Assume you are part of a student team assigned to do a management class project for Kim. Her question for the team is: “How can I best deal with my strategic management challenges in this situation?” How will you reply? Porter’s competitive strategy model involves the possible use of three alternative strategies: differentiation, cost leadership, and focus. In this situation, the larger department store seems better positioned to follow the cost leadership strategy. This means that Kim may want to consider the other two alternatives. A differentiation strategy would involve trying to distinguish Kim’s products from those of the larger store. This might involve a “made in America” theme, or an emphasis on leather, canvas, or some other type of clothing material. A focus strategy might specifically target college students and try to respond to their tastes and needs, rather than those of the larger community population. This might involve special orders and other types of individualized service for the college student market.
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MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: CRITICAL THINKING: Students’ answers will vary according to their critical thinking capabilities and individual perspectives. SELF-ASSESMENT: INTUITIVE ABILITY Instructions Complete this survey as quickly as you can. Be honest with yourself. For each question, select the response that most appeals to you. 1. When working on a project, do you prefer to: (a) be told what the problem is but be left free to decide how to solve it? (b) get very clear instructions about how to go about solving the problem before you start? 2. When working on a project, do you prefer to work with colleagues who are: (a) realistic? (b) imaginative? 3. Do you most admire people who are: (a) creative? (b) careful? 4. Do the friends you choose tend to be: (a) serious and hard working? (b) exciting and often emotional? 5. When you ask a colleague for advice on a problem you have, do you: (a) seldom or never get upset if he or she questions your basic assumptions? (b) often get upset if he or she questions your basic assumptions? 6. When you start your day, do you: (a) seldom make or follow a specific plan? (b) usually first make a plan to follow? 7. When working with numbers do you find that you: (a) seldom or never make factual errors? (b) often make factual errors? 8. Do you find that you: (a) seldom daydream during the day and really don’t enjoy doing so when you do it? (b) frequently daydream during the day and enjoy doing so? 9. When working on a problem, do you: (a) prefer to follow the instructions or rules when they are given to you? (b) often enjoy circumventing the instructions or rules when they are given to you? 10. When you are trying to put something together, do you prefer to have: (a) step-by-step written instructions on how to assemble the item? (b) a picture of how the item is supposed to look once assembled? 11. Do you find that the person who irritates you the most is the one who appears to be: (a) disorganized? (b) organized? 12. When an unexpected crisis comes up that you have to deal with, do you: (a) feel anxious about the situation? (b) feel excited by the challenge of the situation?
Scoring
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Total the number of “a” responses circled for questions 1, 3, 5, 6, and 11; enter the score here [A = _____]. Total the number of “b” responses for questions 2, 4, 7, 8, 9, 10, and 12; enter the score here [B = _____ ]. Add your “a” and “b” scores and enter the sum here [A + B = _____ ]. This is your intuitive score. The highest possible intuitive score is 12; the lowest is 0.
Interpretation In his book Intuition in Organizations (Newbury Park, CA: Sage, 1989), pp. 10-1, Weston H. Agor states: “Traditional analytical techniquesare not as useful as they once were for guiding major decisions. If you hope to be better prepared for tomorrow, then it only seems logical to pay some attention to the use and development of intuitive skills for decision making.” Agor developed the preceding survey to help people assess their tendencies to use intuition in decision making. Your score offers a general impression of your strength in this area. It may also suggest a need to further develop your skill and comfort with more intuitive decision approaches.
Instructor’s Note According to Agor, students with high intuitive scores have the ability to base their decisions on unknowns and possibilities. They are capable of applying ingenuity to problems to see how best to prepare for the future, and can tackle difficulties with zest. They are also more likely to prefer management situations that are unstructured, fluid, and spontaneous. Indeed, they have the potential ability to function best in occupations that are characterized by crisis or rapid change and where they are asked to chart new, emerging trends from data including unknowns. Finally, they prefer to solve new and different problems versus the same or similar problems time after time. Questions for Class Discussion The following questions are helpful in promoting class discussion; • Can intuition be developed? Explain. • What are the limitations of intuition? How can they be overcome? • What types of professions would best suit someone scoring high on intuition? Low? (Source: AIM Survey. El Paso, TX: ENFP Enterprises, 1989. Copyright ©1989 by Weston H. Agor. Used by permission.)
TEAM EXERCISE: STRATEGIC SCENARIOS In groups, have students analyze the mission statements of various organizations. Strategy consultant Michael Hammer believes that a mission should represent what the strategy or underlying business model is trying to accomplish. When the mission is clear and compelling, it is easier for an organization to rally resources and systems to pursue its strategic intent. Ask students if the mission statements assigned meet these criteria and how they do so. If they do not meet these criteria, have the students rewrite them. A good mission statement to start with is the one for the student’s university. Others can be found on the web. A sampling is listed below. State Farm: http://www.statefarm.com/about/mission.asp Starbucks: http://www.starbucks.com/aboutus/environment.asp Gannett: http://www.gannett.com/about/visionmission.htm Southwest Airlines: http://www.southwest.com/about_swa/mission.html
Instructions
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Form into groups as assigned by your instructor. Choose one or more organizations from the prior list (as assigned) and answer for that organization the following questions: 1. What in the future might seriously threaten the success, perhaps the very existence, of this organization? (As a group develop at least three such future scenarios.) 2. Estimate the probability (0 to 100 percent) of each future scenario occurring. 3. Develop a strategy for each scenario that will enable the organization to successfully deal with it. Thoroughly discuss these questions within the group and arrive at your best possible consensus answers. Be prepared to share and defend your answers in general class discussion.
Instructor’s Note This is an excellent exercise for providing students with experiential learning at strategic planning and the generation of future scenarios. Encourage students to conduct library research on these organizations as a foundation for identifying possible environmental threats, future scenarios, and strategies. Consider assigning more than one group to a particular organization(s) and have each group critique the analysis of the other. Explore the reasons for any discrepancies between the groups’ analyses, and consider the implications of these differences for organizations that employ scenario planning. (Source: Suggested by an exercise in Veiga, J.F., and Yanouzas, J.N. The Dynamics of Organization Theory: Gaining a Macro Perspective. St. Paul, MN: West, 1979, pp. 69-71.)
CAREER SITUATIONS FOR STRATEGIC MANAGEMENT: WHAT WOULD YOU DO? 1. The Mission Statement 2. Cooperate or Compete, or Both? 3. Saving a Bookstore
Student answers will vary based on personal experience and values.
REVIEW QUESTIONS FOR CASE 10: DUNKIN’ DONUTS: BETTING DOLLARS ON DONUTS Discussion Questions 1. What does a Porter’s Five Forces analysis reveal about the industry in which Dunkin’ Donuts and Starbuck’s compete? What are its strategic implications for Dunkin’ Donuts? Porter's Five Forces model analyzes factors that influence a specific industry to help managers understand the industry in which they compete. An analysis of the factors would seem to indicate that the industry is very competitive and competitive advantages can be very quickly copied. The Five Factors as they apply to Dunkin Donuts and Starbucks would include: • New entrants – Dunkin’ Donuts and Starbucks sell breakfast beverages and pastries and are branching out to other breakfast foods. Competition would include expansion of similar regional companies like Caribou Coffee, or companies like McDonald’s, who extend their beverage offerings to include premium coffees.
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Customers - the bargaining power of buyers is very influential to the industry. The current recession has resulted in the closing of hundreds of Starbucks locations, while relatively few of the franchised Dunkin’ Donuts have closed. Substitute products - the large number of substitute beverages and breakfast alternatives makes this a huge factor in the industry. Suppliers - occasionally the supply of coffee beans is limited, driving up the cost of the beverage. This often makes the substitute products such as home-brewed coffee and more attractively priced fast food coffee and pastries a strong competitive force. Industry competition – Starbucks, Tim Horton’s and other regional coffee shops, Convenience stores like 7-Eleven and Circle K, Fast food restaurants like McDonald’s and Burger King.
2. Is Dunkin’ Donuts presently using strategic alliances to full advantage? How could cooperative strategies further assist with its master plan for growth? Strategic alliances exist when two or more companies join forces to pursue an area of mutual interest or to gain competitive advantage. Examples in the case include Dunkin’ Donuts pairing with Wal-Mart, Stop & Shop and Great Wolf Lodge plus a variety of other cooperative alternatives such as convention registration areas, gift shops and general stores. Can college student centers be far behind? These cooperative strategies increase brand recognition as they increase sales. Families that enjoy Dunkin’ Donuts products while on a vacation stay at Great Wolf Lodge will be very receptive to expansion of the brand to their hometown. Co-opetition describes an alliance of competitors for mutual benefit. If Starbucks or McDonald's were to join forces with Dunkin’ Donuts to research lower fat and healthier ingredient alternatives, there would likely be a larger market for all to share. Problem Solving Until recently, the Starbucks brand was much better known around the world than Dunkin’ Donuts. As Dunkin’s CEO, what global strategy—globalization, multidomestic, or transnational—would you follow to position Dunkin’ as a real challenge to Starbucks in the international markets, and why? International growth strategies include globalization that advertises and sells a standard product worldwide, multidomestic strategies that customize products and advertising to fit local cultures, and transnational strategies that utilize worldwide resources and try to operate without a strong national identity. International tastes vary widely, so that rules out a straight global strategy. Dunkin’ Donuts would most likely choose a multidomestic strategy that customizes products and advertising to local markets, much like McDonald’s. Further Research Gather information on industry trends, as well as current developments—domestic and international, affecting Dunkin’ Donuts and its competitors. Use this information to build an upto-date SWOT analysis for Dunkin’ Donuts. Based on the implications of this analysis, is Dunkin’s top leadership doing the right things when it comes to strategic management, or not? Students are directed to research Dunkin' Donuts and competitors and create a SWOT analysis. Suggested competitors for beverages might include Tim Hortons, Starbucks, Caribou Coffee or another regional coffee shop with which they are familiar. Other competitors would include
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convenience stores like 7-Eleven and Circle K, fast food restaurants like McDonald’s and Burger King. Evidence of company performance requires more digging than the basic information about the company's products that students will find with most search engines Consider discussing the type of criteria they should be looking for in their research before they begin. Caution students to conduct their online research with objective media sources. The college library may offer free searches such as EBSCO Host that access a large number of periodicals including industry publications that may provide thorough and accurate comparisons as well as current industry trends.
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Chapter 11:
ORGANIZATION STRUCTURES AND DESIGN CHAPTER 11 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4.
What is organizing as a management function? What are the traditional organization structures? What are the types of horizontal organization structures? How are organizational designs changing the workplace?
CHAPTER 11 LEARNING OBJECTIVES After completing this chapter, students should be able to: • Define organizing as a management function • Explain the difference between formal and informal structures • Discuss the potential advantages and disadvantages of informal structures in organizations • Explain the differences between functional, divisional, and matrix structures • List advantages and disadvantages of a functional structure, divisional structure, and matrix structure • Draw charts to show how each type of structure is used in organizations familiar to you • Describe how organizations can use cross-functional teams and project teams in their structures • Define network structure • Illustrate how a new venture might use a network structure to organize its various operations • Discuss the potential advantages and disadvantages of a network structure • Explain the concept of the boundaryless organization • Define organizational design • Describe the characteristics of mechanistic and organic designs • Explain when the mechanistic design and the organic design work best • Describe trends in levels of management, delegation and empowerment, decentralization and centralization, and use of staff CHAPTER 11 OVERVIEW Organizing is the process of arranging people and other resources to work together to accomplish a goal. It involves dividing up the work to be done (division of labor) and coordinating results to achieve a common purpose. This chapter introduces students to the fundamentals of organizing, including the alternative structural forms employed by modern organizations. The chapter begins by discussing organizing and its importance to the other management functions, before proceeding to the topic of structure. The concepts of formal structures and informal structures are examined. Next, the chapter explores the major traditional means of structural organization –– including functional, divisional, and matrix structures. Recent .
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developments in organization structures are then examined. These recent structural developments include team structures, network structures, and boundaryless organizations. The chapter concludes with a discussion of organizing trends in the contemporary workplace, including fewer layers of management, more delegation and empowerment, decentralization with centralization, and reduced use of staff. CHAPTER 11 LECTURE OUTLINE Teaching Objective: The purpose of this chapter is to familiarize students with the fundamentals of organizing. To achieve this, the process of organizing is examined along with traditional and alternative organization structures and organizing trends in the modern workplace. Suggested Time: Approximately two hours of class time are required to cover the material in this chapter. Although it is possible to present the material in less time, it is not encouraged since subsequent chapters build upon the fundamentals introduced here. I. Takeaway question 1: What is organizing as a management function? What is organization structure? Formal structures Informal structures II. Takeaway question 2: What are the traditional organization structures? Functional structures Divisional structures Matrix structures III. Takeaway question 3: What are the types of horizontal organization structures Team structures Network structures Boundaryless organizations IV. Takeaway question 4: How are organizational designs changing the workplace? Contingency in organizational design Mechanistic and organic designs Trends in organizational designs CHAPTER 11 SUPPORTING MATERIALS Textbook Inserts Learning from Others • It’s All About How You Put the Pieces Together Learning about Yourself • Empowerment
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Figures • Figure 11.1: Organizing Viewed in Relationship with the Other Management Functions • Figure 11.2: Functional Structures in a Business, Branch Bank, and Community Hospital • Figure 11.3: Divisional Structures Based on Product, Geography, Customer, and Process • Figure 11.4: Matrix Structure in a Small, Multiproject Business Firm • Figure 11.5: How a Team Structure Uses Cross-Functional Teams for Improved Lateral Relations • Figure 11.6: A Network Structure for a Web-Based Retail Business • Figure 11.7: The Boundaryless Organization Eliminates Internal and External Barriers • Figure 11.8: Organizational Design Alternatives: From Bureaucratic to Adaptive Organizations Thematic Boxes • Follow the Story: Dancing Deer Baking Sweetens Growth with Values • Recommended Reading: The Trophy Kids Grow Up: How the Millennial Generation Is Shaking Up the Workplace • Facts for Analysis: Bosses May Be Overestimating Their Managing Skills • Ethics on the Line: Help! I’ve Been Flattened into Exhaustion • Management in Popular Culture: Empowerment and Patch Adams • Research Brief: Making Schools Work Better With Organizational Design Applications • Further Reflection: Empowerment • Self-Assessment: Empowering Others • Team Exercise: Designing a Network University • Case 11 – Nike: Spreading Out to Win the Race CHAPTER 11 LECTURE NOTES LEARNING FROM OTHERS on page 268 of the text describes how Maxine Clark started the Build-a-Bear Workshop and how each store is organized. LEARNING ABOUT YOURSELF on page 269 of the text examines empowerment and why managers need to empower their employees. TAKEAWAY QUESTION 1: WHAT IS ORGANIZING AS A MANAGEMENT FUNCTION?
DISCUSSION TOPIC To introduce this chapter, describe for the students the organization structure that exists at your college/university. Focus on why the college/university is organized as it is and what is accomplished through this organization form. Also, give attention to both the formal and informal structures of the organization.
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Organizing is the process of arranging people and other resources to work together to accomplish a goal. It involves dividing up the work to be done (division of labor) and coordinating results to achieve a common purpose. FIGURE 11.1 on page 271 of the text depicts the relationship between organizing and the other management functions, and identifies three key elements of organizing –– dividing up the work, arranging resources, and coordinating activities. Given a clear, mission, core values, objectives, and strategy, organizing begins the process of implementation by clarifying jobs and working relationships. WHAT IS ORGANIZATION STRUCTURE? Organization structure is the system of tasks, workflows, reporting relationships, and communication channels that link together the work of diverse individuals and groups. Any structure allocates task assignments through a division of labor and provides for the coordination of performance results. Structure should be addressed in a contingency fashion. Structures should be tailored to fit the situation and environment. FORMAL STRUCTURES An organization chart is a diagram describing reporting relationships and the formal arrangement of work positions within an organization. An organization chart provides a representation of the organization’s formal structure; that is, the structure of the organization in its official state. An organization chart reveals the following basic aspects of an organization’s formal structure: • • • • •
The division of work – positions and titles show work responsibilities. Supervisory relationships – lines show who reports to whom. Communication channels – lines show formal communication flows. Major subunits – positions reporting to a common manager are shown. Levels of management – vertical layers of management are shown.
INFORMAL STRUCTURES The informal structure is a “shadow” organization made up of the unofficial, but often critical, working relationships between organizational members. A tool known as social network analysis is one way of identifying informal structures and their embedded social relationships. The analysis typically asks people to identify: • • •
others whom they turn to for help the most often. those with whom they communicate regularly. individuals who energize and de-energize them.
Potential advantages of informal structures include: • .
allowing people to make contacts with other who can help them get things done. 11-4
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• •
stimulating informal learning as people work and interact together throughout the workday. providing emotional support and friendship that satisfy social needs.
Potential disadvantages of informal structures include: • • • • •
susceptibility to rumor. may carry inaccurate information. may breed resistance to change. can divert work efforts from important objectives. may result in feelings of alienation by “outsiders” –– persons who are left out of informal groupings. DISCUSSION TOPIC
Ask students to provide examples of informal organizational structures that they have encountered. Discuss how these informal structures helped or hindered the operation of the organization’s formal structure.
TAKEAWAY QUESTION 2: WHAT ARE THE TRADITIONAL ORGANIZATION STRUCTURES? A traditional principle of organizing is that performance gains are possible when people are allowed to specialize and become experts in specific jobs or tasks. This principle leads to departmentalization –– the process of grouping together people and jobs into work units. FUNCTIONAL STRUCTURES Functional structures exist when people with similar skills and performing similar tasks are grouped together into formal work units. FIGURE 11.2 on page 273 of the text illustrates a functional structure for a business firm, a branch bank, and a community hospital. Members of each function work within their areas of expertise. Functional structures are not limited to businesses. Functional structures work well for small organizations that produce only one or a few products or services. Advantages of Functional Structures Potential advantages of functional structures include: • Economies of scale with efficient use of resources. • Task assignments consistent with expertise and training. • High-quality technical problem solving. • In-depth training and skill development within functions.
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•
Clear career paths within functions.
Disadvantages of Functional Structures Potential disadvantages of functional structures include: • • • •
Difficulties in pinpointing responsibilities for cost containment, product or service quality, and innovation. Functional chimneys problem also called the functional silos problem¸ results in the lack of communication, coordination, and problem solving across functions. The sense of common purpose gets lost to self-centered and narrow viewpoints. Too many decisions referred upward in the hierarchy. DISCUSSION TOPIC
Ask students to think about how the curriculum at their college/university addresses the different functions of business. Are marketing, finance, production, and human resource management, for instance, taught as stand-alone courses, or are they taught in some integrated fashion? As standalone courses, what does this convey to students about the functional chimneys of business? What does any integrated format convey about tearing down these functional chimneys? DIVISIONAL STRUCTURES Divisional structures group together people who work on the same product or process, serve similar customers, or are located in the same area or geographical region. Divisional structures are common in complex organizations with diverse operations that extend across many products, territories, customers, and work processes. FIGURE 11.3 on page 274 of the text provides examples of divisional structures based on product, geography, customer, and process. Product Structures Product structures group together people and jobs focused on a single product or service. They clearly identify costs, profits, problems, and successes in a market area with a central point of accountability. Geographical Structures Geographical structures, sometimes called area structures, group together jobs and activities being performed in the same location or geographical region. They are typically used when there is a need to differentiate products or services in various locations. Customer Structures Customer structures group together jobs and activities that are serving the same customers or clients. The major appeal is the ability to best serve the special needs of the different customer groups. They are typically found in the consumer products industry.
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FOLLOW THE STORY on page 276 of the text describes how Patricia Karter, the CEO of Dancing Deer Baking, maintains her core values even though it caused her company to lose a large sale to Williams-Sonoma. Process Structures A work process is a group of tasks that collectively creates something of value to a customer. Process structures group together jobs and activities that are part of the same processes. Advantages and Disadvantages of Divisional Structures Divisional structures attempt to avoid the functional chimney problem and other problems associated with functional structures. Potential advantages of divisional structures include: • More flexibility in responding to environmental changes. • Improved coordination across functional departments. • Clear points of responsibility for product or service delivery. • Expertise focused on specific customers, products, and regions. • Greater ease in changing size by adding or deleting divisions. Potential disadvantages of divisional structures include: • Duplication of resources and efforts across divisions. • Competition and poor coordination across divisions. • Emphasis on divisional goals at expense of organizational goals MATRIX STRUCTURES A matrix structure combines the functional and divisional structures in an attempt to gain the advantages and minimize the disadvantages of each. FIGURE 11.4 on page 277 of the text illustrates a matrix structure in a small multiproject business firm. Workers in this structure simultaneously belong to at least two groups –– a functional group and a product, program, or project team. They also report to two bosses, one with in the function and the other within the team. The matrix organization is used in manufacturing, service industries, professional fields, and the non-profit sector. Matrix structures are often found in multinational corporations. Advantages and Disadvantages of Matrix Structures Potential advantages of matrix structures include: • Better communication and cooperation across functions. • Improved decision making; problem solving takes place at the team level where the best information is available. • Increased flexibility in adding, removing, or changing operations to meet changing demands.
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• • •
Better customer service; there is always a program, product, or project manager informed and available to answer questions. Better performance accountability through the program, product, or project managers. Improved strategic management; top managers are freed from lower-level problem solving to focus more time on strategic issues.
Potential disadvantages of matrix structures include: • The two-boss system can result in power struggles as functional supervisors and team leaders compete with each other to exercise authority. • The two-boss system can create task confusion and conflict in work priorities. • Team meetings are time consuming. • Teams may develop “groupitis” –– strong team loyalties that cause a loss of focus on larger organizational goals. • Increased costs due to adding team leaders to the structure. DISCUSSION TOPIC Ask students to consider the project teams on which they most likely have worked in one or more of their courses. Have them describe the challenges they have encountered in responding to the expectations of both the project team leader and the course instructor. Relate their descriptions to the preceding discussion of the advantages and disadvantages of matrix structures. While the matrix structure is a step toward better cross-functional integration in an organization, it is just one part of a movement to organize around more horizontal structures; with the intent of trying to improve communication, collaboration and flexibility by decreasing hierarchy, increasing empowerment, and better mobilizing human talents. TAKEAWAY QUESTION 3: WHAT ARE THE TYPES OF HORIZONTAL ORGANIZATION STRUCTURES? TEAM STRUCTURES Team structures extensively use permanent and temporary teams to solve problems, complete special projects, and accomplish day-to-day tasks. Team structures often use cross-functional teams that are composed of members from different areas of work responsibility. FIGURE 11.5 on page 279 of the text illustrates how a cross-functional team improves lateral relations. Project teams are convened for a specific task or project and disband once it is finished. Advantages and Disadvantages of Team Structures Potential advantages of team structures include:
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Assignments break down barriers allowing people from different parts of an organization get to know one another. Improved morale. Greater sense of involvement and identification. Increased enthusiasm for work. Improved quality and speed of decision making.
Potential disadvantages of team structures include: • Conflicting loyalties among members regarding both team and functional assignments. • Issues of time management and group process. • Effectiveness of the time that team members spend together depends on the quality of interpersonal relations, group dynamics, and team management. NETWORK STRUCTURES A network structure consists of a central core that is linked through networks of relationships with outside contractors and partners that supply essential services. Network organizations own only the essential or core components of the business, and use strategic alliances and outsourcing to provide the other components. A strategic alliance is a cooperative strategy through which partners do things of mutual value for one another. FIGURE 11.6 on page 280 of the text illustrates how a network structure might work for a mail-order company selling lawn and deck furniture through a catalog. Outsourcing strategic alliances contract to purchase important services from other organizations. Supplier strategic alliances link businesses in preferred supplier-customer relationships guaranteeing a smooth and timely flow of quality supplies among the partners. Advantages and Disadvantages of Network Structures Potential advantages of network structures include: • The development of lean and streamlined organizations. • A reduction in overhead costs and an increase in operating efficiency. • Employment of outsourcing strategies along with contacting out specialized business functions. • Creation of interesting jobs for those who coordinate the entire system of relationships. Potential disadvantages of network structures include: • Complicated control and coordination of the network due to the complex business or mission of the organization. • Network breakdown can affect the entire system. • Potential loss of control over outsourced activities and lack of loyalty among infrequently used contractors. • Excessive outsourcing of critical activities can be dangerous to the firm. BOUNDARYLESS STRUCTURES
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Boundaryless organizations eliminate internal boundaries among subsystems and external boundaries with the external environment. Boundaryless organizations can be viewed as a combination of team and network structures, with the addition of “temporariness.” Internal to the boundaryless organization, teamwork and communication replace formal lines of authority, as meetings and information sharing happens continuously. Knowledge sharing is both a goal and an essential component of the boundaryless organization. A special form of the boundaryless organization is the virtual organization, which is an organization that operates in a shifting network of external alliances that are engaged as needed, using IT and the Internet. FIGURE 11.7 on page 282 of the text shows how the absence of internal and external barriers helps people work in ways that bring speed and flexibility to the boundaryless firm. FACTS for ANALYSIS on p. 283 of the text details a survey that revealed that most firstyear managers overestimated their managerial skills. DISCUSSION TOPIC Ask the students if any of them have taken an online course that utilized a discussion board and perhaps required students to work together in some fashion over the Internet. Have them provide some details about these experiences and then relate the discussion to the concepts of boundaryless organizations and virtual organizations.
TAKEAWAY QUESTION 4: HOW ARE ORGANIZATIONAL DESIGNS CHANGING THE WORKPLACE? Organizational design is the process of choosing and implementing structures to accomplish an organization’s mission and objectives. Because every organization faces its own set of unique problems and opportunities, the best design at any moment is the one that achieves a good match between structure and situation. CONTINGENCY IN ORGANIZATIONAL DESIGN A bureaucracy emphasizes formal authority, order, fairness, and efficiency. According to sociologist Max Weber, bureaucracies were supposed to be orderly, fair, and highly efficient. Yet, instead of operating efficiency, the bureaucracies that we know are often associated with “red tape.” Management theory asks the contingency questions: •
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When is a bureaucratic form a good choice for an organization?
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What alternatives exist when it is not a good choice?
Two researchers, Burns and Stalker, concluded that two quite different organizational forms could be successful, depending on the nature of a firm’s external environment. 1. Mechanistic organizations thrived when the environment was stable. 2. Organic organizations thrived when the environment was dynamic. MECHANISTIC AND ORGANIC DESIGNS A mechanistic design is centralized, with many rules and procedures, a clear-cut division of labor, narrow spans of control, and formal coordination. Mechanistic organizations are vertical structures that typically operate with more centralized authority, many rules and procedures, a precise division of labor, narrow spans of control, and formal means of coordination. Mechanistic designs are described as “tight” structures of the traditional vertical or pyramid form. Mechanistic designs work best for organizations doing routine tasks in a stable environment. Organizations with an organic design operate with decentralized authority, fewer rules and procedures, less precise division of labor, wider spans of control, and more personal means of coordination. Organic designs work best for organizations that operate in a dynamic an often uncertain environment. An adaptive organization operates with a minimum of bureaucratic features and encourages worker empowerment and teamwork. FIGURE 11.8 on page 284 of the text portrays these two approaches as opposite extremes on a continuum of organizational design alternatives. ETHICS ON THE LINE on p. 286 of the text asks the question of is it ethical to cut numerous employees and then to expect the remaining employees to do more work for the same pay? TRENDS IN ORGANIZATIONAL DESIGNS Fewer Levels of Management The chain of command is the line of authority that vertically links each position with successively higher levels of management. Span of control is the number of subordinates directly reporting to a manager. Tall structures have narrow spans of control and many levels of management; flat structures have wider spans of control and fewer levels of management. Trend: Many organizations are cutting unnecessary levels of management and shifting to wider spans of control; managers are taking responsibility for larger numbers of subordinates who operate with less direct supervision.
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DISCUSSION TOPIC Students are often interested in the efforts of classical management theorists to identify an “ideal” span of control. The work of V. A. Graicunas, a French management consultant, is representative of this effort (see D.A. Wren, The Evolution of Management Thought, New York: The Ronald Press Company, 1972). Graicunas argued that “cross relationships” between subordinates must be considered in addition to “single direct relations” when establishing the span of control. Graicunas believed that while the span of control grew arithmetically, the number of potential relationships grew exponentially. He developed the following mathematical formula to illustrate this growth. Total relationships = n (2n / 2 + n –1) where n = span of control. Thus, if the span of control were increased to three, the total number of potential relationships would be: Total = 3 (23 / 2 + 3 - 1), or 3 x 6 = 18. Using the following list ask students to either guess or calculate the number of potential relationships with different numbers of subordinates reporting to a supervisor. Number of Subordinates Added 1 2 3 4 5 6
Number of Potential Relationships 1 6 18 44 110 222
Number of Subordinates Added 7 8 9 11 11 12
Number of Potential Relationships 490 1,080 1,376 5,2 11 11,374 24,708
What about 20 subordinates? Answer: 11 million potential relationships. Graicunas concluded that the ideal span of control is five. Ask students what they think of this argument. Students are usually quick to point out that there is a difference between the potential and actual number of relationships a manager must be concerned about. The actual number will depend upon a number of contingency variables.
More Delegation and Empowerment Delegation is the process of entrusting work to others by giving them the right to make decisions and take action. The three steps in delegation are: 1. The manager assigns responsibility by carefully explaining the work or duties someone is supposed to do. 2. The manager grants authority to act. 3. The manager creates accountability.
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A common management failure is unwillingness to delegate. It overloads the manager with work and denies others opportunities to fully utilize their talents. Delegation leads to empowerment –– giving others the freedom to contribute ideas and do their jobs in the best possible ways. Trend: Managers are delegating more; they are finding more ways to empower people at all levels to make more decisions affecting themselves and their work. MANAGEMENT in POPULAR CULTURE on p, 287 of the text uses the film Patch Adams to illustrate an example of delegation and empowerment. Decentralization with Centralization Centralization is the concentration of authority for making most decisions at the top levels of an organization. Decentralization is the dispersion of the authority to make decisions throughout all levels of the organization. Centralization and decentralization do not have to be an either/or choice. Modern organizations can operate with greater decentralization of decision making without giving up centralized control. Trend: Managers are delegating more; they are finding more ways to empower people at all levels to make more decisions affecting themselves and their work while at the same time using information technology to maintain centralized control.. RESEARCH BRIEF on page 288 of the text describes an idea for improving public schools through organizational design. Reduced Use of Staff Staff positions provide technical expertise for other parts of the organization. Trend: Organizations are reducing the size of staff; they are seeking lower costs and increased operating efficiency by employing fewer staff personnel and using smaller staff units. DISCUSSION TOPIC To conclude this chapter, refer back to the discussion in the first Discussion Topic regarding the organization structure that exists at your college/university. Describe for the students how this structure has changed, if at all, over the past several years. Then ask the students to identify what organizing trends are reflected in these changes. Also, discuss why these changes occurred and what was accomplished with them.
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CHAPTER 11 TAKEAWAY QUESTIONS SUMMARY Takeaway question 1: What is organizing as a management function? • • • • •
Organizing is the process of arranging people and resources to work toward a common goal. Organizing decisions divide up the work that needs to be done, allocate people and resources to do it, and coordinate results to achieve productivity. Structure is the system of tasks, reporting relationships, and communication that links people and positions within an organization. The formal structure, such as shown on an organization chart, describes how an organization is supposed to work. The informal structure of an organization consists of the unofficial relationships that develop among members.
FOR DISCUSSION: If organization charts are imperfect, why bother with them? Takeaway question 2: What are the traditional organization structures? • • •
In functional structures, people with similar skills who perform similar activities are grouped together under a common manager. In divisional structures, people who work on a similar product, work in the same geographical region, serve the same customers, or participate in the same work process are grouped together under common managers. A matrix structure combines the functional and divisional approaches to create permanent cross-functional project teams.
FOR DISCUSSION: Why use functional structures if they are prone to functional chimneys problems? Takeaway question 3: What are the types of horizontal organization structures? • • • •
Team structures use cross-functional teams and task forces to improve lateral relations and problem solving at all levels. Network structures use contracted services and strategic alliances to support a core organizational center. Boundaryless structures or boundaryless organizations combine team and network structures with the advantages of technology to accomplish tasks and projects. Virtual organizations utilize information technology to mobilize a shifting mix of strategic alliances to accomplish tasks and projects.
FOR DISCUSSION: How can problems with group decision making hurt team structures? Takeaway question 4: How are organizational designs changing the workplace? • Contingency in organizational design basically means finding a design that best fits situational features. • Mechanistic designs are bureaucratic and vertical, performing best for routine and predictable tasks. • Organic designs are adaptive and horizontal, performing best in conditions requiring change and flexibility. • Key organizing trends include fewer levels of management, more delegation and empowerment, decentralization with centralization, and fewer staff positions.
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FOR DISCUSSION: Which of the organizing trends is most subject to change under current conditions? CHAPTER 11 KEY TERMS Adaptive organization (p. 285): operates with a minimum of bureaucratic features and encourages worker empowerment and teamwork. Authority and responsibility principle (p. 286): means that authority should equal responsibility when work is delegated. Boundaryless organization (p. 281): eliminates internal boundaries among subsystems and external boundaries with the external environment. Bureaucracy (p. 283): a form of organization based on logic, order, and the legitimate use of formal authority. Centralization (p. 287): the concentration of authority for most decisions at the top level of an organization. Chain of command (p. 285): the line of authority that vertically links each position with successively higher levels of management. Cross-functional teams (p. 279): a team structure that in composed of members from different areas of work responsibility. Customer structure (p. 275): a divisional organization structure that groups together jobs and activities that serve the same customers or clients. Decentralization (p. 287): the dispersion of authority to make decisions throughout all levels of the organization. Delegation (p. 285): the process of entrusting work to others by giving them the right to make decisions and take action. Divisional structure (p. 274): an organizational structure that groups together people who work on the same product or process, serve similar customers, or are located in the same area or geographical region. Empowerment (p. 287): allows others to make decisions and exercise discretion in their work. Flat structures (p.285): a structure with wider spans of control and fewer levels of management. Formal structure (p. 271): the structure of the organization in its official state. Functional chimneys problem (p. 274): the lack of communication, coordination, and problem solving across functions. Functional structure (p. 273): people with similar skills and performing similar tasks are grouped together into formal work units. Geographical structure (p. 275): a divisional organization structure that groups together jobs and activities being performed in the same location or geographical region. Informal structure (p. 271): a “shadow” organization made up of unofficial, but often critical, working relationships between organizational members. Matrix structure (p. 277): an organizational form that combines the functional and divisional structures in an attempt to gain the advantages and minimize the disadvantages of each. Mechanistic design (p. 284): centralized design, with many rules and procedures, a clear-cut division of labor, narrow spans of control, and formal coordination. Network structure (p. 280): an organizational structure that consists of a central core of fulltime employees surrounded by networks composed of outside contractors and partners that supply essential services. Organic design (p. 283): decentralized design with fewer rules and procedures, open divisions of labor, wide spans of control, and more personal coordination. Organization chart (p. 271): a diagram that describes the reporting relationships and formal arrangement of work positions within an organization. Organization structure (p. 271): the system of tasks, workflows, reporting relationships, and communication channels that link together the work of diverse individuals and groups.
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Organizing (p. 270): the process of arranging people and other resources to work together to accomplish a goal. Organizational design (p. 283): the process of creating structures that accomplish mission and objectives. Process structure (p. 276): a divisional organization structure that groups together jobs and activities that are part of the same processes. Product structure (p. 275): a divisional organization structure that groups together jobs and activities that focus on a single product or service. Project teams (p. 279): teams that are convened for a particular task or project and disband once it is completed. Social network analysis (p. 272): one way of identifying informal structures and their embedded social relationships. Span of control (p. 285): the number of subordinates directly reporting to a manager. Staff positions (p. 288): provide technical expertise for other parts of the organization. Strategic alliance (p. 280): a cooperation agreement with another organization to jointly pursue activities of mutual interest. Tall structures (p. 285): a structure with narrow spans of control and many levels of management. Team structure (p. 279): an organizational structure that makes extensive use of permanent and temporary teams to solve problems, complete special projects, and accomplish day-to-day tasks. Virtual organization (p. 282): an organization that operates as a shifting network of alliances that are engaged as needed using IT and the Internet. Work Process (p. 275): a group of related tasks that collectively creates something of value to a customer.
SELF-TEST ANSWERS 1.
The main purpose of organizing as a management function is to ___________. (a) make sure that results match plans (b) arrange people and resources to accomplish work (c) create enthusiasm for the work to be done (d) match strategies with operational plans
2.
___________ is the system of tasks, reporting relationships, and communication that links together the various parts of an organization. (a) Structure (b) Staff (c) Decentralization (d) Differentiation
3.
Rumors and resistance to change are potential disadvantages often associated with ___________. (a) virtual organizations (b) informal structures (c) delegation (d) specialized staff
4.
An organization chart showing vice presidents of marketing, finance, manufacturing, and purchasing all reporting to the president is depicting a ___________ structure. (a) functional (b) matrix (c) network (d) product
5.
The functional chimneys problem occurs when people in different functions ___________. (a) fail to communicate with one another (b) try to help each other work with customers (c) spend too much time coordinating decisions (d) focus on products rather than functions
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6.
A manufacturing business with a functional structure has recently developed three new product lines. The president of the company might consider shifting to a/an ___________ structure to gain a stronger focus on each product. (a) virtual (b) informal (c) divisional (d) network
7.
A ___________ structure tries to combine the best elements of the functional and divisional forms. (a) virtual (b) boundaryless (c) team (d) matrix
8.
The “two-boss” system of reporting relationships is found in the ___________ structure. (a) functional (b) matrix (c) network (d) product
9.
Better lower-level teamwork and more top-level strategic management are among the expected advantages of a ___________ structure. (a) divisional (b) matrix (c) geographical (d) product
10. Tall” organizations tend to have long chains of command and ___________ spans of control. (a) wide (b) narrow (c) informal (d) centralized 11. A student volunteers to gather information on a company for a group case analysis project. The other members of the group agree, and tell her to go ahead and choose the information sources. In terms of delegation, this group is giving the student ___________ to fulfill the agreed-upon task. (a) responsibility (b) accountability (c) authority (d) decentralization 12. The current trend in the use of staff in organizations is to ___________. (a) give staff personnel more authority over operations (b) reduce the number of staff personnel (c) remove all staff from the organization (d) combine all staff functions in one department 13. The bureaucratic organization described by Max Weber is similar to the ___________ organization described by Burns and Stalker. (a) adaptive (b) mechanistic (c) organic (d) adhocracy 14. Which type of organization design is best fits an uncertain and changing environment? (a) mechanistic (b) bureaucratic (c) organic (d) traditional 15. An organization that employs just a few “core” or essential full-time employees and outsources a lot of the remaining work shows signs of using a _______________ structure. (a) functional (b) network (c) matrix (d) mechanistic 16. What symptoms might indicate that a functional structure is causing problems for the organization? The functional structure is prone to problems of internal coordination. One symptom may be that the different functional areas, such as marketing and manufacturing, are not working
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well together. This structure is also slow in responding to changing environmental trends and challenges. If the firm finds that its competitors are getting to market faster with new and better products, this is another potential indicator that the functional structure is not supporting operations properly. 17. Explain by example the concept of a network organization structure. A network structure often involves one organization “contracting out” aspects of its operations to other organizations that specialize in them. The example used in the text was of a company that contracted out its mailroom services. Through the formation of networks of contracts, the organization is reduced to a core of essential employees whose expertise is concentrated in the primary business areas. The contracts are monitored and maintained in the network to allow the overall operations of the organization to continue, even though they are not directly accomplished by full-time employees. 18. Explain the practical significance of this statement: “Organizational design should be done in contingency fashion.” The term “contingency” is used in management to indicate that management strategies and practices should be tailored to fit the unique needs of individual situations. There is no universal solution that fits all problems and circumstances. Thus, in organizational design, contingency thinking must be used to identify and implement particular organizational points in time. What works well at one point in time may not work well at another, as the environment and other conditions change. For example, the more complex, variable, and uncertain the elements in the environment, the more difficult it is for the organization to operate. This situation calls for a more organic design. In a stable and more certain environment, the mechanistic design is appropriate, because operations are more routine and predictable. 19. Describe two trends in organizational design and explain their importance to managers. Several options for answering this question are described in the chapter. 20. Faisal Sham supervises a group of seven project engineers. His unit is experiencing a heavy workload, as the demand for different versions of one of his firm’s computer components is growing. Faisal finds that he doesn’t have time to follow up on all design details for each version. Up until now he has tried to do this all by himself. Two of the engineers have shown interest in helping him coordinate work on the various designs. As a consultant, how would you advise Faisal in terms of delegating work to them? Faisal must first have confidence in the two engineers—he must trust them and respect their capabilities. Second, he must have confidence in himself, trusting his own judgment to give up some work and allow the others to do it. Third, he should follow the rules of effective delegation. These include being very clear on what must be accomplished by each engineer. Their responsibilities should be clearly understood. He must also give them the authority to act in order to fulfill their responsibility, especially in relationship to the other engineers. And he must not forget his own final accountability for the results. He should remain in control and, through communication, make sure that work proceeds as planned. CHAPTER 11: MANAGEMENT SKILLS AND COMPETENCIES
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FURTHER REFLECTION: EMPOWERMENT Students’ answers will vary according to their comfort levels with delegation and sharing power. SELF ASSESSMENT: EMPOWERING OTHERS Instructions Think of times when you have been in charge of a group — this could be a full-time or part-time work situation, a student work group, or whatever. Complete the following questionnaire by recording how you feel about each statement according to this scale: 1 = Strongly disagree 2 = Disagree 3 = Neutral 4 = Agree 5 = Strongly Agree When in charge of a group I find ____ 1. Most of the time other people are too inexperienced to do things, so I prefer to do them myself. ____ 2. It often takes more time to explain things to others than to just do them myself. ____ 3. Mistakes made by others are costly, so I don’t assign much work to them. ____ 4. Some things simply should not be delegated to others. ____ 5. I often get quicker action by doing a job myself. ____ 6. Many people are good only at very specific tasks and so can’t be assigned additional responsibilities. ____ 7. Many people are too busy to take on additional work. ____ 8. Most people just aren’t ready to handle additional responsibilities. ____ 9. In my position, I should be entitled to make my own decisions.
Scoring Total your responses: enter the score here [ _____ ].
Interpretation This instrument gives an impression of your willingness to delegate. Possible scores range from 9 to 45. The lower your score, the more willing you appear to be to delegate to others. Willingness to delegate is an important managerial characteristic: It is essential if you — as a manager — are to “empower” others and give them opportunities to assume responsibility and exercise self-control in their work. With the growing importance of empowerment in the new workplace, your willingness to delegate is worth thinking about seriously. Be prepared to share your results and participate in general class discussion.
Instructor’s Note
The title of this exercise is misleading in one sense ⎯ people with higher scores tend to be more reluctant to delegate to others, rather than more willing. Be sure to point this out to your students. This exercise can serve as a useful tool for providing students with insight into their willingness to delegate, and hence their capability or tendency to empower others. Since delegation and empowerment are becoming increasingly important in the modern workplace, students who score as being reluctant to delegate should be aware of the potential adverse consequences of such reluctance. Indeed, the items reflect many of the reasons that managers often give for not delegating tasks to subordinates. Unfortunately, such reluctance can seriously undermine managerial effectiveness, for a variety of reasons. First, managers may simply become overwhelmed with tasks that they cannot begin to effectively complete on their own. Second, they may become overworked and experience excessive stress due to their efforts to perform the work of multiple persons. Third, the quality and/or quantity of work done may suffer as a result. Fourth, they will fail to develop their subordinates; as a result, their employees will not be properly prepared for more challenging assignments, and may become bored or frustrated with the lack of opportunities for growth. Finally, when and if such managers leave their posts, their subordinates are ill-equipped to pick up the slack by assuming the managers’ responsibilities and duties, since they lack experience in completing these tasks. For all of these reasons, it is imperative for
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managers to properly delegate assignments and empower their direct reports in order for the subordinates — and the manager — to achieve their full potential. To provide students with some suggestions for overcoming their reluctance to delegate, share with them the following guidelines on how to empower others: • Get others involved in selecting work assignments and the methods of accomplishing tasks. • Create an environment of cooperation, information sharing, discussion, and shared ownership of goals. • Encourage others to take initiative, make decisions, and use their knowledge. • When problems arise, find out what others think and let them help design the solution. • Stay out of the way; let others put their ideas and solutions into practice. • Maintain high morale and confidence by recognizing successes and encouraging high performance. (Source: Questionnaire adapted from Steinmertz, L., and Todd, R. First Line Management, 4th ed. Homewood, IL: BPI/Irwin, 1986, pp. 64-67. Used by permission.)
TEAM EXERCISE: DESIGNING A NETWORK UNIVERSITY Team answers will vary.
CAREER SITUATIONS FOR ORGANIZING: WHAT WOULD YOU DO? 1. The New Branch Manager 2. Advisor to the Business School 3. Entrepreneur’s Dilemma These answers may differ according to students’ personal organizational habits and preferences.
REVIEW QUESTIONS FOR CASE 11: NIKE: SPREADING OUT TO WIN THE RACE Discussion Questions 1. How does Nike’s decision to retain an in-house arm of ad agency Wieden & Kennedy exemplify the concept of organizational design? Network structures like Nike's seems to be are heavily dependent on strategic alliances and outsourcing alliances. Weiden+Kennedy seems to be a contractor for Nike. Strategic alliances form between firms that have similar interests. The example in the text is a catalog that is published with the cooperation of several home furnishing companies. An example for Nike might be pairing with another fitness equipment provider to sponsor an event. The relationship with Weiden+Kennedy is an outsourcing alliance according the text. Nike contracts with Weiden+Kennedy to provide important services. 2. Given the problems Nike has had with sweatshop labor being used in some of its foreign contractors, are there parts of the firm that need to be run with a mechanistic rather than
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organic design? Give examples to support your answer. Mechanistic designs are highly centralized and bureaucratic with an emphasis on command and control. This might persuade some students that mechanistic designs are appropriate for manufacturing in foreign countries. Organic designs are adaptive, decentralized and tend to respond to change more quickly. This would probably be a good fit for an organization that has far flung operations in different countries with different cultures that try to respond to rapidly changing technology, fashion, customer demands and economic conditions. Decentralized control present in an organization that uses organic designs is still control. Organization members in an organic/adaptive company that are responsible for monitoring foreign contractors and labor conditions may be just as committed to control standards as members of a mechanistic/bureaucratic company. Problem Solving Nike seems to be using some form of network structure. Draw a diagram that shows what you believe its present structure looks like. Be sure to include all possible components; make and explain your assumptions in doing so. Now be an organization design consultant. Look at your diagram and ask: How can this network structure be improved? How can Nike gain even more operating efficiencies without losing its performance edge in terms of high quality and top design shoes? Explain and defend your answers to this question. Network structures use information technology (IT) to link with networks of outside suppliers and service contractors. The case outlines Nike's efforts to outsource many nonexecutive responsibilities to reduce overhead. In addition to outsourcing production, the research and marketing business centers listed in the case could be part of a network structure. Other functions may include design, advertising, licensing, compliance, sports and entertainment marketing. The network structure may look similar to figure 11.6 on page 280. Further Research Gather information on Nike’s recent moves and accomplishments, and those of its rivals. Are the firms following the same strategies and using the same structures to support them? Or, is one doing something quite different from the other? Based on what you learn, what do you predict for the future? Can Nike stay on top, or is some other firm destined to be the next industry leader? Remind students that the research should center on the companies and not the specific products. Sources like Runner's World will contain product information, and even comparisons, but that isn't going to provide the insight they will need to assess company strategy. Caution students to conduct their online research with objective media sources. The college library may offer free searches such as EBSCO Host that access a large number of periodicals including industry publications that may provide thorough and accurate comparisons as well as current industry trends.
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Chapter12:
ORGANIZATION CULTURE AND CHANGE CHAPTER 12 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: • • •
What is organizational culture? What is a multicultural organization? What is the nature of organizational change?
CHAPTER 12 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • •
Define organizational culture and explain the importance of strong cultures to organizations. Define and explain the process of socialization. Distinguish between the observable and core cultures. Explain how value-based management helps build strong culture organizations. Describe how workplace spirituality relates to organizational culture. Explain multiculturalism and the concept of a multicultural organization. Identify common organizational subcultures. Discuss glass ceilings and employment problems faced by minorities and women. Explain Thomas’s concept of managing diversity. Define change leader and change agent Discuss pros and cons of top-down change and bottom-up change Differentiate planned and unplanned change Differentiate incremental and transformational change Describe Lewin’s three phases of planned change Discuss the pros and cons of the force-coercion, rational persuasion, and shared power change strategies List several reasons why people resist change Describe strategies for dealing with resistance to change
CHAPTER 12 OVERVIEW The chapter begins by examining organizational culture. The section begins by defining what organizational culture is, and by identifying different levels of organizational culture. The roles of value-based management, symbolic leadership, and workplace spirituality in organizational culture are discussed as well. The chapter then moves into what makes up a multicultural organization, looking at performance, subcultures, and diversity. The focus then shifts to organizational change by examining different models of change leadership, incremental and transformational change, the phases of planned change, strategies for change, finishing with resistance to change.
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CHAPTER 12 LECTURE OUTLINE Teaching Objective: To familiarize students with the environmental challenges they will face in managing organizational culture and change for competitive advantage in the 21st century. Suggested Time: Two hours of class time are recommended to present the material in this chapter. Depending on your objectives, however, the chapter can be presented in as little as one hour or as much as three hours. I.
Takeaway question 1: What is organizational culture? Understanding organizational culture The observable culture of organizations Values and the core culture of organizations
II.
Takeaway Question 2: What is a multicultural organization? Multicultural organizations and performance Organizational subcultures Diversity issues and organizational cultures
III.
Takeaway Question 3: What is the nature of organizational change? Modes of change leadership Incremental and transformational change Phases of planned change Change strategies Resistance to change
CHAPTER 12 SUPPORTING MATERIALS Textbook Inserts Learning from Others • Healthy Living Sets the Tone at Clif Bar Learning about Yourself • Tolerance for Ambiguity Figures • Figure 12.1: Levels of Organizational Culture – Observable Culture and Core Culture in the Organizational “Iceberg” • Figure 12.2: Glass Ceilings as Barriers to Women and Minority Cultures in Traditional Organizations • Figure 12.3: Change Leaders Versus Status Quo Managers • Figure 12.4: Lewin’s Three Phases of Planned Organizational Change • Figure 12.5: Alternative Change Strategies and Their Leadership Implications Thematic Boxes • Management Smarts: Question for Reading an Organization’s Culture
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• • • • • • • • • • •
Respect for Traditions Helps Strong Disney Culture Travel the World Management Decisions at Tom’s of Maine Are Guided by Core Values Follow the Story: Alan Mulally Makes His Mark on Ford’s Culture Sample Values in Spiritual Organizational Cultures Tips for Working With the Millennial Generation Facts for Analysis: Organizational Cultures Must Face Up to Emerging Work-Life Trends Ethics on the Line: Hidden Agendas in Organizational Change Management Smarts: How to Lead Organizational Change Recommended Reading: Change by Design: How Design Thinking Transforms Organizations and Inspires Innovation Management Smarts: Why People May Resist Change Research Brief: Top Management Must Get – and Stay – Committed in Order for Shared Power to Work in Tandem With Top-Down Change
Applications • Self-Test • Further Reflection: Tolerance for Ambiguity • Self-Assessment: Change Leadership IQ • Team Exercise: Force-Field Analysis • Career Situations for Organizational Culture and Change: What Would You Do? • Case 12: Apple, Inc.: People and Design Create the Future
CHAPTER 12 LECTURE NOTES LEARNING FROM OTHERS on page 294 of the text describes how Clif Bar’s core values shape its organizational culture and employment policies and practices. LEARNING ABOUT YOURSELF on page 295 of the text addresses the subject of tolerance for ambiguity and asks students to consider how comfortable or uncomfortable they may be in dealing with uncertainty.
TAKEAWAY QUESTION 1: WHAT IS ORGANIZATIONAL CULTURE? Organizational culture is the system of shared beliefs and values that develops within an organization and guides the behavior of its members. DISCUSSION TOPIC A discussion of the shared beliefs and values that describe your college or university can be an effective method for getting students to think about organizational culture. Make sure the discussion examines who within your college/university community shares these values, and how these values influence the behavior of different members of your college/university community. By focusing on who shares these values you can explore whether or not your college/university has a strong culture. Alternatively, you can consider the possibility that there might be two or more subcultures operating within the organization.
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UNDERSTANDING ORGANIZATIONAL CULTURE Organizational culture is what one sees and hears when walking around as a visitor, a customer, or an employee. MANAGEMENT SMARTS on page 297 of the text lists the following questions for reading an organization’s culture: • • • • • • • •
How tight or loose is the structure? Do most decisions reflect change or the status quo? What outcomes or results are most highly valued? What is the climate for risk taking and innovation? How widespread are empowerment and worker involvement? What is the competitive style, internal and external? What value is placed on people, as customers and employees? Is teamwork a way of life in this organization?
The best organizations are likely to have strong cultures which are clear, well-defined, and widely shared among members, discourage dysfunctional work behaviors and encourage positive ones. Also, these cultures are performance-oriented, emphasize teamwork, allow for risk taking, encourage innovation, and make the well-being of people a top management priority. A strong culture is built through socialization, which is the process of helping new members learn the culture and values of the organization, as well as the behaviors and attitudes that are shared among its members. Respect for Tradition on p. 298 of the text explains how Disney Inc. socializes new employees into its organizational culture through its Traditions program. THE OBSERVABLE CULTURE OF ORGANIZATIONS Observable culture is what one sees and hears when walking around an organization as a visitor, a customer, or an employee. Elements of the observable culture in organizations: • • • •
Heroes ⎯ the people singled out for special attention, and whose accomplishments are recognized with praise and admiration among members; they include founders and role models. Ceremonies, rites and rituals ⎯ the ceremonies and meetings, planned and spontaneous, that celebrate important occasions and performance accomplishments. Legends and stories ⎯ oral histories and tales told and retold among members, about dramatic sagas and incidents in the life of the organization. Metaphors and symbols ⎯ the special use of language and other non-verbal expressions to communicate important themes and values of the organization.
FIGURE 12.1 on page 298 of the text describes the levels of organizational culture –– observable culture and the core culture.
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DISCUSSION TOPIC Divide students into groups of four or five for a brief discussion of the observable culture of organizations. Ask each group to identify an organization of which they have reasonable knowledge by virtue of observing the organization or being a member of it. These organizations could be related to work, school, extracurricular activities, etc. ⎯ fraternities and sororities are excellent choices for this enhancement exercise but make sure that other types of organizations are represented as well. Have each group describe the stories, heroes, rites/rituals, and/or symbols that characterize the observable culture of the selected organization. A spokesperson for each group should report out to the entire class. VALUES AND THE CORE CULTURE OF ORGANIZATONS The core culture consists of the core values or underlying assumptions and beliefs that influence behavior and actually contribute to the aspects of observable culture. Organizations with strong cultures operate with a small but enduring set of core values. Highly successful companies typically emphasize the values of performance excellence, innovation, social responsibility, integrity, worker involvement, customer service, and teamwork. Organizational culture has the potential to shape attitudes, reinforce beliefs, direct behavior, and establish performance expectation and the motivation to fulfill them. While it is easy to write down the core values, putting them into practice is what makes them real. Value-Based Management Value-based management describes managers who actively help to develop, communicate, and enact shared values within an organization. Value-based management has an important impact on ethics and social responsibility. The responsibility for value-based management extends to all managers and team leaders working at all levels of the organization. The following criteria are a good test of the value-based management of an organization: • • • •
Relevance –– core values support key performance objectives. Integrity ⎯ core values provide clear, consistent ethical anchors. Pervasiveness –– core values are understood by all members. Strength –– core values are accepted by all members.
Management Decisions at Tom’s of Maine Are Guided by Core Values on p. 299 of the text illustrates how Tom’s of Maine stayed true to its core value of integrity by pulling an unsuccessful new product from the market and reimbursing customers who had already purchased the product.
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FOLLOW THE STORY on page 300 of the text provides insight into how an automobile industry outsider, Ford CEO Alan Mulally, by changing the culture of the firm, allowed Ford to outperform both GM and Chrysler. Workplace Spirituality Workplace spirituality is not religious based, but rather describes an organizational culture in which people are able to experience meaning in their work and a sense of shared community through their role in the organization. The core values in a culture of workplace spirituality • have a strong ethical foundation. • recognize human dignity. • respect diversity. • focus on linking jobs with an organization’s contributions to society. DISCUSSION TOPIC The public ethical collapse of Enron in late 2001 was soon followed by numerous reports of other organizations’ ethical failures, large and small. In many instances, these ethical failures were eventually attributed to (a) organizational cultures that did not genuinely value ethical behavior and/or (b) leaders at the top of the organizational hierarchy who did not serve as an effective role model of ethical behavior. This is certainly the case with Enron. Discuss with the students their perceptions/knowledge of what happened at Enron, and the lessons/ insights that they have personally drawn from Enron’s ethical collapse.
TAKEAWAY QUESTION 2: WHAT IS A MULTICULTURAL ORGANIZATION? Consultant R. Roosevelt Thomas, Jr. believes how diversity is handled in the workplace ⎯ with respect and inclusion or disrespect and exclusion ⎯ reflects the organization’s culture. Multiculturalism refers to inclusivity, pluralism and respect for diversity in the workplace. A multicultural organization communicates and supports core values that respect diversity and support multiculturalism. Characteristics of multicultural organizations include: • • • • •
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Pluralism –– members of both minority cultures and majority cultures are influential in setting key values and policies. Structural integration –– minority-culture members are well represented in jobs at all levels and in all functional responsibilities. Informal network integration –– various forms of mentoring and support groups assist in the career development of minority-culture members. Absence of prejudice and discrimination –– a variety of training and task force activities continually address the need to eliminate culture-group bias. Minimum intergroup conflict –– diversity does not lead to destructive conflicts between members of majority cultures and minority cultures.
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MULTICULTURAL ORGANIZATIONS AND PERFORMANCE According to R. Roosevelt Thomas, organizations that respect diversity can expect performance gains from the mixtures of talents and perspectives of its members. Research indicates that having a presence of diversity does not guarantee positive performance. When respect for diversity is embedded in the organizational culture, then one can expect a positive performance impact. ORGANIZATIONAL SUBCULTURES Organizational subcultures such as generational, gender, ethnic/national, occupational, and functional exist among people with similar values and beliefs based on shared work responsibilities and personal characteristics. Ethnocentrism is the belief that one’s membership group or subculture is superior to all others. •
In generational subcultures, “generational gaps” exist between people who grew up and are growing up during different periods of history, and whose values have thus evolved under different influences. These differences in values affect perceptions of and interpersonal relationships among the generations.
•
Gender subcultures reflect differences in the values and beliefs of women and men. When men work together, a male group culture forms, which typically has a competitive atmosphere and relies on “sports” metaphors. When women work together, a female group culture forms, which typically involves more personal relationships with an emphasis on collaboration.
•
Ethnic or national subcultures form among people who work together and have roots in the same ethnic community, country, or region of the world. The impact of ethnic or national cultures in organizations can be addressed by promoting understanding through direct contact, personal commitment, and a genuine openness to people with different ethnic backgrounds. Ethnic and racial subcultures such as “African-American” or “Latino” or “Anglo” could learn to work together more effectively and harmoniously by understanding each other’s subcultures better.
•
Occupational subcultures have “salaried professionals” such as lawyers, scientists, engineers, and accountants. These professionals have needs for work autonomy that may conflict with traditional top-down management practices. Managers must recognize and respond appropriately to these needs, or these professionals may be difficult to integrate into the culture of the larger organization.
•
Functional subcultures embody people who develop strong identities with their work groups and specific areas of task responsibilities, such as “systems people” or “marketing people” or “manufacturing people” or “finance people.” This results in tendencies to separate in-group people from the rest of the organization, to use jargon, and to view their contributions as more important than that of other functions.
FACTS FOR ANALYSIS on p. 303 cites statistics that illustrate the impact of work-life balance issues and diversity on management practices.
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DISCUSSION TOPIC Ask the students to identify subcultures that they have observed or been members of in an organization. Discuss the relationships that existed between the subcultures and the rest of the organization. DIVERSITY SSUES AND ORGANIZATIONAL CULTURES The very term “diversity” basically means the presence of differences. But what happens when those differences are distributed unequally in the organizational power structure? Unequal distribution of differences across organizational levels or across work functions can significantly influence operations and relationships within an organization. Glass Ceiling The glass ceiling is an invisible barrier that limits the advancement of women and minorities in organizations. One reason that more women are not employed in corporate level positions is the leaking pipeline problem, i.e., where glass ceilings and other problems cause qualified and high profile women to drop out of upward career paths. As depicted in FIGURE 12.2 on page 304 of the text the dominate culture in a traditional organization is populated by white males, while the minority culture is made up of women, people of color and other minorities. Harassment and Discrimination The daily work challenges faced by women and minorities can range from misunderstandings and lack of sensitivity to the glass ceiling to outright harassment and discrimination. Sexual harassment in the form of unwanted sexual advances, requests for sexual favors, and sexually laced comments is a problem female employees in particular may face. Minorities exhibiting biculturalism are adapting to an organization’s culture by displaying characteristics of the majority culture that seem necessary for success in the workplace. Diversity Leadership Managing diversity refers to building an organizational culture that allows all members, minorities and women included, to reach their full potential. Three approaches to exercising diversity leadership are: • •
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Affirmative action in which leadership commits the organization to hiring and advancing minorities and women. Valuing diversity in which leadership commits the organization to education and training programs that are designed to help people better understand and respect individual differences.
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•
Managing diversity in which leadership commits to changing the organizational culture to empower and include all people.
A diverse workforce is a strategic asset when it is aligned with the needs and expectations of a diverse customer and stakeholder base. DISCUSSION TOPIC Point out to students that diversity maturity is relevant to how they deal with relationships in the educational environment as well as in the workplace. Have the students assess their own diversity maturity within their college/university community, by answering Yes or No to the following questions: Do you accept responsibility for improving your performance? Do you understand diversity concepts? Do you make decisions about other based on their abilities? Do you understand that diversity issues are complex? Are you able to cope with tensions in addressing diversity? Are you willing to challenge the way things are? Are you willing to learn continuously?
TAKE AWAY QUESTION 3: WHAT IS THE NATURE OF ORGANIZATIONAL CHANGE? If the existing culture of an organization is not driving high performance, if subcultures are clashing with each other, or if organization members are not behaving properly toward each other, then an organizational change is needed. MODELS OF CHANGE LEADERSHIP A change leader is a change agent who takes leadership responsibility for changing the existing pattern of behavior of another person or social system. In theory, every manager should be a change leader by being alert to situations or people that need changing, staying open to new ideas and opportunities, and supporting the implementation of new ideas in practice. Reality shows that people tend to migrate toward the status quo, rather than wanting to change. ETHICS ON THE LINE on p. 306 of the text asks if it is acceptable for managers to hand-pick team members that are most likely to initiate desired changes, and then note that change success was due to sharing power with these organizational members. FIGURE 12.3 on page 307 of the text illustrates the difference between change leaders and status quo managers. Change leadership is forward looking, proactive, and embraces new ideas. Status quo management is backward looking, reactive, and comfortable with habit.
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Top-Down Change Top-down change refers to strategic and comprehensive change that is initiated by senior management with the goal of comprehensive impact on the organization and its performance capabilities. Top-down change is driven by the top leadership of the organization. The success of top-down change depends on the willingness of middle-level and lower-level workers to actively support top-management initiatives. Bottom-Up Change Bottom-up change occurs when the initiatives for change come from any and all parts of the organization, not just top management. Bottom-up change is crucial for organizational innovation. Bottom-up change is made possible by employee empowerment, involvement, and participation. MANAGEMENT SMARTS on page 307 of the text tells how to lead organizational change: • • • • • • •
Establish a sense of urgency for change. Form a powerful coalition to lead the change. Create and communicate a change vision. Empower others to move change forward. Celebrate short-term “wins” and recognize those who help. Build on success: align people and systems with the new ways. Stay with it; keep the message consistent; champion the vision.
INCREMENTAL AND TRANSFORMATIONAL CHANGE The organizational change pyramid shows planned changes at the: • • •
Top levels – are likely to be large-scale and strategic repositioning changes focused on big issues that affect the whole organization. Middle levels – often deal with major adjustments in structures, systems, technologies, products, and people to support strategic positioning. Lower-levels – seek continuous improvements in performance through frequent and smaller-scale changes.
Incremental change bends and nudges existing systems and practices to better align them with emerging problems and opportunities, with the intent to move an organization forward through continuous improvement. Transformational change is radical and frame-breaking, and results in a major and comprehensive redirection of the organization. It is intense, stressful, and complex. PHASES OF PLANNED CHANGE Kurt Lewin developed a model for change that consists of three phases: .
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1. Unfreezing – preparing a system for change. 2. Changing – making actual changes. 3. Refreezing – stabilizing the system after change. Unfreezing Unfreezing is the phase in which a situation is prepared for change and felt needs for change are developed. This is done by: • • •
Establishing a good relationship with the people involved. Helping others realize that present behaviors are not effective. Minimizing expressed resistance to change.
Changing Changing is the phase in which something new takes place in the system, and change is actually implemented. This is done by: • • •
Identifying new, more effective ways of behaving. Choosing appropriate changes in tasks, people, culture, technology, and/or structures. Taking action to put these changes into place.
Refreezing Refreezing is the phase of stabilizing the change and creating the conditions for its long-term continuity. This is done by: • • •
Creating acceptance and continuity for the new behaviors. Providing any necessary resource support. Using performance-contingent rewards and positive reinforcement.
FIGURE 12.4 on page 309 of the text depicts Kurt Lewin’s three phases of planned change. Improvising Improvising – while not a phase listed in Lewin’s model, relates to the dynamic and complex change process by allowing managers to continually make adjustments as changes are being implemented. Technological change can be approached as an ongoing process that involves improvisational change where adjustments are continually made as things are being implemented. DISCUSSION TOPIC Have the students identify something they believe should be changed about the way your college or university operates. Then have them analyze how this change could be managed using the three-phase model of planned change for guidance.
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CHANGE STRATEGIES Force-Coercion Strategy A force-coercion strategy uses the power bases of legitimacy, rewards, and punishments as the primary inducements to change. The force-coercion strategy relies on the belief that people are basically motivated by self-interest. Two types of force-coercion: • •
Direct forcing where the change agent takes direct and unilateral action to command that change take place. Political maneuvering where the change agent works indirectly to gain special advantage over other persons and thereby make them change.
Force-coercion by itself produces limited results. Force-coercion is most useful as an unfreezing device for helping people break old behavioral patterns and gain the initial impetus to try new ones. FIGURE 12.5 on page 310 of the text summarize the power bases, managerial behaviors, and likely results associated with three common change strategies –– force-coercion, rational persuasion, and shared power. Rational Persuasion Strategy A rational persuasion strategy attempts to bring about change through persuasion backed by special knowledge, empirical data, and rational argument. Rational persuasion relies to a large extent on expert power. The rational persuasion strategy relies on the belief that people are inherently rational and guided by reason in their actions and decision making. Successful use of the rational persuasion strategy helps unfreeze and refreeze a change situation The rational persuasion strategy tends to result in longer-lasting and internalized change. RECOMMENDED READING on p. 311 of the text, Change by Design: How Design Thinking Transforms Organizations and Inspires Innovation provides examples of innovation by combining creative problem solving with strategic initiatives. Shared Power Strategy A shared power strategy (or normative re-educative strategy) engages people in a collaborative process of identifying values, assumptions, and goals from which support for change will naturally emerge.
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Though very time consuming, a shared power strategy is likely to yield high commitment. The shared power strategy relies on involving others in examining personal needs and values, group norms, and operating goals as they relate to the issues at hand. Use of the shared power strategy relies on the manager’s referent power and skills at working effectively with other people in group situations. The shared power strategy tends to result in longer-lasting and internalized change. The shared power strategy relies on the belief that people behave as they do because of socio-cultural norms and commitments to the expectations of others. DISCUSSION TOPIC If you used the previous Discussion Topic, discuss with the students the viability of using forcecoercion, rational persuasion, or shared power to achieve the planned change in your college or university. RESISTANCE TO CHANGE Change often brings resistance. When people resist change, they are often defending something important and that appears threatening. A change leader can discover much by listening to resistance and then using it as a resource for improving the change process. Why People Resist Change People resist change because it is viewed as: • • •
a threat to something of value. a source of uncertainty. something that is high in cost or limited in benefits.
MANAGEMENT SMARTS on page 312 of the text covers why people may resist change: • • • • •
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Fear of the unknown — not understanding what is happening or what comes next. Disrupted habits —feeling upset to see the end of the old ways of doing things. Loss of confidence —feeling incapable of performing well under the new ways of doing things. Loss of control — feeling that things are being done “to” you rather than “by” or “with” you. Poor timing —feeling overwhelmed by the situation or that things are moving too fast.
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• • •
Work overload — not having the physical or emotional energy to commit to the change. Loss of face — feeling inadequate or humiliated because the “old” ways weren’t “good” ways. Lack of purpose — not seeing a reason for the change and/or not understanding its benefits.
DISCUSSION TOPIC Assuming that you used the preceding two Discussion Topics, ask the students to identify potential sources of resistance for the planned change in your college or university. Dealing with Resistance to Change Four checkpoints can help in dealing with resistance and in leading successful organizational changes: 1. check the benefits – make sure the people involved see a clear advantage in making the change; people should know “what is in it for me” or “what is in it for our group or the organization as a whole.” 2. check the compatibility – keep the change as close as possible to the existing values and ways of doing things; minimizing the scope of change helps keep it more acceptable and less threatening. 3. check the simplicity – make the change as easy as possible to understand and use; people should have access to training and assistance to make the transition to new ways as easy as possible. 4. check the triability – allow people to try the change little-by-little, making adjustments as they go; don’t rush the change, but adjust the timing to best fit work schedules and cycles of high/low workloads. Other techniques for dealing with resistance to change include: 1. education and communication –– using discussions, presentations, and demonstrations to educate people about a change. 2. participation and involvement –– allowing others to contribute ideas and help design and implement change. 3. facilitation and support –– providing encouragement and training, actively listening to problems and complaints, and helping overcome performance pressures. 4. facilitation and agreement –– providing incentives to actual or potential resistors; making trade-offs in exchange for assurance that the change will not be blocked. 5. negotiation and agreement –– providing incentives that appeal to those who are actively resisting or ready to resist. It also makes trade-offs in exchange for assurances that change will not be blocked. 6. manipulation and co-optation –– using covert attempts to influence others by providing information selectively and structuring events in favor of the desired change. 7. explicit and implicit coercion –– forcing people to accept change by threatening resistors with a variety of undesirable consequences if they do not go along as planned.
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RESEARCH BRIEF on p. 313 of the text details a research study which found that change is hampered when management refuses to share power with employees. DISCUSSION TOPIC Assuming that you used the preceding three Discussion Topics, have the students discuss ways of overcoming resistance to planned change in your college or university.
CHAPTER 12 STUDY QUESTION SUMMARY Takeaway Question 1: What is organizational culture? • Organizational culture is an internal environment that establishes a personality for the organization and influences the behavior of members. • The observable culture is found in the rites, rituals, stories, heroes, and symbols of the organization; the core culture consists of the core values and fundamental beliefs on which the organization is based. • In organizations with strong cultures, members behave with shared understandings and act with commitment to core values. • Key dimensions of organizational culture include such things as innovation and risk taking, team emphasis, concern for people, and performance orientation. • Among trends in managing organizational cultures, value-based management, workplace spirituality, and symbolic leadership are popular directions and considerations. FOR DISCUSSION: Of the various dimensions of organizational culture, which are most important to you as an employee? Takeaway Question 2: What is a multicultural organization? • Multicultural organizations operate with internal cultures that value pluralism, respect diversity, and build strength forma n environment of inclusion. • Organizations have many subcultures, including those based on occupational, functional, ethnic, age, and gender differences. • Challenges faced by members of minority subcultures in organizations include sexual harassment, pay discrimination, job discrimination, and glass ceiling effect. • Managing diversity in the process of developing an inclusive work environment that allows everyone to reach their full potential. FOR DISCUSSION: What can a manager do, at the work team level, to reduce diversity bias in the workplace? Takeaway Question 3: What is the nature of organizational change? • Change leaders are change agents who take initiative to change the behavior of people and organizational systems. • Organizational change can proceed with a top-down emphasis, with a bottom-up emphasis, or a combination of both. • Incremental change makes continuing adjustments to existing ways and practices; transformational change makes radical changes in organizational directions. • Lewin’s three phases of planned change are unfreezing— preparing a system for change; changing—making a change; and refreezing—stabilizing the system.
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Change agents should understand the nature of force-coercion, rational persuasion, and shared power change strategies. People resist change for a variety of reasons, including fear of the unknown and force of habit. Good change agents deal with resistance in a variety of ways, including education, participation, support and facilitation.
FOR DISCUSSION: Can the refreezing stage of planned change ever be satisfied in today’s dynamic environments?
CHAPTER 12 KEY TERMS Biculturalism (p. 305): involves members of minority cultures displaying the characteristics of the majority culture that seem necessary for success in the work environment. Bottom-up change (p. 307): occurs when ideas and initiatives for change come from lower organizational levels and then percolate upward. Change leader (p. 306): someone who takes leadership initiative to change the existing pattern of behavior of another person or social system. Changing (p. 309): the phase where something new takes place in a system and change is actually implemented. Core culture (p. 299): consists of the underlying assumptions and beliefs that shape and guide people’s behaviors in an organization. Core values (p. 299): beliefs and values shared by organization members. Ethnic subcultures (p. 303): a subculture that forms among people who work together and have roots in the same ethnic community, country, or region of the world. This is also known as national subculture. Ethnocentrism (p. 302): the belief that one’s membership group or subculture is superior to all others. Gender subculture (p. 302): a subculture that forms among persons who work together and share the same gender identities. Generational subcultures (p. 302): form among persons who work together and share similar ages, such as Millennials and Baby Boomers. Glass ceiling (p. 304): an invisible barrier that limits the advancement of women and minorities in some organizations. Improvisational change (p. 310): makes continual adjustments as changes are implemented. Incremental change (p. 308): bends and nudges existing systems and practices to better align them with emerging problems and opportunities. Leaking pipeline problem (p. 304): where glass ceilings and other problems cause qualified and high profile women to drop out of upward career paths. Managing diversity (p. 305): a leadership approach that creates an organizational culture that respects diversity and supports multiculturalism. Multicultural organization (p. 301): an organization that has a culture with core values that respect diversity and support multiculturalism. Multiculturalism (p. 301): refers to inclusivity, pluralism, and respect for diversity in the workplace. Observable culture (p. 296): what one sees and hears when walking around in an organization as a visitor, a customer, or an employee. Occupational subcultures (p. 303): a subculture that forms among persons that share the same professions and skills. Organizational culture (p. 296): the system of shared beliefs and values that guides behavior in organizations.
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Organizational subcultures (p. 302): groups of people who share similar beliefs and values based on their work or personal characteristics. Rational persuasion strategy (p. 311): a change strategy that attempts to bring about change through persuasion backed by special knowledge, empirical data, and rational argument. Refreezing (p. 309): the phase during which change is stabilized and the conditions for its longterm continuity are created. Shared power strategy (p. 312): a change strategy that uses collaboration to identify values, assumptions, and goals from which support for change will naturally emerge. Socialization (p. 297): the process through which new members learn the culture of an organization. Top-down change (p. 307): occurs when senior managers initiate changes with the goal of improving organizational performance. Transformational change (p. 308): a radical or frame-breaking change that results in a major and comprehensive redirection of the organization. Value-based management (p. 300): describes managers who actively help to develop, communicate, and enact shared values within an organization. Unfreezing (p. 308): the phase in which a situation is prepared for change and felt needs for change are developed. Workplace spirituality (p. 301): creates meaning and shared community among organizational members.
SELF TEST ANSWERS 1.
Pluralism and the absence of discrimination and prejudice in policies and practices are two important hallmarks of _________. (a) the glass ceiling effect (b) a multicultural organization (c) quality circles (d) affirmative action
2.
When members of minority cultures feel that they have to behave in ways similar to the majority, this is called _________. (a) biculturalism (b) symbolic leadership (c) the glass ceiling effect (d) inclusivity
3.
Engineers, scientists and information systems specialists are likely to become part of separate _______________ subcultures in an organization. (a) ethnic (b) generational (c) functional (d) occupational
4.
Stories about an organization’s past accomplishments such as company founders are all part of what is called the ___________ culture. (a) observable (b) underground (c) functional (d) core
5.
Honesty, social responsibility, and customer service are examples of __________that can become foundations for an organization’s core culture. (a) rites and rituals (b) values (c) subsystems (d) ideas
6.
Which leadership approach is most consistent with an organizational culture that values the full utilization of all diverse talents of all of the organization’s human resources? (a) Managing diversity (b) Affirmative action (c) Status quo (d) Rational persuasion
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7.
When members of a dominant subculture, such as white males, make it hard for members of minority subcultures, such as women, to advance to higher level positions in the organization, this is called the ___________ effect. (a) dominator (b) glass ceiling (c) brick wall (d) end-of-line
8.
An executive pursuing transformational change would give highest priority to which one of these change targets? (a) an out-of-date policy (b) the organizational culture (c) a new information system (d) job designs in a customer service department
9.
_____________ change results in a major change of direction for an organization, while _____________ makes small adjustments to current ways of doing things. (a) Frame breaking; radical (b) Frame bending; incremental (c) Transformational; frame breaking (d) Transformational; incremental
10. The presence or absence of a felt need for change is a key issue in the ___________ phase of the planned change process. (a) improvising (b) evaluating (c) unfreezing (d) refreezing 11. When a manager listens to users, makes adaptations, and continuously tweaks and changes a new MIS as it is being implemented, the approach to technological change can be described as ____________ (a) top-down (b) improvisational (c) organizational development (d) frame breaking 12. A manager using a force-coercion strategy will rely on ____________ to bring about change. (a) expertise (b) benchmarking (c) formal authority (d) information 13. The most participative of the planned change strategies is ____________. (a) force-coercion (b) rational persuasion (c) shared power (d) command and control breaking 14. True internalization and commitment to a planned change is most likely to occur when a manager uses a(n) ____________ change strategy. (a) education and communication (b) rational persuasion (c) manipulation and co-optation (d) shared power 15. Trying to covertly influence others, offering only selective information, and structuring events in favor of the desired change, is a way of dealing with resistance by ___________. (a) participation (b) manipulation and co-optation (c) force-coercion (d) facilitation 16. What core values might be found in high-performance organizational cultures? Core values indicate important beliefs that underlie organizational expectations about the behavior and contributions of members. Sample values for high-performance organizations might include expressed commitments to honesty and integrity, innovation, customer service, quality, and respect for people.
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17. Why is it important for managers to understand subcultures in organizations? Subcultures are important in organizations because of the many aspects of diversity found in the workforce. Although working in the same organization and sharing the same organizational culture, members differ in subculture affiliations based on such aspects as gender, age, and ethnic differences, as well as in respect to occupational and functional affiliations. It is important to understand how subculture differences may influence working relationships. For example, a 40-year-old manager of 20-year-old workers must understand that the values and behaviors of the younger workforce may not be totally consistent with what she or he believes in, and vice versa. 18.
What are the three phases of change described by Lewin, and what are their implications for change leadership? Lewin's three phases of planned change and the relevant change leadership responsibilities are: unfreezing-preparing a system for change; changing-moving or creating change in a system; and refreezing-stabilizing and reinforcing change once it has occurred. In addition, we might talk about an additional or parallel phase of "improvising." This calls for change leadership that is good at gathering feedback, listening to resistance, and making constructive modifications as the change is in progress to smooth its implementation and make sure what is implemented is a best fit for the circumstances and people involved.
19. What are the major differences in potential outcomes of the force-coercion, rational persuasion, and shared power strategies of planned change? Use of force-coercion as a strategy of planned change is limited by the likelihood of compliance being the major outcome. People “comply” with force only so long as it remains real, visible, and likely, but they have no personal commitment to the behavior. So, when the force goes away, so does the behavior. Also, a manager who relies on forcing people to get changes made is likely to be viewed negatively by them and suffer from additional negative halo effects in other work with them. Rational persuasion and shared power are likely to have more long-lasting impact on behavior since the person responds to the change strategy by internalization of the value of the behavior being encouraged. Because of this commitment the influence on their actions is more likely to be long-lasting rather than temporary as in the case of force-coercion. In general, managers can expect that others will be more committed and loyal to changes that are brought about through shared power strategies. Rational persuasion strategies can also create enduring effects if they are accepted. Force-coercion strategies tend to have temporary effects only. 20.
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Two businesswomen, former college roommates, are discussing their jobs and careers over lunch. You overhear one saying to the other: “I work for a large corporation, while you own a small retail business. In my company there is a strong corporate culture and everyone feels its influence. In fact, we are always expected to act in ways that support the culture and serve as role models for others to do so as well. This includes a commitment to diversity and multiculturalism. Because of the small size of your firm, things like corporate culture, diversity, and multiculturalism are not so important to worry about.” Do you agree or disagree with this statement? Why?
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I disagree with this statement, because a strong organizational or corporate culture can be a positive influence on any organization, large or small. Also, issues of diversity, inclusiveness, and multiculturalism apply as well. In fact, such things as a commitment to pluralism and respect for diversity should be part of the core values and distinguishing features of the organization’s culture. The woman working for the large company is mistaken in thinking that the concepts do not apply to her friend’s small business. In fact, the friend—as owner and perhaps founder of the business—should be working hard to establish the values and other elements that will create a strong and continuing culture and respect for diversity. Employees of any organization should have core organizational values to serve as reference points for their attitudes and behavior. The rites and rituals of everyday organizational life are also important ways to recognize positive accomplishments and add meaning to the employment relationships. It may even be that the friend’s roles as diversity leader and creator and sponsor of the corporate culture are more magnified in the small business setting. As the owner and manager, she is visible every day to all employees. How she acts will have a great impact on any “culture” that is established in her business.
MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: TOLERANCE FOR AMBIGUITY Students’ answers will vary according to their comfort level with ambiguity. The reality is that leading change efforts in today’s organizations often requires managers to be able to work productively in an increasingly uncertain environment.
SELF-ASSESSMENT: CHANGE LEADERSHIP IQ Instructions Indicate whether each of the following statements is true (T) or false (F) T F T F T F T F T F T F T F T F T F T F
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1. People invariably resist change 2. One of the most important responsibilities of any change effort is that the leader clearly describes the expected future states. 3. Communicating what will remain the same after change is as important as communicating what will be different. 4. Planning for change should be done by a small, knowledgeable group, and then the group should communicate its plan to others. 5. Managing resistance to change is more difficult than managing apathy about change. 6.Complaints about a change effort are often a sign of change progress. 7. Leaders find it more difficult to change organizational goals than to change the ways of reaching those goals. 8. Successful change efforts typically involve changing reward systems to support change. 9. Involving more members of an organization in planning a change increases commitment to making change successful. 10. Successful organizational change requires certain significant and dramatic steps or “leaps”
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rather than moderate or “incremental” ones.
Scoring Questions 2, 3, 6, 8, 9, 10 are true: the rest are false. Tally the number of correct items to indicate the extent to which your change management assumptions are consistent with findings from the discipline.
TEAM EXERCISE: FORCE- FIELD ANALYSIS 1. Form into your class discussion groups and review this model of force-field analysis—the consideration of forces driving in support of a planned change and forces resisting change. 2. Use force-field analysis and make lists of the driving and resisting forces for one of the following situations: (a) Home Schooling at the College Level. Things are changing in colleges and universities as budget declines create pressures for a rethinking of educational programming. Home schooling has grown popular at primary and secondary levels. Why can’t it work for college as well, at least for the first two years? At least one vice-president at the local university is in favor of making a proposal to move her campus to a 3rd/4th - year-only status and have years one and two go online. She wonders what she should prepare for sharing her ideas with the rest of the executive team (b) Scheduling Dilemma. A new owner has just taken over a small walk-in-and-buy-by-the-slice pizza shop in a college town. There are presently eight employees, three of whom are full-time and five of whom are part-timers. The shop is presently open seven days a week from 10:30 A.M. to 10:30 P.M. each day. The new owner believes there is a market niche available for latenight pizza and would like to stay open each night until 4 A.M. She wants to make the change as soon as possible. (c) Instructor’s Choice. A situation assigned by the instructor. 3. Choose the three driving forces that are most significant to the proposed change. For each force develop ideas on how it could be further increased or mobilized in support of the change. 4. Choose the three resisting forces that are most significant to the proposed change. For each force develop ideas on how it could be reduced or turned into a driving force. 5. Be prepared to participate in class discussion led by the instructor.
Instructor’s Note This exercise is designed to help students improve their analytical skills for addressing complex situations and show them how force-field analysis can aid the understanding of change. It allows them to take a current problem or situation and reflect upon how it can be changed. This exercise can be done in its entirety in class, or steps 1 through 5 inclusive can be assigned as homework; then, if desired, step 6 could be done in class. In a large class, you may wish to choose a problem or situation and do the exercise with the class as a whole. Encourage students to brainstorm driving forces, thus bringing other course concepts into this exercise.
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CAREER SITUATIONS FOR ORGANIZATIONAL CULTURE AND CHANGE: WHAT WOULD YOU DO? Students’ answers will vary according to individual differences. REVIEW QUESTIONS FOR CASE 12: APPLE INC.: PEOPLE AND DESIGN CREATE THE FUTURE Discussion Questions 1. Apple sells stylish and functional computers as well as a variety of electronic devices, and it operates retail stores. How does Apple's organization culture help the firm keep its creative edge? Encourage students to apply the elements of culture such as the observable elements and the core culture listed on page 298. Students not familiar with Apple should research the company online or make a visit to the nearest Apple store. 2. Stepping into his new role as CEO following the passing of one-of-a-kind visionary, Steven Jobs, should Tim Cook push transformational change, incremental change or both? Steven Jobs is a hard act to follow but after the loss of a CEO, most organizations do change. Both types of change may have their place. Apple has transformational change as a core value and is a good example of an organization that welcomes change and views it as an opportunity. Incremental change may be used in areas such as software where improvements to existing products must be made, but when customers are familiar and happy with a type of software product such as productivity software or an operating system, incremental change would keep it cutting edge, yet familiar. Problem Solving Apple has had to deal with Jobs’s death and the advancement of Tim Cook to the CEO position. Leadership succession issues like this are inevitable and the best firms will be prepared and ready for them. If you were a member of Apple’s board, what steps would you recommend the firm be taking now to get ready for Cook’s eventual replacement? What practices should be put into place so that the firm won’t suffer if he suddenly isn’t available? What criteria should be on the table as the board discusses Apple’s future leadership needs given current events and trends? Apple is an organization that has succeeded and survived because its culture and management have valued innovation and have succeeded when they adapted to changing consumer needs. Steve Jobs, like many entrepreneurs is a hard act to follow as CEO. Those serving on Apple’s board have a fiduciary responsibility to develop strategies for the continued success of the organization. Replacing key personnel should be an integral part of any organization’s long range planning effort. Because they currently have a CEO, this is the ideal time to evaluate where they are, where they want to be, and to thoughtfully plan how to get there in the future. Once the board has decided if and how the organization needs to change, they will have a clearer idea of the qualities and leadership style needed to implement the plan. Technology is ever changing and currently Apple is a key player in defining the market. To continue this success, the next CEO will need to have vision, and be willing to take some risks. Although many CEO’s are brought in at that level from other companies, starting to hire talented top
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level managers with the appropriate skills and leadership qualities is also a strategy that would allow Apple to have someone ready to step in as their next CEO. Further Research Review what the analysts are presently saying about Apple. Make a list of the praises and criticisms, organize them by themes, and put them in the priority order for a change leadership agenda. What does Apple most have to fear in its quest for sustainable competitive advantage? This research question lends itself well to a group project. Consider setting a minimum or maximum on the number of resources used and the number of themes selected. Results could be presented to the class. To add an element of competition between the teams, the instructor might consider offering an iTunes gift card to the winning team.
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Chapter 13:
HUMAN RESOURCE MANAGEMENT CHAPTER 13 TAKE AWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. What is human resource management? 2. How do organizations attract a quality workforce? 3. How do organizations develop a quality workforce? 4. How do organizations maintain a quality workforce?
CHAPTER 13 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • •
Explain the human resource management process Define discrimination, equal employment opportunity, affirmative action, and bona fide occupational qualification Identify major laws that protect against discrimination in employment Discuss legal issues of sexual harassment, comparable worth, independent contractors, and workplace privacy Explain the difference between internal recruitment and external recruitment Discuss the value of realistic job previews to employers and job candidates Differentiate reliability and validity as two criteria of selection devices Discuss the use and validity of interviews and employment tests as selection devices Define orientation and socialization and describe their importance to organizations Give examples of on-the-job and off-the-job training Discuss strengths and weaknesses of trait-based, behavior-based, and results-based performance appraisals Explain how 360-degree appraisals work Define work-life balance Explain why compensation and benefits are important elements in human resource management Explain potential benefits and problems of merit pay plans Differentiate between bonuses, profit sharing, and stock options Define flexible benefits plans and discuss their advantages Define labor union and collective bargaining
CHAPTER 13 OVERVIEW Human resource management describes the wide variety of activities involved in attracting, developing, and maintaining a quality organizational workforce. As such, human resource management is an integral part of a manager’s responsibilities. Indeed, the activities of finding, hiring, orienting, training, developing, evaluating, compensating, and retaining the right people to perform the organization’s work are all critical to high performance.
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The chapter begins by defining human resource management and describing the activities involved in the human resource management process. The impact of governmental laws and regulations on human resource management is examined next, covering equal employment opportunity and current legal issues. The chapter then moves into a detailed discussion on human resource planning, recruitment, and selection. Next the chapter describes the ways to develop a quality workforce by examining the orientation and socialization process, training and development, and performance management. Moving into a discussion of maintaining a quality workforce, the chapter ends with the issues of flexibility and work-life balance, compensation and benefits, retention and turnover, and labor-management relations.
CHAPTER 13 LECTURE OUTLINE Teaching Objective: The purpose of this chapter is to thoroughly familiarize students with the human resource management process and the role of the manager in this process. To achieve this, the various activities involved in human resource management are examined in detail. Suggested Time: Three hours of class time are recommended to present this chapter. However, the lecture can be shortened by providing overviews of the major elements of the staffing process and skipping some of the details. I.
Take Away Question 1: What is human resource management? Human resource management process Strategic HRM Legal environment of HRM
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Take Away Question 2: How do organizations attract a quality workforce? Human resource planning Recruiting techniques Selection techniques
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Take Away Question 3: How do organizations develop a quality workforce? Orientation and socialization Training and development Performance management
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Take Away Question 4: How do organizations maintain a quality workforce? Flexibility and work-life balance Compensation and benefits Retention and turnover Labor-management relations
CHAPTER 13 SUPPORTING MATERIALS Textbook Inserts Learning from Others • Great Employers Respect Diversity and Value People Learning about Yourself • Conscientiousness
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Figures • Figure 13.1: Sample of U.S. Laws Against Employment Discrimination • Figure 13.2: Steps in Strategic Human Resource Planning • Figure 13.3: Steps in the Selection Process: The Case of a Rejected Job Applicant • Figure 13.4: Sample of a Behaviorally Anchored Rating Scale for Performance Appraisal Thematic Boxes • Management in Popular Culture: The Office Sensationalizes Dysfunction • Ethics on the Line: Personality Test? Drug Test? Facebook Test? • Make the Most of Your Online Image • Management Smarts: How to Succeed in a Telephone or Online Video Interview • Employers Use Sophisticated Software to Match Applicants with Jobs • Research Brief: Racial Bias May Exist In Supervisor Ratings of Workers • Recommended Reading: Profit at the Bottom of the Ladder: Creating Value by Investing in Your Workforce • Real People: Tony Hsieh Taps HRM to Keep Zappos One Step Ahead • Facts for Analysis: Underemployment Affects One-Fifth of U.S. Workers • Employers Focus on Wellness Benefits Applications • Self-Test • Further Reflection: Conscientiousness • Self-Assessment: Performance Appraisal Assumptions • Team Exercise: Upward Appraisal • Career Situations for Human Resources Management: What Would You Do? • Case 13: Two-Tier Wages: Same Job, Different Pay
CHAPTER 13 LECTURE NOTES LEARNING FROM OTHERS on page 320 of the text discusses Working Mother Magazine’s annual listing of the “100 Best Companies for Working Mothers,” an important management benchmark for employers and potential employees. The magazine, which is a major supporter of mothers with careers, covers topics ranging from kids to health to personal motivation. LEARNING ABOUT YOURSELF on page 321 of the text describes what being “conscientious” means and provides students with tips that can be used to demonstrate their consciousness to potential employers and recruiters. DISCUSSION TOPIC Ask the students to describe what they expect from an employee-employer relationship. What do they expect to provide to an employer? What do they expect the employer to provide? Relate their stated expectations to the concept of a social contract. Managers are asked to invest in people, since research shows that organizations which do invest in people outperform the ones that do not.
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High-performing organizations thrive on their human capital ⎯ the economic value of people with job-relevant abilities, knowledge, experience, ideas, energies, and commitments ⎯ which is essential to any organization’s long-term performance success.
TAKE AWAY QUESTION 1: WHAT IS HUMAN RESOURCE MANAGEMENT? Human resource management (HRM) involves attracting, developing, and maintaining a talented and energetic organizational workforce. There are many career opportunities in a wide variety of areas in human resource management, some of which include, corporate recruiter, compensation analyst, director of diversity, and training, and development specialist. HUMAN RESOURCE MANAGEMENT PROCESS The goal of human resource management is to enhance organizational performance capacity through people. The major tasks in human resource management include: • Attracting a quality workforce which involves human resource planning, employee recruitment, and employee selection. • Developing a quality workforce which involves employee orientation, training and development, and performance management. • Maintaining a quality workforce which involves career development, work-life balance, compensation and benefits, retention and turnover, and labor-management relations. Since hiring the wrong person can be a very expensive mistake, the key concept in HRM is “fit.” • Person-job fit – the extent to which an individual’s skills, interests, and personal characteristics are consistent with the requirement of their work. • Person-organization fit – the extent to which an individual’s values, interests, and behavior are consistent with the culture of the organization. STRATEGIC HUMAN RESOURCE MANAGEMENT Strategic human resource management refers to mobilizing human capital through the HRM process to best implement organizational strategies. HRM is strategic to an organization when it is headed by a senior executive reporting directly to the chief executive officer of an organization. Management in Popular Culture on p. 324 of the text illustrates how the television program, The Office, satirizes inappropriate management and workplace behaviors. LEGAL ENVIRONMENT OF HUMAN RESOURCE MANAGEMENT In terms of human resource management practices, managers and employees cannot simply do whatever they wish; instead they must comply with laws and regulations that govern employment practices.
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Equal Employment Opportunity Title VII of the Civil Rights Act of 1964 as amended by the Equal Opportunity Act of 1972 and the Civil Rights Act of 1991 is the foundation of U.S. legal protection against workplace discrimination in terms of race, color, national origin, religion, gender, age, and disability status. This legislation is enforced by the Equal Employment Opportunity Commission (EEOC) and applies to public and private organizations that employ 15 or more people. Equal employment opportunity is the requirement that employment decision be made without regard to race, sex, color, national origin, religion, gender, age, or disability status. EEO is federally enforced by the Equal Employment Opportunity Commission (EEOC). Affirmative action is an effort to ensure equal employment opportunity for members of protected groups, especially women and minority group members. Reverse discrimination can occur when members of a majority population are harmed because of preferential treatment for members of a protected group. Equal employment legal protections do not restrict an employer’s right to establish bona fide occupational qualifications, which are criteria for employment that can be clearly justified as being related to a person’s capacity to perform a job. Laws Against Employment Discrimination Discrimination in employment occurs when someone is denied a job or job assignment for reasons that are not job relevant. FIGURE 13.1 on page 326 of the text provides a brief sample of Unites States laws that prohibit employment discrimination. They include: Equal Pay Act of 1963 – Requires equal pay for men and women performing equal work in an organization. Title VII of the Civil Rights Act of 1964 (as amended) – Prohibits discrimination in employment based on race, color, religion, sex, or national origin. Age Discrimination in Employment Act of 1967 – Prohibits discrimination against persons over 40; restricts mandatory retirement. Occupational Health and Safety Act of 1970 – Establishes mandatory health and safety standards in workplaces. Pregnancy Discrimination Act of 1978 – Prohibits employment discrimination against pregnant workers. Americans with Disabilities Act of 1990 – Prohibits discrimination against a qualified individual on the basis of disability. Civil Rights Act of 1991 – Reaffirms Title VII of the 1964 Civil Rights Act; reinstates burden of proof by employer, and allows for punitive and compensatory damages.
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Family and Medical Leave Act of 1993 – Allows employees up to 12 weeks of unpaid leave with job guarantees for childbirth, adoption, or family illness. ETHICS ON THE LINE on page 327 of the text asks whether or not is it ethical for employers to view the Facebook profile of job applicant to measure the candidate’s character and make employment decisions. DISCUSSION TOPIC Ask the students if they have either witnessed or personally encountered any of the forms of discrimination described above. Without having them inappropriately reveal details, seek a general description of what happened and how it was handled by the organization. Current Legal Issues Human resource management must be accomplished within the framework of governmental laws and regulations. Sexual harassment occurs when a person experiences conduct or language of a sexual nature that affects his/her employment situation. The Equal Pay Act of 1963 provides that men and women in the same organization should be paid equally for doing equal work in terms of required skills, responsibilities, and working conditions. A remaining pay issue involves comparable worth –– the notion that persons performing jobs of similar importance should be paid at comparable levels. The legal status and employee entitlements of part-time workers and independent contractors are being debated. Independent contractors are hired as needed and are not part of the organization’s permanent workforce. A problem occurs when they are engaged regularly by the same organization and become what many now call permatemps. They must often work without benefits such as health insurance and pension eligibilities. Workplace privacy is the right to privacy while at work. Employer practices can become invasive and cross legal and ethical lines, especially with the capabilities of information technology. One consultant recommends the best approach for everyone is to “assume you have no privacy at work.” TAKE AWAY QUESTION 2: HOW DO ORGANIZATIONS ATTRACT A QUALITY WORKFORCE? HUMAN RESOURCE PLANNING Human resource planning is the process of analyzing an organization’s human resource needs and how to best fill them. FIGURE 13.2 from the text outlines the steps in the human resource planning process. The steps are as follows:
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• • • • •
Step 1 –– review organizational mission, objectives, and strategies. Step 2 –– review human resource objectives and strategies. Step 3 –– assess current human resource needs. Step 4 –– forecast human resource needs. Step 5 –– develop and implement human resource plans to match people and job openings.
The human resource planning process helps managers identify staffing requirements, assess the existing workforce, and determine what additions and/or replacements are required to meet future needs. The foundation of human resource planning is job analysis. Job analysis is the orderly study of job facts to determine just what is done, when, where, how, why, and by whom in existing or potential new jobs. The job analysis provides information to write and/or update job descriptions as well as to develop job specifications: • •
Job descriptions are written statements of job duties and responsibilities. Job specifications are lists of the qualifications that should be met by any person hired for or placed in a given job.
RECRUITING TECHNIQUES Recruitment is a set of activities designed to attract a qualified pool of job applicants to an organization. Steps in the recruitment process: 1. Advertisement of a job vacancy. 2. Preliminary contact with potential job candidates. 3. Initial screening to create a pool of qualified applicants. ENHANCEMENT A good way to introduce the discussion of the recruitment process presented above is to see if any of your students are currently engaged in a job search. You can then ask students who respond affirmatively to describe their experiences with the recruiting process. This discussion typically helps students to see more clearly the relevance of recruiting from both a management perspective and their own personal perspectives as job candidates. External and Internal Recruitment External recruitment involves the attraction of job candidates from outside the hiring organization. The advantage of external recruitment is in bringing outsiders with fresh perspectives, expertise, and work experience to the organization. The disadvantage is less reliable information about the candidate, along with the probable need for more job training. Also, external recruiting is time consuming and expensive.
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Internal recruitment seeks applicants from inside the organization. This involves making employees aware of job vacancies through job postings and personal recommendations. The advantages of internal recruitment include being quicker, less expensive, and knowing the performance record of a job applicant. The disadvantage is that organizations often need skills and abilities that are more likely to be found outside of the organization. Make the Most of your Online Image on p. 330 of the text points out that job candidates can create a favorable impression through careful use of social media sites. Realistic Job Previews Traditional recruitment often seeks to “sell” the organization by only communicating the most positive organizational features to job applicants. Realistic job previews seek to provide the job candidate with all pertinent information about the job and the organization, without distortion and before the job is accepted. Realistic recruitment is used to foster a healthy perspective on the employment relationship, and thereby facilitate job satisfaction, while reducing the premature turnover that often occurs when expectations are unmet. SELECTION TECHNIQUES Selection is the process of choosing from a pool of applicants the person or persons who offer the greatest performance potential. Whatever selection technique used for hiring an employee, it must have: • Reliability – means that the selection device is consistent in measurement; it returns the same results time after time. • Validity – means that there is a demonstrable relationship between a person’s score or rating on a selection device and his/her eventual job performance. FIGURE 13.3 on page 331 of the text shows the steps in the selection process: the case of a rejected job applicant. Interviews Interviews whether face-to-face, on the telephone, or virtual allow job candidates and key persons from within the organization to exchange information and to learn more about one another. Interviews often have low validity as selection devices. Interviews can take on some different forms, such as: • Unstructured interview – where the interviewer does not work from a formal and pre-established list of question that is asked of all interviewees. • Behavioral interview – where job candidates are asked about their past behavior, focusing specifically on behaviors that are important in the work environment. .
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•
• • • • • • • •
Situational interview – where a job candidate is asked how they would react when confronted with a specific work situation they would be likely to experience on the job.
Prepare ahead of time—study the organization; carefully list your strengths and capabilities. Take the call in private—make sure you are in a quiet room, with privacy and without the possibility of interruptions. Dress as a professional—don’t be casual; dressing right increases confidence and sets a tone for your side of the conversation. Practice your interview “voice”—your impression will be made quickly; how you sound counts; it even helps to stand up while you talk. Have reference materials handy—your résumé and other supporting documents should be within easy reach. Have a list of questions ready—don’t be caught hesitating; intersperse your best questions during the interview. Ask what happens next—find out how to follow up by telephone or e-mail; ask what other information you can provide. Follow-up – Don’t forget to send a thank you note to reiterate your interest in the job.
MANAGEMENT SMARTS on page 332 of the text gives the following advice on how to succeed in a telephone or online video interview: DISCUSSION TOPIC Ask students who have experienced a telephone or online video interview to describe how they approached it. Discuss the extent to which their approach followed the recommendations contained in Management Smarts. . Employment Tests Employment tests are used to identify intelligence, aptitudes, personality, and even ethics. An organization may use biodata methods, which collect certain biographical information, to increase the reliability and validity of the selection process. An assessment center is a testing approach that evaluates a person’s potential by observing his or her performance in experiential activities designed to simulate daily work activities. Work sampling is a testing approach where applicants work on actual job tasks while having their performance graded by observers. Employers Use Sophisticated Software to Match Applicants with Jobs on p. 333 of the text explains how computer based resume scanning is used to screen applicants for positions.
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DISCUSSION TOPIC Ask your students if they have ever been evaluated at an assessment center. Students with work experience or students, who are currently seeking employment, may have direct experience with this selection tool. If so, ask them to describe their experiences for the rest of the class.
TAKE AWAY QUESTION 3: HOW DO ORGANIZATIONS DEVELOP A QUALITY WORKFORCE? When people join an organization, they must “learn the ropes” and become familiar with “the way things are done.” ORIENTATION AND SOCIALIZATION The first formal experience of a newcomer is some sort of orientation ⎯ a set of activities designed to familiarize new employees with their jobs, coworkers, and key aspects of the organization as a whole. Orientation is a form of socialization which is the process of influencing the expectations, behavior, and attitudes of a new employee in a way considered desirable by the organization. The first six months of employment are often crucial in determining how well someone is going to fit in and perform over the long run. Good orientation sets the stage for high performance, job satisfaction, and work enthusiasm. DISCUSSION TOPIC Ask your students who are currently employed or have been employed in the past to describe the orientation process that they experienced. What was helpful about the orientation process? What was not helpful? TRAINING AND DEVELOPMENT Training is a set of activities that provides the opportunity to acquire and improve jobrelated skills. On-the-job training occurs in the work setting while someone is doing a job. On-the-job training includes the following approaches: • •
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Job rotation which allows people to spend time working in different jobs, thereby expanding their capabilities. Coaching in which an experienced person provides performance advice to someone else.
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Mentoring, a form of coaching, wherein early-career employees are formally assigned as protégés to senior persons, who provide advice on developing skills and becoming better informed about the organization. Modeling, an informal form of coaching, wherein someone demonstrates through day-to-day personal behavior what is expected of others.
Management development is an example of off-the-job training which involves training that is designed to improve a person’s knowledge and skills in the fundamentals of management. • Beginning managers often benefit from training that emphasizes team leadership and communication • Middle managers may benefit from training to better understand multifunctional viewpoints • Top managers may benefit from advanced management training to sharpen their decision-making and negotiating skills, and to expand their awareness of corporate strategy and direction. PERFORMANCE MANAGEMENT A performance management system ensures that performance standards and objectives are set, performance is regularly assessed for accomplishments, and actions are taken to improve future performance potential. Performance appraisal is the process of formally assessing someone’s work accomplishments and providing feedback. Two purposes of performance appraisal in maintaining a quality workforce: 1. The evaluation purpose focuses on past performance, measures results against standards, is used as a basis for allocating rewards, and places the manager in a judgmental role. 2. The development purpose focuses on future performance, discovers performance obstacles, identifies training and development opportunities, and places the manager in a counseling role. Performance coaching is a dialogue that provides more frequent and more developmental feedback about how a worker can improve his job performance. Trait-Based Performance Appraisals Trait-based appraisals are designed to measure the extent to which the employee possesses characteristics or traits that are considered important to the job. The trait-based graphic rating scale uses a checklist of traits or characteristics to evaluate performance. • Graphic rating scales are relatively quick and easy to complete. • The reliability and validity of graphic rating scales are questionable. RESEARCH BRIEF on page 336 of the text examines racial bias in supervisor ratings of workers.
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Behavior-Based Performance Appraisals Behavior-based appraisals evaluate employees on specific actions that are important parts of the job. Behaviorally anchored rating scales (BARS) describe actual behaviors that exemplify various levels of performance achievement in a job. One drawback to a BARS evaluation is that it can be influenced by recency bias, which leads one to focus more on recent events than behavior that has occurred over the entire evaluation period. FIGURE 13.4 on page 337 of the text illustrates a sample behaviorally anchored rating scale. Another behavior-based appraisal is the critical-incident technique which involves keeping a running log or inventory of effective and ineffective job behaviors. This method documents success or failure patterns that can be discussed with the individual. Recommended Reading- Profit at the Bottom of the Ladder: Creating Value by Investing in Your Workforce on p. 337 of the text shows how organizations have profited from improving the working conditions of their least-skilled workers. Results-Based Performance Appraisals Results-based appraisals focus on the accomplishments of employees. One of the most common appraisal errors is leniency, the tendency to give workers a higher rating than they deserve. Multiperson comparisons formally compare one person’s performance with that of one or more other workers. These techniques include: • •
Rank ordering –– all persons being rated are arranged in order of performance achievement. Forced distributions –– each person is placed into a frequency distribution that requires a certain percentage of people to fall into specific performance classifications.
360-Degree Feedback 360-degree appraisals occur when superiors, subordinates, peers, and even internal and external customers are involved in the appraisal of a jobholder’s performance. DISCUSSION TOPIC To provide students with insights into 360° feedback, discuss with them how the performance review process operates in many academic institutions. You can focus on student evaluation of instruction, peer appraisal through promotion and tenure committees, supervisory evaluation by
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the department chair and/or Dean, and self-assessment as multiple performance review perspectives.
TAKE AWAY QUESTION 5: HOW DO ORGANIZATIONS MAINTAIN A QUALITY WORKFORCE? It isn’t enough to hire and train workers to meet an organization’s immediate needs; they must also be successfully nurtured, supported, and retained. FLEXIBILITY AND WORK-LIFE BALANCE Work-life balance deals with how people balance career demands with personal and family needs. Among progressive employers, human resource policies and practices that support a healthy work-life balance are increasingly valued. Work-life balance is enhanced when workers have flexibility in scheduling work hours, work locations, and even vacations and personal time off. Studies show that those employees who have job designs that include flexible work hours and other alternate work schedules are less likely to leave their jobs. DISCUSSION TOPIC Ask the students to identify the features that they would look for in a family-friendly company. Why do they consider these features to be important? COMPENSATION AND BENEFITS Base compensation in the form of a market-competitive salary or hourly wage helps in hiring the right people and keeping them there by making outside opportunities less attractive. Merit Pay Systems If you are a part of a merit pay system, your pay increases will be based on some assessment of how well you perform. A good merit pay system is based on a solid foundation of agreed-upon and welldefined performance measures and is administered in a fair, consistent, and credible fashion. FOLLOW THE STORY on page 340 of the text tells the story of Zappos CEO, Tony Hsieh’s creative and unique approach to human resource management.
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Bonuses and Profit Sharing Plans Bonus pay plans provide one-time or lump-sum payments to employees who meet specific performance targets or make some other extraordinary contribution, such as an idea for work improvement. Profit sharing plans distribute to employees a proportion of net profits earned by the organization in a performance period. Gain-sharing plans allow groups of employees to share in any savings realized when their efforts result in measurable cost reductions or productivity increases. Stock Ownership and Stock Options The idea that stock ownership will motivate employees to work hard so the company stays successful is supported by an employee stock ownership plan where employees purchase stock directly through their employing companies, sometimes at a special discount. Employees may also be granted stock options that are linked to their performance or as a part of their hiring packages. These stock options give the owner the right to buy shares of stock at a future date at a fixed price. Benefits Employee benefits are the additional non-wage or non-salary forms of compensation provided to an organization’s workforce. Typical benefit packages include various options on disability protection, health and life insurance, and retirement plans. The ever-rising cost of employee benefits is a major concern for employers. A flexible benefits (i.e., cafeteria benefits) program allows employees to choose a set of benefits within a certain dollar amount. Family-friendly benefits help employees to better balance work and non-work responsibilities. Employee assistance programs (EAPs) help employees deal with troublesome personal problems. FACTS FOR ANALYSIS on p. 342 of the text explains that 20% of the U.S. labor force is “under employed” meaning that they are only working part-time when they would like to be working full time or they are unemployed. RETENTION AND TURNOVER Several steps in the human resource process both conclude and recycle with retention and turnover.
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Since retirement can raise fear and apprehension, many employers offer special counseling and other forms of support for retiring employees. Employers will also offer early retirement incentive programs to give workers financial incentives to retire early. Termination is the involuntary and permanent dismissal of an employee. Terminations may be due to the employee’s performance problems or the employer’s financial condition. Many employment relationships are governed by employment-at-will principles, which allow an employer to terminate an employee at any time for any reason. Should an employee be terminated in an unfair manner, that employee has the right to invoke the wrongful discharge doctrine that gives workers legal protections against discriminatory firings. Employers Focus on Wellness Benefits on p. 343 of the text illustrates how the Dallas/Fort Worth International Airport is decreasing sick days by offering wellness programs such as Zumba classes, lactation rooms, and subsidized off-site fitness memberships. LABOR-MANAGEMENT RELATIONS Labor unions are organizations to which workers belong and that deal with employers on the workers’ behalf. Legislation governing labor-management relations include: • • •
The National Labor Relations Act of 1935 (also known as the Wagner Act) protects employees by recognizing their rights to join unions and engage in union activities. The Taft-Hartley Act of 1947 protects employers from unfair labor practices by unions and allows workers to decertify unions. The Civil Service Reform Act of 1978 clarifies the rights of civil service employees to join and be represented by labor unions.
Labor union membership has been on the decline with now only about 12% of American workers covered. Unions act as bargaining agents who negotiate labor contracts that formally specify the rights and obligations of employees and management with respect to wages, work hours, work rules, seniority, hiring, grievances, and other conditions of employment. Collective bargaining is the process of negotiating, administering, and interpreting labor contracts, and it is the foundation of any labor and management relationship. Often labor and management view each other as adversaries which leads to “win-lose” conflict situations, in which labor and management expend a lot of energy in prolonged conflict. Ideally, unions and employers should try to work together for their common good.
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CHAPTER 13 TAKE AWAY QUESTIONS SUMMARY Take Away Question 1: What is human resource management? • The human resource management process involves attracting, developing, and maintaining a quality workforce. • Human resource management becomes strategic when it is integrated into the organization’s strategic management process. • Employees have legal protections against employment discrimination; equal employment opportunity requires that employment and advancement be made without discrimination. • Current legal issues in human resource management include sexual harassment, comparable worth, rights of independent contractors, and employee privacy. FOR DISCUSSION: What gaps in legal protection against employment discrimination still exist? Take Away Question 2: How do organizations attract a quality workforce? • Human resource planning analyzes staffing needs and identifies actions to fill these needs over time. • Recruitment is the process of attracting qualified job candidates to fill positions. • Realistic job previews provide candidates with both positive and negative information about the job and organization. • Selection involves gathering and assessing information about job candidates and making decisions about whom to hire. • The selection process often involves screening applicants for qualifications, interviewing applicants, administering employment tests, and doing pre-employment checks. FOR DISCUSSION: Is it realistic to expect that a potential employer will give you a “realistic” job preview? Take Away Question 3: How do organizations develop a quality workforce? • Orientation is the process of formally introducing new employees to their jobs, performance expectations, and the organization. • On-the-job training includes job rotation, coaching, modeling, and mentoring; off-the-job training includes things like management development programs. • Performance appraisal serves both evaluation and development purposes. • Common performance appraisal methods focus on evaluating employees’ traits, behaviors, or performance achievements. FOR DISCUSSION: What are some of the potential downsides of being on the receiving end of 360-degree feedback? Take Away Question 4: How do organizations maintain a quality workforce? • Complex demands of job and family responsibilities have made work-life balance programs increasingly important in human resource management. • Compensation and benefits packages must be attractive so that an organization stays competitive in labor markets. • Merit pay plans link compensation and performance: bonuses, profit sharing, and stock options are also forms of incentive compensation. • Retention decisions in human resource management involve promotions, retirements, and/or terminations. • The collective bargaining process and labor–management relations are carefully governed by law.
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FOR DISCUSSION: What creative options could employers offer lower-wage employees to help attract and retain them?
CHAPTER 13 KEY TERMS Affirmative action (p. 325): setting goals and having plans to ensure equal employment opportunity for members of protected groups. Assessment center (p. 332): a testing approach that evaluates a person’s potential by observing his or her performance in experiential activities designed to simulate daily work activities. Base compensation (p. 339): a salary or hourly wage paid to an individual. Behavioral interview (p.332): an interview that asks job applicants about their past behavior, focusing specifically on behaviors that are likely to be important to the work environment. Behaviorally anchored rating scale (p. 336): a performance appraisal method that describes actual behaviors for various levels of performance and achievement in a job. Biodata methods (p. 333): a method that collects certain biographical information that has been proven to correlate with good job performance. Bona fide occupational qualifications (p. 325): a criterion for employment that can be clearly justified as being related to a person’s capacity to perform a job. Bonus pay (p. 341): plans provide one-time payments based on performance accomplishments. Coaching (p. 334): occurs when an experienced person offers performance advice to a less experienced person. Collective bargaining (p. 344): the process of negotiating, administering, and interpreting a labor contract. Comparable worth (p. 327): the notion that persons performing jobs of similar importance should be paid at comparable levels. Discrimination (p. 325): occurs when someone is denied a job or job assignment for reasons that are not job-relevant. Early retirement incentive programs (p. 343): offer workers financial incentives to retire early. Employee assistance programs (p. 342): helps employees cope with personal stresses and problems. Employee benefits (p. 342): nonmonetary forms of compensation such as health insurance and retirement plans. Employee stock ownership plans (p. 341): helps employees purchase stock in their employing companies. Employment-at-will (p. 343): a principle that means employees can be terminated at anytime for any reason. Equal employment opportunity (p. 324): the requirement that employment decisions be made without regard to race, color, national origin, religion, gender, age, disability status. External recruitment (p. 329): recruitment that seeks job applicants from outside the organization. Family-friendly benefits (p. 342): help employees achieve better work-life balance. Flexible benefits (p. 342): a program that allows employees to choose a set of benefits within a certain dollar amount. Gain sharing (p. 341): plans allow employees to share in cost savings or productivity gains realized by their efforts. Graphic rating scale (p. 335): a performance appraisal method that uses a checklist of traits or characteristics to evaluate performance. Human capital (p. 322): the economic value of people with job-relevant abilities, knowledge, experience, ideas, energies, and commitments. Human resource management (p. 322): involves attracting, developing, and maintaining a talented and energetic workforce. Human resource planning (p. 328): the process of analyzing an organization’s human resource needs and how to best fill them.
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Independent contractors (p. 327): people hired as temporary workers who do not become part of an organization’s permanent workforce. Internal recruitment (p. 329): recruitment that seeks job applicants from inside the organization. Job analysis (p. 329): the orderly study of job facets to determine what is done, when, where, how, why, and by whom. Job description (p. 329): a written statement of job duties and responsibilities. Job rotation (p. 334): people switch tasks to learn multiple jobs. Job specification (p. 329): a list of the qualifications needed by someone hired for a given job. Labor contract (p. 344): a formal agreement between a union and the employer about the terms of work for union members. Labor union (p. 343): an organization to which workers belong and that deal with employers on the workers’ behalf. Leniency (p. 338): is the tendency to give employees a higher performance rating than they deserve. Management development (p. 334): training that is designed to improve a person’s knowledge and skills in the fundamentals of management. Mentoring (p. 334): a form of coaching in which early-career employees are formally assigned as protégés to senior persons. Merit pay (p. 340): awards pay increases in proportion to performance contributions. Multi-person comparison (p. 338): a performance appraisal method that formally compares one person’s results with that of one or more others. Orientation (p. 334): a set of activities designed to familiarize new employees with their jobs, coworkers, and key aspects of the organization as a whole. Performance appraisal (p. 335): the process of formally assessing someone’s work accomplishments and providing feedback. Performance coaching (p. 335): providing frequent and developmental feedback about how a worker can improve work performance. Performance management system (p. 335): is a system ensuring that performance standards and objectives are set and that performance is regularly assessed, and actions are taken to improve future performance. Person-job fit (p. 323): the extent to which an individual’s skills, interests, and personal characteristics are consistent with the requirements of their work. Person-organization fit (p. 323): the extent to which an individual’s values, interests, and behavior are consistent with the culture of the organization. Profit sharing (p. 341): a plan that distributes to employees a proportion of net profits earned by the organization. Realistic job preview (p. 330): an alternative that gives the job candidate all pertinent information about the job and the organization, without distortion and before the job is accepted. Recency bias (p. 337): the tendency for evaluations to focus on recent behaviors rather than on behavior that occurred throughout the evaluation period. Recruitment (p. 329): a set of activities designed to attract a qualified pool of job applicants to an organization. Reliability (p. 331): means that a selection technique is consistent in how it measures something. Selection (p. 331): the process of gathering and assessing information about job candidates and making a hiring decision. Sexual harassment (p. 326): occurs when a person experiences conduct or language of a sexual nature that affects his or her employment situation. Situational interview (p. 332): an interview that asks applicants how they would react when confronted with specific work situations they would be likely to experience on the job. Socialization (p. 334): the process that helps new members learn and adapt to the ways of the organization. Stock options (p. 341): gives the right to purchase shares at a fixed price in the future. Strategic human resource management (p. 322): mobilizes human capital through the HRM process to best implement organizational strategies.
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360-degree appraisals (p. 338): a performance appraisal technique intended to gather feedback from multiple sources in order to provide a more comprehensive evaluation of the employee’s performance. Termination (p. 343): the involuntary dismissal of an employee. Traditional recruitment (p. 330): focuses on selling the job and organization to applicants. Training (p. 334): a set of activities that helps people acquire and improve job-related skills. Unstructured interview (p. 332): an interview where the interviewer does not work from a formal and pre-established list of questions that is asked of all interviewees. Validity (p. 331): means that there is a clear relationship between what a selection device is measuring and eventual job performance. Work sampling (p. 332): a testing approach where applicants do actual job tasks while being graded by observers on their performance. Work-life balance (p. 339): how people balance the demands of careers with their personal and family needs. Workplace privacy (p. 328): the right of individuals to privacy on the job. Wrongful discharge (p. 343): is a doctrine giving workers legal protections against discriminatory firings.
SELF-TEST ANSWERS 1.
Human resource management is the process of ___________, developing, and maintaining a high-quality workforce. (a) attracting (b) compensating (c) appraising (d) selecting
2.
___________ programs are designed to ensure equal employment opportunities for persons historically underrepresented in the workforce. (a) Realistic recruiting (b) External recruiting (c) Affirmative action (d) Employee assistance
3.
The Age Discrimination in Employment Act prohibits discrimination against persons ________________. (a) 40 years and older (b) 50 years and older (c) 65 years and older (d) of any age
4.
________________ is the idea that jobs are similar in terms of their importance to the organization should be compensated at the same level. (a) Affirmative action (b) Realistic pay (c) Merit pay (d) Comparable worth
5.
_________________ is a criterion that can be legally justified for use in screening candidates for (a) Job description (b) Bona fide occupational qualification (c) Jobs specification (d) BARS
6.
The first step in strategic human resource management is to ___________. (a) forecast human resource needs (b) forecast labor supplies (c) assess the existing workforce (d) review organizational mission, objectives, and strategies.
7.
In human resource planning, a/an ____________ is used to determine exactly what is done in an existing job.
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(a) critical-incident technique (b) assessment center (c) job analysis (d) multi-person comparison 8.
If an employment test yields different results over time when taken by the same person, it lacks ___________; if it bears no relation to actual job performance, it lacks ________________. (a) equality, reliability (b) specificity, equity (c) realism, idealism (d) reliability, validity
9.
Which phrase is more consistent with a recruiter offering a job candidate a realistic job preview? (a) “There are just no downsides to this job.” (b) “No organization is as good as this one.” (c) “There just aren’t any negatives.” (d) “Let me tell you what you might not like once you start work.”
10.
Socialization of newcomers occurs during the ___________ step of the staffing process. (a) recruiting (b) orientation (c) selecting (d) training
11.
The ___________ purpose of performance appraisal is being addressed when a manager describes training options that might help an employee improve future performance. (a) development (b) evaluation (c) judgment (d) legal
12.
When a team leader is required to rate 10% of team members as “superior,” 80% as “good,” and 10% as “unacceptable” for their performance on a project, this is an example of the ___________ approach to performance appraisal. (a) graphic (b) forced distribution (c) behaviorally anchored rating scale (d) realistic
13.
An employee with domestic problems due to substance abuse would be pleased to learn that his employer had a(n) ___________ plan to help on such matters. (a) employee assistance (b) cafeteria benefits (c) comparable worth (d) collective bargaining
14.
Whereas bonus plans pay employees for special for special accomplishments, gain sharing plans reward them for ______________. (a) helping to increase social responsibility (b) regular attendance (c) positive work attitudes (d) contributing to cost reductions
15.
In labor-management relations, the process of negotiating, administering, and interpreting a labor contract is known as ___________. (a) arbitration (b) mediation (c) reconciliation (d) collective bargaining
16.
What are the different advantages of internal and external recruitment? Internal recruitment deals with job candidates who already know the organization well. It is also a strong motivator because it communicates to everyone the opportunity to advance in the organization through hard work. External recruitment may allow the organization to obtain expertise not available internally. It also brings in employees with new and fresh viewpoints who are not biased by previous experience in the organization.
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17.
Why is orientation an important part of the human resource management process? Orientation activities introduce a new employee to the organization and the work environment. This is a time when the individual may develop key attitudes and when performance expectations will also be established. Good orientation communicates positive attitudes and expectations and reinforces the desired organizational culture. It formally introduces the individual to important policies and procedures that everyone is expected to follow.
18.
Why is a BARS potentially superior to a graphic rating scale for use in performance appraisals? The graphic rating scale simply asks a supervisor to rate an employee on an established set of criteria, such as quantity of work or attitude toward work. This leaves a lot of room for subjectivity and debate. The behaviorally anchored rating scale asks the supervisor to rate the employee on specific behaviors that had been identified as positively or negatively affecting performance in a given job. This is a more specific appraisal approach and leaves less room for debate and disagreement.
19.
How does mentoring work as a form of on-the-job training? Mentoring is when a senior and experienced individual adopts a newcomer or more junior person with the goal of helping him or her develop into a successful worker. The mentor may or may not be the individual’s immediate supervisor. The mentor meets with the individual and discusses problems, shares advice, and generally supports the individual’s attempts to grow and perform. Mentors are considered very useful for persons newly appointed to management positions.
20.
Sy Smith is not doing well in his job. The problems began to appear shortly after Sy’s job was changed from a manual to a computer-based operation. He has tried hard but is just not doing well in learning to use the computer, and as a result he is having difficulty meeting performance expectations. As a 55-year-old employee with over 30 years with the company, Sy is both popular and influential among his work peers. Along with his performance problems, you have also noticed that Sy seems to be developing a more negative attitude toward his job. As Sy’s manager, what options would you consider in terms of dealing with the issue of his retention in the job and in the company? What would you do, and why? As Sy’s supervisor, you face a difficult but perhaps expected human resource management problem. Not only is Sy influential as an informal leader, he also has considerable experience on the job and in the company. Even though he is experiencing performance problems using the new computer system, there is no indication that he doesn’t want to work hard and continue to perform for the company. Although retirement is an option, Sy may also be transferred, promoted, or simply terminated. The latter response seems unjustified and may cause legal problems. Transferring Sy, with his agreement, to another position could be a positive move; promoting Sy to a supervisory position in which his experience and networks would be useful is another possibility. The key in this situation seems to be moving Sy out so that a computer-literate person can take over the job, while continuing to utilize Sy in a job that better fits his talents. Transfer and/or promotion should be actively considered, both in his and in the company’s interest.
MANAGEMENT SKILLS AND COMPETENCIES
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FURTHER REFLECTION: CONSCIENTIOUSNESS Students’ answers require personal appraisal and reflection as well as an external evaluator. So, their answers will vary. SELF-ASSESSMENT: PERFORMANCE APPRAISAL ASUMPTIONS Instructions In each of the following pairs of statements, check off the statement that best reflects your assumptions about performance evaluation. Performance evaluation is: 1. (a) A formal process that is done annually. (b) An informal process that is done continuously. 2. (a) A process that is planned for subordinates. (b) A process that is planned with subordinates. 3. (a) A required organizational procedure. (b) A process done regardless of requirements. 4. (a) A time to evaluate subordinate performance. (b) A time for subordinates to evaluate their manager. 5. (a) A time to clarify standards. (b) A time to clarify the subordinate’s career needs. 6. (a) A time to confront poor performance. (b) A time to express appreciation. 7. (a) An opportunity to clarify issues and provide direction and control. (b) An opportunity to increase enthusiasm and commitment. 8. (a) Only as good as the organization’s forms. (b) Only as good as the manager’s coaching skills.
Scoring Although there is no formal scoring for this assessment, there may be a pattern to your responses. Check them again. Interpretation In general, the “a” responses represent a more traditional approach to performance appraisal that emphasizes its evaluation function. This role largely puts the supervisor in the role of documenting a subordinate’s performance for control and administrative purposes. The “b” responses represent a more progressive approach that includes a strong emphasis on the counseling or development role. Here, the supervisor is concerned with helping the subordinate do better and with learning from the subordinate what he or she needs to be able to do better. There is more of an element of reciprocity in this role. It is quite consistent with new directions and values emerging in today’s organizations.
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Instructor’s Note Discuss with students the circumstances under which they believe that the evaluation and development functions are most appropriate for a manager to fulfill. Under what circumstances, if any, would each of these functions be inappropriate? What are the implications of the students’ performance appraisal assumptions for their potential careers as managers? Explore these and other issues with your students. (Source: Developed in part from Quinn, R.E., Faerman, S.R., Thompson, M.P., and McGrath, M.R. Becoming a Master Manager: A Contemporary Framework. New York: John Wiley & Sons, 1990, p. 187. Used by permission.)
TEAM EXERCISE: UPWARD APPRAISAL Instructions Form into work groups as assigned by the instructor. The instructor will then leave the room. As a group, complete the following tasks: 1. Within each group create a master list of comments, problems, issues, and concerns about the course experience to date that members would like to communicate with the instructor. 2. Select one person from the group to act as spokesperson and give your feedback to the instructor upon his or her return to the classroom. 3. The spokespersons from each group should meet to decide how the room should be physically arranged (placement of tables, chairs, etc.) for the feedback session. This should allow spokespersons and instructor to communicate while being observed by other class members. 4. While the spokespersons are meeting, members remaining in the groups should discuss what they expect to observe during the feedback session. 5. The classroom should be rearranged. The instructor should be invited in. 6. Spokespersons should deliver feedback to the instructor, while observers make notes. 7. After the feedback session is complete, the instructor will call on observers for comments, ask the spokespersons for their reactions, and engage the class in general discussion of the exercise and its implications.
Instructor’s Note This can be a very beneficial exercise for management courses. The exercise has practical value in that it sensitizes students to the potential barriers associated with upward communications an organizational hierarchy. It also provides direct feedback of potential value to the instructor in improving the course at the mid-semester point. Thus, it can be used by the instructor to demonstrate appropriate managerial behavior in the context of the course as a learning organization. The procedures described in the text should be followed in implementing the exercise. They are straightforward and students have little difficulty following them. It is important to properly set the stage for the exercise. Students should be encouraged to be frank in communicating to the spokespersons the issues that they would like to have pointed out to the instructor. The instructor should be open and receptive, and carefully demonstrate good listening behavior while receiving the feedback in the class session. This point cannot be over-emphasized. This is where the instructor should be an active listener and show students how feedback can be received without defensiveness and in a manner that encourages the future flow of similar evaluative information. The instructor should take notes during the exercise and report back to students in a subsequent class period regarding his/her responses to the major points. Often you will find that students raise points that can be immediately and positively addressed. Other points may be ones that they and you must simply live with based upon the nature of the course or the administrative structure of the university.
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Nevertheless, students have had the chance to communicate with you. The instructor has the benefit this mid-semester feedback. Listed below are comments that may help you anticipate what students might say. • Like the lectures. • Use good examples in class. • Know material well. • Exams are too lengthy. • Exams are graded too hard. • A periodic summary of material to date and an integration of the material would be helpful. • The timing of the term paper assignment is bad. • Need more detail on how to handle case analyses. • Grading criteria are not clear. • The class is too large. • You sometimes talk too fast. • The course is well organized. • You use diagrams well in class. • We feel free to participate. • You are hard to reach and have limited office hours. In debriefing the exercise in class, be sure to emphasize your feelings regarding the roles of both the spokespersons and the instructor. Ask the observers what examples they can generate of good communication behavior on the part of the spokespersons, and perhaps some ideas of where the communication could have been better. Ask them to also indicate the things you did to serve as a good listener and perhaps some of the things that you did that might discourage the flow of information from which the communication event took place. Many different physical arrangements of the room are possible, ranging from the instructor being in the center of a very large circle, to the instructor being in the front of the room behind the desk with all students lined up in front of him/her, to the instructor being included in a general circle. The arrangement sets a tone and perhaps introduces a potential barrier to communication effectiveness. (Source: Developed from Owens, E. “Upward Appraisal: An Exercise in Subordinate’s Critique of Superior’s Performance,” Exchange: The Organizational Behavior Teaching Journal, Vol. 3, 1978, pp. 41-42.)
CAREER SITUATION FOR HUMAN RESOURCE MANAGEMENT: WHAT WOULD YOU DO? Students’ answers will vary.
CHAPTER 13 CASE: TWO-TIER WAGES: SAME JOB, DIFFERENT PAY Discussion Questions 1. How does the Big Three’s decision to implement two-tier wage plans align with the concept of comparable worth? Explain your answer. Comparable worth means that people who do similar jobs should receive similar rewards. It is often used in reference to males and females, doing jobs of similar importance in different occupations, receiving equivalent pay. However, in many instances, as in this case, differences in seniority and experience can result in higher wages.
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2. What are the implications of two-tier wage plans for human resource planning? Human resource planning involves analyzing future staffing needs and identifying actions to fill those needs. With this two-tiered system, identifying opportunities for future jobs and establishing a system for promoting from within could be used as a motivator for workers currently paid on the lower tier. Problem Solving Consider yourself to be a negotiator for the United Auto Workers Union. What would be your “union” position on the use of two-tier pay systems? In a collective bargaining situation where you are at the table, what specific responses would you be prepared to make when a management negotiator says not only that his or her firm wants to keep the two-tier wages already in place for some workers, but shift more new workers to them as they get hired in the future? What counter arguments to your positions would you expect from the management side? Do you see any way to forge a shared agreement in this situation? Sometimes union negotiators take the approach that if management “wins” a concession, the workers lose and vice-versa. In today’s tight economy and especially in the auto industry, this is an unrealistic and counter- productive position. The two-tiered system has preserved jobs and therefore strengthened union membership numbers. The adversarial relationship that existed between the United Auto Workers and management and the continued push for higher wages and more benefits contributed to outsourcing and the job losses in this industry. Management can threaten more outsourcing, plant closings, off shoring, and layoffs. The auto industry has changed and union’s approaches to negotiations need to adapt to more collaborative and creative approaches. Today, negotiators need to be more concerned about the reality of job security, intrinsic ways to motivate workers, and the economic viability of the American auto industry. In the long run, this will result in win-win negotiations for the membership and the industry. Further Research Imagine you have been asked by General Motors CEO Daniel Akerson to consult on improving morale and retention about GM’s labor force. While GM will not be able to offer workers higher wages in the future, they are open to examining other creative forms of compensation and benefits. Draw up a plan to present to Daniel Akerson which includes your specific recommendations. Be as detailed as possible, and explain your reasoning for each compensation or benefit adjustment you recommend. When suggesting plans for compensation and benefit changes, students need to be aware of the financial limitations in this industry. Suggestions that add costs should also result in savings, increases in productivity, and/or be tied to measurable outcomes. Students need to develop more creative recommendations that move beyond increasing wages and benefits which are extrinsic motivators. Solutions should focus on at least some intrinsic motivators such as increasing employee engagement by allowing more autonomy, offering opportunities for developing additional skills, adding variety to tasks to decrease boredom, offering more flexible scheduling to meet needs for family-life balance, etc.
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Chapter 14:
LEADING AND LEADERSHIP DEVELOPMENT CHAPTER 14 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. What is the nature of leadership? 2. What are the key leadership traits and behaviors? 3. What are the contingency approaches to leadership? 4. What are current issues in personal leadership development? CHAPTER 14 LEARNING OBJECTIVES After completing this chapter, students should be able to: • Define power • Illustrate three types of position power and discuss how managers use each • Illustrate two types of personal power and discuss how managers use each • Define vision • Explain the concept of visionary leadership • Define empowerment • Explain the notion of servant leadership • Contrast the trait and leader-behavior approaches to leadership research • Identify five personal traits of successful leaders • Illustrate leader behaviors consistent with a high concern for task • Illustrate leader behaviors consistent with a high concern for people • Describe behaviors associated with four classic leadership styles • Contrast the leader-behavior and contingency approaches to leadership research • Explain Fiedler’s contingency model • Identify the four leadership styles in the Hersey-Blanchard situational model • Explain House’s path-goal theory • Define substitutes for leadership • Explain LMX theory • Contrast the authority, consultative, and group decisions in the Vroom-Jago model • Differentiate transformational leadership • Explain how emotional intelligence contributes to leadership success • Discuss research insights on the relationship between gender and leadership • Define interactive leadership • Discuss integrity as a foundation for moral leadership • List Drucker’s three essentials of good old-fashioned leadership CHAPTER 14 OVERVIEW Leading is the process of inspiring others to work hard to accomplish important tasks. As such, the leading function is an essential component of effective management. This chapter focuses on the leading function and various theories of leadership. It begins by exploring the nature of leadership, in general, and visionary leadership, in particular. Next, the chapter examines the roles that sources of position power and personal power play in the leadership process. The chapter also explores how power can be turned into influence, how power relates to ethics, and .
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how leaders can empower followers. The chapter continues with a discussion of the trait, behavioral, and contingency approaches to leadership. In discussing the behavioral approach, emphasis is placed on the Blake and Mouton Leadership Grid. Under the contingency approach, particular attention is devoted to the managerial implications of Fiedler’s contingency model, the Hersey-Blanchard situational leadership model, House’s path-goal theory, the leader-member exchange theory, and the Vroom-Jago leader-participation model. Next, the chapter focuses on charismatic and transformational leadership. Finally, the chapter explores current issues in leadership theory and practice, including emotional intelligence, gender and leadership, moral leadership, and “old-fashioned” leadership. CHAPTER 14 LECTURE OUTLINE Teaching Objective: To provide students with a solid understanding of leadership and its importance to management. To accomplish this, power as a leadership resource and various approaches to the study of leadership are explored. Suggested Time: Approximately three hours of class time is suggested for presenting the material in this chapter. More time may be required depending on the number of enhancements incorporated into the lecture. I.
Takeaway question 1: What is the nature of leadership? Leadership and power Leadership and vision Leadership as service
II.
Takeaway question 2: What are the key leadership traits and behaviors? Leadership traits Leadership behaviors Classic leadership styles
III.
Takeaway question 3: What are the contingency approaches to leadership? Fiedler’s contingency model Hersey-Blanchard situational model Path-goal theory Leader-member exchange theory Leader-participation model
IV.
Takeaway question 4: What are current issues in personal leadership development? Charismatic and transformational leadership Emotional intelligence and leadership Gender and leadership Moral leadership Drucker’s “old-fashioned” leadership
CHAPTER 14 SUPPORTING MATERIALS Textbook Inserts Learning from Others • Leaders Provide the Roadmaps . 14-2
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Learning about Yourself • Integrity Figures • Figure 14.1: Leading Viewed in Relationship to the Other Management Functions • Figure 14.2: Blake and Mouton’s Leadership Grid • Figure 14.3: Predictions on Style-Situation Fit From Fiedler’s Contingency Leadership Model • Figure 14.4 Leadership Implications of the Hersey-Blanchard Situational Leadership Model • Figure 14.5: Contingency Relationships in House’s Path-Goal Leadership Theory • Figure 14.6: Elements of Leader-Member Exchange (LMX) Theory • Figure 14.7: Leadership Implications of Vroom-Jago Leader-Participation Model Thematic Boxes • Recommended Reading: Power: Why Some People Have It and Other’s Don’t • Follow the Story: Educator’s Leadership Turns Vision Into Inspiration • Facts for Analysis: Workers Report Shortcomings of Leaders and Top Managers • Researchers Find Bias against Black Leaders on the Football Field • Ethics on the Line: Would You Put Your Boss Above Your Organization? • Management Smarts: Five Ways for Leaders to Make Decisions • Martin Luther King, Jr. Shared An Inspiring Dream • Research Brief: Charismatic Leaders Display Positive Emotions That Followers Find Contagious • Nonviolence Was Moral Path for Mahatma Gandi Applications • Self-Test • Further Reflections: Integrity • Self-Assessment: Least Preferred Co-Worker Scale • Team Exercise: Leadership and Participation in Decision Making • Career Situations for Leadership: What Would You Do? • Case 14: Zappos: They Did It with Humor. CHAPTER 14 LECTURE NOTES LEARNING FROM OTHERS on page 350 of the text describes how Irene Rosenfeld, CEO of Kraft Foods, uses her leadership skills to inspire those in the organization to transform Kraft as a global powerhouse in snacks and confectionery. LEARNING ABOUT YOURSELF on page 351 of the text shows how leadership and integrity go together and what happens if a leader does not possess leadership integrity. The article asks if the student worked for someone who behaved below the integrity line and how they felt about it. TAKEAWAY QUESTION 1: WHAT IS THE NATURE OF LEADERSHIP? Leadership is the process of inspiring others to work hard to accomplish important tasks.
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FIGURE 14.1 on page 353 of the text depicts the relationship between leading and the other management functions. Specifically, planning sets the direction and objectives; organizing brings the resources together to turn plans into action; leading builds the commitments and enthusiasm needed for people to apply their talents to help accomplish plans; and controlling makes sure things turn out right. LEADERSHIP AND POWER Power is the ability to get someone else to do something you want done or to make things happen the way you want. The need for power is crucial for executive success. It reflects the desire to influence and control others for the good of the group or organization as a whole rather than the desire to control for personal satisfaction. Position Power Position power is based on a manager’s official status in the organization’s hierarchy of authority. Sources of position power: • Reward power: the capacity to offer something of value –– a positive outcome – – as a means of influencing the behavior of other people. • Coercive power: the capacity to punish or withhold positive outcomes as a means of influencing the behavior of other people. • Legitimate power: the ability to influence through authority–– the right by virtue of one’s organizational position or status to exercise control over persons in subordinate positions. Personal Power Personal power reflects the unique personal qualities that a person brings to the leadership situation. Sources of personal power: • Expert power: the capacity to influence the behavior of other people because of one’s knowledge and skills, and is developed by acquiring relevant skills or competencies, and by accumulating and gaining access to useful information. • Referent power: the capacity to influence the behavior of other people because they admire you and want to identify positively with you and it is derived from charisma or interpersonal attractiveness. LEADERSHIP AND VISION Vision refers to a future that one hopes to create or achieve in order to improve upon the present state of affairs. Visionary leadership describes a leader who brings to the situation a clear and compelling sense of the future as well as an understanding of the actions needed to get there successfully. Recommended Reading on p. 355 of the text summarizes Jeffrey Pfeffer’s book, Power: Why Some People Have it and Other’s Don’t in which he details the role that power plays in personal career success. .
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DISCUSSION TOPIC Ask the students if they have encountered any leaders who have had a truly significant effect on their lives. Have the students describe what these leaders did to have this impact and how they were affected. Then, to the extent possible, relate this discussion to visionary leadership. At this point, ask students to describe the types of power these leaders used and the impacts that were achieved. LEADERSHIP AS SERVICE Servant leadership is other-centered and committed to helping others in their work. This is leadership based on a commitment to serving others, to helping people use their talents to full potential while working together for organizations that benefit society. Empowerment enables others to gain and use decision-making power. Servant leaders empower others by providing them with the information, responsibility, authority, and trust to make decisions and act independently. They expect that when people feel empowered to act, they will follow through with commitment and high-quality work. TAKEAWAY QUESTION 2: WHAT ARE THE KEY LEADERSHIP TRAITS AND BEHAVIORS? LEADERSHIP TRAITS The great person theory of leadership sought to identify successful leaders and the characteristics that made them great. Research indicates that physical traits such as height, weight, and physique have no relationship to leadership success. Some personal traits are considered to be important for leadership success. However, these traits must always be considered along with situational factors. These traits include: • Drive – successful leaders have high energy, display initiative, and are tenacious. • Self-confidence – successful leaders trust themselves and have confidence in their abilities. • Creativity – successful leaders are creative and original in their thinking. • Cognitive ability – successful leaders have the intelligence to integrate and interpret information. • Job-relevant knowledge – successful leaders know their industry and its technical foundations. • Motivation – successful leaders enjoy influencing others to achieve shared goals. • Flexibility – successful leaders adapt to fit the needs of followers and the demands of situations. • Honesty and integrity – successful leaders are trustworthy: they are honest, predictable, and dependable. Researchers Find Bias against Black Leaders on the Football Field on p. 358 of the text explains research about the media bias towards black quarterbacks’ leadership.
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DISCUSSION TOPIC A way to demonstrate to students the objectives as well as the shortcomings of the trait approach to leadership is to ask them to identify the traits of effective leaders. Ask a generic question such as “What are the traits of effective leaders?” and then record their responses. Alternatively, you could provide more direction and distinguish between physical and personality traits by asking, “What do leaders look like?” and “What personality characteristics do leaders typically possess?” If you use the former approach, you may want to record separately the physical and personality traits the students identify. Once a reasonable number of traits are listed, review them and cross out the physical traits such as tall, strong, and good-looking, which have not been substantiated by research. Also note that while the leadership traits of drive, desire to lead, motivation, honesty and integrity, selfconfidence, intelligence, knowledge, and flexibility are seen as desirable, researchers have not found a definitive, universal profile of leadership traits. LEADERSHIP BEHAVIORS Leadership behavior theories focus on how leaders behave when dealing with followers. Leadership styles are the recurring patterns of behaviors exhibited by leaders. Research on leadership behavior has revealed two basic underlying dimensions: • Concern for the task to be accomplished. • Concern for the people doing the work. A leader high in concern for task engages in the following behaviors: • plans and defines work to be done. • assigns task responsibilities. • sets clear work standards. • urges task completion. • monitors performance results. A leader high in concern for people engages in the following behaviors: • acts with warmth and supportiveness toward followers. • maintains good social relations with them. • respects their feelings. • is sensitive to their needs. • shows trust in them. FACTS FOR ANALYSIS on p. 357 of the text reports on a Harris survey that reveals workers’ perceptions of their managers shortcomings. CLASSIC LEADERSHIP STYLES FIGURE 14.2 on page 359 of the text describes the Blake and Mouton Leadership Grid. The Grid identifies alternative leadership styles that reflect different combinations of concern for task (or production) and concern for people. The Grid also identifies a preferred leadership style. • Team management is the preferred leadership style; it reflects a high concern for both people and production.
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Instructor’s Guide
Authority-obedience management reflects a high concern for production and a low concern for people. Country club management reflects a high concern for people and a low concern for production. Impoverished management reflects a low concern for both production and people. Middle of the road management is non-committal with respect to both production and people concerns
An autocratic style emphasizes task over people, keeps authority and information within the leader’s tight control, and acts in a unilateral command-and-control fashion. A human relations style emphasizes people over tasks by focusing on the needs of people, while building relationships. A laissez-faire style shows little concern for task, lets the group make decisions, and acts with a “do the best you can and don’t bother me” attitude. A democratic style is committed to both task and people, getting things done while sharing information, encouraging participation in decision making, and helping people develop their skills and competencies. TAKEAWAY QUESTION 3: WHAT ARE THE CONTINGENCY APPROACHES TO LEADERSHIP? Modern leadership theories reflect a contingency perspective that attempts to match situational demands with appropriate leader behaviors (or leadership styles). FIEDLER’S CONTINGENCY MODEL Understanding Leadership Style This model is based on the premise that good leadership depends on a match between leadership style and situational demands. The least-preferred coworker scale (LPC scale) is designed to measure a person’s leadership style as reflected in the tendency to behave as either a task-motivated (low LPC score) or a relationship-motivated (high LPC score) leader. Fiedler believes that leadership style is part of one’s personality; therefore, it is relatively enduring and difficult to change. Fiedler argues that the leadership style must fit the situation. The amount of situational control is crucial in determining the correct style-situation fit. Understanding Leadership Situations The following three contingency variables are used to diagnose situational control: • Quality of leader-member relations (good or poor) –– the degree to which the group supports the leader. • Degree of task structure (high or low) –– the extent to which task goals, procedures, and guidelines are clearly spelled out. • Amount of position power (strong or weak) –– the degree to which the position gives the leader power to reward and punish subordinates.
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FIGURE 14.3 on page 360 of the text identifies the eight leadership situations that result from the possible combinations of the contingency variables. It also summarizes Fiedler’s research results regarding the situations in which task-oriented and relationship-oriented leaders are most effective. Matching Leadership Style and Situation Fiedler’s results can be stated as two propositions: • Proposition 1: A task-motivated leader will be most successful in either very favorable (high control) or very unfavorable (low control) situations. • Proposition 2: A relationship-motivated leader will be most successful in situations of moderate control DISCUSSION TOPIC One means of enhancing students’ understanding of Fiedler’s theory is to provide them with various scenarios and ask them to apply the theory to determine the appropriate leadership style for each situation. Some sample scenarios and the corresponding analyses are provided below. (These scenarios were adapted from J.R. Schermerhorn, Jr., J.G. Hunt, and R.N. Osborn, Organizational Behavior 8/e, John Wiley & Sons, 2003, p. 292.) Scenario 1:
You are an experienced supervisor of a group manufacturing a component for a personal computer. You are strongly supported by the group members. You also have the ability to make hiring and termination decisions and to grant raises.
Analysis:
Having supportive subordinates indicates good leader-member relations. The structure of the work is high, and you have experience, so the task structure is high. Finally, you have the authority to hire, fire, and grant raises, which gives you high position power. This is a high control situation and hence a task-oriented leader will be most effective.
Scenario 2:
You are the chair of a student council committee of volunteers but the committee members are not particularly happy with you as the chair. The committee is charged with organizing a Parent’s Day program to improve relationships between the university and parents of the students.
Analysis:
Task structure is low since it is unclear how the committee should go about improving university-parent relations. Leader-member relations are poor since the members don’t want you to be chair. Finally, position power is weak since the members can quit at any time. This is a low control situation and hence a taskoriented leader will be most effective.
Scenario 3:
You are a well-liked academic department chair in a university. There are many tenured faculty members in the department. You are responsible for enhancing the teaching, research, and service of the department.
Analysis:
There are good leader-member relations, but task structure is low since the “how” of the task is not very clear. Your position power is also not very high vis-à-vis the tenured faculty members. This is a moderate control situation and hence a relationship-oriented leader will be most effective.
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HERSEY-BLANCHARD SITUATIONAL LEADERSHIP MODEL This contingency theory suggests that successful leaders adjust their styles depending on the maturity of followers, indicated by their readiness to perform in a given situation. Readiness refers to how able, willing, and confident followers are in performing required tasks. FIGURE 14.4 on page 361 of the text identifies both the four possible leadership styles that result from different combinations of task-oriented and relationship-oriented behaviors. These styles, along with their relationships to follower readiness, are as follows: • Delegating: allowing the group to make and take responsibility for task decisions; a low-task, low-relationship style. This style works best in high-readiness situations. • Participating: emphasizing shared ideas and participative decisions on task directions; a low-task, high-relationship style. This style works best in low-to moderate-readiness situations. • Selling: explaining task directions in a supportive and persuasive way; a high-task, high-relationship style. This style works best in moderate-to high-readiness situations. • Telling: giving specific task directions and closely supervising work; a high-task, low-relationship style. This style works best in low-readiness situations. Hersey and Blanchard believe the leader’s style can and should be adjusted as followers change over time. If the correct leadership styles are used in lower-readiness situations, followers will “mature” and grow in ability, willingness, and confidence. DISCUSSION TOPIC Hersey and Blanchard’s four levels of follower readiness can be compared to student classifications on a high school or college sports team. Freshmen are essentially low readiness subordinates who require a telling style of leadership. Sophomores are willing to assume more responsibility, but lack some of the skills; they respond well to a selling style. Juniors are able to handle more responsibility, but may lack confidence; they respond well to a participating style. Finally, since seniors are able, willing, and confident, they respond best to the delegating style. ETHICS ON THE LINE on p. 362 asks students to consider the ethics of helping your boss on company time in situations unrelated to your job. PATH-GOAL LEADERSHIP THEORY According to path-goal theory, effective leadership clarifies the paths through which followers can achieve both task-related and personal goals, helps people progress along these paths, removes barriers to goal accomplishment, and provides appropriate rewards for task accomplishment. Four leadership styles are used in dealing with path-goal relationships:
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Instructor’s Guide
Directive leadership: letting subordinates know what’s expected; giving directions on what to do and how; scheduling work to be done; maintaining definite standards of performance; clarifying the leader’s role in the group. Supportive leadership: doing things to make the work pleasant; treating team members as equals; being friendly and approachable; showing concern for the wellbeing of subordinates. Achievement-oriented leadership: Setting challenging goals; expecting the highest levels of performance; emphasizing continuous improvement in performance; displaying confidence in meeting high standards. Participative leadership: involving team members in decision making; consulting with them and asking for suggestions; using these suggestions when making decisions.
Path-Goal Contingencies As shown in FIGURE 14.5 on page 363 of the text, the path-goal model advises managers to always use leadership styles that fit situational needs. An effective leader contributes things that are not already present (i.e., he/she avoids being redundant). When job assignments are unclear, directive leadership is appropriate to clarify task objectives and expected rewards. When worker self-confidence is low, supportive leadership is appropriate to increase confidence by emphasizing individual abilities and offering needed assistance. When task challenge is insufficient, achievement-oriented leadership is appropriate to set goals and raise performance aspirations. When performance incentives are poor, participative leadership is appropriate to clarify individual needs and identify appropriate rewards. Substitutes for Leadership Path-goal theory has contributed to the recognition of substitutes for leadership –– aspects of the work setting and the people involved that can reduce the need for a leader’s personal involvement. Possible substitutes for leadership include follower characteristics (ability, experience, and independence); task characteristics (presence or absence of routine and availability of feedback); and organizational characteristics (clarity of plans and formalization of rules and procedures). LEADER-MEMBER EXCHANGE THEORY FIGURE 14.6 on page 364 of the text shows the leader-member exchange (LMX) theory which recognizes that in many leadership situations not everyone is treated the same by the leader.
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The “in group” is often made up of the best performers who enjoy special and trusted highexchange relationships with the leaders that can translate into special assignments, privileges, and access to information. The “out-group” is often marginalized or ignored and they get lower benefits due to a low exchange relationship with the leader. Research shows that members of the “in group” get more positive performance evaluations, have higher levels of job satisfaction, and are less prone to turnover. LEADER-PARTICIPATION MODEL This Vroom-Jago leader-participation model helps a leader choose the method of decision making that best fits the nature of the problem situation. FIGURE 14.7 on page 364 of the text shows the leader’s choices for making decisions fall into three categories • Authority decision –– the decision is made by the leader and then communicated to the group. • Consultative decision –– the leader makes the decision after gathering information and advice from others. • Group decision –– the decision is made by group with the leader’s support as a contributing member. The leader’s choice among these decision-making methods depends on the following factors: • Decision quality is based on who has the information needed for problem solving. • Decision acceptance is based on the importance of follower acceptance of the decision to eventual implementation. • Decision time is based on the time available to make and implement the decision. Effective leaders will shift among the various decision-making methods as they deal with the problems and opportunities of daily events. Leaders should use more authority-oriented decision methods when: • They have greater expertise to solve a problem. • They are confident and capable of acting alone. • Others are likely to accept and implement the decision they make. • Little or no time is available for discussion. Leaders should use consultative and group-oriented decision methods when: • They lack sufficient information to solve a problem by themselves. • The problem is unclear and help is needed to clarify the situation. • Acceptance of the decision and commitment by others is necessary for implementation. • Adequate time is available to allow for true participation. Benefits of participative decision methods: • Help improve decision quality. • Help improve decision acceptance. • Helps develop leadership potential in others.
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Potential disadvantages of participative decision methods: • Lost efficiency. • Not particularly useful when problems must be resolved immediately. MANAGEMENT SMARTS on page 365 of the text outlines the context of the basic decision-making choices with the five following decision-making options: 1. Decide alone—This is an authority decision; the manager decides how to solve the problem and communicates the decision to the group. 2. Consult individually—The manager makes the decision after sharing the problem and consulting individually with group members to get their suggestions. 3. Consult with group—The manager makes the decision after convening the group, sharing the problem, and consulting with everyone to get their suggestions. 4. Facilitate group —The manager convenes the group, shares the problem, and then facilitates group discussion to make a decision. 5. Delegate to group —The manager convenes the group and delegates authority to define the problem and make a decision. DISCUSSION TOPIC Compare and contrast the four major contingency theories discussed above using the following table. Point out that while Fiedler argues that it’s hard for leaders to change their style, the other theorists recommend that leaders should be flexible in adjusting their styles to match the situation. Therefore, the theory that works best for a particular individual may depend upon the extent to which he or she is capable of changing styles. CONTINGENCY THEORIES Comparison Fiedler's Points Approach
House's Approach
Hersey and Blanchard's Approach Situational Attributes
VroomJago Approach Problem Attributes
Concern
Situational Control
Situational Attributes
Diagnostic Focus
Task Structure, Position Power, Leader-member Subordinate Relations
Subordinate Characteristics, Task Demands
Follower Readiness
Decision Quality,
Leadership Styles
Task-motivated, RelationshipMotivated
Directive, Supportive, Participative, AchievementOriented
Telling, Selling, Participating, Delegating
Decide Alone, Consult Individually, Consult with Group, Facilitate, Delegate
Managerial
Effective leader
Effective leader
Effective leader
Effective
Acceptance, Information and Time Availability
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Implications
matches style with situation decision
chooses style to complement situational attributes
chooses style to complement situational attributes
leader uses method best fitting the problem
TAKEAWAY QUESTION 4: WHAT ARE CURRENT ISSUES IN PERSONAL LEADERSHIP DEVELOPMENT? CHARISMATIC AND TRANSFORMATIONAL LEADERSHIP Contemporary leadership interests focus on “superleaders” ⎯ persons whose vision and strength of personality have an extraordinary impact on others. Superleaders are often called charismatic leaders because they develop special leader-follower relationships and inspire others in extraordinary ways. Transformational leadership describes someone who is truly inspirational as a leader and who arouses others to seek extraordinary performance accomplishments. Qualities of transformational leaders: • Vision ⎯ having ideas and a clear sense of direction; communicating these to others; developing excitement about accomplishing shared “dreams.” • Charisma ⎯ using the power of personal reference and emotion to arouse others’ enthusiasm, faith, loyalty, pride, and trust in themselves. • Symbolism ⎯ identifying “heroes” and holding spontaneous and planned ceremonies to celebrate excellence and high achievement. • Empowerment ⎯ helping others develop by removing performance obstacles, sharing responsibilities, and delegating truly challenging work. • Intellectual stimulation ⎯ gaining the involvement of others by creating awareness of problems and stirring their imaginations. • Integrity ⎯ being honest and credible, acting consistently out of personal conviction, and following through on commitments. Martin Luther King, Jr. Shared an Inspiring Dream on p, 366 of the text provides an example a transformational leader. EMOTIONAL INTELLIGENCE AND LEADERSHIP Emotional intelligence is the ability of people to manage themselves and their relationships effectively. A leader’s emotional intelligence significantly influences his or her effectiveness, especially in senior management positions. There are five components of emotional intelligence in which people should strive to develop competency. These components are: • High self-awareness –– the ability to understand one’s own moods and emotions, and understand their impact on one’s work and on others. • Good self-management –– the ability to think before acting and to control otherwise disruptive impulses.
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• • •
Motivation –– the ability to work hard with persistence and for reasons other than money or status. Social awareness –– the ability to understand the emotions of others and to use this understanding to better relate to them. Good relationship management –– the ability to establish rapport with others and to build good relationships and networks. DISCUSSION TOPIC
Have the students spend eight to ten minutes of class time writing a brief self-assessment essay regarding the extent to which they perceive themselves as having developed each the above components of emotional intelligence. Have the students who are willing to do so contribute their examples as you discuss the components of emotional intelligence. GENDER AND LEADERSHIP Research evidence largely supports the gender similarities hypothesis that both men and women are very similar to one another in terms of psychological properties and that both can be effective leaders, even though men and women tend to have somewhat different leadership styles. Women tend to use interactive leadership that focuses on building consensus and good interpersonal relations through communication and involvement. This style shares qualities with transformational leadership. An interactive leader tends to use personal power, gaining influence over others through support and interpersonal relationships. Men seem to portray leadership that relies more on directive and assertive behaviors, and using authority in a traditional “command and control” way. Given the current emphasis on shared power, communication, cooperation, and participation in new-form organizations, interactive leadership appears to be an excellent fit with the demands of a diverse workforce and the new workplace. Regardless of whether the relevant behaviors are displayed by men or women, it seems clear that future leadership success will rest more on one’s capacity to lead through openness, positive relationships, support, and empowerment. RESEARCH BRIEF on page 368 of the text describes a study which found leaders rated high in charisma use more positive emotions in word choices for visions, statements and speeches. They also found that the positive emotions of leaders were transferred into positive moods among followers; that is, the positive leader moods were contagious. They also found that followers with positive moods had more positive perceptions of leader effectiveness. Does this mean that a leader can never have a “bad” day and never communicate anything other than positive emotions?
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MORAL LEADERSHIP Moral leadership is always “good” and “right” by ethical standards, and it adheres to moral standards that meet the ethical test of being “good” and “correct.” • Anyone in a leadership position is expected to maintain high ethical standards. • Long-term, sustainable success can only be built upon a solid foundation of ethical behavior. Integrity involves the leader’s honesty, credibility, and consistency in putting values into action. Leaders with integrity earn the trust of their followers. Nonviolence Was the Moral Path for Mahatma Gandi on p, 370 of the text presents Gandi as an example of a moral leader. DRUCKER’S “OLD-FASHIONED” LEADERSHIP Peter Drucker views leadership as much more than charisma –– it is “good oldfashioned” hard work. Drucker’s three essentials of leadership (or what is necessary to do “good oldfashioned” hard work): • Defining and establishing a sense of mission. • Accepting leadership as a “responsibility” rather than a rank. • Earning and keeping the trust of others. CHAPTER 14 TAKEAWAY QUESTIONS SUMMARY Takeaway question 1: What is the nature of leadership? • • • • • •
Leadership is the process of inspiring others to work hard to accomplish important tasks. The ability to communicate a vision—a clear sense of the future—is essential for effective leadership. Power is the ability to get others to do what you want them to do through leadership. Sources of position power include rewards, coercion, and legitimacy or formal authority; sources of personal power include expertise and reference. Effective leaders empower others, allowing them to make job-related decisions on their own. Servant leadership is follower-centered, focusing on helping others fully utilize their talents.
FOR DISCUSSION: When is a leader justified in using coercive power? Takeaway question 2: What are the key leadership traits and behaviors? • • •
Traits that seem to have a positive impact on leadership include drive, integrity, and selfconfidence. Research on leader behaviors has focused on alternative leadership styles based on concerns for the task and concerns for people. One suggestion of leader-behavior researchers is that effective leaders are team-based and participative, showing both high task and people concerns.
FOR DISCUSSION: Are any personal traits indispensable “must haves” for success in leadership?
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Takeaway question 3: What are the contingency approaches to leadership? • • • • •
Contingency leadership approaches point out that no one leadership style always works best; the best style is one that properly matches the demands of each unique situation. Fiedler’s contingency model matches leadership styles with situational differences in task structure, position power, and leader-member relations. The Hersey-Blanchard situational model recommends using task-oriented and peopleoriented behaviors, depending on the “maturity” levels of followers. House’s path-goal theory points out that leaders add value to situations by using supportive, directive, achievement-oriented, or participative styles. The Vroom-Jago leader-participation theory advises leaders to choose decision-making methods—individual, consultative, group—that best fit the problems to be solved.
FOR DISCUSSION: What are the career development implications of Fiedler’s contingency model of leadership? Takeaway question 4: What are current issues in personal leadership development? • • • •
Transformational leaders use charisma and emotion to inspire others toward extraordinary efforts and performance excellence. Emotional intelligence—the ability to manage our relationships and ourselves effectively—is an important leadership capability. The interactive leadership style emphasizes communication, involvement, and interpersonal respect. Managers are expected to be moral leaders who communicate high ethical standards and show personal integrity in all dealings with other people.
FOR DISCUSSION: Is transformational leadership always moral leadership? CHAPTER 14 KEY TERMS Authentic leadership (p. 369): activates positive psychological states to achieve self-awareness and positive self-regulation. Authority decision (p. 364): the leader makes the decision alone and then communicates it to the work group. Autocratic style (p. 359): emphasizes task over people, retains authority and information, and acts in a unilateral command-and-control fashion. Charismatic leader (p. 366): a leader who inspires followers in extraordinary ways. Coercive power (p. 353): the capacity to punish or withhold positive outcomes as a means of influencing other people. Consultative decision (p. 364): the leader makes the decision after asking group members for information, advice, or opinions. Democratic style (p. 359): is committed to both task and people. Emotional intelligence (p. 367): the ability of people to manage themselves and their relationships effectively. Empowerment (p. 356): the process through which managers enable and help others to gain power and achieve influence within the organization. Expert power (p. 354): the capacity to influence the behavior of other people because of one’s special expertise. Gender similarities hypothesis (p. 367): holds that males and females have similar psychological properties. Group decision (p. 364): made by the group with the leader’s support as a contributing member.
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Human relations style (p. 359): emphasizing people over task. Integrity (p. 369): acting with honesty, credibility, and consistency in putting values into action. Interactive leadership style (p. 368): leaders who are strong communicators and act democratic and participative with followers. Laissez-faire style (p. 359): shows little concern for task, letting the group make decisions, and acting with a “do the best you can and don’t bother me” attitude. Leadership (p. 352): the process of inspiring others to work hard to accomplish important tasks. Leadership style (p. 359): the recurring pattern of behaviors exhibited by a leader. Least-preferred co-worker scale (p. 360): used in Fiedler’s contingency model to measure a person’s leadership style. Legitimate power (p. 354): the capacity to influence other people by virtue of formal authority, or the rights of office. Moral leadership (p. 369): leadership with ethical standards that clearly meet the test of being “good” and “correct.” Moral overconfidence (p. 369): what is always “good” and “right” by ethical standards. Power (p. 353: the ability to get someone else to do something you want done or to make things happen the way you want. Referent power (p. 354): the capacity to influence the behavior of other people because of their desire to identify personally with you. Reward power (p. 353): the capability to offer something of value –– a positive outcome –– as a means of influencing another person’s behavior. Servant leadership (p. 355): leadership based on a commitment to serving others, to helping people use their talents to full potential while working together for organizations that benefit society. Substitutes for leadership (p. 363): aspects of the work setting and the people involved that can reduce the need for a leader’s personal involvement. Transformational leadership (p. 366): describes someone who is truly inspirational as a leader and who arouses others to seek extraordinary performance accomplishments. Vision (p. 354): a future that one hopes to create or achieve in order to improve upon the present state of affairs. Visionary leadership (p. 354): describes a leader who brings to the situation a clear and compelling sense of the future as well as an understanding of the actions needed to get there successfully.
SELF TEST ANSWERS 1.
Someone with a clear sense of the future and the actions needed to get there is considered a _________ leader. (a) task-oriented (b) people-oriented (c) transactional (d) visionary
2.
Leader power = _________ power + _________ power. (a) reward, punishment (b) reward, expert (c) legitimate, position (d) position, personal
3.
A manager who says “because I am the boss, you must do what I ask” is relying on _________ power. (a) reward (b) legitimate (c) expert (d) referent
4.
When a leader assumes that all others will do as she asks because they want to positively identify with her, she is relying on _______________ power to influence their behavior. (a) expert (b) referent (c) legitimate (d) reward
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5.
The personal traits now considered important for managerial success include _________. (a) self-confidence (b) gender (c) age (d) height
6.
In the leader-behavior approaches to leadership, someone who does a very good job of planning work, setting standards, and monitoring results would be considered a(n) _________ leader. (a) task-oriented (b) control-oriented (c) achievement-oriented (d) employee-centered
7.
According to the Blake and Mouton leadership grid, the most successful leader is one who acts with _________. (a) high initiating structure and low consideration (b) high concern for task and high concern for people (c) high emotional intelligence and high integrity (d) low job stress and high task goals.
8.
A leader whose actions indicate an attitude of “do as you want, and don’t bother me” would be described as having a(n) _________ leadership style. (a) autocratic (b) country club (c) democratic (d) laissez-faire
9.
In Fiedler’s contingency model, both highly favorable and highly unfavorable leadership situations are best dealt with by a _________ leader. (a) task-motivated (b) laissez-faire (c) participative (d) relationship-motivated
10.
___________ leadership model suggests that leadership is strongly anchored in personality and therefore hard to change. (a) Trait (b) Fiedler’s (c) Transformational (d) Blake and Moulton’s
11.
House’s __________ theory of leadership says that successful leaders find ways to add value to leadership situations. (a) trait (b) path-goal (c) transformational (d) life-cycle
12.
A leader who _________ would be described as achievement-oriented in the path–goal theory. (a) works hard to achieve high performance (b) sets challenging goals for others (c) gives directions and monitors results (d) builds commitment through participation
13.
The critical contingency variable in the Hersey–Blanchard situational model of leadership is ____________ . (a) followers’ maturity (b) LPC (c) task structure (d) LMX
14.
Vision, charisma, integrity, and symbolism are all on the list of attributes typically associated with _________ leaders. (a) contingency (b) informal (c) transformational (d) transactional
15.
The interactive leadership style, sometimes associated with women, is characterized by _________. (a) inclusion and information sharing (b) use of rewards and punishments (c) command
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and control (d) emphasis on position power 16. Why does a person need both position power and personal power to achieve long -term managerial effectiveness? Position power is based on reward; coercion, or punishment; and legitimacy, or formal authority. Managers, however, need to have more power than that made available to them by the position alone. Thus, they have to develop personal power through expertise and reference. This personal power is essential in helping managers to get things done beyond the scope of their position power alone. 17.
What is the major insight of the Vroom–Jago leader-participation model? Leader-participation theory suggests that leadership effectiveness is determined in part by how well managers or leaders handle the many different problem or decision situations that they face every day. Decisions can be made through individual or authority, consultative, or group-consensus approaches. No one of these decision methods is always the best; each is a good fit for certain types of situations. A good manager or leader is able to use each of these approaches and knows when each is the best approach to use in particular situations.
18.
What are the three variables that Fiedler’s contingency model uses to diagnose the favorability of leadership situations, and what does each mean? The three variables used in Fiedler’s model to diagnose situational favorableness are: (1) position power— how much power the leader has in terms of rewards, punishments, and legitimacy; (2) leader-member relations—the quality of relationships between the leader and followers; and (3) task structure—the degree to which the task is either clear and well defined, or open-ended and more ambiguous.
19.
How does Peter Drucker’s view of “good old-fashioned leadership” differ from the popular concept of transformational leadership? Drucker says that good leaders have more than the “charisma” or “personality” being popularized in the concept of transformational leadership. He reminds us that good leaders work hard to accomplish some basic things in their everyday activities. These include: (1) establishing a clear sense of mission; (2) accepting leadership as a responsibility, not a rank; and (3) earning and keeping the respect of others.
20.
When Marcel Henry took over as leader of a new product development team, he was both excited and apprehensive. “I wonder,” he said to himself on the first day in his new assignment, “if I can meet the challenges of leadership.” Later that day, Marcel shared this concern with you during a coffee break. Based on the insights of this chapter, how would you describe to him the implications for his personal leadership development of current thinking on transformational leadership and moral leadership? In his new position, Marcel must understand that the transactional aspects of leadership are not sufficient to guarantee him long-term leadership effectiveness. He must move beyond the effective use of task-oriented and people-oriented behaviors and demonstrate through his personal qualities the capacity to inspire others. A charismatic leader develops a unique relationship with followers, in which they become enthusiastic, highly loyal, and
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high achievers. Marcel needs to work very hard to develop positive relationships with the team members. In those relationships he must emphasize high aspirations for performance accomplishments, enthusiasm, ethical behavior, integrity and honesty in all dealings, and a clear vision of the future. By working hard with this agenda and by allowing his personality to positively express itself in the team setting, Marcel should make continuous progress as an effective and moral leader.
MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: INTEGRITY Students’ answers will vary. SELF-ASSESSMENT: LEAST PREFERRED COWORKER SCALE Instructions
Think of all the different people with whom you have ever worked ⎯ in jobs, in social clubs, in student projects, or whatever. Next think of the one person with whom you could work least well ⎯ that is, the person with whom you had the most difficulty getting a job done. This is the one person ⎯ a peer, boss, or subordinate ⎯ with whom you would least want to work. Describe this person by circling numbers at the appropriate points on each of the following pairs of bipolar adjectives. Work rapidly. There are no right or wrong answers. Pleasant Friendly Rejecting Tense Distant Cold Supportive Boring Quarrelsome Gloomy Open Backbiting Untrustworthy Considerate Nasty Agreeable Insincere Kind
8 7 6 5 4 3 2 1 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 8 7 6 5 4 3 2 1
Unpleasant Unfriendly Accepting Relaxed Close Warm Hostile Interesting Harmonious Cheerful Guarded Loyal Trustworthy Inconsiderate Nice Disagreeable Sincere Unkind
Scoring This is called the “least-preferred coworker scale” (LPC). Compute your LPC score by totaling all the numbers you circled; enter that score here [LPC = ____ ].
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Interpretation The LPC scale is used by Fred Fiedler to identify a person’s dominant leadership style (see Chapter 13). Fiedler believes that this style is a relatively fixed part of one’s personality and is therefore difficult to change. This leads Fiedler to his contingency views, which suggest that the key to leadership success is finding (or creating) good “matches” between style and situation. If your score is 73 or above, Fiedler considers you a “relationship-motivated” leader. If your score is 64 and below, he considers you a “taskmotivated” leader. If your score is 65-72, Fiedler leaves it up to you to determine which leadership style is most like yours.
Instructor’s Note To conserve class time, consider assigning the LPC Scale as homework prior to the period in which you intend to discuss Fiedler’s theory. During your lecture on the theory, ask for a show of hands of students who scored as relationship-oriented, as task-oriented, or somewhere in between. You may also want to ask students if they feel the LPC accurately measured their leadership style. While many will believe that it has, at least a few will usually think otherwise. At this point you can point out that critics of Fiedler’s theory, who contend that one’s score on the LPC Scale is not necessarily indicative of leadership style, share the skepticism of these students. It is also important to note, however, that Fiedler has obtained empirical support for his theory. You can then present the following propositions regarding the situations in which Fiedler asserts that task-oriented and relationships-oriented leaders are most effective. • Proposition 1: A task-oriented leader will be most successful in either very favorable (high control) or very unfavorable (low control) situations. • Proposition 2: A relationship-oriented leader will be most successful in situations of moderate control. Based on these conclusions, Fiedler recommends that prospective leaders should actively seek situations that match their leadership style. When a mismatch occurs, he asserts that leaders should first engage in situational engineering; this involves changing the situational characteristics to better match one’s leadership style. Only as a last resort should they change their leadership style to match the situation; Fiedler feels this would be difficult because leadership style is strongly tied to personality factors that are hard to change. (Source: Fiedler, F.E., and Chemers, M.M. Improving Leadership Effectiveness: The Leader Match Concept, 2nd ed. New York: John Wiley & Sons, 1984. Used by permission.)
TEAM EXERCISE: LEADERSHIP AND PARTICIPATION IN DECISION MAKING Because this exercise requires answers based on individual styles, students’ answers will vary.
CAREER SITUATIONS FOR LEADERSHIP: WHAT WOULD YOU DO? This is an opinion based exercise. Expect students’ answers to reflect their personal opinions and leadership styles.
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CHAPTER 14 CASE: ZAPPOS- THEY DID IT WITH HUMOR Discussion Questions 1. What traits of effective leadership does Tony Hsieh demonstrate at Zappos? What aspects of his leadership can you criticize, if any? Is his approach transferable to other leaders and other organizations, or is it person and situation specific? Hsieh has an entrepreneurial personality and a unique vision for his company. He personifies a leader with high referent power that inspires others and he appears to be a person of high integrity. He is honest, consistent, trusting of his employees to do the right thing, and willing to share his success strategies with others. From the case one would have to conclude that he is creative in his thinking, hard-working, enthusiastic, displays high energy and is self-confident. Because he has been so successful, it is difficult to criticize his leadership style. One would hope that he possesses enough flexibility to adjust to changing market conditions and the merger with Amazon. Many successful leaders possess similar characteristics but this style might not work in some industries that are more conservative, less creative, and somewhat inflexible. The culture at Zappos is a good match for his personality and style. One reason for Zappos success is that he is careful to hire people who would fit well into this unique culture. 2. Can you find examples of where House’s path-goal theory of leadership can be confirmed or disconfirmed in the Zappos setting? Explain your answer. According to the path-goal theory, the leader needs to shift among four leadership styles (directive, supportive, achievement-oriented and participative) to fit the situation. It is the leader’s job to focus on where the needs are by “adding value” and not on the things that are working well. With such a strong, clearly defined organizational culture, and careful hiring practices, there may be sufficient leadership from inside the organization, that Hsieh can focus more on product development and the external environment such as competition, the economy, etc. Problem Solving Tony Hsieh is a big thinker and Zappos is clearly his baby. But he’s also into philanthropy and community development activities that are taking up more of his time. And, perhaps he’ll come up with other new business ideas as well. As a leadership coach, what steps would you recommend that he take now to ensure that his leadership approach and vision lives on at Zappos long after his departure? What can a strong and secure leader like him do to ensure a positive leadership legacy in any situation? Because he is so entrepreneurial, Hsieh will eventually be looking for new challenges. Perhaps, like Bill Gates, these will come from philanthropic causes or like Steve Jobs from developing new products. In any case, Hsieh needs to be sure that the organization recruits, mentors, and promotes employees who share his vision and values and that the leadership is supported by a board that supports this culture. Further Research Compare and contrast the leadership style and characteristics of Tony Hsieh with those of his new boss at Amazon, Jeff Bezos. How are the leadership styles of the two CEOs alike? In what
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ways do they differ? For whom would you rather work? Is one better than the other in its situation? Students’ answers will differ according to the sources they use and their own leadership styles. Both men are classic entrepreneurs. Bezos, a former Wall St. hedge fund manager, is known to be a micromanager and appears to be more bottom-line driven than Hsieh. Both are passionate about their organizations. Bezos was recently quoted as saying “You don’t choose your passion, your passion chooses you.” However, recently, Bezos received some bad publicity about the poor working conditions in his warehouses and as a result spent $52 million on improvements such as air conditioning and is in the process of investigating the use of robots to improve efficiency. This contrasts somewhat with the “fun” culture at Zappos. While Hsieh has a more charismatic personality style, Bezos is known to be a quieter, private person. Their success validates that there are organizations and cultures where different leadership styles work quite well.
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Chapter 15:
INDIVIDUAL BEHAVIOR CHAPTER 15 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4.
How do perceptions influence individual behavior? What should we know about personalities in the workplace? How do attitudes influence individual behavior? What are the dynamics of emotions, moods, and stress?
CHAPTER 15 LEARNING OBJECTIVES After completing this chapter, students should be able to • • • • • • • • • • • • • • • • • • •
Define perception Explain the benefits of a healthy psychological contract Explain fundamental attribution error and self-serving bias Define stereotype, halo effect, selective perception, and projection and illustrate how each can adversely affect work behavior Explain impression management List the Big Five personality traits and give work-related examples of each List and explain the four dimensions used to assess personality in the MBTI List five personal conception and emotional adjustment personality traits and give workrelated examples for each Define attitude and list the three components of an attitude Define job satisfaction and list its components Explain the potential consequences of high and low job satisfaction Define employee engagement, job involvement, organizational commitment, and organizational citizenship Explain three arguments on the satisfaction-performance relationship Define emotion, mood and stress Explain how emotions and moods influence behavior Identify the common stressors found in work and in personal life Differentiate constructive and destructive stress Define job burnout and workplace rage Discuss personal wellness as a stress management strategy
CHAPTER 15 OVERVIEW The chapter begins with a discussion of how perception influences behavior. It defines psychological contracts and fundamental attribution error as well as the things that distort perception such as stereotypes, halo effects, selective perception, and projections. Next the chapter examines ten different personality characteristics that can influence behavior at work. These include the “Big Five” personality traits ⎯ extroversion, agreeableness,
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conscientiousness, emotional stability, and openness ⎯ as well as five other traits ⎯ locus of control, authoritarianism, Machiavellianism, self-monitoring, and Type A personality. The chapter then explores the nature and implications of work attitudes, job satisfaction, and individual performance. The chapter provides a detailed discussion of the dynamics of emotions, moods, and stress. Constructive and destructive stresses are covered along with some tactics for managing stress. CHAPTER 15 LECTURE OUTLINE Purpose: The purpose of this chapter is to provide students with an appreciation for individual behavior and performance through the lens of perceptions, personality, attitudes and emotions. Suggested Time: At least two hours are recommended to present the material in this chapter. More time may be needed if multiple discussion topics are used. I.
Takeaway question 1: How do perceptions influence individual behavior? Perception and psychological contracts Perception and attribution Perception tendencies and distortions Perception and impression management
II.
Takeaway question 2: What should we know about personalities in the workplace? Big Five personality traits Myers-Briggs personality types Personal perception and emotional adjustment traits
III.
Takeaway question 3: How do attitudes influence individual behavior? What is an attitude? What is job satisfaction? Job satisfaction and its outcomes
IV.
Takeaway question 4: What are the dynamics of emotions, moods, and stress? Emotions Moods Stress Sources of stress
CHAPTER 15 SUPPORTING MATERIALS Textbook Inserts Learning From Others • There Are Personalities Behind Those Faces Learning About Yourself • Ambition Figures • Figure 15.1: Components in the Psychological Contract • Figure 15.2: Common Personality Dimensions that Influence Human Behavior at Work
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Figure 15.3: Potential Negative Consequences of a Destructive Job Stress-Burnout Cycle
Thematic Boxes • Small Firm Takes Pride in Helping People Being Themselves • Recommended Reading: Women Count: A Guide to Changing the World • Follow the Story: Little Things are Big Things for Life is Good • Ethics on the Line: Is Personality Testing in Your Future? • Does Success Come from Hard Work, Good Luck or Both? • Research Brief: Business Students More Satisfied With Lives Overall Perform Better • Facts for Analysis: Tough Times Shown in Employment Trends for Younger Workers • Tension Must Be Fine Tuned Applications • Self-Test • Further Reflections: Ambition • Self-Assessment: Internal/External Control • Team Exercise: Job Satisfaction Preferences • Career Situation: What Would You Do? • Case 15: Panera: Growing a Company With Personality CHAPTER 15 LECTURE NOTES LEARNING FROM OTHERS on page 376 of the text examines how the personality and persistence of the founder of Spanx led to the success of the organization. LEARNING ABOUT YOURSELF on page 377 discusses the pros and cons of ambition and its influence on career success. TAKEAWAY QUESTION 1: HOW DO PERCEPTIONS INFLUENCE INDIVIDUAL BEHAVIOR? When people work under conditions that fail to provide them with respect, their behavior will tend toward low performance, poor customer service, absenteeism, and antisocial behavior. When managers value people and create jobs and work environments that respect people’s needs and potential, higher performance, less withdraw and dysfunction, and helpful citizenship are common. Perception is the process through which people receive, organize, and interpret information from the environment. PERCEPTION AND PSYCHOLOGICAL CONTRACTS A psychological contract is a set of expectations held by an individual about what will be given and received in the employment relationship. An ideal work situation is one in which the exchange of values in the psychological contract is considered fair.
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As shown in FIGURE 15.1 on page 379 of the text, a healthy psychological contract has a balance between the contributions a person makes to the organization and the inducements received in return. • •
Contributions are work activities such as effort, time, creativity, and loyalty that make the individual a valuable human resource. Inducements from the organization include pay, fringe benefits, training, opportunity for personal growth, and job security given in exchange for the individual’s contributions.
Small Firm Helps People Take Pride in Being Themselves on p. 380 of the text profiles Root Learning’s efforts to make individuality and diversity a source of pride. DISCUSSION TOPIC One way to enhance the discussion of the psychological contract is to ask students to think of a job they have held or currently hold. Select one student and ask this individual to describe the nature of his or her job. With this job as an example, you can use Figure 15.1 as a framework for identifying the inducements offered by the organization and the contributions made by the student. Alternatively, you may ask the student to identify these factors. To wrap up this discussion ask the student if he or she feels that a healthy balance exists (or existed) between the inducements and contributions for this job. Follow this question up by asking the student how he or she feels (or felt) about the job. If the student indicates a balance exists, they will typically feel satisfied with the job. If an imbalance is perceived, the student usually experiences some dissatisfaction, especially if the imbalance is in the organization’s favor. At this point you can stress the importance of equity in the psychological contract. PERCEPTION AND ATTRIBUTION Attribution is a process of explaining events. It is natural for people to try to explain what they observe and the things that happen to them. The fact that people can perceive the same things quite differently has an important influence on attributions and their ultimate influence on behavior. In social psychology, attribution theory describes how people try to explain the behavior of themselves and other people. One of its significant applications is in the context of people’s performance at work. Fundamental attribution error overestimates internal factors and underestimates external factors as influences on someone’s behavior. Another confounding aspect of perception and attribution occurs as a self-serving bias. This happens when individuals blame their personal failures or problems on external causes and attribute their successes to internal causes. RECOMMENDED READING on p. 381 of the text highlights Women Count: A Guide to Changing the World which explains how to capitalize on the talents and qualities that women bring to the workplace. PERCEPTUAL TENDENCIES AND DISTORTIONS Perceptual tendencies and distortions include the use of stereotypes, halo effects, selective perception, and projection.
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Stereotypes A stereotype is when attributes commonly associated with a group are assigned to an individual. These include: • Racial and ethnic stereotypes • Gender stereotypes • Ability stereotypes • Age stereotypes Halo Effects A halo effect occurs when one attribute is used to develop an overall impression of a person or situation. Halo effects cause the same problem for managers as do stereotypes; that is, individual differences become obscured, which can be significant in performance evaluations. Selective Perception Selective perception is the tendency to define problems from one’s own point of view. Selective perception can bias a manager’s view of situations and individuals. One way to reduce its impact is to be sure to gather additional opinions from other people. Projection Projection is the assignment of personal attributes to other individuals. A classic projection error is to assume that other persons share our needs, desires, and values. FOLLOW THE STORY on page 382 of the text tells the story of two brothers who started a “street vendor” business and turned it into an $80 million enterprise with over 200 employees. PERCEPTION AND IMPRESSION MANAGEMENT Impression management is the systematic attempt to influence how others perceive us. Basic tactics of impression management: • Dress in ways that convey positive appeal in certain circumstances. • Use words to flatter other people in ways that generate positive feelings toward you. • Make eye contact and smile when engaged in conversations to create a personal bond. • Display a high level of energy suggestive of work commitment and initiative. When done well, impression management can help one to advance in jobs and careers, form relationships with people we admire, and create pathways to group memberships. TAKEAWAY QUESTION 2: WHAT SHOULD WE KNOW ABOUT PERSONALITIES IN THE WORKPLACE? Personality is used to describe the profile of enduring characteristics that make one person unique from every other. BIG FIVE PERSONALITY DIMENSIONS .
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Extraversion ⎯ the degree to which someone is outgoing, sociable, and assertive. • An extravert is comfortable and confident in interpersonal relationships. • An introvert is more withdrawn and reserved in interpersonal relationships. Agreeableness ⎯ the degree to which someone is good-natured, cooperative, and trusting. • An agreeable person gets along well with others. • A disagreeable person is a source of conflict and discomfort for others. Conscientiousness ⎯ the degree to which someone is responsible, dependable, and careful. • A conscientious person focuses on what can be accomplished and meets commitments. • A person lacking conscientiousness is careless, often trying to do too much and failing, or doing little. Emotional stability ⎯ the degree to which someone is relaxed, secure, and unworried. • An emotionally stable person is calm and confident. • A person lacking emotional stability is anxious, nervous, and tense. Openness to experience ⎯ the degree to which someone is curious, open to new ideas, and imaginative. • An open person is broad-minded, receptive to new things, and comfortable with change. • A person lacking openness is narrow-minded, has few interests, and is resistant to change. Managers often use personality judgments when making job assignments, building teams, and engaging in every day work situations. ETHICS ON THE LINE on page 384 of the text asks student to consider how they would feel about taking a personality test as part of the job application process. MYERS-BRIGGS TYPE INDICATOR A popular approach to personality assessment is the Myers-Briggs Type Indicator questionnaire, called MTBI, which probes into how people act or feel in certain situations. Carl Jung’s model of personality included three main distinctions: 1. Extraversion and introversion – used to describe differences in ways people relate with others. 2. Sensation and intuition – describes how people gather information. 3. Thinking or feeling – how people evaluate information. Myers-Briggs added judging and feeling to describe how people vary in the ways they relate to the outside world. There are 16 alternative MBTI personality types resulting from combinations of these four basic dimensions: • Extraverted vs. introverted—social interaction; whether a person tends toward being outgoing and sociable or shy and quiet. • Sensing vs. intuitive—gathering data; whether a person tends to focus on details or the big picture in dealing with problems. .
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Thinking vs. feeling—decision making; whether a person tends to rely on logic or emotions in dealing with problems. Judging vs. perceiving—work style; whether a person prefers order and control or acts flexible and spontaneous.
PERSONAL CONCEPTION AND EMOTIONAL ADJUSTMENT TRAITS FIGURE 15.2 on page 386 of the text illustrates the common personality dimensions that influence human behavior at work, which not only includes the Big Five dimensions, and the Myers-Briggs Type Indicator, but also: • Personal conception traits – which describes how people by personality relate to the environment. • Emotional adjustment traits – which describes how people are inclined toward handling stress and uncomfortable situations. Locus of Control Locus of control is the extent to which people believe they are in control of their destinies versus believing that that what happens to them is beyond their control. • Internals accept responsibility for their own actions. • Externals blame others and outside forces for what happens to them. Authoritarianism Authoritarianism is the degree to which a person defers to authority and accepts status differences. • People with an authoritarian personality are control-oriented in leadership positions and subservient as followers. Machiavellianism Machiavellianism describes the extent to which someone is emotionally detached and manipulative in using power. • The “high-mach” personality is exploitative and unconcerned about others. • The “low-mach” personality is deferential in allowing power to be exerted over him/her. Self-Monitoring Self-monitoring reflects the degree to which someone is able to adjust and modify behavior in response to the situation and external factors. • A high self-monitor tends to be a learner, comfortable with feedback, and both willing and able to change. • A low self-monitor is predictable, tending to act consistently regardless of circumstances. Type A Personality A Type A personality is high in achievement orientation, impatience, and perfectionism. Type A persons are likely to bring stress on themselves, even in situations others may find relatively stress free. The stressful behavior patterns of Type A personalities include: • Always moving, walking, and eating rapidly. • Acting impatient, hurrying others, put off by waiting. .
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• • •
Doing, or trying to do, several things at once. Feeling guilty when relaxing. Hurrying or interrupting the speech of others.
Does Success Come from Hard Work, Good Luck, or Both on p. 386 of the text explores the influence of luck in career success. DISCUSSION TOPIC Have students describe themselves in terms of the above ten personality dimensions. Also have them describe how their personality profile (in terms of these ten dimensions) seems to influence their behavior. You may wish to do this as an outside homework assignment.
TAKEAWAY QUESTION 3: HOW DO ATTITUDES INFLUENCE INDIVIDUAL BEHAVIOR? WHAT IS AN ATTITUDE? An attitude is a predisposition to act in a certain way toward people and things in one’s environment. Components of attitudes • Cognitive component ⎯ reflects a belief or opinion. • Affective or emotional component ⎯ reflects a specific feeling. • Behavioral component ⎯ reflects an intention to behave in a manner consistent with the belief and feeling. The intentions reflected in an attitude may or may not be reflected in actual behavior. Cognitive dissonance describes the discomfort a person feels when attitudes and behavior are inconsistent. WHAT IS JOB SATISFACTION? Job satisfaction is the degree to which an individual feels positively or negatively about various aspects of work. Components of Job Satisfaction Job satisfaction, which gives rise to positive or negative attitudes, can be measured through surveys. The facets most commonly measured include: • Work itself – does the job offer responsibility, interest, challenge? • Quality of supervision – are task help and social support available? • Co-workers – how much harmony, respect, and friendliness exists? • Opportunities – are there avenues for promotion, learning, and growth? • Pay – is compensation, actual and perceived, fair and substantial? • Work conditions – do conditions offer comfort, safety, support? • Security – is the job and employment secure? Job Satisfaction Trends
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Job satisfaction tends: • to be higher in small firms and lower in large ones. • to run together with overall life satisfaction. In a comparing a 1987 Conference Board survey to one taken in 2008, job satisfaction in America is dropping among all age and income groups. JOB SATISFACTION AND ITS OUTCOMES Job Satisfaction and Withdrawal Behaviors Research has demonstrated: • there is a strong and positive relationship between job satisfaction and withdrawal behaviors of absenteeism and turnover. • workers who are satisfied with their jobs are present more often and are more likely to stay with an organization. RESEARCH BRIEF on page 389 of the text describes a study which found business students who were more satisfied with their lives overall are higher performing. As an exercise, the brief suggests that students create their own model to predict their academic performance. DISCUSSION TOPIC Ask those students who have been gainfully employed to describe what they found to be satisfying about their jobs. Also ask them to discuss how those things affected their work behavior. Job Satisfaction and Employee Engagement Employee engagement is a positive work attitude that shows: • the willingness to help others and always try to do something extra to improve performance. • feeling and speaking positively about the organization. Job involvement is the extent to which an individual is dedicated to a job. Organizational commitment is the loyalty of an individual to the organization itself and it consists of two dimensions: • Rational commitment – feelings that the job serves one’s financial, developmental, and professional interests. • Emotional commitment – feelings that what one does is important, valuable, and of real benefit to others. Job Satisfaction and Organizational Citizenship Organizational citizenship is an attitude that represents a willingness to go above and beyond basic job requirements. Job Satisfaction and Job Performance
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The job satisfaction and performance relationship is complicated in that one can look at three different arguments: 1. Job satisfaction causes job performance. 2. Performance causes job satisfaction 3. Job satisfaction results when rewards follow performance. Research has shown: • a modest link between job satisfaction and performance. • a link between performance and satisfaction: high performing workers are likely to feel satisfied. • job satisfaction and job performance influence one another. TAKEAWAY QUESTION 4: WHAT ARE THE DYNAMICS OF EMOTIONS, MOODS, AND STRESS? Emotions, moods, and stress are the three aspects of individual psychology that are of interest to management scholars. EMOTIONS Emotional intelligence is an ability to understand emotions and manage relationships effectively. Emotions are strong feelings directed toward someone or something. MOODS Moods are generalized positive and negative feelings or states of mind. Mood contagion is the spillover of one’s positive or negative moods onto others. STRESS Closely aligned with a person’s emotions and moods is stress, a state of tension experienced by individuals facing extraordinary demands, constraints, or opportunities. Sources of Stress Stressors are things that cause stress. Whether they originate directly from a change environment, other aspects of the work setting, or in personal and nonworking situations, stressors can influence our attitudes, emotions and moods, behavior, job performance, and even health. Distress from non-work factors can have spillover effects that affect people at work. Stressful life situations, including such things as family events, economics, and personal affairs, are often sources of emotional strain. Work factors have an obvious potential to create job stress. Two of the common work-related stress syndromes are: 1. Set up to fail—where the performance expectations are impossible or the support is totally inadequate to the task
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2. Mistaken identity—where the individual ends up in a job that doesn’t at all match talents or that he or she simply doesn’t like. Constructive Stress Constructive stress (eustress) acts in a positive way to increase effort, stimulate creativity, and encourage diligence in one’s work, while not causing negative outcomes. Destructive Stress Destructive stress (distress) impairs the performance of an individual. Job burnout is physical and mental exhaustion from work stress. Tension Must Be Fine Tuned on p. 394 of the text highlights the positive and negative aspects of stress and the need to balance stress in life. FIGURE 15.3 on page 394 of the text shows the job burnout cycle caused by longterm destructive stress overloads. Productivity suffers when people react to very intense stress through turnover, absenteeism, errors, accidents, dissatisfaction, and reduced performance. Today, there is also increased concern for another potential stress byproduct, workplace rage— overtly aggressive behavior toward co-workers and the work setting in general. Too much stress can reduce resistance to disease and increase the likelihood of physical and/or mental illness. It also may contribute to health problems such as hypertension, ulcers, substance abuse, overeating, depression, and muscle aches, among others. Also important to understand is that excessive work stress can have spillover effects into one’s personal life. Stress Management The best stress management strategy is to prevent it from reaching excessive levels in the first place. Personal wellness describes the pursuit of one’s physical and mental potential through a personal health-promotion program. This form of preventative stress management recognizes the individual’s responsibility to enhance his or her personal health through a disciplined approach to such things as smoking, alcohol use, diet, exercise, and physical fitness. CHAPTER 15 TAKEAWAY QUESTIONS SUMMARY Takeaway question 1: How do perceptions influence individual behavior? • Perception acts as a filter through which people receive and process information from the environment. • Because people perceive things differently, a situation may be interpreted and responded to differently by different people.
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A healthy psychological contract occurs with perceived balance between work contributions, such as time and effort, and inducements received, such as pay and respect. Fundamental attribution error occurs when we blame others for performance problems while excluding possible external causes; self-serving bias occurs when we take personal credit for successes and blame failures on external factors. Stereotypes, projection, halo effects, and selective perception can distort perceptions and result in errors as people relate with one another.
FOR DISCUSSION: Are there times when self-serving bias is actually helpful? Takeaway question 2: What should we know about personalities in the workplace? • Personality is a set of traits and characteristics that cause people to behave in unique ways. • The personality factors in the Big Five model are extraversion, agreeableness, conscientiousness, emotional stability, and openness to experience. • The Myers-Briggs Type Indicator profiles personalities in respect to tendencies toward extraversion-introversion, sensing-intuitive, thinking-feeling, and judging-perceiving. • Additional personality dimensions of work significance include the personal conception traits of locus of control, authoritarianism, Machiavellianism, and behavioral self-monitoring, as well as the emotional adjustment trait of Type A orientation. FOR DISCUSSION: What dimension would you add to make the “Big Five” a “Big Six” personality model? Takeaway question 3: How do attitudes influence individual behavior? • An attitude is a predisposition to respond in a certain way to people and things. • Cognitive dissonance occurs when a person’s attitude and behavior are inconsistent. • Job satisfaction is an important work attitude that reflects a person’s evaluation of the job, co-workers, and other aspects of the work setting. • Job satisfaction influences work attendance and turnover, and is related to other attitudes, such as job involvement and organizational commitment. • Three possible explanations for the job satisfaction and performance relationship are: satisfaction causes performance, performance causes satisfaction, and rewards cause both performance and satisfaction. FOR DISCUSSION: What should a manager do with someone who has high job satisfaction but is a low performer? Takeaway question 4: What are the dynamics of emotions, moods, and stress? • Emotions are strong feelings that are directed at someone or something; they influence behavior, often with intensity and for short periods of time. • Moods are generalized positive or negative states of mind that can be persistent influences on one’s behavior. • Stress is a state of tension experienced by individuals facing extraordinary demands, constraints, or opportunities. • Stress can be destructive or constructive; a moderate level of stress typically has a positive impact on performance. • Stressors are found in a variety of personal, work, and non-work situations. • Stress can be managed through both prevention and coping strategies, including a commitment to personal wellness. FOR DISCUSSION: Is a Type A personality required for managerial success?
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CHAPTER 15 KEY TERMS Agreeableness (p. 384): the degree to which someone is good-natured, cooperative, and trusting. Attitude (p. 388): a predisposition to act in a certain way toward people and things in one’s environment. Attribution (p. 380): a process of explaining events. Authoritarianism (p. 386): the degree to which a person defers to authority and accepts status differences. Cognitive dissonance (p. 388): describes the discomfort felt when one’s attitude and behavior are inconsistent. Conscientiousness (p. 384): the degree to which someone is responsible, dependable, and careful. Constructive stress (p. 393): stress that acts in a positive way to increase effort, stimulate creativity, and encourage diligence in one’s work. Destructive stress (p. 394): stress that impairs the performance of an individual. Emotions (p. 392): strong feelings directed toward someone or something. Emotional Intelligence (p. 392): is an ability to understand emotions and manage relationships effectively. Emotional stability (p. 384): the degree to which someone is relaxed, secure, and unworried. Employee engagement (p. 390): a willingness to help others do extra, and feeling positive about the organization. Extraversion (p. 384): the degree to which someone is outgoing, sociable, and assertive. Fundamental attribution error (p.380): occurs when observers attribute another person’s performance problems more to internal failures of the individual than external factors relating to the environment. Halo effect (p. 381): occurs when one attribute is used to develop an overall impression of a person or situation. Impression management (p. 383): the systematic attempt to influence how others perceive us. Job burnout (p. 394): physical and mental exhaustion from work stress. Job involvement (p. 390): the extent to which an individual is dedicated to a job. Job satisfaction (p. 388): the degree to which an individual feels positively or negatively about various aspects of work. Locus of control (p. 386): the extent to which people believe they are in control of their destinies versus believing that what happens to them is beyond their control. Machiavellianism (p. 387): the extent to which someone is emotionally detached and manipulative in using power. Moods (p. 392): generalized positive and negative feelings or states of mind. Mood contagion (p. 392): the spillover of one’s positive or negative moods onto others. Openness to experience (p. 384): the degree to which someone is curious, open to new ideas, and imaginative. Organizational citizenship (p. 391): a willingness to “go beyond the call of duty” or “go the extra mile” in one’s work. Organizational commitment (p. 390): the loyalty of an individual to the organization. Perception (p. 379): the process through which people receive, organize and interpret information from the environment. Personal wellness (p. 395): the pursuit of one’s full potential through a personal health-promotion program. Personality (p. 383): the profile of characteristics that make one person unique from every other. Projection (p. 382): the assignment of personal attributes to other individuals. Psychological contract (p. 379): a set of expectations held by an individual about what will be given and received in the employment relationship. Selective perception (p. 382): the tendency to define problems from one’s own point of view. Self-monitoring (p. 387): the degree to which someone is able to adjust and modify behavior in response to the immediate situation and to external factors. Self-serving bias (p. 380): explaining personal success by internal causes and personal failures by external causes.
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Stereotype (p. 381): occurs when someone is identified with a group or category, and then oversimplified attributes associated with the group or category are used to describe the individual. Stress (p. 393): a state of tension cause by extraordinary demands, constraints, or opportunities. Stressor (p. 393): anything that causes stress. Type A personality (p. 387): a person oriented toward extreme achievement, impatience, and perfectionism. Withdrawal behaviors (p. 389): occurs as temporary absenteeism and actual job turnover. Workplace rage (p. 394): aggressive behavior toward co-workers or the work setting.
SELF-TEST ANSWERS 1.
In the psychological contract, job security is considered a/an ___________, whereas loyalty is considered a/an __________. (a) satisfier factor, hygiene factor (b) intrinsic reward, extrinsic reward (c) inducement, contribution (d) attitude, personality trait
2.
Self-serving bias is a form of attribution error that involves ___________. (a) blaming yourself for problems caused by others (b) blaming the environment for problems you caused (c) poor emotional intelligence (d) authoritarianism
3.
If a new team leader changes job designs for persons on her work team mainly “because I would prefer to work the new way rather than the old,” the chances are that she is committing a perceptual error known as ___________. (a) halo effect (b) stereotype (c) selective perception (d) projection
4.
If a manager allows one characteristic of a person, say a pleasant personality, to bias performance ratings of that individual overall, the manager is committing a perceptual distortion known as ___________. (a) halo effect (b) stereotype (c) selective perception (d) projection
5.
Use of special dress, manners, gestures, and vocabulary words when meeting a prospective employer in a job interview are all examples of how people use ___________ in daily life. (a) projection (b) selective perception (c) impression management (d) self-serving bias
6.
A person with a/an ___________ personality would most likely act unemotionally and manipulatively when trying to influence others to achieve personal goals. (a) extraverted (b) sensation-thinking (c) self-monitoring (d) Machiavellian
7.
When a person believes that he or she has little influence over things that happen in life, this indicates a/an ___________ personality. (a) low emotional stability (b) external locus of control (c) high self-monitoring (d) intuitive-thinker
8.
Among the Big Five personality traits, ___________ indicates someone who is responsible, dependable, and careful with respect to tasks. (a) authoritarianism (b) agreeableness (c) conscientiousness (d) emotional stability
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The ___________ component of an attitude is what indicates a person’s belief about something, whereas the ___________ component indicates a specific positive or negative feeling about it. (a) cognitive, affective (b) emotional, affective (c) cognitive, attributional (d) behavioral, attributional
10. The term used to describe the discomfort someone feels when his or her behavior is inconsistent with an expressed attitude is ___________. (a) alienation (b) cognitive dissonance (c) job dissatisfaction (d) person-job imbalance 11. Job satisfaction is known from research to be a good predictor of ___________. (a) job performance (b) job burnout (c) conscientiousness (d) absenteeism 12. A person who is always willing to volunteer for extra work or to help someone else with his or her work is acting consistent with strong _______________. (a) job performance (b) self-serving bias (c) emotional intelligence (d) organizational citizenship 13. Which statement about the job satisfaction-job performance relationship is most likely based on research? (a) A happy worker will be a productive worker (b) A productive worker will be a happy worker (c) A productive worker rewarded for performance will be a happy worker (d) There is no link between being happy and being productive in a job. 14. A/an ___________ represents a rather intense but short-lived feeling about a person or a situation, whereas a/an ___________ describes a more generalized positive or negative state of mind. (a) stressor, role ambiguity (b) external locus of control, internal locus of control (c) selfserving bias, halo effect (d) emotion, mood 15. Through ___________, the stress people experience in their personal lives can create problems for them at work while the stress experienced at work can create problems for their personal lives. (a) eustress (b) self-monitoring (c) spillover effects (d) selective perception 16. What is a healthy psychological contract? A psychological contract is the individual’s view of the inducements he or she expects to receive from the organization in return for his or her work contributions. The contract is healthy when the individual perceives that the inducements and contributions are fair and in a state of balance. 17. What is the difference between self-serving bias and fundamental attribution error? Self-serving bias is the attribution tendency to blame the environment when things go wrong—“It’s not my fault; ‘they’ caused all this mess.” Fundamental attribution error is the tendency to blame others for problems that they have—“It’s something wrong with ‘you’
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that’s causing the problem.” 18. Which three of the Big Five personality traits do you believe most affect how well people work together in organizations, and why? All the Big Five personality traits are relevant to the workplace. Consider the following basic examples. Extraversion suggests whether or not a person will reach out to relate and work well with others. Agreeableness suggests whether or not a person is open to the ideas of others and willing to go along with group decisions. Conscientiousness suggests whether or not someone can be depended on to meet commitments and perform agreed-upon tasks. Emotional stability suggests whether or not someone will be relaxed and secure, or uptight and tense, in work situations. Openness to experience suggests whether or not someone will be open to new ideas or resistant to change. 19. Why is it important for a manager to understand the Type A personality? The Type A personality is characteristic of people who bring stress on themselves by virtue of personal characteristics. These tend to be compulsive individuals who are uncomfortable waiting for things to happen, who try to do many things at once, and who generally move fast and have difficulty slowing down. Type A personalities can be stressful for both themselves and the people around them. Managers must be aware of Type A personality tendencies in their own behavior and among others with whom they work. Ideally, this awareness will help the manager take precautionary steps to best manage the stress caused by this personality type. 20. When Scott Tweedy picked up a magazine article on how to manage health care workers, he was pleased to find some advice. Scott was concerned about poor or mediocre performance on the part of several respiratory therapists in his clinic. The author of the article said that the “best way to improve performance is to make your workers happy.” Scott was glad to have read this and made a pledge to himself to start doing a much better job of making workers happy. But should Scott follow this advice? What do we know about the relationship between job satisfaction and performance, and how can this apply to the performance problems at Scott’s clinic? Scott needs to be careful. Although there is modest research support for the relationship between job satisfaction and performance, there is no guarantee that simply doing things to make people happier at work will cause them to be higher performers. Scott needs to take a broader perspective on this issue and his responsibilities as a manager. He should be interested in job satisfaction for his therapists and do everything he can to help them to experience it. But he should also be performance-oriented, and should understand that performance is achieved through a combination of skills, support, and motivation. He should be helping the therapists to achieve and maintain high levels of job competency. He should also work with them to find out what obstacles they are facing and what support they need—things that perhaps he can deal with in their behalf. All of this relates as well to research indications that performance can be a source of job satisfaction. And finally, Scott should make sure that the therapists believe they are being properly rewarded for their work, because rewards are shown by research to have an influence on both job satisfaction and job performance.
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MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: AMBITION Students’ answers will vary according to the importance of ambition in their lives. SELF-ASSESSMENT: INTERNAL/EXTERNAL CONTROL Instructions Circle either “a” or “b” to indicate the item you most agree within each pair of the following statements. 1. (a) Promotions are earned through hard work and persistence. (b) Making a lot of money is largely a matter of breaks. 2. (b) Many times the reactions of teachers seem haphazard to me. (a) In my experience I have noticed that there is usually a direct connection between how hard I study and the grades I get. 3. (a) The number of divorces indicates that more and more people are not trying to make their marriages work. (b) Marriage is largely a gamble. 4. (a) It is silly to think that one can really change another person’s basic attitudes. (b) When I am right I can convince others. 5. (a) Getting promoted is really a matter of being a little luckier than the next guy. (b) In our society an individual’s future earning power is dependent upon his or her ability. 6. (a) If one knows how to deal with people, they are really quite easily led. (b) I have little influence over the way other people behave. 7. (a) In my case the grades I make are the results of my own efforts; luck has little or nothing to do with it. (b) Sometimes I feel that I have little to do with the grades I get. 8. (a) People like me can change the course of world affairs if we make ourselves heard. (b) It is only wishful thinking to believe that one can really influence what happens in society at large. 9. (a) Much of what happens to me is probably a matter of chance. (b) I am the master of my fate. 10. (a) Getting along with people is a skill that must be practiced. (b) It is almost impossible to figure out how to please some people.
Scoring Give 1 point for 1b, 2a, 3a, 4b, 5b, 6a, 7a, 8a, 9b, and 10a. • 8–10 = high internal locus of control. • 6–7 = moderate internal locus of control. • 5 = mixed locus of control • 3–4 = moderate external locus of control.
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Interpretation This instrument offers an impression of your tendency toward an internal locus of control or external locus of control. Persons with a high internal locus of control tend to believe they have control over their own destinies. They may appreciate opportunities greater self-control in the workplace. Persons with a high external locus of control tend to believe that what happens to them is largely in the hands of external people or forces. They may be less comfortable with selfcontrol and more responsive to external controls at work. Instructor’s Note By providing students with insight into their locus of control, this assessment can serve as a valuable tool for increasing their self-awareness. You can supplement your discussion of locus of control with the following summary of key research findings regarding the differences between internals and externals. Some Ways in Which Internals Differ from Externals Information processing: Internals make more attempts to acquire information, are less satisfied with the amount of information they possess, and are better at utilizing information. Job satisfaction: Internals are generally more satisfied, less alienated, less rootless, and there is a stronger job satisfaction/performance relationship for them. Performance: Internals perform better on learning and problem-solving tasks, when performance leads to valued rewards. Self-control, risk, and anxiety: Internals exhibit greater self-control, are more cautious, engage in less risky behavior, and are less anxious. Motivation, expectancies, and results: Internals display greater work motivation, see a stronger relationship between what they do and what happens to them, expect that working hard leads to good performance, and feel more control over their time. Response to others: Internals are more independent, more reliant on their own judgment, and less susceptible to the influence of others; they are more likely to accept information on its merit. (Source: Instrument from Rotter, J.P. “External Control and Internal Control,” Psychology Today, June 1971, p. 42. Used by permission.)
TEAM EXERCISE: JOB SATISFACTION PREFERENCES Preparation The following nine items are from a survey conducted by Nicholas J. Beutell and O.C. Brenner (“Sex Differences in Work Values,” Journal of Vocational Behavior, vol. 28, 1986, pp. 29-41). Rank order the nine items in terms of how important (9 = most important) they would be to you in a job. How important is it to you to have a job that: ____ Is respected by other people? ____ Encourages continued development of knowledge and skills? ____ Provides job security? ____ Provides a feeling of accomplishment? ____ Provides the opportunity to earn a high income? ____ Is intellectually stimulating? ____ Rewards good performance with recognition?
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____ Provides comfortable working conditions? ____ Permits advancement to high administrative responsibility?
Instructions Form into groups as designated by your instructor. Within each group, the men in the group will meet to develop a consensus ranking of the items as they think the women in the Beutell and Brenner survey ranked them. The reasons for the rankings should be shared and discussed so they are clear to everyone. The women in the group should not participate in this ranking task. They should listen to the discussion and be prepared to comment later in class discussion. A spokesperson for the men in the group should share the group’s rankings with the class.
Optional Instructions Form into groups as designated by your instructor but with each group consisting entirely of men or women. Each group should meet and decide which of the work values members of the opposite sex ranked first in the Beutell and Brenner survey. Do this again for the work value ranked last. The reasons should be discussed, along with reasons why each of the other values probably was not ranked first or last. A spokesperson for each group should share group results with the rest of the class.
Instructor’s Note The following table shows the results from the Beutell and Brenner (1986) study. Men and women agreed on the most important characteristics of work; however, the largest difference on the five highest-rated dimensions occurred for the “high income” dimension, with men ranking it higher. Results of the Beutell and Brenner Study Work Values Provides a feeling of accomplishment Provides job security Provides the opportunity to earn a high income Permits advancement responsibility Is respected by other people Provides comfortable working conditions Rewards good performance with recognition Encourages continued development skills Is intellectually stimulating
Men (rank) 1.0 2.5 2.5 4.0 5.5 7.0 5.5 8.0 9.0
Women (rank) 1.0 2.0 5.0 6.5 3.0 4.0 8.5 6.5 8.5
The experience of many instructors is that men tend to underestimate the importance of intrinsic rewards for women and are often wrong about their top-rated dimensions. This exercise is most involving when you emphasize sex-role issues. However, you may choose to play this aspect down in order to focus more clearly on the issue of motivation. You may wish to conclude the exercise by posing the following thought-provoking questions to the class: • Where do we get our ideas of what other people want from work? • Why is it important for managers to know what people want from work? • To what extent do our personal expectations enter into our managerial decision making? (Source: Adapted from Lewicki, R.J., Bowen, D.D., Hall, D.T., and Hall, F.S. Experiences in Management and Organizational Behavior. 3rd ed., New York: Wiley, 1988, pp. 23-26. Used by permission.)
CAREER SITUATIONS IN INDIVIDUAL BEHAVIOR: WHAT WOULD YOU DO?
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Answers will vary according to the individual preferences of students.
CHAPTER 15 CASE: PANERA: GROWING A COMPANY WITH PERSONALITY Discussion Questions 1. How might consumers’ perception of Panera’s menu and atmosphere affect their dining experience and tendencies to return as customers? The menu and atmosphere support a perception of fast food or a bistro setting because of the counter service, serving food on trays and self-bussing of the tables. 2. Describe how stereotypes about the fast-food industry might positively and negatively impact Panera. Do you think of Panera as a fast-food restaurant, or has the company managed to distinguish itself from this group? Perceptual distortions may interfere with our ability to observe individual differences. Customers that view Panera as fast food may limit their visits to the restaurant to lunch, breakfast and times when a quick meal is necessary. Problem Solving Can an entrepreneurial and leadership personality like Ron Shaich’s be replaced? But how much of its success comes directly from Shaich as a person? Is it possible for his personal qualities to be ingrained in the corporate culture to the extent they will continue after he departs? As a consultant, what would you identify as the three or four most important of Shaich’s personal qualities? What would you suggest be done to firmly embed these qualities in the Panera culture? Although much of Panera’s success can be attributed to Shaich’s leadership, eventually everyone can be and is replaced. As an organization grows and matures, the style of management needed usually change too. From the case, Shaich appears to have the personality of a classic entrepreneur- charismatic, enthusiastic, confident, hard-working, and willing to risk it all to attain his vision. Often, in strong organizational cultures the values of the founder can be reinforced through policies and programs that support those values. For example, when an organization values innovation, it should institute a reward system for employees who suggest viable new products or efficient new procedures. Further Research Find data reporting on how Panera’s sales were affected by the recent economic downturn. See if the effects were different in various regions of the country. Does Panera have special strengths that help it deal better than others with challenges such as those posed by a difficult economy? If location and class size allow, consider either having your class visit a Panera location or invite a Panera manager to speak to your class.
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Chapter 16:
MOTIVATION THEORY AND PRACTICE CHAPTER 16 TAKE AWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. How do individual needs influence motivation? 2. What are the process theories of motivation? 3. What role does reinforcement play in motivation? 4. What is the link between job design and motivation?
CHAPTER 16 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • • • • •
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Define motivation and needs Describe work practices that satisfy higher-order and lower-order needs in Maslow’s hierarchy Contrast Maslow’s hierarchy with ERG theory Describe work practices that influence hygiene factors and satisfier factors in Herzberg’s two-factor theory Explain McClelland’s needs for achievement, affiliation, and power Describe work conditions that satisfy a person with a high need for achievement Explain the roles of social comparison, over-reward inequity and under-reward inequity, in Adams’s equity theory Contrast equity sensitivity for: benevolents, sensitives, and entitleds Define expectancy, instrumentality, and valence Explain Vrooms’s expectancy theory equation: M=E x I x V Explain Locke’s goal-setting theory Describe self-efficacy and explain four ways to increase it Explain the law of effect and operant conditioning Illustrate how positive reinforcement, negative reinforcement, punishment, and extinction influence work behavior Explain the reinforcement technique of shaping Describe how managers can use the laws of immediate and contingent reinforcement List guidelines for positive reinforcement and punishment Illustrate a job designed by job simplification, rotation, and enlargement List and describe five core job characteristics Describe the advantages of compressed work week, flexible work hours, job sharing, and telecommuting Discuss the role of part-time contingency workers in the economy
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CHAPTER 16 OVERVIEW Motivation to work describes the forces within the individual that account for the level, direction, and persistence of effort expended at work. While most people are very interested in the topic of motivation, they also tend to hold strong biases concerning the processes through which motivation is achieved. This chapter provides a well-rounded perspective of the different factors that influence people’s motivation. The chapter begins by describing and examining in detail the major theories of work motivation. Next, the chapter explains the content motivation by looking at Maslow’s hierarchy of needs theory, Alderfer’s ERG theory, Herzberg’s two-factor theory, and McClelland’s acquired-needs theory. The cognitively-based process theories of motivation of equity theory, expectancy theory, goal-setting theory, and self-efficacy theory are explored next. Reinforcement theory, which uses environmental consequences to explain motivation, follows. The chapter goes on to a discussion of job design and how it can motivate workers, through simplification, rotation, enlargement, and enrichment. The chapter concludes with an exploration of how alternative work scheduling can be a motivating factor for employees.
CHAPTER 16 LECTURE OUTLINE Purpose: To provide students with a thorough understanding of the dynamics of motivation and the ways in which rewards can be used to motivate employees. Suggested Time: Two to three hours of class time is recommended to present this chapter. If many enhancements are used, more time may be needed. I.
Takeaway Question 1: How do individual needs influence motivation? Hierarchy of needs theory ERG theory Two-factor theory Acquired needs theory
II.
Takeaway Question 2: What are the process theories of motivation? Equity theory Expectancy theory Goal-setting theory Self-efficacy theory
III.
Takeaway Question 3: What role does reinforcement play in motivation? Reinforcement strategies Positive reinforcement Punishment
IV.
Takeaway Question 4: What is the link between job design and motivation?
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Job Simplification Job rotation and enlargement Job enrichment Alternative work schedules
CHAPTER 16 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Make People Your Top Priority Learning About Yourself • Engagement Figures • Figure 16.1: Opportunities for Satisfaction in Maslow’s Hierarchy of Human Needs • Figure 16.2: Elements in Herzberg’s Two-Factor Theory • Figure 16.3: Equity Theory and the Role of Social Comparison • Figure 16.4: Elements in the Expectancy Theory of Motivation • Figure 16.5: Four Reinforcement Strategies: Case of Total Quality Management • Figure 16.6: Job Design Essentials Using the Job Characteristics Model • Figure 16.7: Designing Jobs Using the Job Characteristics Model Thematic Boxes • Follow the Story: The King of Coffee Brews with a Recipe for Engagement • What do Most Workers Say They Dread the Most About Their Jobs? • Ethics on the Line: Information Goldmine Creates Equity Dilemma • Facts for Analysis: Gender Differences in Motivation • Management Smarts: How to Make Goal Setting Work for You • Recommended Reading: Good Boss, Bad Boss: How to be the Best - and Learn from the Worst • Management Smarts: Guidelines For Positive Reinforcement • Management Smarts: Guidelines For Punishment • Management in Popular Culture: Motivation Was the Game in the Blind Side • Research Brief: Generational Differences in Extrinsic and Intrinsic Work Values • Co-Working Spaces Gains Popularity for Flexible Schedulers Applications • Self-Test • Further Reflections: Engagement • Self-Assessment: Student Engagement Survey • Team Exercise: Why We Work
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Career Situations for Motivation: What Would You Do? Case 16: SAS Business Success Starts on the Inside
CHAPTER 16 LECTURE NOTES LEARNING FROM OTHERS on page 402 of the text describes how SAS, the world’s largest privately owned software company, motivates employees by emphasizing worklife balance, flexibility, and trust. LEARNING ABOUT YOURSELF on page 403 of the text examines the topic of engagement, which is a heightened emotional connection to an organization that influences one to “go the extra mile” in performing one’s work. TAKEAWAY QUESTION 1: HOW DO INDIVIDUAL NEEDS INFLUENCE MOTIVATION? Motivation describes the forces within the individual that account for the level, direction, and persistence of effort expended at work. A highly motivated person works hard at a job and an unmotivated person does not. A need is an unfulfilled physiological or psychological desire that causes tensions that influence attitudes and behavior. HIERARCHY OF NEEDS THEORY Abraham Maslow developed the hierarchy of needs theory. Lower-order needs include physiological, safety, and social concerns. Lower-order needs are desires for physical and social well being. Higher-order needs include esteem and self-actualization concerns. Higher-order needs reflect desire for psychological development and growth. The deficit principle holds that a satisfied need is not a motivator of behavior. People act to satisfy needs for which a deficit exists. The progression principle holds that a need at one level doesn’t become activated until the next lower-level need is satisfied. People are expected to advance step-by-step up the hierarchy. Self-actualization needs become stronger when they are satisfied. Therefore, a person should continue to be motivated by opportunities for self-fulfillment as long as the other need levels remain satisfied.
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FIGURE 16.1 on page 405 of the text describes how managers can attempt to satisfy the different need levels in Maslow’s hierarchy. The higher-order self-actualization needs are served by things like creative and challenging work, and job autonomy; esteem needs are served by responsibility, praise, and recognition. The satisfactions of lower-order social, safety, and physiological needs deal more with conditions of the work environment.
DISCUSSION TOPIC You can generate discussion by asking students to identify the types of rewards that could be used to satisfy the various needs. Also have the students identify whether the rewards they cited are intrinsic or extrinsic, and discuss how the different need levels are related to these types of rewards.
FOLLOW THE STORY on p. 406 explores the challenge facing Starbucks’s CEO Howard Schultz: How do you continue to provide a motivating workplace while pursuing a growth strategy? ERG THEORY Clayton Alderfer’s ERG theory is an extension of Maslow’s theory. Instead of five need levels, Alderfer proposed three need levels, the first letters of which are identified by the name of the theory itself –– ERG: • Existence needs are desires for physiological and material well being. • Relatedness needs are desires for satisfying interpersonal relationships. • Growth needs are desires for continued psychological growth and development. ERG theory does not assume that lower-level needs must be satisfied before higher-level needs become activated. ERG theory includes a unique frustration-regression principle whereby an already satisfied lower-level need becomes reactivated when a higher-level need is frustrated.
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DISCUSSION TOPIC A discussion of the Body Shop can be included at this point to illustrate how need fulfillment may serve as the basis for a successful business. The company founder, Anita Roddick, felt a need to make a personal contribution to preserving the environment. This need led her to establish an unusual and highly successful business. The Body Shop is a cosmetics retailer whose products only contain natural biodegradable ingredients that have not been tested on animals. Packaging is kept to a minimum and uses recycled materials. In choosing franchisees and store managers, Roddick paid more attention to applicants’ interests and needs than she did to their experience. She favored people who shared her concern for the environment. Applicants must take personality tests, spend a trial period working in a store, be evaluated by other employees, and pass through a series of interviews with Body Shop executives. Through these practices, Roddick built an empire of people who shared her needs. (Source: “Dwarfs, and How Not to Be One,” The Economist, October 12, 1991, p. 92)
TWO-FACTOR THEORY After examining nearly 4,000 responses from people regarding questions about their work, Frederick Herzberg and his associates concluded that different factors provided sources of job satisfaction and job dissatisfaction. Satisfier factors, which “turned on” or satisfied the respondents, are things relating to the job itself or job content. These include: • Sense of achievement. • Feelings of recognition. • Sense of responsibility. • Opportunity for advancement. • Feelings of personal growth. Improvements in satisfier factors increase job satisfaction; they will not prevent job dissatisfaction. Hygiene factors, which “turned off” or dissatisfied the respondents, are things relating to work setting or job context. These include: • Working conditions. • Interpersonal relations. • Organizational policies and administration. • Quality of supervision. • Base wage or salary.
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Improvements in hygiene factors can prevent and/or eliminate job dissatisfaction; they will not improve job satisfaction. FIGURE 16.2 on page 407 of the text outlines hygiene factors that influence job dissatisfaction and satisfier factors that influence job satisfaction. There are two important aspects of all jobs: job content, what people do in terms of job tasks; and job context, the work setting in which they do it. Herzberg’s advice to managers is (1) always correct poor context to eliminate actual or potential sources of job dissatisfaction; and (2) be sure to build satisfier factors into job content to maximize opportunities for job satisfaction.
DISCUSSION TOPIC For those students who have held jobs, ask them to identify work situations where they experienced satisfaction and work situations where they experienced dissatisfaction. For those students who have not held any jobs have them identify educational situations where they have experienced satisfaction or dissatisfaction. Have the students share their examples while you record them on the chalkboard or a flipchart. After all the examples have been recorded, have the class compare the satisfying and dissatisfying situations to Herzberg’s hygiene factors and satisfier factors.
According to a survey by Development Dimensions International, What Do Workers Say They Dread the Most About Their Jobs found on p. 408, reveals that it is difficult conversations with their bosses. ACQUIRED NEEDS THEORY David McClelland proposes that people acquire needs through their life experiences. McClelland measures the strengths of three acquired needs: • Need for achievement. • Need for power. • Need for affiliation. Need for achievement is the desire to do something better or more efficiently, to solve problems, or to master complex tasks. High need achievers prefer work that: • Involves individual responsibility for results. • Involves achievable but challenging goals. • Provides feedback on performance. .
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Need for Power is the desire to control other persons, to influence their behavior, or to be responsible for other people. People high in need for power prefer work that: • Involves control over other persons. • Has an impact on people and events. • Brings public recognition and attention. A finer distinction in the need for power can be made as follows: • The need for personal power is exploitative and involves manipulation and power for the pure sake of personal gratification. The need for personal power is not successful in management. • The need for social power involves using power in socially responsible ways, and is directed toward group or organizational objectives rather than personal ones. The need for social power is essential to managerial leadership. Need for Affiliation is the desire to establish and maintain friendly and warm relations with other persons. An extremely high need for affiliation may interfere with a person’s ability to make decisions with which others disagree. People high in need for affiliation prefer work that: • Involves satisfying interpersonal relationships. • Provides for companionship. • Brings social approval.
DISCUSSION TOPIC McClelland uses a Thematic Apperception Test (TAT) to measure the strengths of the needs for achievement, power, and affiliation. The Thematic Apperception Test (TAT) is based on need interpretations of descriptions of various stimulus situations. To help students understand how this works, describe the following scenario: In one case, McClelland tested three executives using a photograph that showed a man sitting down and looking at family photos arranged on his work desk. One executive wrote of an engineer who was daydreaming about a family outing scheduled for the next day (need for affiliation). Another described a designer who had picked up an idea for a new gadget from remarks made by his family (need for power). The third saw an engineer who was intently working on a bridge-stress problem that he seemed sure to solve because of his confident look (need for achievement). TAKEAWAY QUESTION 2: WHAT ARE THE PROCESS THEORIES OF MOTIVATION?
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Process theories of motivation focus on how people actually make choices to work hard or not, based on their individual preferences, the available rewards, and possible work outcomes. The process theories examined in this chapter are equity, expectancy, goal-setting, and self-efficacy theories. EQUITY THEORY J. Stacy Adams advanced the theory that perceived inequity can be a motivating state. Equity theory asserts that when people believe that they have been treated unfairly in comparison to others, they try to eliminate the discomfort and restore a perceived sense of equity to the situation. Equity and Social Comparison As shown in Figure 16.3 on page 410 of the text, perceived inequity occurs whenever people feel that the rewards received for their work efforts are unfair given the rewards others appear to be getting for their work efforts. Perceived equity occurs whenever a person perceives that his/her personal rewards/inputs ratio is equivalent to the rewards/inputs ratio of a comparison other. People’s possible responses to perceived negative inequity (i.e., being underpaid): • Changing their work inputs by putting less effort into their jobs. • Changing the rewards received by asking for better treatment. • Changing the comparison points to find ways to make things seem better. • Changing the situation by leaving the job.
DISCUSSION TOPIC Ask students to think about a job they have held or currently hold. Next, ask them if they feel they were rewarded fairly. Many are likely to say that they were not paid enough, or that the work was not challenging enough. From here on, you can use these students’ experiences as examples of people who have experienced negative inequity. Be sure to ask them how they responded to the inequity. In nearly all cases, students will indicate that they exhibited one of the responses to perceived inequity that are listed below.
Equity Research and Insights People who feel underpaid experience a sense of anger. People who feel overpaid experience a sense of guilt.
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Perceptions of rewards in a social context, not the absolute value of the rewards, determine motivational outcomes. Managers should ensure that any negative consequences of the equity comparison are avoided, or at least minimized, when rewards are allocated.
DISCUSSION TOPIC Point out to students that Adams’ theory predicts that people who are overpaid will experience positive inequity. While many will no doubt scoff at this possibility, it is useful to explore how a person who encountered a positive inequity is likely to respond. Two possible, though unlikely, options are to ask for a pay cut or quit the job. Another, more realistic, option is to exert greater effort. Perhaps an even more likely option is for the individual to develop some rationalization to justify receiving a relatively high level of pay.
Equity Sensitivity People have different preferences for equity and react differently to perceptions of inequity. Benevolents are less concerned about being under rewarded. Sensitives have a strong preference for rewards to be distributed equally. Entitleds have a desire to be over rewarded. ETHICS ON THE LINE on page 412 of the text describes a situation in which a worker discovers that she and others are being paid less than new hires. She decides to quit and find an employer who will value her contribution. EXPECTANCY THEORY Victor Vroom developed expectancy theory. Expectancy theory asserts that: “people will do what they can do when they want to do it.” As shown in FIGURE 16.4 on page 413 of the text, work motivations depend on the relationships between the following three factors: •
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Expectancy (also called the effort-performance expectancy) –– a person’s belief that working hard will result in a desired level of task performance being achieved.
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Instrumentality (also called the performance-outcome expectancy) –– a person’s belief that successful performance will be followed by rewards and other workrelated outcomes. Valence –– the value a person assigns to possible rewards and other work-related outcomes.
Motivation = Expectancy x Instrumentality x Valence The relationship between motivation and these factors –– expectancy, instrumentality, and valence –– can be expressed as an equation: M=ExIxV Where M = motivation, E = expectancy, I = instrumentality, and V = valence. The multiplier effect implies that for motivation to be high, expectancy, instrumentality, and valence must be high. Conversely, if expectancy is low (the person feels he or she can’t perform), instrumentality is low (the person is not confident that performance will be rewarded), and/or valence is low (the reward is not valued), motivation will be low. Basically, the theory suggests managers can motivate employees by ensuring that E, I, and V are maximized and V is positive. Expectancy Theory Applications To maximize expectancy people must believe in their abilities; they must believe that if they try, they can perform. Managers can build positive expectancies by: • Selecting workers with the right abilities to do the job • Provide workers with the best training and development • Supporting workers with resources so the jobs can be done well Managers can create positive instrumentalities by: • Taking care to clarify the possible rewards linked with high performance • Acting consistent in allocating rewards on a performance contingent basis Managers can maximize positive valance by: • Using the content theories to help identify important needs • Liking needs with rewards that offer positive valances and can be earned through high performance FACTS FOR ANALYSIS on p. 414 of the text examines gender differences in motivation.
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DISCUSSION TOPIC A useful way to help students understand the multiplier effect of expectancy theory is to relate it to their own academic experiences. Ask students to think about their motivation in their various classes. Do they believe that if they work hard, they will be able to achieve a high level of performance (expectancy)? If they succeed in performing well, do they expect to be rewarded with a high grade (instrumentality)? Finally, do they value a high grade (valence)? If the answer to any of these questions is “no,” their motivation will suffer.
GOAL-SETTING THEORY Edwin Locke developed goal-setting theory. Goal-Setting Essentials The basic premise of goal setting theory is that properly set and well-managed task goals can be highly motivating. Goals • give direction to people in their work. • clarify performance expectations in supervisory relationships. • establish a frame of reference for feedback. • set a foundation for behavioral self-management. To achieve the motivational benefits of goal setting, research by Locke and his associates indicates that managers and team leaders must work with others to set the right goals in the right ways. Things like goal specificity, goal difficulty, goal acceptance, and goal commitment are among the goal-setting recommendations. MANAGEMENT SMARTS on page 415 of the text describes how to make goal setting work for you: • Set specific goals: they lead to higher performance than do more generally stated ones such as “do your best.” • Set challenging goals: when viewed as realistic and attainable, more difficult goals lead to higher performance than do easy goals. • Build goal acceptance and commitment: People work harder for goals they accept and believe in; they resist goals forced on them. • Clarify goal priorities: Make sure that expectations are clear as to which goals should be accomplished first and why. • Provide feedback on goal accomplishment: Make sure that people know how well they are doing with respect to goal accomplishment. • Reward goal accomplishment: Don’t let positive accomplishments pass unnoticed; reward people for doing what they set out to do.
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DISCUSSION TOPIC If you state any goals in your syllabus, have the class analyze them and their implementation in light of the managerial advice on goal setting that is contained in Management Smarts on p. 415.
Goal-Setting and Participation Participation is a major factor in unlocking the motivational potential of goal setting. Team members are likely to experience greater motivation when involved with team leaders in a participative process of goal setting and performance review. When goals must be assigned, workers will respond more positively if supervisors are trusted and the workers believe they will be adequately supported in their efforts to achieve the goals. SELF-EFFICACY THEORY Developed by Albert Bandura, the notion of self-efficacy, also known as social learning theory, is a person’s belief that he or she is capable of performing a task. The essence of self-efficacy theory is that when people believe themselves to be capable, they will be more motivated to work at a task. Bandura’s ideas link both with Vroom’s expectancy theory and Locke’s goal-setting theory, in that, managers who help create feelings of self-efficacy in others should be boosting their motivation to work. There are four ways to enhance self-efficacy: 1. Enactive mastery – the more a person’s experience builds in doing a task, the more confident that person becomes in doing it. 2. Vicarious modeling – when someone is good at a task and one is able to observe how it is done, a person gains confidence in being able to do it too. 3. Verbal persuasion – when one’s efforts in doing a task are praised by others, it becomes motivational. 4. Emotional arousal – occurs when one is highly stimulated or energized to perform well in a situation. RECOMMENDED READING on p. 416 of the text highlights Good Boss, Bad BossHow to Be the Best and Learn from the Worst, profiles of best and worst bosses. TAKEAWAY QUESTION 3: WHAT ROLE DOES REINFORCEMENT PLAY IN MOTIVATION?
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Unlike the prior motivation theories that rely on cognitive explanations of behavior, reinforcement theory focuses on the impact of external environmental consequences on behavior. Thorndike’s law of effect states: Behavior that results in a pleasant outcome is likely to be repeated; behavior that results in an unpleasant outcome is not likely to be repeated. The law of effect provides the fundamental foundation for reinforcement theory.
DISCUSSION TOPIC An excellent way to introduce the material on reinforcement theory is to conduct a “shaping exercise.” This exercise involves the following steps: 1. 2. 3.
4. 5. 6. 7.
Solicit a volunteer from the class to serve as an employee. Ask the volunteer if he or she has ever seen or heard of the “shaping exercise” before; if he/she has, find a new volunteer. Explain to the class that the volunteer will be the employee and the class will serve as a composite manager/supervisor. The manager will try to shape the employee’s behavior by yelling hot, hot whenever the employee engages in a behavior that approximates the desired response. Conversely, whenever the employee engages in a behavior that does not resemble the desired behavior, the manager will say cold, cold. Ask the volunteer to leave the room for a few minutes. Tell the class that they want the employee to walk backwards. Ask the employee to step back into the room. Run the exercise.
You will find that the class is usually able to shape the desired response with remarkable speed. The class usually enjoys this exercise, and it provides an excellent lead-in to the discussion of the law of effect and shaping, since hot, hot was as a positive outcome which increased the desired response, while cold, cold served as a negative outcome which effectively decreased undesirable responses.
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REINFORCEMENT STRATEGIES Operant conditioning, a concept popularized by B. F. Skinner, is the process of applying the law of effect to control behavior by manipulating its consequences. Operant conditioning strategies: • Positive reinforcement strengthens or increases the frequency of a desirable behavior by making a pleasant consequence contingent on its occurrence. • Negative reinforcement strengthens or increases the frequency of a desirable behavior by making the avoidance of an unpleasant consequence contingent on its occurrence. • Punishment eliminates or decreases an undesirable behavior by making an unpleasant consequence contingent on its occurrence. • Extinction eliminates or decreases an undesirable behavior by making the removal of a pleasant consequence contingent on occurrence. FIGURE 16.5 on page 417 of the text provides an example of how the four reinforcement conditioning strategies can be used as part of a total quality management program.
DISCUSSION TOPIC To reinforce the learning of the different operant conditioning strategies, have students identify examples from their work, educational, and/or personal experiences that illustrate positive reinforcement, negative reinforcement, punishment, or extinction. On the board, a flipchart, or overhead projector, draw a chart that shows positive reinforcement, negative reinforcement, punishment, and extinction cells with the students’ examples. Select some examples from each cell and have the students discuss how their behavior was influenced by these consequences. Did the behavior increase in frequency, or did it decrease?
POSITIVE REINFORCEMENT Shaping is the creation of a new behavior by the positive reinforcement of successive approximations of the desired behavior. Schedules of reinforcement: • A continuous reinforcement schedule administers a reward each time a desired behavior occurs. • An intermittent reinforcement schedule rewards behavior only periodically. A manager can expect that: • Continuous reinforcement will draw forth a desired behavior through shaping. • Intermittent reinforcement will maintain the desired behavior.
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Two laws should guide managers’ actions in using positive reinforcement: • Law of contingent reinforcement –– For a reward to have maximum reinforcing value, it must be delivered only if the desired behavior is exhibited. • Law of immediate reinforcement –– The more immediate the delivery of a reward after the occurrence of a desirable behavior, the greater the reinforcing value of the reward. MANAGEMENT SMARTS on page 418 of the text outlines guidelines for positive reinforcement as: • Clearly identify desired work behaviors. • Maintain a diverse inventory of rewards. • Inform everyone what must be done to get rewards. • Recognize individual differences when allocating rewards. • Follow the laws of immediate and contingent reinforcement. PUNISHMENT To punish an employee, a manager may deny the person a valued reward (such as verbal praise or pay) or the manager may administer an unpleasant outcome (such as a verbal reprimand, pay reduction, or demotion).
MANAGEMENT SMARTS on page 419 of the text outlines guidelines for punishment as: • Tell the person what is being done wrong. • Tell the person what is being done right. • Make sure the punishment matches the behavior. • Administer the punishment in private. • Follow the laws of immediate and contingent reinforcement.
DISCUSSION TOPIC Tampa Electric uses punishment in an interesting way. The company gives an oral reminder to employees who come in late, mistreat a colleague, or do a sloppy job. Next comes a written reminder. Then a paid day off is scheduled –– it’s called a “decision-making leave day.” After this day off employees must agree orally or in writing that they will be on their best behavior for the next year. This is an all-or-nothing chance to reform; employees who don’t shape up are terminated. Since the process is documented, it’s perfectly legal.
TAKEAWAY QUESTION 4: WHAT IS THE LINK BETWEEN JOB DESIGN AND MOTIVATION?
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Job design is arranging work tasks for individuals and groups. Job design applies the insights of motivation theories to achieve high levels of both job satisfaction and job performance. JOB SIMPLIFICATION Job simplification employs people in clearly defined and very specialized tasks. Simplified jobs are narrow in job scope—that is, the number and variety of different tasks a person performs. The most extreme form of job simplification is automation, or the total mechanization of a job. An example of this is an ATM machine, where a bank teller is replaced by a machine.
DISCUSSION TOPIC To reinforce the job simplification strategy, ask students if they have ever had a job in which this strategy was employed. If any respond yes, ask them to describe their job. You can use one of these jobs to illustrate the characteristics of this strategy. Next, ask these students what they thought of their jobs and, if they no longer hold them, why. Students will typically respond that they found the job to be boring so they quit. Responses such as these reflect the problems of boredom and turnover that are commonly associated with job simplification. Thus, they provide a nice introduction to a discussion of the expected advantages and potential disadvantages of this strategy, which are summarized below.
Potential advantages of job simplification: • Easier and quicker training of workers. • Workers are less difficult to supervise. • Workers are easier to replace if they leave. • Workers should become expert at performing repetitive tasks. Potential disadvantages of job simplification: • Poor performance may be caused by worker boredom and alienation. • Productivity may suffer when workers do poor work. • Unhappy workers may drive up costs through absenteeism and turnover.
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JOB ROTATION AND JOB ENLARGEMENT Job rotation increases job scope by providing more task variety as workers periodically shift between different jobs. Job enlargement also increases job scope through increases in task variety by combining into one job two or more tasks previously assigned to separate workers. Job enlargement is also called horizontal loading which is simply expanding the job to do tasks from earlier or later stages in the workflow. MANAGEMENT IN POPULAR CULTURE on p. 420 of the text explores the role of football player, Michael Oher, motivation in the film The Blind Side. JOB ENRICHMENT Job enrichment increases job depth by adding work planning and evaluating duties normally performed by the supervisor. Job enrichment focuses on job depth. Job Characteristics Model Modern management theory adopts a contingency perspective to job design and recognizes that job enrichment may not be best for everyone. According to this model, job satisfaction and performance are influenced by three critical psychological states: 1. experienced meaningfulness of the work 2. experienced responsibility for the outcomes of the work 3. knowledge of actual results of work activities. These, in turn, are influenced by the presence or absence of the five core job characteristics. A job high in the core characteristics, described below, is said to be enriched. The core characteristics model, illustrated in FIGURE 16.6 on page 421 of the text provides a way for managers to use the contingency perspective in job design: 1. Skill variety—the degree to which a job requires a variety of different activities to carry out the work, and involves the use of a number of different skills and talents of the individual. 2. Task identity—the degree to which the job requires completion of a “whole” and identifiable piece of work, one that involves doing a job from beginning to end with a visible outcome. 3. Task significance—the degree to which the job has a substantial impact on the lives or work of other people elsewhere in the organization or in the external environment.
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4. Autonomy—the degree to which the job gives the individual freedom, independence, and discretion in scheduling work and in choosing procedures for carrying it out. 5. Feedback from the job itself—the degree to which work activities required by the job result in the individual obtaining direct and clear information on his or her performance. A job that is high in these five core characteristics is considered enriched. Improving Job Characteristics Ways to improve core job characteristics for people and situations where job enrichment is a good choice include: • Form natural units of work: Make sure that the tasks people perform are logically related to one another and provide a clear and meaningful task identity. • Combine tasks: Expand job responsibilities by pulling together into one larger job a number of smaller tasks previously done by others. • Establish client relationships: Put people in contact with others who, as clients inside and/or outside the organization, use the results of their work. • Open feedback channels: Provide opportunities for people to receive performance feedback as they work and to learn how performance changes over time. • Practice vertical loading: Give people more control over their work by increasing their authority for planning and controlling activities previously done by supervisors. The RESEARCH BRIEF on p. 422 explains generational differences in extrinsic and intrinsic motivation. ALTERNATIVE WORK SCHEDULES Not only is the content of jobs important, the context is too. Among the more significant developments is the emergence of a number of alternative ways for people to schedule their work time. Flexible Working Hours The term flexible working hours, also called flextime, describes any work schedule that gives employees some choice in the pattern of their daily work hours. Potential benefits of flexible working hours: • Flexible working hours give people greater autonomy in work scheduling while ensuring that they maintain work responsibilities. • Flexible working hours reduces stress and lowers job turnover. Compressed Work Week
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A compressed workweek is any work schedule that allows a full-time job to be completed in less than the standard five days of 8-hour shifts. Its most common form is a “4-40” schedule –– that is, 40 hours of work accomplished in four 10 hour days. Benefits of the compressed workweek include: • Improved employee morale. • Lower overtime costs. • Less absenteeism. • Fewer days lost to sick leave. • Lower costs of commuting. Potential disadvantages of the compressed workweek for the individual: • Increased fatigue. • Family adjustment problems for the individual. • Increased scheduling problems. • Possible customer complaints. • Union objections. Job Sharing Job sharing involves a work schedule wherein one full-time job is split between two or more persons. Job sharing often occurs where each person works one-half day, although it can also be done on a weekly or monthly basis. Job sharing can benefit organizations by enabling them to employ talented people who would otherwise be unable to work. Telecommuting Telecommuting is a work arrangement that allows at least a portion of scheduled work hours to be completed outside the office. Hoteling occurs when telecommuters come to the central office and use temporary office facilities. Virtual offices include everything from an office at home to mobile workspace in automobiles. On the positive side, employees who telecommute report: • increased productivity. • fewer distractions. • the freedom to be their own boss. • the benefit of having more time to themselves.
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On the negative side, employees who telecommute report: • working too much. • having less time to themselves. • difficulty separating work and personal life. • having less time for family. Contingency and Part-Time Work Contingency workers (or permatemps) are employed on a part-time and temporary basis to supplement a permanent workforce and work fewer than 35 hours per week. Because contingency workers can be easily hired, contracted, and terminated in response to changing needs, many employers like the flexibility they offer in controlling labor costs and dealing with cyclical labor demand. Temporaries or part-timers may lack the commitment of permanent workers and may lower productivity. Contingency workers are often paid less, and they typically fail to receive important benefits such as health care, life insurance, pension plans, and paid vacations. Co-Working Spaces Gain Popularity for Flexible Schedulers on p. 424 explains the concept of office sharing for telecommuters.
CHAPTER 16 TAKE AWAY QUESTIONS SUMMARY Takeaway Question 1: How do individual needs influence motivation? • Motivation predicts the level, direction, and persistence of effort expended at work; simply put, a highly motivated person works hard. • Maslow’s hierarchy of human needs suggests a progression from lower-order physiological, safety, and social needs to higher-order ego and self-actualization needs. • Alderfer’s ERG theory identifies existence, relatedness, and growth needs. • Herzberg’s two-factor theory describes the importance of both job content and job context to motivation and performance. • McClelland’s acquired needs theory identifies the needs for achievement, affiliation, and power, all of which may influence what a person desires from work. FOR DISCUSSION: How can managers balance the competing desire of attempting to meet the unique needs of individuals while treating all employees fairly and equally? Takeaway Question 2: What are the process theories of motivation? • Adams’s equity theory recognizes that social comparisons take place when rewards are distributed in the workplace.
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People who feel inequitably treated are motivated to act in ways that reduce the sense of inequity; perceived negative inequity may result in someone working less hard in the future. The concept of equity sensitivity suggests that not all employees are equally concerned about being treated equitably and that not all employees respond to different types of inequity in the same way. Vroom’s expectancy theory states that Motivation = Expectancy × Instrumentality × Valence. Locke’s goal-setting theory emphasizes the motivational power of goals; task goals should be specific rather than ambiguous, difficult but achievable, and set through participatory means. Bandura’s self-efficacy theory indicates that when people believe they are capable of performing a task, they experience a sense of confidence and will be more highly motivated to work hard at it.
FOR DISCUSSION: In which job aspects are people most likely to be upset by inequity? In which job aspects are people more likely to be accepting of, or less concerned about, inequity? Takeaway Question 3: What role does reinforcement play in motivation? • Reinforcement theory recognizes that human behavior is influenced by its environmental consequences. • The law of effect states that behavior followed by a pleasant consequence is likely to be repeated; behavior followed by an unpleasant consequence is unlikely to be repeated. • Reinforcement strategies used by managers include positive reinforcement, negative reinforcement, punishment, and extinction. • Positive reinforcement works best when applied according to the laws of contingent and immediate reinforcement FOR DISCUSSION: Is it possible for a manager or parent to rely solely on positive reinforcement strategies? Takeaway Question 4: What is the link between job design and motivation? • Job design is the process of creating or defining jobs by assigning specific work tasks to individuals and groups. • Job simplification creates narrow and repetitive jobs consisting of well-defined tasks with many routine operations, such as the typical assembly-line job. • Job enlargement allows individuals to perform a broader range of simplified tasks; job rotation allows individuals to shift among different jobs of similar skill levels. • The job characteristics model of job design analyzes jobs according to skill variety, task identity, task significance, autonomy, and feedback; a job high in them is considered enriched. • Alternative work schedules make work hours more convenient and flexible to better fit workers’ needs and personal responsibilities; options include the compressed work week, flexible working hours, job sharing, telecommuting, and part-time work. FOR DISCUSSION: Is it reasonable to enrich someone’s job without increasing his or her pay as well?
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CHAPTER 16 KEY TERMS Automation (p. 419): the total mechanization of a job. Compressed work week (p. 423): allows a full-time job to be completed in less than five days. Contingency workers (p. 424): are employed on a part-time and temporary basis to supplement a permanent workforce. Continuous reinforcement (p. 418): administers a reward each time a desired behavior occurs. Deficit principle (p. 405): states that a satisfied need is not a motivator of behavior. Equity-sensitivity (p. 411): reflects that people have different preferences for equity and react differently to perceptions of inequity. Existence needs (p. 406): are desires for physiological and material well-being. Expectancy (p. 412): a person’s belief that working hard will result in a desired level of task performance being achieved. Extinction (p. 418): discourages behavior by making the removal of a desirable consequence contingent on its occurrence. Flexible working hours (p. 423): giving employees some choice in daily work hours. Frustration-regression principle (p. 407): states that an already satisfied need can become reactivated when a higher-level need is blocked. Growth needs (p. 406): are desires for continued psychological growth and development. Higher-order needs (p. 405): esteem and self-actualization needs in Maslow’s hierarchy. Hygiene factor (p. 407): found in job context, such as working conditions, interpersonal relations, organizational policies, and salary. Instrumentality (p. 412): a person’s belief that successful performance will be followed by rewards and other work-related outcomes. Intermittent reinforcement (p.418): rewards behavior only periodically. Job design (p. 419): arranging work tasks for individuals and groups. Job enlargement (p. 420): increases task variety by combining into one job two or more tasks previously assigned to separate workers. Job enrichment (p. 420): increases job depth by adding work planning and evaluating duties normally performed by the supervisor. Job rotation (p. 420): increases task variety by periodically shifting workers between different jobs. Job sharing (p. 423): splits one job between two people. Job simplification (p. 419): employs people in clearly defined and specialized tasks with narrow job scope. Law of contingent reinforcement (p. 418): means that a reward should only be given when a desired behavior occurs Law of effect (p. 417): behavior that results in a pleasant outcome is likely to be repeated; behavior that results in an unpleasant outcome is not likely to be repeated. Law if immediate reinforcement (p. 418): means that a reward should be given as soon as possible after a desired behavior occurs. Lower-order needs (p. 405): physiological, safety, and social needs in Maslow’s hierarchy. Motivation (p. 404): describes the forces within the individual that account for the level, direction, and persistence of effort expended at work. Need (p. 404): an unfulfilled physiological or psychological desire of an individual.
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Need for achievement (p. 408): the desire to do something better or more efficiently, to solve problems, or to master complex tasks. Need for affiliation (p. 409): the desire to establish and maintain friendly and warm relations with other people. Need for power (p. 408): the desire to control other persons, to influence their behavior, or to be responsible for other people. Negative reinforcement (p. 417): strengthens behavior by making the avoidance of an undesirable consequence contingent on its occurrence. Operant conditioning (p. 417): the process of applying the law of effect to control behavior by manipulating its consequences. Over-reward inequity (p. 420): is positive inequity, i.e. an individual perceives that rewards received are more than what is fair for work inputs. Positive reinforcement (p. 417): strengthens behavior by making a desirable consequence contingent on its occurrence. Progression principle (p. 405): states that a need isn’t activated until the next lower-level need is satisfied. Punishment (p. 418): discourages behavior by making an unpleasant consequence contingent on its occurrence. Relatedness needs (p. 406): are desires for satisfying interpersonal relationships. Satisfier factor (p. 407): found in job content, such as a sense of achievement, recognition, responsibility, advancement, or personal growth. Self-efficacy (p. 415): a person’s belief that she or he is capable of performing a task. Shaping (p. 418): creating new behavior by positive reinforcement of successive approximations of the desired behavior. Telecommuting (p. 423): using IT to work at home or outside the office. Under-reward inequity (p. 411): is negative inequity, i.e., an individual perceives that rewards received are less than what is fair for work inputs. Valence (p. 412): the value a person assigns to possible rewards and other work-related outcomes.
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SELF-TEST ANSWERS 1.
Lower-order needs in Maslow’s hierarchy correspond to __________ needs in ERG theory. (a) growth (b) affiliation (c) existence (d) achievement
2.
When a team member shows strong ego needs in Maslow’s hierarchy, the team leader should find that ______________ will be motivating to him or her. (a) alternative work schedules (b) praise and recognition for job performance (c) social interactions with other team member (d) easy performance goals
3.
A worker with a high need for __________ power in McClelland’s theory tries to use power for the good of the organization. (a) position (b) expert (c) personal (d) social
4.
In Hertzberg’s two-factor theory, base pay is considered a(n) ______________. valence (b) satisfier (c) equity (d) hygiene
5.
Which of the following is a correct match? (a) McClelland - ERG theory (b) Skinner – reinforcement theory (c) Vroom – equity theory (d) Locke- expectancy theory
6.
The expectancy theory of motivation says that motivation = expectancy × __________ × __________. (a) rewards, valence (b) instrumentality, valence (c) equity, instrumentality (d) rewards, valence
7.
When someone has a high and positive “expectancy” in the expectancy theory of motivation, this means that the person __________. (a) believes he or she can meet performance expectations (b) highly values the rewards being offered (c) sees a link between high performance and available rewards (d) believes that rewards are equitable
8.
In the __________ theory of motivation, someone who perceives himself as under rewarded relative to a coworker might be expected to reduce his performance in the future. (a) ERG (b) acquired needs (c) two-factor (d) equity
9.
In goal-setting theory, the goal of “doing a better job” would not be considered a source of motivation because it fails the test of goal __________. acceptance (b) specificity (c) challenge (d) commitment
10.
The law of __________ states that behavior followed by a positive consequence is likely to be repeated, whereas behavior followed by an undesirable consequence is not likely to be repeated. (a) reinforcement (b) contingency (c) goal setting (d) effect
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11.
__________ is a positive reinforcement strategy that rewards successive approximations to a desirable behavior. (a) Extinction (b) Negative reinforcement (c) Shaping (d) Merit pay
12.
B. F. Skinner would argue that “getting a paycheck on Friday” reinforces a person for coming to work on Friday, but it does not reinforce the person for having done an extraordinary job on Tuesday. This is because the Friday paycheck fails the law of __________ reinforcement. (a) negative (b) continuous (c) immediate (d) intermittent
13.
When a job is redesigned to allow a person to do a whole unit of work, from beginning to end it becomes high on which characteristic? (a) task identity (b) task significance (c) task autonomy (d) feedback
14.
A typical compressed work week schedule involves 40 hours work done in __________ days. (a) 3 (b) 4 (c) 5 (d) a flexible number of
15.
A term often used to describe someone who is a long-term but part-time hire is ____________ worker. (a) contingency (b) virtual (c) flexible (d) permatemp
16.
What preferences does a person with a high need for achievement bring to the workplace? People high in need for achievement will prefer work settings and jobs in which they have (1) challenging but achievable goals, (2) individual responsibility, and (3) performance feedback.
17.
Why is participation important to goal-setting theory? Participation is important to goal-setting theory because, in general, people tend to be more committed to the accomplishment of goals they have helped to set. When people participate in the setting of goals, they also understand them better. Participation in goal setting improves goal acceptance and understanding.
18.
What is the common ground in Maslow’s, Alderfer’s, and McClelland’s views of human needs? Maslow, McClelland, and Herzberg would likely find common agreement in respect to a set of “higher order” needs. For Maslow these are self-actualization and ego; they correspond with Alderfer’s growth needs, and with McClelland’s needs for achievement and power. Maslow’s social needs link up with relatedness needs in Alderfer’s theory and the need for affiliation in McClelland’s theory. Maslow’s safety needs correspond to Alderfer’s existence needs. Herzberg’s “satisfier factors” correspond to satisfactions of Maslow’s higher needs; Alderfer’s growth needs, and McClelland’s need for achievement.
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19.
Why might an employer not want to offer employees the option of a compressed work week -schedule? The compressed work week, or 4-40 schedule offers employees the advantage of a threeday weekend. However, it can cause problems for the employer in terms of ensuring that operations are covered adequately during the normal five workdays of the week. Labor unions may resist, and the compressed workweek will entail more complicated work scheduling. In addition, some employees find that the schedule is tiring and can cause family adjustment problems.
20.
How can a manager combine the powers of goal setting and positive reinforcement to create a highly motivational work environment for a group of workers with high needs for achievement? It has already been pointed out in the answer to question 16 that a person with a high need for achievement likes moderately challenging goals and performance feedback. Participation of both manager and subordinate in goal setting offers an opportunity to choose goals to which the subordinate will respond, and which also will serve the organization. Furthermore, through goal setting the manager and individual subordinates can identify performance standards or targets. Progress toward these targets can be positively reinforced by the manager. Such reinforcements can serve as indicators of progress to someone with a high need for achievement, thus responding to their desire for performance feedback.
MANAGEMENT COMPETENCIES AND SKILLS FURTHER REFLECTION: ENGAGEMENT These answers will vary according to students’ levels of engagement
SELF-ASSESSMENT: STUDENT ENGAGEMENT SURVEY Instructions Use the following scale to indicate the degree to which you agree with the following statements: 1 – No agreement; 2 – Weak agreement; 3 – Some agreement; 4 – Considerable agreement; 5 – Very strong agreement 1. I know what is expected of me in this course. 2. I have the resources and support I need to do my coursework correctly. 3. In this course, I have the opportunity to do what I do best all the time. 4. In the last week, I have received recognition or praise for doing good work in this course. 5. My instructor seems to care about me as a person. 6. There is someone in the course who encourages my development. 7. In this course, my opinions seem to count. 8. The mission/purpose of the course makes me feel my area of study is important. 9. Other students in the course are committed to doing quality work. 10. I have a good friend in the course.
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11. In the last six class sessions, someone has talked to me about my progress in the course. 12. In this course, I have opportunities to learn and grow.
Scoring Score the instrument by adding up all your responses. A score of 0-24 suggests you are “actively disengaged” from the learning experience; a score of 25-47 suggests you are “moderately engage”; a score of 48-60 indicates you are “actively engaged”.
Interpretation This instrument is a counterpart to a survey used by the Gallup Organization to measure the “engagement” of American workers. The Gallup results are surprising — indicating that up to 19% of U.S. workers are actively disengaged, with the annual lost productivity estimated at some $300 billion per year. One has to wonder: what are the costs of academic disengagement by student?
TEAM EXERCISE: WHY WE WORK Preparation Read the following “ancient story.” In days of old a wandering youth happened upon a group of men working in a quarry. Stopping by the first man he said: “What are you doing?” The worker grimaced and groaned as he replied, “I am trying to shape this stone, and it is backbreaking work.” Moving to the next man he repeated the question. This man showed little emotion as he answered, “I am shaping a stone for a building.” Moving to the third man, our traveler heard him singing as he worked. “What are you doing?” asked the youth. “I am helping to build a cathedral,” the man proudly replied.
Instructions In groups assigned by your instructor, discuss this short story. Ask and answer the question: “What are the lessons of this ancient story for (a) workers and (b) managers of today?” Ask members of the group to role play each of the stonecutters, respectively, while they answer a second question asked by the youth: “Why are you working?” Have someone in the group be prepared to report and share the group’s responses with the class as a whole.
Instructor’s Note This is a useful exercise that highlights the difference that one’s outlook towards work can make. It typically stimulates interesting discussions among students concerning the reasons why people work. Point out that to the extent that managers can succeed in defining the work of their unit in terms of higherorder goals (e.g., building a cathedral), the intrinsic satisfaction of the work will be elevated. Thus, this exercise has implications for the chapters on leadership and motivation that are included in Part 5. (Source: Developed from Dumaine, B. “Why Do We Work,” Fortune, December 26, 1994, pp. 196-204.)
CAREER SITUATIONS FOR MOTIVATION: WHAT WOULD YOU DO? Because motivation is so individual, students answers will vary.
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REVIEW QUESTIONS FOR CASE 16: SAS: BUSINESS SUCCESS STARTS ON THE ONSIDE Discussion Questions 1. In what ways is the work environment at SAS consistent or inconsistent with the implications of Maslow’s hierarchy of needs theory, Alderfer’s ERG theory, and Herzberg’s two-factor theory? From the case it is easy to determine that SAS, meets employees’ lower order needs (physiological, safety and social) by practices and policies such as good salaries, benefits, providing private schools, sales of land for housing, private offices, and a 35 hour work week. It is implied, but not clear, how higher order needs such as esteem and self-actualization are being met. However, low turnover rates and high productivity would suggest that these needs are being met through the creative and challenging work, autonomy, respect and recognition. Alderfer collapses Maslow’s five categories into three: existence (met) relatedness (difficult to determine from the case as above), and growth (again no specific data in the case). Again, one would have to assume that these needs are being met because of the low turnover rate, the high rate of customer satisfaction, and the quality of the work produced. Hertzberg would conclude that hygiene factors are present (good working conditions, base pay and supervision, etc.) but it is the satisfier factors (achievement, recognition and responsibility) that really motivate workers. He would probably encourage the management at SAS to put their efforts more into increasing satisfiers such as job enrichment rather than into additional hygiene factors. 2. If Goodnight’s approach to leadership is evaluated from the perspectives of Vroom’s expectancy theory and Locke’s goal-setting theory, where is he on track and where is he in danger of going off track when it comes to employee motivation? Because the company is so successful and Goodnight states that “we can’t succeed without innovation, new products, ideas and services. Loyal creative, healthy employees are innovative”, we can conclude that there must be a reasonable degree of employee satisfaction as SAS. Vroom’s expectancy theory says that motivation is determined by the probability that hard work will produce the reward that the worker desires. Although the company appears to treat employees well, it is difficult to tell from the little data provided in the case whether SAS is providing the rewards that workers actually value. According to Lock, employees are motivated by clear task goals and performance feedback but there is insufficient detail about the SAS evaluation process in the case to determine how involved and/or satisfied employees are about the goal setting process at SAS. Perhaps, Goodnight could consider developing programs that allow employees more input into the rewards system and improving opportunities for participation in goal setting. Problem Solving As a compensation consultant you’ve been called in to review how SAS pays its employees and the benefits it offers them. You’ve heard in some employee interviews that they are attracted to other employers because of the high salaries available. They still like SAS benefits and the working climate, but the fact is that the higher pay available elsewhere is looking increasingly hard to say “no” to. What do motivation theories say about the implications of pay for turnover, engagement, and motivation? How do you suggest this problem with external pay opportunities
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be dealt with at SAS? Is this a case where time will take its course and those who leave will depart for good reason, while those who stay will continue to be motivated to work hard by the current system? Pay is an extrinsic motivator but it is intrinsic motivators like finding the work meaningful, enjoying the tasks, autonomy, learning and development, work-life balance, and feeling a sense of responsibility to the organization that determines employee engagement. While some people will always leave for a higher salary, many others would not. Perhaps, SAS could involve employees more in designing reward programs, such as a cafeteria benefits plan, so that employees receive what is perceived as valuable to them. Some employees’ needs also may be met through the option of a more flexible work schedule such as job sharing, phased retirement, etc. In any case, SAS’s future success heavily depends on retaining its highly skilled and experienced workforce. Since the turnover is so low, those leaving for higher pay appear to be in the minority. Further Research What’s the latest on SAS? How is the company doing in its industry? How is Goodnight faring as CEO? Are the employees still as motivated and happy as they appear in this case? Have any changes been made in compensation, benefits, or work practices at SAS? Are any planned? In short, can SAS still be held up as a motivational role model for other employers to follow, or is it starting to show some rough edges? Students will find a wealth of information on SAS’s website (sas.com) under “press releases”. Currently, Goodnight is still the CEO, the organization is profitable, and it has received numerous international “best places to work” awards in addition to those in the U.S.
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Chapter17:
TEAMS AND TEAMWORK CHAPTER17 TAKE AWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. How do teams contribute to organizations? 2. What are current trends in the use of teams? 3. How do teams work? 4. How do teams make decisions?
CHAPTER17 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • • • • • • •
.
Define team and teamwork Identify four roles managers perform in teams Define synergy Explain teamwork pros and cons Discuss the implications of social loafing Explain the potential benefits of informal groups Differentiate a committee from a task force Explain the benefits of cross-functional teams List the characteristics of self-managing work teams Explain how self-managing teams are changing organizations Explain potential advantages and disadvantages of virtual teams Describe the typical steps in team building Define team effectiveness Identify inputs that influence group effectiveness Discuss how membership diversity influences team effectiveness Explain how resources, the physical setting, the nature of the task, and the size of the team effect productivity List five stages of group development Define group norm and list ways to build positive group norms Define cohesiveness and list ways to increase group cohesion Explain how norms and cohesiveness influence team performance Differentiate between task, maintenance, and disruptive activities Describe use of decentralized and centralized communication networks Illustrate how groups make decisions by authority rule, minority rule, majority rule, consensus, and unanimity
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List advantages and disadvantages of group decision making Define groupthink and identify its symptoms Illustrate how brainstorming and the nominal group techniques can improve creativity in decision making
CHAPTER17 OVERVIEW Work teams are an essential organizational resource because many tasks performed in organizations are beyond the capabilities of people working alone. Therefore, organizational members ⎯ especially managers and leaders ⎯ must understand teams and teamwork in order to tap the full potential of teams. The initial portion of the chapter describes the nature of teams and teamwork, the pros and cons of teams and teamwork, the usefulness of meetings, and the nature of formal teams and informal groups. Current trends in the use of teams in organizations, including committees, project teams or task forces, cross-functional teams, virtual teams, and self-managing work teams, along with team building are then discussed. The focus of the chapter subsequently shifts to the exploration of an open systems model of teams with a discussion of the specific inputs, group processes, and critical team outputs. Next, the chapter explores the five stages of team development and then considers the impact of norms, cohesiveness, task and maintenance activities, and communication networks on team performance. The chapter concludes by examining decision making in teams –– including team decision making strategies, groupthink, and techniques for improving team creativity.
CHAPTER17 LECTURE OUTLINE Teaching Objective: To provide students with a basic understanding of team dynamics and their impact on organizational productivity. Suggested Time: While three hours are recommended for presenting this chapter, the material can be presented in less time by using the open systems model of teams as a general framework for describing group processes. I.
Take away questions 1: How do teams contribute to organizations? What is teamwork? Teamwork pros Teamwork cons Meetings, meetings, meetings Formal teams and informal groups
II.
Take away question 2: What are current trends in the use of teams? Committees, project teams, task forces Cross-functional teams
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Virtual teams Self-managing teams Team building III.
Take away question 3: How do teams work? Team inputs Stages of team development Norms and cohesiveness Task and maintenance needs Communication networks
V.
Take away question 4: How do teams make decisions? Ways teams make decisions Advantages and disadvantages of team decisions Groupthink Creativity in team decision making
CHAPTER17 SUPPORTING MATERIALS Textbook Inserts Learning from Others • The Beauty is in the Teamwork Learning about Yourself • Team Skills Figures • Figure 17.1: Organizational and Management Implications of Self-Managing Work Teams • Figure 17.2: An Open-Systems Model of Team Effectiveness • Figure 17.3: Criteria for Assessing the Maturity of a Team • Figure 17.4: How Cohesiveness and Norms Influence Team Performance • Figure 17.5: Distributed Leadership Helps Teams Meet Task and Maintenance Needs • Figure 17.6: Interaction Patterns and Communication Networks in Teams Thematic Boxes • Ethics on the Line: Social Loafing Isn’t Going Away • Management Smarts: Spotting the Seven Sins of Deadly Meetings • Management in Popular Culture: Mysterious Island Was a Window into Teamwork • Facts for Analysis: Unproductive Meetings Are Major Time Wasters • Outdoor Team Building Can Be Quite an Experience • Research Brief: Demographic Faultlines Pose Implications for Managing Teams • Follow the Story: Teams and Teamwork Add Lift to Boeing’s New Planes
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Management Smarts: How to Achieve Consensus When Teams Stand Up, Decisions Speed Up Management Smarts: How to Avoid Groupthink
Applications • Self-Test • Further Reflections: Team Contributions • Self-Assessment: Team Leader Skills • Team Exercise: Work Team Dynamics • Career Situations in Teamwork: What Would You Do? • Case 17: Auto Racing “When the Driver Takes a Back Seat”
CHAPTER17 LECTURE NOTES LEARNING FROM OTHERS on page 430 of the text describes the synergy of superior teamwork in a NASCAR pit crew. It shows that high performance team members must work together flawlessly to ensure success. LEARNING ABOUT YOURSELF on page 431 explains how team members must be contributors for a team to succeed. To help in becoming a productive team contributor, a chart is included of the “must have” team skills. Ask students to compare the experiences they have had with their teams with the list of “must have” team skills.
TAKE AWAY QUESTION 1: HOW DO TEAMS CONTRIBUTE TO ORGANIZATIONS? Many tasks in organizations are beyond the capabilities of individuals working alone. Managerial success relies on mobilizing, leading, and supporting people as they work together in groups. WHAT IS TEAMWORK? A team is a small group of people with complementary skills who work together to achieve a shared purpose and hold themselves mutually accountable for performance results. Teamwork is the process of people actively working together to accomplish common goals. Team Work roles include: • Team leader –– serving as the appointed head of a formal work unit.
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Network facilitator –– serving as a peer leader and networking hub for a special task force. Team member –– serving as a helpful contributing member of a project team. External coach –– serving as the external convener or sponsor of a problem-solving team staffed by others.
DISCUSSION TOPIC A good way to introduce teamwork pros and cons is to ask students how they feel about participating in teams. You will usually receive both highly positive and highly negative opinions. Students who have been members of successful athletic, social, extracurricular, classbased, and/or work teams will likely have quite positive attitudes. Those with less favorable experiences, such as students who have encountered nonproductive teams in their classes, will likely be more skeptical of the utility of teams. For these students, the quip “A camel is a horse designed by a committee!” may ring true. Point out that despite their potential drawbacks, teams are an essential organizational resource that all organizational members ⎯ but especially managers and leaders ⎯ must understand in order to tap the full potential of teams.
TEAMWORK PROS Synergy is the creation of a whole that is greater than the sum of its parts. The many benefits of teams in the workplace include: • More resources for problem solving. • Improved creativity and innovation. • Improved quality of decision making. • Greater commitments to tasks. • Higher motivation through collective action. • Better control and work discipline. • More individual need satisfaction. TEAMWORK CONS Social loafing refers to the presence of “free riders” who slack off because responsibility is diffused in teams and others are present to do the work. ETHICS ON THE LINE on page 434 of the text asks students to consider the ethics behind social loafing. Students will probably be very willing to share their experiences with social loafing in the work groups. Common problems in teams: • Personality conflicts and individual differences in work style can disrupt the team. • Ambiguous agendas and/or ill-defined problems can cause teams to work too long on the
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wrong things. Poor readiness to work may be due to lack of motivation or conflicts with other deadlines and priorities, lack of team organization or progress, meetings that lack purpose and structure, and/or members who come to meetings unprepared.
MEETINGS, MEETINGS, MEETINGS Meetings are often unproductive and waste people’s time. Meetings can and should be places where information is shared, decisions get made, and people gain understanding of one another. MANAGEMENT SMARTS on page 434 of the text points out the seven sins of deadly meetings: 1. People arrive late, leave early, and don’t take things seriously. 2. The meeting is too long, sometimes twice as long as necessary. 3. People don’t stay on topic; they digress and are easily distracted. 4. The discussion lacks candor; people are unwilling to tell the truth. 5. The right information isn’t available, so decisions are postponed. 6. Nothing happens when the meeting is over; no one puts decisions into action. 7. Things never get better; the same mistakes are made meeting after meeting. ORGANIZATIONS AS NETWORKS OF TEAMS Formal teams, also known as department, units, team, or divisions, are officially recognized and supported by the organization for specific purposes. According to Rensis Likert, managers and leaders serve important “linking pin” roles. Each manager or leader serves as both a superior in one work group and as a subordinate in the next higher-level one. Informal groups are not recognized on organization charts and are not officially created to serve an organizational purpose. Informal groups emerge as part of the informal structure and from natural or spontaneous relationships among people. Types of informal groups include: • interest groups – workers band together to pursue a common cause such as better working conditions. • friendship groups – develop for a wide variety of personal reasons, including shared non-work interests. • support groups – members help one another do their jobs or cope with common problems. Informal groups are not necessarily bad; they can have a positive impact on work performance. Informal groups offer social satisfactions, security, support, and a sense of belonging.
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DISCUSSION TOPIC To get students involved in discussing various types of organizational teams, ask them to identify the different types of teams to which they have belonged while working for an organization or during their educational career or both. These examples can be related to the different types of teams that are discussed below. This exercise helps students relate to the material and recognize its relevance to their own experiences.
TAKE AWAY QUESTION 2: WHAT ARE CURRENT TRENDS IN THE USE OF TEAMS? COMMITTEES, PROJECT TEAMS, AND TASK FORCES A committee brings people together outside of their daily job assignments to work in a small team for a specific purpose. The task agenda is typically narrow, focused, and ongoing. Project teams or task forces bring together people from various parts of an organization to work on common problems, but on a temporary rather than permanent basis. The project team’s official tasks are very specific and time defined. The project team disbands once the stated purpose has been accomplished. MANAGEMENT IN POPULAR CULTURE on p. 436 describes the lessons in teamwork from the television program Lost. CROSS-FUNCTIONAL TEAMS A cross-functional team is a team whose members come from different functional units of an organization. Such teams are specifically created to knock down the “walls” separating departments within the firm. Members of a cross-functional team come together to work on a specific problem or task and to do so with the needs of the whole organization in mind. Members of an employee involvement team meet on a regular basis applying their expertise and attention to continuous improvement. An example of this is a quality circle that meets regularly to discuss and plan specific ways to improve work quality. SELF-MANAGING TEAMS
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Self-managing work teams, or autonomous work groups, are teams of workers whose jobs have been redesigned to create a high degree of task interdependence, who have been given authority to make many decisions about how they work, and who accept collective responsibility for results. Self-managed teams rely heavily on multitasking and member participation in decisionmaking, task sharing, and performing managerial duties. The self-management responsibilities include planning and scheduling work, training members in various tasks, sharing tasks, meeting performance goals, ensuring high quality, solving day-to-day operating problems and, in some cases, “hiring” and “firing” its members. A key feature of self-managing work teams is multitasking, in which team members have the skills to perform several different jobs. The typical characteristics of self-managing teams are: • • • • • • •
Members are held collectively accountable for performance results. Members have discretion in distributing tasks within the team. Members have discretion in scheduling work within the team. Members are able to perform more than one job on the team. Members train one another to develop multiple job skills. Members evaluate one another’s performance contributions. Members are responsible for the total quality of team products.
FACTS FOR ANALYSIS on p. 437 reveals that most workers consider meetings ineffective and a waste of time. Figure 17.1 on page 437 of the text depicts the structural implications of self-managing teams. Members of a self-managing team report to higher management through a team leader rather than through a formal supervisor. VIRTUAL TEAMS Virtual teams are teams of people who work together and solve problems through largely computer-mediated rather than face-to-face interactions. Potential advantages of virtual teams include the following: • Savings in time and travel expenses. • Teams can be easily expanded to include additional members as needed. • Discussions and information shared can be stored online for continuous updating. • Interpersonal difficulties can be minimized or eliminated. Potential problems of virtual teams include the following: • Members may experience difficulty in establishing good working relationships. . 17-8
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Emotions and nonverbal communication cues are somewhat lacking. Relations among team members can become depersonalized due to a lack of face-toface contact.
The following basic guidelines can help insure that the advantages outweigh the disadvantages: • Select team members high in initiative and capable of self-starting. • Select team members who will join and engage the team with positive attitudes. • Select team members known for working hard to meet team goals. • Begin with social messaging that allows for the exchange of information about each other to personalize the process. • Assign clear goals and roles so that members can focus while working alone and also know what others are doing. • Gather regular feedback from members about how they think the team is doing and how it might do better. • Provide regular feedback to team members about team accomplishments. TEAM BUILDING Team building is a sequence of planned activities used to analyze the functioning of a team and make constructive changes in how it operates. The team building process begins with the recognition of a problem, followed by the gathering of data to fully understand the problem, implementation of an action plan, and evaluation of results. High performance teams generally share these characteristics: • a clear and elevating goal • a task-driven and results-oriented structure • competent and committed members who work hard • a collaborative climate • high standards of excellence • external support and recognition • strong, principled leadership On p. 439 Outdoor Team Building Can Be Quite an Experience illustrates the value of wilderness experiences as team building exercises. TAKE AWAY QUESTION 3: HOW DO TEAMS WORK? An effective team is one that achieves and maintains high levels of both task performance and member satisfaction, and retains its viability for the future. An effective team must also ensure: 1. Task performance ⎯ a work group or team is expected to transform resource inputs
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into product outputs that have some value for the organization. 2. Member satisfaction ⎯ members should experience satisfaction from performance results and their participation in the process. 3. Future viability ⎯ the team should have a social fabric and work climate that makes members willing and able to work well together in the future. Team effectiveness can be summarized with the following team effectiveness equation: Team Effectiveness = Quality of Inputs + (Process Gains – Process Losses) TEAM INPUTS Resources and Setting The availability of resources can affect how team members relate to one another and apply their skills toward task accomplishment. Teams need support in the form of information, material resources, technology, rewards, work space, and organizational structure. Nature of the Task The nature of the task affects how well a team can focus its efforts and how intense the group process needs to be to get the job done. Complex tasks require more team interaction and information sharing than do simple tasks. Figure 17.2 on page 440 of the text shows how any team may be viewed as an open system that transforms various inputs into three outputs: task performance, member satisfaction, and future viability. Team Size Team size affects how members work together, handle disagreements, and reach agreements. Larger teams are more difficult to manage and communication can be very congested. Membership Characteristics Membership characteristics reflect the skill mix as well as the compatibility of values and personalities for people to work well together and perform well. Team diversity, in the form of different values, personalities, experiences, demographics, and cultures among the membership, affects how teams work.
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Relationships are more easily managed in homogeneous teams, ones whose members share similar characteristics, as opposed to heterogeneous teams, ones whose members are dissimilar to one another. The complexity of interpersonal relationships is greater in more diverse teams.
DISCUSSION TOPIC If you have assigned group projects to your students, be sure to relate the open systems model in Figure 17.2 to their group experiences. Throughout your discussion, ask students to indicate how the various group inputs (e.g., organization setting, nature of the task, size, and membership characteristics) and processes (e.g., communication, decision making, norms, cohesion, and conflict) affected their group performance, satisfaction, and future viability.
RESEARCH BRIEF on page 398 of the text examines the issue of faultlines. When strong faultlines occur, members of groups tend to identify more strongly with their subgroups than with the team as a whole. Resources and Setting Teams work best when the members have good information, material resources, technology, organizational structures, good physical workspace, and rewards. Nature of the Task Clearly designed tasks are easier to work on but complicated tasks require more coordination and information sharing among team members. Team Size Too large a team can result in communication problems and congestion. Creativity and problem solving may be negatively impacted in teams larger than six or seven members. STAGES OF TEAM DEVELOPMENT Team process ––the way the members of any team work together as they transform inputs into outputs –– is also important to group effectiveness. Team process is also known as group dynamics, which includes how members: • develop norms and cohesiveness. • share roles. • communicate with one another.
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make decisions.
There are five distinct phases in the life cycle of any team: 1. Forming – a stage of initial orientation and interpersonal testing 2. Storming – a stage of conflict over tasks and working as a team 3. Norming – a stage of consolidation around task and operating agendas 4. Performing – a stage of teamwork and focused task performance 5. Adjourning – a stage of task completion and disengagement Forming Stage Forming –– a stage of initial orientation and interpersonal testing. Members begin to identify with other members and the team itself. Members are concerned about getting acquainted, establishing relationships, identifying acceptable behavior, and learning how others perceive the team’s task. Storming Stage Storming –– a stage of conflict over tasks and ways of working as a team. Members may become highly emotional as tension emerges over task and interpersonal concerns. Task agendas become clarified and members begin to understand one another’s interpersonal styles. Efforts are made to find ways to meet team goals while also satisfying individual needs. Norming Stage Norming –– a stage of consolidation around task and operating agendas. Members of the team begin to become coordinated as a working unit and tend to operate with shared rules of conduct. The team feels a sense of leadership, with each member starting to play useful roles. Harmony and cooperation are emphasized, but minority viewpoints may be discouraged. Members are likely to develop initial feelings of closeness, a division of labor, and a sense of shared expectations.
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Performing Stage Performing –– a stage of teamwork and focused task performance. The team becomes more mature, organized, and well functioning. Members are able to deal with complex tasks and any interpersonal conflicts in creative ways. The team operates with a clear and stable structure, and members are motivated by team goals. Working together as an integrated team is a primary challenge at the performing stage. An integrated team will also be a mature team. Figure 17.4 on page 400 of the text identifies several different criteria for assessing the maturity of a team. These criteria are: 1. Trust among members. 2. Feedback mechanisms. 3. Open communications. 4. Approach to decisions. 5. Leadership sharing. 6. Acceptance of goals. 7. Valuing diversity. 8. Member cohesiveness. 9. Support for each other. 10. Performance norms. Adjourning Stage Adjourning –– a stage of task accomplishment and eventual disengagement. Members prepare to achieve closure and disband. Adjourning is especially common for temporary teams that operate in the form of committees, task forces, and projects. Ideally, the team disbands with a sense that important goals have been accomplished and the members are willing to work with one another again in the future. Figure 17.3 on p. 444 of the text provides criteria for assessing the maturity level of a team.
DISCUSSION TOPIC Ask students to describe their experiences with different teams within the context of stages of team development. What happened for them at each stage? How do the students’ experiences
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compare to the ideas presented above? Did anyone have an experience wherein the team seemed to get stuck at one particular stage ⎯ say, the storming stage? What happened, and what insights does it provide?
NORMS AND COHESIVENESS A norm refers to the behavior expected of team members; it is a “rule” or “standard” that guides the behavior of team members. A performance norm defines the level of work effort and performance that members are expected to contribute to the team task; it can be positive or negative. Teams with positive performance norms are more successful in accomplishing task objectives than are teams with negative performance norms. Important team norms relate to helpfulness, participation, timeliness, quality, and innovation. Team cohesiveness is the degree to which members are attracted to and motivated to remain part of a team. A more cohesive team will result in better relationships among members. Violations of norms may result in team sanctions such as being expelled from a team or socially ostracized by other members.
DISCUSSION TOPIC Ask students to provide examples of both positive and negative performance norms that they have encountered on the different teams where they were members. Discuss how these norms influenced the members’ behavior.
Managing Team Norms Team leaders should help and encourage members to develop positive norms. Guidelines for building positive group norms are the following: • Act as a positive role model. • Reinforce the desired behaviors with rewards. • Control results by performance reviews and feedback. • Orient and train new members to adopt desired behaviors. • Recruit and select new members who exhibit desired behaviors. • Hold regular meetings to discuss progress and ways of improving.
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Use team decision-making methods to reach agreement.
Managing Team Cohesiveness Figure 17.4 on page 446 of the text illustrates the impact of various combinations of team cohesiveness and performance norms on productivity and supportiveness of norms. • Positive norms in combination with high cohesiveness lead to the high performance and strong commitments to positive norms. (Best-case scenario) • Positive norms in combination with low cohesiveness lead to moderate performance and weak commitments to positive norms. • Negative norms in combination with low cohesiveness lead to low to moderate performance and weak commitments to negative norms. • Negative norms in combination with high cohesiveness lead to low performance and strong commitments to negative norms. (Worst-case scenario) Guidelines regarding how to increase team cohesion include the following: • Build agreement on team goals. • Increase membership homogeneity. • Increase interactions among members. • Decrease team size. • Introduce competition with other teams. • Reward team rather than individual results. • Provide physical isolation from other teams. TASK AND MAINTENANCE ROLES Task activities are actions by team members that contribute directly to the team’s performance purpose. Maintenance activities support the emotional life of the team as an ongoing social system. As indicated in Figure 17.5 on page 446 of the text, task activities include: initiating, information sharing, summarizing, elaborating, and opinion giving and maintenance activities as: gatekeeping, encouraging, following, harmonizing, and reducing tension. Figure 17.5 also provides some useful insights regarding distributed leadership in teams. • •
Leading through task activities involves making an effort to define and solve problems and advance work toward performance results. Leading through maintenance activities helps strengthen and perpetuate the team as a social system.
Team task and maintenance activities stand in direct contrast to disruptive activities. Figure 17.5 identifies several different disruptive activities that detract from team .
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effectiveness. These disruptive activities are: • Being aggressive. • Blocking. • Self-confessing. • Seeking sympathy. • Competing. • Withdrawal. • Horsing around. • Seeking recognition. Everyone shares in the responsibility for minimizing the occurrence of dysfunctional behavior. Distributed leadership in teams makes every member responsible for recognizing when task or maintenance activities are needed and taking actions to provide them.
DISCUSSION TOPIC Ask students to describe examples of task activities, maintenance activities, and disruptive or dysfunctional activities that they have encountered in their group experiences.
COMMUNICATION NETWORKS A decentralized communication network, sometimes called an all-channel or star communication network, is one in which all members communicate directly with one another. It is most appropriate when teams are interacting intensively and their members are working closely together on tasks. A centralized communication network, sometimes called a wheel or chain communication structure, is a network in which activities are coordinated and results pooled by a central point of control. It is most appropriate when team members work on tasks independently, with the required work being divided up among them. Figure 17.6 on page 446 of the text depicts three interaction patterns and communication networks that are common in teams: • The interacting group and a decentralized communication network. • The co-acting group and a centralized communication network. • The counteracting group and a restricted communication network. A restricted communication network is one in which polarized subgroups contest one another and may even engage in antagonistic relations. Communication between subgroups is often limited and biased, with the result that problems can easily occur.
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In general, centralized networks seem to work better on simple tasks that require little creativity, information processing, and problem solving. Decentralized networks work well for more complex tasks, where interacting groups do better, because they are able to support the more intense interactions and information sharing that is required. TAKE AWAY QUESTION 4: HOW DO TEAMS MAKE DECISIONS? As noted in Chapter 7, decision making is the process of making choices among alternative possible courses of action, and it is one of the most important group processes. FOLLOW THE STORY on p. 448 presents examples of successful bottom up team decision making at Boeing Aircraft. WAYS TEAMS MAKE DECISIONS Teams make decisions by at least six methods: lack of response, authority rule, minority rule, majority rule, consensus, and unanimity. In decision by lack of response, one idea after another is suggested without any discussion taking place. In decision by authority rule, the leader, manager, committee head, or some other authority figure makes a decision for the team. In decision by minority rule, two or three people are able to dominate or “railroad” the team into making a decision that they prefer. In decision by majority rule, formal voting may take place, or members may be polled to find the majority viewpoint. In decision by consensus, full discussion leads to one alternative being favored by most members and the other members agree to support it. Keys to consensus include: 1. Don’t argue blindly; consider other’s reactions to your points. 2. Don’t change your mind just to reach quick agreement. 3. Avoid conflict reductions by voting, coin tossing, bargaining. 4. Keep everyone involved in the decision process. 5. Allow disagreements to surface so that things can be deliberated. 6. Don’t focus on winning versus losing; seek acceptable alternatives. 7. Discuss assumptions, listen carefully, and encourage inputs by all. In decision by unanimity, team members agree on the course of action to be taken.
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ADVANTAGES AND DISADVANTAGES OF TEAM DECISIONS When teams take the time to make decisions by consensus or unanimity, they gain special advantages over those relying more on individual or minority decision methods, such as: • an expansion of the number of alternatives examined. • avoidance of tunnel vision. • increased understanding and acceptance by members. • increased commitment of members to work hard to implement decisions made together. Disadvantages of team decisions include: • difficulty to reach consensus. • social pressures to perform. • members feel intimidated to go along with the rest of the members. • minority domination of the group. • more time to make a decision. MANAGEMENT SMARTS on p. 449 provides suggestions for achieving group consensus. 1. 2. 3. 4. 5. 6. 7.
Don’t argue blindly; consider others’ reactions to your points. Don’t change your mind just to reach quick agreement. Avoid conflict reduction by voting, coin tossing, and bargaining. Keep everyone involved in the decision process Allow disagreements to surface so that things can be deliberated. Don’t focus on winning verses losing; seek acceptable alternatives. Discuss assumptions: listen carefully, and encourage inputs by all.
On p. 450, When Teams Stand Up, Decisions Speed Up provides an example of increasing efficiency at team meetings by removing chairs and sometimes even the tables. GROUPTHINK According to psychologist Irving Janis, groupthink is a tendency for highly cohesive groups to lose their critical evaluative capabilities. Symptoms of groupthink include: • Illusions of invulnerability – members assume that the team is too good for criticism, or beyond attack. • Rationalizing unpleasant and disconfirming data – members refuse to accept contradictory data or to thoroughly consider alternatives. • Belief in inherent group morality – members act as though the group is inherently right and above reproach. • Stereotyping competitors as weak, evil, and stupid – members refuse to look realistically at other groups. • Applying direct pressure to deviants to conform to group wishes – members refuse to tolerate anyone who suggests the team may be wrong. .
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• • •
Self-censorship by members – members refuse to communicate personal concerns to the whole team. Illusions of unanimity – members accept consensus prematurely, without testing its completeness. Mind guarding – members protect the team from hearing disturbing ideas or outside viewpoints.
DISCUSSION TOPIC Ask the students whether they have ever been in a group that succumbed to groupthink. If so, have them describe what happened and relate it to the symptoms of groupthink.
MANAGEMENT SMARTS on page 450 of the text provides suggestions on how to avoid groupthink, such as: • Assign the role of critical evaluator to each group member; encourage a sharing of viewpoints. • As a leader, don’t seem partial to one course of action; do absent yourself from meetings at times to allow free discussion. • Create sub teams to work on the same problems and then share their proposed solutions. • Have team members discuss issues with outsiders and report back on their reactions. • Invite outside experts to observe team activities and react to team processes and decisions. • Assign one member to play a “devil’s advocate” role at each team meeting. • Hold a “second-chance” meeting to review the decision after consensus is apparently achieved. CREATIVITY IN TEAM DECISION MAKING Brainstorming and the nominal group technique are two approaches for promoting creativity in team decision making. Both can be pursued in computer-mediated or faceto-face formats. In brainstorming, teams of five to ten members meet to engage in open and spontaneous discussion of problems and ideas. Guidelines for brainstorming: • Don’t criticize each other. • Welcome “freewheeling” • Go for quantity. • Keep building on one another’s ideas. The nominal group technique uses a highly structured meeting agenda to allow
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everyone to contribute ideas without the interference of evaluative comments by others. Steps in the nominal group technique: • Participants work alone and write out possible solutions to a stated problem. • Ideas are then shared in a round-robin fashion without any criticism or discussion; all ideas are recorded as they are presented. • Ideas are discussed and clarified in a round-robin sequence, with no evaluative comments allowed. • Members individually and silently follow a written voting procedure that allows for alternatives to be rated or ranked in priority order.
CHAPTER17 TAKE AWAY QUESTIONS SUMMARY Take away question 1: How do teams contribute to organizations? • • • • •
A team is a collection of people working together to accomplish a common goal. Teams help organizations perform through synergy – the creation of a whole that is greater than the sum of its parts. Teams help satisfy important needs for their members by providing sources of job support and social satisfactions. Social loafing and other problems can limit the performance of teams. Organizations operate as networks of formal and informal groups.
FOR DISCUSSION: Why do people often tolerate social loafers at work? Take away question 2: What are current trends in the use of teams? • • • • •
Committees and task forces are used to accomplish special tasks and projects. Cross-functional teams bring members together from different departments, and help improve lateral relations and integration in organizations. New developments in information technology are making virtual teams commonplace at work, but virtual teams also pose special management challenges. Self-managing teams are changing organizations, as team members perform many tasks previously done by their supervisors. Team building engages team members in a process of assessment and action planning to improve teamwork and future performance.
FOR DISCUSSION: What are some of the things that virtual teams probably can’t do as well as face-to-face teams? Take away question 3: How do teams work? •
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An effective team achieves high levels of task performance, member satisfaction, and team viability.
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Important team inputs include the organizational setting, nature of the task, size, and membership characteristics. A team matures through various stages of development, including forming, storming, norming, performing, and adjourning. Norms are the standards or rules of conduct that influence the behavior of team members; cohesion is the attractiveness of the team to its members. In highly cohesive teams, members tend to conform to norms; the best situation is a team with positive performance norms and high cohesiveness. Distributed leadership occurs as members share in meeting a team’s task and maintenance needs. Effective teams make use of alternative communication structures, such as the centralized and decentralized networks, to best complete tasks.
FOR DISCUSSION: What can be done if a team gets trapped in the storming stage of group development? Take away questions 4: How do teams make decisions? • • • •
Teams can make decisions by lack of response, authority rule, minority rule, majority rule, consensus, and unanimity. Although group decisions often make more information available for problem solving and generate more understanding and commitment, they are slower than individual decisions and may involve social pressures to conform. Groupthink is a tendency of members of highly cohesive teams to lose their critical evaluative capabilities and make poor decisions. Techniques for improving creativity in teams include brainstorming and the nominal group technique.
FOR DISCUSSION: Is it possible that groupthink doesn’t only occur when groups are highly cohesive, but also when they are pre-cohesive?
CHAPTER17 KEY TERMS Brainstorming (p. 451): engages group members in open and spontaneous discussion of problems and ideas. Centralized communication network (p. 447): a network in which activities are coordinated and results pooled by a central point of control. Cohesiveness (p. 444): the degree to which members are attracted to and motivated to remain part of a team. Committee (p. 435): brings people together outside of their daily job assignments to work in a small team for a specific purpose. Cross-functional team (p. 436): a team whose members come from different functional units; is indispensable to matrix organizations and those that emphasize horizontal integration. Decentralized communication network (p. 446): a network in which all members communicate directly with one another.
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Decision making (p. 447): the process of making choices among alternative possible courses of action. Disruptive activities (p. 446): self-serving behaviors that interfere with team effectiveness. Distributed leadership (p. 445): a concept in teams that makes every member continually responsible for both recognizing when task or maintenance activities are needed and taking actions to provide them. Effective team (p. 439): a team that achieves high levels of both task performance and membership satisfaction, and retains its viability for the future. Formal team (p. 435): a group that is officially recognized and supported by the organization. Functional chimneys problem (p. 436): is a lack of communication across functions. Groupthink (p. 450): a tendency for highly cohesive groups to lose their critical evaluative capabilities. Informal group (p.435): an unofficial group that emerges from relationships and shared interests among members. Maintenance activity (p. 448): an action taken by a team member that supports the emotional life of the group. Nominal group technique (p. 451): uses a highly structured meeting agenda to allow everyone to contribute ideas without the interference of evaluative comments by others. Norm (p. 444): refers to the behavior expected of team members; it is a rule or standard that guides the behavior of team members. Project team (p. 426): brings together people from various parts of an organization to work on common problems, but on a temporary rather than permanent basis. Also known as a task force. Restricted communication network (p. 447): a network where subgroups have limited communication with one another and may engage in conflict. Self-managing work teams (p. 436): teams of workers whose jobs have been redesigned to create a high degree of task interdependence, and who have been given authority to make many decisions about how they work, and who accept collective responsibility for results. Social loafing (p. 434): the presence of “free riders” who slack off because responsibility is diffused in teams and others are present to do the work. Synergy (p. 4339): the creation of a whole that is greater than the sum of its individual parts. Task activity (p. 401): an action by a team member that directly contributes to the group’s performance purpose. Task force (p. 436): brings together people from various parts of an organization to work on common problems, but on a temporary rather than permanent basis. Also known as a project team. Team (p. 432): a small group of people with complementary skills, who work together to achieve a shared goals while holding themselves mutually accountable for performance results. Team building (p. 438): a sequence of planned activities used to analyze the functioning of a team and to make constructive changes in how it operates. Team diversity (p. 440): the differences in values, personalities, experiences, demographics, and cultures among the membership. Team effectiveness equation (p. 440): Team effectiveness = Quality of inputs + (Process gains – Process losses) Team process (p. 442): the way team members work together to accomplish tasks. Teamwork (p. 432): the process of people actively working together to accomplish common goals. Virtual team (p. 438): a team of people who work together and solve problems through largely computer-based interactions.
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SELF TEST ANSWERS 1.
When a group of people is able to achieve more than what its members could by working individually, this is called ____________. (a) social loafing (b) consensus (c) viability (d) synergy
2.
One of the recommended strategies for dealing with a group member who engages in social loafing is to _________________. (a) redefine tasks to make individual contributions more visible (b) ask another member to encourage this person to work harder (c) give the person extra rewards and hope that he/she will feel guilty (d) just forget about it
3.
In an organization operating with self-managing teams, the traditional role of ____________ is replaced by the role of team leader. (a) chief executive officer (b) first-line supervisor (c) middle manager (d) general manager
4.
An effective team is defined as one that achieves high levels of task performance, member satisfaction, and ____________. (a) resource efficiency (b) future viability (c) consensus (d) creativity
5.
In the open-systems model of teams, the ___________ is an important input factor. (a) communication network (b) decision-making method (c) performance norm (d) set of membership characteristics
6.
The team effectiveness equation states the following: Team Effectiveness = Quality of Inputs + (__________ – Process Losses). (a) Process Gains (b) Leadership Impact (c) Membership Ability (d) Problem Complexity
7.
A basic rule of team dynamics states that the greater the ____________ in a team, the greater the conformity to norms. (a) membership diversity (b) cohesiveness (c) task structure (d) competition among members
8.
Members of a team tend to start to get coordinated and comfortable with one another in the ____________ stage of team development. (a) forming (b) norming (c) performing (d) adjourning
9.
One way for a manager to build positive norms within a team is to ____________. (a) act as a positive role model (b) increase group size (c) introduce groupthink (d) isolate the team
10.
To increase the cohesiveness of a group, a manager would be best off ____________. (a) starting competition with other groups (b) increasing the group size (c) acting as a positive role model (d) introducing a new member
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11.
Groupthink is most likely to occur in teams that are ____________. (a) large in size (b) diverse in membership (c) high-performing (d) highly cohesive
12.
A team member who does a good job of summarizing discussion, offering new ideas, and clarifying points made by others is providing leadership by contributing ____________ activities to the group process. (a) required (b) task (c) disruptive (d) maintenance
13.
A ____________ decision is one in which all members agree on the course of action to be taken. (a) consensus (b) unanimous (c) majority (d) nominal
14.
A team performing very creative and unstructured tasks is most likely using _______________. (a) a decentralized communication network (b) decision by majority rule (c) decisions by minority rule (d) more task than maintenance activities
15.
Which of the following approaches can help groups achieve creativity in situations where lots of interpersonal conflicts are likely to occur? (a) nominal group technique (b) minority rule (c) consensus (d) brainstorming
16. How can a manager improve team effectiveness by modifying inputs? Input factors can have a major impact on group effectiveness. In order to best prepare a group to perform effectively, a manager should make sure that the right people are put in the group (maximize available talents and abilities), that these people are capable of working well together (membership characteristics should promote good relationships), that the tasks are clear, and that the group has the resources and environment needed to perform up to expectations. 17. What is the relationship among a team’s cohesiveness, performance norms, and performance results? A group’s performance can be analyzed according to the interaction between cohesiveness and performance norms. In a highly cohesive group, members tend to conform to group norms. Thus, when the performance norm is positive and cohesion is high, we can expect everyone to work hard to support the norm—high performance is likely. By the same token, high cohesion and a low performance norm will yield the opposite result—low performance is likely. With other combinations of norms and cohesion, the performance results will be more mixed. 18. How would a manager know that a team is suffering from groupthink (give two symptoms), and what could the manager do about it (give two responses)? The textbook lists several symptoms of groupthink, along with various strategies for avoiding groupthink. For example, a group whose members censor themselves from contributing “contrary” or “different” opinions and/or whose members keep talking about outsiders as “weak” or the “enemy” may be suffering from groupthink. This may be avoided or corrected, for example, by asking someone to be the “devil’s advocate” for a
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meeting, and by inviting in an outside observer to help gather different viewpoints. 19. What makes a self-managing team different from a traditional work team? In a traditional work group, the manager or supervisor directs the group. In a selfmanaging team, the members of the team provide self-direction. They plan, organize, and evaluate their work, share tasks, and help one another develop skills; they may even make hiring decisions. A true self-managing team does not need the traditional “boss” or supervisor, because the team as a whole takes on the supervisory responsibilities. 20. Marcos Martinez has just been appointed manager of a production team operating the 11 PM to 7 AM shift in a large manufacturing firm. An experienced manager, Marcos is pleased that the team members really like and get along well with one another, but they also appear to be restricting their task outputs to the minimum acceptable levels. What could Marcos do to improve things in this situation, and why should he do them? Marcos is faced with a highly cohesive group whose members conform to a negative, or low-performance, norm. This is a difficult situation that is ideally resolved by changing the performance norm. In order to gain the group’s commitment to a high-performance norm, Marcos should act as a positive role model for the norm. He must communicate the norm clearly and positively to the group and should not assume that everyone knows what he expects of them. He may also talk to the informal leader and gain his or her commitment to the norm. He might carefully reward high-performance behaviors within the group and may introduce new members with high-performance records and commitments. And he might hold group meetings in which performance standards and expectations are discussed, with an emphasis on committing to new high-performance directions. If his attempts to introduce a highperformance norm fail, Marcos may have to take steps to reduce group cohesiveness so that individual members can pursue higher-performance results without feeling bound by group pressures to restrict their performance.
MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: TEAM CONTRIBUTIONS Answers will vary among students.
SELF-ASSESSMENT TEAM LEADER SKILLS Instructions Consider your experience in groups and teams. Ask: “What skills do I bring to team leadership situations?” Then complete the following inventory by rating yourself on each item using this scale. 1 = Almost Never 2 = Seldom 3 = Sometimes 4 = Usually 5 = Almost Always 1 2 3 4 5 1. I facilitate communications with and among team members between team meetings. 1 2 3 4 5 2. I provide feedback/coaching to individual team members on their performance.
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1 2 3 4 5 3. I encourage “out-of-the-box” thinking 1 2 3 4 5 4. I continue to clarify stakeholder needs/expectations. 1 2 3 4 5 5. I keep team members’ responsibilities and activities focused within the team’s objectives and goals. 1 2 3 4 5 6. I organize and run effective and productive team meetings. 1 2 3 4 5 7. I demonstrate integrity and personal commitment. 1 2 3 4 5 8. I have excellent persuasive and influence skills. 1 2 3 4 5 9. I respect and leverage the team’s cross-functional diversity. 1 2 3 4 5 10. I recognize and reward individual contributions to team performance. 1 2 3 4 5 11. I use the appropriate decision-making style for specific issues. 1 2 3 4 5 12. I facilitate and encourage border management with the team’s key stakeholders. 1 2 3 4 5 13. I ensure that the team meets its team commitments. 1 2 3 4 5 14. I bring team issues and problems to the team’s attention and focus on constructive problem solving. 1 2 3 4 5 15. I provide a clear vision and direction for the team.
Scoring This inventory measures seven dimensions of team leadership. Add your scores for the items listed next to each dimension below to get an indication of your potential strengths and weaknesses. 1, 9 Building the Team 2, 10 Developing People 3, 11 Team Problem Solving/Decision Making 4, 12 Stakeholder Relations 5, 13 Team Performance 6, 14 Team Process 7, 8, 15 Providing Personal Leadership
Interpretation The higher the score, the more confident you are on the particular skill and leadership capability. When considering the score, ask yourself if others would rate you the same way. Consider giving this inventory to people who have worked with you in teams and have them rate you. Compare the results to your selfassessment. Also, remember that it is doubtful that any one team leader is capable of exhibiting all the skills listed above. More and more, organizations are emphasizing “top management teams” that blend a variety of skills, rather than depending upon the vision of the single, heroic leader figure. As long as the necessary leadership skills are represented within the membership it is more likely that the team will be healthy and achieve high performance. Of course, the more skills you bring with you to team leadership situations the better.
Instructor’s Note This exercise can begin to give students some insights into their strengths and weaknesses in a team leadership capacity. Encourage the students to consider the potential implications of their results for any developmental needs that they should address. (Source: Developed from McDermott, L., Brawley, N., and Waite, W. World-Class Teams: Working Across Borders. New York: Wiley, 1998.)
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TEAM EXERCOSE: WORK TEAM DYNAMICS Preparation Think about your course work group, a work group you are involved in for another course, or any other group suggested by the instructor. Indicate how often each of the following statements accurately reflects your experience in the group. Use this scale: 1 = Always 2 = Frequently 3 = Sometimes 4 = Never _____ 1. My ideas get a fair hearing. _____ 2. I am encouraged to give innovative ideas and take risks. _____ 3. Diverse opinions within the group are encouraged. _____ 4. I have all the responsibility I want. _____ 5. There is a lot of favoritism shown in the group. _____ 6. Members trust one another to do their assigned work. _____ 7. The group sets high standards of performance excellence. _____ 8. People share and change jobs a lot in the group. _____ 9. You can make mistakes and learn from them in this group. _____ 10. This group has good operating rules.
Instructions Form groups as assigned by your instructor. Ideally, this will be the group you have just rated. Have all group members share their ratings, and make one master rating for the group as a whole. Circle the items on which there are the biggest differences of opinion. Discuss those items and try to find out why they exist. In general, the better a group scores on this instrument the higher its creative potential. If everyone has rated the same group, make a list of the five most important things members can do to improve its operations in the future. Nominate a spokesperson to summarize group discussion for the class as a whole. Instructor’s Note This exercise can be extremely useful for providing work teams with valuable insights into their dynamics. It should be especially useful if you use work teams in your class, since the members are more likely to have considerable insight into their teams’ processes. Moreover, by examining the items for which the biggest differences of opinion arise, team members should be able to quickly pinpoint and discuss problem areas for the team. Finally, by creating action plans for improving team processes, the stage can be set for improving the effectiveness of these teams. In essence, this exercise can serve to facilitate the data gathering, data analysis and diagnosis, and action planning steps of the team building process for work teams in your class. (Source: Adapted from Dyer, W. Team Building, 2nd ed. Reading, MA: Addison-Wesley, 1987, pp. 123-125.)
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CAREER SITUATIONS IN TEAMWORK: WHAT WOULD YOU DO? These answers will vary.
REVIEW QUESTIONS FOR CASE 17: AUTO RACING – “WHEN THE DRIVER TAKES A BACK SEAT” Discussion Questions 1. What types of formal and informal groups would you expect to find in a racing team? What roles could each play in helping the team toward a winning season? Formal groups are units developed by the organization. So, in this case, the office/management personnel, mechanics, pit crew members, and those responsible for designing and building the car, would some be examples of formal groups. In terms of informal groups, those that emerge from relationships and shared interests would be considered as informal groups. I would expect to find informal relationships based on such factors as common interests, being of a similar age, having a similar family status, (children, divorced, etc.), seniority, doing similar jobs, and/or having the same hobbies (hunting, fishing, etc.).. 2. Racing teams and their leaders have to make lots of decisions—from the pressures of race day to the routines of everyday team management. When and in what situations would you see them making decisions by authority rule, minority rule, majority rule, consensus, or unanimity? Are all of these decision approaches acceptable at some times and situations, or are some unacceptable at any time? Defend your answer. Authority rule would be appropriate in an emergency situation or when time is of the essence and the person making the decision has the expertise and knowledge to do so, as in a pit crew decision made by the leader during a race. Minority rule would be appropriate for less important decisions to give others a voice, such as where will the crew go to celebrate a victory. However, it is often used inappropriately when a few people dominate the decision through their charismatic personality style or a persuasive communication style. Majority rule works best when there is limited time to make a decision, but there is a need for input from people with different perspectives. It should be used carefully because it can appear to be unfair. Consensus is appropriate when it is important to generate discussions and to develop alternatives such as in the design stage of a new race car. People do not have to totally agree but must feel that their views have been heard before agreeing to compromise. Unanimity, although difficult to achieve, is the ideal, way to make a decision. When there is enough time, decisions by consensus or unanimity are preferred. In reality, these two approaches are not always possible or practical. Consequently, this is when other approaches have to be used. Students’ answers may be influenced here by their own preferred decision making style. Problem Solving Assume you have been retained as a teambuilding consultant by a famous and successful racing team whose performance fell bad! during the prior season. Design a series of teambuilding
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activities you will lead the team in performing to strengthen their trust in each other and improve their individual and collective efforts. Team building involves improving the internal functioning of a group. Successful team building requires clear objectives, teambuilding efforts that link to desired behaviors, and some type of follow-up or assessment to measure the success or failure of the effort. Most successful team building programs involve some sharing, an improved understanding of each person’s strengths and contribution to the team effort, the establishment of group norms and appropriate feedback among members. A race car team is united by the goal of winning races. Team building suggestions from students should include a program that includes getting away from the everyday pressures of racing and getting to know and appreciate each person’s contribution to this team effort. Further Research Choose a racing team of interest to you. Research the team, its personnel, and its performance in the most recent racing season. Try to answer this question: What accounts for this team’s success or lack of success—driver talent, technology, teamwork, or all three? Can you find lessons in the racing team that might apply to teams and organizations in any setting? If so, list at least three that you believe are valuable and transferable insights. Answers will vary according to the team selected for the research. There should be many interesting examples that can be applied to organizations in any setting.
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Chapter 18
COMMUNICATION AND COLLABORATION CHAPTER 18 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. What is the communication process? 2. How can we improve our communications? 3. How can we deal positively with conflict? 4. How can we negotiate successful agreements?
CHAPTER 18 LEARNING OBJECTIVES After completing this chapter, students should be able to: • Describe the communication process and identify its key components • Differentiate between effective and efficient communication • Explain the role of credibility in persuasive communication • List the common sources of noise that inhibit effective communication • Explain how mixed messages and filtering interfere with communication • Explain how ethnocentrism affects cross-cultural communication • Explain how transparency and openness improves communication • Discuss possible uses of electronic media by managers • Define active listening and list active listening rules • Illustrate the guidelines for constructive feedback • Explain how space design influences communication • Differentiate substantive and emotional conflict • Differentiate functional and dysfunctional conflict • Explain the common causes of conflict • Define conflict resolution • Explain the conflict management styles of avoidance, accommodation, competition, compromise, and collaboration • Discuss lose-lose, win-lose, and win-win conflicts • List the structural approaches to conflict management • Differentiate between distributive and principled negotiation • List four rules of principled negotiation • Define bargaining zone and use this term to illustrate a labor–management wage negotiation • Describe the potential pitfalls in negotiation • Differentiate between mediation and arbitration • Explain the role of the ombudsperson in a conflict
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CHAPTER 18 OVERVIEW Communication is a fundamental element of organizations and managerial work. It is especially important to the leading function, since managers depend on communication to inform followers of performance objectives and elicit their commitment to achieving them. This chapter begins by examining the process of interpersonal communication, distinguishing between effective and efficient communication, and exploring the roles of persuasion and credibility in communication. Next, various communication barriers are described in detail, including information filtering, poor choice of channels, poor written or oral expression, failure to recognize nonverbal signals, and physical distractions, along with cross-cultural challenges. Specific means of improving communication are then presented, including transparency and openness, interactive management, use of electronic media, active listening, constructive feedback, and space design. The focus of the chapter then shifts to examining conflict and conflict management in interpersonal relations. Conflict is defined and different types of conflict are identified, the curvilinear relationship between conflict and performance management is described, the causes of conflict are presented, and structural and integrative approaches to conflict resolution are discussed. Five different conflict management styles –– avoidance, accommodation, competition, compromise, and collaboration –– are then explored. The value of collaborative, win-win methods of achieving conflict resolution is emphasized. Building on the discussion of conflict resolution, the chapter concludes with a discussion of the negotiation process. The chapter emphasizes negotiation goals and approaches, the process of gaining integrative negotiated agreements, the nature of negotiating pitfalls, and the role of third parties in dispute resolutions.
CHAPTER 18 LECTURE OUTLINE Teaching Objective: To thoroughly familiarize students with interpersonal communication and the importance of interpersonal skills. To achieve this, the communication, perception, conflict management and negotiation processes are examined in reasonable detail. Suggested Time: Two to three hours of class time are recommended to present this chapter. I.
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Takeaway Question 1: What is the communication process? • Effective communication • Persuasion and credibility in communication • Communication barriers • Cross-cultural communication
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Takeaway Question 2: How can we improve our communications? • Transparency and openness • Use of electronic media • Active listening • Constructive feedback • Space design
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Takeaway Question 3: How can we deal positively with conflict? • Functional and dysfunctional conflict • Causes of conflict • Conflict resolution • Conflict management styles • Structural approaches to conflict management
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Takeaway Question 4: How can we negotiate successful agreements? • Negotiation goals and approaches • Gaining agreements • Negotiation pitfalls • Third-party dispute resolution
Instructor’s Guide
CHAPTER 18 SUPPORTING MATERIALS Textbook Inserts Learning from Others • Impact Is Just a Tweet Away Learning about Yourself • Communication and Networking Figures • Figure 18.1: The Interactive Two-way Process of Interpersonal Communication • Figure 18.2: Downsides of Noise, Shown as Anything That Interferes With the Effectiveness of the Communication Process • Figure 18.3: The Relationship Between Conflict and Performance • Figure 18.4: Alternative Conflict Management Styles • Figure 18.5 The Bargaining Zone In Classic Two-Party Negotiation Thematic Boxes • Follow the Story: The Limited’s Linda Hensley Gives Others Reasons to Work with Her • Wal-Mart Founder’s Success Backed by Skills as the “Great Communicator” • Don’t Let Gestures Cause Mistakes in Cross-Cultural Communication • Manager Finds Worker’s Ideas Really Sweet
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• • • •
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Facts for Analysis: Value of Performance Reviews Gets Increasing Scrutiny Ethics on the Line: Blogging Is Easy, But Bloggers Should Beware Management Smarts: “Ins” and “Outs” of Negotiating Salaries Research Brief: Words Used Affect Outcomes In Online Dispute Resolution
Applications • Self-Test • Further Reflection: Communication and Networking • Self-Assessment: Conflict Management Strategies • Team Exercise: Feedback Sensitivities • Career Situations in Communication and Collaboration: What Would You Do? • Case 18: Facebook: Making the World More Open
CHAPTER 18 LECTURE NOTES LEARNING FROM OTHERS on page 458 of the text discusses the new ways of communicating, such as tweeting or blogging, through the use of technology. These new communication channels are “must haves” for management competency. Ask students if and how they use technology for communicating and collaborating. LEARNING ABOUT YOURSELF on page 459 of the text asks how strong are your communication and networking skills? Most can use some improvement, especially when it comes to networking with others. Success or failure at work is a result of how well we use communication to link with other people.
TAKE AWAY QUESTION1: WHAT IS THE COMMUNICATION PROCESS? Interpersonal skills are on the top of the list of important attributes for successful management. They are foundations for social capital, which is the capacity to attract support and help from others in order to get things done. Communication is an interpersonal process of sending and receiving symbols with messages attached to them. The ability to communicate well both orally and in writing is a critical managerial skill and one of the foundation competencies for successful leadership. FIGURE 18.1 on page 461 of the text illustrates the interactive two way process of interpersonal communication and provides the key elements in the communication process which can be viewed as a series of questions: • Who? – The sender – Responsible for encoding
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• • • •
Says what? – The message – Made up of meaningful symbols – both verbal and nonverbal In what ways? – The channel – The communication channel used to send the message To whom? – The receiver – Decodes the message sent With what result? – The interpreted meeting – Returns feedback to the receiver that indicates whether the intended message was received or not
DISCUSSION TOPIC One way to enhance the discussion of the communication process is to focus on the lecture mode of teaching. As the teacher/lecturer, you are occupying the role of sender, whereas the students are receivers. To communicate with students, you use a variety of symbols including spoken and written words, gestures, transparencies, PowerPoint slides, etc. to send them messages. As receivers, the students decode these messages into perceived meanings, which may or may not be the same as the intended meanings. Continuing with this example, you can introduce the concepts of effective and efficient communication by noting that while you can communicate quite “efficiently” with students through straight lectures, their involvement and feedback is needed to insure “effective” communication. Finally, you can preview the discussion of communication barriers by asking students to identify sources of “noise” which sometimes interfere with the effectiveness of lectures. An added benefit of this discussion is that instructors may obtain some useful feedback on their lecturing styles.
EFFECTIVE COMMUNICATION Effective communication occurs when the sender’s message is fully understood by the receiver. Efficient communication occurs at minimum cost in terms of resources expended. Efficient communications are not always effective. Potential trade-offs between effectiveness and efficiency must be recognized in communication. PERSUASION AND CREDIBILITY IN COMMUNICATION Communication is not only about sharing information; sometimes it is about influencing another person in a desired way. Persuasive communication results in a recipient agreeing with or supporting the message being presented. Managers get things done by working with and persuading others who are their peers, teammates, and co-workers.
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Taking bold stands or arguing aggressively often leads to “counter persuasion” because the person’s credibility ⎯ trust, respect, and integrity in the eyes of others ⎯ is destroyed. Credible communication earns trust, respect, and integrity in the eyes of others. Ways of building credibility: • Building credibility through expertise requires knowledge about the issue in question or having a successful prior track record at dealing with similar issues. • Building credibility through relationships requires having a good working relationship with the person to be persuaded. Follow the Story on p. 462 of the text provides examples of Linda Heasley, CEO of The Limited’s unique communication style. COMMUNICATION BARRIERS As noted in Figure 18.2 on page 463 of the text, noise is anything that interferes with the effectiveness of the communication process and can include: • Semantic problems • Absence of feedback • Improper channels • Physical distractions • Poor written or oral expression • Status effects • Cultural differences
DISCUSSION TOPIC You can demonstrate the impact of noise on the communication process by having 5 or 6 students play a round of “telephone” in class. The first student reads a selected written paragraph, whispering it to the second student. The second student repeats the message from memory, as accurately as possible, whispering to the third student, and so on. Compare the message, as recited by the last student, to the original paragraph.
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Information Filtering Information filtering is the intentional distortion of information to make it appear favorable to the recipient. Poor Choice of Channels A communication channel is the medium through which a message is conveyed from sender to receiver. Written channels are acceptable for simple messages that are easy to convey, for those that require extensive dissemination quickly, and when formal policy or authoritative directives are being conveyed. Spoken channels work best for complex and difficult to convey messages where immediate feedback to the sender is valuable. Spoken channels can create a supportive, even inspirational, emotional climate. Poor Written or Oral Expression Communication will be effective when the sender’s message is expressed so that it can be clearly understood by the receiver. Failure to Recognize Nonverbal Signals Nonverbal communication takes place through such things as hand movements, facial expressions, body posture, eye contact, and the use of interpersonal space. A mixed message occurs when a person’s words communicate one message while his/her actions, body language, appearance, or situational use of interpersonal space communicate something else. On p. 464 of the text, Wal-Mart’s Founder’s Success Backed by Skills as the “Great Communicator”, provides examples of the late founder, Sam Walton’s communication expertise.
DISCUSSION TOPIC A fun way to illustrate the power of nonverbal communication is to call on volunteers to “act out” various emotions without speaking verbally. Specifically, you may whisper to one volunteer to “act angry,” another to “be sad,” another to “be happy,” etc. Alternatively, you may ask one student to portray all of these emotions, plus any others that you choose. Then you can ask the students’ classmates to guess which emotion is being portrayed.
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Physical distractions Physical distractions such as interruptions from telephone calls, drop-in visitors, a lack of privacy, etc. can interfere with the effectiveness of a communication attempt. Many physical distractions can be avoided or at least minimized through proper planning. CROSS-CULTURAL COMMUNICATION Communicating under conditions of diversity, where the sender and receiver are part of different cultures, is a significant challenge. The importance of cross-cultural communication skills applies at home as well as abroad. Ethnocentrism is the tendency to consider one’s culture superior to any and all others. Ethnocentrism can adversely affect communication by causing someone to: • Not listen to what others have to say. • Address or speak to others in ways that alienate them. • Use inappropriate stereotypes when dealing with persons from another culture. Don’t Let Gestures Cause Mistakes in Cross-Cultural Communication on p. 465 of the text provides examples of non-verbal communication errors made by people with ethnocentric tendencies. TAKE AWAY QUESTION 2: HOW CAN WE IMPROVE OUR COMMUNICATIONS? TRANSPARENCY AND OPENNESS Communication transparency involves being honest and openly sharing accurate and complete information about the organization and workplace affairs. This transparency is sometimes associated with open book management, where managers provide employees with essential financial information about their companies. Manager Finds Workers’ Ideas Really Sweet, on p. 467 of the text, shows how Hammond’s Candies benefited from having transparent communication with its workers. USE OF ELECTRONIC MEDIA Today’s array of electronic media has much to offer management, but it does have limits. Managers need to understand the limits of a communication channel and choose wisely in communicating various types of messages.
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Managers and employees are constantly in touch today through the use of electronic media. Privacy is a major issue in the electronic workplace, and many employees are concerned that employers are eavesdropping on them. As a result, employees should: • Find out the employer’s policy on web browsing and using electronic media at work and follow it. • Don’t ever assume that you have privacy at work. Technology offers the power of the electronic grapevine, speeding messages and information from person to person. This can be: • functional when the information is accurate and useful. • dysfunctional when the information is false, distorted, or simply based on rumor. ACTIVE LISTENING Active listening is the process of taking action to help someone say exactly what he or she really means. Rules for active listening: 1. Listen for message content – try to hear exactly what content is being conveyed in the message. 2. Listen for feelings – try to identify how the source feels about the content in the message. 3. Respond to feelings – let the source know that her or his feelings are being recognized. 4. Note all cues – be sensitive to nonverbal and verbal messages; be alert for mixed messages. 5. Paraphrase and restate – state back to the source what you think you are hearing. CONSTRUCTIVE FEEDBACK Feedback is the process of telling others how you feel about something they did or said or about the situation in general. Feedback can be evaluative, interpretive, or descriptive. When poorly done, feedback can be threatening to the recipient and cause resentment. When properly done, feedback can be listened to, accepted, and used to good advantage by the receiver. Constructive feedback guidelines: • Give feedback directly and with real feeling, based on trust between you and the receiver.
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• • • •
Make sure feedback is specific rather than general; use good, clear, and preferably recent examples to make your points. Give feedback at a time when the receiver seems most willing or able to accept it. Make sure the feedback is valid; limit it to things the receiver can be expected to do something about. Give feedback in small doses; never give more than the receiver can handle at any particular time.
FACTS FOR ANALYSIS on p. 469 of the text illustrates the complexity and lack of effectiveness of feedback in the performance review process.
DISCUSSION TOPIC Divide the class into groups of four or five students. Using the guidelines for providing constructive feedback, have each group devise a plan for how they would go about providing feedback to a fellow team member who is not carrying his/her fair share of the team’s work load. Select two or three of the teams to share their feedback plans with the entire class.
SPACE DESIGN Proxemics involves the use of space in communications. The distance between people conveys varying intentions in terms of intimacy, openness, and status. The proxemics or physical layout of an office is an often-overlooked form of nonverbal communication. Workspace architecture is becoming increasingly recognized for its important influence on communication and behavior. TAKEAWAY QUESTION 3: HOW CAN WE DEAL POSITIVELY WITH CONFLICT? Conflict is a disagreement between people on substantive or emotional issues. Substantive conflicts involve disagreements over such things as goals and tasks, allocation of resources, distribution of rewards, policies and procedures, and job assignments. Emotional conflicts arise from feelings of anger, distrust, dislike, fear, and resentment, as well as from personality clashes and relationship problems. When conflicts are managed well, they can be helpful in promoting creativity and high performance.
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FUNCTIONAL AND DYSFUNCTIONAL CONFLICT FIGURE 18.3 on page 471 of the text illustrates the inverted “U” curve relationship between intensity of conflict and how well performance is managed. Conflicts of moderate intensity can be functional or constructive for organizations, whereas conflicts of low-intensity or very high-intensity can be dysfunctional or destructive. Functional conflict, or constructive conflict, stimulates people toward greater work efforts, cooperation, and creativity. Dysfunctional conflict, or destructive conflict, hurts task performance.
DISCUSSION TOPIC One way to get students involved in your discussion of conflict is to ask them to note on a piece of paper a situation where they were involved in a conflict at work or at school. You can either (a) collect and sort through these papers to find good conflict examples [in which case you may suggest that students write their names on their papers], or (b) simply ask students to share their experiences with the class. Regardless of the option you choose, you can count on this approach to supply you with numerous examples that you can then refer back to in discussing substantive and emotional conflicts or functional and dysfunctional conflicts.
CAUSES OF CONFLICT To manage conflict, one must understand where it originates. • Role ambiguities: unclear job expectations and other task uncertainties. • Resource scarcities: sharing resources with others or competing for resources. • Task interdependencies: dependence of individuals or groups on each other in order to perform well. • Competing objectives: poorly set objectives or poorly designed reward systems may pit individuals and groups against each other. • Structural differentiation: differences in organization structures and the people staffing them. • Unresolved prior conflicts: unless a conflict is fully resolved, it may remain latent and re-emerge. REAL ETHICS on page 471 of the text asks students to consider a blogger’s rights to communicate openly about one’s work experiences and impressions and illustrates the conflicts this activity can produce. CONFLICT RESOLUTION .
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Conflict resolution involves the elimination of the underlying causes for a conflict and reduces the potential for similar conflicts in the future. CONFLICT MANAGEMENT STYLES People’s conflict management styles reflect different combinations of cooperative and assertive behavior. Cooperativeness is the desire to satisfy the other party’s needs and concerns, whereas, assertiveness is the desire to satisfy ones own needs and concerns. FIGURE 18.4 on page 472 of the text illustrates the five interpersonal styles of conflict management that result from different combinations of cooperativeness and assertiveness. These styles are: • Avoidance or withdrawal –– being uncooperative and unassertive, downplaying disagreement, withdrawing from the situation, and/or staying neutral at all costs. • Accommodation or smoothing –– being cooperative and unassertive, letting the wishes of others rule; smoothing over or overlooking differences to maintain harmony. • Competition or authoritative command –– being uncooperative but assertive, working against the wishes of the other party, engaging in win-lose competition, and/or forcing through the exercise of authority. • Compromise –– being moderately cooperative and assertive, bargaining for “acceptable” solutions where each party wins a bit and loses a bit. • Collaboration or problem solving –– being cooperative and assertive, trying to fully satisfy everyone’s concerns by working through differences, finding and solving problems so that everyone gains.
DISCUSSION TOPIC Note that each of the conflict management styles has some value; each is appropriately utilized in different situations. For example, Avoidance or Withdraw is appropriate when an issue is trivial or there is no chance of resolution. Accommodation or Smoothing has merit when issues are more important to others than yourself or when you realize you are wrong. Competition or Authoritative Command is useful in situations where quick, decisive action is vital. Compromise is helpful in achieving a temporary solution to a complex issue or when conflicting parties have equal power but are committed to mutually exclusive goals. Collaboration or Problem Solving is appropriate when an integrative solution needs to be found without sacrificing either party’s concerns, both of which are very important. (Additional information can be found in D. Tjosvold, The Conflict Positive Organization, Boston: Addison-Wesley Publishing Company, Inc. 1991.)
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Lose-lose conflict occurs when no one achieves her or his true desire and the underlying reasons for conflict often remain unaffected. This is common when conflict is managed by avoidance or accommodation. Win-lose conflict occurs when each party strives to gain at the other’s expense. This occurs with competition and compromise. Win-win conflict occurs when issues are resolved to the mutual benefit of all conflicting parties. Win-win conflict occurs with collaboration. STRUCTURAL APPROACHES TO CONFLICT RESOLUTION Managers may choose one of the following structural approaches for resolving conflicts between individuals or groups: • • • • • • •
Making more resources available to everyone. Appealing to higher level goals that focus the attention of the conflicting parties on one mutually desirable end state. Changing the people by replacing or transferring one or more of the conflicting parties. Altering the physical environment by rearranging facilities, workspace, and workflows to reduce opportunities for conflict. Integrating devices by improving coordination in an organization Training in interpersonal skills can help prepare people to communicate and work more effectively in situations where conflict is likely. Changing reward systems may reduce competition between individuals and groups when people feel they have to compete with one another for attention, pay, and other rewards.
TAKEAWAY QUESTION 4: HOW CAN WE NEGOTIATE SUCCESSFUL AGREEMENTS? Negotiation is the process of making joint decisions when the parties involved have different preferences; it is a way of reaching agreements when decisions involve more than one person or group. People negotiate over salary, performance evaluations, job assignments, work schedules, work locations, and many other things. All negotiation situations are susceptible to conflict and require exceptional communication and interpersonal skills on the part of those involved. NEGOTIATION GOALS AND APPROACHES Two important goals of negotiation:
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1. Substance goals are concerned with outcomes and are tied to the content issues of the negotiation. 2. Relationship goals are concerned with processes; they are tied to the way people work together while negotiating and how they (and any constituencies they represent) will be able to work together again in the future. Effective negotiation occurs when issues of substance are resolved and working relationships among the negotiating parties are maintained or even improved in the process. Three criteria for effective negotiation are: • • •
Quality: negotiating a “wise” agreement that is truly satisfactory to all sides. Cost: negotiating efficiently, using up minimum resources and time. Harmony: negotiating in a way that fosters, rather than inhibits, interpersonal relationships.
Distributive negotiation focuses on “claims” made by each party for certain preferred outcomes. Such negotiations can become competitive and lead to “win-lose” outcomes. Principled negotiation, often called integrative negotiation, is based on a “win-win” orientation; the goal is to base the final outcome on the merits of individual claims, and to find a way for all claims to be satisfied if at all possible. MANAGEMENT SMARTS on p. 475 of the text provides guidelines for negotiating salaries: • Prepare, prepare, prepare • Document and communicate • Identify critical skills and attributes • Advocate and ask • Stay focused on the goal • View things from the other side • Don’t overreact to bad news
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GAINING AGREEMENTS In the book, Getting to Yes, by Roger Fisher and William Ury, four negotiation rules for integrative agreements are pointed out: 1. Separate the people from the problem. 2. Focus on interests, not on positions. 3. Generate many alternatives before deciding what to do. 4. Insist that results be based on some objective standard. The attitudinal foundations of integrative agreements involve the willingness of each negotiating party to trust, share information with, and ask reasonable questions of the other party. The informational foundations of integrative agreements involve each party knowing: • what is really important to them. • what is really important to the other party. Figure 18.5 on page 476 of the text depicts a classic two-party negotiation for a typical case of labor-management negotiation. 1. Both parties make initial offers. 2. The union negotiator has in mind a minimum reservation point –– the minimum wage she is willing to accept. 3. Similarly, the management negotiator possesses a maximum reservation point –– the highest wage that he is prepared to eventually offer to the union. 4. The bargaining zone in a classic two-party negotiation is defined as the zone between one party’s minimum reservation point and the other party’s maximum reservation point. 5. A positive bargaining zone exists whenever the reservation points of the two bargaining parties overlap. When a positive bargaining zone exists, there is room for true negotiation. 6. A key task for any negotiator is to discover the other party’s reservation point.
DISCUSSION TOPIC Consider the following scenario: Suppose that you have given the class a complex project assignment that has a due date four weeks in the future, will count for 40 percent of their course grade, and must be done in teams. Some students complain that project’s short time line will overload their schedules. Other students are concerned about their grades, wanting to receive as much guidance and feedback as possible. Divide the class into groups of four or five students. Have each group devise a plan for negotiating among themselves and with you regarding the above scenario. Select two or three of the teams to share their negotiation plans with the entire class.
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After the plans are presented, discuss how the plan reflects negotiation goals and the three criteria for effective negotiations. Also discuss how well the plan follows the negotiation rules for integrative agreements. To what extent is each plan likely to result in a win-win situation for the students and the instructor?
NEGOTIATION PITFALLS Common pitfalls include: • Falling prey to the myth of the “fixed pie:” acting on the distributive assumption that in order for you to gain, the other person must give something up and it ignores the fact that sometimes “the pie” can be expanded. • Nonrational escalation of conflict: becoming committed to previously stated “demands” and allowing personal needs for “ego” and “face saving” to increase the perceived importance of satisfying them. • Overconfidence and ignoring the other’s needs: becoming overconfident and failing to see the needs of the other party and the merits of its position. • Too much “telling” and too little “hearing:” in the “telling” error, parties don’t make themselves understood to each other; in the “hearing” error, parties don’t listen well enough to understand what each other is saying. • Premature cultural comfort: when negotiators are too quick to assume understanding of intentions in a cross-cultural situation. • Trap of ethical misconduct: the motivation to behave unethically sometimes arises from an undue emphasis on the profit motive. RESEARCH BRIEF on page 477 of the text describes research that finds expressing negative emotions and giving commands to another party in an on-line dispute inhibited dispute resolution. Results also showed that providing a causal explanation, offering suggestions, and communicating firmness all made dispute resolution more likely. THIRD-PARTY DISPUTE RESOLUTION When integrative agreements cannot be achieved, dispute resolution in the form of mediation or arbitration can be used. Mediation involves a neutral third party who tries to improve communication between negotiating parties and keep them focused on relevant issues. The mediator does not issue a ruling or make a decision, but can take an active role in discussions, such as making suggestions in an attempt to move the parties toward agreement. Arbitration is a stronger form of dispute resolution that involves a neutral third party, the arbitrator, who acts as a “judge” and issues a binding decision. Arbitration usually includes a formal hearing where the arbitrator listens to both sides and reviews all facets of the case before making a ruling.
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Alternative dispute resolution utilizes mediation and/or arbitration, but only after direct attempts to negotiate agreements between conflicting parties have failed. Often an ombudsperson, or designated neutral third party, listens to complaints and disputes and plays a key role in the process. CHAPTER 18 TAKEAWAY QUESTIONS SUMMARY Takeaway Question 1: What is the communication process? • • • • •
Communication is the interpersonal process of sending and receiving symbols with messages attached to them. Effective communication occurs when the sender and the receiver of a message both interpret it in the same way. Efficient communication occurs when the message is sent at low cost for the sender. Persuasive communication results in the recipient acting as intended by the sender; credibility earned by expertise and good relationships is essential to persuasive communication. Noise is anything that interferes with the effectiveness of communication; common examples are poor utilization of channels, poor written or oral expression, physical distractions, and status effects.
FOR DISCUSSION: When is it okay to accept less effectiveness to gain efficiency in communication? Takeaway Question 2: How can we improve our communications? • • • • • • •
Transparency in the sense that information conveyed to others is honest, credible, and fully disclosed is an important way to improve communication in the workplace. Interactive management through MBWA, such as structured meetings, use of electronic media, and advisory councils can improve upward communication. Active listening, through reflecting back and paraphrasing, can help overcome barriers and improve communication. Constructive feedback is specific, direct, well-timed, and limited to things the receiver can change. Office architecture and space designs can be used to improve communication in organizations. Proper choice of channels and use of information technology can improve communication in organizations. Greater cross-cultural awareness and sensitivity are important if we are to overcome the negative influences of ethnocentrism on communication.
FOR DISCUSSION: What rules of active listening do most people break? Takeaway Question 3: How can we deal positively with conflict?
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Conflict occurs as disagreements over substantive or emotional issues. Moderate levels of conflict are functional for performance and creativity; too little or too much conflict becomes dysfunctional. Conflict may be managed through structural approaches that involve changing people, goals, resources, or work arrangements. Personal conflict management styles include avoidance, accommodation, compromise, competition, and collaboration. True conflict resolution involves problem solving through a win-win collaborative approach.
FOR DISCUSSION: When is it better to avoid conflict rather than engage it? Takeaway Question 4: How can we negotiate successful agreements? • • • • • •
Negotiation is the process of making decisions in situations in which the participants have different preferences. Substance goals concerned with outcomes and relationship goal concerned with processes are both important in successful negotiation. Effective negotiation occurs when issues of substance are resolved while the process maintains good working relationships. Distributive negotiation emphasizes win-lose outcomes; integrative negotiation emphasizes win-win outcomes. Common negotiation pitfalls include the myth of the fixed pie, overconfidence, too much telling and too little hearing, and ethical misconduct. Mediation and arbitration are structured approaches to third-party dispute resolution.
FOR DISCUSSION: How do you negotiate with someone trapped in the “myth of the fixed pie”?
CHAPTER 18 KEY TERMS Accommodation (p. 428): being cooperative but unassertive; letting the wishes of others rule; smoothing over or overlooking differences to maintain harmony. Active listening (p. 423): process of taking action to help someone say exactly what he or she really means. Arbitration (p. 434): involves a neutral third party, the arbitrator, who acts as a “judge” and issues a binding decision. Avoidance (p. 428): being uncooperative and unassertive; downplaying disagreement, withdrawing from the situation, and/or staying neutral at all costs. Bargaining zone (p. 432): the space between one party’s minimum reservation point and the other party’s maximum reservation point. Channel richness (p. 422): the capacity of a channel or communication medium to carry information in an effective manner.
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Collaboration or problem solving (p. 428): being cooperative and assertive; trying to fully satisfy everyone’s concerns fully by working through differences; finding and solving problems so that everyone gains. Communication (p. 415): process of sending and receiving symbols with meanings attached. Communication channel (p. 418): the pathway through which a message moves from sender to receiver. Communication transparency (p. 420): openly sharing honest and complete information about the organization and workplace affairs. Competition or authoritative command (p. 428): being uncooperative but assertive; working against the wishes of the other party, engaging in win-lose competition, and/or forcing through the exercise of authority. Compromise (p. 428): being moderately cooperative and assertive; bargaining for “acceptable” solutions where each party wins a bit and loses a bit. Conflict (p. 426): a disagreement between people on substantive or emotional issues. Conflict resolution (p. 427): the removal of the substantial and emotional reasons for a conflict. Credible communication (p. 416): earns trust, respect, and integrity in the eyes of others. Distributive negotiation (p. 431): negotiation that focuses on win-lose claims made by each party for certain preferred outcomes. Dysfunctional conflict (p. 426): conflict that is destructive and hurts task performance. Effective communication (p. 415): communication that occurs when the sender’s message is fully understood by the receiver. Effective negotiation (p. 430): resolves issues of substance while maintaining a positive process. Efficient communication (p. 415): communication that occurs at minimum cost in terms of resources expended. Electronic grapevines (p. 422): use of electronic media to pass messages and information among members of social networks. Emotional conflict (p. 426): a conflict arising from feelings of anger, distrust, dislike, fear, and resentment, as well as from personality clashes and relationship problems. Ethnocentrism (p. 420): the tendency to consider one’s own culture superior to any and all others. Feedback (p. 424): the process of telling others how you feel about something they did or said or about the situation in general. Functional conflict (p. 426): conflict that is constructive and stimulates people toward greater work efforts, cooperation, and creativity. Information filtering (p. 465): the intentional distortion of information to make it appear favorable to the recipient. Lose-lose conflict (p. 428): occurs when no one achieves her or his true desires, and the underlying reasons for conflict remain unaffected. Mediation (p. 434): involves a neutral party who tries to improve communication between negotiating parties and keep them focused on relevant issues. Mixed message (p. 419): occurs when a person’s words communicate one message while his/her actions, body language, appearance, or use of interpersonal space communicates something else. Negotiation (p. 430): the process of making joint decisions when the parties involved have different preferences; it is a way of reaching agreements. Noise (p. 463): anything that interferes with the effectiveness of communication. Nonverbal communication (p. 418): communication that takes place through such things as hand movements, facial expressions, body posture, eye contact, and the use of interpersonal space. Open book management (p. 421): managers provide employees with essential financial information about their companies. Persuasive communication (p. 416): presents a message in a manner that causes the other person to support it. Principled negotiation or integrative negotiation (p. 431): uses a “win-win” orientation to reach solutions acceptable to each party.
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Proxemics (p. 424): the use of space in communication. Relationship goals (p. 430): in negotiation are concerned with the ways people work together. Social capital (p. 414): is a capacity to get things done with the support and help of others Substance goals (p. 430): in negotiation are concerned with outcomes and are tied to content issues. Substantive conflict (p. 426): a disagreement over such things as goals and tasks, allocation of resources, distribution of rewards, policies and procedures, and job assignments. Win-lose conflict (p. 428): occurs when one party strives to gain at the other’s expense. Win-win conflict (p. 429): occurs when issues are resolved to the mutual benefit of all conflicting parties.
SELF-TEST ANSWERS 1.
When the intended meaning of the sender and the interpreted meaning of the receiver are the same, a communication is __________. (a) effective (b) persuasive (c) selective (d) efficient
2.
The use of paraphrasing and reflecting back what someone else says in communication is characteristic of __________. (a) mixed messages (b) active listening (c) projection (d) lose-lose conflict
3.
Which is the best example of a supervisor making communication descriptive rather than evaluative? (a) You are a slacker. (b) You are not responsible. (c) You cause me lots of problems (d) You have been late to work three days this month.
4.
When interacting with an angry co-worker who is complaining about a work problem, a manager skilled at active listening would most likely try to ___________________. (a) suggest that the conversation be held at a better time (b) point out that the conversation would be better held at a different location (c) express displeasure in agreement with the coworker’s complaint (d) rephrase the co-worker’s complaint to encourage him to say more.
5.
When a manager uses e-mail to send a message that is better delivered in person, the communication process suffers from __________. (a) semantic problems (b) a poor choice of communication channels (c) physical distractions (d) information overload
6. If a visitor to a foreign culture makes gestures commonly used at home even after learning that they are offensive to the locals, the visitor can be described as __________________. (a) a passive listener (b) ethnocentric (c) more efficient than effective (d) an active listener 7.
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In order to be consistently persuasive when communicating with others in the workplace, a manager should build credibility by __________. (a) making sure rewards for compliance are clear (b) making sure penalties for noncompliance are clear (c) making sure they know who is the boss (d) making sure good relationships have been established
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8.
A manager who understands the importance of proxemics in communication would be likely to __________. (a) avoid sending mixed messages (b) arrange work spaces so as to encourage interaction (c) be very careful in the choice of written and spoken words (d) make frequent use of email messages to keep people well informed
9.
A conflict is most likely to be functional and have a positive impact on performance when it is __________. (a) based on emotions (b) resolved by arbitration (c) caused by resource scarcities (d) of moderate intensity
10. An appeal to superordinate goals is an example of a(n) __________ approach to conflict management. (a) avoidance (b) structural (c) dysfunctional (d) self-serving 11. The conflict management style with the greatest potential for true conflict resolution involves __________. (a) compromise (b) competition (c) smoothing (d) collaboration 12. When a person is highly cooperative but not very assertive in approaching conflict, the conflict management style is referred to as __________. (a) avoidance (b) authoritative (c) smoothing (d) collaboration 13. The three criteria of an effective negotiation are quality, cost, and __________. (a) harmony (b) timeliness (c) efficiency (d) effectiveness 14. In classic two-party negotiation, the difference between one party’s minimum reservation point and the other party’s maximum reservation point is known as the __________. (a) BATNA (b) arena of indifference (c) myth of the fixed pie (d) bargaining zone 15. The first rule of thumb for gaining integrative agreements in negotiations is to __________. (a) separate the people from the problems (b) focus on positions (c) deal with a minimum number of alternatives (d) avoid setting standards for measuring outcomes 16. Briefly describe how a manager would behave as an active listener when communicating with subordinates. The manager’s goal in active listening is to help the subordinate say what he or she really means. To do this, the manager should carefully listen for the content of what someone is saying, paraphrase or reflect back what the person appears to be saying, remain sensitive to nonverbal cues and feelings, and not be evaluative. 17. Explain the relationship between contact intensity and performance. The inverted “U” curve of conflict intensity shows that as conflict intensity increases from low to moderate levels, performance increases. This is the zone of constructive conflict. As conflict intensity moves into extreme levels, performance tends to decrease. This is the zone of destructive conflict.
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18. How do tendencies toward assertiveness and cooperativeness in conflict management result in win-lose, lose-lose, and win-win outcomes? Win-lose outcomes are likely when conflict is managed through high-assertiveness and lowcooperativeness styles. In this situation of competition, the conflict is resolved by one person or group dominating another. Lose-lose outcomes occur when conflict is managed through avoidance (where nothing is resolved), and possibly when it is managed through compromise (where each party gives up something to the other). Win-win outcomes are associated mainly with problem solving and collaboration in conflict management, which result from high assertiveness and high cooperativeness. 19. What is the difference between substance and relationship goals in negotiation? In a negotiation, both substance and relationship goals are important. Substance goals relate to the content of the negotiation. A substance goal, for example, may relate to the final salary agreement between a job candidate and a prospective employer. Relationship goals relate to the quality of the interpersonal relationships among the negotiating parties. Relationship goals are important, because the negotiating parties most likely have to work together in the future. For example, if relationships are poor after a labor-management negotiation, the likelihood is that future problems will occur. 20. After being promoted to store manager for a new branch of a large department store chain, Kathryn was concerned about communication in the store. Six department heads reported directly to her, and 50 full-time and part-time sales associates reported to them. Given this structure, Kathryn worried about staying informed about all store operations, not just those coming to her attention as senior manager. What steps might Kathryn take to establish and maintain an effective system of upward communication in this store? Kathryn can do a number of things to establish and maintain a system of upward communication for her department store branch. To begin, she should, as much as possible, try to establish a highly interactive style of management based upon credibility and trust. Credibility is earned by building personal power through expertise and reference. In regard to credibility, she might set the tone for the department managers by using MBWA— “managing by wandering around.” Once this pattern is established, trust will build between her and other store employees, and she should find that she learns a lot from interacting directly with them. Kathryn should also set up a formal communication structure, such as bimonthly store meetings, where she communicates store goals, results, and other issues to the staff and listens to them in return. An e-mail system whereby Kathryn and her staff could send messages to one another from their workstation computers would also be beneficial.
MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: COMMUNICATION AND NETWORKING Students’ answers will vary according to their communication and networking skills.
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SELF-ASSESSMENT: CONFLICT MANAGEMENT STRATEGIES Scoring Total your scores for items as follows. Yielding tendency: 1 + 6 + 11 + 16 = ______. Compromising tendency: 2 + 7 + 12 + 17 = ______. Forcing tendency: 3 + 8 + 13 + 18 = ______. Problem-solving tendency: 4 + 9 + 14 + 19 = ______. Avoiding tendency: 5 + 10 + 15 + 20 = ______. Interpretation Each of the scores above approximates one of the conflict management styles discussed in the chapter. Look back to Figure 18.4 and make the matchups. Although each style is part of management, only collaboration or problem solving leads to true conflict resolution. You should consider any patterns that may be evident in your scores and think about how to best handle the conflict situations in which you become involved.
TEAM EXERCISE: FEEDBACK SENSITIVITIES Preparation Indicate the degree of discomfort you would feel in each situation given below, by circling the appropriate number: 1 = high discomfort; 2 = some discomfort; 3 = undecided; 4 = very little discomfort; 5 = no discomfort. 1 2 3 4 5 1. 1 2 3 4 5 2. 1 2 3 4 5 3. 1 2 3 4 5 4. 1 2 3 4 5 5. 1 2 3 4 5 6. 1 2 3 4 5 7. 1 2 3 4 5 8. 1 2 3 4 5 9. 1 2 3 4 5 10. 1 2 3 4 5 11. 1 2 3 4 5 12. 1 2 3 4 5 13. 1 2 3 4 5 14.
Telling an employee who is also a friend that she or he must stop coming to work late. Talking to an employee about his or her performance on the job Asking an employee if he or she has any comments about your rating of her or his performance Telling an employee who has problems in dealing with other employees that he or she should do something about it Responding to an employee who is upset over your rating of his or her performance Responding to an employee becoming emotional and defensive, when you tell her or him about mistakes in the job. Giving a rating that indicates improvement is needed to an employee who has failed to meet minimum requirements of the job Letting a subordinate talk during an appraisal interview Having an employee challenging you to justify your evaluation in the middle of an appraisal interview Recommending that an employee be discharged Telling an employee that you are uncomfortable in the role of having to judge his or her performance Telling an employee that her or his performance can be improved Telling an employee that you will not tolerate his or her taking extended coffee breaks Telling an employee that you will not tolerate her or his making personal telephone calls on company time
Instructions
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Form three-person teams as assigned by the instructor. In each team, have members identify the three behaviors with which they indicate the most discomfort. Then each member should practice doing these behaviors with another member, while the third member acts as an observer. Be direct, but try to perform the behavior in an appropriate way. Listen to feedback from the observer and try the behaviors again, perhaps with different members of the group. When finished, discuss the exercise overall. Be prepared to participate in further class discussion.
Instructor’s Note The instrument presented above is intended to measure the levels of discomfort students anticipate they would feel in providing various forms of negative performance feedback to employees. Importantly, the exercise goes beyond assessing student assertiveness about giving feedback, by providing them with opportunities to practice giving feedback to subordinates in the three situations with which they are most uncomfortable. As such, this exercise can provide them with some valuable training for assertively providing negative feedback. At the conclusion of the exercise, you may want to share with students the following guidelines for giving constructive feedback: • Give feedback directly and with real feeling, based on trust between you and the receiver. • Make feedback specific rather than general, using good, clear, and preferably recent examples. • Give feedback at a time when the receiver seems most willing or able to accept it. • Make sure the feedback is valid, and limit it to things the receiver can be expected to do something about. •
Give feedback in small doses; never give more than the receiver can handle at any particular time.
You can also present the following guidelines for a productive criticism session: Step 1: Get to the Point ⎯ Do not evade the issue. Step 2: Describe the Situation ⎯ Use a descriptive opening that is specific, not general. Avoid evaluative statements. Step 3: Use Active Listening Techniques ⎯ Encourage the subordinate to tell his or her side of the story. Ask open-ended questions such as “what” or “how” which invite discussion. Step 4: Agree on the Source of the Problem and Its Solution ⎯ It is essential that the subordinate agree there is a problem. Once the problem is identified and agreed upon, work together to identify the source and a solution. Step 5: Summarizing the Meeting ⎯ Have the subordinate summarize the meeting to ensure that both the manager and the subordinate agree on what’s been decided. Set a time for a follow-up meeting. (Source: Feedback questionnaire is from Gordon, J.R. A Diagnostic Approach to Organizational Behavior, 3rd ed. Boston: Allyn and Bacon, 1991, p. 298. Used by permission of J. Gordon.)
CAREER SITUATIONS IN COMMUNICATIUON AND COLLABORATION: WHAT WOULD YOU DO? Students’ answers will vary.
CHAPTER 18 CASE: FACEBOOK: MAKING THE WORLD MORE OPEN
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Discussion Questions 1. What are the positive and negative implications of Facebook for the development of effective interpersonal communication skills among young users? It might depend on the way the user utilizes the features of Facebook. In Chapter 18, communication is described as effective if the receiver accurately understands the sender's message. Channel richness, and communication richness could be interpreted as adding meaning to communication. If a Facebook user only posts updates, the channel richness would be low and the possibility of misinterpretation would be relatively high. This would make Facebook ineffective. Facebook allows posting longer messages than Twitter, and also allows posting photos. Actually, it allows posting lots of photos. This would allow for higher channel richness, therefore more effective communication. However, business communication is very different in style, tone, and content than most Facebook postings. Much of the “sharing” it promotes is inappropriate in a business context. Young users often assume that their postings are strictly social in nature. Yet, many businesses now routinely check out prospective employees on social media sites before offering jobs. 2. CEO Mark Zuckerberg has stated that he fundamentally believes in openness, to the point that he shares his email address and phone number with his Facebook friends. But who should have the final say when it comes to determining the visibility of personal information on Facebook— the company or individual Facebook’s users? A recent New Yorker article said that Zuckerberg’s “business model relies on our notions of privacy and sharing.” Yet, clearly Facebook sets the parameters for material that is submitted. There are other websites and blogs that automatically post your messages on your Facebook page unless you find and take the sometimes very easy to miss “opt out” option. The visibility issue is a matter of personal opinion based on one’s notions of privacy. Problem Solving Sheryl Sandberg was and still is under pressure to bring a mature edge to Facebook. What are the most significant challenges that she faces when communicating with her “young” boss and the firm’s “younger” workforce? If you were asked to provide her with reverse mentoring—that is, advising her through the eyes of the younger generation of workers and Facebook users, what priorities would you suggest for her leadership attention? Why? Although she is fourteen years older than Zuckerberg, she is a highly experienced and accomplished manager. Like all new managers, she will have to gain credibility and trust from current employees. Young people like to be respected and she must be careful to communicate that to her younger employees. At this stage, Facebook as a corporation that has gone public and is maturing. Now that Facebook is subject to more regulation and needs to answer to its shareholders, her organizational skills are needed to institute policies and procedures that fit with the organizational culture and structure but also meet the management needs of a global corporation. In terms of mentoring, she needs to orient herself to the organization’s culture, values and current practices and get Zuckerberg’s support before she proposes any significant changes. Further Research
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Find as much information as you can about Mark Zuckerberg and his communication skills. Is he considered a persuasive communicator outside of Facebook? Can you find examples of his conflict management style? Is he considered to be an effective negotiator? What does Facebook’s current situation tell us about his personal leadership qualities and potential for longterm business success? Although Zuckerberg has been quoted as saying he is “trying to make the world a more open place”, he is a very private person, who seldom speaks to the press. His communication style has been described as being similar to instant messaging. He communicates in a flat tone and often appears to be uninterested in what a speaker is saying, only to mention what was said in later conversations. He seldom provides much feedback and is known to be very focused and demanding. The fact that he saw the need to hire Sheryl Sandberg, whom he personally persuaded to leave Google, is testimony to his ability to be a persuasive communicator when he needs to be.
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Chapter 19:
OPERATIONS AND SERVICES MANAGEMENT CHAPTER 19 TAKEAWAY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4.
What are the essentials of operations and service management? What is value chain management? How do organizations manage customer service and product quality? How can work processes be designed for productivity?
CHAPTER 19 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • • • •
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Define operations management State the productivity equation Define competitive advantage List alternative types of manufacturing and service technologies Discuss several trends in manufacturing technologies Define value creation Describe the value chain for an organization Explain supply chain management Define economic order quality Explain JIT Define break-even point and break-even analysis Use the formula to calculate break-even points Discuss the importance of customer relationship management Differentiate internal and external customers of a firm Explain ISO certification Define TQM and continuous improvement Explain how control charts and Six Sigma programs are used in statistical quality control Define process reengineering and work process Draw a map of the workflow in an organization familiar to you Explain how process value analysis can be used to streamline workflows and improve work performance
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CHAPTER 19 OVERVIEW The chapter begins by describing how the challenges of operations management relate to getting work done by managing productive systems that transform resources into finished goods and services for customers and clients. Productivity, technology, and the value chain, are covered with supply chain management as well as inventory management techniques and break-even analysis. The chapter goes on to describe how organizations manage customer service and product quality. Customer relationship management builds and maintains strategic relationships with customers while quality management addresses the needs of both internal customers and external customers. Quality standards and controls such as ISO certification and total quality management are discussed. Organizations often use statistical techniques such as the Six Sigma system to measure quality of work samples for quality control purposes. The chapter concludes with a discussion of how work processes can be designed for productivity through work process analysis and process reengineering.
CHAPTER 19 LECTURE OUTLINE Teaching Objective: To provide students with a basic understanding of operations management and its impact on customer service, product quality, and productivity. Suggested Time: Three hours are recommended for presenting this chapter. I.
Takeaway question 1: What are the essentials of operations and services management? Manufacturing and service settings Productivity and competitive advantage Operations technologies
II.
Takeaway question 2: What is value chain management? Value chain analysis Supply chain management Inventory management Break-even analysis
III:
Takeaway question 3: How do organizations manage customer service and product quality? Customer relationship management Quality management Statistical quality control
IV.
Takeaway question 4: How can work processes be designed for productivity? Work process analysis Process reengineering
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CHAPTER 19 SUPPORTING MATERIALS Textbook Inserts Learning from Others • Speed and Flexibility Rule Global Competition Learning about Yourself • Strength and Energy Figures • Figure 19.1: Elements in an Organization’s Value Chain. • Figure 19.2: Inventory Control by Economic Order Quantity (EOQ). • Figure 19.3: Graphical Approach to Break-Even Analysis. • Figure 19.4: The Importance of External and Internal Customers. • Figure 19.5: Sample Control Chart Showing Upper and Lower Control Limits. • Figure 19.6: How Reengineering Can Streamline Work Processes. Thematic Boxes • Efficiency Drives Success with Top Racing Engines • “Henry Ford of Heart Surgery” Saves Lives with Economies of Scale • No Thrills Airline Thrives by Cutting Costs • Ethics on the Line: “Not in My Backyard” Dilemma Makes Things Personal • Research Brief: How Do You Improve the Productivity of a Sales Force? Applications • Self-Test • Further Reflections: Strength and Energy • Self-Assessment: Personal Numeracy • Team Exercise: Straw Towers • Case 19: Toyota: Hitting the Breaks to Regain the Lead
CHAPTER 19 LECTURE NOTES LEARNING FROM OTHERS on page 2 of the text details how Louis Vuitton changed its process for making handbags by allowing workers to perform more than one task, resulting in a reduction of the number of workers and days required to produce a bag. This process also cut the amount of time in half for shipping new designs to the fashion markets. LEARNING ABOUT YOURSELF on page 3 of the text explains the importance of having the strength and energy to satisfy the demands of both work and personal life today. It includes a chart from the Mayo Clinic that suggests how to balance work and life.
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TAKEAWAY QUESTION 1: WHAT ARE THE ESSENTIALS OF OPERATIONS AND SERVICES MANAGEMENT? Operations management is the process of managing productive systems that transform resources into finished products. The essentials of operations management apply to all types of organizations, whether they be manufacturing or service oriented. Manufacturing organizations produce physical goods, while service organizations produce services. Efficiency Drives Success with Top Racing Engines on p. 4 illustrates how important operations management processes are to the efficient production of racing engines. PRODUCTIVITY AND COMPETITIVE ADVANTAGE Productivity is the efficiency with which inputs are transformed into outputs and is expressed in the following formula: Productivity = Output / Input Competitive advantage is the ability to outperform one’s competitors due to a core competency that is difficult to copy or imitate, such as, product innovation, customer service, speed to market, manufacturing flexibility, and product or service quality. OPERATIONS TECHNOLOGIES Technology is the combination of knowledge, skills, equipment, and work methods used to transform resource inputs into organizational outputs. Manufacturing Technology Mass production manufactures a large number of uniform products with an assembly-line system. Small-batch production manufactures a variety of products crafted to fit customer specifications. DISCUSSION TOPIC Ask students to think about the advantages and disadvantages of mass production vs. small-batch production. Which products do they buy that they prefer to be mass produced vs. produced to meet their exact specifications? What are the primary differences between the two types of products?
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In continuous-process production, raw materials are continuously transformed by an automated system. Among the directions in manufacturing technology today, the following trends are evident. There is increased: • use of robotics, where computer-controlled machines perform physically repetitive work with consistency and efficiency. • use of flexible manufacturing systems that allow automated operations to quickly shift from one task or product type to another. • use of cellular layouts that place machines doing different work together, so that the movement of materials from one to the other is as efficient as possible. • use of computer-integrated manufacturing, in which product designs, process plans, and manufacturing are driven from a common computer platform. • focus on lean production that continuously innovates and employs best practices to keep simplifying processes, reducing costs, and increasing production efficiencies. • attention to design for disassembly to design and manufacture products in ways that consider how their component parts will be recycled at the end of their lives. • value to be found in remanufacturing, so instead of putting things together, remanufacturing takes used items apart and rebuilds them as products to be used again. On p. 7, “Henry Ford of Heart Surgery” Saves Lives with Economies of Scale shows how the application of productivity principles can help to contain costs and promote quality even in heart surgery. Service Technology The service-profit chain, which includes all of the activities involved in the direct link between and organization’s service providers and customers or clients, is very important to service organizations. When well managed, you get satisfied and loyal customers, while at the same time, an efficient and productive use of the organization’s resources. Intensive technology focuses the efforts and talents of many people to serve clients. Mediating technology links together people in a beneficial exchange of values. In long-linked technology a client moves from point to point during service delivery. In No Frills Airline Thrives by Cutting Costs, on p. 9 Ryanair Airlines provides of an example of the successful application of cost cutting measures in the airline industry.
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TAKEAWAY QUESTION 2: WHAT IS VALUE CHAIN MANAGEMENT? Value creation means the end result of a task or activity or work process is worth more than the effort and resources invested to accomplish it. VALUE CHAIN ANALYSIS The value chain is the specific sequence of activities that creates goods and services with value for customers and is made up of • Primary activities – from inbound logistics to operations to outbound logistics to marketing and sales to after sales service. • Support activities – such as, procurement, human resource management, technology development and support, and financial and infrastructure maintenance. Figure 19.1 on page 10 shows the sequence of activities in an organization’s value chain: • resources and materials flow in. • materials received and organized for use. • people and technology create products. • finished products distributed. • customers served.
DISCUSSION TOPIC Ask students to consider how the value chain at their college or university works. If hiring organizations are considered the customers, and students are the products, what value is created for customers in each step? How efficient is each step as a contributor to overall organizational productivity?
SUPPLY CHAIN MANAGEMENT Supply chain management strategically links all operations dealing with resource supplies, with the goal of achieving efficiency in all aspects of the supply chain while ensuring on-time availability of quality resources and products. ETHICS ON THE LINE on page11 of the text describes a dilemma where one is faced with doing something good for the community at the expense of one’s self interest. Ask students if they would be willing to have a grocery store built in their neighborhood that will benefit the community, but will also cause their own property values to decline due to increased traffic, noise, and so forth.
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INVENTORY MANAGEMENT An important issue in the value chain is management of inventory, which is the amount of materials or products kept in storage. Technology is playing an increasing role in helping managing inventory, with developments such as radio-frequency identification (RFID) tags. Economic Order Quantity Economic Order Quantity (EOQ) is a method of inventory control that involves ordering a fixed number of items whenever inventory level falls to a predetermined point. Figure 19.2 on page 12 illustrates the process of inventory control by economic order.
DISCUSSION TOPIC Ask students how they manage their inventories of groceries, clothing, and other supplies. Do they have a system for replacing needed items or do they simply wait for things to run out and then go shopping?
Just-in-Time Systems Just-in-time scheduling (JIT) popularized by the Japanese, minimizes inventory by sending out materials to workstations “just in time” to be used. BREAK-EVEN ANALYSIS The break-even point is where revenues = costs and is represented by the formula: Break-Even Point = Fixed Costs / (Price - Variable Costs) Break-even analysis calculates the point at which revenues cover costs under different “what if” conditions. Figure 19.3 on page 13 graphically illustrates this concept by showing the point where revenues just equal costs. TAKEAWAY QUESTION 3: HOW DO ORGANIZATIONS MANAGE CUSTOMER SERVICE AND PRODUCT QUALITY? A Harvard Business Review survey reports that American business leaders rank customer service and product quality as the first and second most important goals in the success of
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their organizations, but often there is a disconnect between intentions and results. Providing great service and quality products can lead to greater profits and an expansion of the customer base. CUSTOMER RELATIONSHIP MANAGEMENT Without any doubt, customers want three things from organizations: 1. High quality 2. Low price 3. On-time delivery of goods and services Essentials of CRM Customer relationship management (CRM) strategically tries to build lasting relationships with and to add value to customers by using the latest technology to maintain communications with customers, while determining their needs and desires. External and Internal Customers External customers purchase the goods produced or utilize the services provided. Internal customers are those who use or otherwise depend on one another’s work in order to do their own jobs well. Figure 19.4 on page 15 expands the open-systems view of organizations to depict the complex internal operations of the organization as well as its interdependence with the external environment.
DISCUSSION TOPIC Ask students to share their bad customer service experiences. Have they ever received service that was so bad they refused to buy from an organization again? If so, what could the organization do to win back their loyalty?
QUALITY MANAGEMENT ISO certification indicates conformance with a rigorous set of international quality standards. The Malcolm Baldrige award is given by the President of the United States to business, health care, education and non-profit organizations that meet quality criteria in leadership, strategic planning, customer and market focus, measurement and knowledge management, human resource focus, process management, and results.
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An outgrowth of the work of W. Edwards Deming, the concept of total quality management (TQM), which is managing with an organization-wide commitment to continuous improvement, product quality, and customer needs, was born. Continuous improvement involves always searching for new ways to improve on current performance. STATISTICAL QUALITY CONTROL Statistical quality control takes samples of work, measures quality in the samples, and determines acceptability of results. Unacceptable results trigger investigation and corrective action. To measure defects, many manufacturers are now using the Six Sigma program’s quality standard of 3.4 defects or less per million units of goods produced or services completed. Figure 19.5 on page 17 is a sample control chart, showing upper and lower control limits that graphically display trends so exceptions to quality standards can be identified for special attention. TAKEAWAY QUESTION 4: HOW CAN WORK PROCESSES BE DESIGNED FOR PRODUCTIVITY? Process reengineering systematically analyzes work processes to design new and better ones. WORK PROCESS ANALYSIS A work process is a related group of tasks that together create a result of value for the customer. This can be further defined as: • Group – tasks are viewed as a part of a group rather than in isolation. • Together – everyone must share common goals. • Result – the focus is one what is accomplished, not on activities. • Customer – processes serve customers, and their perspectives are the ones that count. Workflow is the movement of work from one point to another in a system, and is central to the understanding of processes. RESEARCH BRIEF on page 18 of the text discusses the means to achieving goals. It describes a vigorous productivity improvement approach to reaching a higher sales goal. Ask students for examples of experiences (as described in the brief) when the ends did not justify the means.
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19-9
Schermerhorn-Management, 12th
Instructor’s Guide
PROCESS REENGINEERING Process value analysis identifies and evaluates core processes for their performance contributions. Process value analysis typically involves the following steps: 1. Identify the core processes. 2. Map the core processes with respect to workflows. 3. Evaluate all core process tasks. 4. Search for ways to eliminate unnecessary tasks or work. 5. Search for ways to eliminate delays, errors, and misunderstandings. 6. Search for efficiencies in how work is shared and transferred among people and departments. Figure 19.6 on page 19 shows an example of how reengineering and better use of computer technology can streamline a purchasing operation. CHAPTER 19 TAKEAWAY QUESTIONS SUMMARY Takeaway question 1: What are the essentials of operations and services management? • The challenges of operations management relate to managing productive systems that transform resources into finished goods and services for customers and clients. • Manufacturing organizations produce physical goods, while service organizations produce nonphysical outputs in the form of services. • Productivity measures the efficiency with which inputs are transformed into outputs: Productivity = Output/Input. • Technology, including the use of knowledge, equipment, and work methods in the transformation process, is an important consideration in operations management. FOR DISCUSSION: Does the concept of productivity apply equally well in all types of organizations? Takeaway question 2: What is value chain management? • The value chain is the specific sequence of activities that create value at each stage involved in producing goods or services. • Value chain analysis identifies each step in the value chain to ensue it is efficient. • Supply chain management, or SCM, is the process of managing all operations linking an organization and its suppliers, including purchasing, manufacturing, transportation, and distribution. • Efficient purchasing and inventory management techniques such as just-in-time and economic order quantities are important forms of cost control. • Break-even analysis identifies the point where revenues will equal costs under different pricing and cost conditions. FOR DISCUSSION: Can value chain analysis be helpful in service organizations such as banks?
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19-10
Schermerhorn-Management, 12th
Instructor’s Guide
Takeaway question 3: How do organizations manage customer service and product quality? • Customer relationship management builds and maintains strategic relationships with customers. • Quality management addresses the needs of both internal customers and external customers. • To compete in the global economy, organizations seek to meet ISO 9000 quality standards. • Total quality management tries to meet customers’ needs—on time, the first time, and all the time. • Organizations often use control charts and statistical techniques such as the Six Sigma system to measure quality of work samples for quality control purposes. FOR DISCUSSION: Is it realistic to speak of “total” quality management? Takeaway question 4: How can work processes be designed for productivity? • A work process is a related group of tasks that together create value for a customer. • Process engineering is the systematic and complete analysis of work processes and the design of new and better ones. • In process value analysis all elements of a process and its workflows are examined to identify their exact contributions to key performance results. • Reengineering eliminates unnecessary work steps, combines others, and uses technology to gain efficiency and reduce costs. FOR DISCUSSION: Can process reengineering be overdone to the point where efficiency overwhelms effectiveness? CHAPTER 19 KEY TERMS Break-even analysis (p. 13): calculates the point at which revenues cover costs under different “what if” conditions. Break-even point (p. 13): the point where revenues just equal costs. Competitive advantage (p. 6): the ability to outperform one’s competitors due to a core competency that is difficult to copy or imitate. Continuous improvement (p. 16): involves always searching for new ways to improve work quality and performance. Continuous-process production (p. 8): continuously transform raw materials by an automated system. Control Charts (p. 16): graphically plot quality trends against control limits. Customer relationship management (p. 14): attempts to strategically build lasting relationships with and to add value to customers. Economic order quantity (p. 12): inventory control in which replacements are ordered whenever inventory level falls to a predetermined point. Inventory (p. 12): an amount of materials or products kept in storage. ISO certification (p. 15): certification which indicates conformance with a rigorous set of international quality standards. Intensive technology (p. 9): focuses the efforts and talents of many people to serve clients.
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19-11
Schermerhorn-Management, 12th
Instructor’s Guide
Just-in-time scheduling (p. 12): minimizes inventory by sending out materials to workstations “just in time” to be used. Long-linked technology (p. 9): moving a client from point to point during service delivery. Malcolm Baldrige award (p. 16): given to business, health care, education, and non-profit organizations that meet quality criteria. Mass production (p. 7): manufactures a large number of uniform products with an assemblyline system. Mediating technology (p.9): linking together people in a beneficial exchange of values. Manufacturing organizations (p.5): produce physical goods. Operations management (p. 5): the process of managing productive systems that transform resources into finished products. Process reengineering (p. 17): systematically analyzes work processes to design new and better ones. Process value analysis (p. 18): identifies and evaluates core processes for their performance contributions. Productivity (p. 6): the efficiency with which inputs are transformed into outputs. Productivity equation (p. 6): Productivity = Output/Input. Service organizations (p. 5): produce nonphysical outputs in the form of services Service-profit chain (p. 9): consists of all activities involved in the direct link between an organization’s service providers and customers or clients. Six Sigma program (p. 16): sets a quality standard of 3.4 defects or less per million products or service deliveries. Statistical quality control (p. 16): measures work samples for compliance with quality standards. Small-batch production (p. 7): manufactures a variety of products crafted to fit customer specifications. Supply chain management (p. 11): strategically links all operations dealing with resource supplies. Technology (p. 7): the combination of knowledge, skills, equipment, and work methods used to transform inputs into outputs. Total quality management (p. 16): managing with an organization-wide commitment to continuous improvement, product quality, and customer needs. Value chain (p. 10): the specific sequence of activities that creates products and services with value for customers. Value creation (p. 9): occurs when the result of a work task or activity makes a product or service worth more in terms of potential customer appeal than at the start. Workflow (p. 17): the movement of work from one point to another in a system. Work process (p. 17): a related group of tasks that together create a value for the customer.
SELF-TEST ANSWERS 1.
Productivity in a typical organization is computed using the formula Productivity = __________ /Input. (a) Profit (b) Cost (c) Output (d) Revenue
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Schermerhorn-Management, 12th
Instructor’s Guide
2.
If you conducted a value chain analysis of a business, you would study __________. (a) customer satisfaction with products (b) how much TQM affects profits (c) the flow of activities that transform resources into goods and services (d) the links between performance and rewards
3.
New computer technologies have made possible __________ that quickly and efficiently produces individualized products for customers. (a) flexible manufacturing (b) mass production (c) mass customization (d) design for disassembly
4.
In remanufacturing the focus is on __________. (a) breaking down used products and using the parts to make new ones (b) arranging machines in cellular layouts (c) mass customization (d) replacing people with robots
5.
Wal-Mart’s suppliers electronically access inventory data and sales forecasts in the stores and automatically ship replacement products. This is an example of IT utilization in __________. (a) supply chain management (b) customer relationship management (c) total quality management (d) strategic constituencies analysis
6.
An economic order quantity approach to inventory control __________. (a) uses computer control to accomplish JIT scheduling (b) reorders inventory automatically when a certain point is reached (c) allows for inventory to be purchased only when suppliers grant quantity discounts (d) means that inventory levels never exceed a preset reorder amount
7.
In a break-even analysis, the break-even point occurs when __________. (a) fixed costs = variable costs (b) profits = expenses (c) assets = liabilities (d) revenues = total costs
8.
Benchmarking, continuous improvement, and reduced cycle times are examples of organizational practices that show a commitment to __________. (a) affirmative action (b) total quality management (c) cost containment (d) supply chain management
9.
A quality standard that has become essential for world-class companies competing in global markets is __________. (a) the Deming prize (b) upper control limit (c) CRM (d) ISO certification
10. __________ is an example of a statistical quality control technique. (a) Design for disassembly (b) SCM (c) Six Sigma (d) Quality circle 11. A work process is defined as a related group of tasks that together create value for _______. (a) shareholders (b) customers (c) workers (d) society 12. The first step in process value analysis is to __________.
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Schermerhorn-Management, 12th
Instructor’s Guide
(a) look for ways to eliminate unnecessary tasks (b) map or diagram the workflows (c) identify core processes (d) look for efficiencies in transferring work among people and departments 13. In addition to operating efficiency, competitive advantage is often pursued through operations management initiatives that __________. (a) increase use of minimum-wage workers (b) provide for customer service improvements (c) cut product quality to allow for lower pricing (d) use the same product designs over and over again 14. A major difference between operations management in manufacturing and in services is that __________. (a) service organizations don’t measure productivity (b) manufacturing organizations don’t offer services (c) service organizations often use different technologies than do manufacturing organizations (d) supply chain management doesn’t work in services 15. The techniques of operations management are closely aligned with the concept of the organization as a/an __________. (a) open system (b) closed system (c) top-down pyramid (d) machine-driven rather than people-driven system 16. What operating objectives are appropriate for an organization seeking competitive advantage through improved customer service? Possible operating objectives reflecting a commitment to competitive advantage through customer service include: (1) providing high-quality goods and services, (2) producing at low cost so that goods and services can be sold at low prices, (3) providing short waiting times for goods and services, and (4) providing goods and services meeting unique customer needs. 17. What is the difference between an organization’s external customers and its internal customers? External customers are the consumers or clients in the specific environment who buy the organization’s goods or use its services. Internal customers are found internally in the workflows among people and subsystems in the organization. They are individuals or groups within the organization who utilize goods and services produced by others who are also inside the organization. 18. Why is supply chain management considered important in operations management? Supply chain management is important due to the cost of resources, the costs of holding things in inventory and all the costs of transporting resources and supplies for the organization. SCM uses the latest technologies and systematic management to oversee all aspects of inbound logistics so that the various elements and activities in the organization’s supply chains operate as efficiently and as effectively as possible. 19. If you were a reengineering consultant, how would you describe the steps in a typical approach to process value analysis? The focus of process reengineering is on reducing costs and streamlining operations
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Schermerhorn-Management, 12th
Instructor’s Guide
efficiency while improving customer service. This is accomplished by closely examining core business processes through the following sequence of activities: (1) identify the core processes; (2) map them in a workflows diagram; (3) evaluate all tasks involved; (4) seek ways to eliminate unnecessary tasks; (5) seek ways to eliminate delays, errors, and misunderstandings in the workflows; and (6) seek efficiencies in how work is shared and transferred among people and departments. 20. Identify at least three possible productivity measures for the following organizations. (a) United States Postal Service (b) university (c) hospital (d) amusement park (e) restaurant Although the appropriateness of the measure would vary by department or area of each organization that one is addressing, possible productivity measures are: (a) U.S. Post Office—# letters delivered per day / # letter carriers on payroll (b) University—# students enrolled / (# full-time & part-time faculty) (c) Hospital—# patients per day / # available hospital beds (d) Amusement park—# paid admissions per day / # available rides (e) Restaurant—# meals served per day / # servers on payroll
MANAGEMENT SKILLS AND COMPETENCIES FURTHER REFLECTION: STRENGTH AND ENERGY Students’ answers will vary according to individual work-life balance issues that they experience. If your class is diverse in terms of age, it may be interesting to see if there are any differences here between traditional and non-traditional age students’ answers. SELF ASSESSMENT: PERSONAL NUMERACY Answers: 1. 100 2. one-third 3. 3.1416 4. 1,000,000,000 5. 0.025 6. 8/5, -11/5 7. 1.14km 8. 79 9. 2.43% 10. 378.6247 Note: Because of technology, (calculators, software programs for statistics, etc.) students may dismiss the need for having strong mathematical skills. This may be a particularly strong opinion from students who have attended primary and secondary schools where basic handwriting skills are no longer taught. However, mathematics skills are still a basic life and career skill and the foundation for developing all of this technology.
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Schermerhorn-Management, 12th
Instructor’s Guide
(Developed in part from “Quiz: How’s Your Maths?” BBC News: newsvote.bbc.co.uk (retrieved August 15, 2008).)
TEAM EXERCISE: STRAW TOWERS This is a common fabrication exercise that can stand on its own. It is adapted from Bonnie McNeely, “Using the Tinker Toy Exercise to Teach the Four Functions of Management, Journal of Management Education, vol. 18, no. 4 (November 1994), pp. 468–72.
QUESTIONS FOR CASE 19: TOYOTA: HITTING THE BREAKS TO REGAIN THE LEAD Discussion Questions 1. How might Toyota's recent quality debacle help the company capitalize on its concept of kaizen? Kaizen is a quality improvement program that requires all workers involved in producing a product or service to take responsibility for high quality output. In the past, Toyota has been considered a leader in Kaizen or quality improvement. In the case, Toyota's commitment to quality is questioned as is a management philosophy that drifted away from a strong concern for quality to one of hiding defects to avoid liability. The recent problems are an opportunity for Toyota to refocus their efforts on regaining their competitive advantage of high quality. 2. Toyota was immersed in lean culture. Is it difficult to maintain lean manufacturing and quality control while introducing new products, especially during an economic downturn? It's especially important to maintain both quality and lean manufacturing in an economic downturn. Inventory control and cost control can allow a manufacturer to gain a competitive advantage for quality and value when consumers are looking to stretch their paychecks. Problem Solving Be the consultant. What operating objectives should be set by Toyota as it attempts to regain competitive advantage? How can customer relationship management be used by the firm to reestablish strong customer relationships and service, and regain customer confidence? You may find that many students have stories to tell about the excellent service they receive from their local Toyota dealerships. This is where customer service management needs to be established. Consumers may not even know in which country their Toyota was manufactured, but they may know the name of the service advisor at their local dealership. How the local dealer treats them may be very important in establishing a relationship and determining the needs of the consumer.
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19-16
Schermerhorn-Management, 12th
Instructor’s Guide
Further Research Toyota's recent turbulence shook up the U.S. car industry. Do some investigation; how are Detroit's big three fairing? Who else is in the picture and what countries are they from? Are the other automakers using operations techniques and values similar to those found at Toyota, or are they bringing new ones into play? And has Toyota learned its lessons? What has the company done, of anything to regain its former glory in the industry? There should be plenty of information for students to sift through to determine how the "Big Three" are doing. They learned some hard lessons while asking for bailouts and have made strides toward financial health and consumer confidence.
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19-17