Management, 2nd Canadian Edition Solution Manual by Ace Test Banks

Management, 2nd Canadian Edition

By Schermerhorn, Wright

Schermerhorn & Wright-Management, 2nd Canadian Edition

Instructor’s Guide

Chapter 1:

INTRODUCING MANAGEMENT CHAPTER 1 STUDY QUESTIONS In studying this chapter, students should consider the following questions: 1. What are the challenges of working in the new economy? 2. What are organizations like in the new workplace? 3. What is the makeup of the external environment of organizations and how is an organization linked to its environment? 4. Who are managers and what do they do? 5. What is the management process and how do you learn managerial skills and competencies?

CHAPTER 1 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • •

Describe how intellectual capital, talent, diversity, globalization, technology, ethics 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. List key elements in the general and specific environments of organizations. Define sustainable business and sustainable innovation. Describe how a business can create value for four key stakeholders. Define competitive advantage and give examples of how a business might achieve it. Analyze the uncertainty of an organization’s external environment. Describe the systems resource, internal process, goal, and strategic constituencies approaches to organizational effectiveness. 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.

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Instructor’s Guide

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 characteristics important for managerial success.

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, workforce diversity, globalization, information technology, ethical standards 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. Then the external environments of organizations are discussed as well as the relationship between the organization and the external environment and how to make good decisions in response to the opportunities and threats posed by the external environment. Then the chapter describes managers and their work. Manager directly support, supervise, facilitate and help activate the work efforts of other people in organizations. The management process consists of the four functions of planning, organizing, leading, and controlling. Career success in the new economy requires taking full advantage of lifelong learning in all aspects of our daily experience and job opportunities. The chapter concludes with a discussion of the development of managerial competencies.

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.

Study Question 1: What are the challenges of working in the new economy? Talent Diversity

Schermerhorn & Wright-Management, 2nd Canadian Edition

Instructor’s Guide

Globalization Technology Ethics Careers II.

Study Question 2: What are organizations like in the new workplace? What is an organization? Organizations as systems Organizational performance Changing nature of organizations

III.

Study Question 3: What is the makeup of the external environment of organizations and how is an organization linked to its environment? Dynamic forces and the general environment Stakeholders and the specific environment Competitive advantage Environmental uncertainty Organizational effectiveness

IV.

Study Question 4: Who are managers and what do they do? What is a manager? Levels of managers Types of managers Managerial performance Changing nature of managerial work

Study Question 5: What is the management process and how do you learn managerial skills and competencies? Functions of management Managerial roles and activities Managerial agendas and networks Essential managerial skills Developing managerial competencies Management learning model

CHAPTER 1 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Workopolis – Smart people create their own futures Learning About Yourself • Self-Awareness Instructor’s Guide 1-3 Chapter 1 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Instructor’s Guide

Figures • Figure 1.1: Organizations as Open Systems • Figure 1.2: Productivity and the Dimensions of Organizational Performance • Figure 1.3: Sample General Environment Conditions Faced by Firms like Starbucks • Figure 1.4: Multiple Stakeholders in the Specific or Task Environment of a Typical Business Firm. • Figure 1.5: Dimensions of Uncertainty in the External Environments of Organizations • Figure 1.6: Management Levels in a Typical Business and Nonprofit Organizations • Figure 1.7: The Organization Viewed as an Upside-Down Pyramid • Figure 1.8: Four Functions of Management • Figure 1.9: Mintzberg’s 10 Managerial Roles • Figure 1.10: Katz’s Essential Managerial Skills Thematic Boxes • Real Ethics: $100 Laptops • Management Smarts 1.1: Early Career Survival Skills • Issues and Situations: Talent Wars • Management Smarts 1.2: Nine Responsibilities of Team Leaders • Research Brief: Worldwide Study Identifies Success Factors in Global Leadership Applications • Self-Test • Self-Assessment • Class Exercise: My Best Manager • Case 1: Trader Joe’s: Keeping a Cool Edge

CHAPTER 1 LECTURE NOTES LEARNING FROM OTHERS discusses how Workopolis came about and how the organization avoids complacency in the face of completion. Ask students about their own experiences with Workopolis and what they think about using this or other websites for finding a career. LEARNING ABOUT YOURSELF 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.

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Instructor’s Guide

STUDY QUESTION 1: WHAT ARE THE CHALLENGES OF WORKING IN THE NEW ECONOMY? TALENT People –– what they know, what they learn, and what they do with it –– are the ultimate foundations of organizational performance. People represent intellectual capital, which is the collective brainpower or shared knowledge of a workforce that is used to create value. A knowledge worker is someone whose mind is a critical asset to employers and who adds to the intellectual capital of the organization. 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. 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, and financial and business dealings. TECHNOLOGY The world is driven by technology. As the pace and complexities of technological change continues to accelerate, we have to keep up. We hold meetings in virtual space, eliminating physical distances. Work is done from home or anywhere we might be. Demand for knowledge workers with the skills to best utilize technology is increasing; computer literacy must mastered and continuously updated as a foundation for career success. Instructor’s Guide 1-5 Chapter 1 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Instructor’s Guide

ETHICS Ethics set moral standards of what is “good” and “right” in the conduct of a person or group. While a rash of business ethics failures is attributed to the lack of active oversight of management decisions and company actions by boards of directors, today, managers are being held accountable for ethical and socially responsible behaviour by the businesses they are hired to lead. REAL ETHICS in the Careers section of the text describes the One Laptop Per Child program. Students can discuss the ethical behaviour of all the groups involved. 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 Irish shamrock 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. One leaf contains core workers –– full-time employees who pursue career paths with a traditional character. With success and the maintenance of critical skills, core employees can advance within the organization and remain employed for a long time. 2. A second leaf contains contract workers who perform specific tasks as needed by the organization and are compensated on a contract or fee-for-services basis rather than by a continuing wage or salary. 3. The third leaf contains part-time workers who are hired only as needed and for only the number of hours needed. Handy advises people to maintain a portfolio of skills that are always up-to-date and valuable to potential employers.

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, diversity, globalization, technology, ethics, and careers). After generating a sufficient number of examples, focus class discussion on the implications of these examples for managerial activities.

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Instructor’s Guide

STUDY QUESTION 2: WHAT ARE ORGANIZATIONS LIKE IN THE NEW WORKPLACE? MANAGEMENT SMARTS 1.1 in the Organizations of the New Workplace section 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. • 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 stepping out to embrace them. • Love of technology: You have to embrace technology; you don’t have to be a technician, but you must be willing and able to fully utilize information technology. • Marketing: You need to be able to communicate your successes and progress, both yours personally and those of your work group. • Passion for renewal: You need to be continuously learning and changing, always updating yourself to best meet future demands. WHAT IS AN ORGANIZATION? An organization is a collection of people working together to achieve a common purpose. From society’s viewpoint, the purpose of any organization is to provide useful goods and/or services that return value to society and satisfy customer needs in order to justify continued existence. ORGANIZATIONS AS SYSTEMS Organizations are systems composed of interrelated parts that function together to achieve a common purpose. 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 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 and society.

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Instructor’s Guide

ORGANIZATIONAL PERFORMANCE For an organization to perform well, its resources must be well utilized and its customers must be well served. This is a process of value creation. If 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. Productivity 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 illustrates productivity and the dimensions of organizational performance CHANGING NATURE OF ORGANIZATIONS Among recent trends in changes in organizations, the following organizational transitions are especially relevant to your study of management: • Renewed belief in human capital • Demise of “command-and-control” • Emphasis on teamwork • Pre-eminence of technology • Embrace of networking • New workforce expectations • Concern for work-life balance • Focus on speed

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Instructor’s Guide

STUDY QUESTION 3: WHAT IS THE MAKEUP OF THE EXTERNAL ENVIRONMENT OF ORGANIZATIONS AND HOW IS AN ORGANIZATION LINKED TO ITS ENVIRONMENT? DYNAMIC FORCES AND THE GENERAL ENVIRONMENT The general environment consists of all the background conditions in the external environment of an organization. Economic Conditions The economic conditions of the general environment details the health of the economy in terms of inflation, income levels, gross domestic product, unemployment, and job outlook. 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. 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. Socio-Cultural 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. 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. Sustainable innovation involve the creation of new products and production methods that have lower environmental impacts than the available alternatives. Sustainable innovations are found in areas like energy use, water use, packaging, waste management and transportation practices, as well as in product development. Using Starbucks as an example, Figure 1.3 shows of the impact of the general environment on a firm. Instructor’s Guide 1-9 Chapter 1 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

Schermerhorn & Wright-Management, 2nd Canadian Edition

Instructor’s Guide

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.

STAKEHOLDERS AND THE SPECIFIC ENVIRONMENT The specific environment, or task environment, consists of all the actual organizations, groups, and persons with whom an organization interacts and conducts business. The specific environment is often described in terms of stakeholders — the persons, groups, and institutions who are affected by the organization’s performance. Important stakeholders include customers, suppliers, competitors, regulators, and investors/owners. Figure 1.4 shows the multiple stakeholders of a typical business firm and the influence they have in focusing management attention on value creation ⎯ the extent to which the organization is creating value for and satisfying the needs of important constituencies. 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 demonstrably and 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.

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Instructor’s Guide

ENVIRONMENTAL UNCERTAINTY 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. In general, when environmental uncertainty increases, management must direct more attention to the external environment, and there is an increased need for flexible and adaptable organizational designs and work practices. Figure 1.5 from the text shows the dimensions of uncertainty in the external environment of organizations. ORGANIZATIONAL EFFECTIVENESS Organizational effectiveness is sustainable high performance in using resources to accomplish mission and objectives. Theorists view organizational effectiveness from four different approaches: • Systems – looks at the input side and defines organizational effectiveness in terms of success in acquiring needed resources from the organization’s environment. • Internal Process – looks at the transformation process and defines organizational effectiveness in terms of how efficiently resources are used to produce goods or services. • Goal Approach – looks at the output side and defines organizational effectiveness in terms of how to measure achievement of key operating objectives. • Strategic Constituencies – looks at the external environment and defines organizational effectiveness in terms of the organization’s impact on key stakeholders and their interests.

STUDY QUESTION 4: WHO ARE MANAGERS AND WHAT DO THEY DO? WHAT IS A MANAGER? A manager is a person in an organization who directly supports and helps activate the work efforts and performance accomplishments of others. 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 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. Instructor’s Guide 1-11 Chapter 1 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Instructor’s Guide

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. Middle managers 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 branch 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. A team leader or supervisor is someone 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. Figure 1.6 from the text shows the management levels in a typical business and non profit organizations.

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. • 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.

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MANAGEMENT SMARTS 1.2 in the Levels of Managers section of the text lists the nine responsibilities of team leaders: 1. Plan meetings and work schedules. 2. Clarify goals and tasks, and gather ideas for improvement. 3. Appraise performance and counsel team members. 4. Recommend pay increases and new assignments. 5. Recruit, train, and develop team members. 6. Encourage high performance and teamwork. 7. Inform team members about organizational goals. 8. Inform higher levels of team needs and accomplishments. 9. Coordinate activities with other teams.

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 to show performance results to a supervisor. 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: • Fair pay. • Safe working conditions. • Opportunities to learn and use new skills. • Room to grow and progress in a career. • Protection of individual rights. • Pride in the work itself and in the organization. All managers should try to be effective managers, by helping others achieve high performance outcomes while maintaining a high quality of work life environment.

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Instructor’s Guide

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. Figure 1.7 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.

STUDY QUESTION 5: WHAT IS THE MANAGEMENT PROCESS AND HOW DO YOU LEARN MANAGERIAL SKILLS AND COMPETENCIES? 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 1.8 illustrates the four functions of management Management is the process of planning, organizing, leading, and controlling 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 exhibit planning, organizing, leading, and controlling.

RESEARCH BRIEF in the Managerial Roles and Activities section of the text describes a worldwide study that identifies success factors in global leadership. Instructor’s Guide 1-14 Chapter 1 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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MANAGERIAL ACTIVITIES AND ROLES Figure 1.9 lists the ten different managerial roles that management researcher Henry Mintzberg identified. These managerial roles are organized as indicated below • 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 NETWORKS 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 form others in order to get things done.

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ESSENTIAL MANAGERIAL SKILLS 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. 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.

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 1.10 describes Katz’s essential managerial skills.

DEVELOPING MANAGERIAL COMPETENCIES A managerial competency is a skill-based capability that contributes to high performance in a management job. Competencies are implicit in: • The planning, organizing, leading, and controlling functions of management. • The demands of the informational, interpersonal, and decisional managerial roles • Agenda setting and networking. The key personal characteristics for managerial success are: • Communication –– ability to share ideas and findings clearly in written and oral expression. Instructor’s Guide 1-16 Chapter 1 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Teamwork –– ability to work effectively as a team member and team leader. Self-management –– ability to evaluate oneself, modify behaviour, and meet performance obligations. Leadership –– ability to influence and support others to perform complex and sometimes ambiguous tasks. Critical thinking –– ability to gather and analyze information for creative problem solving. Professionalism –– ability to sustain a positive impression, instill confidence, and maintain career advancement.

DISCUSSION TOPIC Using the above list of personal characteristics for managerial success, have each student assess the extent to which s/he possesses each characteristic. Divide the students into groups of four or five to share their results and to discuss how they might address the competencies they need to develop.

MANAGEMENT LEARNING MODEL The learning model presented includes: 1) experience and self-assessment; 2) inquiry and reflection, and 3) analysis and application. It essentially reflects the approach and format of the textbook.

CHAPTER 1 STUDY QUESTIONS SUMMARY Study Question 1: What are the challenges of working in the new economy? • • • • •

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. 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.

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Careers in the new economy require great personal initiative to build and maintain skill “portfolios” that are always up-to-date and valuable to employers challenged by the intense competition and the information age.

FOR DISCUSSION: How is globalization creating career challenges for today’s college graduates? Study 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 are both performance effective, in terms of goal accomplishment, and efficient, in terms of resource utilization.

FOR DISCUSSION: Is it ever acceptable to sacrifice performance efficiency for performance effectiveness? Study Question 3. What is in the external environment of organizations and how is an organization linked to its environment? • • • •

The general environment includes background economic, socio-cultural, legal-political, technological, and natural environment conditions. The specific environment or task environment consists of suppliers, customers, competitors, regulators, and other groups with which an organization interacts. Stakeholders are people and constituents affected by an organization’s performance and for whom it creates value. Stakeholder analysis focuses on the extent to which an organization is creating value for each of its many stakeholders.

FOR DISCUSSION: If interests of a firm’s owners/investors conflict with those of the community, which stakeholder gets preference? Study Question 4: Who are 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 vision, and emphasize long-term performance goals; middle managers coordinate activities in large departments or divisions; team leaders and supervisors support performance 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.

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Managers are held accountable for performance results that the manager depends on other persons to accomplish. 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? Study Question 5: What is the management process and how do you learn the essential managerial skills and competencies? • • • • • • • •

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 can be intense and stressful, involving long hours and continuous performance pressures. Managerial success in this demanding context requires the ability to perform well in interpersonal, informational, and decision-making roles. Managerial success also requires the ability to utilize interpersonal networks to accomplish well-selected task agendas. 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. Competencies considered as foundations for managerial success include communication, teamwork, self-management, leadership, critical thinking, and professionalism.

FOR DISCUSSION: Among the various skills and competencies for managerial success, which do you consider the most difficult to develop, and why?

CHAPTER 1 KEY TERMS Accountability: the requirement of one person to answer to a higher authority for performance results achieved in his or her area of work responsibility. Administrator: a manager who work in public or nonprofit organizations. Agenda setting: develops action priorities for accomplishing goals and plans. 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. Conceptual skill: the ability to think critically and analytically to solve complex problems. Instructor’s Guide 1-19 Chapter 1 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Instructor’s Guide

Controlling: the process of measuring work performance, comparing results to objectives, and taking corrective action as needed. Discrimination: putting members of a population at a disadvantage by treating them unfairly and denying them the full benefits of organizational membership. Effective manager: a manager who helps others achieve high performance and satisfaction in their work. Emotional intelligence: the ability to manage ourselves and our relationships effectively. Environmental uncertainty: the lack of complete information regarding what exists and what developments may occur in the external environment. Ethics : 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. Functional managers: managers who have responsibility for a single area of activity, such as finance, marketing, production, personnel, accounting, or sales. General environment: the economic, socio-cultural, legal-political, technological, and natural environment background conditions in the external environment. General Managers: managers who are responsible for more complex organizational units that include many functional areas. Glass ceiling effect: an invisible barrier or “ceiling” that prevents women and minorities from rising above a certain level of organizational responsibility. Globalization: the worldwide interdependence of resource flows, product markets, and business competition that characterizes the new economy. Human skill: the ability to work well in cooperation with other persons. Intellectual capital: the collective brainpower or shared knowledge of a workforce that can be used to create value. Knowledge worker: someone whose mind is a critical asset to employers and who adds to the intellectual capital of the organization. Leading: the process of arousing peoples’ enthusiasm to work hard and direct their efforts to fulfill plans and accomplish objectives. Learning: a change in behaviour that results from experience. Lifelong learning: the process of continuously learning from our daily experiences and opportunities. Line managers: managers who are responsible for work activities that make a direct contribution to the organization’s outputs. Management: the process of planning, organizing, leading, and controlling the use of resources to accomplish performance goals. Manager: a person in an organization who directly supports and helps activate the work efforts and performance accomplishments of others. Managerial competency: a skill-based capability that contributes to high performance in a management job. Middle managers: managers who are in charge of relatively large departments or divisions consisting of several smaller work units. Networking: the process of building and maintaining positive relationships with people whose help may be needed to implement one’s agenda. Open system: a system that interacts with its environment in the continual process of transforming resource inputs into product outputs in the form of finished goods and/or services. Organization: a collection of people working together to achieve a common purpose. Instructor’s Guide 1-20 Chapter 1 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Instructor’s Guide

Organizational effectiveness: sustainable high performance in using resources to accomplish mission and objectives. Organizing: the process of assigning tasks, allocating resources, and arranging the coordinated activities of individuals and groups to implement plans. Performance effectiveness: an output measure of task or goal accomplishment. Performance efficiency: an input measure of the resource costs associated with goal accomplishment. Planning: the process of setting objectives and determining what actions should be taken to accomplish them. Portfolio worker: someone who always has the skills needed to readily shift jobs or careers. Prejudice: the holding of negative, irrational opinions and attitudes regarding members of diverse populations. Productivity: measures the quantity and quality of outputs relative to the cost of inputs. Quality of work life: the overall quality of human experiences in the workplace. Skill: the ability to translate knowledge into action that results in desired performance. Social capital: a capacity to get things done with support and help from others. Specific environment: all the actual organizations, groups, and persons with whom an organization interacts and conducts business. Staff managers: managers who use special technical expertise to advise and support the efforts of line workers. Stakeholders: the persons, groups, and institutions directly affected by an organization’s performance. Sustainable business: firms that operate in ways that both meet the needs of customers and protect or advance the well-being of our natural environment. Business is “sustainable” in the sense that it minimizes our impact on the environment and helps preserve it for the benefit of future generations. Sustainable innovation: the creation of new products and production methods that have lower environmental impacts than the available alternatives. Sustainable innovations are found in areas like energy use, water use, packaging, waste management and transportation practices, as well as in product development. Team leader: someone in charge of a small work group composed of non-managerial workers. Technical skill: the ability to use a special proficiency or expertise to perform particular tasks. Top managers: managers who are responsible for the performance of an organization as a whole or for one of its larger parts. Upside-down pyramid: an alternative way of showing operating workers at the top serving customers while managers are at the bottom supporting these workers. Value creation: the extent to which the organization is creating value for and satisfying the needs of important constituencies. Workforce diversity: describes differences among workers in gender, race, age, ethnicity, religion, sexual orientation, and able-bodiedness.

Schermerhorn & Wright-Management, 2nd Canadian Edition

Instructor’s Guide

SUGGESTED TEAM EXERCISE 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 favourite types of music, a favourite 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.

SELF TEST ANSWERS 1.

The process of management involves the functions of planning, _________ leading, and controlling. (a) accounting (b) creating (c) innovating (d) organizing

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

Performance efficiency is a measure of the _________ associated with task accomplishment. (a) resource costs (b) goal specificity (c) product quality (d) product quantity

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Instructor’s Guide

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

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

_________ 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

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

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

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) always live with the pressures of performance responsibility (d) have the advantages of short workweeks

12.

When someone with a negative attitude toward minorities makes a decision to deny advancement opportunities to an Indo-Canadian worker, this is an example of __________. (a) discrimination (b) emotional intelligence (c) control (d) prejudice

Schermerhorn & Wright-Management, 2nd Canadian Edition

13.

Instructor’s Guide

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 workplace. 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 behaviour 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-Canadian 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-Canadian 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.

Schermerhorn & Wright-Management, 2nd Canadian Edition

19.

Instructor’s Guide

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 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 supervisor 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.

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Instructor’s Guide

REVIEW QUESTIONS FOR CASE 1: VANCITY: ON TOP OF ITS GAME

1. What is Vancity’s competitive advantage over other types of financial institutions? Vancity’s competitive advantage is threefold: a) Innovative Approach. Competitive advantage can be achieved through flexibility, finding ways to adjust and tailor products and services to fit customer needs in ways that are difficult for one’s competitors to match. Vancity is in a healthy financial position, with rising membership, because it takes an innovative approach in serving the financial needs of its members. It was the first Canadian financial institution to offer mortgages to women, first to use traditional media to market directly to the gay and lesbian community, the first North American credit union to receive an R1 rating from the Dominion Bond Rating Service, and the first financial institution to offer its own socially responsible mutual fund. b) Local Decision-Making According to CEO Tamara Voorman, the key thing that differentiates Vancity from a large bank is the local decision-making. c) A Healthy and Committed Workforce . Vancity acknowledges that a healthy and committed workforce is a key reason it is able to sustain productivity and financial success within a competitive industry.

2. What does Vancity do to keep its stakeholders happy? Vancity’s key stakeholders are its members, its employees and the communities within which it operates. To satisfy these stakeholders, Vancity uses a triple bottom line business model; it is driven to achieve financial success but also focuses on environmental and social sustainability. Members: This Vancouver-based co-operative was founded in 1946; it began with only $22 in total assets ,aiming to lend money to those the banks ignored. Today, it is Canada’s largest credit union, with over 2,400 employees and more than $14.5 billion in assets. Employees: Over the years and primarily driven by the employees’ desire for personal development, Instructor’s Guide 1-26 Chapter 1 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Vancity has initiated a number of programs to help employees adopt a plan for a healthier life. This positive approach recognizes the challenges of balancing work and life commitments and empowers employees to create the right environment to thrive at both. Communities: Vancity’s vision to achieve positive social change has succeeded through a number of programs, such as one called Shared Success. Through this program, Vancity gives back each year a significant portion of net profits (generally 30 percent) to members and to communities. Starting in 1995, before doing so was popular, Vancity focused on its own environmental performance. Vancity achieved its target of being the first carbon neutral North American-based financial institution.

3. Which of the four functions of management does Vancity appear to be doing quite well? Draw from the case to support your answer. Vancity appears to be handling the Leadership function of management quite well. In management, leading is the process of arousing people’s enthusiasm to work hard and inspiring their efforts to fulfill plans and accomplish objectives. By leading, managers build commitments to a common vision, encourage activities that support goals, and influence others to do their best work on the organization’s behalf. As an example, every year, the co-operative surveys employees, and it did not meet its targets for employee engagement for three years in a row, which it blamed partly on workforce and budgetary reductions. The employee engagement target is set at 75 percent, but in those years, it did not reach beyond 64 percent. To reengage employees, Vrooman said Vancity would increase investment in training and development, renewing the organization’s IT infrastructure and providing employees with growth opportunity by focusing on new areas.

Schermerhorn & Wright-Management, 2nd Canadian Edition

Instructor’s Guide

The data contained in these files are protected by copyright. This manual is furnished under licence and may be used only in accordance with the terms of such licence. The material provided herein may not be downloaded, reproduced, stored in a retrieval system, modified, made available on a network, used to create derivative works, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without the prior written permission of John Wiley & Sons Canada, Ltd.

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Instructor’s Guide

Chapter 2:

MANAGEMENT LEARNING PAST TO PRESENT CHAPTER 2 STUDY QUESTIONS 1. 2. 3.

What can be learned from classical management thinking? What are the insights of the behavioural 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 term 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 favoured Theory Y. Explain Argyris’ criticism that traditional organizational practices are inconsistent with mature adult personalities. Define the terms system, subsystem, and open system. Apply these concepts to describe the operations of an organization in your community. Define the terms contingency thinking, knowledge management, and a learning organization. List characteristics of learning organizations. Describe evidence-based management and its link with scientific methods. Understand trends in twenty-first century leadership.

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 Instructor’s Guide 2-1 Chapter 2 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 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 behavioural 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 behavioural management approaches. The chapter then examines modern approaches to management. Decision sciences 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, highperformance 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 are the insights of the behavioural management approaches? Follett’s organizations as communities The Hawthorne studies Maslow’s theory of human needs McGregor’s Theory X and Theory Y Argyris’ theory of adult personality

III.

Study Question 3: What are the foundations of modern management thinking? Quantitative analysis and tools Organizations as systems

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Instructor’s Guide

Contingency thinking Quality management Knowledge management and organizational learning Evidence-based management 21st-century leadership CHAPTER 2 SUPPORTING MATERIALS Textbook Inserts Learning From Others • With the Right Foundations, Practice Makes Perfect Learning About Yourself • Learning Style Figures • Figure 2.1: Major Branches in the Classical Approach to Management • Figure 2.2: Foundations in the Behavioural 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 Lessons From Scientific Management • Real Ethics: Employment Agreements • Issues and Situations: Management Candor • Research Brief: Great Companies Make the Leap from Doing Good to Doing Great While the Others Do Not Applications • Self-Test • Self-Assessment • Class Exercise: Evidence-Based Management Quiz • Case 2: Zara International: Fashion at the Speed of Light CHAPTER 2 LECTURE NOTES LEARNING FROM OTHERS describes the success of Google and stresses how the organization is focused on performance excellence through continually improving the way it does business. LEARNING ABOUT YOURSELF 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. 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.

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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 labour. 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.”

STUDY QUESTION 1: WHAT CAN BE LEARNED FROM CLASSICAL MANAGEMENT THINKING? FIGURE 2.1 from 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. 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%. Instructor’s Guide 2-4 Chapter 2 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 2.1 in the text summarizes the following practical lessons from scientific management: • 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. 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, United Parcel Service currently uses many of the techniques developed by the Gilbreths to achieve maximum efficiency in its package sorting centers and with its delivery drivers. 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’s rules and principles of management 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. 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 (among others): Instructor’s Guide 2-5 Chapter 2 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 labour: 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 behaviour 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 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.

STUDY QUESTION 2: WHAT ARE THE INSIGHTS OF THE BEHAVIOURAL MANAGEMENT APPROACHES?

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Instructor’s Guide

Behavioural 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 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. FOLLETT ON ORGANIZATIONS AS COMMUNITIES Mary Parker Follett describes organizations as communities within which managers and workers should labour in harmony, without one party dominating the other and with the freedom to talk over and truly reconcile conflicts and differences. ISSUES AND SITUATIONS in “The Hawthorne Studies” section of the text describes an exercise on managerial 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. Relay Assembly Test-Room Studies 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, Interpersonal Relations, 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. The final study showed that workers would restrict their output to satisfy group norms, even if this meant reduced pay. 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.” Instructor’s Guide 2-7 Chapter 2 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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. Lessons from 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 behaviour, the study of individuals and groups in organizations. REAL ETHICS in the “Follett’s Organizations as Communities” section of the text examines the ethics of noncompete and nondisclosure agreements MASLOW’S THEORY OF HUMAN NEEDS FIGURE 2.3 from 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 behaviour. 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. Instructor’s Guide 2-8 Chapter 2 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Theory X managers assume that subordinates: 1. Dislike work. 2. Lack ambition 3. Are irresponsible 4. Resist change. 5. Prefer to be led rather than to lead. Theory Y managers assume that subordinates are: 1. Willing to work. 2. Capable of self-control. 3. Willing to accept responsibility. 4. Imaginative and creative. 5. 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 behaviour, 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.

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.

Schermerhorn & Wright-Management, 2nd Canadian Edition

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STUDY QUESTION 3: WHAT ARE THE FOUNDATIONS OF MODERN MANAGEMENT THINKING? QUANTITATIVE ANALYSIS AND TOOLS The terms management science and operations research are often used interchangeably to describe the scientific applications of mathematical techniques to management problems. Management science applications include: • Mathematical forecasting which helps make future projections that are useful in the planning process. • Network models break large tasks into smaller components to allow for better analysis, planning, and control of complex projects. • 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. Operations management is the study of how organizations produce goods and services. 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. FIGURE 2.4 from text shows the organization 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.

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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 quality part of all operations. Continuous improvement is a process of always looking for new ways to improve. 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. According to Peter Senge, the core ingredients of a learning organization are the following: • 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.

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.

RESEARCH BRIEF in the “Knowledge Management And Organizational Learning” section of the text describes the message of Jim Collins’s best-selling book “Good to Great.” EVIDENCE-BASED MANAGEMENT High-performance organizations are able to consistently achieve excellent results while creating high quality work environments for their members. High performance organizations are often described as: Instructor’s Guide 2-11 Chapter 2 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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• • • • •

Instructor’s Guide

People oriented—they value people as human assets, respect diversity, empower members to fully use their talents, and are high in employee involvement. Team oriented—they achieve synergy through teamwork, emphasize collaboration and group decisions, and allow teams to be self-directing. Information oriented—they mobilize the latest information technologies to link people and information for creative problem-solving. Achievement oriented—they are focused on the needs of customers and stakeholders, and committed to quality operations and continuous improvement. Learning oriented—they operate with an internal culture that respects and facilitates learning, innovation, and constructive change.

Evidence-based management involves making decisions based on hard facts about what really works. 21ST-CENTURY LEADERSHIP Managers of the 21st century will have to excel as never before to meet the expectations held of them and of the organizations they lead. Importantly, we must all recognize that new managerial outlooks and new managerial competencies appropriate to the new times are requirements for future leadership success. At the very least, the 21st-century manager must display these attributes: • Global strategist—understanding the interconnections among nations, cultures, and economies; planning and acting with due consideration of these interconnections. • Master of technology—comfortable with information technology, understanding technological trends and their implications, able to use technology to best advantage. • Inspiring leader—attracting highly motivated workers and inspiring them with a highperformance culture where individuals and teams can do their best work. • Model of ethical behaviour—acting ethically in all ways, setting high ethical standards for others to follow, building a work culture that values ethics and social responsibility.

CHAPTER 2 STUDY QUESTIONS SUMMARY Study 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? Instructor’s Guide 2-12 Chapter 2 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Study Question 2: What are the insights of the behavioural management approaches? • • • • • •

The behavioural 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 behaviour 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, even today, benefit by insights from Maslow’s hierarchy of needs theory? Study Question 3: What are the foundations of modern management thinking? • • • • • •

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, 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 learning. Evidence-based management uses findings from rigorous scientific research to identify management practices for high performance.

FOR DISCUSSION: Can system and subsystem dynamics describe performance problems for an organization in your community? CHAPTER 2 KEY TERMS Bureaucracy: a rational and efficient form of organization founded on logic, order, and legitimate authority. Continuous improvement: a process of always looking for new ways to improve work quality and performance. Contingency thinking: attempts to match management practices with situational demands. Instructor’s Guide 2-13 Chapter 2 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Evidence-based management: involves making decisions based on hard facts about what really works. Hawthorne effect: the tendency of persons singled out for special attention to perform as expected. High performance organization: consistently achieves excellence while creating a high-quality work environment. Human relations movement: based on the viewpoint that managers who used good human relations in the workplace would achieve productivity. ISO certification: indicates conformance with a rigorous set of international quality standards. Knowledge management: the process of using intellectual capital for competitive advantage. Learning organization: an organization that continuously changes and improves, using the lessons of experience. Management science: uses quantitative analysis and applied mathematics to solve problems. This is also known as operations research. Motion study: the science of reducing a task to its basic physical motions. Need: a physiological or psychological deficiency that a person wants to satisfy. Open system: interacts with its environment and transforms resource inputs into outputs. Operations management: the study of how organizations produce goods and services. Operations research: uses quantitative analysis and applied mathematics to solve problems. This is also known as management science. Organizational behaviour: the study of individuals and groups in organizations. Scientific management: emphasizes careful selection and training of workers and supervisory support. Self-fulfilling prophecies: occurs when a person acts in ways that confirm another’s expectations. Subsystem: a smaller component of a larger system. System: A collection of interrelated parts working together for a purpose. Theory X: assumes people dislike work, lack ambition, are irresponsible, and prefer to be led. Theory Y: assumes people are willing to work, accept responsibility, and are self-directed and creative. Total quality management: is managing with an organization-wide commitment to continuous improvement, product quality, and customer needs.

SUGGESTED TEAM EXERCISE Assign students to read the article “Is the MBA Overrated?” from the March 20, 2006 edition of Business Week. (The article is located online at: http://www.businessweek.com/magazine/content/06_12/b3976089.htm) Ask groups to take a stand on MBA degrees and debate the pros and cons.

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) behavioural (d) modern

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The father of scientific management is: (a) Weber (b) Taylor (c) Mintzberg (d) Katz

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 labour . . . competency (b) merit-based careers . . . productivity (c) rules and procedures . . . efficiency (d) impersonality . . . fairness

If an organization was performing poorly and Henri Fayol was called in as a consultant, what would he most likely suggest to improve things? (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

One example of how scientific management principles are applied in organizations today would be: (a) a results-based compensation system. (b) a bureaucratic structure. (c) training in how to better understand worker attitudes. (d) focus on groups and teamwork rather than individual tasks.

The Hawthorne studies are important because they raised awareness of the important influences of on productivity. (a) structures (b) human factors (c) physical work conditions (d) pay and rewards

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

The highest level in Maslow’s hierarchy includes needs. (a) safety (b) esteem (c) self-actualization (d) physiological

Conflict between the mature adult personality and a rigid organization was a major concern of (a) Argyris (b) Follett (c) Gantt (d) Fuller

Schermerhorn & Wright-Management, 2nd Canadian Edition

Instructor’s Guide

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. When your local bank or credit union is viewed as an open system, the loan-processing department would be considered a (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, while also being sure to give 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. In a learning organization, as described by Peter Senge, one would expect to find (a) priority placed on following rules and procedures (b) promotions based on seniority (c) employees who are willing to set aside old thinking and embrace new ways (d) a strict hierarchy of authority 15. The key outcomes of high-performance organizations are both consistent high performance and (a) high public support (b) high-quality work life environments (c) effective cost controls (d) high turnover 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.

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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 behaviour. 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 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.

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REVIEW QUESTIONS FOR CASE 2: ZARA INTERNATIONAL 1. In what ways are the elements of the classical management approaches evident at Zara International? The classical management approach consists of scientific management, administrative management, and bureaucratic management. Zara’s shows evidence of following this approach in a number of ways. Some examples are shown below: • By coordinating production facilities with store inventories, Zara’s experiences a quick turn-around time for new fashions. This is an example of both organization and coordination found in the administrative management area. • One of the “rules” followed by Zara’s is selling “what’s hot” and dropping “what’s not.” This rule is applied uniformly across the chain, which demonstrates the bureaucratic principle of formal rules and procedures. • By subcontracting garment production to specialist companies, which have the expertise in making Zara’s garments, shows the scientific principle of selecting those with the ability to do the job. 2. What elements of the behavioural management approaches are being used by Zara’s management team? Some of the elements of behavioural management used by Zara’s include • Follet’s organizations as communities – Zara’s various subsystems all work together to ensure the most current fashions are available to customers. An example is stylists sending photos of new store fronts and layouts to store managers, who implement the designs. • McGregor’s Theory X and Y – Even though not specifically addressed by the case in detail, Zara’s lets store managers decide what garments to carry in their stores, rather than dictating store inventory from the company headquarters. This demonstrates Zara’s focus toward Theory Y away from Theory X. By using the two examples shown above, student should also be able to relate these to both Maslow and Argyris’ theories. 3. How can systems concepts and contingency thinking explain some the distinctive practices underlying Zara’s success? Zara’s flexibility and ability to quickly adapt to changing tastes in fashion is an example of contingency thinking approach to management. Rather than hoping people will buy what is offered in its stores, Zara tracks sales and will replace items that are not selling with something new and different. Zara’s also changes store fronts every couple of week, again based on staying ahead in the fashion industry. Behind Zara’s ability to respond quickly to market demands is an organization (system) that includes a number of subsystems. You have the designers, the garment workers, the distribution centres, and the stores, all working in concert with each other to get the latest designs into the hands of the consumers. Each subsystem is integral to the overall success of Zara’s and if any one should fail to do its job, then Zara’s would not dominate the fast fashion scene.

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REVIEW QUESTIONS FOR VIDEO CASE 1: WHOSE LIFE IS IT ANYWAY?

1. How can employers like Scotts Miracle-Gro justify the expense of providing employees with free access to doctors, pharmacy, gyms, and personal trainers? The policy is justified by saving money and curbing healthcare costs. Smoking costs employers an estimated $4,000 a year in healthcare costs and lost productivity per smoker. Scotts’ CEO Jim Hagedorn also explains that he’s concerned about each employee’s health and longevity. 2. What lifestyle changes might employers do in the future to increase performance efficiency and performance effectiveness? Here’s an opportunity to find out what students are thinking. Students may suggest drug testing, mandatory participation in wellness programs, employer sponsored child or elder care, screening for diseases like colon and breast cancer, forced vacation leave, or even genetic testing. 3. Should employers regulate your behaviour after work hours? Why or why not? Employment law experts advocate that once you leave, it is not an employer’s business what employees do in their personal lives. Hagedorn believes that employees will be more productive and healthier if they quit smoking. 4. As stated in Chapter 1, there is more emphasis on respecting people as valuable strategic assets to be nurtured and developed, not as costs to be controlled. Do you believe the programs and policies at Scotts nurture and develop employees or treat them as costs to be controlled? There seems to be a conflict here. In the short term, it seems to be more about controlling healthcare costs and lost productivity. Viewing the policies from a long term perspective, Scotts is concerned about nurturing and ensuring the healthy futures of their employees.

Schermerhorn & Wright-Management, 2nd Canadian Edition

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Schermerhorn & Wright-Management, 2nd Canadian Edition

Instructor’s Guide

Chapter 3:

GLOBAL DIMENSIONS OF MANAGEMENT CHAPTER 3 STUDY 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 3 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • •

Define globalization and discuss its implications for international management. List five reasons why 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, and SADC. Differentiate a multinational corporation from a transnational corporation. List at least three host-country complaints and three home-country complaints about MNC operations. Give examples of corruption, sweatshops, and child labour in international business. Define sustainable development and explain what international businesses might do to make it a priority. 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. List and illustrate Hofstede’s five dimensions of value differences among national cultures. Answer this question: “Do management theories apply universally around the world?” Identify the major components in Project GLOBE’s model of cultural differences. List and explain three global management attitudes. Describe the concept of global organizational learning.

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CHAPTER 3 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 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 with the advantages and disadvantages of global corporations for host countries. Ethical problems such as corruption, sweatshops and child labour are examined. Next, the chapter examines culture and its link to global diversity. Here students will learn about the details of culture through Hall’s silent language, Hofstede’s dimension of value differences. The chapter wraps up with Project Globe’s nine cultural dimensions and a look at whether management practices and learning transfer across cultures.

CHAPTER 3 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.

Study Question 1: What are the management challenges of globalization? Global management Why companies go global How companies go global Global business environments

II.

Study Question 2: What are global businesses, and what do they do? Types of global businesses Pros and cons of global corporations Ethical challenges for global managers

III.

Study Question 3: What is culture, and how does it impact global management? Cultural intelligence Silent languages of culture Values and national cultures

IV.

Study Question 4: How can we benefit from global management learning? Are management theories universal? Cultural insights from Project Globe Global management attitudes and learning

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CHAPTER 3 SUPPORTING MATERIALS Textbook Inserts Learning From Others • With Globalized Businesses There Is Much To Watch, Much To Do! Learning About Yourself • Cultural Awareness Figures • Figure 3.1: Common Forms of International Business – From Market Entry to Direct Investment Strategies. • Figure 3.2: What Should Go Right and What Can Go Wrong in MNC Host-Country Relationships • Figure 3.3: How Countries Compare on Hofstede’s Dimensions of National Culture • Figure 3.4: Sample Scores On Nine Cultural Dimensions Used By Project GLOBE Thematic Boxes • Real Ethics: Bolivia’s Nationalization of Oil and Gas Industry • Issues and Situations: Sweatshop Hunter • Management Smarts 3.1: Culture Shock: Stages in Adjusting to a New Culture • Research Brief: Stable Personality Traits and Behavioural Competencies Linked with Expatriate Effectiveness Applications • Self – Test • Self – Assessment • Class Exercise: Canadian Hockey • Case 3: McCain Foods Limited: Global fries—good in any language! CHAPTER 3 LECTURE NOTES LEARNING FROM OTHERS describes the success of Gildan in the global economy. Gildan joined the Fair Labour Association and worked hard to develop solid labour relationships and a positive reputation for corporate social responsibility. LEARNING ABOUT YOURSELF challenges students’ awareness of other cultures. Concentrating on Asian cultures, a list of Confucian values is presented.

STUDY 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. Instructor’s Guide 3-3 Chapter 3 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Globalization is the process of growing interdependence among the components of the global economy.

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 Canadian Business, and the Report on Business. 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 A global 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. • Labour: global operations offer lower labour costs. HOW COMPANIES GO GLOBAL FIGURE 3.1 from the text identifies the common forms of international business. 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.

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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 A joint venture establishes business operations in a foreign country through coownership arrangements that pool resources and share risks and control of business operations. 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 be built entirely new by Greenfield investments.

GLOBAL BUSINESS ENVIRONMENTS Legal and Political Systems Global operations managers must be prepared to deal with the differences between homecountry 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, REAL ETHICS in the “Global Business Environments” section of the text describes ethical questions that arose when Bolivia nationalized its oil and gas industry.

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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 favoured nation status which gives a trading partner most favourable treatment for imports and exports. Protectionism is a call for tariffs and favourable treatment to protect domestic industries from foreign competition. 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 22 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.

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.

STUDY QUESTION 2: WHAT ARE GLOBAL BUSINESSES, AND WHAT DO THEY DO? TYPES OF GLOBAL BUSINESSES A typical global corporation or multinational corporation (MNC) operates in many countries but has corporate headquarters in one home or host country. 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. Instructor’s Guide 3-6 Chapter 3 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 FIGURE 3.2 from the text describes what should go right and what can go wrong in MNC-host country relationships. 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. 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. ETHICAL CHALLENGES FOR GLOBAL MANAGERS The ethical aspects of international business deserve special attention. Corruption Corruption involves engaging in illegal practices to further one’s business interests. The Foreign Corrupt Practices Act prohibits American MNCs from engaging in corrupt practices abroad. Child labour and Sweatshops Child labour is the full-time employment of children for work otherwise done by adults. Instructor’s Guide 3-7 Chapter 3 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Sweatshops are business operations that employ workers at low wages for long hours and in poor working conditions. ISSUES AND SITUATIONS in the “Ethics Challenges for Global Managers” section of the text describes the job of a sweatshop hunter. Sustainable development Sustainable development refers to development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

STUDY QUESTION 3: WHAT IS CULUTRE, AND HOW DOES IT IMPACT GLOBAL MANAGEMENT? Culture is a shared set of beliefs, values, and patterns of behaviour common to a group of people. Culture shock is the confusion and discomfort a person experiences when in an unfamiliar culture. Ethnocentrism is the tendency to consider one’s culture as superior to others. CULTURAL INTELLIGENCE Cultural intelligence is the ability to accept and adapt to new cultures. MANAGEMENT SMARTS 3.1 in 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 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.

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SILENT LANGUAGES OF CULTURE The dimensions of Hall’s silent language culture include language, time orientation, and 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. VALUES AND NATIONAL CULTURES Five dimensions of value differences in national culture from Hofstede: 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. Uncertainty avoidance: the degree to which a society is uncomfortable with risk, change, and situational uncertainty, versus having tolerance for them. 3. Individualism-collectivism: the degree to which a society emphasizes individual accomplishments and self-interests, versus collective accomplishments and the interests of groups. 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. FIGURE 3.3 from the text describes how countries compare on Hofstede’s dimensions of national culture. RESEARCH BRIEF from the “Values and National Cultures” section of the text describes the link between stable personality traits and behavioural competencies to expatriate effectiveness.

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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 enough nations are represented, a comparative analysis could be fruitful. Also compare these nations to Canada. You could also try to link this analysis to Figure 3.3.

STUDY QUESTION 4: HOW CAN WE BENEFIT FROM GLOBAL MANAGEMENT LEARNING? Comparative management studies how management practices 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. CULTURE INSIGHTS FROM PROJECT GLOBE Project Globe’s nine cultural dimensions describe how the world’s cultures fall into ten clusters. 1. Power distance: Same as Hofstede - the degree to which a society accepts or rejects the unequal distribution of power among people in organizations and the institutions of society. 2. Uncertainty avoidance: Same as Hofstede - the degree to which a society is uncomfortable with risk, change, and situational uncertainty, versus having tolerance for them. 3. Gender egalitarianism: the degree to which a culture minimizes gender inequalities, similar to Hofstede’s masculinity/femininity. 4. Future orientation: the degree to which members of a culture are willing to look ahead, delay gratifications, and make investments in the expectation of longer-term payoffs, similar to Hofstede’s time orientation. 5. Institutional collectivism: the extent to which the organizations of a society emphasize and reward group action and accomplishments versus individual ones, similar to Hofstede’s individualism/collectivism. 6. In-Group collectivism: the extent to which people take pride in their families, small groups, and organizational memberships, acting loyally and cohesively regarding them. Instructor’s Guide 3-10 Chapter 3 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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7. Assertiveness: the extent to which a culture emphasizes competition and assertiveness in social relationships, valuing behaviour that is tough and confrontational as opposed to being modest and tender. 8. Performance orientation: the degree of emphasis on performance excellence and improvements. 9. Humane orientation: reflects tendencies in a society for people to emphasize fairness, altruism, generosity, and caring as they deal with one another. FIGURE 3.4 from the text gives sample scores on nine cultural dimensions used by Project GLOBE. GLOBAL MANAGEMENT ATTITUDES AND LEARNING For some managers and in some global businesses ethnocentric attitudes still predominate. Ethnocentric managers tend to believe that the best approaches are always found at home. They often fail to respect other practices and people. They are likely to keep tight control over foreign operations and find little to learn from their international counterparts. For other managers and in other businesses more polycentric attitudes predominate. Polycentric managers tend to respect the knowledge and practices of locals and allow them greater freedoms to run business operations in their countries. Yet they often fail to encourage transfers of knowledge and experience between local operations and the parent company and from one foreign location to the next. Truly global managers and transnational corporations display geocentric attitudes that create global learning environments. Geocentric managers place a high value on cultural intelligence. They tend toward collaborative management approaches that link colleagues around the world in vast learning networks rich in ideas, information sharing, and performance opportunities. Their management style is to find, respect, and support the best practices and the best people wherever in the world they may be located. The concept of global management learning has much to offer as the “borderless” world begins to emerge and as the management practices of diverse countries and cultures become more visible.

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CHAPTER 3 STUDY QUESTIONS SUMMARY Study Question 1: What are the management challenges of globalization?

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Global managers are informed about international developments and 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 labour 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, APEC 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.

FOR DISCUSSION: What aspects of the U.S. legal-political environment could prove difficult for a Chinese firm operating a factory in America? Study Question 2: What are global businesses and what do they do?

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A global corporation, or MNC, is a business with extensive operations in multiple foreign countries. A transactional corporation tries to operate globally without a strong national identity and with a worldwide mission and strategies. MNCs can benefit host countries by offering broader tax bases, new technologies, and employment opportunities. MNCs can cause problems for host countries if they interfere in local government, extract excessive profits, and dominate the local economy. Ethics challenges facing MNCs include corruption, child labour and sweatshops, and sustainable development. The U.S. Foreign Corrupt Practices Act prohibits American MNCs 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? Study Question 3: What is culture, and how does it impact global management diversity?

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Culture is a shared set of beliefs, values, and behaviour 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.

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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?

Study Question 4: How can we benefit from global management learning?

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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. Project GLOBE is an extensive worldwide study of management and leadership that identified country clusters that varied on nine cultural dimensions. Attitudes toward global management and global learning vary from ethnocentric (home is best) to polycentric (respect others but keep home paramount) to geocentric (respect, value, and learn from others). 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 3 KEY TERMS Child labour: the full-time employment of children for work otherwise done by adults. Comparative management: the study of how management systematically differs among countries and/or cultures. Corruption: engaging in illegal practices to further one’s business interests. Culture: a shared set of beliefs, values, and patterns of behaviour common to a group of people. Culture shock: the confusion and discomfort a person experiences when in an unfamiliar culture. Ecological fallacy: assumes that a generalized cultural value applies equally well to all members of the culture. Ethnocentric attitudes: manager beliefs that the best approaches of management are found at home and find little to learn from their international counterparts. Ethnocentrism: managers believe that the best approaches are always found in the home country Euro: the common currency used in the European Union. European Union: a political and economic alliance of European countries that have agree to support mutual economic growth by removing barriers that previously limited cross-border trade and business development. Exporting: a form of international business that involves selling locally made products in foreign markets. Foreign direct investment: involves buying all, or buying part of a business in another country. Foreign subsidiary: a local operation completely owned and controlled by a foreign firm. Franchising: a form of licensing in which a foreign firm buys the rights to use another’s name and operating methods in its home country. Instructor’s Guide 3-13 Chapter 3 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Geocentric attitude: management beliefs that are high in cultural intelligence and take a collaborative approach to global management practices. Global business: conducts commercial transactions across national boundaries. Global corporation: a multinational business with extensive operations in more than one country. Also known as an MNC. Global economy: an economic perspective based on worldwide interdependence of resource supplies, product markets, and business competition. Global management: involves managing operations in more than one country. Global manager: 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. Global sourcing: a form of international business that involves purchasing materials, manufacturing components, or business services from around the world. Global strategic alliance: a partnership in which foreign and domestic firms share resources and knowledge for mutual gains. Globalization: the process of growing interdependence among the components of the global economy. Greenfield investment: the building of an entirely new operation in a foreign country. High-context culture: a culture where much communication takes place through nonverbal and situational cues in addition to the written or spoken word. Importing: a form of international business that involves buying foreign-made products and selling them in domestic markets. Individualism – collectivism: the degree to which a society emphasizes individuals and their self-interests. Insourcing: describes job creation through foreign direct investment. Joint ventures: a form of international business that establishes business operations in a foreign country through co-ownership arrangements that pool resources and share risks and control. Licensing agreement: a form of international business that occurs when a foreign firm pays a fee for the rights to make or sell another company’s products in a specified region. Low-context culture: a culture in which most communication takes place via the written or spoken word. Masculinity-femininity: the degree to which a society values assertiveness and materialism. Monochronic cultures: cultures in which people tend to do one thing at a time. Most favoured nation status: gives a trading partner most favourable treatment for imports and exports. NAFTA: a trade agreement that links Canada, Mexico, and the United States in a regional economic alliance. Political risk: the potential loss in value of a foreign investment due to instability and political changes in the host country. Political risk analysis: attempts to forecast political disruptions that can threaten the value of a foreign investment. Polycentric attitude: a belief that respects local knowledge and allows foreign operations to run with substantial freedom. Polychronic cultures: cultures in which time is used to accomplish many different things at once. Power distance: the degree to which a society accepts unequal distribution of power. Protectionism: government legislation and support to protect domestic industries from foreign competition. Instructor’s Guide 3-14 Chapter 3 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Proxemics: how people use space to communicate. Sustainable development: refers to development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Sweatshops: business operations that employ workers at low wages for long hours and in poor working conditions. Tariffs: taxes governments levy on imports from abroad. Time orientation: the degree to which a society emphasizes short-term or long-term goals. Transnational: a MNC that operates worldwide without being identified with one national home. Uncertainty avoidance: the degree to which a society tolerates risk and uncertainty. World Trade Organization: an international organization that monitors international trade and tries to resolve disputes among countries about tariffs and trade restrictions.

SUGGESTED TEAM EXERCISE National culture can manifest itself in many ways. For example, when doing business in Germany, experts advise not making any sudden changes in business transactions. Germans do not like surprises, a trait that reflects their relatively high score on Hofstede’s uncertainty avoidance. To perform a team exercise, have teams work together outside of class to gather international business advice and etiquette rules on foreign countries that reflect the countries’ Hofstede scores. A good place to start is the International Business Center on-line (http://geerthofstede.international-business-center.com/). This website contains a great deal of information on norms and etiquette of other countries. This can also be an in-class exercise if you can project the website onto a screen. Students enjoy reading about the etiquette of other countries and shouting out the cultural dimensions they see reflected in the rules. It can be made into a class competition to see which teams can spot the most cultural dimensions. SELF TEST ANSWERS 1.

The reasons why businesses go international include gaining new markets and the search for ______. (a) political risk (b) protectionism (c) lower labour costs (d) most favoured nation status

When 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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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

The World Trade Organization, or WTO, would most likely become involved in disputes between countries over ______. (a) exchange rates (b) ethnocentrism (c) nationalization (d) tariffs

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

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

A culture which places great value on meaning expressed in the written or spoken word would be described as ______ by Hall. (a) monochronic (b) proxemic (c) collectivist (d) low-context

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

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) ethnocentric 11. When a clothing manufacturer 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 Canada, this form of international business is known as ______. Instructor’s Guide 3-16 Chapter 3 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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(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 without a strong national identity (b) does business in only one or two foreign countries (c) is led by managers with ethnocentric attitudes (d) is ISO 14000 certified 13. The Corruption of Foreign Public Officials Act makes it illegal for ________________. (a) Canadians to engage in joint ventures abroad (b) Canadian businesses to pay bribes to foreign government officials (c) Canadian businesses to make “payoffs” abroad to gain international business contracts (d) foreign businesses to steal intellectual property from Canadian firms operating in their countries 14. In a culture described by Project GLOBE as high in ______, one would expect to find men and women treated equally in terms of job and career opportunities. (a) humane orientation (b) institutional collectivism (c) gender egalitarianism (d) performance orientation 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) monochronic 16. Why do host countries sometimes complain about how MNCs operate within their borders? The relationship between an MNC 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 labour, 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 Instructor’s Guide 3-17 Chapter 3 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 institutional collectivism and in-group collectivism as described by Project GLOBE? In Project GLOBE, the cultural dimension of institutional collectivism describes the degree to which members of a society emphasize and reward group actions, rather than individual actions. In-group collectivism describes a society in which members take pride in family and their group or organizational memberships. 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. Monique 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 Manitoba, 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 Monique? Monique must recognize that the cultural differences between Canada and Japan may affect the success of group-oriented work practices such as quality circles and work teams. The Canada is among 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, Monique 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.

REVIEW QUESTIONS FOR CASE 3: McCAIN FOODS LIMITED

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1. If you were in charge of the Asian operations for McCain, how would you recommend the company overcome the challenges in the Chinese market? McCain’s managers in China will have to global managers – culturally aware and informed on international affairs. Cultural Awareness: Managers should be aware of how Chinese culture differs from Canadian culture and the potential impact of bringing North American business practices to China. To ensure that managers are culturally aware McCain may align its company organization with Asian values such as the Confucian Values listed in the textbook. Harmony, Hierarchy, Benevolence, Loyalty, and Learning are valued components of Chines culture and business in Asian must be informed about how such cultural dynamics impact international business and politics. A. Harmony: Canadian managers should emphasize the groups interests rather than emphasizing individual employees as is common in Canadian employers B. Hierarchy: While Canadian employers focus on creating more information organizational cultures that deemphasize the hierarchical bonds between supervisor and employees. In China, managers should understand the emphasis on authority and the hierarchical nature of the society. C. Benevolence: Asian employees may expect managers to act paternalistic towards employees. Canadian managers should be willing to teach and help subordinates. D. Loyalty: Canadian managers should be aware that Asian employees are loyal to the organization and supervisors. Layoffs, demotions, and disciplinary actions may affect Chinese employees to a greater extent than Canadian ones. E. Learning: Chinese employees are eager for new knowledge and strive for high performance. Canadian managers should ensure than learning and training opportunities are available to employees and that performance measures are known. Legal and Political Systems: Managers should be concerned about the risk of operating in a completely different political and legal environment. •

Political risk – McCains managers should be aware of the potential loss in value of foreign investment due to instability and political changes in the host country. To mitigate some risk, they should engage in a political risk analysis.

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Legal problems: Global firms, such as McCains is expected to abide by local laws which may be unfamiliar. They must also deal with a variety of special laws such as occupational health and safety, employment equity, sexual harassment, and other matters which may be dealt with in a vastly different way from what is used in Canada. Issues with incorporation and business ownership, methods and expectations in negotiations and implementing contracts must be considered.

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Trade agreements or trade barriers: Considerations for McCain can include tariffs, trade barriers, and protectionism that may significantly influence the viability of operating in China.

2. Bribes seem to be prevalent in Chinese culture as a way of doing business. Do you see this as ethical or unethical and why? In the society that we live in, bribery is not only considered to be unethical, it is illegal.Bribery and other forms of corruption can pose significant challenges as global managers travel the world. In Canada, it is illegal for Canadian firms and their managers to engage in corrupt practices overseas, including giving bribes and excessive commissions to foreign officials in return for business favours. The law specifically bans payoffs to foreign officials to obtain or keep businesses, provides punishments for executives who know about or are involved in such activities, and requires detailed accounting records for international business transactions. Some critics believe that such laws fail to recognize the “reality” of business as practised in many foreign nations. They complain that Canadian companies are at a competitive disadvantage because they can’t offer the same “deals” as competitors from other nations—deals that locals may regard as standard business practices. However, many nations are starting to pass similar laws.

3. Much of McCain’s global success seems to be closely tied to the success and efforts of its clients, McDonald’s and KFC. Describe how successful you think McCain would have been if it had gone into China with just its own brand name. While strategic partnerships with McDonald’s and KFC have certainly facilitated McCain’s entry into China, without them McCain could have focused on other market entry strategies such as global sourcing, exporting, importing, licensing and franchising, joint ventures, and foreign subsidiaries. Based on its previous globalization, the following strategies would be most appropriate for McCain when entering the Chinese market. Global Strategic Alliance: In effect this is what McCain did in aligning itself with its customers McDonald’s and KFC. McCain could have also investigated a global strategic alliance with other restaurant and retail organizations that have successfully entered the Chinese market. Licensing and Franchising: McCain could have entered the Chinese market through licensing agreement with Chinese firms to make and sell its products or franchise its operations to Chinese owners. McCain would have to ensure that its licensing and Instructor’s Guide 3-20 Chapter 3 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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franchisee partner ensured that the quality of its products in China would be high enough to not negatively affect its global reputation for quality. Joint Ventures: McCain could have investigated foreign direct investment in a Chinese business or a joint venture in order to source, produce, and distribute its products in China. This would have created insourcing which would have benefited the local economy. This would allow McCain to address local complexities of the Chinese market and potentially reduce potential risks. However, in joint ventures, McCain may have to be concerned that its product may be copied and resold, undermining McCain’s investment in building its presence in the Chinese market. Foreign Subsidiary or Acquisition: McCain could have created a local operation that was complexly owned and operated by its main operations in Canada. This could have been accomplished through a “greenfield investment” or an acquisition. Students may also mention the following other market entry strategies. Exporting: McCain could have could have utilized production and manufacturing facilities in China and then resold those products globally. Global Sourcing: McCain could have taken advantage of the international wage gap and lower growing and production costs in China by reselling its products abroad. However, while this may have positively impacted its bottom line, it wouldn’t be the best strategy to enter and build a reputation in the Chinese market. Importing: McCain could have exported its Canadian made products into the Chinese market. However, with higher wage, manufacturing, and shipping costs, McCain may not have been able to offer its products at prices that would be competitive in this market.

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Chapter 4:

ETHICS, SOCIAL RESPONSIBILITY AND SUSTAINABILITY CHAPTER 4 STUDY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4.

What is ethical behaviour? How do ethical dilemmas complicate the workplace? How can high ethical standards be maintained? What is social responsibility, governance and sustainability?

CHAPTER 4 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • •

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Define ethics. List and explain four views of ethical behaviour. Give examples showing violation of procedural, distributive and interactional justice. Differentiate between cultural relativism and universalism in international business ethics. Define an ethical dilemma and give workplace examples. Explain how ethics intensity influences ethical decision making. Identify Kohlberg’s stages of moral development. Explain how ethics decisions are influenced by the organization culture and external environment. List four common rationalizations for unethical behaviour. Define the term whistleblower. List three organizational barriers to whistle blowing. Compare and contrast ethics training, codes of ethical conduct, and ethical role models as methods for encouraging ethical behaviour in organizations. Differentiate between amoral, immoral, and moral management. Describe ethics mindfulness and how moral management can shift an organization’s ethics centre of gravity. Explain and give an example of social entrepreneurship. Define the term corporate social responsibility. Summarize arguments for and against corporate social responsibility. Identify four criteria for measuring corporate social performance.

Explain four possible social responsibility strategies. Define corporate governance and discuss its importance in organization–society relationships.

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Define sustainability and highlight five reasons why it is an effective strategy for businesses to follow.

CHAPTER 4 OVERVIEW Ethical behaviour 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, governance and sustainability in contemporary business. The chapter begins by defining key terms such as ethics and ethical behaviour before considering these terms in a managerial context. The utilitarian, individualism, moral-rights, and justice views of ethical behaviour 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 situation, person, organization, and environment are discussed as factors influencing ethical behaviour, along with four rationalizations for unethical behaviour. Also considered are various approaches for maintaining high ethical standards, including whistleblower protection, ethics training, codes of ethical conduct, and ethical role models. The differences between immoral, amoral, and moral managers are examined, as well as the concept of social entrepreneurship. From here, the focus of the chapter shifts to the related topic of 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 also are discussed. A continuum reflecting different strategies of social responsibility is also presented. 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 4 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 behaviour and corporate social responsibility.

Suggested Time: Two hours of class time are typically required to present the material in this chapter. I.

Study Question 1: What is ethical behaviour? Laws, values, and ethical behaviour Alternative views ethics Cultural issues in ethical behaviour

II.

Study Question 2: How do ethical dilemmas complicate the workplace? Ethical dilemmas

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Ethical decision making Rationalizations for unethical behaviour III.

Study Question 3: How can high ethical standards be maintained? Whistleblower protection Ethics training Codes of ethical conduct Ethical role models Moral management Social entrepreneurship

IV.

Study Question 4: What is social responsibility, governance and sustainability? Stakeholder issues and analysis Perspectives on corporate social responsibility Evaluating corporate social performance Directions in corporate governance

CHAPTER 4 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Ben & Jerry’s ⎯ We can make the world a better place Learning About Yourself • Individual Character Figures • Figure 4.1: Four views of ethical behaviour • Figure 4.2: Cultural relativism and universalism in international business ethics • Figure 4.3: Kohlberg’s levels of individual moral development • Figure 4.4: Moral management and the ethics centre of gravity in organizations • Figure 4.5: Criteria for evaluating corporate social performance • Figure 4.6: Four strategies of corporate social responsibility ⎯ from obstructionist to proactive behaviour • Figure 4.7: Ethics self-governance in leadership and the managerial role Thematic Boxes • Management Smarts 4.1: Checklist for dealing with ethical dilemmas • Issues and Situations: Ethics training • Research Brief: Issue management pacesetter influence pharmaceutical industry’s response to AIDS in Africa

Applications • Self-Test • •

Self-Assessment Class exercise: Confronting Ethical Dilemmas

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Case 4: Tom’s of Maine

CHAPTER 4 LECTURE NOTES LEARNING FROM OTHERS describes Ben & Jerry’s core value of “linked prosperity” – sharing prosperity with employees and the community. Ask students to consider how the selling of the company to Unilever may affect this value. LEARNING ABOUT YOURSELF talks about how one’s individual character influences his or her behaviour. With the listing of the Six Pillars of Character by the Josephson Institute of Ethics, ask students to reflect on where they stand on each.

DISCUSSION TOPIC You can start out the discussion of this chapter by asking students to identify examples of ethical and unethical business practices that they have read about, heard about, or 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 behaviour closer to home, discuss students’ behaviour within the college/university context. Topics may include cheating, adherence to campus regulations, maintenance of the physical environment, or unauthorized use of materials or equipment.

STUDY QUESTION 1: WHAT IS ETHICAL BEHAVIOUR? 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 behaviour of a person or group Ethical behaviour is behaviour that is accepted as “good” and “right” as opposed to “bad” or “wrong” in the context of the governing moral code. LAW, VALUES, AND ETHICAL BEHAVIOUR Legal behaviour is not necessarily ethical behaviour. Behaviour might be legal but that does not ensure that it is ethical. What one considers to be ethical varies according to personal values –– the underlying beliefs and attitudes that help determine individual behaviour. 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.

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ALTERNATIVE VIEWS OF ETHICS FIGURE 4.1 illustrates the four views of ethical behaviour. Utilitarian view –– ethical behaviour is that which delivers the greatest good to greatest number of people. Individualism view –– ethical behaviour is that which best serves long-term self-interests. Moral-rights view –– ethical behaviour is that which respects and protects the fundamental rights of all people. Justice view –– ethical behaviour is that which is impartial and fair in treating people according to legal rules and standards. • Procedural justice –– the degree to which policies and rules are fairly administered. • 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.

DISCUSSION TOPIC Ask students for examples of each of the above views of ethical behaviour. These can be either hypothetical examples 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 he nature and reasons for any differences in the two sets. CULTURAL ISSUES IN ETHICAL BEHAVIOUR 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 behaviour is always determined by the cultural context. Universalism suggests if a behaviour is not acceptable in one’s home environment, it should not be acceptable practice anywhere else. Critics claim universalism is a form of ethical imperialism, or the attempt to externally impose one’s ethical standards on others. FIGURE 4.2 from the text contrasts cultural relativism and universalism. 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 Instructor’s Guide 4-5 Chapter 4 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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the core values underlying a trans-cultural ethical umbrella, international business behaviours can be tailored to local and regional cultural contexts.

STUDY 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 • customer confidence • organizational resources According to a Harvard Business Review survey, many ethical dilemmas involve conflicts with superiors, customers, and subordinates. The managers’ bosses sometimes pressure them to engage in unethical behaviours. LEARNING FROM OTHERS from the text describes the success of Ben & Jerry’s. The organization succeeded on the concept of “linked prosperity.”

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.

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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.)

ETHICAL DECISION MAKING MANAGEMENT SMARTS 4.1 provides a checklist for dealing with ethical dilemmas. Step 1. Recognize the ethical dilemma. Step 2. Get the facts. Step 3. Identify your options. Step 4. Test each option: Is it legal? Is it right? Is it beneficial? Step 5. Decide which option to follow. Step 6. Double-check with the spotlight questions: “How would I feel if my family finds out about my decision?” “How would I feel if my decision is printed in the local newspaper or posted on the Internet? Step 7. 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 4.1

ISSUES AND SITUATIONS in the “Codes of Ethical Conduct” section of the text discusses the outcomes of ethics training. The Ethics Resource Centre finds that no more than 55 percent of persons that observe unethical acts actually report them. Increased awareness of typical influences on ethical behaviour can help you better deal with future ethical pressures and dilemmas. The illustration in the “Ethical Decision-Making” section of the text illustrates factors influencing ethical managerial behaviour – the situation, organization, environment, and person. Factors influencing ethical managerial behaviour: • The situation: Ethical dilemmas can catch individuals off guard, or cause one not to see a dilemma at all. Depending on the circumstances, behaviour is controlled by ethics intensity, which evaluates the magnitude, probability, and immediacy of any potential harm, along with the social consensus. 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. Instructor’s Guide 4-7 Chapter 4 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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The person: Family influences, religious values, personal standards, and personal needs, financial and otherwise, will help determine a person’s ethical conduct in any given circumstance. Those with solid ethical frameworks, personal rules or strategies for ethical decision making, will be more consistent and confident. 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. The organization: Bosses can have a major impact on their subordinates’ behaviours through their requests, and which actions are rewarded or punished. Peers and group norms have a similar impact. Formal policy statements and written rules are also helpful. The environment: Organizations operate in competitive environments influenced by government laws and regulations as well as social norms and values. Laws interpret social values to define appropriate behaviours for organizations and their members; regulations help governments monitor these behaviours and keep them within acceptable standards. The climate of competition in an industry also sets a standard of behaviour for those who hope to prosper within it. The Sarbanes-Oxley Act of 2002 now makes it easier for corporate executives to be tried and sentenced to jail for financial misconduct.

RATIONALIZATIONS FOR UNETHICAL BEHAVIOUR Convincing yourself that the behaviour 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 behaviour is in everyone’s best interest. This rationalization involves the mistaken belief that because someone may benefit, the behaviour 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. 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 behaviour that they have used themselves or have observed others using. Discuss the individual and organizational effects of these rationalizations.

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STUDY QUESTION 3: HOW CAN HIGH ETHICAL STANDARDS BE MAINTAINED? 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 provincial laws increasingly offer whistleblowers some protection from retaliatory discharge. Still, legal protection can be inadequate. Organizational barriers to whistleblowing include: • A strict chain of command that makes it difficult to report unethical practices to higher-level managers. • Strong work group identities that encourage loyalty and self-censorship. • Ambiguous priorities that make it difficult to distinguish right from wrong. 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. •

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.

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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.

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 behaviours. 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 principles that provide guidelines on how to behave in situations susceptible to ethical dilemmas. Most codes of ethical conduct identify expected behaviour in terms of • General organizational citizenship • The avoidance of illegal or improper acts in one’s work • Good relationships with customers.

Areas often covered in written codes of ethics include the following: • • • • •

Bribes and kickbacks. Political contributions. Honesty of books or records. Customer-supplier relationships. Confidentiality of corporate information.

Ethical codes cannot cover all situations; nor are they automatic insurance for universal ethical conduct. REAL ETHICS in the “Rationalization for Unethical Behaviour” section of the text describes how companies are carefully checking resumes for lies. The two most common are out-of-work coverup and inflated credentials. ETHICAL ROLE MODELS Because top managers serve as role models, their behaviour can either encourage or discourage unethical behaviour. Although top managers have a special responsibility for setting the ethical tone of an organization, all managers are in a position to influence the ethical behaviour of the people who work for and with them.

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Too much pressure to accomplish goals that are too difficult can also encourage unethical behaviour. Part of any manager’s ethical responsibility is to be realistic in setting performance goals for others. MORAL MANAGEMENT An immoral manager chooses to behave unethically. An amoral manager fails to consider the ethics of his or her behaviour, but does so unintentionally. A moral manager makes ethical behaviour a personal goal. FIGURE 4.4 in the text illustrates moral management and the ethics centre of gravity in organization. Ethics mindfulness is enriched awareness that leads to consistent ethical behaviour. Moral managers are leaders with ethics mindfulness. By communicating ethical values and serving as ethics role models, they can help move the ethics centre of gravity of the whole organization in a positive direction.

STUDY QUESTION 4: WHAT ARE SOCIAL RESPONSIBILITY, GOVERNANCE, AND SUSTAINABILITY? Social responsibility is an obligation of the organization to act in ways that serve both its own interests and the interests of society at large. In view of the many corporate scandals plaguing society today, organizations that follow ethical and socially responsible practices are viewed favourably by college students who will be seeking future jobs. STAKEHOLDER ISSUES AND ANALYSIS Organizational stakeholders are those persons, groups, and other organizations directly affected by the behaviour of the organization and holding a stake in its performance. Refer to the text for a description of the multiple stakeholders in the environment of Tom’s of Maine, a natural health care organization. Commonly-cited stakeholders are: • • • • • • •

employees governments customers special interest groups owners media suppliers

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local communities

PERSPECTIVES ON CORPORATE SOCIAL RESPONSIBILITY Two contrasting view of corporate social responsibility have stimulated debate in academic and public-policy circles. • •

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 arguments of the classical view “against” social responsibility and the arguments of the socioeconomic view “in favour of” social responsibility are summarized below. Arguments against corporate social responsibility

In favour of corporate social responsibility

Reduced business profits.

Will add long-run profits for businesses.

Higher business costs.

Improve public image of businesses.

Dilution of business purpose.

Help businesses to avoid more governmental regulation.

Too much social power for businesses.

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 various areas of corporate social responsibility. Social performance is driven by either compliance (i.e., acting to avoid adverse consequences) or conviction (i.e., acting to create positive impact). Instructor’s Guide 4-12 Chapter 4 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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FIGURE 4.5 from the text links compliance and conviction with four criteria for evaluating corporate social performance. The audit of corporate social performance might include questions posed for each criterion: • • • •

Is the organization’s economic responsibility met? Is it profitable? Is the organization’s legal responsibility met? Does it obey the law? Is the organization’s ethical responsibility met? Is it doing the “right” things? Is the organization’s discretionary responsibility met? Does it contribute to the broader community?

FIGURE 4.6 from the text describes four strategies of social responsibility in terms of level of commitment to social responsibility. These strategies are: • • • •

The proactive strategy (“take leadership in social initiatives”) meets all the criteria of social performance –– economic, legal, ethical, and discretionary responsibilities. The accommodative strategy (“do the minimum ethically required”) meets the organization’s economic, legal, and ethical responsibilities. The defensive strategy (“do the minimum legally required”) meets the organization’s economic and legal responsibilities. The obstructionist strategy (“fight the social demands”) meets the organization’s economic responsibility.

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.

DIRECTIONS IN 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 are run properly. RESEARCH BRIEF in the “Stakeholders Issues and Analysis” section of the text describes the “issues management pacesetters” model in which an organization addresses an external issue in a unique way and other organizations follow the lead. Ask students to think of areas in which their college could be a pacesetter. When governance is weak and corporate scandals occur, sometimes the government will step in with laws such as the Sarbanes-Oxley Act. Instructor’s Guide 4-13 Chapter 4 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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FIGURE 4.7 from 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.

CHAPTER 4 STUDY QUESTIONS SUMMARY Study Question 1: What is ethical behaviour? • • • • •

Ethical behaviour 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 behaviour?” may be answered differently by different people. The utilitarian, individualism, moral-rights, and justice views offer alternative ways of thinking about ethical behaviour. 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? Study 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 behaviour include believing the behaviour 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?

Study Question 3: How can high ethical standards be maintained? • • • • • • •

Ethics training can help people better deal with ethical dilemmas in the workplace. Whistleblowers expose the unethical acts of others in organizations, even while facing career risks for doing so. Top management sets an ethical tone for the organization as a whole, while all managers are responsible for acting as positive models of ethical behaviour. Written codes of ethical conduct formally state what an organization expects of its employees regarding ethical behaviour at work. Immoral managers intentionally choose to behave unethically; amoral managers disregard the ethics of their actions or decisions; moral managers consider ethical behaviour a personal goal. Moral managers can shift the ethics centre of gravity in organizations in a positive direction and strengthen ethics mindfulness by others. Social entrepreneurs pursue ethics goals in seeking novel ways to help solve social problems.

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FOR DISCUSSION: Is it right to require employees to sign codes of conduct and undergo ethics training?

Study Question 4: What are social responsibility, governance and sustainability? • • • • • •

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. 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 behaviour include obstruction, defense, accommodation, and proaction. Corporate governance is the responsibility of a board of directors to oversee the performance by top management of a firm. Managers should exercise ethical self-governance by making sure that performance is achieved with commitments to high ethical standards and by socially responsible means. There are many reasons why an organization’s sustainability focus makes business sense, including cost reduction, preserving resources, legislative compliance, reputation, and it is the right thing to do.

FOR DISCUSSION: What questions would you include on a sustainability for an organization in your community?

CHAPTER 4 KEY TERMS Accommodative strategy: a social responsibility strategy that meets the organization’s economic, legal, and ethical responsibilities by “doing the minimum that is ethically required.” Amoral manager: a manager who fails to consider the ethics of his or her behaviour, but does so unintentionally. Classical view of corporate social responsibility: a view that management’s only responsibility in running a business is to maximize profits. Code of ethics: a formal statement of an organization’s values and ethical principles that provide guidelines on how to behave in situations susceptible to ethical dilemmas. Corporate governance: the oversight of the top management of an organization by a board of directors. Cultural relativism: the notion that there is no one right way to behave and that ethical behaviour is always determined by the cultural context. Defensive strategy: a social responsibility strategy that meets the organization’s economic and legal responsibilities by “doing the minimum that is legally required.” Distributive justice: concern that people are treated the same regardless of personal characteristics. Ethical behaviour: behaviour that is accepted as “good” and “right” as opposed to “bad” or “wrong” in the context of the governing moral code. Ethical dilemma: a situation wherein 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. Ethical framework: a personal rule or strategy for making ethical decisions. Ethical imperialism: the attempt to externally impose one’s ethical standards on others. Ethics: the code of moral principles that sets standards as to what is good or bad, or right or wrong, in one’s conduct and thereby guides the behaviour of a person or group. Ethics intensity: describes the extent to which a situation is perceived to pose important ethics challenges. Instructor’s Guide 4-15 Chapter 4 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Ethics mindfulness: enriched awareness that leads to consistent ethical behaviour. Ethics training: structured programs that help people to understand the ethical aspects of decision making and to incorporate high ethical standards into their daily behaviour. Immoral manager: a manager who chooses to behave unethically. Individualism view: ethical behaviour is that which best serves long-term self-interests. Instrumental values: preferences regarding the means for accomplishing desired ends. Interactional justice: the degree to which others are treated with dignity and respect. Justice view: ethical behaviour is that which is impartial and fair in treating people according to legal rules and standards. Moral manager: a manager who makes ethical behaviour a personal goal. Moral-rights view: ethical behaviour is that which respects and protects the fundamental rights of people. Obstructionist strategy: a social responsibility strategy that meets the organization’s economic responsibility by “fighting social demands.” Organizational stakeholders: those persons, groups, and other organizations directly affected by the behaviour of the organization and holding a stake in its performance. Proactive strategy: a social responsibility strategy that meets the organization’s economic, legal, ethical, and discretionary responsibilities by “taking leadership in social initiatives.” Procedural justice: the degree to which policies and rules are fairly administered. Social entrepreneurship: a unique form of ethical entrepreneurship that seeks novel ways to solve pressing social problems. Social responsibility: the obligation of an organization to serve its own interests and those of society. Social responsibility audit: a systematic assessment and reporting of an organization’s resource commitments and action accomplishments in various areas of corporate social responsibility. Socioeconomic view of corporate social responsibility: a view that management of any organization must be concerned with social welfare and not just corporate profits. Sustainability: development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Terminal values: preferences about desired end states. Universalism: the ethical position that suggests if a behaviour is not acceptable in one’s home environment, it shouldn’t be acceptable practice anywhere else. Utilitarian view: ethical behaviour is that which delivers the greatest good to the greatest number of people. Values: the underlying beliefs and attitudes that help determine individual behaviour. Virtuous circle: 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: individuals who expose the misdeeds of others in organizations to preserve ethical standards and protect against wasteful, harmful, or illegal acts.

SUGGESTED TEAM EXERCISE This exercise can have two benefits: helping students develop their resumes and getting them talking about crossing ethical lines. Ask students to bring several copies of their resumes to class. Then, in groups, hand out the resumes so that each member of the group has one copy of each members’ resume. Then have each group member try to “improve” the resume by adding strong, action verbs (such as collaborate, conduct, delegate, design, execute, gain, generate, negotiate, resolve, research) and making the person’s qualifications sound more impressive. Once everyone’s resume has been critiqued, hand Instructor’s Guide 4-16 Chapter 4 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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them back to their owners. Still in groups, have each student discuss which changes are ethical for them to make and which ones go too far and why. Have groups report to the class any extremes they discovered.

SELF TEST ANSWERS 1.

Values are personal beliefs that help determine whether a behaviour will be considered ethical or unethical. An example of terminal value is __________ (a) ambition (b) self-respect (c) courage (d) imagination

Under the __________ view of ethical behaviour, a business owner would be considered ethical if she reduced a plant’s workforce by 10 percent in order to cut costs to keep the business from failing and thus save jobs for the other 90 percent. (a) utilitarian (b) individualism (c) justice (d) moral-rights

A manager’s failure to enforce a late-to-work policy the same way for all employees is an ethical violation of __________ justice. (a) ethical (b) moral (c) distributive (d) procedural

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

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

Research on ethical dilemmas indicates that __________ is/are often the cause of unethical behaviour 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

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

Two employees are talking about their employers. Sayed says that ethics training and codes of ethical conduct are worthless; Maura says these are the best ways to ensure ethical behaviour in the organization. Who is right and why?

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(a) Sayed—no one cares. (b) Maura—only the organization can influence ethical behaviour. (c) Neither Sayed nor Maura—training and codes can aid but never guarantee ethical behaviour. (d) Neither Sayed nor Maura—only the threat of legal punishment will make people act ethically. 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) acts unethically but not intentionally

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 ethical position has been criticized as a source of “ethical imperialism”? (a) individualism (b) absolutism (c) utilitarianism (d) relativism

14.

A manager supports an organization’s attempts at 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.

Which of the following is NOT a reason why a company should focus on sustainability? (a) legislative compliance (b) cultural relativism (c) cost reduction (d) reputation

16.

Explain the difference between the individualism and justice views of ethical behaviour. The individualism view is that ethical behaviour is that which best serves long-term interests. The justice view is that ethical behaviour is fair and equitable in its treatment of people.

17.

List four common rationalizations for unethical managerial behaviour. The rationalizations are believing that: (1) the behaviour is not really illegal, (2) the behaviour is really in everyone’s best interests, (3) no one will find out, and (4) the organization will protect you.

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What are the major arguments in the socioeconomic view of corporate social responsibility? The socioeconomic view of corporate social responsibility argues that socially responsible behaviour 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 decisions should a Board of Directors oversee in order to fulfill its governance responsibilities? A board of directors of a business is ultimately responsible for the decisions and actions of the top management and the performance of the organization as a whole. The board members would normally be involved in such decisions as hiring/firing top management, setting compensation of top management, verifying and approving financial records and reports, and approving corporate strategies.

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 labour. 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 Canada. 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.

REVIEW QUESTIONS FOR CASE 4: TOM’S OF MAINE 1. Does the Tom’s of Maine experience prove that one can “do business with principles,” or are there business realities that make it hard for others to copy this principled management model? Tom’s of Maine has a strong code of moral principles that set standards of appropriate behaviour for its employees, which goes beyond doing what is legally required, to doing what is right. Today, there is more emphasis that businesses follow the same principles that made Tom’s successful. Society wants companies be environmentally conscious, ensure the well-being of employees, provide safe and effective products, and give back to the communities in which they are located. Firms that wish to deviate from these principles put themselves at risk. Episodes of contaminated food (Chinese dairies), worker mistreatment (sweatshops), shoddy products (Ford Pinto) and environmental pollution (Exxon Valdez) all lead to negative impression, ultimately affecting profitability and trust. Instructor’s Guide 4-19 Chapter 4 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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So, while doing “business with principles” may seem to be difficult, in today’s world it is a reality. 2. What examples and incidents from this brief history of Tom’s of Maine illustrate how the personal ethics and values of founders can positively influence a firm and its culture as it deals with the challenges of start up and growth? Tom’s personal views formed the basis of the company’s product line. Both his and his wife’s concern for effective, natural, environmentally friendly products created the rapid growth in the 1970s and 1980s. The company’s mission statement discusses respect for employees and the need for meaningful work and fair pay. It is also concerned with the quality of their work life, through such programs as flexible scheduling, subsidized day care, individual assistance in education and training, and even healthy snacks. The emphasis on volunteer work could be seen as an extension of workers’ right to feel that they are making a meaningful contribution to society. The company takes its philosophy a step further, believing that customers also have rights ⎯ to a high quality, effective product (the recall of honeysuckle deodorant may be used as an example: it didn’t hurt anyone, and it worked for half the customers, but the company felt that this was not sufficient, despite the costs and potential negative publicity of a recall). When the Chappell’s decided to sell a large stake of the company to Colgate-Palmolive, a letter sent to all employees and stakeholders explained why. Again, this shows Tom and Kate value those affected and wanted to assure them this partnership would allow Tom’s to grow and continue as a viable entity. 3. What are the biggest threats that Tom’s faces in its new life within Colgate’s global corporate structure, and especially with respect to maintaining what Tom and Kate call “the character, spirit, and values of our company? Tom’s biggest threat is that the company will lose its individuality and be swallowed up by the Colgate corporate culture. Marrying a culture concerned with corporate profits to one that is concerned with products that benefit society can be challenging. Considering Tom’s is a small part of the Colgate conglomerate, putting society before profits may not succeed. As such, Tom and Kate’s desire to keep “the character, spirit, and values” of Tom’s alive may be short-lived, especially in a tough economy. Also, Tom’s philosophy of donating 10 percent of pretax profits to charities could come to a grinding halt. Tom’s will only continue this practice, so long as Colgate gives its blessing. Likewise, Tom’s will most likely be told which charities, if any, to which it can donate, along with the amount of said donation. Another consideration is that Chappell’s contract with Colgate could be terminated, especially in light of the current economic conditions. Should this happen, Tom’s may disappear as a separate entity within the Colgate structure, thus completely losing its philosophical identity.

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Chapter 5:

ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT CHAPTER 5 STUDY QUESTIONS In studying this chapter, students should consider the following questions: • • •

What is entrepreneurship? What is special about small businesses? How does one start a new venture?

CHAPTER 5 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • •

Define entrepreneurship List key personal characteristics of entrepreneurs Explain the influence of background and experience on entrepreneurs Define necessity-based entrepreneurship Discuss motivations for entrepreneurship by women and minorities Give the Industry Canada definition of small business Illustrate opportunities for entrepreneurship on the Internet Discuss the succession problem in family-owned businesses and possible way to deal with it List several reasons why many small businesses fail 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 and angel investors in new venture financing

CHAPTER 5 OVERVIEW 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. This chapter begins by defining the terms entrepreneurship and entrepreneur, and then discusses the characteristics of entrepreneurs. The roles of women and minorities in entrepreneurship are described next, and common myths about entrepreneurs are examined. The chapter then focuses on ways of establishing small businesses, with particular emphasis being placed on entrepreneurial opportunities that may be developed through the Internet, and with family businesses. Consideration is also given to the reasons for small business failures. Next, the Instructor’s Guide 5-1 Chapter 5 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 also examines 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 5 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.

Study Question 1: What is entrepreneurship? Who are the entrepreneurs? Characteristics of entrepreneurs Diversity and entrepreneurship

II. Study Question 2: What is special about small businesses? How to get started Internet entrepreneurship Family businesses Why many small businesses fail III. Study Question 3: How does one start a new venture? Life cycles of entrepreneurial firms Writing the business plan Choosing the form of ownership Financing the new venture CHAPTER 5 SUPPORTING MATERIALS Learning From Others • The Aces Are Flying High Learning About Yourself • Entrepreneurial Mindset Figures • Figure 5.1: Personal Traits and Characteristics of Entrepreneurs • Figure 5.2: Eight Reasons Why Many Small Businesses Fail • Figure 5.3: Stages in the Life Cycle of an Entrepreneurial Firm Thematic Boxes • Real Ethics: Social Enrepreneurship in Action • Management Smarts 5.1: What to Include in a Business Plan Applications • Team Exercise Instructor’s Guide 5-2 Chapter 5 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Self-Test Case 5: The Simply Sweet Taste of Success

CHAPTER 5 LECTURE NOTES The objective of this Chapter 5 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. LEARNING FROM OTHERS describes a number of entrepreneurial success stories. LEARNING ABOUT YOURSELF describes common myths about entrepreneurship and the need for entrepreneurs to develop an appropriate mindset. STUDY QUESTION 1: WHAT IS ENTREPRENEURSHIP? Success in highly competitive business environments depends on entrepreneurship. Entrepreneurship describes strategic thinking and risk-taking behaviour that results in the creation of new opportunities for individuals and/or organizations. WHO ARE THE ENTREPRENEURS? An 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. To illustrate the wide-ranging ventures and backgrounds of entrepreneurs, the text briefly profiles the accomplishments of five entrepreneurs: Richard Branson, Frank Stronach, Heaher Reisman, Tim Horton and Anita Roddick. 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.

FIGURE 5.1 identifies typical personal traits and characteristics of entrepreneurs. These traits and characteristics include: • •

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.

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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 boss, not work for others. Flexibility ⎯ entrepreneurs are willing to admit problems and errors, and to change a course of action when plans are not working.

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. Entrepreneurs also tend to have unique backgrounds and experiences, including: •

•

• •

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.

DIVERSITY AND ENTREPRENEURSHIP 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. Instructor’s Guide 5-4 Chapter 5 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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There are more than 821,000 women entrepreneurs in Canada. In addition, a 2005 report by Industry Canada shows that entrepreneurship is opening business doors for visible minorities in Canada.In that year, SMEs owned by visible minorities employed more than 500,000 people and generated revenues of more than $48.5 billion, an important contribution to Canada’s economy.

STUDY QUESTION 2: WHAT IS SPECIAL ABOUT SMALL BUSINESSES? A small business is commonly defined as one with 100 or fewer employees, that is independently owned and operated, and that does not dominate its industry. Almost 98 percent of Canadian businesses are classified as small. 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. 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. REAL ETHICS describes social entrepreneurs identify and solve social problems on a local and large scale. They act as social change agents for societies by seizing opportunity to create a better world. INTERNET ENTREPRENEURSHIP The Internet has created numerous entrepreneurial possibilities, including online buying and selling and the more formal pursuit of “dot-com” businesses. 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. In the United States, family businesses account for 78 percent of new job creation and 60 percent 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. 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. 1. 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. 2. 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 percent of family firms survive to the second generation; only about 12 percent survive to the third; and only 3 percent 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 MANY SMALL BUSINESSES FAIL Small businesses have a high failure rate –– 60 percent to 80 percent of new businesses fail in their first five years of operation. As shown in FIGURE 5.2, the reasons for small business failure include: • • • •

Lack of experience—not having sufficient know-how to run a business in the chosen market or 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. Poor financial control—not keeping track of the numbers, and failure to control business finances.

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Growing too fast—not taking the time to consolidate a position, fine-tune the organization, and systematically meet the challenges of growth. Insufficient 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.

STUDY QUESTION 3: HOW DOES ONE START A NEW VENTURE? Can the entrepreneur identify a market niche that is being missed by other established firms? Can the entrepreneur identify a new market that has not yet been discovered by existing firms? A first-mover advantage comes from being first to exploit a niche or enter a market. LIFE CYCLES OF ENTREPRENEURIAL FIRMS FIGURE 5.3 describes the stages that are common in the life cycles of entrepreneurial firms: • • •

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.

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 5.1 outlines what to include in a business plan: • • • • •

Executive summary—overview of 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.

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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, and 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: •

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.

•

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.

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.

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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. CHAPTER 5 STUDY QUESTIONS SUMMARY Study Question 1: What is entrepreneurship? • Entrepreneurship is risk-taking behaviour that results in the creation of new opportunities. • An entrepreneur takes risks to pursue opportunities in situations that others may view as threats. • 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 members of visible minorities are well represented among entrepreneurs, with some being driven by necessity or the lack of alternative career options. FOR DISCUSSION: Do successful local entrepreneurs in your region fit the personality profile discussed in this chapter? Study Question 2: What is special about small businesses? • Entrepreneurship results in the founding of many small businesses that offer job creation and other benefits to 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 have succession problems. • Small businesses have a high failure rate, with as many as 60 to 80 percent failing within five years; many failures are the result of poor management. FOR DISCUSSION: What is the business failure rate in your area? Whom would you have to contact to answer this question?

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Study Question 3: How does one start a new venture? • 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, 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 invest in new ventures in return equity in the business; an angel investor is a wealthy individual who invests money in return for equity in a new venture. FOR DISCUSSION: What venture capital groups or angel networks operate in your region? CHAPTER 5 KEY TERMS Angel investor: a wealthy individual who is willing to invest a portion of this wealth in return for equity in a new venture. Business plan: a plan that describes all the details necessary to set the direction for a new business and to obtain the necessary financing to operate it. Corporation: a legal entity that exists separate from its owners. Debt financing: involves going into debt by borrowing money from another person, a bank, or financial institution and repaying it over time with interest. Entrepreneur: a risk-taking individual who takes action to pursue opportunities and situations others may fail to recognize as such or may even view as threats. Entrepreneurship: describes strategic thinking and risk-taking behaviour that results in the creation of new opportunities. Equity financing: involves exchanging ownership shares in the business to outsiders in return for outside investment monies. Family business: a business that is owned and financially controlled by family members. Family business feud: occurs when family members have major disagreements over how the business should be run. First-mover advantage: exploiting a market niche or entering a market before competitors. Franchise: 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. Initial Public Offering (IPO): an initial selling of shares of stock to the public at large. Limited Liability Corporation: a hybrid legal form of business combining advantages of a sole proprietorship or a partnership with the liability advantages of a corporation. Necessity-based entrepreneurship: takes place because other employment options don’t exist. Partnership: formed when two or more people agree to contribute resources to start and operate a business together. Small business: commonly defined as one with 100 or fewer employees, that is independently owned and operated, and that does not dominate its industry. Sole proprietorship: an individual or a married couple pursing business for a profit. Succession plan: a formal statement that describes how the leadership transition and related financial matters will be handled when the time for changeover arrives. Succession problem: involves transferring leadership from one generation to the next. Venture capitalists: companies that pool capital and make investments in new ventures in return for an equity stake in the business. Instructor’s Guide 5-10 Chapter 5 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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SUGGESTED TEAM EXERCISE Have each student group create a fictitious organization for which to write a business plan. Students can choose their own organization, but try to make sure there is variety to add to the comparisons. For example, have students write plans for organizations that: • make a product • provide a service • only exist on the Internet • only exist in bricks and mortar • exist both on the Internet and in bricks and mortar • are international • are domestic • are a combination of several factors above After each group has written an outline of a plan, have them compare where the plans are similar and where they differ.

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

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

Almost ____________ percent of Canadian businesses meet the definition of “small business” used by the Industry Canada. (a) 48 (b) 98 (c) 78 (d) 85

When a business owner sells to another person the right to operate that business in another location, this is a ____________. (a) conglomerate (b) franchise (c) joint venture (d) limited partnership

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

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Among the most common reasons that new small business startups often fail is ____________. (a) lack of business expertise (b) strict financial controls (c) slow growth (d) high ethical standards

When a new business is quick to capture a market niche before competitors, this is called ____________. (a) intrapreneurship (b) an initial public offering (c) succession planning (d) first-mover advantage

When a small business is just starting, the business owner is typically struggling to ____________. (a) gain acceptance in the marketplace (b) find partners for expansion (c) prepare an initial public offering (d) bring professional skills into the management team

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

10. In ____________ financing, the business owner borrows money as a loan that must eventually be paid, along with agreed-upon interest to the lender. (a) debt (b) equity (c) partnership (d) limited 11. ____________ take ownership shares in a new venture in return for providing the entrepreneur with critical startup funds. (a) Business incubators (b) Angel investors (c) Franchisees (d) Intrapreneurs 12. Among the forms of small business ownership, a ____________ protects the owners from any personal liabilities for business losses. (a) sole proprietorship (b) franchise (c) limited partnership (d) corporation 13. The first component of a good business plan is usually ____________. (a) an industry analysis (b) a marketing strategy (c) an executive summary (d) a set of milestones

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14. Current trends in small business ownership in Canada would most likely show that ____________. (a) the numbers of women- and minority-owned businesses are declining (b) the majority of small businesses conduct some business by Internet (c) large businesses create more jobs than small businesses (d) very few small businesses engage in international import/export activities 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 an LLC (d) successful enough that the public at large will 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. 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. 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 Instructor’s Guide 5-13 Chapter 5 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 startup business. When you discuss 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 customer-focused in this business? What are the major areas that you would address in writing your 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 purchasing 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, operations description, staffing model, financial projections with cash flows, capital needs, and milestones.

REVIEW QUESTIONS FOR CASE 5: THE SIMPLY SWEET TASTE OF SUCCESS

1. What entrepreneurial traits and personal characteristics do Heather White and Lori Joyce display in the case? Some of Heather and Lori’s entrepreneurial traits and personal characteristics include: • • • •

internal locus of control – they both gave up lucrative careers to control their own destiny in the bakery business. high level of energy – both were used to working long hours in their respective careers and now they are willing to work long hours in their own business. self-confidence – this goes without saying, since both are very confident their niche bakery will be successful. self-reliance and desire for independence – again, both gave up careers so they could rely only upon themselves for success.

2. If White and Joyce wished to expand their operation by opening new stores, what ownership approach would you recommend they use? Instructor’s Guide 5-14 Chapter 5 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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White and Joyce have indicated that any future expansion will be through financing. According to this approach, 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. This would enable White and Joyce to stay in touch with the customer, which they see as integral to their continued success. 3. What would you include in a business plan for a new venture on your campus called “Sweet Bites,” a new cupcakeonly eatery? Student answers will vary. Below is a listing of the items in a typical business plan with information as the item relates for “Sweet Bites.” •

Executive summary – every business plan requires this so that anyone who is interested in the plan can get a quick overview of what the company is planning to do and the environment in which the organization will operate.

•

Industry analysis – since the cupcake-only eatery industry is relatively new with few competitors, this may be a bit challenging to accomplish. Even though the business is considered a bakery, its specialty sets it apart from the typical organization in this industry.

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Company description – this is required as it provides a potential investor with the names of the business owners, what is planned from a mission point of view, and the legal form under which the business is operating.

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Products – with this more or less being a single product bakery, little information is needed here.

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Market description – even though the business will be geared toward those on your campus, you will still need to identify exactly who will be your customer and the number of people who match your criteria.

•

Operations description – again, this is needed so potential investors will know that your products will be produced on-premises, who will be supplying your baking materials, and the sort of controls you have in place to be successful.

•

Staffing description – this too is required, as skills necessary and the compensation being paid will be listed here. It is doubtful you will be able to run the business singlehandedly, so you’ll need this information along with other items that fall under the human resource heading.

•

Financial projection – this needs to be included in the business plan, so both you and investors will have an idea of investment needed, cash flow expected over the next few years, and the break-even point for producing and selling the cupcakes.

•

Capital needs – this is required so you know the amount of start-up funds needed along with the amount needed to run the business. Capital requirements will also determine whether or not any outside investor funds are required.

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Milestones – these should be included so you can measure whether or not you are attaining the goals you originally established for “Sweet Bites.”

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Chapter 6:

PLANNING PROCESSES AND TECHNIQUES CHAPTER 6 STUDY 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 6 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 their relationships to one another • Define policy and procedure and give an example of each in the university setting • Explain how a zero-based budget works • Define forecasting, contingency planning, scenario planning, and benchmarking • Explain the values 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 in MBO • Explain how MBO can operate between a team leader and team members CHAPTER 6 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, medium-range, and long-range plans; followed by strategic, tactical, and operational plans. The chapter also describes the planning tools and Instructor’s Guide 6-1 Chapter 6 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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techniques of forecasting, contingency planning, scenario planning, benchmarking, and the use of staff planners. The chapter then shifts to a discussion of goal setting and goal alignment. Next, management by objectives (MBO) is examined from the perspective of an integrated planning technique. Information is provided regarding how MBO is used and how to ensure its success. 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 6 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.

Study Question 1: Why and how do managers plan? Importance of planning The planning process Benefits of planning Planning and time management

II.

Study Question 2: What types of plans do managers use? Long-range and short-range plans Strategic and tactical planning Operational plan

III.

Study Question 3: What are the useful planning tools and techniques? Forecasting Contingency planning Benchmarking Staff planners

IV.

Study Question 4: How can plans be well implemented? Goal setting and goal alignment Management by objectives Participation and commitment

CHAPTER 6 SUPPORTING MATERIALS Learning From Others • Think Now and Embrace the Future Learning About Yourself • Time Management Figures Instructor’s Guide 6-2 Chapter 6 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Figure 6.1: The Roles of Planning and Controlling in the Management Process Figure 6.2: A Sample Hierarchy of Objectives for Total Quality Management in a Manufacturing Firm Figure 6.3: Management by Objectives as an Integrated Planning and Control Framework Figure 6.4: How Participation and Involvement Help Build Commitments to Plans

Thematic Boxes • Real Ethics: Fighting Poverty • Management Smarts 6.1: Personal Time Management Tips Applications • Self-Test • Self-Assessment • Team Exercise: Personal Career Planning • Case 7: Lands End: Living the Golden Rule CHAPTER 6 LECTURE NOTES LEARNING FROM OTHERS describes how Cognos, a software company owned by IBM and located in Ottawa. Ontario, aims to help businesses “crunch the numbers” in order to yield better organizational planning and control. With businesses facing an ever-changing marketplace, Cognos has set out to help companies gain a flexible approach to their strategic plans by providing software to analyze business data. LEARNING ABOUT YOURSELF describes why time management is an essential skill in today’s world of world. STUDY 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 6.1 of the text, planning is central to the management process. It involves deciding where you want to go and how best to go about it. THE PLANNING PROCESS Objectives identify the specific results or desired outcomes that one intends to achieve. A plan is a statement of action steps to be taken in order to accomplish the objectives. The five steps in the systematic planning process are as follows: Instructor’s Guide 6-3 Chapter 6 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 favour 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; decide 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. 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. REAL ETHICS in the “Benefits of Planning” section of the text describes the pitfall of feelgood evaluations and recommends basing assessment on solid scientific evaluations. 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: • results oriented –– creating a performance-oriented sense of direction. • 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. Instructor’s Guide 6-4 Chapter 6 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 6.1 outlines the following 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.

STUDY QUESTION 2: WHAT TYPES OF PLANS DO MANAGERS USE? LONG-RANGE AND SHORT-RANGE PLANS Long-range plans look three or more years into the future. Intermediate-range plans cover one to two years. Short-range plans cover one year or less. Instructor’s Guide 6-5 Chapter 6 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 operational 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. Marketing plans –– dealing with selling and distributing goods or services. Logistics plans—dealing with suppliers and acquiring resource inputs; Human resource plans –– dealing with building a talented workforce. OPERATIONAL PLAN Operational plans describe what needs to be done in the short term and in response to different situations. They include: Instructor’s Guide 6-6 Chapter 6 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Standing plans – plans, such as policies and procedures that are used over and over. Single-use plans – plans, such as budgets, that are used only once.

Policies and Procedures A policy is a standing plan that communicates broad guidelines for making decisions and taking action in specific circumstances. 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 labour, equipment, and space. Fixed budgets allocate a fixed amount of resources for a specific purpose. Flexible budgets allow the allocation of 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. STUDY QUESTION 3: WHAT ARE THE 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. 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.

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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. 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 makes use of external comparisons to better evaluate current performance and identify possible actions for the future. Benchmarking is a method of finding out what other people and organizations are doing well and then incorporating 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. STAFF PLANNERS Staff planners are persons who coordinate the planning function for the total organization or one of its major components. Communication gaps may develop between the staff planners and line management. STUDY QUESTION 4: HOW CAN PLANS BE WELL IMPLEMENTED?

GOAL SETTING AND GOAL ATTAINMENT 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: 1) Specific—clearly target key results and outcomes to be accomplished 2) Measurable—described so results can be measured without ambiguity 3) Attainable—challenging, including a stretch factor that moves toward real gains, yet, realistic and possible to achieve Instructor’s Guide 6-8 Chapter 6 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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4) Referred to - goals need to be referred to regularly to keep people focused on the task at hand. 5) Timely—linked to specific timetables and “due dates” 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. A hierarchy of objects or goals helps with goal alignment. FIGURE 6.2 in the text shows a sample hierarchy of objectives for quality management in a manufacturing firm. MANAGEMENT BY OBJECTIVES Management by objectives is a useful technique for integrating planning and controlling in day-to-day practice. Management by objectives (MBO) is a structured process of regular communication in which a supervisor/team leader and subordinates/team members jointly set performance objectives and review results accomplished. MBO involves a formal agreement between a supervisor/team leader and subordinates/team members concerning: • 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. FIGURE 6.3 from the text depicts the MBO process as an integrated planning and control framework. Performance Objectives in MBO Three types of performance objectives may be specified in an MBO contract 1. Improvement objectives document intentions for improving performance in a specific way. 2. Personal development objectives pertain to personal growth activities. 3. Maintenance objectives formally express intentions to continue performance at existing levels. 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. MBO Pros and Cons Actions to avoid in using MBO: • tying MBO to pay. • focusing too much attention on easy objectives. • requiring excessive paperwork. • having supervisors simply tell subordinates their objectives. Instructor’s Guide 6-9 Chapter 6 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Advantages of MBO: • • • • •

focuses workers on the most important tasks and objectives. focuses supervisors on areas of support that can truly help their subordinates meet agreed-upon objectives. contributes to relationship building between supervisor and subordinate. gives the subordinates a structured opportunity to participate in decisions that affect their work.

PARTICIPATION AND INVOLVEMENT Participatory planning requires that the planning process include people who will be affected by the resulting plans and/or will be asked to help implement them. Figure 6.4 from text illustrates the importance of participation and involvement for building commitment to plans throughout all phases of the planning process. 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 6 STUDY QUESTIONS SUMMARY Study 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 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? Study 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 3 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 behaviour 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.

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FOR DISCUSSION: Is there any real value to long-term planning in today’s rapidly changing environment? Study Question 3: What are 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 essential to plan implementation.

FOR DISCUSSION: Shouldn’t all plans really be contingency plans? Study Question 4: How can plans be well implemented? • • • •

Great goals are specific, timely, measurable, challenging, and attainable. A hierarchy of objectives helps to align goals from top to bottom in organizations. MBO is a participative process for clarifying performance objectives for an individual and identifying helpful support that can be provided by the manager. 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 MBO standard practice in all organizations? CHAPTER 6 KEY TERMS Benchmarking: using external comparisons to better evaluate current performance and identify possible actions for the future. Best practices: a benchmarking technique that involves identifying those things that help both competitors and noncompetitors achieve superior performance. Budget: a single-use plan that commits resources to activities, projects, or programs. Complacency trap: is being carried along by the flow of events. Contingency planning: identifies alternative courses of action that can be implemented to meet the needs of changing circumstances. Forecasting: the process of making assumptions about what will happen in the future. Functional plans: indicate how different operations within the organization will help advance the overall strategy. Hierarchy of objectives: a means-ends chain in which lower-level objectives (the means) lead to the accomplishment of higher-level objectives (the ends). Improvement objectives: describe intentions for specific performance improvements. Management by objectives (MBO): a structured process of regular communication in which a supervisor/team leader and subordinates/team members jointly set performance objectives and review results accomplished. Objectives: the specific results or desired end states that one intends to achieve. Operational plan: define what needs to be done in specific areas to implement strategic plans. Instructor’s Guide 6-11 Chapter 6 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Participatory planning: requires that the planning process include people who will be affected by the resulting plans and/or will be asked to help implement them. Personal development objectives: describe intentions for personal growth through knowledge and skills development. Plan: a statement of action steps to be taken in order to accomplish the objectives. Planning: the process of setting objectives and determining how best to accomplish them. Policy: a standing plan that communicates broad guidelines for making decisions and taking action in specific circumstances. Procedures: standing plans that describe exactly what actions are to be taken in specific situations. Scenario planning: 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. Strategic plan: sets broad, comprehensive, and longer-term action directions for the entire organization. Tactical plan: helps to implement all or parts of a strategic plan. Vision: clarifies the purpose of the organization and expresses what it hopes to be in the future Zero-based budget: a budget that allocates 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.

SUGGESTED TEAM EXERCISE Today’s college students have been working in “teams” all their lives. Ask them to share in their groups their worst experiences of working in team (i.e., members who freeload, unfocused meetings). Then ask them to solve the common themes of their discussion using the planning tools from the chapter. Then have groups share with the class how their student groups can be improved to reap the benefits of planning such as improving focus, action orientation, coordination, and time management. 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.

The benefits of planning include ________. (a) improved focus (b) lower labour costs (c) more accurate forecasts (d) guaranteed profits

In order to implement its strategy, a business firm would likely develop a (an) ______ plan for the marketing function. (a) benchmarking IT (b) operational (c) productivity (d) zero-based

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______ 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

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

A sexual harassment policy is an example of ______ plans used by organizations. (a) long-range (b) single-use (c) standing-use (d) operational

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

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

In a hierarchy of objectives, the ideal situation is that plans set at lower levels 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

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

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Review of an individual’s performance accomplishments in an MBO system is done by ________. (a) the person (b) the person’s supervisor (c) the person and the supervisor (d) the person, the supervisor, 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.

A manager is failing to live up to the concept of MBO when he or she ________. (a) sets performance objectives for subordinates (b) actively supports subordinates in their work (c) jointly reviews performance results with subordinates (d) keeps a written record of subordinates’ performance objectives

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

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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. 20.

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 Management by Objectives for 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 clear, measurable, and time-defined. 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.

REVIEW QUESTIONS FOR CASE 7: LANDS END

1. How could the planning process be followed to create a plan for continuous improvements in Lands’ End’s online customer service? The planning process as outlined in the chapter consists of five steps. Each is listed below with an example of how Lands’ End can use each step in creating its continuous improvement plan. Define your objectives – Lands’ End wants to constantly improve the online experience for customers, such as, making the shopping experience easier and fun. Determine where you stand vis-à-vis objectives – Lands’ End already has “My Virtual Model” in place, along with the Elf of the Day promotion during the holiday season. Emails are handled within a three hour time span, and there’s a live chat function on the website. Develop premises regarding future conditions – Lands’ End can develop scenarios for future events by looking at what the competition may do, determining what customers will want, and deciding how to deliver. Analyze alternatives and make a plan – One alternative Lands’ End can pursue is the collection and analysis of both primary and secondary marketing data to examine what the future may hold. Another is it can investigate new ways of using technological advances to afford an improved customer web experience. Implement the plan and evaluate results – After analyzing some alternatives for improvement, Lands’ End should implement those that seem promising and after a six month timeframe, go back and see if online customer service has improved, and adjust the plan as necessary to get the results desired. Instructor’s Guide 6-15 Chapter 6 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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2. If you were hired by Lands’ End to help benchmark its customer service performance, which three companies would you choose and why? Student answers to this question will vary. Below are three companies that offer outstanding customer service along with an example of that service: Nordstrom – when entering a store, you are greeted and then helped by that person during your entire shopping experience. You will also receive a personalized hand-signed birthday card from your shopping associate along with several follow-up telephone calls to ensure you are happy with your purchases. Commerce Bank (also known as TD Bank) – all calls answered with a live operator who greets each customer and then connects the caller to the right department for handling of his or her inquiry. Walt Disney Company – the company has built its reputation on making sure that from the moment a visitor steps foot through the gate until they depart after the evening fireworks show, that customer experienced a “magical day.” 3. How could MBO at Lands’ End build a clear hierarchy of objectives, improve goal alignment and help with implementing plans within the customer services area? Student answers will vary, however, they should note that within the MBO process where managers and employees are in regular communication with each other around the goal setting process, lower level employees, who are usually found in the customer service area, can have a better understanding of how their specific goals affect the overall mission of Lands’ End.

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Chapter 7:

STRATEGY AND STRATEGIC MANAGEMENT CHAPTER 7 STUDY 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 strategies and how are they formulated? 4. What are business strategies and how are they formulated? 5. What are current issues in strategy implementation?

CHAPTER 7 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • • • • • • •

Define the terms 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 components 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 Differentiate the three levels of strategy—corporate, business, and functional List and explain the major types of growth and diversification strategies, and restructuring and divestiture strategies List and give examples of global strategies Define strategic alliance Explain cooperation as a business strategy Explain B2B and B2C as e-business strategies Describe the BCG matrix as a way of strategic portfolio planning List and explain the four competitive strategies in Porter’s model Illustrate how these strategies apply to products in a market familiar to you Explain the concepts of strategic incrementalism and emergent strategy Explain how the management process supports strategy implementation Define corporate governance Explain why boards of directors sometimes fail in their governance responsibilities

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Define strategic control and strategic leadership List the responsibilities of a strategic leader in today’s organizations

CHAPTER 7 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 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 organizations. Next, the chapter considers the importance of analyzing: (1) mission, values, and objectives; (2) organizational resources and capabilities; and (3) industry and environment. 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 7 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 is required to present this material. Additional time may be needed if the video and/or case enhancements are employed. I.

Study Question 1: What is strategic management? Competitive advantage Strategy and strategic intent Levels of strategy The strategic management process

II.

Study Question 2: What are the essentials of strategic analysis? Analysis of mission, values, and objectives SWOT analysis of organization and environment Analysis rivalry and industry attractiveness

III.

Study Question 3: What are corporate strategies and how are they formulated? Grand or master strategies Growth and diversification strategies Restructuring strategies

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Global strategies Cooperation strategies E-business strategies Strategic portfolio planning IV.

Study Question 4: What are business strategies and how are they formulated? Competitive strategies Differentiation strategy Cost leadership strategy Focus strategy Strategic incrementalism

Study Question 5: What are current issues in strategy implementation? Management practices and systems Corporate governance Strategic control Strategic leadership

CHAPTER 7 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Get and Stay Ahead With Strategy Learning About Yourself • Critical Thinking Figures • Figure 7.1: Three Levels of Strategy in Organizations – Corporate, Business, and Functional Strategies • Figure 7.2: Major Elements in the Strategic Management Process • Figure 7.3: External Stakeholders as Strategic Constituencies in an Organization’s Mission Statement • Figure 7.4: SWOT Analysis of Strengths, Weaknesses, Opportunities, and Threats • Figure 7.5: Porter’s Model of Five Strategic Forces Affecting Industry Competition • Figure 7.6: The BCG Matrix Approach for Portfolio Planning in Corporate-Level Strategy Formulation • Figure 7.7: Porter’s Competitive Strategies Framework: Soft-Drink Industry Examples

Thematic Boxes • Real Ethics: Customers Hurt by Skybus Failure • Issues and Situations: Video Game Contrarian Instructor’s Guide 7-3 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Management Smarts 7.1: Web-based Business Models Research Brief: Female Directors on Corporate Boards Linked with Positive Management Practices.

Applications Self-Test Self-Assessment Team Exercise: Strategic Scenarios Case 7: HBC: From Fur to Fendi

CHAPTER 7 LECTURE NOTES LEARNING FROM OTHERS describes how Starbucks has created a coffee bar culture with itself at the centre. Starbucks is trying new ideas for growth by looking ahead, understanding the environment and the organization, and effectively positioning the organization for competitive advantage in changing times, and then achieving it. LEARING ABOUT YOURSELF examines the importance of developing critical thinking skills for problem solving.

STUDY QUESTION 1: WHAT IS STRATEGIC MANAGEMENT? COMPETITIVE ADVANTAGE Competitive advantage refers to operating with an attribute or set of attributes that allows an organization to outperform its rivals. Typical sources of competitive advantage include: • cost and quality – where strategy drives an emphasis on operating efficiency and product or service quality. • knowledge and speed – where strategy drives an emphasis on innovation and speed of delivery to market for new ideas. • barriers to entry – where strategy drives an emphasis on creating a market stronghold that is protected from entry by others. • financial resources – where strategy drives an emphasis on investments or loss absorption that competitors can’t match. A sustainable competitive advantage is one that is difficult for competitors to 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. Instructor’s Guide 7-4 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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.

LEVELS OF STRATEGY FIGURE 7.1 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. 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. In large conglomerates, like General Electric, that 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. 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, etc. 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. Instructor’s Guide 7-5 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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The strategic question to be answered in selecting functional strategies is: “How can we best utilize resources 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. 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. 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. Strategy implementation is the process of allocating resources and putting strategies into action. What Peter Drucker says about strategy implementation is 1. It requires decision – now. 2. It imposes risk – now. 3. It requires action – now. 4. It demands allocation of resources, and above all human resources – now. 5. It requires work – now. FIGURE 7.2 from the text describes the steps involved in fulfilling the three major responsibilities of the strategic management process –– strategic analysis, strategy formulation and strategy implementation.

STUDY QUESTION 2: WHAT ARE THE ESSENTIALS OF STRATEGIC ANALYSIS?

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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. A strategic constituencies analysis can be used to review the interests of each stakeholder along with the organization’s record in responding to their interests. FIGURE 7.3 from the text provides an example of how external stakeholders’ interests can be reflected in the mission statement. Core Values Core values are broad beliefs about what is or is not appropriate. Organizational culture reflects the predominant value system of the organization as a whole. Organizational culture does the following: • Helps build organizational identity. • Gives character to the organization in the eyes of employees and external stakeholders. • Backs up the mission statement. • Guides the behaviour of organizational members in meaningful and consistent ways.

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? Instructor’s Guide 7-7 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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(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. • 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. • Social responsibility –– making a positive contribution to society. REAL ETHICS in the “Analysis of Mission, Values, and Objectives” section of the text asks students to consider the ethics of organizations using bankruptcy to facilitate job shifting to overseas locations.

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. Instructor’s Guide 7-8 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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FIGURE 7.4 from 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: • What are our strengths? Manufacturing efficiency? Skilled workforce? Good market share? Strong financing? Superior reputation? • What are our weaknesses? Outdated facilities? Inadequate research and development? 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 technology. • Efficient manufacturing approaches. • Unique product distribution systems. • Organizational weaknesses may be found in the same areas as core competencies are found. 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. Referring back to FIGURE 7.4, 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?

ANALYSIS OF RIVALRY AND INDUSTRY ATTRACTIVENESS FIGURE 7.5 from the text describes Porter’s five strategic forces that should be considered in conducting an industry analysis. These forces include: Instructor’s Guide 7-9 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Industry competitors –– intensity of rivalry among firms in the industry and the ways they behave competitively toward one another. New entrants –– threats 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, based on the ability of consumers to find 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.

Industry Attractiveness Using the forces described in FIGURE 7.5, 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.

STUDY QUESTION 3: WHAT ARE CORPORATE STRATEGIES AND HOW ARE THEY FOMRULATED?

GRAND OR MASTER STRATEGIES Growth Strategy 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.

Stability Strategy Stability strategies try to maintain an existing course of action without major changes. Renewal Strategy

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Renewal strategies, also called retrenchment or defensive strategies, try to solve problems and overcome weaknesses that are hurting the performance of an organization. A retrenchment strategy is used to correct weaknesses by making changes to current ways of operating. Liquidation is the most extreme form of retrenchment. Operations cease and assets are sold to paid creditors. Combination Strategy Combination strategies pursue one or more of the other strategies at the same time. An example of this is where a diversified firm may be retrenching in one major business while seeking growth in another.

GROWTH AND DIVERSIFICATION STRATEGIES Growth is one of the most common and popular of the grand strategies, because it is viewed as necessary for long-run survival in most industries. 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.

RESTRUCTURING STRATEGIES When organizations are in trouble, some form of readjustment often takes place.

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Restructuring tries to correct weaknesses by changing the mix or reducing the scale of operations, with the idea of reversing or changing an approach that isn’t working, and reorganize to compete better in the future Restructuring by turn-around focuses on fixing specific performance problems. 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.

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. This strategy reflects an ethnocentric view that assumes everyone everywhere wants the same thing that one has developed and sold successfully at home. A multidomestic strategy tries to customize products and their advertising as much as possible to fit the local needs of different countries or regions. This strategy reflects a polycentric view that that shows respect for both market diversity and the capabilities of locals to best interpret their strategic implications. A transnational strategy seeks balance among efficiencies in global operations and responsiveness to local markets. This strategy reflects a geocentric view that respects diversity and values talents around the world.

COOPERATIVE STRATEGIES One of the current trends in strategic management is toward more cooperation among organizations. The international joint venture is one of the many forms of strategic alliances in which two or more organizations join together in partnership to pursue an area of mutual interest. Types of strategic alliances: Instructor’s Guide 7-12 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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• 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 for sales and distribution of products or services. Co-opetition is the strategy of working with rivals on projects of mutual benefit. ISSUES AND SITUATIONS in the “ Cooperative Strategies” section of the text describes the differentiation strategy that video game contrarian Will Wright pushed against industry trends.

E-BUSINESS STRATEGIES An e-business strategy is the strategic use of the Internet to gain competitive advantage. Popular e-business strategies include: • B2B (business-to-business) strategies use information technology and Web portals to vertically link organizations with members of their supply chains. • B2C (business-to-customer) strategies use information technology and Web portals to link organizations with their customers. E-tailing is the sale of goods directly to customers via the Internet. The B2C strategy must be fully integrated with supporting functional strategies and operations. MANAGEMENT SMARTS 7.1 identifies some of the more common Web-based business models that are being used. These models are: • Brokerage model –– bringing buyers and sellers together to make transactions. • Advertising model –– providing information or services while generating revenue from advertising. • Merchant model –– selling products wholesale and retail through the Web. • Subscription model –– selling access to a Web site through subscription. • Infomediary model –– collecting information on users and selling it to other businesses. • Community model –– supporting the site by donations from community of users.

STRATEGIC PORTFOLIO PLANNING 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, Instructor’s Guide 7-13 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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strategy formulation involves portfolio planning to allocate scarce resources among competing uses. FIGURE 7.6 from 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. • Stars are high market share/high growth businesses. They produce large profits through a dominant competitive position in a growing market. The preferred strategy is growth. • Cash cows are high market share/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. • Question marks are low market share/high growth 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. • Dogs are low market share/low growth businesses. They do not produce much profit and show little potential for future improvement. The preferred strategy is retrenchment by divestiture.

STUDY QUESTION 4: WHAT ARE BUSINESS STRATEGIES AND HOW ARE THEY FORMULATED? Any competitive advantage must always be considered temporary because of the intense, global competition of modern business. 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 According to Michael Porter, business-level strategic decisions are driven by two factors: • 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. As shown in FIGURE 7.7 in the textbook, Porter’s generic strategies framework combines the market scope and source of competitive advantage variables to generate Instructor’s Guide 7-14 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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the following four generic strategies that an organization can pursue in seeking to gain a strategic advantage. • • • •

Differentiation –– where the organization’s resources and attention are directed toward making its products appear different from those of the competition. Cost leadership –– where the organization’s resources and attention are directed toward minimizing costs to operate more efficiently than 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.

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.

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STRATEGIC INCREMENTALISM James Brian Quinn describes strategic incrementalism as a process in which modest and incremental changes in strategy occur as managers learn from experience and make adjustments. Incrementalism has much in common with Henry Mintzberg’s and John Kotter’s descriptions of managerial behaviour that were discussed in Chapter 1 of the text. Because managers plan and act in complex interpersonal networks and in hectic and fastpaced work settings, they must stay focused on long-term objectives while remaining flexible to master short-run problems and opportunities. Mintzberg argues that emergent strategies develop progressively over time in the “streams” of decisions managers make as they learn from and respond to work situations. Incremental or emergent strategic planning allows managers and organizations to become really good at implementing strategies, not just formulating them.

STUDY QUESTION 5: WHAT ARE CURRENT ISSUES IN STRATEGY IMPLEMENTATION? No strategy, no matter how well formulated, can achieve long-term success if it is not properly implemented. This includes the willingness to exercise control and make modifications to meet the needs of changing conditions.

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 reflect a lack of attention to the major strategic planning elements ––analysis of purpose and mission, core values and corporate culture, and the SWOT analysis. • Failures of process reflect poor handling of the ways in which the various aspects of strategic planning are accomplished. • The lack of participation error is the failure to include key persons in the strategic planning. • Goal displacement can occur when the process gets so bogged down in details that the planning process becomes an end in itself instead of a means to an end. RESEARCH BRIEF in the “Strategy Implementation” section of the text describes research that finds gender diversity on boards of directors may bring about positive organizations Instructor’s Guide 7-16 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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changes that make firms better places to work. Ask students to consider why the presence of more female directors would have the effect?

CORPORATE GOVERNANCE Corporate governance is the system of control and performance monitoring of top management that is maintained by boards of directors and other major stakeholder representatives. Boards of directors are formally charged with ensuring that an organization operates in the best interests of its owners and/or the representative public in the case of nonprofit organizations. 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.

STRATEGIC CONTROL 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. 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.

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

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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 –– ensuring that the organization’s resources are allocated in ways consistent with the strategy. • Creating a sense of urgency –– not allowing 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 7 STUDY QUESTIONS SUMMARY Study 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? Study Question 2: What are the essentials of strategic analysis?

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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? Study Question 3: What are corporate-level strategies, and how are they formulated? • • • •

The grand or master strategies used by organizations include growth—pursuing expansion through concentration and diversification; stability – maintaining existing operations; and renewal— pursuing ways to correct performance problems. Global strategies take advantage of international business opportunities; cooperative strategies use strategic alliances and co-opetition as pathways to performance gains. E-business strategies use information technology and the Internet to pursue competitive advantage in business-to-business and business-to-customer transactions. 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? Study Question 4: How are the business-level strategies and how are they formulated? • • •

Potential sources of competitive advantage in business-level strategy formulation include lower costs, better quality, more knowledge, greater speed, and strong financial resources. Porter’s model of competitive strategy includes: differentiation— distinguishing one’s products from the competition; cost leadership—minimizing costs relative to the competition; and focus—concentrating on a special market segment. The incremental or emergent model recognizes that many strategies are formulated and implemented incrementally over time.

FOR DISCUSSION: Can a business ever be successful with a combined cost leadership and differentiation strategy? Study Question 5: What are some current issues in 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 in the planning process.

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Boards of directors play important roles in control corporate governance, including monitoring how well top management fulfills strategic management responsibilities. Strategic leadership inspires the process of continuous evaluation and improvement of strategies and their implementation.

FOR DISCUSSION: Is strategic leadership capable of making up for poor corporate governance?

CHAPTER 7 KEY TERMS B2B business strategy: uses information technology and Web portals to vertically link organizations with members of their supply chains. B2C business strategy: uses information technology and Web portals to link organizations with their customers. BCG matrix: a 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: a strategy that sets the strategic direction for a single business unit or product line. Competitive advantage: operating with an attribute or set of attributes that allows an organization to outperform its rivals. Combination strategy: pursues growth, stability, and/or retrenchment in some combination. Concentration: growth that occurs through expansion within the same business area. Co-opetition: the strategy of working with rivals on projects of mutual benefit. Core competency: a special strength that the organization has or things that it does exceptionally well in comparison with competitors. Core values: broad beliefs about what is or is not appropriate behaviour. Corporate governance: the system of control and performance monitoring of top management that is maintained by boards of directors and other major stakeholder representatives. Corporate strategy: a strategy that directs the organization as a whole toward sustainable competitive advantage. Cost leadership strategy: seeks to operate with low cost so that products can be sold at low prices. Differentiation strategy: offers products that are unique and different from the competition. Diversification: growth that occurs through the acquisition of or investment in new and sometimes different business areas. Divestiture: selling off parts of the organization to refocus on core competencies, cut costs, and improve operating efficiency. Downsizing: an action that reduces the size of operations with the intent of reducing costs and improving operating efficiency. E-business strategy: the strategic use of the Internet to gain competitive advantage. Emergent strategy: a strategy that develops progressively over time in the “streams” of decisions managers make as they learn from and respond to work situations. Focus strategy: concentrates on one special market segment and tries in that segment to be the provider with lowest costs. Instructor’s Guide 7-20 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Focused cost leadership: a strategy that seeks the lowest costs of operations within a special market segment. Focused differentiation: a firm sells a unique product to a special niche market. Functional strategy: 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: views the world as one large market, trying as much as possible to standardize products and their advertising for use everywhere. Growth strategy: a strategy that seeks an increase in size and the expansion of current operations. Lack of participation error: a failure to include key persons in strategic planning. Liquidation: a retrenchment strategy where a business ceases and assets are sold to pay creditors. Mission: an organization’s reason for existing in society. Multidomestic strategy: tries to customize products and their advertising as much as possible to fit the local needs of different countries or regions. Operating objectives: specific results that organizations try to accomplish. Organizational culture: reflects the predominant value system of the organization as a whole. Portfolio planning: an approach to strategy formulation that allocates scarce resources among competing uses. Renewal strategy: tries to solve problems and overcome weaknesses that are hurting performance. Restructuring: a strategy that tries to correct weaknesses by changing the mix or reducing the scale of operations. Stability strategy: maintains current operations without substantial changes. Stakeholders: the individuals and groups who are directly affected by the organization and its strategic accomplishments. Strategic alliance: two or more organizations joining together in partnership to pursue an area of mutual interest. Strategic analysis: the process of analyzing the organization, the environment, and the organization’s competitive position and current strategies. Strategic constituencies analysis (p. 211): assesses interests of stakeholders and how well the organization is responding to them. Strategic control: makes sure strategies are well implemented and that poor strategies are scrapped or modified. Strategic incrementalism: a process that makes modest changes in strategy as experience builds over time. Strategic intent: having all organizational energies directed toward a unifying and compelling target or goal. Strategic leadership: the capability to inspire people to successfully engage in a process of continuous change, performance enhancement, and implementation of organizational strategies. Strategic management: the process of formulating and implementing strategies to accomplish long-term goals and sustain competitive advantage. Strategy: a comprehensive action plan that identifies long-term direction for an organization and guides resource utilization to accomplish goals with sustainable competitive advantage. Strategy formulation: the process of crafting strategies to guide the allocation of resources. Strategy implementation: the process of putting strategies into action. Instructor’s Guide 7-21 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Sustainable competitive advantage: the ability to outperform rivals in ways that are difficult or costly to imitate. SWOT analysis: examines organizational strengths and weaknesses and environmental opportunities and threats. Transnational strategy: seeks balance among efficiencies in global operations and responsiveness to local markets. Turn-around: a strategy that focuses of fixing specific performance problems. Vertical integration: diversification that occurs through the acquisition of suppliers (backward vertical integration) or distributors (forward vertical integration).

SUGGESTED TEAM EXERCISE 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. Allstate: http://www.statefarm.com/about/mission.asp Starbucks: http://www.starbucks.com/aboutus/environment.asp Gannett: http://www.gannett.com/about/visionmission.htm ExxonMobil: http://www.exxonmobil.com/corporate/About/ViewPoints/Corp_V_GuidingPrinciples.asp

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?”

The ability of a firm to consistently outperform its rivals is called ___________. (a) vertical integration (b) competitive advantage (c) incrementalism (d) strategic intent

In a complex conglomerate business such as General Electric, a(n) ___________ -level strategy sets strategic direction for a strategic business unit. (a) institutional (b) corporate (c) business (d) functional

An organization that is downsizing to reduce costs is implementing a grand strategy of

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___________. (a) growth (b) cost differentiation (c) renewal (d) stability 5.

The ___________ is a predominant value system for an organization as a whole. (a) strategy (b) core competency (c) mission (d) corporate culture

A ___________ in the BCG matrix would have a high market share in a low-growth market. (a) dog (b) cash cow (c) question mark (d) star

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

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

10.

Cost efficiency and product quality are two examples of ___________ objectives of organizations. (a) official (b) operating (c) informal (d) institutional Restructuring by reducing staff and scale of operations is a form of ___________ strategy. (a) turn-around (b) growth (c) concentration (d) incremental

11.

Among the global strategies that might be pursued by international businesses, the ___________ strategy is the most targeted on local needs, local management, and local products. (a) ethnocentric (b) transnational (c) geocentric (d) multi-domestic

12.

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.

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(a) transnational (b) concentration (c) diversification (d) differentiation 14.

The role of the board of directors as an oversight body that holds top executives 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) poorly worded mission (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.

Explain the differences between B2B and B2C as e-business strategies. An e-business strategy uses the Internet to help achieve sustainable competitive advantage. This can be done through B2B strategies that link businesses electronically with one another in business-to-business relationships. A good example is B2B in supply chain management, where suppliers are linked by the Internet and extranets to customers’ information systems. They follow sales and track inventories in real time and ship new orders as needed. The B2C approach is more of a retailing model linking businesses to customers. An example is Amazon.com, which uses online sales and online customer interaction to sell its products.

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.

Tashlin Masrani owns and operates a small retail store selling the outdoor clothing of an

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Canadian manufacturer to a predominately university-student market. Lately, a large department store outside of town has started selling similar, but lower-priced clothing manufactured in China, Thailand, and Bangladesh. Tashlin 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 Tashlin. 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 department store seems better positioned to follow the cost leadership strategy. This means that Tashlin may want to consider the other two alternatives. A differentiation strategy would involve trying to distinguish Tashlin’s products from those of the larger store. This might involve a “made in Canada” theme, or an emphasis on leather, canvas or some other type of clothing material. A focus strategy might specifically target university 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 university student market.

REVIEW QUESTIONS FOR CASE 7: HBC-FROM FUR TO FENDI 1. What does an analysis using Porter’s five forces model reveal about the industry that HBC competes within and what are its strategic implications for HBC? New Entrants:The threat of new entrants is relatively low due to the size and scope of HBC’s operations. Small retail organizations would pose minimal threat to HBC. Industry Competition:The intensity of rivalry for HBC, particularly from retailers such as Wal-Mart, Old Navy, and the Future shop creates a highly competitive industry Suppliers:There is limited power of suppliers with perhaps the exception of the relationship with high end suppliers such Armani, Ungaro, and Chanel that focused on exclusive relationships with few retailers. Customers:The power of customers to influence prices is high as customers have many retail options for purchases. Substitute Products:The threat of substitute products is high because customers have the ability to find what they want from other sellers.

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Industry attractiveness: According to Porter, an attractive industry has low competition, few threats of new entrants or substitutes and has lower bargaining power. HBC’s industry has high competition, high risk of substitute products and high customer power but low risk of new entrants and low power of suppliers making it moderately attractive. 2. Describe the competitive strategy used by HBC prior to its sale to Zucker and NRDC. What strategy has HBC adopted since the sale? Before its sale, HBC focused on the following corporate and business level strategies: Corporate Level Strategy: Initially HBC was focused on a growth strategy as it sought to increase the size and scope of its operations with respect to total sales, market share, and operating locations. Growth and Diversification Strategies: •

Concentration strategy: After diversifying in to a number of different areas such as property development, shipping and natural resources, HBC ultimately focused on expansion within the same business area.

Business Level Strategy: •

Cost Leadership Strategy: HBC unsuccessfully tried to compete with lower-priced retailers based on price.

•

Differentiation Strategy: HBC tried to differentiate itself by launching the VIP “Room” at some locations.

After its sale, HBC focused on the following corporate and business level strategies: Corporate Level Strategy: •

Renewal Strategy. After the sale, HBC focused on trying to solve problems and overcome weaknesses that were hurting performance. They cut the size of its workforce, operations, and product lines and rearranged operations to improve performance and focused on service and structured product offerings. Growth and Diversification Strategies:

•

Concentration strategy: After diversifying into a number of different areas such as property development, shipping and natural resources, HBC ultimately focused on expansion within the same business area.

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Restructuring Strategies: •

Restructuring: HBC restructured to reduce the mix and scale of its operations to change what wasn’t working and reorganize to compete better in the future.

•

Turnaround: with the re-introduction of the “Room” HBC attempted to develop strategy to fix specific performance problems.

Business Level Strategy: •

Focused differentiation: After the sale, HBC focused on expanding its high-end offerings to a specific niche market in locations such as Toronto.

3. As a strategic consultant hired by HBC, discuss what strategies and implementation processes you would recommend for capitalizing on its Olympic success. Students might recommend the following: Competitive Strategies: Competitive Advantage: HBC’s Signature line of its classic blankets and sweaters, could be considered its competitive advantage as no other retailer can market its distinctive pattern. Based on this competitive advantage, HBC could capitalize on a differentiation strategy using advertising to create consumer perception that offerings are clearly different. This may build a strong base of customers that are loyal to HBC products and lose interest in those of competitors. To do this, HBC must develop strengths in research and development, marketing and advertising. HBC must redefine Canadian style. Combined with a focused strategy, concentrating on niche customer groups, such as the high-end market, and geographic regions (rural and urban), a more comprehensive competitive advantage for HBC may develop. Strategic Incrementalism: HBC could also allow strategies to take shape, change, and develop over time in response to past patterns. This would allow managers to learn from experience and make adjustments along the way. This would involve planning and acting in complex international networks in a fast-paced environment. This could allow HBC to manage its product line in response to customer interest providing some freedom to manage its product line across different geographic locations Emergent strategies for HBC could be developed progressively over time as managers make decisions while they learn from and respond to experiences in the environment. This strategy could allow HBC to better respond to the competitive landscape of the retail environment. Strategy Implementation: Instructor’s Guide 7-27 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Corporate Governance: This system of control and monitoring of top management performance by boards of directors and major stakeholder representatives would make HBC accountable to achieving its objectives and perhaps minimizing its risk of repeating its mistakes of continuing to pursue inefficient strategies that effectively damage the company and its reputation. However, we cannot rule out the role that the board may have had in allowing firms to pursue flawed strategy. Strategic Control: Implementing corporate governance also ensure that managers have strategic control to ensure strategies are well-implemented and that poor strategies are modified to quickly meet the performance demands of changing conditions. Strategic Leadership: HBC should also ensure that its leadership inspires continuous change, and refines and improves strategies.

REVIEW QUESTIONS FOR VIDEO CASE 3: STARBUCKS’ NEW EVERYDAY BREW 1. Is “growth” a necessary progression for a company or can it do well in the niche it has created? You can use Starbucks as an example if desired. Starbucks can do well without worrying too much about growth. It has secured a special niche in the very competitive coffee industry. Above all, it has developed a loyal market of coffee “connoisseurs” who are used to paying more for coffee, see the value in doing so, and thus who will likely continue to do so regardless of the state of the economy. Growth is actually a risk in some ways, as it sells a product that is not for everyone, and it has received some backlash from its long-time customers for attempting to appeal to a broader market. 2. Is Starbucks’ dependence on essentially one product a source of great vulnerability? If so, is that because coffee is omnipresent in daily life? If coffee is omnipresent, did Starbucks help make it so? What are other weaknesses in the Starbucks brand? Students will most likely say that having one basic product is a weakness. They might also cite the high cost of its specialty drinks, the foreign coffee language one has to learn just to order in the store, and its overexpansion. Students up on the news might cite the Consumer Reports taste test results and the company’s recent decision to close a number of stores and retrain employees. 3. Compare Starbucks’ strategy over the past five years to that of Tim Horton’s and Instructor’s Guide 7-28 Chapter 7 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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McDonald’s. How are they similar and how are they different? All of these companies have focused on the coffee market and have made getting a cup of coffee as convenient as breathing air. However, while Starbucks was asleep at the wheel, Tim Horton’s and McDonald’s have figured out that today’s coffee drinkers are looking for simplicity, not luxury. They know how to give the customer a simple, good-quality, affordable cup of “Joe.” 4. Using ONLY the information in the video, prepare a SWOT analysis for Starbucks. Note: this would be a good activity for a small group. Possible answers include: • • • •

Strengths: great product quality and name recognition Weaknesses: overexpansion Opportunities: offer affordable coffee during the recession Threats: recession, competitors like Dunkin’ Donuts

5. How would you classify Starbucks in the BCG Matrix? Why? Their decreasing market share and poor competitive position in the recession would seem to qualify them as Question Marks.

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Chapter 8:

ORGANIZATION STRUCTURES AND DESIGN CHAPTER 8 STUDY 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 newer types of organization structures? How are organizational designs changing the workplace?

CHAPTER 8 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, such as a Web-based retailer, might use a network structure to organize its various operations • Discuss the potential advantages and disadvantages of a network approach • 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 • Define differentiation and integration • List ways to improve subsystem integration in organizations • Describe trends in levels of management, delegation and empowerment, decentralization and centralization, and use of staff CHAPTER 8 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 labour) 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.

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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 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 8 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.

Study Question 1: What is organizing as a management function? What is organization structure? Formal structures Informal structures

II.

Study Question 2: What are the traditional organization structures? Functional structures Divisional structures Matrix structures

III.

Study Question 3: What are the newer types of organization structures? Team structures Network structures Boundaryless organizations

IV.

Study Question 4: How are organizational designs changing the workplace? Mechanistic and organic designs Subsystems design and integration Organizational design trends

CHAPTER 8 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Structure Supporting Strategy Learning About Yourself Instructor’s Guide 8-2 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Empowerment

Figures • Figure 8.1: Organizing Viewed in Relationship with the Other Management Functions • Figure 8.2: Functional Structures in a Business, Branch Bank, and Community Hospital • Figure 8.3: Divisional Structures Based on Product, Geography, Customer, and Process • Figure 8.4: Matrix Structure in a Small, Multiproject Business Firm • Figure 8.5: How a Team Structure Uses Cross-Functional Teams for Improved Lateral Relations • Figure 8.6: A Network Structure for a Web-Based Retail Business • Figure 8.7: The Boundaryless Organization Eliminates Internal and External Barriers • Figure 8.8: Organizational Design Alternatives: From Bureaucratic to Adaptive Organizations • Figure 8.9: Subsystems Differentiation Among Research and Development (R&D), Manufacturing, and Sales Division Thematic Boxes • Issues and Situations: Nokia Reorganizes • Management Smarts 8.1: How to Improve Subsystems Integration • Real Ethics: Flattened into Exhaustion • Research Brief: Making Schools Work Better Applications • Self-Test • Self-Assessment • Team Exercise: The Future Workplace • Case 8 – Nike: Spreading Out to Stay Together CHAPTER 8 LECTURE NOTES LEARNING FROM OTHERS describes Edwards Jones’ efforts to succeed with the right organizational structure. LEARNING ABOUT YOURSELF examines empowerment and why managers need to empower their employees. STUDY 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 labour) and coordinating results to achieve a common purpose. FIGURE 8.1 from 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 labour 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: • Helping people accomplish their work. Instructor’s Guide 8-4 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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• Helping people overcome limits of the formal structure. • Allowing people to gain access to interpersonal networks that satisfy needs for social interaction. • Informal learning that takes place as people interact informally throughout the workday. Potential disadvantages of informal structures include: • Activities sometimes work against the best interests of the organization as a whole. • Susceptibility to rumour. • May carry inaccurate information. • May breed resistance to change. • Diversion of work efforts from important objectives. • 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.

STUDY 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. 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 8.2 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. Instructor’s Guide 8-5 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Task assignments consistent with expertise and training. High-quality technical problem solving. In-depth training and skill development within functions. 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, timeliness, and innovation. • Functional chimneys problem –– the lack of communication, coordination, and problem solving across functions. • The sense of cooperation and common purpose tends to break down. • Narrow view of performance objectives. • 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, and/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 8.3 from 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 Instructor’s Guide 8-6 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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. Process Structures A work process is a group of tasks related to one another that collectively create 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 8.4 from the text illustrates a matrix structure in a small multi-project business firm. Workers in this structure simultaneously belong to at least two groups –– a functional group and a product, program, or project team. The matrix organization is used in manufacturing (e.g., aerospace, electronics, pharmaceuticals), service industries (e.g., banking, brokerage, retailing), professional fields (e.g., accounting, advertising, law), and the non-profit sector (e.g., city, state, and federal agencies, hospitals, universities) Matrix structures are often found in multinational corporations. Advantages of Matrix Structures Potential advantages of matrix structures include: • Better cooperation across functions. • Improved decision making; problem solving takes place at the team level where the Instructor’s Guide 8-7 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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best information is available. • Increased flexibility in adding, removing, or changing operations to meet changing demands. • 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. Disadvantages of Matrix Structures 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.

STUDY QUESTION 3: WHAT ARE THE NEWER TYPES OF ORGANIZATION STRUCTURES? While the matrix structure is a step toward better cross-functional integration in an organization, it is just one part of a movement toward more horizontal structures trying to improve communication and flexibility by decreasing hierarchy, increasing empowerment, and better mobilizing human talents. 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 8.5 in the text illustrates how a crossfunctional team improves lateral relations. Instructor’s Guide 8-8 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Project teams are convened for a particular task and disband once it is completed. Advantages of Team Structures Potential advantages of team structures include: • Eliminates difficulties with communication and decision making. • Eliminates barriers between operating departments. • Improved morale. • Greater sense of involvement and identification. • Increased enthusiasm for work. • Improved quality and speed of decision making. Disadvantages of Team Structures Potential disadvantages of team structures include: • Conflicting loyalties among members regarding both team and functional assignments. • Excessive time spent in meetings. • 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 suppliers of essential services. Network organizations own only the essential or core components of the business, and use strategic alliance 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. Outsourcing is the contracting of business functions to outside suppliers. FIGURE 8.6 from the text illustrates a network structure for a Web-based retail business. Advantages of Network Structures Potential advantages of network structures include: • Firms can operate with fewer full-time employees and less complex internal systems. • Reduced overhead costs and increased operating efficiency. • Permits operations across great distances. Disadvantages of Network Structures Potential disadvantages of network structures include: • Control and coordination problems may arise from network complexity. • Potential loss of control over outsourced activities. • Potential for lack of loyalty to develop among infrequently used contractors. Instructor’s Guide 8-9 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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• Excessively aggressive outsourcing of critical activities can be dangerous to the firm. BOUNDARYLESS ORGANIZATIONS 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. External to the boundaryless organization, organizational needs are met by a shifting mix of outsourcing contracts and operating alliances that form and disband with changing circumstances. Key requirements for a boundaryless organization are the absence of hierarchy, empowerment of team members, technology utilization, and acceptance of impermanence. 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 8.7 from 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. 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.

STUDY QUESTION 4: HOW ARE ORGANIZATIONAL DESIGNS CHANGING THE WORKPLACE? Organizational design is the process of creating structures that accomplish 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. Instructor’s Guide 8-10 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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ISSUES AND SITUATIONS in the “Formal Structures” section of the text examines Nokia’s reorganization from a structure based on customer of market segment divisions to one based on product divisions. MECHANISTIC AND ORGANIC DESIGNS 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: • When is a bureaucratic form a good choice for an organization? • 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. FIGURE 8.8 from the text portrays these two approaches as opposite extremes on a continuum of organizational design alternatives. Mechanistic Designs A mechanistic design is centralized, with many rules and procedures, a clear-cut division of labour, 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 labour, narrow spans of control, and formal means of coordination. Mechanistic designs are described as “tight” structures of the traditional vertical or pyramid form. Organic Designs Organizations with an organic design operate with decentralized authority, fewer rules and procedures, less precise division of labour, wider spans of control, and more personal means of coordination. An adaptive organization operates with a minimum of bureaucratic features and encourages worker empowerment and teamwork. SUBSYSTEMS DESIGN AND INTEGRATION A subsystem is a work unit or smaller component within a larger organization. FIGURE 8.9 from the text shows how research and development, manufacturing, and sales subunits may operate in response to unique needs. This illustrates differentiation and suggests the need for integration. Instructor’s Guide 8-11 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Differentiation is the degree of difference between subsystems in an organization. Integration is the level of coordination achieved between subsystems in an organization. MANAGEMENT SMARTS 8.1 describes how to improve subsystems integration: • Rules and procedures: Clearly specify required activities. • Hierarchical referral: Refer problems upward to a common superior. • Planning: Set targets that keep everyone headed in the same direction. • Direct contact: Have subunit managers coordinate directly. • Liaison roles: Assign formal coordinators to link subunits together. • Task forces: Form temporary task forces to coordinate activities and solve problems on a timetable. • Teams: Form permanent teams with the authority to coordinate and solve problems over time. • Matrix organizations: Create a matrix structure to improve coordination on specific programs. 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. 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 Instructor’s Guide 8-12 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 44 100 222

Number of Subordinates Added 7 8 9 10 11 12

Number of Potential Relationships 490 1,080 1,376 5,210 11,374 24,708

What about 20 subordinates? Answer: 10 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 ⎯ an expectation for the other person to perform assigned tasks. 2. The manager grants authority to act ⎯ the right to act in ways to carry out the assigned tasks. 3. The manager creates accountability ⎯ the requirement to answer to a supervisor for performance results. The authority-and-responsibility principle from classical management theory states that authority should equal responsibility when work is delegated from a supervisor to a subordinate. A common management failure is unwillingness to delegate. It overloads the manager with work, 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. REAL ETHICS in the “Trends in Organizational Design” section of the text asks the students to consider whether it is ethical to expect people to work consistently over and above the agree-upon schedules. Decentralization with Centralization Centralization is the concentration of authority for making most decisions at the top Instructor’s Guide 8-13 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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. RESEARCH BRIEF in the “Decentralization with Centralization” section of the text describes an idea on 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.

CHAPTER 8 STUDY QUESTIONS SUMMARY Study 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? Instructor’s Guide 8-14 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Study 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 crossfunctional project teams.

FOR DISCUSSION: Why use functional structures if they are prone to functional chimneys problems? Study Question 3: What are the newer types of 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 business or organizational centre. 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? Study Question 4: How are directions in organizational design changing the workplace? • • • •

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. Differentiation is the degree of difference that exists between various subsystems; integration is the level of coordination achieved among them. Organizations with little internal differentiation can be integrated vertically through authority relationships; greater differentiation requires more intense horizontal integration emphasizing cross-functional teams and lateral relations. Key organizing trends include fewer levels of management, more delegation and empowerment, decentralization with centralization, and fewer staff positions.

FOR DISCUSSION: Which of the organizing trends is most subject to change under current conditions? CHAPTER 8 KEY TERMS Adaptive organization: operates with a minimum of bureaucratic features and encourages worker empowerment and teamwork. Boundaryless organization: eliminates internal boundaries among subsystems and external boundaries with the external environment. Bureaucracy: a form of organization based on logic, order, and the legitimate use of formal authority. Instructor’s Guide 8-15 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Centralization: the concentration of authority for most decisions at the top levels of an organization. Chain of command: the line of authority that vertically links each position with successively higher levels of management. Cross-functional teams: a team structure that in composed of members from different areas of work responsibility. Customer structure: a divisional organization structure that groups together jobs and activities that serve the same customers or clients. Decentralization: the dispersion of authority to make decisions throughout all levels of the organization. Delegation: the process of entrusting work to others by giving them the right to make decisions and take action. Departmentalization: the process of grouping together people and jobs into work units. Differentiation: the degree of difference between subsystems in an organization. Divisional structure: 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: allows others to make decisions and exercise discretion in their work. Formal structure: the structure of the organization in its official state. Functional chimneys problem: the lack of communication, coordination, and problem solving across functions. Functional structure: people with similar skills and performing similar tasks are grouped together into formal work units. Geographical structure: a divisional organization structure that groups together jobs and activities being performed in the same location or geographical region. Informal structure: a “shadow” organization made up of unofficial, but often critical, working relationships between organization members. Integration: the level of coordination achieved between subsystems in an organization. Matrix structure: 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: centralized design, with many rules and procedures, a clear-cut division of labour, narrow spans of control, and formal coordination. Network structure: an organizational structure that consists of a central core that is linked through networks of outside relationships with outside contractors and suppliers of essential services. Organic design: decentralized design with fewer rules and procedures, open divisions of labour, wide spans of control, and more personal coordination. Organization chart: a diagram that describes the reporting relationships and formal arrangement of work positions within an organization. Organization structure: the system of tasks, workflows, reporting relationships, and communication channels that link together the work of diverse individuals and groups. Organizing: the process of arranging people and other resources to work together to accomplish a goal. Organizational design: the process of creating structures that accomplish mission and objectives. Process structure: a divisional organization structure that groups together jobs and activities that are part of the same processes. Product structure: a divisional organization structure that groups together jobs and activities that focus on a single product or service. Project teams: teams that are convened for a particular task and disband once it is completed. Social network analysis: one way of identifying informal structures and their embedded social relationships. Span of control: the number of subordinates directly reporting to a manager. Instructor’s Guide 8-16 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Staff positions: provide technical expertise for other parts of the organization. Subsystem: a work unit or smaller component within a larger organization. Team structure: an organizational structure through which permanent and temporary teams are used extensively to solve problems, complete special projects, and accomplish day-to-day tasks. Virtual organization: an organization that operates in a shifting network of external alliances that are engaged as needed, using IT and the Internet. Work Process: groups, jobs, and activities that are part of the same processes. CHAPTER 8 CLASS EXERCISE: “BUILDING AN ORGANIZATION” The “Building an Organization” exercise is a fun way to reinforce the chapter material on organizing. The essence of the exercise is for students to submit proposals for a new business. One proposal is selected from those submitted. The person who drafted the proposal is appointed president and given an opportunity to name the company and hire employees. The specific steps involved in conducting the exercise are presented below. 1. Background information. Ask the students to imagine that you, the instructor, are an investment banker who is willing to lend money to prospective entrepreneurs with creative and feasible proposals for new products and/or services. 2. Generating ideas for new products and/or services. Instruct the students to think for a few minutes about the type of business they would like to operate if given the opportunity. Encourage the students to be creative in identifying products or services they would like to market. 3. Soliciting business proposals. Tell the students that you would like to provide funds to support one new business. Ask them to write down their business proposals along with their names on a piece of paper and that you will be collecting these proposals for review. Let the students know that you only have funds to support one business. 4. Collecting the business proposals. Have the students submit their proposals. If you have a large lecture class, you may consider collecting a representative sample of proposals. You can explain that you unfortunately don’t have time to entertain all possible proposals. 5. Evaluating the proposals and selecting a winner. Take several minutes to review the student’s proposals. Students typically discuss their ideas and the suspense regarding the proposal to be chosen builds. Use your own discretion in selecting the criteria to be used in evaluating the proposals. You may want to select the idea you consider to be most thoroughly developed and most likely to succeed. Alternatively, you may want to select an unusual product or service that you think students are likely to find amusing. Another option is to select a subset of proposals using whatever criteria you consider appropriate, and then informing the class that you’d like their input in selecting the proposal to be funded. The “finalists” could even be given opportunities to elaborate on their proposals. The class could then vote on the proposal to be funded. 6. Appointing the president and naming the company. Once the winning proposal has been selected, inform its creator that he or she will be the president of this new business. Ask this individual to name the company. Students often think of original and amusing company names.

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7. Hiring employees. To make the business a success, the president will naturally need some assistance. Inform the president that he or she has the opportunity to hire three individuals from the class to work in the organization. The class typically enjoys watching the president select employees from amongst them. 8. Dividing up the work. Ask the president to identify the positions these new employees will occupy. The president then proceeds to assign titles and duties to these workers. Draw an organization chart for the company on the chalkboard or an overhead transparency. 9. Expanding operations. Ask the class to imagine that five years have transpired since the founding of the company. Inform them that the president did an excellent job of identifying a needed product or service and that demand has grown dramatically. With this growth, however, the responsibilities of each organizational member have grown to the point where they can no longer handle the workload by themselves. 10. Hiring new employees. Tell the three employees who were selected by the president that they have now been promoted to vice presidents and that they have an opportunity to hire two new employees into their departments. The vice presidents proceed to hire the new workers. Draw the new organization chart on the chalkboard or on an overhead transparency. 11. Discussion. Once the organization is built and the organization charts are drawn, the experience can be used to reinforce a variety of course concepts including: A. The basic elements of an organization. a) Collection of people –– In building this organization, a collection of people were hired and synergy was achieved through their combined efforts to produce a product or service they could not have otherwise provided. b) Division of labour –– The president divided up the work to be done and assigned specialized tasks to the individuals he or she considered to be most qualified to perform them. c) Working together –– The president, and later the vice presidents, coordinated the specialized activities of the employees to ensure goal accomplishment. d) Common purpose –– The mission of the organization was to profitably produce the product or provide the service proposed by the president. This goal provided a sense of common direction for the organization. B. Organization charts. Review the organization charts drawn earlier in this exercise. Point out that organization charts such as these are useful for illustrating the following: a) The division of work. b) The type of work performed. c) Supervisor-subordinate relationships. d) Formal communication channels. Instructor’s Guide 8-18 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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e) Major subunits. f) Levels of management. C. Departmentalization You may want to explore the concept of departmentalization by pointing out that as the organization grew, departmentalization occurred as people and activities were grouped together under the supervision of a common manager. D. Span of Control. This can be examined by noting the number of subordinates supervised by the president and vice presidents. E. Chain of Command. You may want to talk about this concept by pointing out the chain of command that runs from the lower-level employees through the vice presidents to the president. F. Delegation. Point out to students that as the organization grew, authority to perform certain tasks was delegated to lower levels.

SUGGESTED TEAM EXERCISE Have students draw up organizational charts for different types of companies and then compare. Vary the types of organizations and see how the different structures appear to fit the organizations. 1) A global company with 10 unrelated product lines 2) A global company with one product line 3) A small-town restaurant 4) A regional chain of restaurants 5) An on-line program for weight loss 6) An on-line retailer of a single product 7) An on-line retailer of multiple products (like Amazon) 8) A large manufacturing plant

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

___________ is the system of tasks, reporting relationships, and communication that links together the various parts of an organization.

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(a) Structure (b) Staff (c) Decentralization (d) Differentiation 3.

Transmission of rumours and resistance to change are potential disadvantages often associated with ___________. (a) virtual organizations (b) informal structures (c) delegation (d) specialized staff

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

The “two-boss” system of reporting relationships is found in the ___________ structure. (a) functional (b) matrix (c) network (d) product

A manufacturing business with a functional structure has recently developed two 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

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

“Tall” organizations tend to have long chains of command and ___________ spans of control. (a) wide (b) narrow (c) informal (d) centralized

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

10. A ___________ structure tries to combine the best elements of the functional and divisional forms. (a) virtual (b) boundaryless (c) team (d) matrix 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 Instructor’s Guide 8-20 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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. A basic paradox in subsystem design is that as differentiation increases, the need for ___________ also increases—but becomes harder to accomplish. (a) cost efficiency (b) innovation (c) integration (d) transformation 15. When the members of a marketing department pursue sales volume objectives, and those in manufacturing pursue cost efficiency objectives, this is an example of ___________. (a) simultaneous systems (b) subsystems differentiation (c) long-linked technology (d) smallbatch production 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 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. Instructor’s Guide 8-21 Chapter 8 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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18. Explain the practical significance of this statement: “Organizational design should always be addressed 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 differentiation and integration as issues in subsystem design. Differentiation and integration are somewhat conflicting in organizational design. As differentiation increases—that is, as more differences are present in the complexity of the organization—more integration is needed to ensure that everything functions together to the betterment of the whole organization. However, the greater the differentiation, the harder it is to achieve integration. Thus, when differentiation is high, organization design tends to shift toward the use of more complex horizontal approaches to integration and away from the vertical ones, such as formal authority and rules or policies. In horizontal integration, the focus is on such things as cross-functional teams and matrix structures. 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. REVIEW QUESTIONS FOR CASE 8: NIKE – SPREADING OUT TO STAY TOGETHER

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1. When Nike CEO Phil Knight stepped down and handed his job to Bill Perez, he stayed on as chairman of the board. In what ways could Knight’s continued presence on the board have created an informal structure that prevented Perez from achieving full and complete leadership? Since Knight stayed on as chairman of the board, those who reported to him when he was CEO would still look to him for leadership, instead of following Perez. While Knight, a Nike insider, may have directed employees to take their directions from Perez, a Nike outsider, it is not surprising this failed. Likewise, though the informal structure, Knight is still “connected” and privy to information he would not otherwise know had he cut all ties with Nike and allowed Perez to assume the full leadership position for which he was recruited. 2. How can Nike utilize both traditional and newer organization structures to support the firm’s heavy strategic commitment to outsourcing? Presently, Nike is following the non-traditional network structure which affords an outsourcing strategy. This allows Nike to focus on its core strengths (design) and still produce a high quality product through contractors. Along with the network structure, Nike is also focused on a traditional product structure divided between shoes, clothing, sporting goods, sunglasses, and even electronics. With research and marketing aligned along product lines and production being outsourced, these combined structures work for Nike. 3. Given the problems Nike has had with sweatshop labour being used in some of its foreign contractors, are there subsystems of the firm that need to be run with a mechanistic rather than an organic design? Give examples to support your answer. Student answers will vary. Some may argue that changing any part of Nike to a mechanistic format could stifle flexibility and possibly cause a substantial increase in costs. However, consideration must be given to the fact that while costs must be contained, corporate responsibility is also needed. One area of Nike that would benefit from a mechanistic form is production. With contractors producing Nike’s goods, rules need to be put in place and followed by these contractors. No longer can freewheeling policies be implemented, because, as Nike learned, the brand can be damaged by contractors subjecting their workers to unfit working conditions. Finally, with competition closing in, Nike would be prudent in establishing a company-wide integrated plan that centralizes decision making around products, promotion, and production to ensure the corporate vision is achieved.

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Chapter 9:

INNOVATION AND ORGANIZATIONAL CHANGE CHAPTER 9 STUDY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4.

How do organizations accomplish innovation? What is the nature of organizational change? How can planned organizational change be managed? What are the essentials of organization development?

CHAPTER 9 LEARNING OBJECTIVES After completing this chapter, students should be able to: • Define creativity and innovation • Discuss differences between process, product, business model, and sustainable and social innovations • List the five steps in Hamel’s wheel of innovation • Explain how innovations get commercialized • List and explain the characteristics of innovative organizations • Identify the critical innovation roles in organizations • Define change agent • Discuss pros and cons of top-down change and bottom-up change • Differentiate planned and unplanned change • Differentiate transformational and incremental change • List common organizational targets for change • Describe Lewin’s three phases of planned change • Explain the force-coercion, rational persuasion, and shared power change strategies • Discuss pros and cons of each change strategy • List several reasons why people resist change • Identify strategies for dealing with resistance to change • Discuss the challenges of leading technological change • Define organization development • Differentiate outcome and process goals of OD • Explain the steps in the OD process • Explain the role of action research in OD • List OD interventions focusing on individuals, teams, and the organization as a whole

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CHAPTER 9 OVERVIEW While change is inevitable in the modern business world, it not necessarily negative. Indeed, change can have a powerful, positive impact on organizations and their success. Innovation is a primary source of competitive advantage. Moreover, organizations must continually adapt to new situations in order to survive and prosper over the long term. The chapter explores this theme by first considering the roles of strategic leadership, creativity, and innovation in organizational change and long-term success. The innovation process and characteristics of highly innovative organizations are considered next. The focus then shifts to the manager’s role as a change agent. The chapter then examines different models of change leadership and their potential contributions to a successful change program. Next, forces and targets for planned organizational change are identified. A three-phase model of the planned change process is introduced and the change strategies that are available for use in this process are discussed. The chapter then explores why people resist change and how managers can deal with such resistance. The chapter then looks at organizational development (OD), focusing on its goals, the process by which it works, its action research foundations, and specific OD interventions –– including individual, team, and organization-wide interventions.

CHAPTER 9 LECTURE OUTLINE Purpose: To familiarize students with the importance and means of managing innovation and change in organizations, and to familiarize them with the stress implications of change. Suggested Time: At least two hours of class time are recommended for presenting the material in this chapter. I.

Study Question 1: How do organizations accomplish innovation? Creativity and innovation Types of innovations The innovation process Characteristics of innovative organizations

II.

Study Question 2: What is the nature of organizational change? Change leaders Models of change leadership Incremental and transformational change Forces and targets for change

III.

Study Question 3: How can planned organizational change be managed? Phases of planned change Change strategies Resistance to change Challenges of technological change

IV.

Study Question 4: What are the essentials of organization development? Organization development goals How organization development works Organization development interventions

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CHAPTER 9 SUPPORTING MATERIALS Textbook Inserts Learning From Others • New Thinking Deserves to be Pampered Learning About Yourself • Tolerance for Ambiguity Figures • Figure 9.1: The Process of Commercializing Innovation: an Example of New Product Development • Figure 9.2: Change Leaders Versus Status Quo Managers • Figure 9.3: Lewin’s Three Phases of Planned Organizational Change • Figure 9.4: Alternative Change Strategies and Their Leadership Implications • Figure 9.5: Organization Development and the Planned Change Process Thematic Boxes • Real Ethics: Corporate Greens and Global Warming • Issues and Situations: Innovators-In-Chief • Management Smarts 9.1: How To Lead Transformational Change • Management Smarts 9.2: Why People May Resist Change • Research Brief: Top Management Must Get and Stay Committed in Order for Organization Development to Work in Tandem with Top-Down Change Applications • Self-Test • Self-Assessment • Team Exercise: Force-Field Analysis • Case 10: Apple, Inc: People and Design Create the Future

CHAPTER 9 LECTURE NOTES LEARNING FROM OTHERS describes how A. G. Lafley, the CEO of Proctor & Gamble, committed P&G to using innovation to meet the wants and needs of customers. LEARNING ABOUT YOURSELF challenges students to think about their tolerance for ambiguity in light of the fact that being flexible and able to deal with uncertainty and unpredictability will define them as a manager.

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DISCUSSION TOPIC Point out to students that the topics of innovation, planned change and organizational development (OD) share the underlying theme of constructive change. That is, all three reflect a need to adapt to changing circumstances, be it through (a) creative innovations in which the organization serves as the impetus for change, (b) planned change efforts to respond to a performance gap, or (c) the comprehensive organizational change interventions that constitute OD.

STUDY QUESTION 1: HOW DO ORGANIZATIONS ACCOMPLISH INNOVATION? Change involves risk, complexity, uncertainty, anxiety, and stress. Leading organizations on the pathways of change is essential, but takes great understanding, discipline, and commitment to creativity and human ingenuity. Organizations and their managers must continually adapt to new situations if they are to survive and prosper over the long run. Strategic leadership creates the capacity for ongoing strategic change. It is the “ability to anticipate, envision, maintain flexibility, think strategically, and work with others to initiate changes that will create a viable future for the organization.” Strategic leaders are change leaders who build learning organizations and keep them competitive even in difficult and uncertain times. CREATIVITY AND INNOVATION Sustainable competitive advantage relies on unlocking the full powers of creativity and innovation. Creativity is the generation of a novel idea or unique approach to solving problems or crafting opportunities. Innovation is the process of creating new ideas and putting them into practice. 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.

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Sustainable Innovations Sustainable innovation creates new products and processes that have lower environmental impacts than the available alternatives. Green innovation is the process of turning ideas into innovations that reduce the carbon footprint of an organization or its products. REAL ETHICS in the “Types of Innovations” section of the text asks students to consider corporate green initiatives and global warming. Does it make a difference if a firm does “good things” for selfish reasons? Social Business Innovations Social business innovation finds ways to use business models to address important social problems such as, poverty, famine, literacy, and diseases. Social entrepreneurship is a unique form of entrepreneurship that finds novel ways to create changes that solve pressing social problems. THE INNOVATION PROCESS Process and product innovations require active encouragement and support of invention and application. • Invention is the act of discovery; it relates to the development of new ideas. • Application is the act of use; it deals with the implementation of new ideas. 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 “post-it” 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.)

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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; making discoveries by ingenuity or communicating with others; extending existing ways. 2. Designing –– testing ideas in concept; discussing them with peers, customers, clients, or technical experts; 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, potential markets or applications – making constructive changes. 5. Scaling –– gearing up and implementing new processes; putting to work what has been learned; commercializing new products or services. The entire innovation process must be related to the needs of the organization and its marketplace. The process is illustrated with the four-step product innovation process shown in FIGURE 9.1 of the textbook. The four steps of the product innovation process are: 1. Idea creation –– discovering a potential product or a way to modify an existing one. 2. Initial experimentation –– sharing the idea with others and testing it in prototype form. 3. Feasibility determination –– testing the practicality and financial viability of the new product. 4. Final application –– commercializing the product for sale to customers or clients. Commercializing innovation Commercializing innovation is the process of turning new ideas into actual products, services, or processes that increase profits through greater sales or reduced costs. CHARACTERISTICS OF INNOVATIVE ORGANIZATIONS In highly innovative organizations, innovation is supported by: • strategy and culture. • structures. • systems. • top management. • staffing. Strategy and Culture Insights from literature indicate that in highly innovative organizations, the corporate strategy and the corporate culture support innovation. The strategies emphasize an entrepreneurial spirit; the culture is driven by values that let everyone know innovation is expected, failure is accepted, and the organization will take risks.

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Structures In highly innovative organizations, structure supports innovation. Large organizations move away from hierarchical and mechanistic designs toward horizontal and organic ones. Some organizations will set up “skunkworks” which gives creative units freedom but is separated from the organizational structure. Other organizations will become ambidextrous organizations which use integrated creative teams spread throughout the organization to simultaneously be good at both producing and creating. Systems Highly innovative organizations use special information and knowledge management systems to support innovation. Internally, systems allow employees to collaborate with each other. Externally, systems allow customers to submit ideas for possible innovation. ISSUES AND SITUATIONS in the “Characteristics of Innovative Organizations” section of the text asks students to consider who should be in charge of innovation – top management or every employee? Top Management An organization needs the support of top management if it wishes to be innovative. 3M senior managers who support innovation know they must keep innovation goals clear and prominent, while being tolerant of criticism and differences of opinion. Staffing With respect to the organization’s staffing, different types of people are needed to fulfill the following critical innovation roles: • Idea generators –– create new insights from internal discovery or external awareness, or both. • Information gatekeepers –– link between people and groups within the organization and with external sources. • Product champions –– advocate and push for change and innovation, and for the adoption of specific product or process ideas in particular. • Project managers –– perform technical functions needed to keep an innovative project on track with necessary resource support. • Innovation leaders –– encourage, sponsor, and coach to keep the innovation values, goals, and energies in place.

STUDY QUESTION 2: WHAT IS THE NATURE OF ORGANIZATIONAL CHANGE?

CHANGE LEADERS A change leader is a change agent who takes leadership responsibility for changing the existing pattern of behavior of another person or social system. Instructor’s Guide 9-7 Chapter 9 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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FIGURE 9.2 from the text illustrates the nature of change leadership versus status quo management. Change leadership is forward looking, proactive, and embraces new ideas. Status quo management is backward looking, reactive, and comfortable with habit. MODELS OF CHANGE LEADERSHIP Top-Down Change Top-down change refers to strategic and comprehensive change that is initiated 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. Integrated change leadership The most successful and enduring change leadership is that which can harness the advantages of both top-down change and bottom-up change. Top-down change breaks up traditional patterns and implements difficult economic adjustments. Bottom-up change builds institutional capability for sustainable change and organizational learning. INCREMENTAL AND TRANSFORMATIONAL CHANGE Good managers do their best to take advantage of opportunities for reactive change ⎯ responding to events as or after they occur. Proactive leaders are always alert for performance gaps –– discrepancies between the desired and actual states of affairs. Instructor’s Guide 9-8 Chapter 9 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Proactive leadership activates planned change and refers to taking steps to best align the organization with anticipated future challenges. 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 Incremental change bends and nudges existing systems and practices to better align them with emerging problems and opportunities. Transformational Change Transformational change is radical and frame-breaking, and results in a major and comprehensive redirection of the organization. MANAGEMENT SMARTS 9.1 describes how to lead transformational 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 new ways. • Stay with it; keep the message consistent; champion the vision. FORCES AND TARGETS FOR CHANGE External forces –– including the globalization, market competition, local economic conditions, government laws and regulations, technological developments, market trends, and social forces and values –– can serve as the impetus for change. Internal forces for change arise when a change in one part of the organizational system – – perhaps in response to one or more of the external forces –– creates the need for change in another part of the system. The common internal organizational targets for change include: • Tasks –– nature of work as represented by mission, objectives, and strategy; and the job designs for individuals and groups. • People –– the attitudes and competencies of the employees and the human resource systems that support them. • Culture –– value system for the organization as a whole, and the norms guiding individual and group behavior. • Technology –– operations and information technology used to support job designs, arrange workflows, and integrate people and machines in systems. • Structure –– configuration of the organization, including its design features and lines of authority and communication. Instructor’s Guide 9-9 Chapter 9 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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STUDY QUESTION 3: HOW CAN PLANNED ORGANIZATIONAL CHANGE BE MANAGED?

PHASES OF PLANNED 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 behaviours 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 behaviours. • Providing any necessary resource support. • Using performance-contingent rewards and positive reinforcement. FIGURE 9.3 from the text depicts Kurt Lewin’s three phases of planned change.

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.

CHANGE STRATEGIES FIGURE 9.4 from the text summarize the power bases, managerial behaviours, and likely results associated with three common change strategies –– force-coercion, rational persuasion, and shared power. Instructor’s Guide 9-10 Chapter 9 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 behavioural patterns and gain the initial impetus to try new ones. 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. 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. 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. Instructor’s Guide 9-11 Chapter 9 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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The shared power strategy relies on the belief that people behave as they do because of sociocultural 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. MANAGEMENT SMARTS 9.2 covers why people may resist change: • 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. • 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. Why People Resist Change Change is viewed as: • a threat to something of value. • a source of uncertainty. • something that is high in cost or limited in 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: Instructor’s Guide 9-12 Chapter 9 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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. 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. 5. manipulation and co-optation –– using covert attempts to influence others by providing information selectively and structuring events in favour of the desired change. 6. 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.

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.

CHALLENGES OF TECHNOLOGICAL CHANGE Technological change brings special challenges. For the full advantages of new technologies to be realized, a good fit must be achieved with work needs, practices and people. Technological change can be approached as an ongoing process that involves improvisational change where adjustments are continually made as things are being implemented.

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STUDY QUESTION 4: WHAT ARE THE ESSENTIALS OF ORGANIZATION DEVELOPMENT? Organizational development (OD) is a shared power effort to improve an organization’s ability to solve problems and improve performance. ORGANIZATIONAL DEVELOPMENT GOALS OD pursues two goals simultaneously. 1. Outcome goals of OD focus on task accomplishments. 2. Process goals of OD focus on the way people work together. OD may be viewed as a form of “planned change plus,” with the “plus” referring to the goal of developing the organization members’ capacity for self-renewal. OD is committed to improving organizations through freedom of choice, shared power, and self-reliance, and by taking advantage of knowledge about human behavior in organizations. HOW ORGANIZATION DEVELOPMENT WORKS Steps in the OD process: • Establish a working relationship –– create links with members of the client system. • Diagnosis –– gathering and analyzing data, setting change objectives. This corresponds to Lewin’s unfreezing phase. • Intervention ⎯ taking collaborative action to implement desired changes. This corresponds to Lewin’s changing phase. • Evaluation –– following up to reinforce and support change. This corresponds to Lewin’s refreezing phase. • Achieve a terminal relationship –– withdraw to leave members of the client system as self-reliant. FIGURE 9.5 from the text describes organization development and the planned change process. Action research is the process of systematically collecting data on an organization, feeding it back to the members for action planning, and evaluating results by collecting more data and repeating the process as necessary.

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DISCUSSION TOPIC To clarify the OD process, give the example of a small firm that was experiencing a performance gap. Management perceived the problem and hired a consultant, who interviewed key people and planned a problem-solving workshop. Participants in the workshop were coached on how to analyze data and determine appropriate action directions; they also received information on group process techniques. The consultant continued to meet periodically with the group to review progress and additional help was given when needed. The problem-solving workshops became an annual event for the firm.

ORGANIZATION DEVELOPMENT INTERVENTIONS OD interventions are activities that are initiated to directly facilitate change processes. Individual Interventions Individual interventions are based on the premise that people are capable of assuming personal responsibility for their actions and will make positive contributions to the organization –– and will do so in a supportive and challenging work environment. Types of individual interventions: • Sensitivity training — unstructured sessions where participants learn interpersonal skills and increased sensitivity to other people. • Management training –– structured educational opportunities for developing important managerial skills and competencies. • Role negotiation –– structured interactions to clarify and negotiate role expectations among people who work together. • Job redesign –– realigning task components to better fit the needs and capabilities of individuals. • Career planning –– structured advice and discussion sessions to help individuals plan career paths and programs of personal development. Team Interventions Team interventions are based on the beliefs that teams are important vehicles for helping people satisfy important needs and improved collaboration within and among teams can improve organizational performance. Types of team interventions: • Team building –– structured experiences to help team members set goals, improve interpersonal relations, and become a better-functioning team. • Process consultation –– third-party observation and advice on critical team processes, such as, communication, conflict, and decision making. • Intergroup team building –– structured experiences to help two or more teams set shared goals, reduce conflict, improve intergroup relations, and become better coordinated.

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RESEARCH BRIEF in the “Organization Development Interventions” section of the text describes research which suggests top management must get and stay committed for organization development to work in tandem with top-down change. Organization-Wide Interventions Organization-wide interventions are based on the premise that changes in one part of the system will also affect other parts of the system. Particular emphasis is placed on: • the impact of culture. • designing structures and jobs to link people, technology, and systems in highly productive and satisfying working combinations. Types of organization-wide interventions. • Survey feedback –– comprehensive and systematic data collection to identify attitudes and needs, analyze results, and plan for constructive action. • Confrontation meeting –– one-day intensive, structured meetings to gather data on workplace problems and plan for constructive actions. • Structural redesign –– realigning the organization structure to meet the needs of environmental and contextual forces. • Management by objectives –– formalizing MBO throughout the organization to link individual, group, and organizational objectives.

CHAPTER 9 SUMMARY Study Question 1: How do organizations accomplish innovation? • • • •

Organizations need strategic leaders who initiate and successfully implement changes that help them perform well in changing environments. Organizations pursue from process innovations, product innovations, and business model innovations, and sustainable or green innovations. Social business innovations use business models to help address social problems; social entrepreneurship seeks social change rather than financial gains. Highly innovative organizations have supportive cultures, strategies, structures, systems, staffing, and management.

FOR DISCUSSION: Can a creative person prosper in an organization that doesn’t have an innovation-driven culture? Study Question 2: What is the nature of organizational change? • • • •

Change leaders are change agents who change the behaviour 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. The many possible targets for change include organizational tasks, people, cultures, technologies, and structures.

FOR DISCUSSION: Is it better for a new leader in an organization to focus first on transformational or incremental change? Instructor’s Guide 9-16 Chapter 9 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Study Question 3: How can planned organizational change be managed? • • • • •

Lewin’s three phases of planned change are unfreezing— preparing a system for change; changing—making a change; and refreezing—stabilizing the system. 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 positively and in a variety of ways, including education, participation, support and facilitation. Success with technological change requires being open to resistance and willingness to improvise as implementation proceeds.

FOR DISCUSSION: Can the refreezing stage of planned change ever be satisfied in today’s dynamic environments? Study Question 4: What is organization development? • • • •

Organization development, or OD, is a shared power approach to planned organization change that uses principles of behavioral science to improve long-term organizational effectiveness. Outcome goals of OD focus on improved task accomplishment; process goals of OD focus on improvements in the way people work together. The OD process involves action research, where people work together to collect and analyze data on system performance and decide what actions to take to improve things. OD interventions are structured activities at the individual, group, and organizational levels that help people work together to accomplish change.

FOR DISCUSSION: Does the leader lose control of the change process in organizational development? CHAPTER 9 KEY TERMS Action research: the process of systematically collecting data on an organization, feeding it back to the members for action planning, and evaluating results by collecting more data and repeating the process as necessary. Ambidextrous organization: uses integrated creative teams to simultaneously be good at both producing and creating. Bottom-up change: occurs when the initiatives for change come from any and all parts of the organization, not just top management. Business model innovation: result in ways for firms to make money. Change leader: a change agent who tries to change the behaviour of another person or social system. Changing: the second or central phase in the planned-change process during which something new takes place in the system, and change is actually implemented. Commercializing innovation: the process of turning new ideas into products or processes that increase profits through greater sales and/or reduced costs. Creativity: the generation of a novel idea or unique approach to solving problems or crafting opportunities. Force-coercion strategy: a planned change strategy that uses the power bases of legitimacy, rewards, and punishments as the primary inducements to change. Instructor’s Guide 9-17 Chapter 9 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Green innovation: is the process of or turning ideas into innovations that reduce the carbon footprint of an organization or its products. Improvisational change: makes continual adjustments as changes are implemented. Incremental change: bends and nudges existing systems and practices to better align them with emerging problems and opportunities. Innovation: the process of creating new ideas and putting them into practice. OD interventions: activities that are initiated to directly facilitate change processes Organization development: a comprehensive approach to planned change that involves the application of behavioural science in a systematic and long-range effort to improve organizational effectiveness. Performance gap: a discrepancy between the desired and actual status of performance affairs Planned change: taking steps to best align the organization with anticipated future challenges. Process innovations: result in better ways of doing things. Product innovations: result in the creation of new or improved goods and services. Rational persuasion strategy: a planned change strategy that attempts to bring about change through persuasion backed by special knowledge, empirical data, and rational argument. Reactive change: responding to events as, or after, they occur. Refreezing: the third or final phase in the planned-change process during which change is stabilized and the conditions for its long-term continuity are created. Shared power strategy: a planned change strategy that engages people in a collaborative process of identifying values, assumptions, and goals from which support for change will naturally emerge. Social business innovation: finds ways to use business models to address important social problems. Social entrepreneurship: pursues innovative ways to create change that benefits society. Strategic leadership: creates the capacity for ongoing strategic change. Sustainable innovation: creates new products and processes that have lower environmental impact. Top-down change: strategic and comprehensive change that is initiated with the goal of comprehensive impact on the organization and its performance capabilities. Transformational change: radical and frame-breaking, and results in a major and comprehensive redirection of the organization. Unfreezing: the initial phase in the planned-change process during which a situation is prepared for change and felt needs for change are developed.

SUGGESTED TEAM EXERCISE The 1989 motion picture Lean on Me could be a case study in organizational change. Show the first 20 minutes to the class (up to the point where the principal defends his actions to the angry parents). Then ask groups to look for themes from this chapter in the clip. It could even be a contest to see which group can find the most links. Several they might mention: 1) The school had gotten to the point where it needed transformational change. Incremental change would probably not be effective. 2) The principal is a change agent. 3) The principal begins his change efforts by changing the structure of the organization and reassigning tasks. 4) This is an example of change that will be driven by the top leadership (the principal) of the organization. 5) There are internal and external forces for change in this situation. 6) There is resistance to change from the students and the parents. 7) This is an organization-wide intervention Instructor’s Guide 9-18 Chapter 9 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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8) The principal moves quickly from unfreezing to changing in Lewin’s model. SELF TEST ANSWERS 1. Product innovation creates new goods or services and __________ innovation creates new ways of doing things. (a) content (b) process (c) quality (d) task 2. The first step in Hamel’s wheel of innovation is __________. (a) imagining (b) assessing (c) experimenting (d) scaling 3. 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 manging information system (d) Job designs in a customer service department 4. A manager using a force-coercion strategy will rely on __________ to bring about change. (a) expertise (b) benchmarking (c) formal authority (d) information 5. The most participative of the planned change strategies is __________. (a) force-coercion (b) rational persuasion (c) shared power (d) command and control 6. 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 7. In organization development, both __________ and __________ goals are important. (a) task, maintenance (b) management, labour (c) outcome, process (d) profit, market share 8. Sensitivity training and role negotiation are examples of organization development interventions targeted at the __________ level. (a) individual (b) group (c) system-wide (d) organization 9. The concept of empowerment is most often associated with the __________ strategy of planned change. (a) market-driven (b) rational persuasion (c) direct forcing (d) normative re-educative 10. Unfreezing occurs during the __________ step of organizational development. Instructor’s Guide 9-19 Chapter 9 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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(a) diagnosis (b) intervention (c) evaluation (d) termination 11. The quality concept of continuous improvement is most consistent with the notion of __________. (a) incremental change (b) transformational change (c) radical change (d) reactive change 12. 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 13. 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) organization development (d) frame breaking 14. In change management, the recommendation is to view resistance to change as __________. (a) feedback of potential value (b) an indicator of political maneuvering (c) a sign that change is moving too slowly (d) a warning that force-coercion may be needed 15. When an organization development consultant uses process consultation as an intervention, the target is change at the __________ level of analysis. (a) individual (b) group (c) organization (d) organization-environment 16. How do product, process, and business model innovations differ from one another? A product innovation is one that results in a new or substantially modified product that an organization can sell or offer to its customers. A process innovation is a new or improved way of getting work done in the organization. A business model innovation is a new way to earn money as a business, or to earn clients as a nonprofit organization. 17. 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 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. 18. What are the major differences in potential outcomes of the force-coercion, rational persuasion, and shared power strategies of planned change? Instructor’s Guide 9-20 Chapter 9 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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. 19. What does the statement “OD equals planned change plus” mean? The statement that “OD equals planned change plus” basically refers to the fact that OD tries both to create change in an organization and to make the organization members capable of creating such change for themselves in the future. 20. As a newly appointed manager in any work setting, you are likely to spot many things that “could be done better” and to have many “new ideas” that you would like to implement. Based on the ideas presented in this chapter, how should you go about effecting successful planned change in such situations? In any change situation, it is important to remember that successful planned change occurs only when all three phases of change—unfreezing, changing, and refreezing—have been taken care of. Thus, I would not rush into the changing phase. Rather, I would work with the people involved to develop a felt need for change based on their ideas and inputs, as well as mine. Then I would proceed by supporting the changes and helping to stabilize them into everyday routines. I would also be sensitive to any resistance, and I would respect that resistance as a signal that something important is being threatened. By listening to resistance, I would be in a position to better modify the change to achieve a better fit with the people and the situation. Finally, I would want to take maximum advantage of the shared power strategy, supported by rational persuasion and with limited use of force coercion (if it is used at all). By doing all of this, I would like my staff to feel empowered and committed to constructive improvement through planned change.

REVIEW QUESTIONS FOR CASE 9: APPLE, INC.: PEOPLE AND DESIGN CREATE THE FUTURE 1. Apple sells stylish and functional computers as well as a variety of electronic devices, and it operates retail stores. Which type of organization structure would best help Apple keep its creative edge, and why? Apple’s best type of organization to foster its creative edge is that of a skunkworks. The company has had much success with this format, witness the Macintosh computer. The advantage of a skunkworks is secrecy, which is extremely important in the high-tech world in which Apple plays. Having a skunkworks outside of the normal organizational structure ensures that only those with a need to know will have access to those products under development. 2. Should Apple’s board of directors be expecting the CEO to push transformational change or incremental change, or both, at this point in time? Why? Instructor’s Guide 9-21 Chapter 9 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Since its founding Apple has gone through at least two transformational changes. The first one when Steve Jobs, one of Apple’s founders, was ousted and replaced. The company sustained a period of growth, but then fell on hard times resulting in unheard of mass layouts. Eventually, Jobs was lured back to the company and instituted the second transformational change back to creativity and innovation, which exists today. Based on this, one can argue that the board of directors’ best strategy is to push for incremental change. Students should be mindful that Apple relies heavily on Jobs for direction, so should he terminate his relationship with the organization, a new leader, in conjunction with the board, may once again subject Apple to a transformational change. 3.

How could organization development be used to help the teams involved with iPhone development make sure that they are always working together in the best ways as they pursue the next generations of iPhones and innovative product extensions? Organizations must continually adapt to new situations in order to survive and prosper over the long term. So far, Apple has shown an ability to adapt. Through the use of organization development, Apple can ensure that the teams involved with iPhone develop a good working relationship with each other, while at the same time deciding where change is needed. By analyzing what the teams do well and where improvements are needed, the iPhone teams will be positioned to work collaboratively in making the team improvements and then monitoring the successes achieved.

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Chapter 10:

HUMAN RESOURCE MANAGEMENT CHAPTER 10 STUDY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4. 5.

What is human resource management? How do organizations attract a quality workforce? How do organizations develop a quality workforce? How do organizations maintain a quality workforce? What are the links between organizational culture and diversity?

CHAPTER 10 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • • • • • • • • • • •

Explain the human resource management process Define discrimination and employment equity. Identify major laws that protect against discrimination in employment Discuss legal issues of sexual harassment, comparable worth, pregnancy discrimination, 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 Illustrate the operation of an assessment centre Discuss the importance of conducting background and reference checks Define socialization and describe its importance to organizations Explain coaching, mentoring, and modeling as on-the-job training approaches Discuss strengths and weaknesses of performance appraisal methods—graphic rating scales, behaviourally anchored rating scales, critical-incident technique, and multiperson comparisons Explain 360° feedback Define work-life balance Explain why compensation and benefits are important elements in human resource management Explain potential problems of merit pay plans Differentiate bonuses, profit sharing, and stock options Define labour union, labour contract, and collective bargaining Contrast the adversarial and cooperative approaches to labour–management relations define organizational culture and explain the importance of strong cultures to organizations distinguish between the observable and core cultures explain how value-based management helps build strong culture organizations describe how workplace spirituality and symbolic leadership relate to organizational culture explain multiculturalism and the concept of a multicultural organization identify common organizational subcultures discuss glass ceilings and employment problems faced by members of visible minorities and women explain Thomas’s concept of managing diversity

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CHAPTER 10 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. 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, with emphasis being placed on legal requirements. Detailed discussions are provided regarding the major areas of human resource management, including human resource planning, recruitment, selection, orientation and socialization, training and development, performance management, flexibility and work-life balance, compensation and benefits, retention and turnover, and labour-management relations. The chapter then considers organizational culture and managing diversity.

CHAPTER 10 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.

Study Question 1: What is human resource management? Human resource management process Strategic HRM Global HRM Legal environment of HRM

II.

Study Question 2: How do organizations attract a quality workforce? Human resource planning Recruiting techniques Selection techniques

III.

Study Question 3: How do organizations develop a quality workforce? Orientation and socialization Training and development Performance management

IV.

Study Question 4: How do organizations maintain a quality workforce? Flexibility and work-life balance Compensation and benefits Retention and turnover

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Labour-management relations V.

Study Question 5: What are the links between organizational culture and diversity? What is organizational culture? Levels of organizational culture Values and organizational culture Multicultural organizations Diversity and organizational subcultures Managing diversity

CHAPTER 10 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Great Employers Attract and Value Great People Learning About Yourself • Professionalism Figures • Figure 10.1: Sample of Prohibited Groumds of Employment Discrimination • Figure 10.2: Steps in Strategic Human Resource Planning • Figure 10.3: Steps in the Selection Process: The Case of a Rejected Job Applicant • Figure 10.4: Sample of a Behaviourally Anchored Rating Scale for Performance Appraisal • Figure 10.5: Traditional Adversarial Role of Labour-Management Relations • Figure 10.6: Levels of Organizational Culture • Figure 10.7: Glass Ceilings • Figure 10.8: Leadership Approaches to Diversity Thematic Boxes • Issues and Situations: Sexual Harassment Laws Are Strict • Real Ethics: Help Wanted: Saleswoman • Management Smarts 10.1: How to Succeed in a Telephone Interview • Research Brief: Racial Bias May Exist In Supervisor Ratings of Workers • Management Smarts 10.2: Questions for Reading an Organization’s Culture Applications • Self-Test • Self-Assessment • Team Exercise • Case 10: Royal Bank of Canada: Progressive HR Makes Good Business Sense

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CHAPTER 10 LECTURE NOTES LEARNING FROM OTHERS discusses Research in Motion, the creator, manufacturer, and marketer of the acclaimed BlackBerry line of wireless products, selected by presidents, princes, and professionals. Founded in 1984, the company celebrates over 32 million worldwide subscribers (and growing). RIM has been named as one of the top 10 places to work in Canada. LEARNING ABOUT YOURSELF describes what being “professional” means. Students are asked to picture themselves in the ideal job and then asked to check items in the “How I Work” box that best describes themselves and how they expect to work in that job. 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. 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.

STUDY QUESTION 1: WHAT IS HUMAN RESOURCE MANAGEMENT?

HUMAN RESOURCE MANAGEMENT PROCESS Human resource management (HRM) involves attracting, developing, and maintaining a talented and energetic organizational workforce. In reviewing relevant literature, Jeffrey Pfeffer and John Veiga concluded that a strong relationship exists between how organizations manage their people and the economic results the organizations achieve ⎯ organizations perform better when they treat their employees better. The major responsibilities of the human resource management process include: • • •

Attracting a quality workforce which involves human resource planning, recruitment, and selection. Developing a quality workforce which involves employee orientation, training and development, and performance appraisal. Maintaining a quality workforce which involves career development, work-life balance, compensation and benefits, retention and turnover, and labour-management relations.

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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. The human resource management process consists of: • Attracting talented employees • Developing talented employees • Keeping talented employees GLOBAL HUMAN RESOURCE MANAGEMENT With large size and a global workforce, great demands are placed on human resource management practices. Keeping track of the expertise of a global workforce is challenging, as is trying to legally hire and retain workers all over the world. LEGAL ENVIRONMENT OF HUMAN RESOURCE MANAGEMENT Job-relevant talent is not restricted because of anyone’s race, gender, religion, marital or parental status, sexual orientation, ethnicity, or other diversity characteristics. And any time these characteristics interfere with finding, hiring, and utilizing the best employees, the loss in human capital will be someone else’s gain. 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 10.1 provides a sample of prohibited grounds of employee discrimination in Canadian provinces and territiories.

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 in Human Resource Management 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. Instructor’s Guide 10-5 Chapter 10 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Comparable worth is the notion that persons performing jobs of similar importance should be paid at comparable levels. Pregnancy discrimination penalizes a woman in a job or as a job applicant for being pregnant. ISSUES AND SITUATIONS describes a sexual harassment case. Ask a student to consider possible cross-cultural factors in the enforcement of employment laws. 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.”

STUDY 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 10.2 outlines the steps in the human resource planning process. The steps are as follows: • • • • •

Step 1 –– review organizational mission, objectives, and strategies. Step 2 –– review human resource objectives and strategies. Step 3 –– assess current human resources. 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.

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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 advantages of external recruitment include: • •

Bringing in outsiders with fresh perspectives. Access to specialized expertise or work experience not otherwise available from insiders.

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: • • •

Lower costs. Access to candidates with established performance records. Builds employee loyalty and motivation.

Realistic Job Previews Traditional recruitment often seeks to “sell” the organization by only communicating the most positive organizational features to job applicants.

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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. REAL ETHICS asks students to consider the ethics behind car dealerships targeting their recruitment efforts at women.

SELECTION TECHNIQUES Selection is the process of choosing from a pool of applicants the person or persons who offer the greatest performance potential. FIGURE 10.3 from the text show the steps in the selection process: the case of a rejected job applicant. Applications and Interviews An application form declares the individual to be a formal candidate for a job. It documents the applicant’s personal history and qualifications. Personal résumés may be attached. Candidates who lack the appropriate credentials are rejected at this step. Interviews allow job candidates and key persons from within the organization to exchange information and to learn more about one another. Interviews can be stumbling blocks in the selection process. MANAGEMENT SMARTS 10.1 gives the following advice on how to succeed in a telephone interview: • • • • • • •

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 professionally—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.

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DISCUSSION TOPIC Ask students who have experienced a telephone interview to describe how they approached it. Discuss the extent to which their approach followed the recommendations contained in Management Smarts 11.1.

Employment Tests Employment tests are used to further screen job applicants by gathering additional position-relevant information. Like any selection device, employment tests must meet the criteria of validity and reliability to be useful in predicting applicant job performance. • •

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.

An assessment centre 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. DISCUSSION TOPIC Ask your students if they have ever been evaluated at an assessment centre. 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. Reference and Background Checks Reference checks are inquiries to previous employers, academic advisors, coworkers, and/or acquaintances regarding the qualifications, experience, and past work records of a job applicant. Reference checks can better inform the potential employer and add credibility to the candidate. Physical Examinations Physical examinations are used to ensure that the person is physically capable of fulfilling job requirements Instructor’s Guide 10-9 Chapter 10 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Physical examinations may be used as a basis for enrolling the applicant in life, health, and disability insurance programs. The use of drug testing is a controversial aspect of this step of the selection process. Final Decision to Hire or Reject The best selection decisions are likely to be those involving extensive consultation among the applicant’s future manager or team leader, potential coworkers, and human resource staff. The emphasis in making the final selection decision must focus on all aspects of the person’s capacity to perform well.

STUDY 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, behaviour, 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 he 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?

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TRAINING AND DEVELOPMENT Training is a set of activities that provides the opportunity to acquire and improve jobrelated skills. On-the-Job Training On-the-job training occurs in the work setting while someone is doing a job. Onthe-job training includes the following approaches: • • • •

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. 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 behaviour what is expected of others.

Off-the-Job Training Off-the-job training is accomplished outside the actual work setting. 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. RESEARCH BRIEF examines racial bias in supervisor ratings of workers. Performance Appraisal Purposes 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: Instructor’s Guide 10-11 Chapter 10 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 Appraisal Methods Performance appraisal methods must be reliable and valid. A 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.

Behaviourally anchored rating scales (BARS) describe actual behaviours that exemplify various levels of performance achievement in a job. • • •

FIGURE 10.4 illustrates a sample behaviourally anchored rating scale. Because a BARS anchors performance assessments to specific descriptions of work behaviour, it is more reliable and valid than graphic rating scales. The behavioural anchors can also be helpful in training people to master job skills of demonstrated performance importance.

Critical-incident techniques involve keeping a running log or inventory of effective and ineffective job behaviours. This method documents success or failure patterns that can be discussed with the individual. Multi-person comparisons formally compare one person’s performance with that of one or more others. These techniques include: • •

•

Rank ordering –– all persons being rated are arranged in order of performance achievement. Paired comparisons –– each person is formally compared to every other person and rated as either the superior or weaker member of the pair. After all comparisons are made, each person is assigned a summary ranking based on the number of superior scores achieved. Forced distributions –– each person is placed into a frequency distribution that requires a certain percentage of people to fall into specific performance classifications.

Increasingly, people other than one’s immediate supervisor are doing performance appraisals. Peer appraisal occurs when people who work regularly and directly with a jobholder are involved in the appraisal. Upward appraisal occurs when subordinates reporting to the jobholder are involved in the appraisal. Instructor’s Guide 10-12 Chapter 10 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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360° feedback occurs 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 the department chair and/or Dean, and self-assessment as multiple performance review perspectives.

STUDY QUESTION 4: 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. ENHANCEMENT 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 salary or hourly wages can get the right people into jobs to begin with and keep 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. Instructor’s Guide 10-13 Chapter 10 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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A good merit pay system that is based on a solid foundation of agreed-upon and welldefined performance measures and is administered in a fair, consistent, and credible fashion will most likely retain workers. 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. 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. Fringe Benefits Fringe 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 fringe 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 help employees deal with troublesome personal problems. RETENTION AND TURNOVER Several steps in the human resource process both conclude and recycle with replacement, allowing an opportunity to review human resource plans, update job analyses, rewrite job descriptions and job specifications, renew hiring, and ensure that retention an turnover are well managed. Instructor’s Guide 10-14 Chapter 10 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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. Should an employee be terminated in an unfair manner, that employee has the right to invoke the wrongful dismissal doctrine that gives workers legal protections against discriminatory firings. LABOUR-MANAGEMENT RELATIONS Labour unions are organizations to which workers belong and that deal with employers on the workers’ behalf. The Canada Labour Code consolidates the various statutes relating to labour practices in Canada. It aims to protect both employees and employers that are both unionized and non-unionized. Th e Canada Industrial Relations Board is responsible for interpreting and administering the various elements of the Canada Labour Code Labour unions increasingly represent public sector employees. Unions act as bargaining agents who negotiate labour 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 labour contracts. FIGURE 10.5 describes the traditional adversarial view of labour-management relations. What unions can do to make things difficult for management: • • •

Strike –– refusing to come back to work.

Boycott –– refusing to buy the employer’s products or services and asking others to do the same. Picket –– posting and carrying signs complaining about the employers’ treatment of workers.

What managers can do to make things difficult for unions: • • •

Lockout –– refusing to let employees come to work. Strike-breakers –– hiring nonunion workers to do strikers’ jobs. Injunctions –– getting a court order requiring that the strikers come back to work.

The adversarial approach represents a “win-lose” conflict situation, in which labour and management expend a lot of energy in prolonged conflict.

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A new and more progressive era of labour-management relations is emerging, as many unions and employers try to work together for their common good. Two-tier wage systems are controversial systems that pay new hires less than workers already doing the same jobs with more seniority

STUDY QUESTION 5: WHAT ARE THE LINKS BETWEEN ORGANIZATIONAL CULTURE AND DIVERSITY?

A key factor in human resource management is developing a performance culture where everyone feels “a part of” the company rather than “apart from” the organization. In his book Beyond Race and Gender, consultant R. Roosevelt Thomas Jr. makes the link between organizational culture and diversity. He believes that the way people are treated at work—with respect and inclusion, or with disrespect and exclusion—is a direct reflection of the organization’s culture. WHAT IS ORGANIZATIONAL CULTURE? The organizational culture is what one sees and hears when walking around an

organization as a visitor, a customer, or an employee. Look carefully, check the atmosphere, and listen to the conversations. Whenever someone, for example, speaks of “the way we do things here,” that person is shedding insight into the organization’s culture. LEVELS OF ORGANIZATIONAL CULTURE Organizational culture is usually described from the perspective of the two levels. The outer level is the “observable” culture and the inner level is the “core” culture. You might think of this in terms of an iceberg. What lies below the surface and is harder to see is the core culture. That which stands out above the surface and is more visible to the discerning eye is the observable culture. Managers need to understand both. FIGURE 10.6 illustrates the levels of organizational culture. VALUES AND ORGANIZATIONAL CULTURE Although it is clear that culture is not the sole determinant of what happens in organizations, it is an important influence on what they accomplish and how. A widely discussed study of successful businesses, for example, concluded that organizational culture has the potential to shape attitudes, reinforce beliefs, direct behaviour, and establish performance expectations and the motivation to fulfill them. Importantly, the cultures in high-performing firms provided clear values and a vision of what each organization was attempting to accomplish, allowing individuals to rally around the Instructor’s Guide 10-16 Chapter 10 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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vision and work hard to support and accomplish it. MANAGEMENT SMARTS 10.2 provides a list of questions for reading an organization’s culture. Value-based management actively develops, communicates, and enacts shared values. It is becoming popular to discuss workplace spirituality along with value-based management. Although the first tendency might be to associate “spirituality” with religion, the term is used more broadly in management to describe 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. A symbolic leader is someone who uses symbols well to communicate values and maintain adesired organizational culture. Symbolic managers and leaders both act and talk the “language” of the organization.

MULTICULTURAL ORGANIZATIONS In studying the business case for diversity, Thomas Kochan and his colleagues at MIT found that the presence of diversity alone does not guarantee a positive performance impact. Only when diversity is leveraged through training and supportive human resource practices are the advantages gained. In management, the term multiculturalism refers to inclusivity, pluralism, and respect for diversity in the workplace. A truly multicultural organization is one where the organizational culture communicates and supports core values that respect and empower the full diversity of its members. DIVERSITY AND ORGANIZATIONAL SUBCULTURES Like society as a whole, organizations contain a mixture of subcultures. These are cultures common to groups of people with similar values and beliefs based on shared work responsibilities and personal characteristics. And just as with life in general, ethnocentrism—the belief that one’s membership group or subculture is superior to all others—can creep into the workplace and adversely affect the way people relate to one another. The many possible subcultures in organizations include occupational subcultures. Salaried professionals such as lawyers, scientists, engineers, and accountants have been described as having special needs for work autonomy and empowerment that may confl ict with traditional management methods of top-down direction and control. Differences in ethnic or national cultures exist as people from various countries and regions of the world meet and work together in the global economy. And as we all know, Instructor’s Guide 10-17 Chapter 10 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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it can sometimes be hard to work well with persons whose home cultures are different from our own. Relationship issues and discrimination based on gender subcultures also continue to complicate the workplace. Some research shows, that when men work together, a group culture forms around a competitive atmosphere. MANAGING DIVERSITY The very term “diversity” basically means the presence of differences. But what happens when those differences are distributed unequally among organizational subcultures and in the governing power structures? What happens when one subculture is in “majority” status while others become “minorities”? Even though organizations are changing today, there is likely to be more workforce diversity at the lower and middle levels of most organizations than at the top. The glass ceiling is a hidden barrier to the advancement of women and members of visible minorities. FIGURE 10.7 illustrates glass ceilings as barriers to women and members of minority cultures in traditional organizations. Biculturalism occurs when minority members adopt characteristics of majority cultures in order to succeed. Managing diversity is building an inclusive work environment that allows everyone to reach their full potential. FIGURE 10.8 illustrates leadership approaches to diversity.

CHAPTER 10 STUDY QUESTIONS SUMMARY Study Question 1: What is strategic 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 top management structure. • Employees have legal protections against employment discrimination; human rights laws guarantee people the right to employment and advancement 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? Study Question 2: How do organizations attract a quality workforce? Instructor’s Guide 10-18 Chapter 10 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 offer candidates accurate information on the job and the organization. Interviews, employment tests, and reference checks help managers make selection decisions. The use of assessment centres and work sampling is becoming more common in the selection process.

FOR DISCUSSION: Can you expect a potential employer to give you a “realistic” job preview? Study 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 coaching, modeling, and mentoring; off-the-job training includes formal job training and management development courses. • Performance management systems establish work standards and the means for assessing performance results. • Common performance appraisal methods are graphic rating scales, behaviourally anchored rating scales, and multi-person comparisons. FOR DISCUSSION: What are some of the potential downsides of being on the receiving end of 360 feedback? Study 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 labour markets. • Merit pay plans link compensation and performance; examples include bonuses, profit sharing, and stock options. • Replacement decisions in human resource management involve promotions, transfers, retirements, and/or terminations. • The collective bargaining process and labour–management relations are carefully governed by law. FOR DISCUSSION: Give current trends in globalization is it likely that labor unions will gain in popularity? 5. What are the links between organizational culture and diversity? • In organizations with strong cultures, members behave with shared understandings and act with commitment to core values. • Multicultural organizations operate with internal cultures that value pluralism, respect diversity, and build strength from an environment of inclusion. • Organizations have many subcultures, including those based on occupational, functional, ethnic, racial, age, and gender differences. • Challenges faced by members of minority subcultures in organizations include sexual harassment, pay discrimination, job discrimination, and the glass ceiling effect. • Managing diversity is the process of developing an inclusive work environment that allows everyone to reach their full potential. Instructor’s Guide 10-19 Chapter 10 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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FOR DISCUSSION What can a manager do, at the work team level, to reduce diversity bias in the workplace?

CHAPTER 10 KEY TERMS Assessment centre: a testing approach that evaluates a person’s potential by observing his or her performance in experimental activities designed to simulate daily work activities. Base compensation: a salary or hourly wage paid to an individual. Behaviourally anchored rating scale: a performance appraisal method describing actual behaviours that exemplify various levels of performance achievement in a job. Biculturalism: occurs when minority members adopt characteristics of majority cultures in order to succeed. Bona fide occupational qualifications: a criterion for employment that can be clearly justified as being related to a person’s capacity to perform a job. Bonus pay: plans provide one-time payments based on performance accomplishments. Coaching: occurs when an experienced person provides performance advice to someone else. Collective bargaining: the process of negotiating, administering, and interpreting a labour contract. Comparable worth: the notion that persons performing jobs of similar importance should be paid at comparable levels. Core values:beliefs and values shared by organization members. Critical-incident technique: a performance appraisal method that involves keeping a running log or inventory of effective and ineffective job behaviours. Discrimination: occurs when someone is denied a job or job assignment for reasons that are not job relevant Early retirement incentive programs: offer workers financial incentives to retire early. Employee assistance programs: helps employees deal with troublesome personal problems. Employee stock ownership plans: helps employees purchase stock in their employing companies. Ethnocentrism: the belief that one’s membership group or subculture is superior to all others. External recruitment: seeks job applicants from outside the organization. Family-friendly benefits: help employees to better balance work and nonwork responsibilities. Flexible benefits: a program that allows employees to choose a set of benefits within a certain dollar amount. Fringe benefits: the additional non-wage or non-salary forms of compensation provided to an organization’s workforce. Gain sharing: plans allow employees to share in cost savings or productivity gains realized by their efforts. Glass ceiling: a hidden barrier to the advancement of women and members of visible minorities. Graphic rating scale: a performance appraisal method that uses a checklist of traits or characteristics to evaluate performance. Human resource management: involves attracting, developing, and maintaining a talented and energetic organizational workforce. Human resource planning: the process of analyzing an organization’s human resource needs and how to best fill them. Independent contractors: people hired as temporary workers who work on a contract to an organization and do not become part of its permanent workforce. Internal recruitment: seeks job applicants from inside the organization. Instructor’s Guide 10-20 Chapter 10 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Job analysis: the orderly study of job facts to determine what is done, when, where, how, why, and by whom in existing or potential new jobs. Job description: a written statement of job duties and responsibilities. Job rotation: people switch tasks to learn multiple jobs. Job specification: a list of the qualifications that should be met by any person hired for or placed in a given job. Labour contract: a formal agreement between a union and the employing organization, which specifies the rights and obligations of each party with respect to wages, work hours, work rules, seniority, hiring, grievances, and other conditions of employment. Labour union: an organization to which workers belong and that deal with employers on the workers’ behalf. Management development: training that is designed to improve a person’s knowledge and skills in the fundamentals of management. Managing diversity: is building an inclusive work environment that allows everyone to reach their full potential. 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. Merit pay: awards pay increase in proportion to performance contributions. Modeling: a form of coaching wherein someone demonstrates through day-to-day personal behaviour what is expected of others. Multiculturalism: involves pluralism and respect for diversity. Multi-person comparison: a performance appraisal method that involves formally comparing one person’s performance with that of one or more others. Multicultural organization: based on pluralism and operates with inclusivity and respect for diversity. Observable culture: this is what one sees and hears when walking around an organization as a visitor, a customer, or an employee. Organizational culture: what one sees and hears when walking around an organization as a visitor, a customer, or an employee. Organizational subcultures: exist among people with similar values and beliefs based on shared work responsibilities and personal characteristics. Orientation: a set of activities designed to familiarize new employees with their jobs, their coworkers, and key aspects of the organization as a whole. Performance appraisal: the process of formally assessing someone’s work accomplishments and providing feedback. Performance management system: a system ensuring that performance standards and objectives are set, performance is regularly assessed for accomplishments, and actions are taken to improve future performance potential. Pregnancy discrimination: penalizes a woman in a job or as a job applicant for being pregnant Profit sharing: distributes to employees a proportion of net profits earned by the organization. Realistic job preview: an attempt by the job interviewer to provide the job candidate with all pertinent information about the job and the organization, without distortion and before the job is accepted. Recruitment: a set of activities designed to attract a qualified pool of job applicants to an organization. Reliability: means that a selection device is consistent in measurement; it returns the same results time after time. Selection: the process of choosing from a pool of applicants the person or persons who offer the greatest performance potential. Sexual harassment: occurs when a person experiences conduct or language of a sexual nature that affects his/her employment situation. Instructor’s Guide 10-21 Chapter 10 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Socialization: the process of influencing the expectations, behaviour, and attitudes of a new employee in a way considered desirable by the organization. Stock options: gives the right to purchase shares at a fixed price in the future. Strategic human resource management: mobilizes human capital through the HRM process to best implement organizational strategies. Symbolic leader: someone who uses symbols well to communicate values and maintain a desired organizational culture. 360° feedback: a performance appraisal technique that involves superiors, subordinates, peers, and even internal and external customers in appraising a jobholder’s performance. Termination: is the involuntary dismissal of an employee. Traditional recruitment: focuses on selling the job and organization to applicants. Training: a set of activities that provide the opportunity to acquire and improve job-related skills. Two-tier wage systems: paying new hires less than workers already doing the same jobs with more seniority. 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. Value-based management: actively develops, communicates, and enacts shared values. Work sampling: a testing approach where applicants work on actual job tasks while having their performance graded by observers. Work-life balance: how people balance career demands with personal and family needs. Workplace privacy: the right of individuals to privacy on the job. Workplace spirituality: creates meaning and shared community among organizational members. Wrongful dismissal: is a doctrine giving workers legal protections against discriminatory firings.

SUGGESTED TEAM EXERCISE Students often are well-prepared for interviews by university career centres. They know to expect questions like “tell me about a time you overcame adversity” or “what is your greatest weakness?” Interviewers sometimes try to get around the canned answers that students give to these questions by asking more off-the-wall questions that are not anticipated such as, “If you were an animal, what kind of animal would you be and why?” or “If you could be a character in a movie, which character would you be and why?” Have students get into groups and try to come up with interview questions that applicants would not be prepared to answer. Ask them what their questions will reveal about an applicant. 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

Which is not a major responsibility of human resource management?

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(a) attracting a quality workforce (b) developing a quality workforce (c) maintaining ISO 14001 (d) performance management 3.

_________________ regulations are designed to ensure equal employment opportunities for persons historically underrepresented in the workforce. (a) Realistic recruiting (b) External recruiting (c) Employment equity (d) Employee assistance

If an employment test yields different results over time when taken by the same person, it lacks ___________. (a) validity (b) specificity (c) realism (d) reliability

The assessment centre approach to employee selection relies heavily on ___________. (a) pencil-and-paper tests (b) simulations and experiential exercises (c) 360° feedback (d) formal one-on-one interviews

___________ is a form of on-the-job training wherein an individual learns by observing others who demonstrate desirable job behaviours. (a) Case study (b) Work sampling (c) Modeling (d) Simulation

The first step in strategic human resource planning is to ___________. (a) forecast human resource needs (b) forecast labour supplies (c) assess the existing workforce (d) review organizational mission, objectives, and strategies.

In Canada, the _____________ protects employees’ right to join unions and engage in union activities. (a) Canadian Human Rights Act (b) Trade Unions Act of 1985 (c) Canada Labour Code (d) Employment Equity Act

Socialization of newcomers occurs during the ___________ step of the staffing process. (a) recruiting (b) orientation (c) selecting (d) training

10.

In human resource planning, a(n) ___________ is used to determine exactly what is done in an existing job. (a) critical-incident technique (b) assessment centre (c) job analysis (d) multi-person comparison

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Which of the following is not an on-the-job training program? (a) gain sharing (b) job rotation (c) coaching (d) modelling

12.

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) judgmental (d) legal

13.

Whether a structure is tight or loose and whether decisions are change-oriented or driven by the status quo are indicators of an organization’s . (a) inclusivity (b) culture (c) competitive advantage (d) multiculturalism

14.

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) employment equity

15.

A manager who ___________ is displaying a commitment to valuing human capital. (a) believes payroll costs should be reduced wherever possible (b) is always looking for new ways to replace people with machines (c) protects workers from stress by withholding information from them about the organization’s performance (d) views people as assets to be nurtured and developed over time.

16.

17.

How do internal recruitment and external recruitment compare in terms of advantages and disadvantages for the employer? 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. 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.

What is the difference between the graphic rating scale and the BARS as performance appraisal methods?

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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 behaviourally anchored rating scale asks the supervisor to rate the employee on specific behaviours 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.

Why is it important for managers to understand subcultures in organizations? Like society as a whole, organizations contain a mixture of subcultures. These are cultures common to groups of people with similar values and beliefs based on shared work responsibilities and personal characteristics. And just as with life in general, ethnocentrism—the belief that one’smembership group or subculture is superior to all others—can creep into the workplace and adversely affect the way people relate to one another. Thus, subcultures need to be managed, and the only way to do so effectively is by understanding them.

20.

Sy Dabrowski 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 the appearance of some negative attitudes, including a tendency for Sy to sometimes “badmouth” the firm. 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.

REVIEW QUESTIONS FOR CASE 10: ROYAL BANK OF CANADA: PROGRESSIVE HR MAKES GOOD BUSINESS SENSE

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1. Using the three major responsibilities of human resources management, describe how RBC can be considered an employer of choice. Attracting a quality workforce – involves human resources planning as well as employee recruitment and selection Diversity – creates workplaces where employee, regardless of gender or race, can realize their full potential, achieve their aspirations, and make significant contributions while developing their own unique personal abilitie,s making RBC an attractive organization for high quality talent Developing a quality workforce – involves employee orientation, training and development and performance feedback. Recognition and rewards system – employees can be recognized by managers and co-workers including a mixture of team and individual rewards. Employees can collect points so they have control and choice about the rewards they receive, making the recognition of positive performance more valuable to them. This creates positive morale and minimizes turnover Maintaining a quality workforce – career development, work-life balance, compensation and benefits, retention and turnover, and labour management relations · Career bridge – offers four month Canadian internships to foreign-trained professions to help them integrate into the Canadian workforce · Diversity Leadership Council helps identify and develop strategic diversity initiatives setting ambitious goals to continue to increase the representation of both women and minorities in senior management and to develop career opportunities for upcoming talent · The Total Rewards System offers competitive rewards through focusing on the career-life cycle. The Total Rewards package includes compensation, benefits, professional development, and a variety of work-life initiatives while creating a combination that is right for each individual employee · Benefits are competitive with the flexibility to add additional coverage to suit employees personal needs, allowing employees to customize their package to suit their own situation, includes basic life and disability benefits, pension plan, heath and dental plans, additional life or accident insurance. 2. Assume you are hired as a consultant to create a plan to improve the development of RBC’s workforce. What recommendations would you make for RBC to further develop its workforce? Explain your reasoning.

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Realistic job previews – provide all candidates with all pertinent information about a job and organization to help inform the candidate on the job and performance expectations prior to hire to reduce turnover Socialization – design opportunities for new and long-term employees to socialize to influence the expectations, behaviour, and attitudes of new employees Orientation – design and implement ongoing employee orientation to familiarize new employees with jobs, co-workers, and organizational policies and services to minimize learning curve and helping them be more productive more quickly Training – provide learning opportunities for all employees to acquire and improve job related skills On the job training for new and existing employees – coaching (experienced person offers performance advice to less experienced person), mentoring (assigns early career employees as protégés to more senior ones), modelling (uses personal behaviour to demonstrate performance expected of others) Off the job training – encourage management development training to improve knowledge and skills in the management process Institute performance management and performance appraisals to assist employees in identifying areas to develop and expand their job related skills

3. How does RBC work to maintain its workforce? Do you think the strategy is effective? Why or why not? • • • • • • • • •

Career development Career planning to avoid career plateau Developing opportunities for women and minorities in senior management – 1/3 VP and above and 9% minorities, half of all managers are women Work-life balance – balancing career demand with personal and family needs Compensation and benefits – Total Rewards System incorporates base compensation, fringe, flexible, and family friendly benefits, employee assistance program Retention and turnover – promotions, transfers, terminations, layoffs, and retirements Special counselling and other forms of support for retirees Internal promotion opportunities, particularly management level positions Total Rewards Program includes employee and work life assistance

Yes, the strategy is effective in allowing RBC to attract, retain, and engage employees, reduce stress and short-term absenteeism which increases individual and organizational effectiveness. Twice named one of Canada’s most admired corporate cultures, recognized for Instructor’s Guide 10-27 Chapter 10 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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workplace diversity and four time recognition for being once of Canada’s most respected corporations.

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Chapter 11:

LEADING AND LEADERSHIP DEVELOPMENT CHAPTER 11 STUDY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4. 5. 6.

What is the nature of leadership? What are the important leadership traits and behaviours? What are the contingency theories of leadership? What are current issues in leadership development? What is the communication process? How can communication be improved?

CHAPTER 11 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 and benefits of servant leadership • Contrast the trait and leader-behaviour approaches to leadership research • Identify five personal traits of successful leaders • Illustrate leader behaviours consistent with a high concern for task • Illustrate leader behaviours consistent with a high concern for people • Explain the leadership development implications of Blake and Mouton’s Leadership Grid • Describe four classic leadership styles • Contrast the leader-behaviour 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 leadership theory • Contrast the authority, consultative, and group decisions in the Vroom-Jago model • Differentiate transformational leadership and transactional leadership • Explain how emotional intelligence contributes to leadership success • Discuss research insights on the relationship between gender and leadership Instructor’s Guide 11-1 Chapter 11 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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• • • • • • • • • • • • • •

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Define interactive leadership Discuss integrity as a foundation for moral leadership List Drucker’s three essentials of good old-fashioned leadership Describe the communication process and identify its key components Differentiate between effective and effi cient 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 Define active listening and list active listening rules Illustrate the guidelines for constructive feedback Explain how and why space design influences communication Discuss the influence of technology utilization on communication Explain how MBWA can improve upward communication Explain the impact of ethnocentrism on cross-cultural communication

CHAPTER 11 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 how leaders can empower followers. The chapter continues with a discussion of the trait, behavioural, and contingency approaches to leadership. In discussing the behavioural 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, House’s path-goal theory, the Hersey-Blanchard situational leadership model, the leader-member exchange theory, and the Vroom-Jago leader-participation model. Next, the chapter focuses on transactional leadership and transformational leadership. The chapter explores current issues in leadership theory and practice, including emotional intelligence, gender and leadership, moral leadership, and “old-fashioned” leadership. Attention then turns to the communication process, so intergral to effective leadership, and how communication may be improved.

CHAPTER 11 LECTURE OUTLINE Teaching Objective: To provide students with a solid understanding of leadership and communication, and their importance to management. To accomplish this, power as a leadership resource and various approaches to the study of leadership and communication are explored.

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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.

Study Question 1: What is the nature of leadership? • Leadership and power • Leadership and vision • Leadership as service

II. Study Question 2: What are the important leadership traits and behaviours? • Leadership traits • Leadership behaviours • Classic leadership styles III. Study Question 3: What are the contingency theories of leadership • Fiedler’s contingency model • Hersey-Blanchard situational leadership model • Path-goal leadership theory • Leader-member exchange theory • Leader-participation model IV. Study Question 4: What are current issues in leadership development? • Transformational leadership • Emotional intelligence and leadership • Gender and leadership • Moral leadership • Drucker’s “old-fashioned” leadership V.

Study Question 5: What is the communication process? • Effective communication • Persuasion and credibility in communication • Communication barriers

VI. Study Question 6: How can communication be improved?\ • Active listening • Constructive feedback • Space design • Channel selection • Electronic communication • Interactive management • Cross-cultural communication

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CHAPTER 11 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Developing Leaders: A Firms Most Important Job Learning About Yourself • Integrity Figures • Figure 11.1: Leading Viewed in Relationship to the Other Management Functions • Figure 11.2: Sources of Position Power and Personal Power Used by Leaders • Figure 11.3: Managerial Styles in Blake and Mouton’s Leadership Grid • Figure 11.4: Predictions from Fieldler’s Contingency Leadership Model • Figure 11.5: Leadership Implications of the Hersey-Blanchard Situational Leadership Model • Figure 11.6: Contingency Relationships in House’s Path-Goal Leadership Theory • Figure 11.7: Elements of Leader-Member Exchange (LMX) Theory • Figure 11.8: Leadership Implications of Vroom-Jago Leader-Participation Model • Figure 11.9: The Interactive Two-way Process of Interpersonal Communication • Figure 11.10: Channel Richness and the Use of Communication Media Thematic Boxes • Issues and Situations: Managing the Boss • Management Smarts 11.1: Five Ways for Leaders to Make Decisions • Research Brief: Charismatic Leaders Display Positive Emotions That Followers Find Contagious • Management Smarts 11.2: How To Make A Successful Presentation • Real Ethics: Difficult Employees • Management Smarts 11.3: Tips on Managing Your E-mail Applications • Self-Test • Self-Assessment • Team Exercise: Leading By Participation • Case 11: Maple leaf Foods: A Test of Leadership

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LEARNING FROM OTHERS explains how Proctor and Gamble develops leaders and how it views this as the firm’s most important job. LEARNING ABOUT YOURSELF 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.

STUDY QUESTION 1: WHAT IS THE NATURE OF LEADERSHIP? Leadership is the process of inspiring others to work hard to accomplish important tasks. FIGURE 11.1 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. FIGURE 11.2 identifies two sources of managerial power: position power and personal power. 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 capability to offer something of value –– a positive outcome –– as a means of influencing the behaviour of other people. Coercive power: the capability to punish or withhold positive outcomes as a means of influencing the behaviour of other people. Legitimate power: the right by virtue of one’s organizational position or status to exercise control over persons in subordinate positions.

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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 behaviour of other people because of one’s knowledge and skills. Referent power: the capacity to influence the behaviour of other people because they admire you and want to identify positively with you.

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.

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 follower-centreed 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. Instructor’s Guide 11-6 Chapter 11 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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STUDY QUESTION 2: WHAT ARE THE IMPORTANT LEADERSHIP TRAITS AND BEHAVIOURS? 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.

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, self-confidence, intelligence, knowledge, and flexibility are seen as desirable, researchers have not found a definitive, universal profile of leadership traits. Instructor’s Guide 11-7 Chapter 11 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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LEADERSHIP BEHAVIOURS Leadership behaviour theories focus on how leaders behave when dealing with followers. Leadership styles are the recurring patterns of behaviours exhibited by leaders. Research on leadership behaviour 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 behaviours: • • • • •

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 behaviours: • • • • •

acts warm and supportive toward followers. maintains good social relations with followers. respects the feelings of followers. is sensitive to followers’ needs. shows trust in followers.

FIGURE 11.3 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. 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.

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CLASSIC LEADERSHIP STYLES 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.

STUDY QUESTION 3: WHAT ARE THE CONTINGENCY THEORIES OF 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 taskmotivated (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 be fit to 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.

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•

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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.

•

FIGURE 11.4 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. Managing Leadership Style and Situation Fiedler’s results can be stated as two propositions: • •

Proposition 1: A task-oriented leader will be most successful in either very favourable (high control) or very unfavourable (low control) situations. Proposition 2: A relationship-oriented leader will be most successful in situations of moderate control.

ISSUES AND SITUATIONS examines the issue of managing the boss through the lens of a poorly planned performance appraisal.

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.

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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.

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 11.5 identifies both the four possible leadership styles that result from different combinations of task-oriented and relationship-oriented behaviours. 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.

Hershey 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. Instructor’s Guide 11-11 Chapter 11 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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DISCUSSION TOPIC Hersey and Blanchard’s four levels of follower readiness can be compared to student classifications on a high school or university 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.

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: • • • •

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 group members as equals; being friendly and approachable; showing concern for the well being 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 subordinates in decision-making; consulting with subordinates; asking for suggestions from subordinates; using subordinates’ suggestions when making decisions.

Path-Goal Contingencies As shown in FIGURE 11.6, 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.

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When worker self-confidence is low, supportive leadership is appropriate to increase confidence by emphasizing individual abilities and offering needed assistance. When performance incentives are poor, participative leadership is appropriate to clarify individual needs and identify appropriate rewards. When task challenge is insufficient, achievement-oriented leadership is appropriate to set goals and raise performance aspirations. 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 subordinate characteristics (ability, experience, and independence); task characteristics (routineness and availability of feedback); and organizational characteristics (clarity of plans and formalization of rules and procedures).

LEADER-MEMBER EXCHANGE THEORY FIGURE 11.7 shows the leader-member exchange (LMX) theory which recognizes that, in many leadership situations, not everyone is treated the same by the leader. 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 excluded from the attributions and benefits bestowed on the “in group” and they have 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 11.8 shows the leader’s choices for making decisions fall into three categories:

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• • •

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Authority decision ––the decision is made by the leader and then communicated to the work group. Consultative decision ––the leader makes the decision after receiving information, advice, or opinions from group members. Group decision –– the decision is made by group members themselves.

Each of the five decision methods is appropriate in different problem situations, depending 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 subordinate acceptance to eventual solution implementation. Decision time is based on the time available to make and implement the decision.

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.

Potential disadvantages of participative decision methods: • •

Lost efficiency. Not particularly useful when problems must be resolved immediately.

MANAGEMENT SMARTS 11.1 outlines within the context of the basic decisionmaking choices with the five following decision-making options:

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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 to group members the 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

VroomJago Approach

Concern

Situational Control

Situational Attributes

Problem Attributes

Diagnostic Focus

Task Structure, Position Power, Leader-member Relations

Subordinate Characteristics, Task Demands

Follower Readiness

Decision Quality, Subordinate Acceptance, Information and Time Availability

Leadership Styles Consult

Task-motivated, Relationship-

Directive, Supportive,

Telling, Selling,

Decide Alone,

motivated

Participative, AchievementOriented

Participating, Delegating

Individually, Consult with Group, Facilitate, Delegate

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Managerial Implications

Effective leader matches style with situation

Effective leader chooses style to complement situational attributes

Effective leader uses decision method best fitting the problem situation

STUDY QUESTION 4: WHAT ARE CURRENT ISSUES IN LEADERSHIP DEVELOPMENT? 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 leaderfollower relationships and inspire others in extraordinary ways.

TRANSFORMATIONAL LEADERSHIP Transactional leadership describes someone who directs the efforts of others through tasks, rewards, and structures. Transformational leadership describes someone who is truly inspirational as a leader and who arouses others to seek extraordinary performance accomplishments. Transactional leadership is a building block that helps support transformational leadership. By itself, transactional leadership is insufficient to meet contemporary leadership challenges. 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,

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and following through on commitments.

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: • • • • •

Self-awareness –– the ability to understand one’s own moods and emotions, and understand their impact on one’s work and on others. Self-management –– the ability to think before acting and to control otherwise disruptive impulses. 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. 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.

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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 tend to take a more transactional approach to leadership, relying more on directive and assertive behaviours, 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 behaviours 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 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?

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. Authentic leadership activates performance through the positive psychological states of confidence, hope, optimism, and resilience. The characteristics of authentic leaders help them to clearly frame moral dilemmas, transparently respond to them, and serve as ethical role models. DRUCKER’S “OLD-FASHIONED” LEADERSHIP Instructor’s Guide 11-18 Chapter 11 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Peter Drucker views leadership as much more than charisma –– it is “good old-fashioned” hard work. Drucker’s three essentials of leadership (or what is necessary to do “good old-fashioned” 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.

STUDY QUESTION 5: 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. FIGURE 11.9 illustrates the interactive two way process of interpersonal communication and provides the key elements in the communication process: • • •

The sender who is responsible for encoding an intended message into meaningful symbols –– both verbal and nonverbal. The message is sent through a communication channel to a receiver, who then decodes or interprets its meaning. Feedback, when present, reverses the process and conveys the receiver’s response back to the sender.

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” Instructor’s Guide 11-19 Chapter 11 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 intended meaning of the sender and the interpreted meaning of the receiver are one and the same. Efficient communication occurs at minimum cost in terms of resources (particularly time) 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. 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 and/or 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.

COMMUNICATION BARRIERS Noise is anything that interferes with the effectiveness of the communication process. Instructor’s Guide 11-20 Chapter 11 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Sources of noise include: • • • • •

Poor choice of channels. Poor written or oral expression. Failure to recognize nonverbal signals. Physical distractions. Status effects.

DISCUSSION TOPIC You can demonstrate the impact of noise on the communication process by having five or six students play a round of “telephone” in class. The first student should read a selected written paragraph, whispering it to the second student. The second student should repeat 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.

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. MANAGEMENT SMARTS 11.2 gives these tips on how to make a successful presentation: •

Be prepared: Know what you want to say; know how you want to say it; rehearse saying it.

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• • • • • • • •

Instructor’s Guide

Set the right tone: Act audience centred; make eye contact; be pleasant and confident. Sequence points: State your purpose; make important points; follow with details; then summarize. Support your points: Give specific reasons for your points; state them in understandable terms. Accent the presentation: Use good visual aids; provide supporting handouts when possible. Add the right amount of polish: Attend to details; have room, materials, and arrangements ready to go. Check your technology: Test out everything ahead of time; make sure it works and know how to use it. Don’t bet on the Internet: Beware of real-time Internet visits; save sites on a disk and use a browser to open the file. Be professional: Be on time; wear appropriate attire; act organized, confident, and enthusiastic.

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.

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.

Physical distractions

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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. Status Effects Status effects involve noise that occurs when an organization’s hierarchy of authority creates a barrier to effective communications. Filtering is the intentional distortion of information to make it appear favourable to the recipient.

STUDY QUESTION 6: HOW CAN COMMUNICATION BE IMPROVED? 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. Instructor’s Guide 11-23 Chapter 11 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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. 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.

REAL ETHICS asks students to consider if constructive feedback or active listening is the best way to deal with a disruptive employee. 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 is the use of interpersonal space. 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 behaviour.

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Channel richness is the capacity of a channel or communication medium to carry information in an effective manner. FIGURE 11.10 illustrates channel richness and the use of communication media. • •

Low channel richness is impersonal, one-way, and fast. High channel richness is personal, two-way, and slow.

Managers need to understand the limits of a channel and choose wisely in communicating various types of messages.

ELECTRONIC COMMUNICATION The new age of communication is heavily electronic, but knowing how and when to use e-mail and text messaging is becoming a growing concern.

MANAGEMENT SMARTS 11.3 gives these tips for handling email: • • • • • • • • •

Read items only once. Take action immediately to answer, move to folders, or delete. Purge folders regularly of useless messages. Send group mail and use “reply to all” only when really necessary. Get off distribution lists that are without value to your work. Send short messages in the subject line, avoiding a full-text message. Put large files on Web sites, instead of sending them as attachments. Use instant messaging as an e-mail alternative. Don’t forget the basic rule of e-mail privacy: there isn’t any.

Advice regarding e-mail privacy. • •

Find out the employer’s policy on personal e-mail and follow it. Don’t ever assume that you have e-mail privacy at work.

Technology offers the power of the electronic grapevine, speeding messages and information form person to person. • •

This can be functional when the information is accurate and useful. This can be dysfunctional when the information is false, distorted, or simply based on rumour.

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Management by wandering around (MBWA) involves dealing directly with subordinates by regularly spending time walking around and talking with them about a variety of work-related matters. Other steps that managers and leaders can take to keep communication channels open include: • Open office hours where busy senior executives set aside time for walk-in visitors during certain hours each week. • A rotating schedule of “shirt-sleeve” meetings which bring top managers into face-toface contact with mixed employee groups throughout the organization. • Employee advisory councils composed of members elected by their fellow employees who meet regularly with top management to discuss and react to new policies and programs that will affect employees. • Interactive management using online discussion forums, chat rooms, electronic office hours, executive blogs and video conferences. • Communication consultants who can conduct interviews and surveys of employees on behalf of managers who suspect they are having communication problems. 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

CHAPTER 11 STUDY QUESTIONS SUMMARY Study 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 increasingly considered 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-centred, focusing on helping others fully utilize their talents.

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FOR DISCUSSION: When is a leader justified in using coercive power? Study Question 2: What are the important leadership traits and behaviours? • • •

Traits that seem to have a positive impact on leadership include drive, integrity, and selfconfidence. Research on leader behaviours focused on alternative leadership styles based on concerns for task and concerns for people. One suggestion of leader-behaviour researchers is that effective leaders will be good at teambased or participative leadership that is high in both task and people concerns.

FOR DISCUSSION: Are any personal traits indispensable “must haves” for success in leadership?

Study Question 3: What are the contingency theories of 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 behaviours, depending on the “maturity” levels of followers. House’s path-goal theory points out that leaders should 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? Study Question 4: What are current issues in 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? Instructor’s Guide 11-27 Chapter 11 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Study Question 5: 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? Study Question 6: How can communication be improved? • • • • • •

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. Interactive management through MBWA, structured meetings, suggestion systems, and advisory councils can improve upward communication. The negative influences of ethnocentrism on communication can be offset by greater crosscultural awareness and sensitivity.

FOR DISCUSSION What rules of active listening do most people break?

CHAPTER 11 KEY TERMS Active listening: the process of taking action to help someone say exactly what he or she really means. Authentic leadership: activates positive psychological states to achieve self-awareness and positive self-regulation. Authority decision: the leader makes the decision alone and then communicates it to the work group. 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. Instructor’s Guide 11-28 Chapter 11 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Channel richness: the capacity of a channel or communication medium to carry information in an effective manner. Charismatic leader: a leader who develops special leader-follower relationships and inspires others in extraordinary ways. Coercive power: the capability to punish or withhold positive outcomes as a means of influencing other people. Communication: an interpersonal process of sending and receiving symbols with messages attached to them. Communication channel: the medium through which a message is conveyed from sender to receiver. Consultative decision: the leader makes the decision after asking group members for information, advice, or opinions. 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 capabilities. Emotional intelligence: the ability of people to manage themselves and their relationships effectively. Empowerment: the process through which managers enable and help others to gain power and achieve influence within the organization. Ethnocentrism is the tendency to consider one’s culture superior to any and all others. Expert power: the capacity to influence the behaviour of other people because of one’s knowledge and skills. Feedback: the process of telling others how you feel about something they did or said or about the situation in general. Filtering is the intentional distortion of information to make it appear favourable to the recipient. Gender similarities hypothesis: holds that males and females have similar psychological properties. Group decision: is made by the group with the leader’s support as a contributing member. Human relations style: emphasizing people over task. Integrity: in leadership is honesty, credibility, and consistency in putting values into action. Interactive leadership: leaders are strong communicators and act democratic and participative with followers. 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. Leadership: the process of inspiring others to work hard to accomplish important tasks. Leadership style: the recurring pattern of behaviours exhibited by a leader. Legitimate power: the capacity to influence other people by virtue of formal authority, or the rights of office. Management by wandering around (MBWA): involves dealing directly with subordinates by regularly spending time walking around and talking with them about a variety of work-related matters. 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. Moral leadership: leadership by ethical standards that clearly meet the test of being “good” and “correct.” Instructor’s Guide 11-29 Chapter 11 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Noise: anything that interferes with the effectiveness of the communication process. Nonverbal communication: takes place through such things as hand movements, facial expressions, body posture, eye contact, and the use of interpersonal space. Power: the ability to get someone else to do something you want done or to make things happen the way you want. Proxemics is the use of interpersonal space. Referent power: the capacity to influence the behavior of other people because they admire you and want to identify positively with you. Reward power: the capability to offer something of value –– a positive outcome –– as a means of influencing the behaviour of other people. Servant leadership: 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. Status effects: involve noise that occurs when an organization’s hierarchy of authority creates a barrier to effective communications. Substitutes for leadership: aspects of the work setting and the people involved that can reduce the need for a leader’s personal involvement. Transactional leadership: uses tasks, rewards, and structures to influence and direct the efforts of others. Transformational leadership: describes someone who is truly inspirational as a leader and who arouses others to seek extraordinary performance accomplishments. 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.

SUGGESTED TEAM EXERCISE In the movie Sister Act, Sister Mary Clarence (played by Whoopi Goldberg), a Reno lounge singer, hides out in a convent until she can testify against her mob boyfriend. She finds it difficult to fit in. None of the nuns knows that she is not one of them. In the scene for this exercise (New Choir Director) she takes over leadership of the choir. Show the scene, and then have students get into groups and make as many links to the chapter as possible. Some links they might consider include: • • • •

Mary Clarence embodies the definition of leadership: Leadership is the process of inspiring other to work hard to accomplish important tasks. Mary Clarence is given legitimate power and she successfully gives the former choir director expert and referent power by praising her. On leadership traits, Mary Clarence brings drive, self-confidence, creativity, cognitive ability, business knowledge to the choir. From leadership behaviours, Mary Clarence is concerned more about people than the task. She is a team manager who focuses on building participation and support for a shared purpose.

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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

Leader power = _________ power × _________ power. (a) reward, punishment (b) reward, expert (c) legitimate, position (d) position, personal

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

The personal traits now considered important for managerial success include _________. (a) self-confidence (b) gender (c) age (d) personality

According to the Blake and Mouton model of leader behaviours, the most successful leader is one who acts with _________. (a) high initiating structure (b) high consideration (c) high concern for task and high concern for people (d) low job stress and high task goals

In Fiedler’s contingency model, both highly favourable and highly unfavourable leadership situations are best dealt with by a _________ leader. (a) task-oriented (b) laissez-faire (c) participative (d) relationship-oriented

Directive leadership and achievement-oriented leadership are among the options in House’s _________ theory of leadership. (a) trait (b) path–goal (c) transformational (d) life-cycle

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Vision, charisma, integrity, and symbolism are all on the list of attributes typically associated with _________ leaders. (a) contingency (b) informal (c) transformational (d) transactional

_________ leadership theory suggests that leadership success is achieved by correctly matching leadership style with situations.

10.

(a) Trait (b) Fiedler’s (c) Transformational (d) Blake and Mouton’s In the leader-behaviour 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-centred

11.

When a leader assumes that others will do as she asks because they want to positively identify with her, she is relying on _________ power to influence their behaviour. (a) expert (b) reference (c) legitimate (d) reward

12.

The interactive leadership style, sometimes associated with women, is characterized by _________. (a) inclusion and information sharing (b) use of rewards and punishments (c) command and control (d) emphasis on position power

13.

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

14.

Constructive feedback is __________. (a) general rather than specific (b) indirect rather than direct (c) given in small doses (d) given any time the sender is ready

15.

Cross-cultural communication may run into difficulties because of __________, or the tendency to consider one’s culture superior to others. (a) selective perception (b) ethnocentrism (c) mixed messages (d) projection

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 Instructor’s Guide 11-32 Chapter 11 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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. Not 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.

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.

19.

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.

20.

When Marcel Girard 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 behaviours 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 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

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accomplishments, enthusiasm, ethical behaviour, 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.

REVIEW QUESTIONS FOR CASE 11: MAPLE LEAF FOODS – A TEST OF LEADERSHIP 1. Drawing from the leadership models in the chapter and using examples from the case, describe which model(s) you feel fitss Michael McCain’s leadership at Maple Leaf Foods. Michael McCain’s leadership at Maple Leaf Foods is reflective of aspects of several of the leadership models presented in the chapter. First, it can be said that he exhibited a Democratic Style that emphasized both tasks and people. He was very specific in outlining what would be done to address the listeria outbreak while expressing sensitivity and compassion for all who were affected by it. Second, he exhibited the Selling Style of the Hersey-Blanchard Situational Leadership Model when he explained task directions in a supportive and persuasive way. Third, he exhibited the Directive Leadership style relating to the Path-Goal Leadership Theory during the crisis by letting subordinates know what is expected; giving directions on what to do and how; scheduling work to be done; maintaining definite standards of performance; and clarifying the leader’s role in the group as the one accountable for what has happened. 2. How did McCain’s leadership approach to the situation help Maple Leaf Foods regain customer confidence? McCain was able to regain consumer confidence by not trying to deflect the blame for the lusteria outbreak elsewhere. Instead, he took personal responsibility for what had happened, and blamed himself. In addition, he expressed genuine compassion and personal pain for the outbreak, and acted quickly and decisively to minimize the problem, which also assisted in regaining the confidence of the public. 3. What leadership traits do you think best describe McCain as a leader? Why? The leadership traits that best describe McCain as a leadership are: • Drive: Successful leaders have high energy, display initiative, and are tenacious, and McCain exhibits these characteristics. • Self-confidence: Successful leaders trust themselves and have confidence in their abilities, And McCain clearly exhibited this trait during the listeria crisis • Honesty and integrity: Successful leaders are trustworthy; they are honest, predictable, and dependable. McCain exemplified the “Do What’s Right” credo both before and during the listeria crisis, and this was key to regaining public confidence.

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VIDEO CASE 5: THE DRIVE TO BE NUMBER ONE 1. What type(s) of power does Frank Stronach appear to possess? Frank Stronach appears to possess several types of power, including referent power (others want to identify personally with him, so he has influence over them), expert power (due to his specialized knowledge), legitimate power (as CEO of Magna), as well as possibly reward power and coercive power (due to his likely ability to offer something of value to and/or to punish/withhold positive outcomes). 2. Can Stronach be described as a visionary leader? If so, why? A visionary leader describes someone who brings a clear sense of the future and an understanding of how to get there to a situation. The video describes him as a visionary implying he is someone who has foresight regarding not what is but what could be. This is the essence of visionary leadership. 3. Which of the classic leadership styles does Stronach appear to reflect? To the extent that we can discern from the descriptions of Frank Stronach in the video, he appears to have an autocratic leadership style, as it appears that he typically acts in a unilateral, command-and-control, “Frank Knows Best” way. A laissez-faire style clearly does not reflect him. It is less clear the extent to which he exhibits a human relations style or a democratic style. 4. Comment as to whether Stronach is more likely a transformational or transactional leader. A transformational leader describes someone who is truly inspiring as a leader, who is personally excited about what he or she is doing, and who arouses others to seek extraordinary performance accomplishments. This appears to describe the charismatic visionary, Frank Stronach. He does not appear to be a transactional leader, who uses tasks, rewards, and structures to influence and direct the efforts of others.

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Chapter 12:

INDIVIDUAL BEHAVIOUR CHAPTER 12 STUDY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4.

How do perceptions influence individual behaviour? What should we know about personalities in the workplace? How do attitudes influence individual behaviour? What are the dynamics of emotions, moods, and stress?

CHAPTER 12 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 behaviour Explain impression management List the Big Five personality traits and give work-related examples of each List and explain the four dimensions used in the MBTI List five additional personality traits and give work-related examples for each Define attitude and list the three components of an attitude Explain cognitive dissonance Define job satisfaction and list its components Explain the potential consequences of high and low job satisfaction List and explain research findings on the satisfaction-performance relationship Define job involvement, organizational commitment, employee engagement and organizational citizenship Define emotion, mood and stress Explain how emotions and moods influence behaviour 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 12 OVERVIEW The chapter begins with a discussion of how perception influences behaviour. 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 behaviour at work. These include the “Big Five” personality traits ⎯ extroversion, agreeableness, conscientiousness, emotional stability, and openness ⎯ as well as five other traits ⎯ locus of Instructor’s Guide 12-1 Chapter 12 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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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 then 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 12 LECTURE OUTLINE Purpose: The purpose of this chapter is to provide students with an appreciation for individual behaviour 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. Study Question 1: How do perceptions influence individual behaviour? Psychological contracts Perception and attribution Perceptual tendencies and distortions Impression management II. Study Question 2: What should we know about personalities in the workplace? Big Five personality dimensions Myers-Briggs Type Indicator Additional personality traits III. Study Question 3: How do attitudes influence individual behaviour? Attitudes and behaviour Job satisfaction Job involvement, organizational commitment, and employee engagement Organizational citizenship IV. Study Question 4: What are the dynamics of emotions, moods, and stress? Emotions Moods Stress CHAPTER 12 SUPPORTING MATERIALS Textbook Inserts Learning From Others • There Are Personalities Behind Those Faces Learning About Yourself • Ambition Figures • Figure 12.1: Components in the Psychological Contract • Figure 12.2: The “Big Five” and Five More Personality Dimensions that Influence Human Behaviour at Work Instructor’s Guide 12-2 Chapter 12 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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Figure 12.3: Potential Negative Consequences of a Destructive Job Stress-Burnout Cycle

Thematic Boxes • Issues and Situations: What Millennials Want • Management Smarts 12.1: How to Make a Good Impression at Work and Elsewhere • Real Ethics: Personality Testing • Research Brief: Business Students More Satisfied With Their Lives Overall Perform at a Higher Level Applications • Self-Test • Self-Assessment • Team Exercise: Job Satisfaction Preferences • Case 12: Facebook: It’s Not Just For Kids CHAPTER 12 LECTURE NOTES LEARNING FROM OTHERS examines how the personality and persistence of the founder of Spanx led to the success of the organization. LEARNING ABOUT YOURSELF discusses the pros and cons of ambition and its influence on career success. STUDY QUESTION 1: HOW DO PERCEPTIONS INFLUENCE INDIVIDUAL BEHAVIOUR? When people work under conditions that fail to provide them with respect, their behaviour will tend toward low performance, poor customer service, absenteeism, and acting antisocial. When managers value people and create jobs and work environments that respect people’s needs and potential, higher performance, less withdrawal and dysfunction, and helpful citizenship are common. Perception is the process through which people receive, organize, and interpret information from the environment. 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. As shown in FIGURE 12.1 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 include a person’s effort, time, creativity, and loyalty that make the individual a valuable human resource. Instructor’s Guide 12-3 Chapter 12 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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Inducements from the organization include pay, fringe benefits, training, opportunity, and respect that are given in exchange for the individual’s contributions.

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 12.1 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 favour. 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 behaviour. In social psychology, attribution theory describes how people try to explain the behaviour 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 behaviour. 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. PERCEPTUAL TENDENCIES AND DISTORTIONS Stereotypes A stereotype is when attributes commonly associated with a group are assigned to an individual. These include: • • • •

Racial and ethic stereotypes Gender stereotypes Ability stereotypes Age stereotypes

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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. 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. ISSUES AND SITUATIONS of the text examines what Millennials want from work and life. Ask students whether they agree with the description reflecting on how Millennials will fit into today’s workplace. 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. 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.

STUDY QUESTION 2: WHAT SHOULD WE KNOW ABOUT PERSONALITIES IN THE WORKPLACE? Personality refers to the combination or overall profile of characteristics that make one person unique from every other. BIG FIVE PERSONALITY DIMENSIONS 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. Instructor’s Guide 12-5 Chapter 12 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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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 unworried. • An open person is broad-minded, receptive to new things, and open to change. • A person lacking openness is narrow-minded, has few interests, and is resistant to change. REAL ETHICS 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. It 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—whether a person tends toward being outgoing and sociable or shy and quiet. Sensing vs. intuitive—whether a person tends to focus on details or the big picture in dealing with problems. Thinking vs. feeling—whether a person tends to rely on logic or emotions in dealing with problems. Judging vs. perceiving—whether a person prefers order and control or acts flexible and spontaneous.

FIGURE 12.2 illustrates the “Big Five” Personality Traits and Five More Personality Dimensions that Influence Human Behaviour at Work

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ADDITIONAL PERSONALITY TRAITS 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 behaviour 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 behaviour patterns of Type A personalities include: - Always moving, walking, and eating rapidly. - Acting impatiently, hurrying others, disliking waiting. - Doing, or trying to do, several things at once. - Feeling guilty when relaxing. - Trying to schedule more in less time. - Using nervous gestures such as a clenched fist. - Hurrying or interrupting the speech of others. Instructor’s Guide 12-7 Chapter 12 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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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 behaviour. You may wish to do this as an outside homework assignment.

STUDY QUESTION 3: HOW DO ATTITUDES INFLUENCE INDIVIDUAL BEHAVIOUR? ATTITUDES AND BEHAVIOUR 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 consistently with the belief and feeling.

The intentions reflected in an attitude may or may not be reflected in actual behaviour. Cognitive dissonance describes the discomfort a person feels when attitudes and behaviour are inconsistent. 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 – is 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?

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Job Satisfaction and Its Outcomes Research has demonstrated: • a strong and positive relationship between job satisfaction and absenteeism and turnover; workers who are satisfied with their jobs are present more often and are more likely to stay with an organization. • a modest link between job satisfaction and performance • a link between performance and satisfaction: high performing workers are likely to feel satisfied • it is highly likely that job satisfaction and job performance influence one another. RESEARCH BRIEF 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 behaviour.

JOB INVOLVEMENT, ORGANIZATIONAL COMMITMENT, AND EMPLOYEE ENGAGEMENT 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.

Employee engagement is a positive work attitude that shows both • •

high job involvement – being willing to help others and always try to do something extra to improve performance high organizational commitment – feeling and speaking positively about the organization.

ORGANIZATIONAL CITIZENSHIP Organizational citizenship is an attitude that represents a willingness to go above and beyond basic job requirements. Instructor’s Guide 12-9 Chapter 12 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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STUDY QUESTION 4: WHAT ARE THE DYNAMICS OF EMOTIONS, MOODS, AND STRESS? EMOTIONS Emotional intelligence is an ability to understand emotions and manage relationships effectively. Emotions are strong feelings directed toward someone or something. There are four emotional intelligences that can and should be developed for managerial success: 1. Self-awareness – ability to understand our own emotions and moods, and to understand their impact on our work. 2. Social awareness – ability to empathize, to understand the emotions of others and to use this understanding to better relate to them. 3. Self-management – ability to think before acting and to be in control of otherwise disruptive impulses. 4. Relationship management – ability to establish rapport with others in ways that build good relationships and influence their emotions in positive ways. 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 nonwork situations, stressors can influence our attitudes, emotions and moods, behaviour, 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:

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1. Set up to fail—where the performance expectations are impossible or the support is totally inadequate to the task 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. Destructive Stress Destructive stress (distress) impairs the performance of an individual. Job burnout is physical and mental exhaustion from work stress. FIGURE 12.3 shows how long-term destructive stress overloads and breaks down a person’s physical and mental systems. 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 behaviour 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 12 STUDY QUESTIONS SUMMARY Study Question 1: How do perceptions influence individual behaviour? • 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. Instructor’s Guide 12-11 Chapter 12 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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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? Study 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 extraversion-introversion, sensingintuitive, thinking-feeling, and judging-perceiving. • Additional personality dimensions of work significance are locus of control, authoritarianism, Machiavellianism, problem-solving style, behavioural self-monitoring, and Type A orientation. FOR DISCUSSION: What dimension would you add to make the “Big Five” and “Big Six” personality model? Study Question 3: How do attitudes influence individual behaviour? • An attitude is a predisposition to respond in a certain way to people and things. • Cognitive dissonance occurs when a person’s attitude and behaviour 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? Study Question 4: What are the dynamics of emotions, moods, and stress? • Emotions are strong feelings that are directed at someone or something; they influence behaviour, 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 behaviour. • 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 work, personal, 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 12 KEY TERMS Agreeableness: a personality trait that reflects the degree to which someone is good-natured, cooperative, and trusting. Attitude: a predisposition to act in a certain way toward people and things in one’s environment. Attribution: a process of explaining events. Attribution error: overestimating internal factors and underestimates external factors as influences on someone’s behaviour. Authoritarianism: a personality trait that reflects the degree to which a person defers to authority and accepts status differences. Cognitive dissonance: describes the discomfort a person feels when attitude and behaviour are inconsistent. Conscientiousness: a personality trait that reflects the degree to which someone is responsible, dependable, and careful. Constructive stress: Stress that acts in a positive way to increase effort, stimulate creativity, and encourage diligence in one’s work. Destructive stress: Stress that impairs the performance of an individual. Emotions: strong feelings directed toward someone or something. Emotional stability: a personality trait that reflects the degree to which someone is relaxed, secure, and unworried. Emotional intelligence: is an ability to understand emotions and manage relationships effectively. Employee engagement: is willingness to help others and do extra and feeling positive about the organization. Extraversion: a personality trait that reflects the degree to which someone is outgoing, sociable, and assertive. Halo effect: occurs when one attribute is used to develop an overall impression of a person or situation. Impression management: the systematic attempt to influence how others perceive us. Job burnout: physical and mental exhaustion from work stress. Job involvement: the extent to which an individual is dedicated to a job. Job satisfaction: the degree to which an individual feels positively or negatively about various aspects of work. Locus of control: a personality trait that reflects 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. Machiavellianism: a personality trait that describes the extent to which someone is emotionally detached and manipulative in using power. Moods: generalized positive and negative feelings or states on mind. Mood contagion: is the spillover of one’s positive or negative moods onto others. Openness to experience: a personality trait that reflects the degree to which someone is curious, open to new ideas, and unworried. Organizational citizenship: things people do above and beyond basic job requirements. Organizational commitment: the loyalty of an individual to the organization itself. Perception: is the process through which people receive, organize and interpret information from the environment. Personal wellness: the pursuit of one’s full potential through a personal health-promotion program. Personality: refers to the combination or overall profile of characteristics that make one person unique from every other. Projection: the assignment of personal attributes to other individuals. Psychological contract: a set of expectations held by an individual about what will be given and received in the employment relationship. Selective perception: the tendency to define problems from one’s own point of view. Instructor’s Guide 12-13 Chapter 12 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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Self-monitoring: a personality trait that reflects the degree to which someone is able to adjust and modify behaviour in response to the situation and external factors. Self-serving bias: explaining personal success by internal causes and personal failures by external causes. Stereotype: When attributes commonly associated with a group are assigned to an individual. Stress: a state of tension experienced by individuals facing extraordinary demands, constraints, or opportunities. Stressor: anything that causes stress. Type A personality: a person oriented toward extreme achievement, impatience, and perfectionism. Workplace rage: aggressive behaviour toward co-workers or the work setting.

SUGGESTED TEAM EXERCISE On the Discovery Health webpage there are many personality tests available (http://health.discovery.com/tools/assessments.html). Have students complete two of them and bring their results to class. The students can pick which tests they’ll feel comfortable sharing with their teammates. Some possibilities are the sleep hygiene quiz and the arguing style quiz. You might also ask them to complete one of the many silly personality tests on the web, such as the Simpson’s Personality Test (http://www.matthewbarr.co.uk/simpsons/) which tells the student which Simpson’s character they resemble. Have students compare the silly test with the legitimate tests and see how they feel about the results.

SELF-TEST ANSWERS 1.

In the psychological contract, 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

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

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

If a manager allows one characteristic of a person, say a pleasant personality, to bias performance ratings of that individual overall, the manager is falling prey to a perceptual distortion known as ___________.

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(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

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

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

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

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) behavioural, attributional

10. The term used to describe the discomfort someone feels when his or her behaviour 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(n) ___________ represents a rather intense but short-lived feeling about a person or a situation, whereas a(n) ___________ 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 Instructor’s Guide 12-15 Chapter 12 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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13. Through ___________, the stress people experience in their personal lives can create problems for them at work, and the stress experienced at work can create problems for their personal lives. (a) eustress (b) self-monitoring (c) spillover effects (d) selective perception 14. As a stress management strategy, management by objectives would be especially useful in helping people deal with ___________. (a) role conflicts (b) workplace rage (c) personal wellness (d) resistance to change 15. At what level is stress most likely functional or positive in terms of impact on individual performance? (a) zero (b) low (c) moderate (d) high 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’ 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 Instructor’s Guide 12-16 Chapter 12 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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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 behaviour 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 Hassan Mohammed picked up a magazine article on how to manage health care workers, he was pleased to find some advice. Hassan 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.” Hassan 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 Hassan 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 Hassan’s clinic? Hassant 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. Hassan 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, Hassan 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.

REVIEW QUESTIONS FOR CASE 12: FACEBOOK: IT’S NOT JUST FOR KIDS 1. In what ways can attribution error cause problems for Mark Zuckerberg as he wrestles with decisions that will determine the future of Facebook? Zuckerberg may see any of Facebook’s shortcomings as being caused only by internal situations as opposed to outside influences. He already decided that he needed to bring in Sheryl Sandberg to add an aura of maturity to the company; whereas, working to change the perception of outsiders may have been a better goal, so that, the existing success laden laid-back collegiate culture could continue. Additionally, due to his young age, Zuckerberg may decide to bring in more seasoned management, i.e., older in age than him, to run parts of the organization to eradicate possibly perceived youthful mismanagement. Again, there is no need for Zuckerberg to doubt his ability as the CEO, considering he is Harvard educated and not the typical brash Instructor’s Guide 12-17 Chapter 12 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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and unprepared leader that typifies younger Silicon Valley CEOs. Both of these are examples that can cause angst for Zuckerberg as he expands and secures the future of Facebook. 2. What personality types does Facebook most appeal to, and how does that affect its potential to broaden and diversity its user base? Since many students are members of Facebook, this question may give them some insight into their personalities, which they may not have formerly recognized. It will be interesting to see if there is agreement or dissention as to the personality types to which Facebook seems to appeal as shown below. Facebook mostly appeals to those with a high degree of extraversion, since it is an area where one can be sociable with others in acquiring a number of new“friends.” By connecting with others, one can significantly and quickly expand networking possibilities, while sharing personal information about himself or herself. Facebook also appeals to those who are open to experience, since using this site allows one to develop a new way of interacting and making friends. Rather than experiencing the awkwardness of a face-to-face meeting with new people, Facebook provides a higher comfort level that is user controlled in who one wants to meet or ignore. While Facebook was originally a place for high school and college students to hang out, today anyone can join. As such, members who tend toward a withdrawn or reserved personality can observe and learn to be more outgoing, if by doing nothing more than just adding friends to their site. Users who are already the outgoing, sociable types have another venue to display their personalities in a very public way, reaching others around the world, whom they would not have met without Facebook. 3. Sheryl Sandberg is certainly under a lot of pressure to succeed in her new position at Facebook. What are the most significant stressors that she most likely faces, and how would you advise her to best deal with them? Student answers may vary. A couple of Sheryl Sandberg’s stressors will include the laid-back, collegiate work atmosphere of Facebook and management style differences between her and Mark Zuckerberg. Since Sandberg was lured from Google to help Facebook’s ad revenue, she will have to institute a more business-like work culture among the employees. This will likely alienate some as having to give up a free-spirited business lifestyle in lieu of a more conservative and mature one. Should Sandberg not succeed in this conversion, the advertisers Facebook is targeting may be reluctant to invest where ad dollars are controlled by what they may consider as“immature kids.” With a fourteen year age difference between Sandberg and Zuckerberg, some conflict regarding management style is sure to arise. Since Zuckerberg founded Facebook and grew it to where it is today, he’s in a position to impose his views on how things should be done, perhaps at the expense of any of Sandberg’s ideas. Sandberg will certainly feel the pressure, especially if her Instructor’s Guide 12-18 Chapter 12 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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ideas are rejected by Zuckerberg, even though said ideas may create additional Facebook revenue.

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Chapter 13:

INFORMATION AND DECISION-MAKING CHAPTER 13 STUDY 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 13 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • • • • •

Differentiate data and information List the criteria of useful information Describe the role of information systems in organizations Discuss how IT is breaking barriers within organizations and between organizations and their environments Describe how IT influences the four functions of management Define problem solving and decision-making Explain systematic and intuitive 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 behavioural decision models Define optimizing and satisficing Explain how lack-of-participation error can hurt decision-making Explain the availability, representativeness, anchoring, and adjustment heuristics Illustrate framing error, confirmation error, and escalating commitment in decision-making Identify key personal and situational creativity drivers List questions that can be asked to double-check the ethics of a decision

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CHAPTER 13 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 on managerial decision-making. The chapter begins by examining how IT is changing 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 possible solutions; (3) choosing a preferred course of action and conducting an “ethics doublecheck;” (4) implementing the solution; and 5) evaluating results. Decision-making traps –– including heuristics, the framing error, the confirmation error, and escalating commitment –– are identified and their potential biasing effects are described. Next the chapter describes how creativity is used in decision making along with personal and situational creativity drivers. The chapter concludes by examining the potential advantages and disadvantages of group decisionmaking, along with the role ethics plays in the decision-making process.

CHAPTER 13 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. Study Question 1: What is the role of information in the management process? What is useful information? Information needs in organizations How information technology is changing organizations II. Study 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. Study Question 3: What are the steps in the decision-making process? Identify and define the problem Generate and evaluate alternative courses of action Decide on a preferred course of action Implement the decision Evaluate results Instructor’s Guide 13-2 Chapter 13 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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IV. Study Question 4: What are the current issues in managerial decision making? Decision errors and traps Creativity in decision-making Individual versus group decision-making Ethical decision-making

CHAPTER 13 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Decisions turn individual potential into achievement Learning About Yourself • Self-confidence Figures • Figure 13.1: Internal and External Information Needs in Organizations • Figure 13.2: Information Technology is Breaking Barriers and Changing Organizations • Figure 13.3: The Manager as an Information-Processing Nerve Centre in the Management Process • Figure 13.4: Three Environments for Managerial Decision-Making and Problem Solving • Figure 13.5: Steps in Managerial Decision-Making and Problem Solving • Figure 13.6: Differences in the Classical and Behavioural Models of Managerial Decision- Making Thematic Boxes • Issues and Situations: Lego’s Wrong Turn • Management Smarts 13.1: Six Rules for Crisis Management • Real Ethics: Left to Die • Management Smarts 13.2: How to Avoid the Escalation Trap in Decision-Making • Research Brief: Escalation Increase the Risk of Ethical Breaches in Decision Making Applications Self-Test Self-Assessment Team Exercise: Lost at Sea Case 13: Spim Master: Turning Fun into Opportunities

CHAPTER 13 LECTURE NOTES

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LEARNING FROM OTHERS describes how Jay-Z of Def Jam Records and Berry Gordy of Motown Records achieved success by reading social trends and spotting market opportunities. LEARNING ABOUT YOURSELF explains the necessity of self-confidence for managers. The stories of Jeff McCraken, the chief engineer for Norfolk Southern Railroad, Ram Charan, a management consultant, and Carole Clay Winters, of KMPG illustrate that they have the self-confidence not only to make decisions but to take the actions required to implement them.

STUDY 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 two “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.

WHAT IS USEFUL INFORMATION? Data are raw facts and observations. Information is data made useful for decision making. Information that is truly useful meets the test of these five criteria: 1. Timely—the information is available when needed; it meets deadlines for decisionmaking 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. FIGURE 13.1 shows how internal and external information flows are essential to problem solving and decision-making in organizations. Instructor’s Guide 13-4 Chapter 13 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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INFORMATION NEEDS IN ORGANIZATIONS 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.

HOW INFORMATION TECHNOLOGY IS CHANGING ORGANIZATIONS In order to perform well, people in any work setting, large or small, must have available to them the right information at the right time and in the right place. • •

Information systems use the latest in information technology to collect, organize, and distribute data in such a way that they become meaningful as information. Management information systems, or MIS, meet the specific information needs of managers as they make a variety of day-to-day decisions.

FIGURE 13.2 shows how information technology is breaking barriers and changing organizations.

STUDY QUESTION 2: HOW DO MANAGERS USE INFORMATION TO MAKE DECISIONS? MANAGERS AS INFORMATION PROCESSORS

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FIGURE 13.3 shows the manager as an information-processing nerve centre in the management process. All aspects of the managing process – planning, organizing, leading, and controlling – involve communication and information processing: • • • •

Planning advantages of IT—better and more timely access to useful information, involving more people in the planning process. Organizing advantages of IT—more ongoing and informed communication among all parts, improving coordination and integration. Leading advantages of IT—more frequent and better communication with staff and diverse stakeholders, keeping objectives clear. Controlling advantages of IT—more immediate measures of performance results, allowing real-time solutions to problems.

MANAGERS AS PROBLEM SOLVERS Problem solving is the process of identifying a discrepancy between the 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 deficiency occurs when actual performance is less than desired. 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 Problem avoiders –– managers who ignore information that would otherwise signal the presence of an opportunity or performance deficiency; 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 or opportunities to explore; they are proactive in anticipating problems and opportunities and take appropriate action to gain an advantage. Systematic and Intuitive Thinking Instructor’s Guide 13-6 Chapter 13 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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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. 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 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. 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. 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.

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 Instructor’s Guide 13-7 Chapter 13 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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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 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.

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. Most problems faced by higher-level managers are unstructured and most of their decisions are nonprogrammed. ISSUES AND SITUATIONS describes Lego’s important strategy decisions.

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

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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. 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 13.1 provides six rules for crisis management: 1. Figure out what is going on ⎯ Understand the situation 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. 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. Crisis management is the preparation for the management of crises that threaten an organization’s health and well-being. People can be assigned ahead of time to crisis management teams, and crisis management plans can be developed to deal with various contingencies.

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. 4. 5.

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. 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.

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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. 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. FIGURE 13.4 identifies three environments for managerial decision making and problem solving. These three environments involve certainty, risk, and uncertainty.

STUDY 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 results. FIGURE 13.5 identifies five steps in the problem solving and decision-making process: 1. Identify and define the problem. Instructor’s Guide 13-10 Chapter 13 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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2. Generate and evaluate alternative courses of action 3. Decide on a preferred course of action. 4. Implement the decision. 5. Evaluate results.

STEP 1 – IDENTIFY AND DEFINE THE PROBLEM 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.

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: • • • • •

Benefits: What are the “benefits” of using the alternative to solve a performance deficiency or take advantage of an opportunity? Costs: What are the “costs” of implementing the alternative, including resource investments as well as potential negative side effects? Timeliness: How fast can the alternative be implemented and a positive impact be 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.

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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 – DECIDE ON A PREFERRED COURSE OF ACTION Management theory recognizes two major models of decision-making: the classical decision model and the behavioural decision model. Differences in these two models are highlighted in FIGURE 13.6. 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. The behavioural 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 behavioural 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

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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. 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.

DISCUSSION TOPIC Illustrative Case: Tough Decision at the Ajax Company 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 the Ajax Company made in response to this problem is provided below. Background information. Ajax had decided to close its Murphysboro 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: Instructor’s Guide 13-13 Chapter 13 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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• 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. 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 area.

STUDY QUESTION 4: WHAT ARE THE CURRENT ISSUES IN MANAGERIAL DECISION MAKING? DECISION ERRORS AND TRAPS People use simplifying strategies –– heuristics –– for making decisions when faced with limited time, information, and energy. Availability Bias •

The availability heuristic 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. Potential bias: Readily available information may be fallible and irrelevant.

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Representation Bias •

The representativeness heuristic 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. Potential bias: The representative stereotype may fail to identify important and unique factors relevant to the decision.

Anchoring and Adjustment Bias •

The anchoring and adjustment heuristic 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. Potential bias: The decision may be inappropriately biased toward only incremental movement from the starting point.

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.

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.

REAL ETHICS examines the actions of mountain climbers who passed by a dying man without offering help. 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 13.2 identifies actions that a person can take to avoid the escalation trap. 1. Set advance limits on your involvement with 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. Instructor’s Guide 13-15 Chapter 13 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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3. Carefully determine just why you are continuing a course of action; if there are no good reasons to continue, don’t. 4. Remind yourself what a course of action is costing; consider the saving of such costs as a reason to discontinue. 5. Watch for escalation tendencies in your behaviours 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. In trying to solve a refrigeration problem of using water instead of Freon, Lonnie Johnson, a NASA engineer, invented the Super Soaker.

Personal Creativity Drivers Creative decisions are more likely to occur when the person or team: • • •

has task expertise. is highly task-motivated. has strong creativity skills.

Creative people exhibit the following characteristics: • • • • • • •

work with high energy identify problems, plan, and make decisions hold ground in face of criticism accept responsibility for what happens resourceful, even in difficult situations are systematic and intuitive in problem solving think “outside the box”

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synthesize and find correct answers look at diverse ways to solve problems transfer learning from one setting to another are objective, willing to “step back” and question assumptions

Situational Creativity Drivers Innovative organizations operate with the strong situational creativity drivers of: • • •

group 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

INDIVIDUAL VERSUS GROUP DECISION-MAKING The best managers and team leaders use both individual and group decision-making, employing the one that best fits the problem at hand and provides a timely and quality decision. Advantages of Group Decisions The potential advantages of group decision-making include: • • • •

Makes greater amounts of information, knowledge, and expertise available to solve problems. Increases the number of action alternatives that are examined. Increases the understanding and acceptance of outcomes by members. Increases the commitment of team members to work hard to implement final plans.

Disadvantages of Group Decisions The potential disadvantages of group decision-making include: • • •

Individual team members may feel pressure to conform to the wishes of others. Minority domination may occur. Decision making takes longer.

ETHICAL DECISION-MAKING Any decision should be ethical; any decision should meet the “ethics double check” that was discussed in Chapter 4. Instructor’s Guide 13-17 Chapter 13 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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The “ethics double check” should address the following spotlight questions: • • •

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 on the Internet? Think of the person you know or know of (in real life or fiction) who has the strongest character and best ethical judgment. Then ask yourself – what would that person do in your situation?

Even though it adds time to decision-making, use of the spotlight questions helps ensure that the ethical aspects of a problem are properly considered. Ethicist Gerald Cavanaugh and his associates suggest that managers can proceed with confidence when the following criteria are met: • • • •

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?

RESEARCH BRIEF describes how escalation increases the risk of ethical breaches in decision-making.

CHAPTER 13 STUDY QUESTIONS SUMMARY Study Question 1: What is the role of information in the management process? • Competency in using technology to access, process, and share information is an essential career skill. • Data are raw facts and figures; information is data made useful for decision making. • Information useful in management is timely, high-quality, complete, relevant, and understandable. • Management information systems collect, organize, store, and distribute data to meet the information needs of managers. • Managers play important roles in helping organizations meet their external and internal information needs. • Information technology is breaking barriers within organizations and between organizations to speed work flows and cut costs. FOR DISCUSSION: Are there any potential downsides to the ways IT is changing organizations? Study Question 2: How do managers use information to make decisions? Instructor’s Guide 13-18 Chapter 13 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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Managers serve as information nerve centres 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 use of systematic and intuitive thinking, and in tendencies toward multidimensional thinking. 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? Study 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 behavioural model, chooses the first satisfactory alternative to come to attention. FOR DISCUSSION: Do the steps in the decision-making process have to be followed in order? Study 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. • Group decisions offer the potential advantages of greater information and expanded commitment, but they are often slower than individual decisions. • Use of recommended spotlight questions as an ethics double-check is a good way for managers to ensure ethical decision-making. FOR DISCUSSION: Is it possible that use of the spotlight questions might still yield an unethical decision?

CHAPTER 13 KEY TERMS

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Anchoring and adjustment heuristic: bases a decision on incremental adjustments from a prior decision point. Availability heuristic: bases a decision on recent information or events. Behavioral decision model: a model of decision-making that describes how managers act in situations of limited information and bounded rationality. Bonded rationality: making decisions within the constraints of limited information and alternatives. Certain environment: a decision environment that provides complete information about possible action alternatives and their outcomes. Classical decision model: a model of decision-making that views the manager as acting rationally in a certain world. Confirmation error: occurs when focusing only on information that confirms a decision already made. Cost-benefit analysis: an analysis that involves comparing the costs and benefits of each potential course of action. Creativity: the generation of a novel idea or unique approach that solves a problem or crafts an opportunity. Crisis: involves the occurrence of an unexpected problem that can lead to disaster if not resolved quickly and appropriately. Crisis management: preparation for the management of crises that threaten an organization’s health and well-being. Data: raw facts and observations. Decision: a choice among possible alternative courses of action. Decision-making process: a set of activities that begin with the identification of a problem, include making a decision, and end with the evaluation of results. Escalating commitment: the tendency to continue to increase effort and perhaps apply more resources to pursue a course of action that is not working. Framing error: occurs when a problem is evaluated and resolved in the context in which it is perceived ⎯ either positively or negatively. Heuristics: strategies for simplifying decisions when people are faced with limited time, information, and energy. Information: data made useful and meaningful for decision-making. Information systems: uses information technology to collect, organize, and distribute data for use in decision-making. Information technology: helps one acquire, store and process information. Intuitive thinking: approaching problems in a flexible and spontaneous fashion. Lack-of-participation error: failure to involve in a decision the persons whose support is needed to implement it. Management information system: a system specifically designed to meet the information needs of managers as they make a variety of decisions on a day-to-day basis. Multidimensional thinking: an ability to address many problems at once. Nonprogrammed decision: applies a specific solution crafted for a unique problem. Optimizing decision: a decision that occurs when a manager chooses an alternative that gives the absolute best solution to a problem. Problem solving: the process of identifying a discrepancy between the actual and desired state of affairs and then taking action to resolve the deficiency or take advantage of the opportunity. Instructor’s Guide 13-20 Chapter 13 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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Programmed decision: applies a solution from past experience to a routine problem. Representativeness heuristic: bases a decision on similarity to other solutions. Risk environment: a decision environment that lacks complete information about action alternatives and their consequences, but which offers some probability estimates of the likely outcomes of each action alternative. Satisficing decision: choosing the first alternative that appears to provide a satisfactory solution to the problem. 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. Structured problems: problems that are familiar, straightforward, and clear with respect to information needs. Systematic thinking: approaching problems in a rational, step-by-step, and analytical fashion. Uncertain environment: a decision environment in which information is so poor that managers are unable even to assign probabilities to the likely outcomes of known alternatives. Unstructured problems: problems that are full of ambiguities and information deficiencies.

SUGGESTED TEAM EXERCISE Students typically have a great deal of experience working in class groups to create papers and projects. Ask them to consider the following regarding their group decision-making processes: • • •

Do they find that working in a group on a class project helps them generate and consider more or fewer alternatives? Did they follow Step 2 in the decision-making model? Under what circumstances did this factor vary? When they reached a decision in the group, was it the optimizing decision or the satisficing decision? What lead them either outcome? How can group decision-making for class projects and papers be improved?

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 decisionmaking (c) breaking down barriers internally and externally (d) decreasing need for environmental awareness

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Information technology assists with the management function of organizing because it ___. (a) gives more timely access to information (b) allows for more immediate measures of performance results (c) allows for better coordination among individuals and groups (d) makes it easier to communicate with diverse stakeholders

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

A(n) _______thinker approaches problems in a rational and analytic fashion. (a) systematic (b) intuitive (c) internal (d) external

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

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

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

Costs, timeliness, and ________are among the recommended criteria for evaluating alternative courses of action. (a) ethical soundness (b) competitiveness (c) availability (d) simplicity

A common mistake made by managers facing crisis situations is that they ______ . (a) try to get too much information before responding (b) rely too much on group decisionmaking (c) isolate themselves to make the decision alone (d) forget to use their crisis management plan

10.

The _______ decision model views managers as making optimizing decisions, whereas the ________ decision model views them as making satisficing decisions.

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(a) behavioural, human relations (b) classical, behavioural (c) heuristic, humanistic (d) quantitative, behavioural 11.

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

12.

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

13.

Among the environments for managerial decision-making, certainty is the most favourable, and it can be addressed through _________ decisions. (a) programmed (b) risk (c) satisficing (d) intuitive

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 alternative that offers a “satisfactory” choice, not necessarily the absolute best choice. It is selected from a limited or incomplete set of alternatives.

17.

How can a manager double-check the ethics of a decision? The ethics of a decision can be checked with the “spotlight” questions: “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?

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18.

Instructor’s Guide

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.

19.

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.

20.

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 Grade 10 students on the challenges in the new “electronic offi ce.” Th e 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? Answers will differ. Possible answers may touch upon the importance of management information systems that collect, organize, and distribute data for decision making in today’s work environment as well as the fact that IT is speeding up work flows and cutting costs both within and between organizations.

REVIEW QUESTIONS FOR CASE 13: SPIN MASTER: TURNING FUN INTO OPPORTUNITIES 1. Describe the key decisions that Harary, Rabie, and Varadi faced in the start-up of their company. Looking at the decision environment, were these more programmed or nonprogrammed decision types? Key decisions for Spin Master and Decision Environment Certain environment – offers complete information on possible action alternatives and their consequences (programmed) Risk environment – lacks complete information but offers probabilities of the likely outcomes for possible action alternatives (programmed/non-programmed) Instructor’s Guide 13-24 Chapter 13 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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•

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Test market of the Earth Buddy in Roots Stores. Did not have complete information on if the product would be successful. When it was successful in Roots stores, founders still did not know if product would have wider appeal Order from K-Mart for 500,000. Because the founders were working out of Harary’s kitchen, they did not know if they would be able to source enough materials, space, or employees to fill order in time. They also did not have complete information to know if the product would be successful in such a large mass market

Uncertain environment – lack so much information that it is difficult to assign probability to the likely outcomes of alternatives (non-programmed) • How could they capitalize on the success of Earth Buddies and introduce a new product that would have the same or wider appeal. What would that new product be, who would its target market be, how could they market it successfully, how would they sell it?

2. As a result of Spin Master’s success, what decision errors and traps might be a problem for the company in the future? Heuristics – strategies used for simplifying decision making – • Availability heuristics occurs when people use information readily available from memory as a basis for assessing a current event or situation. As Spin Master develops a greater organizational history of successes and failures, the founders may fall into the trap of using readily available information that might be fallible and irrelevant to the current situation • Representativeness heuristic – when people assess the likelihood of something occurring based on its similarity to a stereotyped set of occurrences. Spin Master may use this error to misread the market or trends because it may mask the truly important factors relevant to the decision • Anchoring and adjustment heuristic – involves making decisions based on adjustment to a previously existing value or staring point. This can inappropriately bias a decision toward only incremental movement from the starting point Framing error – • Involves solving problems in the context perceived. The problem is evaluated and resolve in either a negative or positive context – often referred to as spinning data as an attempt to influence the decision making process one way or another. This can be a potential problem for the founders, particularly if one member of the team is more influential in the decision making process Escalating commitment – • This is the continuation of a course of action even though it is not working. The founders may increase organizational efforts and resources to pursue a course of action that is not

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working. The founders, either individually or as a group may be unable to call it quits even when experience indicates that it is the most appropriate thing to do.

3. The three founders have found a way to agree so far. What decision-making challenges might they face in the future? In addition to the errors and traps stated above, Individual vs. group decision making may become a problem. • There may be social pressure among the three founders to conform to a certain way of thinking or endorsement of a certain product, • One or more team members may feel intimidated and forced to go along with the wishes of others, • Groupthink might occur • Given the highly competitive market and seasonal peaks the longer time required to make team decisions may become a factor • Ethics in decision making may become a factor as well if the founders disagree on a particular product or marketing strategy

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Chapter 14:

MOTIVATION THEORY AND PRACTICE CHAPTER 14 STUDY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4.

How do individual needs influence motivation? What are the process theories of motivation? What role does reinforcement play in motivation? What are the alternative approaches to job design?

CHAPTER 14 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • • • • •

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 role of social comparison in Adams’ equity theory Describe how people with felt negative inequity behave Define expectancy, instrumentality, and valence Explain the Vrooms’ expectancy theory equation: M=E x I x V Explain Locke’s goal-setting theory equation Describe self-efficacy and explain four ways of enhancing it Explain the law of effect and operant conditioning Illustrate how positive reinforcement, negative reinforcement, punishment, and extinction influence work behaviour Explain the reinforcement technique of shaping Describe how managers can use the laws of immediate and contingent reinforcement when allocating rewards Illustrate a job designed by job simplification, rotation, and enlargement List and describe the five core job characteristics Explain how a person’s growth needs and skills can affect his or her responses to job enrichment Describe the advantages of compressed work weeks, flexible work hours, job sharing, and telecommuting as alternative work schedules Discuss the significance of part-time contingency workers in the economy

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CHAPTER 14 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 the major theories of work motivation. Four content theories of motivation are discussed. These are Maslow’s hierarchy of needs theory, Alderfer’s ERG theory, Herzberg’s two-factor theory, and McClelland’s acquired-needs theory. Four process theories of motivation are also examined. These include equity theory, expectancy theory, goal-setting theory, and self-efficacy theory, all of which are cognitively-based. Reinforcement theory, which uses environmental consequences to explain motivation, is explored next. The chapter concludes with a discussion of job design and how it can motivate workers. CHAPTER 14 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.

Study Question 1: How do individual needs influence motivation? Hierarchy of needs ERG theory Two-factor theory Acquired needs theory

II. Study Question 2: What are the process theories of motivation? Equity theory Expectancy theory Goal-setting theory Self-efficacy theory III. Study Question 3: What role does reinforcement play in motivation? Reinforcement strategies Positive reinforcement Punishment IV. Study Question 4: What are the alternative approaches to job design? Scientific management Job rotation and job enlargement Job enrichment Alternative work schedules

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CHAPTER 14 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Make People Your Top Priority Learning About Yourself • Engagement Figures • Figure 14.1: Opportunities for Satisfaction in Maslow’s Hierarchy of Human Needs • Figure 14.2: Elements in Herzberg’s Two-Factor Theory • Figure 14.3: Equity Theory and the Role of Social Comparison • Figure 14.4: Elements in the Expectancy Theory of Motivation • Figure 14.5: Four Reinforcement Strategies: Case of Total Quality Management • Figure 14.6: Basic Job Design Alternatives • Figure 14.7: Designing Jobs Using the Characteristics Model Thematic Boxes • Real Ethics: Information Goldmine • Issues and Situations: Executive Compensation • Management Smarts 14.1: How to Make Goal Setting Work for You • Research Brief: Positive Psychological Capital is an Important Influence on Performance and Satisfaction • Management Smarts 14.2: Guidelines For Positive Reinforcement and Punishment Applications • Self-Test • Self-Assessment • Team Exercise: Why We Work • Case 14: Pixar: Animated Geniuses CHAPTER 14 LECTURE NOTES LEARNING FROM OTHERS describes how management commitment to employees will lead to motivation and accomplishment which in turn will lead to organization success. LEARNING ABOUT YOURSELF examines the topic of engagement, which equates to the personal initiative and willingness to “go the extra mile” in performing one’s work.

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STUDY 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; an unmotivated person does not. A need is an unfulfilled physiological or psychological desire. 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 behaviour. 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. FIGURE 14.1 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.

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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.

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 favoured 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. Hygiene factors are elements of the job context that serve as sources of job dissatisfaction. FIGURE 14.2 of the text outlines hygiene factors that influence job dissatisfaction and satisfier factors that influence job satisfaction. Types of hygiene factors: • Working conditions. • Interpersonal relations. Instructor’s Guide 14-5 Chapter 14 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Organizational policies and administration. Technical quality of supervision. Base wage or salary.

Improvements in hygiene factors can prevent and/or eliminate job dissatisfaction; they will not improve job satisfaction. Satisfier factors are elements of the job content that serve as sources of job satisfaction. Types of satisfier factors: • 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. 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. ACQUIRED NEEDS THEORY David McClelland proposes that people acquire needs through their life experiences. McClelland uses a Thematic Apperception Test (TAT) to measure 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. Instructor’s Guide 14-6 Chapter 14 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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High need achievers prefer work that: • Involves individual responsibility for results. • Involves achievable but challenging goals. • Provides feedback on performance. Need for Power is the desire to control other persons, to influence their behaviour, 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).

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STUDY QUESTION 2: WHAT ARE THE PROCESS THEORIES OF MOTIVATION? 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 14.3 of the text perceived inequity occurs whenever a person feels that the rewards received for his/her 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. REAL ETHICS describes a situation in which a worker discovers that she and other are being paid less than new hires. She decides to quit and find an employer who will value her contribution. 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.

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Equity Dynamics People who feel underpaid experience a sense of anger. People who feel overpaid experience a sense of guilt. 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. ISSUES AND SITUATIONS discusses executive compensation. Students are asked to consider whether executive pay should be disclosed to the public with full details and whether the high paychecks of these individuals are ethical.

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. 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 14.4, work motivations depends on the relationships between the following three factors: • • •

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. Instrumentality (also called the performance-outcome expectancy) –– a person’s belief that successful task performance will be followed by rewards and other potential outcomes. Valence –– the value a person assigns to possible rewards and other work-related outcomes.

Motivation = Expectancy x Instrumentality x Valence

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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 valence by: • Using the content theories to help identify important needs • Linking needs with rewards that offer positive valences and can be earned through high performance.

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.

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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. Task goals provide direction to people in their work, clarify performance expectations, establish a frame of reference for feedback, and provide a foundation for behavioural self-management. 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. Goal-Setting and Participation Participation is major factor in unlocking the motivational potential of goal setting. Management by objectives (MBO) is one example of a goal-setting system that promotes participation. 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. 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 provided in Management Smarts. MANAGEMENT SMARTS 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 in respect to goal accomplishment.

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•

Instructor’s Guide

Reward goal accomplishment: Don’t let positive accomplishments pass unnoticed; reward people for doing what they set out to do.

RESEARCH BRIEF describes a concept known as PsyCap, or psychological capital. PsyCap is positively related to individual performance and satisfaction. Students are asked to consider whether it is reasonable to think that persons with high PsyCap will be more motivated and productive. 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. Self-Efficacy Dynamics 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. Enhancing Self-Efficacy 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 modelling – 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. STUDY QUESTION 3: WHAT ROLE DOES REINFORCEMENT PLAY IN MOTIVATION? Unlike the prior motivation theories that rely on cognitive explanations of behaviour, reinforcement theory focuses on the impact of external environmental consequences on behaviour. Thorndike’s law of effect states: Behaviour that results in a pleasant outcome is likely to be repeated; behaviour that results in an unpleasant outcome is not likely to be repeated. The law of effect provides the fundamental foundation for reinforcement theory. FIGURE 14.5 provides an example of how the four reinforcement conditioning strategies can be used as part of a total quality management program. Instructor’s Guide 14-12 Chapter 14 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 behaviour by yelling hot, hot whenever the employee engages in a behaviour that approximates the desired response. Conversely, whenever the employee engages in a behaviour that does not resemble the desired behaviour, 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.

REINFORCEMENT STRATEGIES Operant conditioning, a concept popularized by B. F. Skinner, is the process of applying the law of effect to control behaviour by manipulating its consequences. Operant conditioning strategies: • • • •

Positive reinforcement strengthens or increases the frequency of a behaviour through the contingent presentation of a pleasant consequence. Negative reinforcement strengthens or increases the frequency of a behaviour through the contingent removal of an unpleasant consequence. Punishment eliminates or decreases the frequency of a behaviour through the contingent presentation of an unpleasant consequence. Extinction eliminates or decreases the frequency of a behaviour through the contingent removal of a pleasant consequence.

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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 behaviour was influenced by these consequences. Did the behaviour increase in frequency, or did it decrease? POSITIVE REINFORCEMENT 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 behaviour is exhibited. • Law of immediate reinforcement –– The more immediate the delivery of a reward after the occurrence of a desirable behaviour, the greater the reinforcing value of the reward. Shaping is the creation of a new behaviour by the positive reinforcement of successive approximations of the desired behaviour. Schedules of reinforcement: • •

A continuous reinforcement schedule administers a reward each time a desired behaviour occurs. An intermittent reinforcement schedule rewards behaviour only periodically.

A manager can expect that: • •

Continuous reinforcement will elicit a desired behaviour more quickly than will intermittent reinforcement. Behaviour acquired under an intermittent schedule will be more permanent than behaviour acquired under a continuous schedule.

MANAGEMENT SMARTS outlines guidelines for positive reinforcement and punishment. Positive Reinforcement: • Clearly identify desired work behaviours. • 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: • Tell the person what is being done wrong. • Tell the person what is being done right. • Make sure the punishment matches the behaviour. • Administer the punishment in private. • Follow the laws of immediate and contingent reinforcement. Instructor’s Guide 14-14 Chapter 14 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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). 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 behaviour 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.

STUDY QUESTION 4: WHAT ARE THE ALTERNATIVE APPROACHES TO JOB DESIGN? 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. FIGURE 14.6 shows the basic job design alternatives of job simplification, job enlargement and rotation, and job enrichment. SCIENTIFIC MANAGEMENT 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. Many employees around the world earn their livings working at highly simplified tasks, often on assembly lines. The most extreme form of job simplification is automation, or the total mechanization of a job. 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.

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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: • Productivity may suffer. • Unhappy workers may drive up costs through absenteeism and turnover. • Poor performance may be caused by worker boredom and alienation. JOB ROTATION AND JOB ENLARGEMENT Job rotation increases task variety by periodically shifting workers between different jobs. Job enlargement increases task variety by combining into one job two or more tasks previously assigned to separate workers. When tasks done immediately before or after the work performed in the original job, the job enlargement is sometimes called horizontal loading. 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. 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 14.7 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. Instructor’s Guide 14-16 Chapter 14 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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. 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. Improving Job Characteristics Ways to improve core job characteristics 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.

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 can also boost worker morale. The Compressed Work Week A compressed workweek is any work schedule that allows a full-time job to be completed in less than the standard five days of eight-hour shifts. Its most common form is a “4-40” schedule –– that is, 40 hours of work accomplished in four 10 hour days.

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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. • Increased scheduling problems. • Possible customer complaints. • Union opposition. 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. Hotelling 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. Telecommuters report increased productivity, fewer distractions, the freedom to be their own boss, and the benefit of having more time to themselves. They also cite working too much, having less time to themselves, difficulty separating work and personal life, and having less time for family. Part-Time Work Part-time work is temporary employment for less than the standard 40-hour work week. Contingency workers (or permatemps) are employed on a part-time and temporary basis to supplement a permanent workforce.

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Because contingency workers can be easily hired, contracted, and terminated in response to changing needs, many employers like the flexibility they offer in controlling labour costs and dealing with cyclical labour demand. However, temporaries 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. CHAPTER 14 STUDY QUESTIONS SUMMARY Study 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: Is high need for achievement always a good trait for managers? Study 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. • 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. • 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: Can goals be motivational if they are set by the boss? Study Question 3: What role does reinforcement play in motivation? • Reinforcement theory recognizes that human behaviour is influenced by its environmental consequences. • The law of effect states that behaviour followed by a pleasant consequence is likely to be repeated; behaviour 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. Instructor’s Guide 14-19 Chapter 14 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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FOR DISCUSSION: Is it possible for a manager or parent to rely solely on positive reinforcement strategies? Study Question 4: What are alternative approaches to job design? • 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 diagnostic approach to job enrichment involves analyzing jobs according to five core characteristics: skill variety, task identity, task significance, autonomy, and feedback. • 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: Can you enrich someone’s job without increasing their pay as well? CHAPTER 14 KEY TERMS Automation: the total mechanization of a job. Compressed work week: allows a full-time job to be completed in less than five days. Contingency workers: are employed on a part-time and temporary basis to supplement a permanent workforce. Continuous reinforcement: rewards each time a desired behaviour occurs. Existence needs: are desires for physiological and material well-being. Expectancy: a person’s belief that working hard will result in a desired level of task performance being achieved. Extinction: eliminating or decreasing the frequency of a behaviour through the contingent removal of a pleasant consequence. Flexible working hours: giving employees some choice in daily work hours. Growth needs: are desires for continued psychological growth and development. Higher-order needs: esteem and self-actualization needs in Maslow’s hierarchy. Hygiene factor: found in job context, such as working conditions, interpersonal relations, organizational policies, and salary. Instrumentality: a person’s belief that various outcomes will occur as a result of task performance. Intermittent reinforcement: rewards behaviour only periodically. Job design: arranging work tasks for individuals and groups. Job enlargement: increases task variety by combining into one job two or more tasks previously assigned to separate workers. Job enrichment: increases job depth by adding work planning and evaluating duties normally performed by the supervisor. Job rotation: increases task variety by periodically shifting workers between different jobs. Job sharing: splits one job between two people. Job simplification: employs people in clearly defined and specialized tasks with narrow job scope. Law of effect: behaviour that results in a pleasant outcome is likely to be repeated; behaviour that results in an unpleasant outcome is not likely to be repeated. Instructor’s Guide 14-20 Chapter 14 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Lower-order needs: physiological, safety, and social needs in Maslow’s hierarchy. Motivation: describes the forces within the individual that account for the level, direction, and persistence of effort expended at work. Need: an unfulfilled physiological or psychological desire of an individual. Need for achievement: the desire to do something better or more efficiently, to solve problems, or to master complex tasks. Need for affiliation: the desire to establish and maintain friendly and warm relations with other people. Need for power: the desire to control other persons, to influence their behaviour, or to be responsible for other people. Negative reinforcement: strengthens behaviour by making the avoidance of an undesirable consequence contingent on its occurrence. Operant conditioning: the process of applying the law of effect to control behaviour by manipulating its consequences. Part-time work: temporary employment for less than the standard 40-hour work week. Positive reinforcement: strengthens behaviour by making a desirable consequence contingent on its occurrence. Punishment: eliminating or decreasing the frequency of a behaviour through the contingent presentation of an unpleasant consequence. Relatedness needs: are desires for satisfying interpersonal relationships. Satisfier factor: found in job content, such as a sense of achievement, recognition, responsibility, advancement, or personal growth. Self-efficacy: a person’s belief that she or he is capable of performing a task. Shaping: the creation of a new behaviour by the positive reinforcement of successive approximations of the desired behaviour. Telecommuting: using IT to work at home or outside the office. Valence: the value a person assigns to rewards and other work-related outcomes.

SUGGESTED TEAM EXERCISE Have groups work through the job design section of the chapter by giving them a list of low-paying jobs like hotel cleaning staff, temp worker, fast food worker, journalist, teacher, and dishwasher. Ask each group to consider how to motivate these workers to do a good job without paying them extra. Have the group assume the role of consultant and examine each job for how it can be designed to be motivating. For example, they might consider that fast food workers would be motivated by the flexibility of scheduling and the variety of tasks.

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

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

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In the __________ theory of motivation, someone who perceives himself as under rewarded relative to a co-worker might be expected to reduce his performance in the future. (a) ERG (b) acquired needs (c) two-factor (d) equity

Which of the following is a correct match? (a) McClelland—ERG theory (b) Skinner—reinforcement theory (c) Vroom—equity theory (d) Locke—expectancy theory

The expectancy theory of motivation says that motivation = expectancy × __________ × __________. (a) rewards, valence (b) instrumentality, valence (c) equity, instrumentality (d) rewards, equity

The law of __________ states that behaviour followed by a positive consequence is likely to be repeated, whereas behaviour followed by an undesirable consequence is not likely to be repeated. (a) reinforcement (b) contingency (c) goal setting (d) effect

__________ is a positive reinforcement strategy that rewards successive approximations to a desirable behaviour. (a) Extinction (b) Negative reinforcement (c) Shaping (d) Merit pay

In Herzberg’s two-factor theory, base pay is considered a(n) __________ factor. (a) valence (b) satisfier (c) equity (d) hygiene

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

10.

In goal-setting theory, the goal of “becoming more productive in my work” would not be considered a source of motivation because it fails the criterion of goal __________. (a) acceptance (b) specificity (c) challenge (d) commitment

11.

B. F. Skinner would argue that getting a paycheque 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 paycheque fails the law of __________ reinforcement. (a) negative (b) continuous (c) immediate (d) intermittent

12.

The addition of more planning and evaluating responsibilities to a job is an example of the __________ job design strategy. (a) job enrichment (b) job enlargement (c) job rotation (d) job sharing

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13.

Workers in a compressed work week typically work 40 hours in __________ days. (a) 3 (b) 4 (c) 5 (d) a flexible number of

14.

Another term used to describe part-time workers is __________. (a) contingency workers (b) virtual workers (c) flexible workers (d) secondary workers

15.

Hotelling is a development associated with the growing importance of __________ in the new workplace. (a) personal wellness (b) telecommuting (c) compressed work weeks (d) Type A personalities

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 grow needs, and McClelland’s need for achievement.

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. Labour 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?

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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.

REVIEW QUESTIONS FOR CASE 14: PIXAR: ANIMATED GENIUSES 1. For Steve Jobs, with all his wealth and success, how can the needs theories explain his motivation? There are several factors to consider. While Jobs certainly has met the lower-order needs of physiological, safety, and social concerns, he still strives for the higher needs of esteem and self-actualization. As Jobs went from one project to the next, be it creating the Apple IIe and the Macintosh computers, to starting NEXT, to creating the iPod and iPhone, and Pixar, he was always looking for praise and recognition. As he progressed through the higher-order needs pyramid, Jobs was always involved in creative and challenging work. Jobs is always on the lookout to solve society’s problems. Two examples bear this out: •

iPod – the device allows one to take anywhere from 1,000 to 5,000 or more songs with you in a convenient small, easy-to-use package. This ensures you’ll never run out of music when on the go.

•

Macintosh – computer users were frustrated with the complexity of using PC’s, so Apple developed the Macintosh which in Jobs words, “will work like a toaster,” i.e., plug it in and it does what you want.

So, Jobs enjoys challenges which motivate him to find unique and creative solutions to problems vexing people today. 2. When Pixar was struggling and Jobs was investing more and more money to keep it afloat, he could have made the decision to sell and go off to invest his money and time in other pursuits. But he didn’t. How can Job’s decision to stick with Pixar be explained using (a) Vroom’s expectancy theory and (b) Bandura’s self-efficacy theory? Vroom’s expectancy theory states that motivation occurs when one believes that the harder one works, the better one will perform, thus leading to a reward that one wants. Coupling this with Bandura’s self-efficacy theory where one believes he or she is capable of doing a task, it is easy to see why Jobs decided to stick with Pixar. Jobs knew Pixar was composed of very talented individuals who invented whatever software programs they needed to create the films being produced. As such, Jobs could rely on the employees ability to overcome any obstacle encountered, considering the organization was made up of employees with a can do attitude. Obviously, Jobs was rewarded through the ongoing success of Pixar films. Instructor’s Guide 14-24 Chapter 14 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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3. Pixar relies heavily on creative people who are motivated to do their best under production schedules that can sometimes be highly stressful. How could a human resource executive utilize the notion of “flexibility” to provide a highly motivating work environment for such people? 4. By instituting flexibility in an organization such as Pixar, employees are empowered to set their own work schedules, allowing them to balance work and life schedules. With autonomy over start and end times, employees will see this as putting the responsibility in their hands, and will motivate them to get the job done within the working schedule they set for themselves.

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Instructor’s Guide

Chapter 15:

TEAMS, TEAMWORK AND COLLABORATION CHAPTER 15 STUDY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4. 5. 6.

How do teams contribute to organizations? What are current trends in the use of teams? How do teams work? How do teams make decisions? How do you manage conflict? How can we negotiate successful agreements?

CHAPTER 15 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • • • • • • • • •

Define team and teamwork Identify four roles managers perform in groups 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 Explain potential advantages and disadvantages of virtual teams List the characteristics of self-managing work teams Explain how self-managing teams are changing organizations Describe the typical steps in team building Define team effectiveness Identify inputs that influence group effectiveness Discuss how membership diversity influences team effectiveness 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 group performance Differentiate among 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 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

Instructor’s Guide

15-1

Chapter 15

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• • • • • • • • • • • •

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Differentiate between substantive and emotional conflict Differentiate between functional and dysfunctional conflict Explain the common causes of conflict List the possible approaches to conflict resolution Explain the conflict management styles of avoidance, accommodation, competition, compromise, and collaboration Discuss lose-lose, win-lose, and win-win conflicts Differentiate between distributive and principled negotiation List four rules of principled negotiation Define bargaining zone Use this term to illustrate a labour–management wage negotiation Describe the potential pitfalls in negotiation Differentiate between mediation and arbitration

CHAPTER 15 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 chapter describes the nature of teams and teamwork, the pros and cons of teams and teamwork, the usefulness of teams in organizations, 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. Decision-making in teams –– including various approaches to making decisions, team decision-making strategies, groupthink, and techniques for improving team creativity –– are then examined. 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.

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CHAPTER 15 LECTURE OUTLINE Teaching Objective: To provide students with a basic understanding of team dynamics and their impact on organizational productivity, as well as conflict management and negotiation strategies. Suggested Time: Three hours at a minimum are recommended for presenting this chapter. I.

Study Question 1: How do teams contribute to organizations? What is teamwork? Teamwork pros and cons Meetings, meetings, meetings Formal and informal groups

II.

Study Question 2: What are current trends in the use of teams? Committees, project teams, task forces Cross-functional teams Virtual teams Self-managing teams Team building

III.

Study Question 3: How do teams work? Team inputs Stages of team development Norms and cohesiveness Task and maintenance needs Communication networks

IV.

Study Question 4: How do teams make decisions? Ways teams make decisions Team decision strategies Groupthink Creativity in team decision-making

Study Question 5: How do you manage conflict? Functional and dysfunctional conflict Causes of conflict Conflict resolution

VI.

Study Question 6: How can we negotiate successful agreements? Negotiation goals and approaches Gaining integrative agreements Negotiation pitfalls Third-party dispute resolution

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CHAPTER 15 SUPPORTING MATERIALS Textbook Inserts Learning From Others • The Beauty is in the Teamwork Learning About Yourself • Team Contributions Figures • Figure 15.1: Team and Teamwork Roles for Managers • Figure 15.2: Organizational and Management Implications of Self-Managing Work Teams • Figure 15.3: An Open-Systems Model of Team Effectiveness • Figure 15.4: Criteria for Assessing the Maturity of a Team • Figure 15.5: How Cohesiveness and Norms Influence Team Performance • Figure 15.6: Distributed Leadership Helps Teams Meet Task and Maintenance Needs • Figure 15.7: Interaction Patterns and Communication Networks in Teams • Figure 15.8: The Relationship Between Conflict and Performance • Figure 15.9: Alternative Conflict Management Styles • Figure 15.10: The Bargaining Zone in Classic Two-Party Negotiation Thematic Boxes • Real Ethics: Social Loafing • Management Smarts 15.1: Spotting the Seven Sins of Deadly Meetings • Issues and Situations: Team building Novelties • Research Brief: Demographic Faultlines Pose Implications for Managing Teams • Management Smarts 15.2: How to Avoid Groupthink Applications • Self-Test • Self-Assessment • Team Exercise: Work Team Dynamics • Case 15: NASCAR: Fast Cars, Passion, and Teamwork Create Wins

CHAPTER 15 LECTURE NOTES LEARNING FROM OTHERS describes the synergy of superior team work in a NASCAR pit crew. It shows that high performance team members must work together flawlessly to ensure success. LEARNING ABOUT YOURSELF 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. Instructor’s Guide

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STUDY 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. FIGURE 15.1 illustrates team and teamwork roles for managers, including: • • • •

Team leader –– serving as the appointed head of a formal work unit. 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 favourable 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.

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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. REAL ETHICS 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 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 15.1 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 candour; 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. FORMAL AND INFORMAL GROUPS Formal groups are officially recognized and supported by the organization for specific purposes. Formal groups are specifically created to perform a variety of tasks considered essential to the organization. Formal groups may be called departments, units, teams, or divisions. Instructor’s Guide

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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. 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.

STUDY 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.

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CROSS-FUNCTIONAL TEAMS A cross-functional team is a team whose members come from different functional units of an organization. Members of a cross-functional team, task force or committee come together to work on a specific problem or task and to do so with the needs of the whole organization in mind. Such teams are specifically created to knock down the “walls” separating departments within the firm. 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 experts as needed. Interpersonal difficulties can be minimized or eliminated.

Potential problems of virtual teams include the following: • •

Members may experience difficulty in establishing good working relationships. 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 members known for working hard to meet team goals. Begin with social messaging that allows for the exchange of information about themselves 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.

SELF-MANAGING TEAMS 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, and who have been given authority to make many decisions about how they do the required work. Self-management responsibilities include planning and scheduling work, training Instructor’s Guide

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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. FIGURE 15.2 identifies typical characteristics of self-managing teams. These characteristics 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.

FIGURE 15.2 also 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. 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. 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

ISSUES AND SITUATIONS examines team-building alternatives that break people out of their normal work settings and help them learn from entirely new experiences.

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STUDY 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 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 FIGURE 15.3 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. Resources and Setting Organizational setting can affect how team members relate to one another and apply their skills toward task accomplishment. 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. Team Size Team size affects how members work together, handle disagreements, and reach agreements. 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. Relationships are more easily managed in homogeneous teams. Team diversity, in the form of different values, personalities, experiences, demographics, and cultures among the membership, affects how teams work. Instructor’s Guide

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The complexity of interpersonal relationships is greater in more diverse teams. STAGES OF TEAM DEVELOPMENT Group process ––the way the members of any team work together as they transform inputs into outputs –– is also important to group effectiveness. Group process is also known as group dynamics, which includes how members: • • • •

develop norms and cohesiveness share roles communicate with one another make decisions

There are five distinct phases in the life cycle of any team: 1. 2. 3. 4. 5.

Forming – a stage of initial orientation and interpersonal testing Storming – a stage of conflict over tasks and working as a team Norming – a stage of consolidation around task and operating agendas Performing – a stage of teamwork and focused task performance Adjourning – a stage of task completion and disengagement

RESEARCH BRIEF 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. DISCUSSION TOPIC If you have assigned group projects to your students, be sure to relate the open systems model in FIGURE 15.3 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. 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 behavioUr, 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. Instructor’s Guide

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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 labour, and a sense of shared expectations. 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 15.4 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. Instructor’s Guide

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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. 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 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 behaviour 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. 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’ behaviour.

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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 behaviours with rewards. Control results by performance reviews and feedback. Orient and train new members to adopt desired behaviours. Recruit and select new members who exhibit desired behaviours. Hold regular meetings to discuss progress and ways of improving. Use team decision-making methods to reach agreement.

Managing Team Cohesiveness FIGURE 15.5 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. (Worse-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 NEEDS Task activities are actions by team members that contribute directly to the team’s performance purpose. As indicated in FIGURE 15.6, task activities include: initiating, information sharing, summarizing, elaborating, and opinion giving. Maintenance activities support the emotional life of the team as an ongoing social system. FIGURE 15.6 lists maintenance activities as: gatekeeping, encouraging, following, harmonizing, and reducing tension. Instructor’s Guide

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Distributed leadership in teams makes every member responsible for recognizing when task and/or maintenance activities are needed and taking actions to provide them. FIGURE 15.6 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 15.6 identifies several different disruptive activities that detract from team 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 behaviour. 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 15.7 depicts three interaction patterns and communication networks that are common in teams: Instructor’s Guide

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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. 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. STUDY QUESTION 4: HOW DO TEAMS MAKE DECISIONS? As noted in Chapter 13, decision-making is the process of making choices among alternative possible courses of action, and it is one of the most important group processes. WAYS TEAMS MAKE DECISIONS Teams make decisions by at least six methods: lack of response, authority rule, minority rule, majority rule, consensus, and unanimity. Lack of Response In decision by lack of response, one idea after another is suggested without any discussion taking place. Authority To Rule In decision by authority rule, the leader, manager, committee head, or some other authority figure makes a decision for the team. Minority Rule In decision by minority rule, two or three people are able to dominate or “railroad” the team into making a mutually agreeable decision. Majority Rule In decision by majority rule, formal voting may take place, or members may be polled to find the majority viewpoint. Consensus In decision by consensus, full discussion leads to one alternative being favoured by Instructor’s Guide

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most members and the other members agree to support it. Keys to consensus include: 1. 2. 3. 4. 5. 6. 7.

Don’t argue blindly; consider other’s reactions to your points. Don’t change your mind just to reach quick agreement. Avoid conflict reductions by voting, coin tossing, bargaining. Keep everyone involved in the decision process. Allow disagreements to surface so that things can be deliberated. Don’t focus on winning versus losing; seek acceptable standards. Discuss assumptions, listen carefully, and encourage inputs by all.

Unanimity In decision by unanimity, team members agree on the course of action to be taken. TEAM DECISION STRATEGIES The best teams do not limit themselves to one decision-making method. Instead, they vary the methods to best fit the problems at hand; and effective team leaders are skilled at determining which method best fits the situation. Selecting the best approach also requires knowledge of the assets and liabilities of group decisions. GROUPTHINK According to psychologist Irving Janis, groupthink is a tendency for highly cohesive groups to lose their critical evaluative capabilities. Symptoms of groupthink include: • • • • • • • •

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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. 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.

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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 15.2 provides suggestions on how to avoid groupthink. These suggestions are: • • • • • • •

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 subteams 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. Brainstorming In brainstorming, teams of five to ten members meet to engage in open and spontaneous discussion of problems and ideas. Guidelines for brainstorming: • • • •

All criticism is ruled out. “Freewheeling” is welcomed. Quantity is important. Building on one another’s ideas is encouraged.

Nominal Group Technique The nominal group technique uses a highly structured meeting agenda to allow everyone to contribute ideas without the interference of evaluative comments by others. Steps in the nominal group technique: Instructor’s Guide

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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.

STUDY QUESTION 5: HOW DO YOU MANAGE 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. FUNCTIONAL AND DYSFUNCTIONAL CONFLICT FIGURE 15.8 illustrates the curvilinear 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.

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CAUSES OF CONFLICT 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 reemerge. CONFLICT RESOLUTION Conflict resolution involves the elimination of the underlying causes for a conflict and reduces the potential for similar conflicts in the future. Structural Approaches to Conflict Resolution Managers may choose one of the following structural approaches for resolving conflicts between individuals or groups: • • • • • • • •

Appealing to superordinate goals that focus the attention of the conflicting parties on one mutually desirable end state. Making more resources available to everyone. 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 Changing reward systems may reduce competition between individuals and groups for rewards Changing policies and procedures may redirect behaviour in ways that minimize the likelihood of known conflict-prone situations. Training in interpersonal skills can help prepare people to communicate and work more effectively in situations where conflict is likely.

Conflict Management Styles People’s conflict management styles reflect different combinations of cooperative and assertive behaviour. Instructor’s Guide

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Cooperativeness is the desire to satisfy the other party’s needs and concerns. Assertiveness is the desire to satisfy one’s own needs and concerns FIGURE 15.9 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.) 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. Instructor’s Guide

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STUDY QUESTION 6: 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: 1. Substance goals are concerned with outcomes; they 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. GAINING INTEGRATIVE 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. Instructor’s Guide

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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 15.10 depicts a classic two-party negotiation for a typical case of labourmanagement 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. 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?

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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. 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 telling error, parties don’t make themselves understood to each other; in 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. Ethical misconduct: the motivation to behave unethically sometimes arises from an undue emphasis on the profit motive.

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. 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 15 STUDY QUESTIONS SUMMARY Study 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.

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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? Study 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? Study Question 3: How do teams work? • • • • • • •

An effective team achieves high levels of task performance, member satisfaction, and team viability. 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 behaviour 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? Study Question 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, the potential liabilities of group decisions include social pressures to conform and greater time requirements. 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.

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FOR DISCUSSION: Is it possible that groupthink doesn’t only occur when groups are highly cohesive, but also when they are pre-cohesive? Study Question 5: How do you manage conflict? • • • • •

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? Study Question 6: 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 goals concerned with processes are both important in successful negotiation. Effective negotiation occurs when issues of substance are resolved while the process results in 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, 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 15 KEY TERMS Accommodation or smoothing: being cooperative and unassertive, letting the wishes of others rule; smoothing over or overlooking differences to maintain harmony. Arbitration: 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. Avoidance or withdrawal: being uncooperative and unassertive, downplaying disagreement, withdrawing from the situation, and/or staying neutral at all costs. 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. Brainstorming: teams of five to ten members meet to engage in open and spontaneous Instructor’s Guide

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discussion of problems and ideas. Centralized communication network: a network in which activities are coordinated and results pooled by a central point of control. Cohesiveness: the degree to which members are attracted to and motivated to remain part of a team. 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. Committee: brings people together outside of their daily job assignments to work in a small team for a specific purpose. 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. Conflict: a disagreement between people on substantive or emotional issues. Conflict resolution: involves the elimination of the underlying causes for a conflict and reduces the potential for similar conflicts in the future. Cross-functional team: a team whose members come from different functional units, is indispensable to matrix organizations and those that emphasize horizontal integration. Decentralized communication network: a network in which all members communicate directly with one another. Decision making: the process of making choices among alternative possible courses of action. Disruptive activities: self-serving behaviours that interfere with team effectiveness. Distributed leadership: 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. Distributive negotiation: focuses on “claims” made by each party for certain preferred outcomes. Such negotiations can become competitive and lead to “win-lose” outcomes. Dysfunctional conflict: or destructive conflict, hurts task performance. Effective negotiation: occurs when issues of substance are resolved and working relationships among the negotiating parties are maintained or even improved in the process. Effective team: a team that achieves high levels of both task performance and membership satisfaction, and retains its viability for the future. Emotional conflicts: arise from feelings of anger, distrust, dislike, fear, and resentment, as well as from personality clashes and relationship problems. Functional conflict: or constructive conflict, stimulates people toward greater work efforts, cooperation, and creativity. Formal group: a group that is officially recognized and supported by the organization for specific purposes. Group process: the way the members of any team work together as they transform inputs into outputs. Groupthink: a tendency for highly cohesive groups to lose their critical evaluative capabilities. Informal group: unofficial and emerges from relationships and shared interests among members. 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. Maintenance activity: an action taken by a team member that supports the emotional life of the group. Mediation: involves a neutral third party who tries to improve communication between Instructor’s Guide

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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. Negotiation: 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. Nominal group technique: uses a highly structured meeting agenda to allow everyone to contribute ideas without the interference of evaluative comments by others. Norm: refers to the behaviour expected of team members; it is a rule or standard that guides the behaviour of team members. 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. Project team: brings together people to work on common problems, but on a temporary rather than permanent basis. Also known as a task force. Relationship goals: 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. Restricted communication network: a network where subgroups have limited communication with one another and may engage in antagonistic relations. Self-managing team: 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: the presence of “free riders” who slack off because responsibility is diffused in teams and others are present to do the work. Substantive conflicts: involve disagreements over such things as goals and tasks, allocation of resources, distribution of rewards, policies and procedures, and job assignments. Substance goals: concerned with outcomes; they are tied to the “content” issues of the negotiation. Synergy: the creation of a whole that is greater than the sum of its individual parts. Task activity: an action by a team member that directly contributes to the group’s performance purpose. Task force: bring 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: a small group of people with complementary skills, who work together to achieve a shared purpose and hold themselves mutually accountable for performance results. Team building: a sequence of planned activities used to analyze the functioning of a team and to make constructive changes in how it operates. Teamwork: the process of people actively working together to accomplish common goals. Virtual team: a team of people who work together and solve problems through largely computer-mediated rather than face-to-face interactions. 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.

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SUGGESTED TEAM EXERCISE One team building activity that is simple for students to do together is a scavenger hunt. Send student groups out on campus to do exercises such as write down inscriptions for statues, count cartoons on professors’ doors, or have their pictures taken at various spots. Other ideas include visiting little known places on campus (like the campus art gallery) and bringing back evidence such as a brochure. Scavenger hunts are used as team building exercises because they require a group effort and allow group members to get to know each other outside of the office (or, in this case, classroom). For more scavenger hunt ideas, check out the two articles below: Johnson, G. (2004, February) Goodwill Hunting, Training, 41(2): 19 Rosenbaum, M.D. & Grimaldi, L. (2005, February) Hunting for fun, Meetings & Conventions; 40(2): 17

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

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

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

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

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

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Groupthink is most likely to occur in teams that are ____________. (a) large in size (b) diverse in membership (c) high-performing (d) highly cohesive

Gatekeeping is an example of a ____________ activity that can help teams work effectively over time. (a) task (b) maintenance (c) team-building (d) decision-making

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

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. When teams are highly cohesive, ______________. (a) members are high performers (b) members tend to be satisfied with their team membership (c) members have positive norms (d) the group achieves its goals 11. When members of a group share commitments to being on time for all meetings, on-time behaviour has become ____________. (a) a symptom of groupthink (b) synergy (c) a norm (d) activity maintenance 12. It would be common to find members of self-managing work teams engaged in ____________. (a) social loafing (b) multitasking (c) centralized communication (d) decision by authority rule 13. 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

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14. In a 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) dispute resolution (b) arena of indifference (c) myth of the fixed pie (d) bargaining zone 15. To increase the cohesiveness of a group, a manager would be best off ____________. (a) starting a competition with other groups (b) increasing the group size (c) acting as a positive role model (d) introducing a new member 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 meeting, and by inviting in an outside observer to help gather different viewpoints. 19. Explain the “inverted U” curve of conflict 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 Instructor’s Guide

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conflict intensity moves into extreme levels, performance tends to decrease. This is the zone of destructive conflict. 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 behaviours 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 high-performance 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.

REVIEW QUESTIONS FOR CASE 15: NASCAR: FAST CARS, PASSION, AND TEAMWORK CREATES WINS 1. What are the teamwork and team building challenges that must be mastered to create synergy when a new NASCAR driver joins an established racing team and pit crew? When a new NASCAR driver joins an established team, some disruption is likely to occur, causing the team to revert to the storming stage of team formation. The new driver is unknown to the rest of the team, so presenting new ideas and working preferences could cause tension among both the team members and pit crew. Also, seasoned team members may resent the new driver, especially if the driver has little NASCAR racing experience.The new driver is at a disadvantage, in that the team norms are unknown, resulting in possible conflicts with other team members.Considering all members of the team have the same goal in mind – winning – eventually, the team will return to the performing stage of development and the new driver will be a major contributor of the team’s success. 2. How can a NASCAR owner use insights from the open systems model of team effectiveness to build a true high performance racing team? The open systems model of team effectiveness is made up of three areas that lead to success: inputs, throughputs, and outputs. A NASCAR owner has the most control over the input area. The owner can ensure adequate resources for success are in place. Items, such as, money, state-of-the-art equipment, reporting structures, and competitive compensation are all within the owner’s control. Also, the owner understands the nature of the task is to win races, so Instructor’s Guide

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enticing the right mix of people with the needed skills is within the owner’s control. Throughputs will be up to the team members, however, an owner can be influential here too, by ensuring team members are interacting and working in a positive way. The owner can help in conflict resolution and help in establishing a logical way of doing business. Outputs will depend on the effectiveness of both the inputs and the throughputs. Here, the owner can sustain member satisfaction and task performance simply by providing desired rewards to team members when successful racing results are achieved. 3. In what ways can a driver’s behaviour help with or hinder a crew chief’s efforts to build the right norms and a high level of cohesiveness in a pit crew? Or create conflict on a team? Considering the driver is an integral part of a racing team, said driver can hinder a crew chief’s efforts in building the right norms and cohesiveness in a pit crew or create conflict by: • • •

not contributing to the team’s effort to win races, i.e., not driving the car in a productive and professional manner. having a closed mind regarding racing techniques offered by pit crew members. taking all of the credit for racing success and not acknowledging the role of the pit crew in winning.

Some ways the driver can help include: • • •

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helping in establishing ways to attain the goals for winning races. cooperating and collaborating with the pit crew members to ensure every pit stop is done in an effective and efficient manner. always share he credit for a winning race by praising the efforts of the pit crew.

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Chapter 16:

CONTROL PROCESSES AND SYSTEMS CHAPTER 16 STUDY 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 16 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • •

Define controlling as a management function Explain benefits of after-action reviews 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 Explain why planning is important to controlling Differentiate between output and input standards State the control equation Explain management by exception Explain progressive discipline Define project management Explain how Gantt charts and CPM/PERT analysis assist in project management List and explain common ratios used in financial control Identify the four main balanced scorecard components

CHAPTER 16 OVERVIEW The chapter begins with a discussion of controlling. Controlling 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.

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Finally, various organizational systems that facilitate control are discussed. These systems include employee discipline systems, project management, financial controls and the balanced scorecard. CHAPTER 16 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.

Study Question 1: Why and how do managers control? • Importance of controlling • Types of controls • Internal and external control

II.

Study Question 2: What are the steps in the control process? • Establish objectives and standards • Measure performance results • Compare results with objectives and standards • Take corrective action

III.

Study Question 3: What are the common control tools and techniques? • Employee discipline systems • Project management and control • Financial controls • Balanced scorecards

CHAPTER 16 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Best Buy: Discounting Time, Counting On You! Learning About Yourself • Strength and Energy Figures • Figure 16.1: The Role of Controlling in the Management Process • Figure 16.2: Feedforward, Concurrent, and Feedback Controls • Figure 16.3: Four Steps in the Control Process • Figure 16.4: Simplified Gantt Chart For a New Cell Phone • Figure 16.5: Sample CPM/PERT Network Activity-on-Node Diagram Thematic Boxes • Real Ethics: Privacy and Censorship • Issues and Situations: Computer Addiction Instructor’s Guide 16-2 Chapter 16 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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Management Smarts 16.1: “Hot Stove Rules” of Employee Discipline Research Brief: Restating Corporate Financial Performance Foreshadows Significant Turnover Among Corporate Executives and Directors.

Applications • Self-Test • Self-Assessment • Team Exercise: Defining Quality • Case 16: Four Seasons Hotels: Competitive Advantage Through Quality CHAPTER 16 LECTURE NOTES LEARNING FROM OTHERS describes Best-Buy’s “ROWE” program, which completely alters

the way people work, with employees now in control of everything. Not just where and when they work but, for example, whether they go to meetings. The only thing that an employee is judged on is results. It is total flexibility based upon total accountability. LEARNING ABOUT YOURSELF details the need for balance between work and non-work demands. By using the Mayo Clinic’s Work-Life Balance tips, students are able to determine whether or not they are in control of their lives. 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. FIGURE 16.1 illustrates the role of controlling in the management process. Instructor’s Guide 16-3 Chapter 16 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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 16.2 illustrates three major types of controls: feedforward, concurrent, and feedback. Each is relevant to a different phase of the organization’s input-throughputoutput 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 preventive in nature, 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. allow for corrective action to be taken while the work is in process. address the question: “What can we do to improve things right now?” can reduce waste in the form of unacceptable finished products or services.

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.

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INTERNAL AND EXTERNAL CONTROL Self- Control Self control or internal control allows motivated individuals and groups to exercise self-discipline in fulfilling job expectations. 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. 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 behaviour is consistent with organizational interests. The organization’s external environment also affects bureaucratic control through laws and regulations. Clan Control Clan control influences behaviour 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 behaviour of organizations and their members. Firms adjust products, pricing, promotions, and other practices based on feedback from customers and the actions of competitors.

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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 liquour 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 honours. An example such as this can make the control process more tangible to students.

FIGURE 16.3 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. 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). Instructor’s Guide 16-6 Chapter 16 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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. ISSUES AND SITUATIONS asks who is in control when it comes to personal time. Should managers set the norms and provide examples that show others how to use technology for work while staying in control and balancing time spent on work with their personal life? 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. REAL ETHICS 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.” 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. Two types of exceptions can be recognized by the control equation: 1. A problem situation is one in which actual performance is below the standard, suggesting that corrective action is needed. 2. An opportunity situation in which actual performance exceeds the standard. The reasons for this extraordinary performance should be discovered and understood, thereby enabling superior performance to be repeated in the future.

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STUDY QUESTION 3: WHAT ARE THE COMMON CONTROL TOOLS AND TECHNIQUES? EMPLOYEE DISCIPLINE SYSTEMS. Discipline is the act of influencing behavior through reprimand. When discipline is handled in a fair, consistent, and systematic way, it is a useful form of managerial control. MANAGEMENT SMARTS 16.1 covers the “Hot Stove Rules” of employee discipline: • • • • • •

A reprimand should be immediate; a hot stove burns the first time you touch it. A reprimand should be directed toward someone’s actions, not the individual’s personality; a hot stove doesn’t hold grudges, doesn’t try to humiliate people, and doesn’t accept excuses. A reprimand should be consistently applied; a hot stove burns anyone who touches it, and it does so every time. A reprimand should be informative; a hot stove lets a person know what to do to avoid getting burned in the future—”don’t touch.” A reprimand should occur in a supportive setting; a hot stove conveys warmth but with an inflexible rule: “don’t touch.” A reprimand should support realistic rules. The don’t-touch-a-hot-stove rule isn’t a power play, a whim, or an emotion of the moment; it is a necessary rule of reason.

DISCUSSION TOPIC Ask the students to cite examples of reprimands they have encountered, and then analyze them in light of the preceding criteria. Progressive discipline ties reprimands to the severity and frequency of the employee’s infractions. In progressive discipline systems, penalties vary according to how significant a disruptive behavior is and how often it occurs. The goal of progressive-discipline systems is always to achieve compliance with organizational expectations through the least extreme reprimand possible. 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.

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Gantt Charts A Gantt chart graphically displays the scheduling of tasks required to complete a project. FIGURE 16.4 illustrates a simplified Gantt chart for a new cell phone prototype. A Gantt chart 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. FIGURE 16.5 illustrates 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. FINANCIAL CONTROLS Financial analysis information is important in exercising managerial control over resource utilization and organizational performance. Economic Value Added Economic value added or EVA is a measure of the economic value being created by a firm through the use of its assets in earning a rate of return on its invested capital that is greater than the cost of that capital. Market value added or MVA is the value of the firm as represented in the stock market value relative to the cost of capital. Basic Financial Ratios 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 as follows: Liquidity: (Higher is better: you want more assets and fewer liabilities.) • •

Current Ratio = Current Assets / Current Liabilities Quick Ratio = Current Assets – Inventory / Current Liabilities

Leverage: (Lower is better: you want fewer debts and more assets.) •

Debt Ratio = Total Debts / Total Assets

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Asset management: (Higher is better: you want more sales and fewer assets or lower inventory.) • •

Asset Turnover = Sales / Total Assets Inventory Turnover = Sales / Average Inventory

Profitability: (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

RESEARCH BRIEF describes research that finds restating corporate financial performance foreshadows significant turnover among corporate executives and directors. BALANCED SCORECARDS A balanced scorecard tallies organizational performance in financial, customer service, internal process, and innovation and sustainability.. 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: • 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? • 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? • Sustainability—To integrate sustainability into our business model, what performance metrics should we incorporate? Sample goals: social return on investment, waste audits, environmental risk assessment, product life cycle audit, energy audits. When balanced scorecard measures are taken and routinely recorded for critical management review, organizations are expected to perform in the five above listed areas. CHAPTER 16 STUDY QUESTIONS SUMMARY Study 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?” Instructor’s Guide 16-10 Chapter 16 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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• •

Instructor’s Guide

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? Study Question 2: What are the steps in the control process? • The first step in the control process is to establish performance objectives and standards, to create targets against which later performance can be evaluated. • The second step in the control process is to measure actual performance, to 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? Study Question 3: What are common control tools and techniques? • Discipline is the process of influencing behaviour through reprimand; progressive discipline systems vary reprimands according to the severity of infractions. • 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 value added (EVA) measures value creation relative to capital invested; market value added (MVA) measures stock market value relative to capital investment. • Financial control of business performance is facilitated by analysis of financial ratios, such as those dealing with liquidity, leverage, assets, and profitability. • The balanced scorecard measures overall organizational performance in five areas: financial, customers, internal processes, innovation, sustainability. FOR DISCUSSION: Should all employees of a business be regularly informed of the firm’s overall financial performance? CHAPTER 16 KEY TERMS After-action review: identifies lessons learned through a completed project, task force assignment, or special operation. Balanced scorecard: tallies organizational performance in financial, customer service, internal process, and innovation and sustainability areas. Bureaucratic control: influences behaviour through authority, policies, procedures, job descriptions, budgets, and day-to-day supervision. Clan control: influences behaviour through norms and expectations set by the organizational culture. Instructor’s Guide 16-11 Chapter 16 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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CPM/PERT: is a combination of the critical path method and the program evaluation and review technique. Concurrent control: a control that focuses on what happens during the work process. Controlling: the process of measuring performance and taking action to ensure desired results. Discipline: the act of influencing behaviour through reprimand. Economic value added: is a measure of economic value created by profits being higher than the cost of capital. Feedback control: a control that takes place after work is completed. Feedforward control: a control that is employed 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: graphical display of the scheduling of tasks required to complete a project. Input standard: measures performance results in terms of quantity, quality, cost, or time. Management by exception: the practice of giving attention to situations showing the greatest need for attention. Market control: is essentially the influence of market competition on the behaviour of organizations and their members. Market value added: is a performance measure of stock market value relative to the cost of capital. Output standards: measures performance results in terms of quantity, quality, cost, or time. Progressive discipline: the process of tying reprimands to the severity and frequency of the employee’s infractions. Project: one-time activities with many component tasks that must be completed in proper order, and according to budget. Project management: makes sure that the activities required to complete a project are planned well and accomplished on time. Self-control or internal control: occurs through self-discipline in fulfilling many responsibilities.

SUGGESTED TEAM EXERCISE In teams, have students examine the feedforward controls in their lives. Some examples to get them started could be: • •

the course syllabus: it sets the course direction and tells what materials are needed changing the oil in their cars at the recommended times: doing so solves problems before they occur

You can make the lists a contest to see which group can apply the concept of feedforward control to their everyday lives. If desired, the exercise can be repeated for feedback controls (i.e., grades, progression to upper-level classes)

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

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When a soccer coach tells her players at the end of a losing game, “You really played well and stayed with the game plan,” she is using a(n) _________ as a measure of performance. (a) input standard (b) output standard (c) historical comparison (d) relative comparison

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

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

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

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

The control equation states: _________ = Desired Performance – Actual Performance. (a) Problem Magnitude (b) Management Opportunity (c) Planning Objective (d) Need for Action

When a UPS manager compares the amount of time a driver takes to accomplish certain deliveries against a standard set through scientific analysis of her delivery route, this is known as _________. (a) a historical comparison (b) an engineering comparison (c) relative benchmarking (d) concurrent control

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. In CPM/PERT, “CPM” stands for _________. (a) critical path method (b) control planning management (c) control plan map (d) current planning method 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. A manager following the “hot stove rules” of progressive discipline would _________. (a) avoid giving too much information when reprimanding someone (b) reprimand at random (c) focus the reprimand on actions, not personality (d) delay reprimands until something positive can also be discussed 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 controlling process are: (1) establish objectives and standards, (2) measure actual performance, (3) compare results with objectives and standards, and (4) take corrective 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 Instructor’s Guide 16-14 Chapter 16 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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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. 19. How does a progressive discipline system work? A progressive discipline system works by adjusting the discipline to fit the severity and frequency of the inappropriate behaviour. In the case of a person who comes late to work, for example, progressive discipline might involve a verbal warning after three late arrivals, a written warning after five, and a pay-loss penalty after seven. In the case of a person who steals money from the business, there would be immediate dismissal after the first such infraction. 20. Assume that you are given the job of project manager for building a new student centre 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 centre 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 Figure 16.5 from the chapter as a guide for developing your AON diagram.

REVIEW QUESTIONS FOR CASE 16: FOUR SEASONS HOTELS: COMPETITIVE ADVANTAGE THROUGH QUALITY 1. What are the core competencies that give Four Seasons a competitive advantage over its rivals in the luxury market? How sustainable do you think that competitive advantage is in the long run? The core competencies that give the Four Seasons a competitive advantage over its rivals in the luxury market are: 1) an unparalleled service orientation among all staff members, and 2) innovative guest services. These core competencies, in tandem, create an experience for guests that makes them feel as if they are at home or at the office. There is evidence, however, that the competitive advantage that it has enjoyed in the past as a result may not be Instructor’s Guide 16-15 Chapter 16 Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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sustainable. The reason for this is that these comptetencies can be imitated, and they have been by its rivals over the years. As a result, recently, some of the Four Seasons’ 82 hotels have experienced financial difficulties 2. How does Four Seasons use control techniques to add value to customers’ stays? The main control technique used by the Four Seasons, which effectively binds all staff members together, is “the Golden Rule” whereby employees are encourage to treat everyone – customers, partners and co-workers – as they would want to be treated themselves. This is an example of a clan control, which influences the behaviour of staff members through norms and expectations set by the organizational culture. 3. Do you think that the concept of project management applies to the service industry? How would this concept apply to the Four Seasons? Project management makes sure that activities required to complete a project are planned well and accomplished on time. While projects are, by definition, one-time activities, the concept of project management can be applied to the service industry in general, and the Four Seasons in particular. For example, like most projects, recurring activities such as guest room cleaning and meals involve many component tasks that must be completed in proper order, and according to budget. Making sure that this occurs is the goal of project management.

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Chapter 17:

OPERATIONS AND SERVICES MANAGEMENT CHAPTER 17 STUDY QUESTIONS In studying this chapter, students should consider the following questions: 1. 2. 3. 4.

What are the essentials of operations and services management? What is value chain management? How do organizations manage customer service and product quality? How can work processes be designed for productivity?

CHAPTER 17 LEARNING OBJECTIVES After completing this chapter, students should be able to: • • • • • • • • • • • • • • • • • • • • •

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 Explain the concept of a process-driven organization

CHAPTER 17 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 Instructor’s Guide

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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 how work processes can be designed for productivity through process engineering, process value analysis and re-engineering. CHAPTER 17 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.

Study Question 1: What are the essentials of operations and services management? Manufacturing and service settings Productivity and competitive advantage Operations technologies

II.

Study Question 2: What is chain value management? Value and chain analysis Supply chain management Inventory management Break-even analysis

III:

Study Question 3: How do organizations manage customer service and product quality? Customer relationship management Quality management Statistical quality control

IV.

Study Question 4: How can work processes be designed for productivity? Work process analysis Process reengineering Process-driven organizations

CHAPTER 17 SUPPORTING MATERIALS Textbook Inserts Learning From Others • Speed and Flexibility Rule Global Competition Learning About Yourself • Self-Management Instructor’s Guide

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Figures • Figure 17.1: Elements in an Organization’s Value Chain. • Figure 17.2: Inventory Control by Economic Order Quantity (EOQ). • Figure 17.3: Graphical Approach to Break-Even Analysis. • Figure 17.4: The Importance of External and Internal Customers. • Figure 17.5: Sample Control Chart Showing Upper and Lower Control Limits. • Figure 17.6: How Reengineering Can Streamline Work Processes. Thematic Boxes • Management Smarts 17.1: A Valuable Chain Reaction • Real Ethics: Fair Trade Fashion • Issues and Situations: Bloggers Attack Poor Service • Research Brief: How Do You Improve the Productivity of a Sales Force? Applications • Self-Test • Self-Assessment • Team Exercise: Straw Towers • Case 17: Toyota: Looking Far Into the Future • Video Case 6: Suppliers CHAPTER 17 LECTURE NOTES LEARNING FROM OTHERS 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 explains the importance of self-management for career success and asks students to do a self-check to assess how well they balance academic and nonacademic activities. STUDY 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. MANUFACTURING AND SERVICE SETTINGS The essentials of operations management apply to all types of organizations, whether they be manufacturing or service oriented. PRODUCTIVITY AND COMPETITIVE ADVANTAGE Productivity is the efficiency with which inputs are transformed into outputs and is expressed in the following formula: Instructor’s Guide

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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 Small-batch production manufactures a variety of products crafted to fit customer specifications. Mass production manufactures a large number of uniform products with an assembly-line system. 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? 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: • • • • • • •

Instructor’s Guide

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 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.

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Service Technology 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. STUDY 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 17.1 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. REAL ETHICS describes Fair Indigo, a clothing company that vows to only use fairlypaid labourers to make its clothing. Ask students if they would be willing to pay more for Instructor’s Guide

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clothing they knew was produced under fair conditions. INVENTORY MANAGEMENT An important issue in the value chain is management of inventory or the amount of materials or products kept in storage. 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 17.2 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 17.3 graphically illustrates this concept by showing the point where revenues just equal costs. STUDY QUESTION 3: HOW DO ORGANIZATIONS MANAGE CUSTOMER SERVICE AND PRODUCT QUALITY? Business leaders rank customer service and product quality as the first and second most important goals in the success of their organizations, but often there is a disconnect between intentions and results. Instructor’s Guide

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ISSUES AND SITUATIONS asks students to consider whether or not organizations will respond better to poor customer service complaints as a result of negative postings by bloggers, YouTube videos, or the web, or will they continue without major adjustments to their operations. 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. 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 17.4 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. Total quality management (TQM) is managing with an organization-wide commitment to continuous improvement, product quality, and customer needs. Instructor’s Guide

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Continuous improvement involves always searching for new ways to improve work quality and 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. FIGURE 17.5 is a sample control chart, showing upper and lower control limits, that graphically displays trends so exceptions to quality standards can be identified for special attention. Six Sigma is a quality standard of 3.4 defects or less per million products or service deliveries. STUDY 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 value for the customer. Workflow is the movement of work from one point to another in a system. RESEARCH BRIEF 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. PROCESS REENGINEERING Process value analysis identifies and evaluates core processes for their performance contributions. Process value analysis typically involves the following steps: 1. 2. 3. 4. 5. 6.

Identify the core processes. Map the core processes with respect to workflows. Evaluate all core process tasks. Search for ways to eliminate unnecessary tasks or work. Search for ways to eliminate delays, errors, and misunderstandings. Search for efficiencies in how work is shared and transferred among people and departments.

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FIGURE 17.6 shows an example of how reengineering and better use of computer technology can streamline a purchasing operation. PROCESS-DRIVEN ORGANIZATIONS The essence of process reengineering is to locate control for processes with an identifiable group of people, and to focus each person and the entire system on meeting customer needs and expectations. It tries to eliminate duplication of work and systems bottlenecks to reduce costs, increase efficiency, and build capacity for change. CHAPTER 17 STUDY QUESTIONS SUMMARY Study Question 1: What are the essentials of operations and services and management? • The challenges of operations management relate to managing productive systems that transform resources into finished goods and services for customers and clients. • 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? Study 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 ensure 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? Study 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. • Total quality management tries to meet customers’ needs—on time, the first time, and all the time. • Organizations often use 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? Instructor’s Guide

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Study 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 17 KEY TERMS Break-even analysis: calculates the point at which revenues cover costs under different “what if” conditions. Break-even point: where revenues equal costs. Competitive advantage: the ability to outperform one’s competitors due to a core competency that is difficult to copy or imitate. Continuous improvement: involves always searching for new ways to improve work quality and performance. Continuous-process production: continuously transformation of raw materials by an automated system. Control Charts: graphically plot quality trends against control limits. Customer relationship management: strategically building lasting relationships with and to add value to customers. Economic order quantity: inventory control in which replacements are ordered whenever inventory level falls to a predetermined point. Inventory: is an amount of materials or products kept in storage. ISO certification: certification which indicates conformance with a rigorous set of international quality standards. Intensive technology: focuses the efforts and talents of many people to serve clients. Just-in-time scheduling: minimizes inventory by sending out materials to workstations “just in time” to be used. Long-linked technology: moving a client from point to point during service delivery. Malcolm Baldrige award: is given to business, health care, education, and non-profit organizations that meet quality criteria. Mass production: manufactures a large number of uniform products with an assembly-line system. Mediating technology: linking together people in a beneficial exchange of values. Operations management: the process of managing productive systems that transform resources into finished products. Process reengineering: systematic analysis of work processes to design new and better ones. Process value analysis: identifies and evaluates core processes for their performance contributions. Productivity: the efficiency with which inputs are transformed into outputs. Six Sigma: is a quality standard of 3.4 defects less per million products or service deliveries. Statistical quality control: measures work samples for compliance with quality standards. Small-batch production: manufactures a variety of products crafted to fit customer specifications. Instructor’s Guide

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Supply chain management: strategically links all operations dealing with resource supplies. Technology: is the combination of knowledge, skills, equipment, and work methods used to transform inputs into outputs. Total quality management: managing with an organization-wide commitment to continuous improvement, product quality, and customer needs. Value chain: the specific sequence of activities that creates products and services with value for customers. Value creation: 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: the movement of work from one point to another in a system. Work process: a related group of tasks that together create a value for the customer.

SUGGESTED TEAM EXERCISE Have teams work against each other to see who can be first to figure the break-even point for the following products. Products Fixed costs: $10,000 Variable costs per unit: $2 Price for product: $6 Fixed costs: $5,000 Variable costs per unit: $5 Price for product: $15 Fixed costs: $100,000 Variable costs per unit: $20 Price for product: $60 Fixed costs: $1,500 Variable costs per unit: $1 Price for product: $3 Fixed costs: $800 Variable costs per unit: $6 Price for product: $10 Fixed costs: $10,000 Variable costs per unit: $20 Price for product: $40

Answer 2500 units 500 units 2500 units 750 units 200 units 500 units

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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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

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

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

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

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

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

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

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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 __________. (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(n) __________. (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 Instructor’s Guide

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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 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 core process tasks involved; (4) seek ways to eliminate unnecessary tasks or work; (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. What would be possible productivity measures for the following organizations? (a) Canada Post (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) Canada Post—# 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

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QUESTIONS FOR CASE 17: TOYOTA: LOOKING FAR INTO THE FUTURE 1. How could Ford or General Motors gain efficiencies through supply chain management? As mentioned in the article, one way to gain efficiency in the manufacturing process is to control the flow of the amount of parts in inventory and to plan production schedules properly. By doing so, suppliers are able to plan their production and inventory levels, which will ensure an adequate supply of parts when needed by both Ford and General Motors. Managing the supply chain will also strengthen the supplier-customer relationship to the point where both will realize efficiencies in their respective operations. 2. What problems might a firm face when trying to implement and use the just-in-time systems found at Toyota? Student responses will vary, however, some of the problems that may occur in implementing and using a just-in time system include: • • •

Changing the mind-set of those in charge of inventory control by requiring fairly accurate parts forecasts and timely placement of orders. Modifying the frequency of parts delivery from suppliers to as many as even more than once a day depending on production schedules. Any mistakes in scheduling or parts availability will mean no inventory, causing a disruption in manufacturing.

3. How does Toyota’s operations management approach show an understanding of the value chain? The value chain consists of a step-by-step sequence of events that creates a product with value for customers. Toyota shows an understanding of this concept in a number of different ways. • • • • •

Inbound logistics – Toyota is set up on a just-in-time inventory system which means goods are delivered when needed. This creates value by not having excess inventory lying around when it could be damaged or stolen. Operations – Toyota’s workers are trained to do more than one job, so if demand drops off in one area of manufacturing, workers can be moved to other areas with higher needs. This eliminates the number of workers needed, which reduces employee costs. Outbound logistics – Toyota makes it easy for customers to attain its products by having a sufficient number of dealers available. This saves customers time and money in not having to search for product outlets. Marketing and Sales – in addition to producing and selling vehicles, Toyota is constantly in tune with the market wants – eco-friendly cars (Prius) – and supports sales with customer financing. Service – Toyota offers after-the-sale service to all of its customers, so their vehicle purchases are easily maintained, which helps in value retention.

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QUESTIONS FOR VIDEO CASE 6: SUPPLIERS

JAM Industries has an inventory management challenge—with a rising Canadian dollar how might they manage their supply chain better? With the pressure from consumers to reduce prices in light of the rising Canadian dollar, companies such as JAM must be concerned about how much it pays for what it buys. To leverage buying power, it might consider centralizing purchasing to allow buying in volume. It could also focus on a small number of suppliers with whom it negotiates special contracts, gains quality assurances, and gets preferred service.

2. Would you agree that inventory management is a significant issue for JAM Industries? JAM Industries has more than $10 million tied up in inventory according to the video. Since whenever anything is held in inventory there is a cost associated with it, controlling these costs through effective inventory management is an important productivity tool. This is especially the case for JAM, as its profit margins are already being squeezed by the need to cut prices.

3. Would a supplier-purchaser partnership be in the best interests of JAM Industries and the music equipment retailers that it sells to? If so, how might such a partnership work, and how would each party benefit? A supplier-purchaser partnership would likely be in the best interests of both JAM Industries and its retailers. For example, JAM could maintain warehouses in their customers’ facilities such that the customers would provide the space while JAM Industries would do everything else related to the inventory. The benefits to the retailers would be lower purchasing costs and preferred service. The benefits to JAM would be exclusive customer contracts and more sales volume.

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