Business Management Learning Activity
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Organiza�onal Theory and Behavior
Organiza�onal behavior is the field of study that inves�gates how organiza�onal structures
affect behavior within organiza�ons.
Organiza�onal behavior includes behavior within the organiza�on
and in rela�on to other organiza�ons.
Micro organiza�onal behavior refers to individual and group
dynamics in an organiza�onal se�ng.
Macro organiza�onal theory studies whole organiza�ons and
industries, including how they adapt, and the strategies, structures,
and con�ngencies that guide them.
Concepts such as leadership, decision making, team building,
mo�va�on, and job sa�sfac�on are all facets of organiza�onal
behavior. They are management responsibili�es.
Company or corporate culture, although difficult to define, is
extremely relevant to organiza�onal behavior.
Key Term
behavior—the way a living creature acts
What Is Organiza�onal Behavior?
Learning Resource
Key Points
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As a field of study, organiza�onal behavior is concerned with the impact individuals, groups,
and structures have on human behavior within organiza�ons. It is an interdisciplinary field that
includes sociology, psychology, communica�on, and management. Organiza�onal behavior
complements organiza�onal theory, which focuses on organiza�onal and intra‑organiza�onal
topics, and human‑resource studies, which is more focused on everyday business prac�ces.
Edgar Schein’s Organiza�onal Culture
Model
There are three central components of an
organiza�on’s culture: ar�facts (visual
symbols such as an office dress code),
values (company goals and standards), and
assump�ons (implicit, unacknowledged
standards or biases).
Types of Organiza�onal Behavior
Organiza�onal studies examine organiza�ons from mul�ple perspec�ves, using various
methods and levels of analysis. Micro organiza�onal behavior refers to individual and group
dynamics in organiza�ons. Macro organiza�onal theory studies whole organiza�ons and
industries, especially how they adapt; and the strategies, structures, and con�ngencies that
guide them. Some scholars also include the categories of meso‑scale structures involving
power, culture, and the networks of individuals in organiza�ons. Field‑level analysis studies
how en�re popula�ons of organiza�ons interact.
Many factors come into play whenever people interact in organiza�ons. Modern organiza�onal
studies a�empt to understand and model these factors. Organiza�onal studies seek to control,
predict, and explain. Organiza�onal behavior can play a major role in organiza�onal
development, enhancing not only the en�re organiza�on’s performance, but also individual
and group performance, sa�sfac�on, and commitment.
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Topics in Organiza�onal Behavior
Organiza�onal behavior study is par�cularly relevant in the field of management because it
encompasses many of the daily issues managers face. These include leadership, decision
making, team building, mo�va�on, and job sa�sfac�on. Understanding not only how to
delegate tasks and organize resources but also how to analyze behavior and mo�vate
produc�vity is cri�cal for success in management.
Organiza�onal behavior study also concentrates on culture. Although difficult to define,
corporate culture is extremely relevant to how organiza�ons behave. A Wall Street stock‑
trading company, for example, will have a drama�cally different work culture from an academic
department at a university. Understanding and defining these work cultures and their
behavioral implica�ons is also a central topic within the organiza�onal behavior field.
Why Study Organiza�onal Theory?
Organiza�onal theory studies organiza�ons to iden�fy how they solve problems and how they
maximize efficiency and produc�vity.
Correctly applying organiza�onal theory can have several benefits for
an organiza�on and society at large. Developments in organiza�ons
help boost economic poten�al and help generate the tools needed to
fuel a capitalis�c system.
Once an organiza�on sees a window for expansion, it begins to grow,
altering the economic equilibrium by catapul�ng itself forward. This
expansion induces changes in the organiza�on’s infrastructure, in
compe�ng organiza�ons, and in the economy as a whole.
One example of how development in organiza�onal theory improves
efficiency is in factory produc�on. Henry Ford created the assembly
line, a system of organiza�on that enabled efficiency and drove both
Ford and the US economy forward.
Key Terms
Key Points
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efficiency—the extent to which a resource, such as electricity, is used
for the intended purpose; the ra�o of useful work to energy
expended
norma�ve—of, pertaining to, or using a standard
Defini�on of Organiza�onal Theory
Organiza�onal theory studies organiza�ons to iden�fy the pa�erns and structures they use to
solve problems, maximize efficiency and produc�vity, and meet the expecta�ons of
stakeholders. These pa�erns are used to formulate norma�ve theories of how organiza�ons
func�on best. Therefore, organiza�onal theory can be a tool for learning the best ways to run
an organiza�on or iden�fy organiza�ons that are managed in a way that increases the
likelihood that they will succeed.
Applying Organiza�onal Theory
Correctly applying organiza�onal theory can have several benefits for both the organiza�on
and society at large. As many organiza�ons strive to integrate themselves into capitalis�c
socie�es, there is a ripple effect on compe�ng firms and the economy as a whole. Once an
organiza�on sees a window for expansion, it begins to grow by producing more, and thus
alters the economic equilibrium by catapul�ng itself forward into a new environment of
produc�on. This expansion induces changes in the organiza�on’s infrastructure, in compe�ng
organiza�ons, and in the economy as a whole. Other firms observe innova�ve developments
and recreate them efficiently. Developments in organiza�ons help boost economic poten�al in
a society and help generate the tools necessary to fuel the capitalis�c system.
One example of how development in an organiza�on affects the modern era is factory
produc�on. The concept of factory produc�on amplified produc�on as a whole and allowed
for the organized division of labor. It centralized facets of the workforce and began to define
the rules of produc�on and trade, which also led to specializa�on.
Henry Ford implemented an innova�ve design by modifying factory produc�on and crea�ng
the assembly line, which is s�ll used in many factories today. These developments make it
easier for a company to produce, so firms are incen�vized to aggregate and use more efficient
methods for running their companies.
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Organiza�onal theory can also help iden�fy malicious or negligent corporate prac�ces,
informing the development of future precau�onary measures. The nuclear accident at Three
Mile Island helped determine ways to prevent similar incidents in the future. In that case,
developments in organiza�onal theory led to stronger government regula�ons and stronger
produc�on‑related safety mandates.
Licenses and A�ribu�ons
Why Study Organiza�onal Theory (h�ps://courses.lumenlearning.com/boundless‑
management/chapter/why‑study‑organiza�onal‑theory/) from Boundless Management by
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A�ribu�on‑ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by‑nc‑sa/4.0/)
license. UMUC has modified this work and it is available under the original license.
© 2019 University of Maryland University College
All links to external sites were verified at the �me of publica�on. UMUC is not responsible for the validity or integrity of
informa�on located at external sites.
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Classical Versus Behavioral Perspec�ves
The classical perspec�ve focuses on direct inputs to efficiency, while the behavioral
perspec�ve examines both direct and indirect inputs to efficiency.
The classical perspec�ve of management emerged from the Industrial
Revolu�on and focuses on the efficiency, produc�vity, and output of
employees as well as the organiza�on as a whole. It generally does
not focus on human or behavioral a�ributes or varia�on among
employees.
The classical perspec�ve of management is o�en cri�cized for
ignoring human desires and needs in the workplace and does not
consider human error in work performance. The classical perspec�ve
has strong influences on modern opera�ons and process
improvement.
The behavioral perspec�ve of management (some�mes called the
“human rela�ons perspec�ve”) takes a much different approach from
the classical perspec�ve: It is generally more concerned with
employee well‑being and encourages management approaches that
consider the employee as a mo�vated person who genuinely wants
to work.
Key Terms
micromanage—to rely on extreme supervision and close monitoring
of employee work
Learning Resource
Key Points
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psychosocial—related to one’s psychological development in, and
interac�on with, a social environment
The Classical Perspec�ve of Management
The classical perspec�ve of management, which emerged from the Industrial Revolu�on,
focuses on improving the efficiency, produc�vity, and output of employees, as well as the
business as a whole. However, it generally does not focus on human or behavioral a�ributes or
variances among employees, such as how job sa�sfac�on improves employee efficiency.
Frederick Winslow Taylor
Scien�fic management theory, which was first introduced by Frederick Winslow Taylor,
focused on produc�on efficiency and employee produc�vity. By managing produc�on
efficiency as a science, Taylor thought that worker produc�vity could be completely controlled.
He used the scien�fic method of measurement to create guidelines for the training and
management of employees. This quan�ta�ve, efficiency‑based approach is representa�ve of
the classical perspec�ve.
Max Weber
Another leader in the classical perspec�ve of management, Max Weber, created the
bureaucracy theory of management, which focuses on the theme of ra�onaliza�on, rules, and
exper�se for an organiza�on as a whole. Weber’s theory also focuses on efficiency and clear
roles in an organiza�on, meaning that management should run as effec�vely as possible with
as li�le bureaucracy as possible. One example of Weber’s management theory is the modern
“flat” organiza�on, which promotes as few managerial levels as possible.
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The classical perspec�ve of
management focused on improving
worker produc�vity.
Source: Sea�le Public Library, Wikimedia Commons.
Henri Fayol
Henri Fayol, another leader in classical management theory, also focused on the efficiency of
workers, but he looked at it from a managerial perspec�ve. He focused on improving
management efficiency rather than each individual’s efficiency. Fayol’s six func�ons of
management evolved into the four essen�al func�ons of management: planning, organizing,
leading, and controlling.
The classical perspec�ve of management theory pulls largely from these three theorists
(Taylor, Weber, and Fayol) and focuses on the efficiency of employees and improving an
organiza�on’s produc�vity through quan�ta�ve (i.e., measurable, data‑driven) methods. The
classical perspec�ve is o�en cri�cized for ignoring human desires and needs in the workplace.
It typically does not consider human error in work performance. The classical perspec�ve
strongly influences process improvement in modern opera�ons, in which quan�ta�ve metrics
determine how effec�vely a process is running.
The Behavioral Perspec�ve of Management
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The behavioral perspec�ve of management (some�mes called the “human rela�ons
perspec�ve”) takes a much different approach from the classical perspec�ve. It began in the
1920s with theorists such as Elton Mayo, Abraham Maslow, and Mary Parker Folle�.
The Hawthorne Studies
The Hawthorne studies were an important start to the behavioral perspec�ve of management.
These were a series of research studies were conducted with the workers at the Hawthorne
plant of the Western Electric Company. The Hawthorne studies found that workers were more
strongly mo�vated by psychosocial factors than by economic or financial incen�ves.
Abraham Maslow
Around the �me of the Hawthorne studies, Abraham Maslow created his hierarchy‑of‑needs
theory, which showed that workers were mo�vated through a series of lower‑level to higher‑
level needs. This theory has been applied in the workplace to be�er understand “so�” factors
of employee mo�va�on, such as goal se�ng and team involvement, in order to be�er manage
employees.
Douglas McGregor
Addi�onal theories in the behavioral perspec�ve include Douglas McGregor’s theory X and
theory Y, which address the percep�ons managers have about their employees and how
employees react to those percep�ons. Theory X management assumes employees are
inherently lazy and need micromanagement. Theory Y management focuses on crea�ng work
condi�ons that foster workers’ inherent crea�vity, commitment, and need for self‑fulfillment.
McGregor’s theory of management is an example of how behavior‑management theory looks
more into the “human” factors of management and encourages managers to understand how
psychological characteris�cs can improve or hinder employee performance.
Generally, the behavioral perspec�ve is much more concerned with employee well‑being and
encourages management approaches that consider the employee as a mo�vated worker who
wants to produce quality work. This theory, therefore, encourages a management approach
that is less focused on micromanaging and more focused on building rela�onships with
employees to help them achieve their workplace goals and work as effec�vely and efficiently
as possible.
Scien�fic Management: Taylor and the Gilbreths
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Scien�fic management focuses on improving efficiency and output through scien�fic studies of
workers’ processes.
Scien�fic management, or Taylorism, is a management theory that
analyzes work flows to improve economic efficiency, especially labor
produc�vity. This management theory, developed by Frederick
Winslow Taylor, was dominant in manufacturing industries in the
1880s and 1890s.
Important components of scien�fic management include analysis,
synthesis, logic, ra�onality, empiricism, work ethic, efficiency,
elimina�ng waste, and standardized best prac�ces.
Taylor and the Gilbreths introduced methods of measuring worker
produc�vity, including �me and mo�on studies, which are s�ll used
today in opera�ons and management.
Key Terms
mo�on study—created by Frank and Lillian Gilbreth, a study
analyzing work mo�ons by filming workers and emphasizing areas for
efficiency improvement by reducing mo�on
Taylorism—also known as scien�fic management, an early twen�eth‑
century theory of management that analyzed workflows to improve
efficiency
�me study—created by Frederick Winslow Taylor, a study of a job
and its component parts used to determine the most efficient
method of working
scien�fic management—an early twen�eth‑century theory that
analyzed workflows in order to improve efficiency
Taylorism
Key Points
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Scien�fic management, or Taylorism, is a management theory that analyzes work flows to
improve economic efficiency, especially labor produc�vity. This management theory,
developed by Frederick Winslow Taylor, was popular in the 1880s and 1890s in manufacturing
industries.
While the terms scien�fic management and Taylorism are o�en treated as synonymous, an
alterna�ve view considers Taylorism to be the first form of scien�fic management. Taylorism is
some�mes called the “classical perspec�ve,” meaning it is s�ll observed for its influence but no
longer prac�ced exclusively. Scien�fic management was best known from 1910 to 1920, but in
the 1920s, compe�ng management theories and methods emerged, rendering scien�fic
management largely obsolete by the 1930s. However, many scien�fic management themes are
s�ll seen in industrial engineering and management today.
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Frederick Winslow Taylor
Frederick Winslow Taylor is considered the creator of scien�fic
management.
Important components of scien�fic management include analysis, synthesis, logic, ra�onality,
empiricism, work ethic, efficiency, elimina�on of waste, and standardized best prac�ces. All of
these components focus on the efficiency of the worker and not on any specific behavioral
quali�es or varia�ons among workers.
Today, an example of scien�fic management is determining the amount of �me it takes
workers to complete a specific task and determining ways to decrease the amount of �me by
elimina�ng waste in the workers’ processes. A significant part of Taylorism was �me studies.
Taylor was concerned with reducing process �me and worked with factory managers on
scien�fic �me studies. At their most basic level, �me studies involve breaking down each job
into component parts, �ming each element, and rearranging the parts into the most efficient
method of working. By coun�ng and calcula�ng, Taylor sought to transform management into
a set of calculated and wri�en techniques.
Frank and Lillian Gilbreth
While Taylor was conduc�ng his �me studies, Frank and Lillian Gilbreth were comple�ng their
work in mo�on studies to further scien�fic management. The Gilbreths filmed the details of a
worker’s ac�vi�es while recording the �me it took to complete them. The films helped to
create a visual record of how work was completed, and emphasized areas for improvement.
They were also used to train workers in the best way to perform their work.
This method allowed the Gilbreths to build on the best elements of the work flows and create
a standardized best prac�ce. Time and mo�on studies are used together to achieve ra�onal
and reasonable results and find the best prac�ce for implemen�ng new work methods. While
Taylor’s work is o�en associated with that of the Gilbreths, there is o�en a clear philosophical
divide between the two scien�fic‑management theories. Taylor was focused on reducing
process �me, while the Gilbreths tried to make the overall process more efficient by reducing
the mo�ons involved. They saw their approach as more concerned with workers’ welfare than
Taylorism, in which workers were less relevant than profit. This difference led to a personal ri�
between Taylor and the Gilbreths, which, a�er Taylor’s death, turned into a feud between the
Gilbreths and Taylor’s followers.
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Scien�fic management con�nues to make significant contribu�ons to management theory
today. With the advancement of sta�s�cal methods used in scien�fic management, quality
assurance and quality control began in the 1920s and 1930s. During the 1940s and 1950s,
scien�fic management evolved into opera�ons management, opera�ons research, and
management cyberne�cs. In the 1980s, total quality management became widely popular, and
in the 1990s reengineering became increasingly popular. One could validly argue that
Taylorism laid the groundwork for these influen�al fields prac�ced today.
Bureaucra�c Organiza�ons: Weber
Weber’s bureaucracy focused on crea�ng rules and regula�ons to simplify complex procedures
in socie�es and workplaces.
Max Weber was a member of the classical school of management,
and his wri�ng contributed to the field’s scien�fic school of thought.
He wrote about the importance of bureaucracy in society.
Weberian bureaucracy is characterized by hierarchical organiza�on,
ac�on taken on the basis of (and recorded in) wri�en rules, and
bureaucra�c officials requiring expert training. Career advancement
depends on technical qualifica�ons judged by an organiza�on, not
individuals.
Weber’s ideas on bureaucracy stemmed from society during the
Industrial Revolu�on. As Weber understood it, society was being
driven by the passage of ra�onal ideas into culture, which, in turn,
transformed society into an increasingly bureaucra�c en�ty.
Key Terms
bureaucracy—a complex means of managing life in social ins�tu�ons
that includes rules and regula�ons, pa�erns, and procedures
designed to simplify the func�oning of complex organiza�ons
iron cage—Weber’s theory that a bureaucra�c society would make it
impossible to avoid bureaucracy and, thus, society would become
increasingly more ra�onal
Key Points
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bureaucra�c control—se�ng standards, measuring actual
performance, and taking correc�ve ac�on through administra�ve or
hierarchical techniques like crea�ng policies
Max Weber was a German sociologist, poli�cal economist, and administra�ve scholar who
contributed to the study of bureaucracy and administra�ve literature during the late 1800s
and early 1900s. He was a member of the classical school of management, and his wri�ng
contributed to the field’s scien�fic school of thought. Weber’s ideas on bureaucracy stemmed
from society during the Industrial Revolu�on. As Weber understood it, par�cularly during the
Industrial Revolu�on of the late nineteenth century, society was being driven by the passage
of ra�onal ideas into culture, which in turn transformed society increasingly into a
bureaucracy.
Bureaucracy Defined
Bureaucracy is a means of managing life in social ins�tu�ons that includes rules and
regula�ons, pa�erns, and procedures designed to simplify the func�oning of complex
organiza�ons. Income‑tax forms are an example of a bureaucra�c tool. Specific informa�on
and procedures are required to fill them out, and many laws and regula�ons dictate what can
and cannot be included. Bureaucracy simplifies the process of paying taxes by pu�ng the
process into a formulaic structure, but the rules and regula�ons simultaneously complicate the
process.
Bureaucracy in the Workplace
Weber’s theories on bureaucracy include topics such as specializa�on of the workforce, the
merit system, standardized principles, and structure and hierarchy in the workplace. In his
wri�ngs, Weber focused on the idea of a bureaucracy, which differs from a tradi�onal
managerial organiza�on because workers are judged by impersonal, rule‑based ac�vity, and
promo�on is based on merit and performance rather than on immeasurable quali�es.
Weberian bureaucracy is also characterized by hierarchical organiza�on, delineated lines of
authority in a fixed area of ac�vity, ac�on taken on the basis of (and recorded in) wri�en rules,
and bureaucra�c officials requiring expert training.
In a bureaucracy, career advancement depends on technical qualifica�ons judged by an
organiza�on, not individuals. Weber’s studies of bureaucracy contributed to classical
management theory by sugges�ng that clear guidelines and authority need to be set to
encourage an effec�ve workplace. Weber did not see any alterna�ve to bureaucracy and
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predicted that this would lead to an “iron cage,” or a situa�on in which people would not be
able to avoid bureaucracy, and society would thus become increasingly more ra�onal. Weber
viewed this as a bleak outcome that would affect individuals’ happiness, forcing them into a
highly ra�onal society—with rigid rules and norms—that they wouldn’t be able to change. Of
course, with the behavior management movement that arose in the 1920s, this bleak situa�on
did not come to pass.
Administra�ve Management: Fayol’s Principles
Fayol’s approach differed from scien�fic management in that it focused on efficiency through
management training and behavioral characteris�cs.
Fayol took a top‑down approach to management by focusing on
managerial prac�ces to increase efficiency in organiza�ons. His
wri�ng provided guidance to managers on how to accomplish their
du�es and the prac�ces they should engage in.
The major difference between Fayol and Taylor is Fayol’s concern
with the human and behavioral characteris�cs of employees, rather
than individual workers’ efficiency, and his focus on training
management.
Fayol stressed the importance and prac�ce of forecas�ng and
planning in order to train management and improve workplace
produc�vity.
Fayol is also famous for his 14 principles of management and 5
elements that cons�tute managerial responsibili�es.
Key Terms
top‑down—Fayol’s approach that looked at the organiza�on from the
perspec�ve of the senior managers and not the workers as Taylor did
Fayolism—an organiza�onal approach that emphasizes effec�ve
leadership from the top and that management is fundamentally about
people
Key Points
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Henri Fayol
Fayol was a classical management theorist, widely regarded as the father of modern
opera�onal management theory. His ideas are fundamental to modern management concepts.
Comparisons with Taylorism
Fayol is o�en compared to Frederick Winslow Taylor, who developed scien�fic management.
However, Fayol differed from Taylor in his focus and developed his ideas independently. Taylor
was concerned with task �me and improving worker efficiency, while Fayol was concerned
with management, especially its human and behavioral elements.
Another major difference between Taylor and Fayol’s theories is that while Taylor viewed
management improvements as happening from the bo�om up, Fayol emphasized a top‑down
perspec�ve that was focused on educa�ng management on improving processes first and then
moving to workers. Fayol believed that by focusing on managerial prac�ces, organiza�ons
could minimize misunderstandings and increase efficiency.
His wri�ngs guided managers on how to accomplish their managerial du�es and on the
prac�ces in which they should engage. In General and Industrial Management (1949) Fayol
outlined his theory of general management, which he believed could be applied to the
administra�on of myriad industries. As a result of his concern for workers, Fayol is considered
one of the early fathers of the human rela�ons movement.
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Henri Fayol
Henri Fayol is considered a founder of
the human rela�ons movement.
Fayol’s 14 Principles of Management
Fayol developed 14 principles of management to help managers be more effec�ve. They are
s�ll used today but o�en interpreted differently. The principles are as follows:
1. division of work
2. delega�on of authority
3. discipline
4. chain of command
5. congenial workplace
6. interrela�on between individual interests and common organiza�onal goals
7. compensa�on package
8. centraliza�on
9. scalar chains
10. order
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11. equity
12. job guarantee
13. ini�a�ves
14. team spirit
Fayol’s Five Elements of Management
Fayol is also famous for his five elements of management, which outline the key
responsibili�es of good managers:
1. Planning. Managers should dra� strategies and objec�ves to determine the stages of a
plan and the technology needed to implement it.
2. Organizing. Managers must organize and provide the resources necessary to execute a
plan, including raw materials, tools, capital, and human resources.
3. Command. Managers must use their authority and a thorough understanding of long‑
term goals to delegate tasks and make decisions for the be�erment of the organiza�on.
4. Coordina�on. High‑level managers must work to integrate all ac�vi�es to facilitate
organiza�onal success. Communica�on is key to success in this component.
5. Monitoring. Managers must compare the ac�vi�es of personnel to the plan of ac�on.
This is the evalua�on component of management.
Flaws in the Classical Approach
The classical approach to management is o�en cri�cized for viewing a worker merely as a tool
to improve efficiency.
Under Taylorism, work effort increased in intensity, but eventually
workers became dissa�sfied with the work environment and became
angry, decreasing overall work ethic and produc�vity.
Taylorism’s nega�ve effects on worker morale only added fuel to the
fire of exis�ng labor‑management conflict and inevitably contributed
to the strengthening of labor unions.
Key Points
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The cri�cisms of classical management theory opened doors for
theorists such as George Elton Mayo and Abraham Maslow, who
emphasized the human and behavioral aspects of management.
The scien�fic management approach comes up short when applied to
larger, more opera�onally complex organiza�ons. Managerial efficacy
and the empowerment of employees are more important to overall
produc�vity when tasks are not simple and homogeneous.
Key Term
Taylorism—scien�fic management, an early twen�eth‑century theory
of management that analyzed workflows in order to improve
efficiency.
The Downside of Efficiency
The classical view of management tends to focus on the efficiency and produc�vity of workers
rather than on their human needs. Generally the classical view is associated with Taylorism and
scien�fic management, which are largely cri�cized for viewing the worker as a cog in a
machine, rather than an individual. Under Taylorism workers’ effort increased in intensity, but
eventually workers became dissa�sfied and angry with the work environment, which affected
their overall work ethic. This dissa�sfac�on undoes the value captured via increased efficiency.
Taylorism’s nega�ve effects on worker morale only added fuel to the fire of exis�ng labor‑
management conflict, which frequently raged out of control between the mid‑nineteenth and
mid‑twen�eth centuries (when Taylorism was most influen�al), and thus inevitably contributed
to stronger labor unions. That outcome neutralized most or all of the benefit of any
produc�vity gains that Taylorism had achieved. The net benefit to owners and management
ended up being small or nega�ve. It would take new efforts, borrowing some ideas from
Taylorism but mixing them with others, to produce more successful formulas.
Factory workers
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Taylorism and classical
management styles nega�vely
affected the morale of workers,
which created a nega�ve
rela�onship between workers
and managers.
Scien�fic management also led to other pressures that made workers unhappy. Offshoring and
automa�on are two pressures that have led to the erosion of employment. Both were made
possible by the de‑skilling of jobs, which arose because of the knowledge transfer that
scien�fic management achieved. Knowledge was transferred to cheaper workers, and from
workers to tools.
The Human Factor
To summarize, the underlying weakness of the classical view of management is that it views
employees first as resources rather than people. This cri�cism opened doors for theorists such
as George Elton Mayo and Abraham Maslow, who emphasized the human and behavioral
aspects of management. A�er all, what value is wealth if the individual loses the sense of self‑
worth and happiness required to enjoy it? The behavioral approach to management took an
en�rely different approach and focused on managing morale, leadership, and other behavioral
factors to encourage produc�vity, rather than solely managing the �me and efficiency of
workers.
Corporate Growth
Another disadvantage of the classical perspec�ve arises from the growing size and complexity
of the modern organiza�on. Using metrics to examine specific employee behavior may be
feasible in a smaller organiza�on pursuing homogeneous tasks, but it becomes more difficult in
an organiza�on that has hundreds of employees pursuing various complex func�ons. In the
situa�on with more complexity, it may be more beneficial to use tac�cs that are less focused
on the individual employee and more on improving overall produc�vity. This will involve less
micromanaging and more trust that employees will do the right thing in the workplace. The
onus of enabling efficiency, therefore, shi�s from workers to managers.
References
1/14/2019 Classical Versus Behavioral Perspectives
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Fayol, H. (1949). General and industrial management (C. Storrs, trans.). London: Sir Isaac
Pitman & Sons.
Licenses and A�ribu�ons
Classical Versus Behavioral Perspec�ves (h�ps://courses.lumenlearning.com/boundless‑
management/chapter/classical‑perspec�ves/) from Boundless Management by Lumen
Learning, originally published by Boundless.com, is available under a Crea�ve Commons
A�ribu�on‑ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by‑
sa/4.0/deed.en) license. UMUC has modified this work and it is available under the original
license.
© 2019 University of Maryland University College
All links to external sites were verified at the �me of publica�on. UMUC is not responsible for the validity or integrity of
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Behavioral Perspec�ves
The Behavioral Science Approach
Behavioral science uses research and the scien�fic method to determine and understand behavior in the
workplace.
Behavioral science draws from a number of different fields and theories, primarily
those of psychology, social neuroscience, and cogni�ve science.
One applica�on of the behavioral science approach can be seen in a field called
organiza�onal development—an ongoing, systema�c process of implemen�ng
effec�ve organiza�onal change.
Behavioral sciences include rela�onal sciences, which deal with rela�onships,
interac�on, communica�on networks, associa�ons, and rela�onal strategies.
The behavioral science approach is broadly about understanding individual and
group behavioral dynamics to ini�ate meaningful organiza�onal development.
Key Term
organiza�onal development—an ongoing, systema�c process of implemen�ng
effec�ve organiza�onal change using theories from behavioral sciences
Behavioral science draws from a number of different fields and theories, primarily those of psychology, social
neuroscience, and cogni�ve science. Behavioral science uses research and the scien�fic method to determine
and understand behavior in the workplace. Many of the theories in the behavioral perspec�ve are included in
the behavioral science approach to management. For example, the Hawthorne studies used the scien�fic
method and are considered to be a part of the behavioral science approach.
Behavioral science within the business management environment is a specific applica�on of this field, and
employs a number of specific types of behavioral observa�ons. This includes concepts such as informa�on
processing, rela�onships and mo�va�on, and organiza�onal development.
Learning Resource
Key Points
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Informa�on Processing
Informa�on processing involves determining how people process s�muli in their environment. This field deals
with the processing of s�muli from the social environment by cogni�ve en��es in order to engage in decision
making, social judgment, and social percep�on. The field is par�cularly concerned with how people [or living
things] process informa�on and use it to func�on and survive in social environments.
The Organiza�onal Culture
Structure, process, and people all play a role in an organiza�on’s culture.
Rela�onships
Behavioral sciences also include sciences that deal with rela�onships, interac�on, communica�on networks,
associa�ons, and rela�onal strategies or dynamics between organisms or cogni�ve en��es in a social system.
The emphasis on using quan�ta�ve data and qualita�ve research methods to determine how people process
informa�on and understand social rela�onships is important to helping managers be�er understand the
proven methods for increasing employee mo�va�on and produc�vity. The behavioral science approach and
the myriad fields it encompasses is the most common area of management science today.
Organiza�onal Development
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The behavioral science approach is applied primarily in the field of organiza�onal development. Organiza�onal
development is an ongoing, systema�c process of implemen�ng effec�ve organiza�onal change.
Organiza�onal development is considered both a field of applied behavioral science that focuses on
understanding and managing organiza�onal change and a field of scien�fic study and inquiry. It uses
components of behavioral sciences and studies in the fields of sociology, psychology, and theories of
mo�va�on, learning, and personality to implement effec�ve organiza�onal change and facilitate employee
development.
The behavioral science approach is broadly about understanding individual and group behavioral dynamics to
ini�ate meaningful organiza�onal development. The study of human behavior in the context of organiza�onal
change is integral to empowering organiza�ons to grow, adapt, and learn to capture compe��ve advantage.
Behaviorism: Folle�, Munsterberg, and Mayo
Behaviorism ini�ated a focus on the psychological and human factors influencing workers.
Mary Parker Folle�, Hugo Munsterberg, and Elton Mayo are all considered pioneers
and founders of the behaviorism movement in management theory. They wrote
about the importance of considering behavioral aspects of workers in addi�on to
workers’ efficiency.
Mary Parker Folle� was an American social worker, management consultant, and
pioneer in the fields of organiza�onal theory and organiza�onal behavior.
Hugo Munsterberg was a pioneer of applied psychology, extending his research and
theories to industrial/organiza�onal (I/O), legal, medical, clinical, educa�onal, and
business se�ngs.
Elton Mayo is known as the founder of the human rela�ons movement. His research
includes the Hawthorne studies and his book The Human Problems of an
Industrialized Civiliza�on.
Key Term
industrial psychology—a field of study focused on topics such as hiring workers with
the personali�es and mental abili�es best suited to certain types of voca�ons
Mary Parker Folle�, Hugo Munsterberg, and Elton Mayo are all considered pioneers and founders of the
industrial/organiza�onal psychology and behaviorism movements in management theory. They wrote about
the importance of considering behavioral aspects of workers in addi�on to workers’ efficiency. This was in
many ways a con�nua�on of the scien�fic method, with the cri�cal difference of incorpora�ng the human
factors involved in effec�ve management.
Key Points
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Folle�
Mary Parker Folle� was an American social worker, management consultant, and pioneer in the fields of
organiza�onal theory and organiza�onal behavior in the late nineteenth and early twen�eth centuries. She
cri�cized the overmanagement of employees, a process now known as micromanaging. Folle� was known for
the concept of reciprocal rela�onships and the idea that authority is inferior to integra�ve collabora�on.
Managers should enable, not dictate, she believed.
Folle� was sought out by President Theodore Roosevelt to be his personal consultant on managing not‑for‑
profit, nongovernmental, and voluntary organiza�ons. As a management theorist, she pioneered the
understanding of lateral processes within hierarchical organiza�ons. Her contribu�ons helped the behaviorism
movement get started by recognizing the worker as different from a machine.
Mary Parker Folle�
defined management as
“the art of ge�ng
things done through
people.”
Munsterberg
Hugo Munsterberg, who prac�ced around the same �me as Folle�, was a German‑American psychologist. He
was one of the pioneers of applied psychology, extending his research and theories to
industrial/organiza�onal (I/O), legal, medical, clinical, educa�onal, and business se�ngs. Munsterberg’s
wri�ngs are considered the genesis of the industrial psychology field.
Industrial psychology, according to Munsterberg, focuses on topics like hiring workers with the personali�es
and mental abili�es suited to certain types of voca�ons, as well as on increasing mo�va�on, performance, and
worker reten�on. Munsterberg suggested that psychology could be used in many different industrial
applica�ons, including management, voca�onal decisions, adver�sing, job performance, and employee
mo�va�on. Many of Munsterberg’s ideas, especially matching an individual’s personality with the correct job
set and skills, are common in the use of I/O psychology today.
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Hugo Munsterberg
Munsterberg is considered the father of industrial/organiza�onal psychology.
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Mayo
George Elton Mayo was an Australian psychologist, sociologist, and organiza�on theorist. Mayo is known as
the founder of the human rela�ons movement. His research includes the Hawthorne studies and his book
(1933).
The Hawthorne studies of the 1930s showed the importance of groups in affec�ng the behavior of individuals
at work. Mayo’s employees Roethlisberger and Dickson conducted the prac�cal experiments. Mayo made
deduc�ons about how managers should behave. He concluded that people’s work performance depends on
both social issues and job content. He suggested a tension between workers’ “logic of sen�ment” and
managers’ “logic of cost and efficiency” that could lead to conflict within organiza�ons. Mayo’s studies
contributed to the behaviorism movement in management, as managers became more aware of the “so�
skills” that are important to successful management.
Folle�, Munsterberg, and Mayo each introduced important components and ideas into the behaviorism
perspec�ve of management. They all believed that successful management comes from understanding how to
treat employees, mo�vate them, and help them succeed and become as efficient as possible in their jobs.
The Human Side: Hawthorne
The Hawthorne studies found that workers were more responsive to group involvement and managerial
a�en�on than to financial incen�ves.
The Hawthorne studies, conducted by Elton Mayo and Fritz Roethlisberger in the
1920s with the workers at the Hawthorne plant of the Western Electric Company,
were part of an emphasis on sociopsychological aspects of human behavior in
organiza�ons.
Hawthorne researchers hypothesized that choosing one’s own coworkers, working
as a group, being treated as special, and having a sympathe�c supervisor were
reasons for increases in worker produc�vity.
The Hawthorne studies found that monetary incen�ves and good working
condi�ons are generally less important in improving employee produc�vity than
mee�ng employees’ need and desire to belong to a group, and be included in
decision making and work.
Key Term
Hawthorne studies—series of inves�ga�ons conducted in the 1920s emphasizing
the sociopsychological aspects of human behavior in organiza�ons
Key Points
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The Hawthorne studies were conducted with the workers at the Hawthorne plant of the Western Electric
Company by Elton Mayo and Fritz Roethlisberger in the 1920s. The Hawthorne studies were part of a refocus
on managerial strategy incorpora�ng the sociopsychological aspects of human behavior in organiza�ons.
Site of the Hawthorne Studies
Western Electric Company factory near Chicago
The studies suggested that employees have social and psychological needs—as well as economic and financial
ones—that must be met in order to be mo�vated to complete their assigned tasks. The human rela�ons
movement is concerned with morale, leadership, and factors that help workers cooperate.
This theory of management was a by‑product of the issues that arose from the classical scien�fic perspec�ves
on management (i.e., Taylorism). The simplest explana�on of the hypothesis inves�gated is quite intui�ve.
Employees (i.e., human resources) are not merely mo�vated by financial gain, and produc�vity is not simply a
by‑product of incen�ves and op�mized working spaces. People are mo�vated by inclusion, construc�ve
feedback, interest, autonomy, and a wide variety of other factors aside from money and other tangible
resources.
Results of the Hawthorne Studies
The studies originally looked into whether workers were more responsive and worked more efficiently under
certain environmental condi�ons, such as improved ligh�ng. The results were surprising, as Mayo and
Roethlisberger found that workers were more responsive to social factors—such as the people they worked
with on a team and the amount of interest their manager had in their work—than the factors (ligh�ng, etc.) the
researchers had gone in to inspect.
The Hawthorne studies indicated that workers were highly responsive to addi�onal a�en�on from their
managers and the feeling that their managers actually cared about, and were interested in, their work. The
studies also concluded that although financial mo�ves are important, social factors are equally important to
worker produc�vity.
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There were a number of other experiments conducted in the Hawthorne studies, including one in which two
women were chosen as test subjects and were then asked to choose four other workers to join the test group.
Together, the women worked assembling telephone relays in a separate room over the course of five years
(1927–1932), and their output was measured.
The measuring began in secret. It started two weeks before moving the women to an experiment room and
con�nued throughout the study. In the experiment room, they had a supervisor who discussed changes with
them and, at �mes, used their sugges�ons. The researchers then spent five years measuring how different
variables impacted both the group’s and the individuals’ produc�vity. Some of the variables included giving
two five‑minute breaks (a�er a discussion with the group on the best length of �me), and then changing to
two 10‑minute breaks (not the preference of the group).
Intangible Mo�vators
Changing a variable usually increased produc�vity, even if the variable was just a change back to the original
condi�on. Researchers concluded that the employees worked harder because they thought they were being
monitored individually. They hypothesized that choosing one’s own coworkers, working as a group, being
treated as special (by working in a separate room, as in the experiment), and having a sympathe�c supervisor
were the real reasons for the produc�vity increase.
The Hawthorne studies showed that people’s work performance depends on social issues and job sa�sfac�on.
Further, the studies helped demonstrate that monetary incen�ves and good working condi�ons are generally
less important in improving employee produc�vity than mee�ng people’s desire to belong to a group and be
included in decision making and work.
Managerial Assump�on: McGregor
McGregor introduced theories X and Y, which summarize and compare the classical management and
behavioral management perspec�ves.
Douglas McGregor was a management professor at the MIT Sloan School of
Management. He wrote The Human Side of Management (1960), which suggested
mo�va�ng employees through authorita�ve direc�on and employee self‑control,
respec�vely called theory X and theory Y.
Theory X, based more on classical management theory, assumes that workers need a
high amount of supervision because people are inherently lazy. It assumes that
managers need to mo�vate through coercion and punishment.
Theory Y assumes that employees are ambi�ous, self‑mo�vated, exercise self‑
control, and generally enjoy mental and physical work du�es. Theory Y is in line with
behavioral management theories.
Key Points
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Theories X and Y relate to Maslow’s hierarchy of needs in that they see human
behavior and mo�va�on as the main priority in maximizing output in the workplace.
Key Terms
Theory X—Employees are inherently lazy and irresponsible and will tend to avoid
work unless closely supervised and given incen�ves.
Theory Y—Employees are capable of being ambi�ous and self‑mo�vated under
suitable condi�ons.
Douglas McGregor was a management professor at the MIT Sloan School of Management. He suggested
mo�va�ng employees through authorita�ve direc�on and employee self‑control (1960). McGregor’s book was
voted the fourth most influen�al management book of the twen�eth century in a poll of the Fellows of the
Academy of Management.
McGregor’s main theory comprises theory X and theory Y. Theory X, based more on classical management
theory, assumes that workers need a high amount of supervision because people are inherently lazy. Theory Y
assumes that employees are ambi�ous, self‑mo�vated, exercise self‑control, and generally enjoy mental and
physical work du�es. Theory Y is in line with behavioral management theories. O�en, how managers act is
affected by the theory they subscribe to.
Theory X
In theory X, managers tend to micromanage and closely supervise employees. Complex hierarchical structures
are needed in order to offer a narrow span of control at every level of the organiza�on. Employees show li�le
ambi�on without an incen�ve program and avoid responsibility whenever possible. Managers who believe
theory X rely more heavily on punishment, fear, and coercion—and less on rewards—to mo�vate employees.
Manager‑employee rela�onships are generally not rewarding in this environment of mistrust. Usually
managers in these situa�ons believe that the sole purpose of the employee’s interest in his or her job is
money.
Theory Y
Theory Y managers generally believe the opposite. They believe that given the proper condi�ons, employees
will learn to seek and accept responsibility and to be self‑directed in accomplishing objec�ves, that most
people will want to do well at work, and that the sa�sfac�on of doing a good job is a strong mo�vator. Many
people interpret theory Y as a posi�ve set of beliefs about workers.
McGregor thinks that theory Y managers are more likely than theory X managers to develop a climate of trust
with employees—a required condi�on for human‑resource development. This type of human‑resource
development is much more in line with how Maslow’s hierarchy of needs operates and with the Hawthorne
studies’ findings than with any of the classical theories of management.
Theory X or Theory Y?
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Theories X and Y relate to Maslow’s hierarchy of needs in that they see human behavior and mo�va�on as the
main priori�es in maximizing output. Both McGregor and Maslow would say that in order to help employees
achieve maximum efficiency and happiness in their work, a theory Y manager would need to promote
morality, crea�vity, problem solving, and a lack of prejudice. McGregor was a life�me proponent of theory Y.
Modern organiza�ons in developed countries generally side with McGregor, in that they believe theory Y is
superior in ge�ng posi�ve results from employees (and job sa�sfac�on for employees). However, both
theories are s�ll prominent in the workplace, where many managers treat their employees as if they are lazy
and likely to perform poorly without stringent rules and supervision. In management, just as everywhere else,
it is difficult to effect social change in the face of human nature, even when the benefits are established.
Produc�vity: Argyris
Argyris’s theory of single‑ and double‑loop learning has been applied to management theory to suggest the
best ways for employees to learn.
Argyris studied how humans design and decide on their ac�ons under difficult or
stressful situa�ons. He believed that human ac�ons are controlled by environmental
variables, which determine the key differences between single‑loop learning and
double‑loop learning.
In single‑loop learning, individuals, groups, and organiza�ons modify their ac�ons
according to the difference between expected and obtained outcomes.
In double‑loop learning, individuals, groups, and organiza�ons ques�on the values,
assump�ons, and policies that led to the ac�ons in the first place.
Argyris’s theory of single‑ and double‑loop learning has been applied to management
theory to suggest the best way for employees to learn and think about new goals
and strategies for an organiza�on.
Key Terms
double‑loop learning—a theory in which an organiza�on or individual ques�ons the
values, assump�ons, and policies that led to a given situa�on
learning organiza�on—a company that facilitates the learning of its members and
con�nuously transforms itself
single‑loop learning—a theory that individuals, groups, or organiza�ons modify their
ac�ons according to the difference between expected and obtained outcomes
Key Points
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Chris Argyris (July 16, 1923 to November 16, 2013) was an American business theorist, professor at Harvard
Business School, and a thought leader at Monitor Group, a consul�ng firm. He is known for his work on
learning theories within learning organiza�ons.
Argyris conducted a series of research studies in ac�on science, which studies how humans design and decide
on their ac�ons under difficult or stressful situa�ons. Argyris believed that human ac�ons are controlled by
environmental variables that determine the key differences between single‑loop and double‑loop learning.
Single‑Loop Learning
In single‑loop learning, en��es (such as individuals, groups, or organiza�ons) modify their ac�ons according to
the difference between expected and obtained outcomes. This essen�ally means that learning is through
experience and direct reflec�on on outcomes, where the ends jus�fy the means, and dictate the fulcrum of
the discussion and learning outcomes.
In many ways, this is a reac�onary approach. Individuals must iden�fy successes and failures, and pursue
formulas for maximizing the former and minimizing the la�er. While this type of learning, and the broader
behaviors, are extremely common in the real world, it is not the ideal method for learning that can be adapted
to the broader organiza�on. It tends to be simple, short‑term, and not always conducive to sustainability.
Double‑Loop Learning
In double‑loop learning, the en��es ques�on the values, assump�ons, and policies that lead to ac�ons. If the
en��es can discern and modify the values, then second‑order or double‑loop learning has taken place. This is
a more integra�ve, process‑oriented, and collabora�ve approach. It is also much more complex, difficult, and
sensi�ve, as the core values and strategies in place must be analyzed, ques�oned, and defended (or
discarded).
The simple truth is that people fear change, ac�vely avoid conflict, and generally preserve the status quo.
Double‑loop learning requires the bravery to challenge what is established organiza�onally, iden�fy broader
systemic issues, and fix problems at their source.
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Chris Argyris wrote about the theories of single‑ and double‑loop learning, which determine
how people make decisions in difficult situa�ons.
For example, a company facing a problem with its management strategy may decide to focus on how to
improve or implement the strategy in different ways. In this situa�on, the company is using single‑loop
learning: Management is focused on making changes without reconsidering the fundamental standard or
strategy itself. However, if the company were to en�rely reconsider the problema�c strategy and start from
scratch, this would exemplify double‑loop learning. Double‑loop learning may lead to a change in the original
strategy or even the goals the company had that led to its strategy.
Argyris’s theory of single‑ and double‑loop learning has been applied to management theory to suggest the
best way for employees to learn and think about new goals and strategies for an organiza�on.
References
Mayo, E. (1933). Human problems of an industrial civiliza�on. New York, NY: Macmillan.
McGregor, D. (1960). The human side of enterprise. New York, NY: McGraw‑Hill.
Licenses and A�ribu�ons
Behavioral Perspec�ves (h�ps://courses.lumenlearning.com/boundless‑management/chapter/behavioral‑
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Chris Argyris. Provided by: Wikipedia. Located at: h�p://en.wikipedia.org/wiki/Chris_Argyris
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Single‑closed‑loop version of the square knot of prac�cal knot‑tying.. Provided by: Wikimedia. Located
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(h�p://upload.wikimedia.org/wikipedia/commons/6/69/Math‑square‑knot‑6crossings.svg). License: CC
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Modern Thinking
Quan�ta�ve and Analy�cal Management Tools
Quan�ta�ve tools are used by management to determine where a company is doing well or
struggling compared with its industry and compe�tors.
Many quan�ta�ve and analy�c tools are available for managers to
be�er understand workflow processes, financial management, and
employee efficiency.
A decision tree is a decision support tool that uses a tree‑like graph
or model of decisions and their possible consequences, including
chance event outcomes, resource costs, and u�lity.
Simula�on is the imita�on of a real‑world process or system over
�me.
Trend charts are o�en used in management to display data over �me
to explore any poten�al trends, either posi�ve or nega�ve, that
require addi�onal a�en�on by management. It is important to use
sta�s�cal confidence intervals when u�lizing this type of forecast.
Benchmarking allows a manager to see how different aspects of a
business are performing compared to na�onal, regional, and industry
standards. It also allows management to explore how the company is
performing compared to its compe�tors.
Financial projec�ons and net‑present‑value (NPV) analyses are also
commonplace when deciding upon new opera�ons quan�ta�vely—
where the company predicts profitability in today’s dollars.
Learning Resource
Key Points
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Key Terms
decision tree—a graphic visualiza�on—resembling a tree—of a
complex decision‑making situa�on and likely outcomes from
choosing different op�ons
benchmarking—technique allowing a manager to compare metrics
like quality, �me, and cost, across an industry and against
compe�tors
Managers can use many different quan�ta�ve and analy�c tools to be�er understand
workflow processes, financial management, and employee efficiency. These tools, such as
decision trees, simula�on, trend charts, benchmarking, and financial projec�ons, help
managers improve their decision‑making abili�es, determine how their business is performing
rela�ve to compe�tors, and discover opportuni�es for improvement. Using these tools to
create quan�ta�ve and measurable metrics helps an organiza�on see exactly where it is
performing well and where it is performing poorly.
Decision Tree
A decision tree is a branching graph, or model of decisions and their possible consequences,
including chance‑event outcomes, resource costs, and u�lity. Decision trees are commonly
used in opera�ons research (specifically in decision analysis) to help iden�fy a strategy most
likely to reach a specified goal. They can also be used to map out a thought process or the
possible consequences of a decision. A manager may use this tool when deciding between
different projects or investments.
Example of a Decision Tree
A decision tree to determine the consequences and poten�al outcomes (money lost or
gained at each step) along mul�ple poten�al paths of ac�on. The path resul�ng in the
highest financial gain by the end is generally the one that should be chosen.
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Simula�on
Simula�on is the imita�on of a real‑world process or system over �me. The act of simula�ng
something first requires that a model be developed represen�ng the key characteris�cs or
behaviors of a physical or abstract system or process. A simula�on could be used to study
investment decisions by ac�vely playing out the outcomes of specific situa�ons.
Trend Charts
Trend charts are o�en used to display data over �me to explore poten�al trends (either
posi�ve or nega�ve) that require addi�onal management a�en�on. Many metrics—including
employee produc�vity, financial metrics, opera�onal efficiency, and comparisons between
compe�tors—are analyzed using trend charts. Trends are only ever in the past, however, and
using confidence intervals in projec�ng trends is cri�cal to their effec�veness.
This chart of US defense spending from 2000 to 2011 shows that overall spending increased
from $300 billion to $700 billion due to increases in both the Department of Defense (DOD)
budget and overseas (war‑related) spending.
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Benchmarking
Benchmarking allows managers to see how different aspects of their business (usually quality,
�me, and cost) are performing compared to na�onal, regional, and industry standards. It also
allows a manager to explore how the company is performing compared to compe�tors. In the
process of benchmarking, management iden�fies the best firms in the industry, or in another
industry where similar processes exist, and compares the results and processes of the target
firms to management’s own results and processes. In this way, management learns how well
the targets perform and, more importantly, the business processes that explain why these
firms are successful.
Financial Projec�ons
Managers can also use financial analysis as a management tool. When inves�ng in a project or
an acquisi�on of any kind, a manager will always want to know how quickly the investment
will turn a profit. For example, when a company invests in a new building, management will
calculate how long it will take for the building to generate enough income to cover the upfront
costs. This calcula�on is some�mes called a payback period. All else being equal, shorter
payback periods are preferable to longer ones. This is o�en referred to as NPV, or net present
value, where the company calculates the future value of the project in today’s dollars. It is
cri�cal to remember that a dollar today and a dollar tomorrow have different values.
Opera�ons Management Tools
Six Sigma and Lean are two popular opera�ons‑management theories that help managers
improve the efficiency of their produc�on processes.
The main tools of opera�ons management come from two popular
theories of organizing business: Six Sigma and Lean.
Six Sigma relies on par�cular quality‑management methods, such as
sta�s�cal analy�cs, and incorporates designa�ons like black belt and
Key Points
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green belt to indicate those within an organiza�on who are experts in
these methods.
Lean is a produc�on theory that deems any expenditure of resources
that doesn’t create value for customers wasteful—and a target for
elimina�on.
By leveraging opera�onal paradigms constructed to deliberately
capture value through maximizing efficiency, managers can lower
costs for companies and prices for consumers.
Key Terms
six sigma—process improvement that focuses on using sta�s�cal
methods to reduce the number of defects
lean—a produc�on strategy focused on elimina�ng all unnecessary
waste
Opera�ons management is a type of management that oversees, designs (or redesigns), and
controls a company’s produc�on processes and business opera�ons. Opera�ons managers are
responsible for ensuring that business opera�ons are efficient, both in conserving resources
and mee�ng customer requirements. They manage the process that converts inputs (materials,
labor, and energy) into outputs (goods and services). In order to accomplish this task, managers
use various tools, including Six Sigma and Lean—the two most influen�al ones.
Six Sigma
Six Sigma is a strategy designed to improve the quality of process outputs. It accomplishes this
by iden�fying and removing the causes of defects and errors, and by minimizing variability in
manufacturing and business processes.
The strategy relies on quality management methods like sta�s�cal analy�cs, and incorporates
designa�ons like black belt and green belt to indicate those within an organiza�on who are
experts in these methods. Each Six Sigma project in an organiza�on follows a defined
sequence of steps with quan�fied financial targets such as reducing costs or increasing profits.
Among the tools used in Six Sigma are process mapping, trending charts, calcula�ons of
poten�al defects, ra�os, and sta�s�cs. Six Sigma also includes best prac�ces for working
within a team.
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Six Sigma Symbol
Six Sigma is a tool many managers use to reduce the
number of defects created by their processes.
Lean
Lean is similar to Six Sigma, but slightly less focused on defect rate and more on elimina�ng
the amount of waste and excessive steps in an opera�on. Lean is a produc�on theory that
deems any expenditure of resources that doesn’t create value for customers wasteful—and a
target for elimina�on. Beginning from the perspec�ve of the consumer of a product or service,
value is defined as any ac�on or process that a customer would be willing to pay for. Lean
employs tools to evaluate produc�on workflow and determine where there is waste. Examples
of waste include excess mo�on, inventory, and overproduc�on.
Examples of Six Sigma and Lean
In many ways, lean manufacturing and Six Sigma are reminiscent of Henry Ford’s focus on
systema�c process improvements. The overarching theme is simply to minimize the �me
employees spend on tasks and maximize output with the same amount of input. Toyota, using
the Japanese concept of kaizen, exemplifies lean manufacturing and just‑in‑�me (JIT)
inventory management. Toyota became famous for �ming each specific element of the
manufacturing process to ensure minimal warehousing, delivering each component precisely
when and where it was needed. This created a process flow that minimized space usage, which
lowered costs, op�mized �ming, and created widespread consistency of opera�onal flow.
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Lean and Six Sigma are the two main strategies for opera�ons management. Both offer
managers an extensive toolbox to analyze the efficiency of their produc�on. These tools
analyze workflow, uncover where and why there is waste, and decrease defects in products or
services, all of which make a company more efficient.
The Systems Viewpoint
Systems thinking is an approach to problem solving that considers the overall system instead
of focusing on its specific parts.
Systems thinking is an approach to problem solving that views
problems as part of an overall system. It is different from problem‑
solving strategies that only focus on specific parts or outcomes of a
problem.
Systems thinking approaches problems as a set of habits or prac�ces
within a framework. It is based on the belief that the component
parts of a system are best understood in the context of their
rela�onships with each other rather than in isola�on.
Systems thinking is opposed to fragmented thinking, which involves
thinking about specific problems without considering the context,
environment, and effects of similar problems.
Key Term
fragmented thinking—looking at problems as isolated events instead
of considering the system as a whole
It is the process of understanding how people and situa�ons influence one another within a
closed system. As in nature, where the air, water, movement, plants, and animals interact with
one another—and survive or perish in rela�onship with each other; in business, management
also involves rela�onships and interac�ons.
Organiza�onal Systems
Key Points
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Organiza�onal systems consist of people, structures, and processes working together to make
an organiza�on healthy or unhealthy. The end product of effec�ve systems management is
synergy, in which the whole is greater than the sum of its parts. Systems generally contain the
following:
inputs, such as people, �me, energy, and informa�on
processes or reac�ons, including tools, so�ware, and analyses
outputs, like products, reports, and plans
feedback mechanisms, including informa�on and reports
Systems thinking: Just as gears
work together, problems in one
area of a business can affect other
areas.
Problem Solving
When problem solving, advocates of systems thinking consider specific problems within an
overall system, rather than reac�ng to specific issues or outcomes. In systems thinking,
problems are conceptualized as a set of habits or prac�ces that exist within a framework.
Prac��oners of systems thinking believe that the component parts of a system can best be
understood and analyzed in the context of how the parts of a system are interrelated.
Systems thinking rejects a reduc�ve framework that a�empts to focus on a single problem
without considering the context, environment, or impact of similar problems. Fragmented
thinking o�en results in solu�ons that cannot be applied in other situa�ons, so they lose their
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relevance over �me. With root causes le� unaddressed, management is con�nually pu�ng out
fires in a reac�ve mode.
Example
Imagine that the Human Resources department is beset with problems in workflow and
efficiency. A manager who uses systems thinking to fix the problem looks at Human
Resources in the context of all of the workflow in the company to see whether the
“Human Resources problem” could actually be a company‑wide issue. Only a systems‑
thinking approach can lead to this realiza�on because systems thinking provides insight
into how problems that manifest in a specific loca�on can spring from distant, seemingly
unrelated places. With a more accurate understanding of a problem, managers can
formulate a more effec�ve and las�ng solu�on.
The Con�ngency Viewpoint
The con�ngency viewpoint of management proposes that there is no standard for
management; instead, management depends on the situa�on.
The con�ngency viewpoint is a more recent development in
organiza�onal theory that a�empts to integrate a variety of
management approaches, proposing that there is no one best way to
organize a corpora�on or lead a company.
Deba�ng which one of the previous approaches to management is
“best” is irrelevant in con�ngency theory, since the heart of the
con�ngency approach is that there is no one best way for managing
and leading an organiza�on.
The con�ngency viewpoint focuses on management’s ability to
achieve alignment and a good fit between employees and
circumstances by considering mul�ple solu�ons to determine the
best one for each par�cular problem.
Key Points
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The focal point, and modern relevance, of this perspec�ve is the
concept of adaptability. Technology and globaliza�on evolve the
business environment so rapidly that adaptable strategies are more
appropriate than sta�c ones, making con�ngencies key to success.
Key Term
con�ngency viewpoint—a management theory that proposes that
there is no standard for management prac�ce; instead, management
depends on the situa�on.
The con�ngency viewpoint is a more recent development of organiza�onal theory that
a�empts to integrate a variety of management approaches by proposing that there is not one
best way to organize a corpora�on or lead a company. Instead, the op�mal course of ac�on is
con�ngent, or dependent upon internal and external contexts.
Perspec�ve on Previous Theories
The con�ngency approach claims that past theories, such as Max Weber’s bureaucracy theory
and Taylor’s scien�fic management, are no longer prac�ced because they fail to recognize that
management style and organiza�onal structure are influenced by various aspects of the
environment known as con�ngency factors. Deba�ng which one of the previous approaches
to management is the best one is irrelevant, since the heart of con�ngency theory is that there
is not one best way to manage and lead an organiza�on.
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The basic premise of con�ngency theory is that there are limitless possibili�es that companies
must be prepared to adapt strategically.
An Outline of Con�ngency Theory
By its nature, con�ngency theory avoids sta�c rules. There are, however, common
con�ngencies that businesses must react to, including technology, compe��on, governments,
unions, consumer interest groups, new markets and consumers, and economic factors. Fred
Fiedler iden�fied three leadership styles and empirical situa�on measurements to assess the
degree of favorability a given con�ngency offers:
the leader‑member rela�onship, which is the most important variable in determining the
situa�on’s favorableness
the degree of task structure, which is the second most important input into the
favorableness of the situa�on
the leader’s posi�on power obtained through formal authority
In other words, leadership needs to be able to assess a situa�on, determine the task structure,
and obtain a posi�on of formal authority to adequately manage a con�ngency situa�on.
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Example
Imagine a manager with an employee who regularly is late for work. He or she could
have a wri�en protocol that includes only one op�on: Reprimand the employee. Under
the con�ngency viewpoint, however, the manager may decide, by talking to the
employee, to find out why he or she comes to work late. Perhaps there are extenua�ng
circumstances that can be easy to work around. In this case, the con�ngency approach
allows the employee to keep the job and saves the manager the �me and trouble of
termina�on and hiring someone else.
A leader’s ability to manage under the con�ngency viewpoint depends largely on the nature of
the environment and how the organiza�on relates to the environment. Therefore, the
organiza�onal structure is a major component of the approach that management may take in
resolving problems under con�ngency theory.
Quality Assurance and Control
Quality assurance and quality control are intended to ensure that products are created with
the fewest number of defects possible.
Quality assurance (QA) refers to planned and systema�c ac�vi�es
implemented in a quality system to fulfill the quality requirements for
a product or service.
Quality control (QC) is a process by which products are tested to
uncover defects and the results are reported to management, which
makes the decision to allow or deny product release.
Quality control and quality assurance work together to make sure
that a company’s products have the lowest possible error rate.
As global markets expand, and as outsourcing becomes common
prac�ce, QC and QA are increasingly important. When companies do
Key Points
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not control their manufacturing process, they must invest in
controlling the quality of their vendors.
Key Term
failure tes�ng—stress tes�ng to determine the point at which a
product will fail
Quality assurance and quality control are two methods of planning and implemen�ng
structured methods in a work process to ensure that products are created with the highest
possible quality and the smallest number of defects or problems.
Quality Assurance
QA refers to the planned and systema�c ac�vi�es implemented in a quality system to fulfill
the quality requirements for a product or service. It is a systema�c measurement compared to
a set standard, with process monitoring used to prevent errors. This can be contrasted with
quality control, which is focused on process outputs. There are two key principles of QA:
Fit for purpose. The product should be suitable for its intended purpose.
Right the first �me. Mistakes should be eliminated.
QA includes managing the quality of raw materials, assemblies, products, components, services
related to produc�on, management processes, produc�on processes, and inspec�on
processes. QA equates to process observa�ons.
Quality assurance is measured through failure tes�ng and sta�s�cal control. Failure tes�ng
determines the stress levels under which a product will fail by exposing it to unan�cipated
stresses, like intense vibra�on, temperature, and humidity. Stress tes�ng uncovers problems
that can be fixed with simple changes. Sta�s�cal controls ensure that an organiza�on is
producing quality products at the lowest possible defect rate. Many organiza�ons use Six
Sigma levels of quality, so the likelihood of an unexpected failure is less than four in one
million.
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Assembly line and quality control: Many processes, such as assembly lines, help ensure quality
assurance and control by streamlining produc�on.
Quality Control
QC is the process of tes�ng finished products to uncover defects and repor�ng the results, so
management can decide whether to allow or deny product release. It differs from quality
assurance, which a�empts to improve, stabilize, and eliminate flaws from a product during
produc�on.
Controls also include product inspec�on: Every product is examined visually before being sold.
Inspectors receive lists and descrip�ons of unacceptable product defects, such as cracks or
surface blemishes. Efficient quality control depends on top‑notch visual examina�on of
products, employee training, and organiza�onal culture.
Quality control and quality assurance work together to ensure that companies produce
products that have the lowest possible error rate, so there will be fewer customer complaints
and no need for rework.
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Outsourcing
Because they depend so much on vendors, many corpora�ons find their manufacturing
processes are conducted outside of their organiza�on. This can lead to difficul�es in
maintaining process quality. Therefore, a corpora�on needs to invest in QC professionals to
maintain organiza�onal standards. QC is not simply an internal concern for many businesses,
but a criteria for selec�ng vendors.
Evidence‑Based Management
Evidence‑based management emphasizes the importance of managers using the scien�fic
method to make decisions.
Evidence‑based management is an emerging movement to base
managerial decisions and organiza�onal prac�ces on the best
available scien�fic evidence and explicitly use current best prac�ces.
It is an outgrowth of evidence‑based medicine.
While there is a rich body of academic literature pertaining to tried‑
and‑true managerial strategies, real‑world applica�on is rare.
Promo�ng evidence‑based management is challenging because it can
conflict with tradi�onal defini�ons and expecta�ons of management.
Li�le shared terminology exists between managers of different
companies, making it difficult for managers to discuss evidence‑based
prac�ces, so the adop�on of evidence‑based prac�ces is likely to be
organiza�on‑specific.
Key Term
evidence‑based management—management decisions that are based
on a combina�on of cri�cal thinking and the best available evidence
(informa�on, facts, or data that support or contradict a claim,
assump�on, or hypothesis)
Key Points
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Evidence‑based management (EBM) is an emerging movement that explicitly uses current best
prac�ces in managerial decision making. It is rooted in evidence‑based medicine—the rigorous
sta�s�cal and experimental process that new pharmaceu�cals go through before they are
deemed safe. The intended result is treatments that are as effec�ve and safe as possible for
pa�ents. Applying EBM to business simply means u�lizing the scien�fic method, which
integrates rigorous and objec�ve hypothesis tes�ng to iden�fy best prac�ces.
Evidence‑based management, like
evidence‑based medicine, emphasizes
scien�fic research to inform decision
making.
The Scien�fic Method
Evidence‑based management informs managerial decisions and organiza�onal prac�ces using
the best available scien�fic evidence. Prac�cing EBM requires managers to collect data, run
tests, generate hypotheses, and objec�vely interpret findings to create an accurate depic�on
of the efficacy of a given managerial style or decision. Because management is much less
tangible or measurable than many other scien�fic disciplines, this can be a challenge.
Imagine a group of managers considering how to improve job sa�sfac�on in their organiza�on.
They could conduct a comprehensive and objec�ve survey across a large number of
organiza�ons to collect data on compensa�on, employee sa�sfac�on, and company culture to
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determine if a posi�ve company culture is more relevant to job sa�sfac�on than pay. A�er
collec�ng n number of responses, the data could be assessed to determine a confidence
interval, revealing whether the conclusion is significant for future management decisions.
Integra�on with Organiza�ons
While there is a rich body of academic literature pertaining to tested and true managerial
strategies, real‑world applica�on is rela�vely rare. MBAs and degree holders in business have
some exposure to the literature, but they rarely move it from the theore�cal realm to prac�ce.
Mo�va�ng real‑life applica�ons of the studies for management could prove advantageous for
companies looking to improve their managerial effec�veness.
Licenses and A�ribu�ons
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originally published by Boundless.com, is available under a Crea�ve Commons A�ribu�on‑
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has modified this work and it is available under the original license.
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Evolving Organiza�ons
Knowledge Management and Behavior Modifica�on
Knowledge management and behavior modifica�on are tac�cs employers use to ensure
organiza�onal growth and adaptability.
Knowledge management is an organiza�onal concept that takes the
best knowledge from individual employees and organizes it into a
func�onal learning and educa�on system that all employees can learn
from.
Typically, a company’s informa�on technology department—via
electronic collec�on of specific components of employee exper�se,
crea�on of online learning modules, and redistribu�on of the
modules throughout the company—is responsible for knowledge
management.
Behavioral modifica�on includes altering an individual’s behavior
through data collec�on and posi�ve and/or nega�ve reinforcement.
In an organiza�on, behavior modifica�on is typically studied to
examine how employees perceive their performance in rela�on to
rewards. At a high level, it is used to develop strategies for improving
performance and behavior.
Key Term
knowledge management—collec�ng employees’ specialized
knowledge, and organizing, redistribu�ng, and sharing it throughout
Learning Resource
Key Points
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the company
Knowledge management (KM), and behavior modifica�on using organiza�onal knowledge, are
central to an organiza�on’s ability to grow and adapt. The value of knowledge management
from the organiza�on’s perspec�ve is that it can help employees learn and improve their skills
—and allow the organiza�on to evolve and achieve higher efficiency. Knowledge is a resource
that organiza�ons can collect and document through experience over �me. Documen�ng and
dissemina�ng knowledge is a way to avoid repea�ng mistakes while improving current
strategies.
Knowledge Management
The fields of business administra�on, informa�on systems, management, and library and
informa�on sciences include knowledge management. Other fields contribu�ng to KM
research include informa�on and media, computer science, public health, and public policy.
Knowledge management is the range of strategies and prac�ces an organiza�on uses to
iden�fy, create, represent, distribute, and enable the adop�on of employee insights and
experiences. These insights and experiences cons�tute the company’s knowledge embodied in
individuals or embedded as the organiza�on’s processes or prac�ces.
Knowledge management also focuses on organiza�onal objec�ves including improved
performance, compe��ve advantage, innova�on, and con�nuous improvement. KM is similar
to organiza�onal learning but focused more on knowledge as a strategic asset of a company’s
employees. It encourages sharing knowledge to further the company’s success.
Many organiza�ons include resources dedicated to knowledge management in their business
strategy, informa�on technology, or human resource management departments. They also may
hire consul�ng firms that specialize in knowledge management.
Another approach to KM is taking the best knowledge from individual employees and
organizing it into func�onal learning and educa�on systems that all employees can learn from.
Sharing knowledge is the most important component of knowledge management and is
essen�al to helping an organiza�on evolve and grow.
A company’s IT department can facilitate this by collec�ng and dissemina�ng employee
knowledge through learning modules.
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B. F. Skinner
B. F. Skinner introduced the
study of behavior modifica�on,
and his theories are s�ll used
in behavior modifica�on today.
Behavior Modifica�on
Behavior modifica�on was first introduced in psychology as a collec�on of techniques to
increase or decrease the frequency of behaviors. B. F. Skinner popularized behavior
modifica�on, analyzing the triggers and rewards for certain behaviors in a series of
experiments using animals. Behavioral modifica�on techniques include both posi�ve and
nega�ve reinforcement.
In an organiza�on, behavior modifica�on is typically studied to examine how employees
perceive their performance in rela�on to rewards. The process of behavioral modifica�on in
the workplace focuses on iden�fying the frequency of performance‑related behaviors and
determining the triggers for them. Once a trigger is iden�fied, management can determine
whether to develop a different trigger to change performance or sustain the current
performance through rewards and appraisal.
Behavior modifica�on is generally used on a broader scale to determine how best to develop
employee performance to move an organiza�on in a desired direc�on. Knowledge
management can help this movement by providing employees with adequate training and
skills, and making sure they know that they are valuable members of the organiza�on who
deserve investment and empowerment. Training employees and improving their knowledge,
skills, and behavioral approaches to work help an organiza�on evolve and improve.
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Example
Consider an employee who is par�cularly knowledgeable about a certain computer
system. He or she might be asked to write a training manual or presenta�on for
coworkers.
Accelerated Change and Adapta�on
Change management facilitates employee adapta�on to organiza�onal change.
Change is essen�al to organiza�onal growth and development, but it
can cause discomfort, par�cularly when it affects employees’ daily
work.
Some�mes an organiza�on faces accelerated change—from a�empts
to change its overall mission, for example, or to implement a
disrup�ve technology. In these situa�ons employees must be able to
adapt quickly.
Change management strategies such as communica�on, employee
alignment with expecta�ons, training, and transparency of
management can help employees more quickly adapt to change.
Key Term
change management—using strategies like communica�on, training,
and transparency to help employees adapt to organiza�onal change
Managing Change and Adapta�on
Key Points
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Change is essen�al to organiza�onal growth and development, but employees don’t always
embrace change, par�cularly when it upsets their rou�nes or the status quo. Employees can
view change as a threat: It may impact their daily tasks, training, or their jobs. Change
management is an approach to shi�ing and transi�oning individuals, teams, and organiza�ons
from a current state to a desired future state. It is an organiza�onal process aimed at helping
stakeholders accept and embrace change in their business environment.
Drivers of change that demand rapid adapta�on are numerous. One of the most relevant to
modern organiza�ons is technology. As the smartphone became increasingly popular,
companies in the phone industry had to react rapidly to switch their opera�onal focus to smart
phones, data plans, app stores, and mul�ple device integra�on. Companies that could not react
and adapt quickly enough to the disrup�ve technology were le� in the dust.
Some�mes an organiza�on faces accelerated change in a�emp�ng to change its overall
mission and refocus its vision. During the Great Recession, a number of organiza�ons
determined the best way to survive was to rebrand or reorganize their business strategy as a
whole. Changing a company’s brand or overarching strategy (i.e., from high‑cost to low‑cost, or
vice versa) is a massive overhaul that will undoubtedly upset people internally and externally.
Responsible change is a complex process.
Organiza�onal Change and Employees
Major changes to an organiza�on will force employees to adapt if they want to keep their jobs,
even if they don’t approve of the change. The likely result is tension between what the
employees want and what is occurring in the organiza�on. Change management helps
employees adapt to accelerated organiza�onal change by using strategies to ease their
suspicions, lessen resistance, and relax the tension created by the organiza�on’s new direc�on.
Change management uses basic structures and tools to control an organiza�onal change effort.
These structures and tools primarily revolve around ensuring that all stakeholders are aware of
what’s going on and involving them in the strategic process. Managerial transparency—about
what is happening and why—is cri�cal to employee buy‑in. Communica�ng effec�vely and
comprehensively, and listening to employees express their fears, cri�cisms, and sugges�ons
are integral to everyone moving forward in the same direc�on. When changing an organiza�on
is a prerequisite to remaining profitable, employees will understand the need to embrace
change to maintain the relevancy of their jobs.
The Role of the Manager in an Evolving Organiza�on
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Managers play a number of roles in evolving organiza�ons, including leader, nego�ator,
figurehead, liaison, and communicator.
A manager needs to be a good leader. While a manager organizes and plans, she or he must
also inspire employees with a vision for the organiza�on. A manager needs to be an effec�ve
nego�ator. When organiza�ons are developing or undergoing change, the manager is o�en
required to nego�ate with compe�tors, contractors, suppliers, and employees.
A manager must be a figurehead who reinforces the mission and
vision of an organiza�on to employees, customers, and other
stakeholders.
A manager needs to be an effec�ve communicator, and a liaison
between employees, customers, and other managers.
Key Term
leader—one who inspires and mo�vates
Managers play an integral part in an organiza�on’s growth and evolu�on. Organiza�onal
growth is a complex process, par�cularly in larger organiza�ons with more iner�a.
Organiza�ons are essen�ally a compila�on of moving parts. Mo�va�ng each individual, with
unique talents and different levels of drive, to move in the same direc�on simultaneously is
extremely challenging. It requires highly effec�ve managers with well‑developed
communica�on skills.
Managers must do more than accept change; they must facilitate the evolu�onary process. In
these situa�ons, organiza�ons need a manager who can fulfill several roles, including leader,
nego�ator, figurehead, and communicator. In each of these roles, the manager’s goal is to help
employees through the change with the fewest conflicts possible.
The Role of a Manager During Organiza�onal Change
Leader
Key Points
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To effect change, a manager needs to be a good leader. He or she must not only organize and
plan the change, but use leadership skills to inspire employees to embrace it. Leadership is a
complex and intangible quality that involves many roles. It requires excep�onal communica�on
skills and a vision that will inspire others.
Nego�ator
When organiza�ons are developing or undergoing change, the manager is o�en required to
nego�ate with compe�tors, contractors, suppliers, and employees. A manager needs to be able
to nego�ate with all of these stakeholders to serve the best interests of the organiza�on.
Figurehead
A manager also needs to act as a figurehead. In par�cular, upper management is responsible
for crea�ng and reinforcing the mission and vision of an organiza�on with employees,
customers, and other stakeholders. Employee engagement requires an understanding of where
the organiza�on is headed as well as its ul�mate goals. In some cases, the figurehead becomes
synonymous with the organiza�on in the minds of customers. The manager who builds a
posi�ve rapport with both customers and employees alike is an organiza�onal asset.
Liaison and Communicator
When managers effec�vely communicate their vision for the organiza�on, employees are more
likely to engage with their work and exert themselves to further the organiza�onal mission.
Communica�on is the core of managing change effec�vely. Transparency and empathy are
integral to making employees aware of and comfortable with the changes taking place.
Managers in an evolving organiza�on must stay in constant contact with their direct reports to
ensure that everything is running smoothly and that all stakeholders are educated and on
board.
Licenses and A�ribu�ons
Evolving Organiza�ons (h�ps://courses.lumenlearning.com/boundless‑
management/chapter/evolving‑organiza�ons/) from Boundless Management by Lumen
Learning, originally published by Boundless.com, is available under a Crea�ve Commons
A�ribu�on‑ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by‑
sa/4.0/deed.en) license. UMUC has modified this work and it is available under the original
license.
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© 2019 University of Maryland University College
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informa�on located at external sites.
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Introduc�on to Management: Current Challenges in Management
PESTEL: A Framework for Considering Challenges
The PESTEL framework highlights six cri�cal factors for management to consider regarding the
general business environment.
Poli�cs plays a role in business, as free markets and systems of
control interact.
Economic factors are metrics for measuring and assessing the health
of a given economic region or environment.
Social and demographic factors include the mentality of the
individuals and consumers within a given market.
Recognizing the technologies available to op�mize internal efficiency
and preven�ng a product or service from becoming obsolete are
significant management challenges.
Consumers and governments penalize companies that nega�vely
impact the environment and reward those with a posi�ve impact.
Understanding the laws and regula�ons within specific regions is
cri�cal to avoid unnecessary legal costs.
Key Terms
Learning Resource
Key Points
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an�trust laws—laws to ensure that no company dominates an
industry (e.g., by crea�ng a monopoly)
macro environment—the condi�on of the economy as a whole, which
affects business
gross domes�c product (GDP)—fiscal measure of an en�re region’s
economic produc�on over a specific �me frame
Organiza�ons face a variety of external factors, including both opportuni�es and threats, that
affect short‑term and long‑term success in a given environment. PESTEL is an acronym for
factors that are part of the macro environment. It represents the poli�cal, economic, social,
technological, environmental, and legal influences a business encounters as it pursues its
objec�ves.
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PESTEL Factors
This chart illustrates the PESTEL factors that impact organiza�ons.
Although analyzing the macro environment is a task, understanding the framework of basic
influences allows for an organized and strategic approach to isola�ng each opportunity or
threat. It is common to conduct a PESTEL assessment before making significant decisions or
undertaking large projects. Understanding PESTEL factors is the first step toward addressing
them properly.
Poli�cal
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Poli�cs plays a role in business, as free markets and systems of control interact. Poli�cal
factors affec�ng business specifically revolve around taxes, import and export tariffs,
environmental and labor laws, subsidies, and the stability of a given region of opera�ons. As
global economics now supersedes domes�c economics for many businesses, companies must
consider a number of opportuni�es and threats when expanding into new regions or
iden�fying op�mal areas for produc�on, sales, or corporate headquarters.
Economic
Economic factors are metrics for measuring and assessing the health of a given economic
microcosm within the en�re global economy. These factors include exchange rates, gross
domes�c product (GDP), consumer purchasing indices, interest rates, infla�on, and other
indicators of economic health or direc�on. These indicators can reveal when condi�ons are
posi�ve for borrowing, whether an economy will be friendly to an industry, where businesses
fluctuate substan�ally with GDP, consumer spending power, and other insights.
Social
Social factors could loosely be defined as demographic analysis—looking at the preferences or
tendencies of consumers that an organiza�on can leverage or that threaten its plans. For
example, in the United States, consumers are becoming more health‑conscious. This trend
affords the food industry opportuni�es to create products to sa�sfy the desire for healthier
op�ons by diversifying their product lines or improving the nutri�onal value of exis�ng
products. The “green” movement is another trend that provides a macro‑environmental
opportunity and poses a poten�al threat to organiza�ons.
Technological
Technology plays a growing role each year, and will con�nue to do so as research and
development drive new innova�ons. Recognizing the poten�al technologies available to
op�mize internal efficiency is a powerful asset in management. Technology also presents a
number of threats, as CD player manufacturers and Blockbuster stores can a�est. These
companies were hurt by “disrup�ve innova�ons” such as the MP3 player and Ne�lix. Keeping
pace with and adap�ng to technology are important strategies to sidestep threats and
embrace opportuni�es.
Environmental
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The impact of business on the environment is a growing concern, and companies must
consider both the social and poli�cal aspects of PESTEL in conjunc�on with environmental
factors. Both consumers and governments penalize companies that adversely affect the
environment: Governments levy fines on companies that don’t meet pollu�on‑reduc�on
mandates, and consumers switch brands when they perceive that a business is ignoring its
environmental responsibili�es. The environment can also benefit companies, by providing
running water for a hydropower plant, for example.
Legal
The final factor in PESTEL concerns legal elements, which can relate to the poli�cal
framework. Issues such as affirma�ve ac�on, patent infringement (e.g., Apple v. Samsung),
an�trust laws (e.g., United States v. Microso�), and health and safety regula�ons can all
significantly affect companies. Understanding the legal landscape is important for businesses
that want to avoid pi�alls and operate responsibly.
The Challenge of Globaliza�on
Globaliza�on is the interna�onal integra�on of intercultural ideas, perspec�ves, culture,
technology, and products and services.
Globaliza�on highlights the growing interdependence between
countries and the need for managers to address it appropriately
within their strategies.
The speed of modern globaliza�on is o�en a�ributed to
technological developments in communica�on and transporta�on
that require managers to appropriately leverage these technologies
internally.
Mul�na�onal companies cumula�vely employ nearly half of the
world’s popula�on, crea�ng a need for managers with a strong
interna�onal awareness.
Managers must understand that some processes can be performed
universally and interna�onally, while others must be done in a
localized fashion, adhering to specific regions’ tastes and customs.
Key Points
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Cri�cs of globaliza�on object to the ways it mo�vates interna�onal
over domes�c culture, and the nega�ve environmental effects of
business expansion.
Seeing the poten�al opportuni�es in a global economy, knowing how
to localize, and being able to avoid the nega�ve aspects of an
interna�onal marketplace can capture large value for effec�ve
managers.
Key Terms
localizing—the act of altering a product or service to be�er fit a local
environment
intercultural—represen�ng many different cultures simultaneously
mul�na�onal enterprise—a business that operates in more than one
country.
Globaliza�on is a hot topic in the business world today, garnering enormous a�en�on as
imports and exports con�nue to rise and companies con�nue to expand across geographic,
poli�cal, and cultural boundaries. By understanding the basic overview of the global economy,
modern managers gain useful insights they can apply to their managerial responsibili�es and to
their organiza�ons.
In general terms, globaliza�on is the interna�onal integra�on of intercultural ideas,
perspec�ves, products/services, culture, and technology. This has resulted in countries
becoming interdependent. Specializa�on—arguably the root cause of globaliza�on—allows
specific regions to leverage their natural resources and abili�es to efficiently produce specific
products and services that they can trade for goods and services that other countries
specialize in producing. Specializa�on has enabled a higher standard of living across the globe
through higher efficiency, lower costs, be�er quality, and a more innova�ve and dynamic
workforce.
Growth of Globaliza�on
Rapid technological developments in transporta�on and communica�on have helped pave the
way for modern globaliza�on. They form the central system of interna�onal exchange,
allowing businesses to create meaningful rela�onships worldwide with minimal �me
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investment and costs. Management is tasked with ensuring these resources are available to
employees and properly leveraged to op�mize the geographic reach of a business’s opera�ons.
This has led to many mul�na�onal enterprises (MNEs) arguing that survival in the newly
globalized economy requires interna�onal sourcing of raw materials, services, produc�on, and
labor.
From a managerial perspec�ve, the global workplace implies an enormous amount of diversity
management. Es�mates of the world labor pool in 2005 noted that mul�na�onal companies
employed a stunning 3 billion workers cumula�vely, which was nearly half of the world’s
popula�on. Diversity management means developing a globally aware perspec�ve that
increases understanding of how specific geographic needs, values, and customs influence
management decisions and the business. This is a powerful managerial skill.
Challenges of Globaliza�on
Managers should also be aware of how to approach global demographics from a business‑to‑
consumer perspec�ve—taking an interna�onal product or service and localizing it successfully.
This is a significant challenge that requires considering different tastes and branding strategies
during implementa�on. The Globaliza�on Process flowchart below illustrates a step‑by‑step
path and shows the produc�on elements that can be universally applied, compared to
elements that need to be localized.
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This flowchart shows that interna�onaliza�on includes product design,
development, and QA, while localiza�on tailors and markets the product
to a specific area.
Managers must also be par�cularly aware of the current cri�cisms of a globalized society,
par�cularly ethical and environmental considera�ons. A global economy is, in many ways,
enforcing a global culture, which is o�en cri�cized for replacing established domes�c cultures
(and mo�va�ng consumerism). Therefore, managers should carefully consider how to best
localize products to respect cultural iden�ty. Environmental concerns are important as well:
The constant energy usage required for this interchange pollutes the environment and
consumes large quan��es of resources to create energy. Minimizing the environmental
damage and offse�ng it to the degree possible through philanthropic giving is not only a wise
marke�ng move but also a cri�cal ethical considera�on.
Conclusion
Our globalized society presents enormous opportunity for businesses. Intercultural
marketplaces open up more demographics, offer larger market poten�al, present a more
diverse customer base (and therefore require more diverse product offerings), and include a
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highly valuable human resource poten�al. On the other end of the bargain, managers are
tasked with localizing products and services effec�vely to minimize the adverse cultural and
environmental effects of rapid global expansion to maintain an ethical opera�on.
The Challenge of Ethics and Governance
Ethics is at the core of corporate governance, and managers must be accountable for their
ac�ons within a global community.
Business itself cannot be ethical: Only its managers and corporate
strategists can implement ethics within the framework of the
business strategy.
Corporate ethics and shareholder desires for profitability are not
always aligned, and it is execu�ve management’s responsibility to
ensure that ethics supersedes profitability.
In its simplest form, corporate ethics is a legal ma�er. Abiding by
laws protec�ng workers’ rights and offering appropriate
compensa�on are management priori�es.
Corporate governance and ethics become more difficult with the
indirect implica�ons of par�cular prac�ces. It is important to assess
how certain opera�ons may adversely affect the community at large.
Managers are the primary decision makers, and therefore must hold
themselves accountable for how a business operates and affects
stakeholders, shareholders, employees, and the community at large.
Key Terms
profitability—the capacity to generate capital
accountability—individuals’ responsibility for their own work and
acceptance of the repercussions of their ac�ons
Key Points
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Accountability
First and foremost in corporate governance is the strict adherence to business ethics on a
professional level. Accountability is of par�cular significance. Understanding the rules and
regula�ons in place, along with societal and personal expecta�ons of ethical ac�ons, is an
absolutely cri�cal and fundamental concern for all managers. The complexi�es and
responsibili�es of running a business and managing employees is the first priority for
managers, as it has the highest poten�al for repercussions—both personal and fiscal.
Economist Milton Friedman stated, “… the only en��es who can have responsibili�es are
individuals … A business cannot have responsibili�es.” Although this sounds like common
sense, it is o�en overlooked that the only par�es capable of ac�ng ethically are those in
charge. Furthermore, ethics o�en contrasts with the basic premise of capitalism and the
demands of shareholders: profitability. Therefore, the most difficult decisions in corporate
governance—those at the ethical level—must be made through the more complex assessment
of societal, corporate, and personal values.
Legal Founda�ons
At its most basic, ethical behavior can first be derived from the laws, rules, and regula�ons of
the country in which a business operates. In the United States, workers have very specific
rights regarding risks, work hours, breaks, and benefits. Managers are responsible for ensuring
that employees receive these equitably and legally. When working more than 40 hours a week,
hourly employees are en�tled to over�me pay. When working long shi�s, they are en�tled to
breaks. In dangerous condi�ons, employees are en�tled to protec�ve gear and training.
These regula�ons illustrate the fundamental dissonance between profit‑maximizing behavior
and noneconomic concerns. It is exacerbated by the global economy, in which businesses
operate within communi�es they may not feel a direct connec�on to. Asking, “What does this
prac�ce mean for the people in the area in which we operate?” is crucial to pu�ng
communi�es first.
The 2008 Financial Collapse
Complexi�es arise as the the ethical implica�ons within an economic system become more
subtle. The 2008 financial collapse exemplifies what can go wrong, and why corporate
governance and ethics are so important to business and society. Prac�ces that contributed to
the housing bubble and failure of mortgage‑backed securi�es exemplify how businesses
priori�zed profitability over people. Banks and government regulators eliminated rules and
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relaxed standards, enabling mortgages that were unlikely to be paid. These risky loans were
packaged and sold to investors, who lost value when homeowners couldn’t pay back their
loans. This chain of events is one example of how managers at many levels ignored the core
responsibility of ensuring ethical standards in lieu of capital gains. Management is at fault for
this oversight; it was a failure in corporate governance.
The Great Recession is a powerful reminder for managers that while the primary goal of their
shareholders may be to maximize profits, managers also have a responsibility to minimize
adverse effects on communi�es. Managing employees responsibly and pu�ng their well‑being
first is an important step in this process, as is considering the wider implica�ons of opening a
new factory that pollutes or selling harmful products. Managers must be responsible because
businesses as a whole cannot be, and this responsibility for integrity lies at the heart of
management.
The Challenge of Diversity
Globaliza�on demands a diverse workforce, and assimila�ng varying cultures, genders, ages,
and disposi�ons is of high value.
In the 1960s, the United States begin iden�fying trends in workplace
diversity and addressing them with legisla�on. This evolved into a
societal change that embraces diversity as both valuable and ethical.
Diversity poses various challenges in communica�on, from
differences in language to differences in culture. Understanding these
cultural differences and what they communicate is cri�cal to
improving communica�on.
Majority cultures tend to create a homogenous environment, possibly
limi�ng the poten�al diverse opinions can provide.
Groupthink is a threat for managers to be aware of, par�cularly in
mee�ngs where dominant opinions steal most of the spotlight.
Different perspec�ves are where the highest value can be captured in
diverse environments.
The ability to manage diversity, and refine ac�ons to communicate
accurately and inten�onally, are valuable and necessary for effec�ve
Key Points
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management.
Key Terms
hegemony—the dominance of one social group over another
groupthink—decision making that is o�en characterized by a high
degree of conformity
The Value of Diversity
Globaliza�on has resulted in enormous cross‑cultural rela�onships, along with high
percentages of domes�c diversity. As globaliza�on creates higher poten�al value in
approaching diverse markets and demographics, understanding how to manage a diverse
community internally is a management priority.
Through crea�ng a more interna�onal community and increasing variety among workforces,
companies stand to benefit enormously from meaningful diversity in opinions and
perspec�ves. This opportunity, if not properly u�lized, becomes a threat as the compe��on
grows more effec�ve at leveraging diversity to create synergy. Therefore, staying compe��ve
requires a diverse and effec�ve workforce.
Ethnic Diversity Across the World
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This map illustrates the level of ethnic diversity worldwide. Areas like sub‑Saharan Africa tend
to be more heterogeneous than European countries.
In the 1960s, the concept of equality and fair distribu�on of opportunity became a domes�c
focus in the United States. As the decades passed, the focus shi�ed from a legal requirement
to a social expecta�on. Finally the idea of equality became a societal norm that recognizes
both the importance and the value of diversity. This evolving outlook on a diverse workplace
has ul�mately resulted in the recogni�on and implementa�on of diversity management and
intercultural understanding within organiza�ons, crea�ng stronger and more ethical business
prac�ces.
Challenges of Diversity
Despite this successful trajectory, challenges to diversity naturally occur as a result of
communica�on (different languages and values), majority hegemony, and groupthink.
Communica�on
Communica�on is at the heart of diversity management, but not necessarily for obvious
reasons. Linguis�c differences, while certainly a challenge, are tangible and straigh�orward.
Learning new languages or transla�ng materials is a reasonably effec�ve approach to
addressing these difficul�es.
The more difficult challenge than the words used is the cultural expecta�ons embedded in
communica�on. Different cultures not only speak different languages; they adhere to different
values, draw different assump�ons, and define ac�ons as appropriate or inappropriate.
Overlooking these cultural differences can result in miscommunica�on that may go
unrecognized. For example, in China the concept of guanxi, or face, is cri�cal in paying respect
to guests or superiors. Overlooking this custom, or others, sends uninten�onal messages that
can do irreversible damage.
Majority Hegemony
Employees strongly influence company culture, and the tendency of majori�es to create a
homogenous culture in businesses is a substan�al threat. This can result in a business crea�ng
and promo�ng a par�cular culture over others uninten�onally, as a result of numbers. This
hegemony can create tension between different groups, ul�mately resul�ng in the smaller
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groups moving towards the culture of the larger ones to close the dissonance, a prac�ce called
assimila�on. However, assimila�on should be a shared responsibility, not one assumed only by
those in a minority group.
Groupthink
The most substan�al threat these communica�on barriers and homogenous tendencies create
could loosely be defined as groupthink. Groupthink is when many people within the same
organiza�on begin to adopt similar perspec�ves, usually to simplify mee�ngs and minimize
discord. On the surface, this consensus sounds like a good thing. However, as the global
economy requires businesses to understand varying perspec�ves, it also requires cul�va�ng
these diverse perspec�ves internally. Groupthink will o�en result in the assimila�on of
dissen�ng perspec�ves. The opportunity cost is precisely these different viewpoints. Without
differences in perspec�ve, companies have li�le room to expand into new demographics or
innovate new solu�ons.
The Role of Management
Different cultural norms offer an interes�ng study in diversity management. E�que�e for
receiving a business card in China requires accep�ng it with both hands and taking a full
moment to read it. Following this, recipients place the card face up on the table in front of
them during a mee�ng, referring to it when necessary. In the United States, a strong
handshake and self‑introduc�on is a polite start to a mee�ng. Conversely, in Japan, it is
appropriate to wait to be introduced and then bow following the gree�ng.
Managers not only must be aware of diversity in the workplace but also open‑minded and
empathe�c to others’ perspec�ves. Effec�ve managers in diverse situa�ons have a highly
developed degree of cultural competence that empowers them to use careful observa�on
skills to determine what gestures, phrases, customs, and values would be most appropriate in a
given circumstance. Adroit managers also work ac�vely against groupthink, empowering
everyone not only to speak but to take risks by going against the majority opinion. The goal for
management is to ensure everyone is working on assimila�on in a balanced and effec�ve
manner that harvests differences rather than glossing over them.
Example
Different cultural norms offer an interes�ng study in diversity management. E�que�e for
receiving a business card in China requires accep�ng it with both hands and taking a full
moment to read it. Following this, recipients place the card face up on the table in front
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of them during the mee�ng, referring to it when necessary. In the United States, a strong
handshake and self‑introduc�on is a polite start to a mee�ng. Conversely, in Japan, it is
appropriate to wait to be introduced and then to bow following the gree�ng
The Challenge of Technology
Technology management is crucial in offse�ng the risks of new technology while acquiring the
opera�onal benefits it provides.
Managing new technology requires a thorough understanding of
business technology management, which consists of four general
parts.
Managers must understand how to achieve internal efficiency by
applying new technology to opera�onal processes.
Businesses should create strategic business units focused solely on
managing a company’s technological strategy.
Keeping pace technologically requires extensive research and
strategic analysis of the poten�al value of acquiring innova�ons.
Implemen�ng new technology requires retraining staff and
elimina�ng the natural fric�on that results from making opera�onal
changes.
Managers should be aware of the value in research, development,
and forecas�ng future technological innova�ons to keep ahead of the
compe��on.
Key Terms
evolve—constantly change and develop
synergy—a concept that the whole is more valuable than the sum of
its parts
Key Points
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compe��ve advantage—something that places a company or a
person ahead of a compe�tor
Technology and Management
Managing technology is an intrinsic part of managing a business, and effec�vely balancing
resources to op�mize efficiency is an important opera�onal objec�ve for all managers. There
are various perspec�ves and strategies in technology management, but all revolve around a
few simple needs being filled to move a business toward gaining a compe��ve advantage. The
reason behind the priori�za�on of technology management is that new disrup�ve technology
constantly threatens to give compe�tors an advantage. On the other hand, effec�vely
managed technology affords businesses the opportunity to outpace the compe��on (see graph
below).
Disrup�ve Technology and Compe��ve Advantage
Technology advancement is both a constant opportunity and a
constant threat.
Business Technology Management
Generally, business technology management (BTM) focuses on understanding how technology
fits into an organiza�on‘s processes and structure. It provides the opportunity to streamline
opera�ons and produce more quality informa�on. BTM can be divided into four elements:
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Process. Businesses, whether they provide products or services, always have a set of
processes that define how deliverables are generated. These processes need to be
assessed for efficiency and effec�veness, par�cularly how they enable the op�mal
poten�al of modern technology.
Organiza�on. Businesses are constructed under the assump�on of synergy. Each
strategic business unit (SBU), or facet of the organiza�on, complements the others to
create a greater ability than any SBU could accomplish on its own. Establishing an
informa�on technology (IT) department that func�ons with upper management and
throughout the ranks allows for proper BTM.
Informa�on. Technology evolves exponen�ally, o�en changing faster than businesses
can easily monitor. Research and analysis of the current technological environment
generates the highest return on the (o�en expensive) investments demanded to keep
pace technologically.
Implementa�on. A�er a business organiza�on has a mature IT department that
understands its company processes, IT can work to upgrade technology and implement
these innova�ons. Implementa�on includes training employees, monitoring the return on
investment, maintaining new technology, and elimina�ng fric�on created by opera�onal
changes. Change is always complicated, and businesses benefit greatly by adop�ng
change‑management techniques when integra�ng new technology.
Keeping up with Technological Progress
While managers focus on these four aspects of BTM, they must also keep future growth and
technology scaling in mind. As innova�on con�nues to demand a central role in businesses,
research and development will con�nue to be cri�cal for organiza�onal health. Appropriately
funding research ini�a�ves that not only keep track of innova�on but ac�vely seek out
strategic solu�ons crea�vely is a survival tool in the global marketplace.
Managers must also realize the importance of acquiring technology talent that keeps pace with
the environment. This is important for two reasons:
the poten�al to uncover new compe��ve advantages through internal development
the capacity to forecast up‑and‑coming technologies to construct an investment road
map that always keeps the compe��on a technological step behind
Developing new technologies in‑house is par�cularly relevant to industries on the cu�ng edge
(e.g., semiconductors, green energy, TV), while forecas�ng is cri�cal in considering the user or
consumer.
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Combining BTM with research and development will ensure managers are properly equipped
to tackle the challenges of modern‑day innova�ons, leverage these capabili�es as a
differen�ator from the compe��on, and derive stronger margins. Managers across the board
must be aware of the importance of these technological developments, as well as the
opera�onal challenges in researching and implemen�ng them.
The Challenge of Compe��on
Managers must understand a company’s compe��ve advantage and build a strategy that takes
into account the compe��ve landscape.
Managers must know their business’s strengths and integrate them
into the appropriate strategy to remain compe��ve.
Using a low‑cost strategy is selling a product or service at the lowest
possible price point to stay compe��ve.
Differen�a�on is an alterna�ve strategy to low cost in which
companies fill a specific need that is not being filled or generate a
brand image that increases their value‑added proposi�on.
High quality is the an�thesis of low cost; instead of efficiency, the
strategy focuses on effec�veness, crea�ng the best possible product
to capture market share.
Companies also compete internally, either developing naturally
compe��ve products or ba�ling for funding based on unit success.
Managers must understand all of these compe��ve strategies and
align them with their perceived strategic advantage to stay
compe��ve.
Key Terms
compe��ve advantage—an asset that places a company or a person
ahead of compe�ng businesses
differen�a�on—a strategy focused on crea�ng a dis�nct product for
a specific popula�on
Key Points
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branding—a business’s ability to communicate a specific image,
generally one that will en�ce consumers or add value
Compe��ve Strategies
From a managerial perspec�ve, compe��on generally falls into the external environment,
although it can also take shape in the internal environment through rivalry between strategic
business units (SBUs). For managers, understanding the external compe��ve landscape is a
cri�cal factor in assessing company strategies and benchmarking appropriately to ensure the
compe��veness of the firm. Businesses that fail to keep pace with their rivals eventually will
be overpowered and o�en forced to develop an exit strategy.
Avoiding the risks of compe��ve factors demands a strong understanding of opera�onal
efficiency (low cost), quality produc�on, differen�a�on, and compe��ve advantage—or who
you target and whether or not you have a cost or quality advantage (see Cost vs. Quality figure
below).
Cost vs. Quality
Companies generally achieve either a cost or a quality advantage or, very rarely, both. In panel
A, both companies’ products have the same cost, but Company I’s product has higher value. In
panel B, both companies’ products have the same value, but Company I’s product has lower
cost. In panel C, Company I’s product has both higher value and lower cost (the rarest
situa�on).
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Low Cost and Branding
The simplest perspec�ve on compe��on is in industries where products are homogeneous (or
very similar). In these situa�ons, companies compete directly. For example, bo�led‑water
producers adopt either low cost or branding as their strategy.
Low‑cost suppliers find ways to op�mize their produc�on and distribu�on to offer consumers
the lowest possible price for a bo�le of water. Low‑cost suppliers o�en benefit largely from
economies of scale. Branding, on the other hand, aims to convince the consumer that a higher
price point is worth paying for based upon the company’s name, reputa�on, or other
dis�nguishing characteris�c. For example, Dasani brand water costs more than generic store‑
brand water, despite being essen�ally the same product. Commercials, aesthe�c presenta�on,
goodwill, and factors other than price may influence a consumer’s purchasing decision.
Differen�a�on
Most products and services are not homogenous, however, so companies can use various
compe��ve strategies. Differen�a�on is a compe��ve tac�c wherein companies approach
certain niche needs within an industry to capture a segment of market share.
Cereals provide examples of differen�a�on. There are hundreds of kinds. The need being filled
is sustenance: People have to eat. Cereal producers use differen�a�on to capture a share of
the cereal market: Some brands focus on being organic, others on their sugary appeal, and
others on being “cool.” Branding plays an important role here as well, though assessing niche
consumer needs and filling them is the principal focus.
Quality
Finally, there is the poten�al to compete externally based on quality. Toyota makes both the
Corolla and Lexus, thereby targe�ng consumers at both ends of the income spectrum. Quality
compe��ve strategies, while related to branding, provide a par�cular level of quality to
capture a specific income or interest demographic. The opportunity cost of efficiency is
associated with quality, which generally sees higher price points. Quality is therefore a strong
an�thesis to the low‑cost strategy.
Internal Compe��on
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Businesses also compete internally, which is intrinsically complex. On the surface, internal
compe��on involves either direct product subs�tutes or funding compe��on (among different
business units). An example of internal compe��on is PepsiCo. Pepsi makes both colas and
sports drinks, which sit adjacent on store shelves. When a customer sees the sports drink and
chooses it over the cola, the cola has lost a sale to an internal compe�tor. Pepsi, however, did
not lose a sale; it merely lost one segment of the business while gaining another.
With these points in mind, managers must thoroughly understand the products they are
pitching and which strategy will help them avoid going toe‑to‑toe with other businesses they
cannot compete against. Star�ng up a car manufacturing business to compete with Hyundai in
the low‑cost market is extremely difficult, as Hyundai has economies of scale that will almost
always beat smaller compe��on on a low‑cost strategy. This example illustrates an extremely
important point in business: to rely on your strengths. Managers must understand their own
compe��ve advantage (what they do be�er than the compe��on) so they can adopt the
appropriate compe��ve strategy to gain market share and remain profitable.
Licenses and A�ribu�ons
Current Challenges in Management (h�ps://courses.lumenlearning.com/boundless‑
management/chapter/current‑challenges‑in‑management/) from Boundless Management by
Lumen Learning, originally published by Boundless.com, is available under a Crea�ve Commons
A�ribu�on‑ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by‑sa/4.0/)
license. UMUC has modified this work and it is available under the original license.
© 2019 University of Maryland University College
All links to external sites were verified at the �me of publica�on. UMUC is not responsible for the validity or integrity of
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Organiza�onal Structure: Trends in Organiza�ons
Fla�ening Hierarchies
Fla�ening hierarchies can benefit smaller organiza�ons by increasing employee empowerment, par�cipa�on, and efficiency.
A hierarchy can link en��es either directly or indirectly; it can also link en��es either ver�cally or horizontally. The
only direct links in a hierarchy are to a person’s immediate superior or subordinates.
The flat organiza�on model essen�ally “fla�ens” the hierarchy and promotes employee involvement through a
decentralized decision‑making process.
According to the logic behind this model, well‑trained workers will be more produc�ve when they are directly
involved in the decision‑making process rather than closely supervised by many layers of management.
Flat organiza�ons are most relevant in specific scenarios—most notably small organiza�ons that are dependent
upon crea�vity, freedom of ac�on, and high‑powered employees.
Key Term
hierarchy—an arrangement in which items are represented above, below, or at the same level as other items
Links within Hierarchies
Hierarchies can be linked in several ways. A hierarchy can link en��es directly or indirectly, and ver�cally or horizontally. The only direct
links in a hierarchy are to a person’s immediate superior or subordinates. Parts of the hierarchy that are not linked ver�cally to one another
can be horizontally linked through a path by traveling up the hierarchy; this path eventually reaches a common direct or indirect superior
and then travels down the hierarchy again. An example of this would be two colleagues who each report to a common superior but have
the same rela�ve amount of authority in the organiza�on.
Flat Hierarchies
Flat (or horizontal) organiza�onal structures have few or no levels of intervening management between staff and managers. This “fla�ened”
hierarchy promotes employee involvement through a decentralized decision‑making process. The idea is that well‑trained workers will be
more produc�ve when they are directly involved in the decision‑making process rather than closely supervised by many layers of
management.
Learning Resource
Key Points
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A Flat Organiza�on
In a flat organiza�on there is no lower or mid‑level management—just one
manager and the rest of the staff.
Advantages of Fla�ened Hierarchies
Flat structures empower each individual within the company to be involved in decision‑making processes. This allows for a great deal of
crea�ve discussion and opera�onal diversity, and tends to create great variance in new ideas. By eleva�ng the level of responsibility of
baseline employees and elimina�ng layers of middle management, comments and feedback can quickly reach everyone involved in
decisions. Response to customer feedback can be carried out more rapidly.
This type of structure generally works best in smaller organiza�ons or individual units within larger organiza�ons. Start‑up companies,
“mom and pop shops,” and other small independent businesses are the most common examples of a flat structure.
Disadvantages of Fla�ened Hierarchies
Flat organiza�ons are difficult to maintain as companies grow larger and more complex. When organiza�ons reach a cri�cal size, they can
retain a streamlined structure; however, they cannot keep a completely flat manager‑to‑staff hierarchy without impac�ng produc�vity.
Certain financial responsibili�es may also require a tradi�onal hierarchical structure. While the flat structure can foster employee
empowerment, involvement, and crea�vity, it can also create inefficiency in decision‑making processes. Some theorize that flat
organiza�ons become more tradi�onally hierarchical when they gear themselves more toward produc�vity.
Because the interac�on between workers is more frequent, this organiza�onal structure generally depends on a more personal rela�onship
between workers and managers. As a result, the structure can be more �me‑consuming to build than a tradi�onal hierarchical model.
Decentralizing Responsibility
In decentralized structures, responsibility for decision making is broadly dispersed down to the lower levels of an organiza�on.
Decentraliza�on is the process of dispersing decision‑making authority among people, ci�zens, employees, or
others in an organiza�on or sector.
A decentralized organiza�on shows fewer �ers in the organiza�onal structure, a wider span of control, and a
bo�om‑to‑top flow of ideas and decision making.
The bo�om‑to‑top informa�on flow allows lower‑level employees to be�er inform officials in the organiza�on
during decision‑making processes.
When companies decentralize authority, however, there can be confusion about how final decisions are made.
Key Terms
mechanis�c organiza�on—a bureaucra�c structure
Key Points
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governance—accountability for consistent and cohesive policies, processes, and decision rights
authority—the power to enforce rules or give orders
Decentraliza�on is the process of dispersing decision‑making authority among the people, ci�zens, employees, or others in an organiza�on
or sector. In decentralized structures, responsibility for decision making and accountability are broadly dispersed at lower levels of an
organiza�on. This dispersion can be inten�onal or uninten�onal. A decentralized organiza�on tends to show fewer �ers in its organiza�onal
structure (less hierarchy ), a wider span of control, and a bo�om‑to‑top or horizontal flow of decision making and ideas.
Top‑Down vs. Decentralized
The management structure in a decentralized organiza�on changes from a top‑down approach
to more of a peer‑to‑peer approach.
Contras�ng Centralized and Decentralized Structures
In a centralized organiza�on, decisions are made by top execu�ves on the basis of current policies. These decisions or policies are then
enforced through several �ers of hierarchy within the organiza�on, gradually broadening the span of control un�l they reach the bo�om
�er.
In a decentralized organiza�on, the top execu�ves delegate much of their decision making authority to lower �ers of the organiza�onal
structure. This type of structure tends to be seen in organiza�ons that run on less rigid policies and wider spans of control among each
officer of the organiza�on. The wider spans of control also reduce the number of �ers within the organiza�on, giving its structure a flat
appearance.
Decentralized Organiza�on Chart
This image illustrates a decentralized, or flat, organiza�onal chart. There is one manager over
the rest of the staff. Each staff member had more responsibility and autonomy than in a top‑
down model.
Advantages of Decentraliza�on
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One advantage of this structure—if the correct controls are in place—is the bo�om‑up flow of informa�on. This flow allows lower‑level
employees to be�er inform their supervisors during decision‑making processes. For example, if an experienced technician at the lowest �er
of an organiza�on knows how to increase the efficiency of the produc�on, the bo�om‑to‑top flow of informa�on can allow this knowledge
to pass up to the execu�ve officers.
Disadvantages of Decentraliza�on
On the other hand, when companies decentralize authority there can be confusion about how final decisions are made. It can be difficult to
empower mul�ple people without some decisions nega�vely impac�ng other decisions. Decentralized organiza�ons must be mindful of the
risk of going in too many direc�ons at once. Because of this, decentraliza�on is most effec�ve in organiza�ons that have transparent
strategies, a strong mission, and a clear vision.
Increasing Empowerment
Modern organiza�ons are more aware of the value of empowered employees and ac�vely strive to structurally increase empowerment.
Empowerment is a process that enables individuals and groups to fully access their personal and collec�ve power,
authority, and influence, and to employ this power when engaging with other people, other ins�tu�ons, or society.
Leaders within an organiza�on can play a strong role in encouraging employees to prac�ce empowerment.
To enable empowerment, managers can share informa�on, provide employees with autonomy, and migrate to self‑
managed teams when possible.
Though the idea of empowerment can produce successful results, it is important to understand the risks. Having
more decision makers means more discussion about how to accomplish a process and more moving parts within
the organiza�on, increasing complexity.
Key Term
empowerment—the accessing and employment of poli�cal, social, or economic power by an individual or group
Defining Empowerment
Empowerment enables individuals and groups to fully access personal and collec�ve power and employ it when engaging with other people,
other ins�tu�ons, or society. Empowerment does not give people power; rather, it helps them to release and express the power they
already have.
Empowerment encourages people to gain the skills and knowledge to overcome obstacles in life and work. This will ul�mately enable
personal development and a deeper sense of professional fulfillment. Empowering people in organiza�ons can encourage more confident,
capable, and mo�vated employees. Organiza�ons are increasingly aware that empowerment o�en leads to be�er performance and higher
opera�onal efficiency. There is a general trend toward structuring organiza�ons for empowerment.
Empowerment Within the Organiza�on
Empowering employees in the workplace means providing them with opportuni�es to make decisions related to their tasks. This can be
both powerful and posi�ve, enabling checks and balances in decision‑making processes.
Empowerment in organiza�ons includes
making decisions about personal and collec�ve circumstances
accessing informa�on and resources for decision‑making
Key Points
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considering a range of op�ons from which to choose (and understanding the op�ons rather than just deciding yes or no)
exercising asser�veness in collec�ve decision‑making
employing posi�ve thoughts toward the ability to make change
learning and assessing skills for improving personal and collec�ve circumstances
informing others’ percep�ons through exchange, educa�on, and engagement
Though empowerment can produce very successful results, there are certain risks involved. When turning responsibility over to others, it is
important to keep in mind that dispersing power creates more discussion and conflict that can slow down the decision‑making process. As
organiza�ons move more people toward higher levels of empowerment, protocols should be put in place to mi�gate failure and improve
decision‑making efficiency.
Centralized vs. Decentralized
Decisions
No�ce how the centralized
organiza�on is an asterisk with
many spokes, whereas the
decentralized organiza�on is many
smaller interconnected asterisks.
Leaders within an organiza�on can encourage employees to prac�ce empowerment in several ways. For leaders to tap into the possibili�es
of an empowerment‑based company, they must have confidence in employees. Employees should have opportuni�es to make their own
decisions and succeed. For an empowerment‑based organiza�on, rules and policies that interfere with self‑management should be made
more lenient. Leaders should also set goals that can inspire people.
The following are three key concepts that leaders can use to empower employees throughout an organiza�on:
Share informa�on with everyone. Allowing all employees to view company informa�on helps to build trust between employers and
employees. It also provides important background perspec�ve for decision making.
Create autonomy through boundaries. Opening communica�on through informa�on sharing creates space for feedback and dialogue
about what interferes with people feeling empowered. Minimizing micromanagement is cri�cal so that employees who are specialists
in their func�ons can set the tone for how a par�cular task is accomplished.
Replace the old hierarchy with self‑managed teams. By replacing the old hierarchy with self‑managed teams, more responsibility is on
unique and self‑managed teams. This can lead to be�er communica�on, diversity of strategies, and higher performance.
The success of the modern organiza�on relies heavily on understanding the complexity of a diverse global market. Leveraging employee
knowledge and enabling autonomy is increasingly important in capturing value and a�aining compe��ve advantages in this complex
business environment.
Increasing Adapta�on
In order to succeed, modern organiza�ons must constantly adapt to evolving technologies and expanding global markets.
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Technological advances, global market expansion, and the poten�al for constant (some�mes disrup�ve) innova�on
all point to the need for organiza�ons to be adap�ve.
Blockbuster and Ne�lix provide examples. Blockbuster was simply too slow to adapt to the demand for live‑
streaming videos.
If an organiza�on takes on the iden�ty of a growing, adap�ng, and learning organiza�on, these quali�es become
part of the fabric of how it operates.
Implemen�ng an adaptable strategy may have a ripple effect across an organiza�on. Minimizing disrup�on can
reduce costs and save �me.
Resistance to change is considered a major obstacle to crea�ng effec�ve adaptability in an organiza�on.
Integra�ng changes step‑by‑step, and using focus groups and training sessions can improve the efficacy of
adapta�on.
Key Term
adapta�on—adjustment to extant condi�ons, modifying one or more parts to help something be�er fit the current
environment
The Importance of Adapta�on
Organiza�onal adapta�on is becoming increasingly relevant to both strategy and structure in the rapidly changing business environment.
Technological innova�ons, global market expansions, and the poten�al for constant (some�mes disrup�ve) innova�on all point to the need
for organiza�ons to be adap�ve.
There are a number of examples of organiza�ons adap�ng to new technologies or global compe��on, and others failing to adapt. For
example, Ne�lix embraced the demand for live‑streaming videos and gained enormous value. In contrast, Blockbuster was too slow to
adapt to the demand for live‑streaming videos.
Benefits of Adapta�on
Strategic management largely pertains to adap�ng an organiza�on to its business environment. The greatest agent for organiza�onal
change is the socializa�on aspect of culture, which can be empowered structurally. If an organiza�on takes on the iden�ty of a growing,
adap�ng, and learning organiza�on, these quali�es become part of the fabric of how it operates. Understanding and being able to increase
this adaptability is important to organiza�onal success.
Implemen�ng a strategy of adapta�on may have effects that ripple across an organiza�on. Increasing its ability to adapt to change and
minimize disrup�on can reduce costs and save �me. One approach for increasing adapta�on is to appoint an individual to champion the
changes, address and eventually enlist opponents, and proac�vely iden�fy and mi�gate problems.
Challenges in Adapta�on
Resistance to change is considered a major obstacle to crea�ng effec�ve adaptability in an organiza�on. Organiza�onal change can lead to
loss of stability and—if the instability becomes great enough—loss of organiza�onal effec�veness.
Loss of Effec�veness
Key Points
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Organiza�onal loss of effec�veness (LOE) emerges when a number of symptoms, which are
predictable and measurable, are present simultaneously (Grady, 2005).
The following methods can be employed to help an organiza�on and its staff cope with change:
Share informa�on with everyone. Allowing all employees to view company informa�on helps to build trust between employers and
employees. It also provides important background perspec�ve for decision making.
Provide training. Providing training for staff on new processes or structures can help to increase staff competence and reduce
resistance to change.
Implement changes step‑by‑step. Involving small groups first—such as several departments or sec�ons—and then widening the scope
of implementa�on can help expose problems, and provide management with enough �me to solve them before rolling out changes
across the organiza�on.
Flexible Work Schedules
Employers can offer flexible working arrangements like flex�me and telecommu�ng.
Companies have begun recognizing how important a healthy work‑life balance is to employee produc�vity and
crea�vity. Integra�ng new technologies for flexible schedules is a great opportunity to capture this value.
Flex�me and telecommu�ng (telework) are popular strategies that enable employees to set their own schedules
and work where it is most convenient for them.
In addi�on to suppor�ng the required technology, a well‑func�oning telework organiza�on needs a management
system that is at least as effec�ve as that of a tradi�onal organiza�on.
Management teams face addi�onal issues such as how to supervise employees who are o�en out of the office,
how to monitor staff produc�vity with less personal interac�on, how to build a strong virtual team, and how to
maintain rela�onships between remote employees.
Key Term
telecommute—work from home, also known as telework, using the internet or another connec�on to the
employer’s network
Companies have begun to recognize how important a healthy work‑life balance is to the produc�vity and crea�vity of their employees.
Kenexa Research Ins�tute (2007) showed that employees who were more favorable toward their organiza�on’s efforts to support work‑life
balance also indicated they were less likely to leave the organiza�on, had higher overall job sa�sfac�on and greater pride in their
organiza�on, and were willing to recommend the organiza�on to others.
Employers can offer a range of ini�a�ves that support work‑life balance. Flexible working arrangements including flex�me and
telecommu�ng are increasingly popular ones. Employers can also be proac�ve with compulsory leave, maximum hours, and discouraging
a�er‑hours work.
Telecommu�ng
Telecommu�ng (or telework) is a work arrangement in which employees do not go to a central place of work. Many telecommuters work
from home. Others—some�mes called “nomad workers”—use mobile technology to work from coffee shops or other loca�ons. This allows
employees the flexibility of adap�ng their work schedule to their living situa�on. Being able to work from anywhere with an internet
connec�on is a modern luxury that adaptable companies should understand.
Key Points
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An office designed for telecommu�ng
Flex�me
Flex�me is a variable work schedule. In this arrangement, there is typically a core period of approximately 50% of the total working day
when employees are expected to be at work (for example, between 11 a.m. and 3 p.m.). The rest of the work day is considered flexible, so
employees can choose when they work. Employees are s�ll required to complete their work and achieve total daily, weekly, or monthly
hours according to what the employer expects.
A flex�me policy allows staff to determine when they will work, and a telework policy allows staff to determine where. These strategies
allow employees to adapt their work hours based on public transport schedules, child‑care responsibili�es, rush‑hour traffic, and other
concerns.
Establishing a Telework Organiza�on
In addi�on to suppor�ng the required technology, a well‑func�oning telework organiza�on needs a management system that is at least as
effec�ve as a tradi�onal organiza�on’s. Management teams in flexible work environments face challenges like how to supervise employees
who are o�en out of the office, how to monitor staff produc�vity with less personal interac�on, how to build a strong virtual team, and how
to maintain rela�onships between remote employees.
Some suggested best prac�ces for maintaining a successful telework organiza�on include:
Develop a daily schedule. Se�ng a standardized daily schedule can help remote teleworkers feel as though they are really at work. It
can also make it easier for supervisors to monitor staff ac�vi�es and can lead to increased produc�vity.
Establish milestone dates. Milestone dates help keep projects on track and make it easier to spot problems while there is �me to
effec�vely deal with them.
Encourage social networking. Employee surveys show that being able to keep in touch and communicate with colleagues despite
physical distance can boost employee sa�sfac�on and encourage reten�on of top talent.
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Address problems immediately. Respond to problems immediately, even if it’s by email or text message. This will prevent teleworkers
from feeling isolated.
Design key performance indicators KPIs for remote workers. These KPIs can also be used for accountability of in‑office staff as well.
Start workdays by holding a five‑minute team videoconference. This helps supervisors to maintain a regular check‑in rou�ne and
employees to catch up on their teams’ work progress and feel connected to the whole organiza�on.
Manage by observa�on. A successful telework or telecommu�ng program requires a management style that is results‑oriented, rather
than task‑oriented. It is management by objec�ves, rather than management by observa�on.
Increasing Coordina�on
Increasing coordina�on helps organiza�ons maintain efficient opera�ons through communica�on and control.
Coordina�on is a managerial func�on in which different business ac�vi�es are properly adjusted and interlinked.
The management team must pay special a�en�on to issues related to coordina�on and governance, and be able to
improve upon coordina�on through effec�ve management.
Managers should strengthen communica�on across all facets of the organiza�on to increase the level of
integra�on between each moving part.
If there is a lack of coordina�on, there is a risk that responsibility will become dispersed and tasks will be
unclaimed. Organizing accountability for every task helps to ensure that efforts are tangibly coordinated.
Key Terms
division—sec�on of a large company
margin—permissible difference, freedom to move within limits
centraliza�on—the act or process of combining or reducing several parts into a whole
Defining Coordina�on
Coordina�on is the act of organizing and enabling different people to work together to achieve an organiza�on’s goals. It is a managerial
func�on in which different ac�vi�es of the business are properly adjusted and interlinked.
Employees within the func�onal divisions of an organiza�on tend to perform a specialized set of tasks, such as engineering. This leads to
opera�onal efficiency within that group. However, it can also lead to a lack of communica�on between various func�onal groups within an
organiza�on, rendering the organiza�on slow and inflexible.
Key Points
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This is an example of an organiza�onal structure. At a high level are mul�ple func�onal
groups, or “modules”—technical, marke�ng, and intellectual property. The linked working
groups (e.g., data coding workgroup, security workgroup, and audio and video compression
workgroup) within the technical func�onal group likely have coordinated func�ons.
Increasing Coordina�on
Coordina�on is simply the managerial ability to maintain opera�ons and ensure they are properly integrated with one another; therefore,
increasing coordina�on is closely related to improving managerial skills. The management team must pay special a�en�on to issues related
to coordina�on and governance, and be able to improve upon coordina�on through effec�ve management.
Increasing coordina�on internally can be accomplished by keeping all moving parts of the organiza�on on the same page. There are a
number of ways to improve upon the coordina�on of different departments, work groups, teams, or func�onal specialists. These include
crea�ng a well‑communicated and accurate mission statement; clearly defining strategic objec�ves; monitoring and evalua�ng each
func�onal group; providing company‑wide updates and communica�ons from each department; and, wherever possible, promo�ng cross‑
departmental mee�ngs and projects. While this list is long and complex, the underlying concept is rela�vely simple: Managers should
strengthen communica�on across all facets of the organiza�on to increase the level of integra�on between each moving part.
Structural Implica�ons
In prac�ce, coordina�on involves a delicate balance between centraliza�on and decentraliza�on. However, maintaining coordina�on does
not necessarily imply that decision‑making processes are centralized or that ac�ons are carried out without the support of employees. Put
simply, it is important to ensure that there is a person or team in place that takes responsibility for general tasks.
If there is a lack of coordina�on, there is a risk that responsibility will become dispersed and tasks will be le� unclaimed. Organizing
accountability for every task helps to ensure that efforts are tangibly coordinated and provides structure to opera�onal expecta�ons.
Structure is a central determinant of effec�ve coordina�on across an organiza�on as it enables communica�ons, underlines responsibili�es,
and provides concrete authority in decision making.
References
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Kenexa Hiring and Reten�on. (2007, July 25). Kenexa Research Ins�tute finds that when it comes to work/life balance, men and women are
not created equal. Retrieved from h�p://www.kenexa.com/en/AboutUs/Press/2007/07JUL25.aspx
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1/14/2019 Trends in Organizational Diversity
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Trends in Organiza�onal Diversity
To capitalize on ethical and economic benefits, businesses are promo�ng increased diversity in
the workplace.
Diversity in the workplace creates both ethical and economic value,
resul�ng in trends toward a more equal‑opportunity workplace.
In the 1960s, the United States implemented affirma�ve‑ac�on
policies to enforce equal opportunity in the workplace.
Following the implementa�on of various affirma�ve‑ac�on policies,
social jus�ce developed as an ethical norm (as opposed to a legal
s�pula�on). This development resulted in more inclusive measures
for a larger variety of groups.
Empirical evidence of the trend toward diversity is well illustrated by
gender wage gaps between males and females, which have been
consistently narrowing since the early 1970s.
In addi�on to its ethical bases, diversity in an increasingly global
marketplace is substan�ally more effec�ve and produc�ve, allowing
for more synergy.
Key Terms
affirma�ve ac�on—advantages for tradi�onally discriminated against
minority groups, with the aim of crea�ng a more equal society
through preferen�al access to educa�on, employment, health care,
social welfare
Learning Resource
Key Points
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homogeneous—having a uniform makeup, or the same composi�on
throughout
diversity—the state of being different; achieving variability
Diversity within the workplace is a broad topic, incorpora�ng both the need for social jus�ce
and the high poten�al value of employing a workforce diverse enough to compete in an
increasingly global economic environment.
As a result, the workplace has undergone a number of trends that promote diversity and
minimize group biases, as the ethical and economic importance of diversity is well‑established.
Analyzing trends in equality and value in diversity is useful for managers seeking to
incorporate both.
Equality of Opportunity
Affirma�ve Ac�on
The early stages of pursuing equality in the workplace arose in the 1960s, most notably with
the concept of affirma�ve ac�on. Affirma�ve ac�on essen�ally establishes legal quotas—set by
the US government—for the number or percentage of minority popula�ons represented in a
company’s hiring prac�ces.
Minority popula�ons are generally defined according to race, ethnicity, or gender. One
difficulty with affirma�ve ac�on is that it can encourage employers to fill quotas rather than
avoid bias, poten�ally mo�va�ng some employers to hire specifically by race, ethnicity, or
gender. Hiring based upon any of these characteris�cs is illegal.
Social Jus�ce
As a result of this cri�cism, the equal‑opportunity movement has evolved toward a model
based more on social jus�ce. This perspec�ve s�ll promotes ac�vely seeking diversity in the
workplace, primarily based on the intrinsic value of employees with different backgrounds and
skill sets.
The social‑jus�ce trend also meant a shi� from a more limited viewpoint of what cons�tutes a
minority toward a more comprehensive one that places age, physical ability, and sexual
orienta�on alongside tradi�onal categories of race and gender. The social jus�ce model of
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diversity is dis�nct from the older affirma�ve‑ac�on model in that it focuses less on employing
minori�es and more on the value of a diverse workforce.
Gender differences offer a strong sta�s�cal example of this trend, as male and female wage
equality has been consistently trending towards equilibrium. Wage equality shows dis�nct
improvement as a result of equal‑opportunity ethics, a trend that supporters of equality hope
con�nues toward equilibrium.
Women’s and Men’s Earnings
This graph illustrates that while gender wage inequality
is diminishing, further efforts are necessary to promote
parity.
Value of Diversity
The ethics of diversity in the workplace are rightly emphasized. The natural value achieved
through varying perspec�ves in the workplace complements social jus�ce well. Organiza�ons
that lack a culture inclusive of any and all poten�al groups generally have lower produc�vity
and higher turnover. Promo�ng an environment conducive to a global and interna�onalized
economy through diverse hiring and management prac�ces poten�ally results in increased
produc�vity.
A homogeneous workforce has a much lower capacity to achieve synergy. Upper management,
recognizing the strategic value of diversity, con�nues to pursue the knowledge and skills
necessary for a truly inclusive workplace.
Licenses and A�ribu�ons
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Trends in Organiza�onal Diversity (h�ps://courses.lumenlearning.com/boundless‑
management/chapter/diversity‑in‑organiza�ons/) from Boundless Management by Lumen
Learning, originally published by Boundless.com, is available under a Crea�ve Commons
A�ribu�on‑ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by‑sa/4.0/)
license. UMUC has modified this work and it is available under the original license.
© 2019 University of Maryland University College
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informa�on located at external sites.
1/14/2019 Core Requirements of Successful Managers
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Core Requirements of Successful Managers
The Importance of Accountability
Being accountable simply means being responsible for decisions made, ac�ons taken, and
assignments completed.
Accountability in business is cri�cal, as the concept enhances the
ethics of managers.
Being accountable means standing by decisions, ac�ons, and the
overall status of projects.
Accountability is also a management process that ensures employees
answer to their superiors and supervisors also behave responsibly.
Accountability addresses both the organiza�on’s expecta�on of the
employee and the employee’s expecta�on of the organiza�on.
Accountable employees help to increase performance of business as
a whole and to maintain a posi�ve company culture, vision, and
ethics.
Accountability on a global scale, par�cularly in the case of NGOs, is
complicated by the fact that different countries have varying
legisla�ve perspec�ves when it comes to accountability.
Key Terms
accountability—being responsible for one’s own work and answering
for the repercussions of one’s own ac�ons
Learning Resource
Key Points
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paradigma�c—pertaining to a given template, context or model
Introduc�on
In organiza�ons, accountability is a management control process in which responses are given
for a person’s ac�ons. They can be posi�ve or nega�ve. Depending on the response, the
person might need to correct his or her error. In other words, accountability refers to individual
responsibility for the work performed, and answering to peers and superiors for performance.
Accountability is o�en used synonymously with responsibility, blameworthiness, and liability.
As an aspect of governance, accountability has been central to discussions related to problems
in the public, nonprofit, and corporate sectors.
In leadership roles, accountability is the acknowledgment and assump�on of responsibility for
ac�ons, products, decisions, and policies, including the administra�on, governance, and
implementa�on within the scope of the role or employee posi�on. Accountability also
encompasses the obliga�on to report, explain, and answer for resul�ng consequences. As
leaders o�en make decisions with far‑reaching consequences, accountability has a substan�al
ethical component.
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Accountability and Expecta�ons
Accountability has a strong connec�on to expecta�ons. Employees who do not meet the
expecta�ons of their supervisor are held accountable for their ac�ons and must answer for
their inability to do so.
Accountability is crucial to ensuring high performance within an organiza�on. However,
managers must clearly communicate their expecta�ons to the person responsible for a
specified ac�on or task. Clear communica�on of expecta�ons and well‑defined goals are very
effec�ve tools for enhancing performance at every level of organiza�on.
Without defined goals, employees lack a frame of reference for their performance. In many
organiza�ons, the management team and board of directors create goals for themselves and
the general manager, the general manager creates goals for department managers, and the
department managers create goals for entry‑level employees.
Both subordinates and supervisors should have a clear idea of how their projects should be
handled and delivered. A clear expecta�on level and the understanding that all employees are
accountable for their performance boosts employee morale and produc�vity in the workplace.
However, because different individuals in large organiza�ons contribute in various ways to a
company’s decisions and policies, it is o�en difficult to iden�fy who should be accountable for
the results.
Global Accountability
Recently, accountability has become an important topic in the discussion about the legi�macy
of interna�onal ins�tu�ons. Because there is no global, democra�cally elected body to which
organiza�ons must report, global organiza�ons are o�en cri�cized as having large
accountability gaps.
One issue in the global context is how the effec�veness of ins�tu�ons such as the World Bank
and the Interna�onal Monetary Fund, founded and supported by wealthy na�ons to provide
grants and loans to developing na�ons should be measured. The ques�on persists as to
whether these ins�tu�ons should be accountable to their founders and investors or to the
people and na�ons they help.
In the debate over global jus�ce and wealth distribu�on, those in highly developed, heavily
populated areas tend to advocate greater accountability to tradi�onally marginalized
popula�ons and developing na�ons. On the other hand, those who adopt a more na�onalis�c
or provincial view deny the tenets of moral universalism; they argue that beneficiaries of global
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development ini�a�ves have no substan�ve en�tlement to call interna�onal ins�tu�ons to
account. The One World Trust Global Accountability Report, published in a first full cycle from
2006 to 2008, is one a�empt to measure the capability of global organiza�ons to be
accountable to all stakeholders.
Example 1
The US Department of Organiza�on provides specific guidelines
about accountability of managers. Managers are responsible for
the quality and �meliness of program performance, increasing
produc�vity, controlling costs, mi�ga�ng adverse impacts of
agency opera�ons, and assuring that programs are managed with
integrity and comply with the law.
Example 2
At Enron, the ac�ons of a few unethical individuals caused great
harm to the broader corpora�on and all its stakeholders. The
individuals involved were held accountable to reduce the
likelihood similar things will happen again in the future.
The Importance of Leverage
Management roles are defined by the capacity to mo�vate and leverage human capital in the
organiza�on to achieve efficiency in opera�ons.
Key Points
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While there are different ways to view the concept of gaining
leverage as a manager, the underlying principle should be one of
synergy.
Managers are responsible for planning, organizing, staffing, direc�ng,
monitoring, and mo�va�ng employees to create leverage in an
opera�onal system. Leverage primarily revolves around effec�ve
delega�on and mo�va�on.
Effec�ve managers must have a thorough understanding of each
employee’s strengths and weaknesses, as well as their aspira�ons and
mo�vators, to appropriately carry out essen�al tasks.
Through combining delega�on and mo�va�on skills, managers
effec�vely leverage human capital to achieve high levels of efficiency
and employee sa�sfac�on.
Key Terms
incen�ves—ways to promote a desired ac�on
leverage—technique used to mul�ply gain or loss
synergy—benefits resul�ng from combining two different groups,
people, objects, or processes
Why Leverage Ma�ers
Management roles are defined by the capacity of the manager to mo�vate and leverage human
resources in an organiza�on to achieve efficiency in opera�ons. As a result, effec�ve managers
can op�mize the �me and effort of employees to a�ain the highest possible value.
Op�miza�on requires a thorough understanding of basic managerial func�ons and how
incen�ves can be applied according to mo�va�onal theories in the workplace.
Although there are different ways of understanding the concept of gaining leverage as a
manager, the underlying principle should be one of synergy. The concept of synergy
emphasizes that one addi�onal employee’s output is greater than an arithme�c expecta�on.
More simply put, synergy means that 1 + 1 > 2. A common adage in is that the synergy
equa�on is 1 + 1 = 3. Leverage, therefore, is about ge�ng more out of a system than the
combined inputs, resul�ng in value added.
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Design Management
Design management: Teams can create solu�ons through integra�on, giving the manager the
ability to solve problems more complex than one individual can handle.
Managerial Func�ons and Leverage
Managers are responsible for planning, organizing, staffing, direc�ng, monitoring, and
mo�va�ng employees through the use of highly developed decision‑making and interpersonal
skills.
Delega�on
Planning, organizing, and staffing are the preliminary steps to carry out a project, set
schedules, and construct a team with the appropriate skills to execute the project effec�vely.
This half of managerial responsibili�es falls largely within the decision‑making realm, which
correlates to a manager’s ability to organize tasks and delegate them effec�vely to gain
leverage.
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The concept of delega�on enables managers to minimize their own �me commitment to
specific elements of a process, as well as improve quality and efficiency through the use of
specialists (managers are typically generalists). Delega�on therefore allows managers to
op�mize team structures and skill‑set distribu�on to encourage synergy. Effec�ve managers
are able to juggle a number of teams of specialists, empowering their autonomy and
controlling the workflow so it aligns with organiza�onal objec�ves. Delega�on is easy on
paper, but it requires a number of intrinsic skills such as communica�on, organiza�on,
mul�tasking, and the ability to “zoom out” and observe the bigger picture, and iden�fy the
cri�cal components.
Mo�va�on
Planning, organizing, and staffing are followed by the more interpersonal elements of
management: direc�ng, monitoring, and mo�va�ng the staff. At this point, managers face the
challenging task of assessing the skills of employees, assigning relevant tasks, monitoring
progress, and providing incen�ves to drive produc�vity. Managers must have a thorough
understanding of each employee’s strengths and weaknesses, as well as aspira�ons and
mo�vators, to appropriately carry out these tasks. As a result, understanding mo�va�onal
theories is at the heart of effec�vely managing employees.
Mo�va�ng employees to leverage the human resources within an organiza�on is central to a
manager’s responsibili�es. It is achieved by understanding what drives produc�vity. Generally,
posi�ve incen�ves far outweigh nega�ve ones in leveraging employees. To gain leverage,
managers must ascertain what opportuni�es will drive the highest level of produc�vity in their
work groups.
By effec�vely combining this mo�va�onal understanding with the expecta�ons and
responsibili�es of managing employees, managers effec�vely leverage human capital to
achieve high levels of efficiency and employee sa�sfac�on.
Example
A business with high liquid capital may invest in informa�on infrastructure to increase
automa�on and reduce the cost of produc�on. These changes will ul�mately achieve a
higher produc�vity.
The Importance of Performance Targets
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Performance standards mo�vate employees and management to use their �me efficiently by
se�ng achievable objec�ves.
A key performance indicator ( KPI ) sets a performance standard for
an organiza�on, a business unit, or an employee.
Goal se�ng means establishing what a person or an organiza�on
wants to achieve. Goals should be specific, measurable, achievable,
realis�c, and �me‑targeted (SMART).
Mo�va�on is the key component to effec�ve goal se�ng.
Organiza�ons must consider performance targets within the context
of crea�ng mo�vated employees, who will in turn perform more
effec�vely.
Performance targets are par�cularly useful because they can be
quan�fied, allowing the measurement of outcomes and assessment
of opera�ons.
Key Terms
KPI—Key Performance Indicator; a tool to measure performance
mo�va�on—willingness to perform an ac�on, especially a behavior;
an incen�ve or reason for doing something
Managerial effec�veness is o�en assessed on the ability to achieve performance targets. Three
basic concepts are involved in communica�ng and achieving targets: key performance
indicators, goal se�ng, and mo�va�on.
Performance Indicators
A key performance indicator is a tool for performance measurement used by organiza�ons. It
is used to set a performance standard for an organiza�on, a business unit, or an employee. It is
also used to evaluate the overall success of the organiza�on and the success of a specific
ac�vity in the organiza�on.
Key Points
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Success can be defined as progress toward strategic or opera�onal goals like zero defects,
percentage of customer sa�sfac�on (or reten�on), or profitability margins. KPIs are usually
understandable, meaningful, and measurable. For the employee to achieve them, objec�ves
should be clear and simple to understand.
Goal Se�ng
Goal se�ng is an effec�ve tool for progressive organiza�ons, because it provides a sense of
direc�on and purpose. Employees benefit greatly from understanding expecta�ons of them
and how they can measure this success (or lack thereof). A clear concept of achievement leads
to independent personal development, and goal se�ng can improve the organiza�on’s
performance. Challenging goals tend to result in higher performance.
Goal se�ng means establishing what a person or an organiza�on wants to achieve. In se�ng
objec�ves, managers must ensure the goals are both understandable and achievable to meet
performance targets. The SMART (specific, measurable, achievable, realis�c, and �me‑
targeted) model is a good framework for genera�ng goals and objec�ves.
SMART Criteria
Specific Goal must be specific enough to avoid confusion. Answer what, who, when, where, and why when se�ng goals.
Measurable Goals need benchmarks and degrees of success to be useful. Including a scale of assessment is integral to a good goal.
Achievable Objec�ves should always be within the grasp of the individual for whom they are assigned. Unreachable goals ul�mately lead to frustra�on.
Relevant Objec�ves should be relevant to the broader organiza�onal mission, and this relevance should be communicated.
Time‑ bound
Goals should also be confined by set period of �me for comple�on.
Source: Wikipedia Crea�ve Commons Content (h�p://en.wikipedia.org/wiki/SMART_criteria)
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The SMARTER framework adds that objec�ves should be evaluated and reviewed consistently.
Mo�va�on
Mo�va�on elicits, controls, and sustains certain goal‑directed behaviors. There are a number
of approaches to mo�va�on: physiological, behavioral, cogni�ve, and social. Mo�vated
employees are also more quality oriented and produc�ve.
Financial Rewards for Managers
Career success and fulfillment hinge on effec�ve human‑resource management and
empowering employees with the necessary tools and skills.
Understanding an employee’s needs and future objec�ves is cri�cal
in assigning them responsibili�es that align with their goals and that
will serve to develop their skill set in a desired direc�on.
When assigning tasks, managers must keep career success and
development in mind. It is beneficial to plan and implement employee
objec�ves based upon career aspira�ons and skills.
Managers are also tasked with monitoring and reviewing employee
outcomes with an eye for improvement opportuni�es. Performance
monitoring allows for ac�ve skill development through construc�ve
feedback.
Managers may employ numerous tools in developing employees in a
meaningful and fulfilling way to ensure their future success. These
tools include case studies, consulta�on, mentoring, and technical
assistance.
Key Term
empower—to give someone the strength or the means to accomplish
a goal
Key Points
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From a human‑resources framework, managers are largely responsible for the well‑being of
their employees with regard to opportuni�es for career development and personal fulfillment.
Understanding an employee’s needs and future objec�ves is cri�cal in assigning them
responsibili�es that align with their goals and that will serve to develop their skill set in a
desired direc�on. A manager is also a leader, and leadership is a complex facet of the
managerial process. Leading employees in an empowering way and enabling career success
and fulfillment are central to improving employee outcomes and crea�ng more value for the
organiza�on.
When assigning tasks, managers must keep career success and development in mind. A
reasonable rule of thumb is the plan‑implement‑monitor‑review model illustrated in the figure
below. Planning (based on employee objec�ves) and implemen�ng (based upon shared
exper�se) provide a framework to move the employee in the direc�on of success. Monitoring
progress and reviewing it will allow the employee to remain meaningfully engaged, working
toward the common goal of success while gaining experience and skills from managerial
exper�se.
Employee Development Model
Facilita�ng employee success: By employing these steps, a
manager can help their employees be successful.
Combining this model for success with a working understanding of a given employee’s
objec�ves and fulfillment needs helps to ensure that employees remain mo�vated and
sa�sfied with their current roles. Empowering employees in a developmental direc�on and
providing them with challenges that stretch their abili�es are substan�al mo�vators. These are
important developmental tools companies can use to obtain the highest possible value from
their human resource investments.
Strategies for Promo�ng Employee Success
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Promo�ng career success for employees and managers involves crea�ng developmental goals
that build stronger skills and aim toward fulfillment. Goal crea�on is generally achieved using
varying approaches and experiences. These may include coaching, higher educa�on,
mentoring, reflec�ve supervision, technical training, and consulta�on. Knowing when to apply
which par�cular approach is the primary responsibility of a manager, as is assessing employees’
progress and trajectory toward comple�ng their personal career objec�ves. Following are a
few tools managers can use to op�mize returns on career development:
Case study method. Case studies are an excellent way to drive employee experience in a
realis�c and meaningful way. These incorporate situa�ons that have occurred in the past
as a method for prac�cing decision making and assessing performance. Conclusions can
then be drawn by the employee or manager assuming the role of decision maker.
Consulta�on. Consul�ng assesses employee abili�es by observing performance,
reflec�ng upon observa�ons, and sugges�ng methods for improvement. This process is
an important responsibility of any manager.
Mentoring. Mentoring is an excellent approach to enhance career success. A manager
matches two employees of different experience levels to learn from one another.
Mentoring is usually accomplished by allowing an outside observer to evaluate and
suggest improvements for newer employees who have had less �me to develop in a
par�cular role.
Technical assistance. Helping employees implement new technologies and acquire
modern skill sets is a growing field in career development. Technical training is provided
to enable employees to be more effec�ve with newer methodologies, tools, and
equipment. This approach can be par�cularly important to career development for older
demographics that may have extensive experience in more tradi�onal methods.
Licenses and A�ribu�ons
Core Requirements of Successful Managers (h�ps://courses.lumenlearning.com/boundless‑
management/chapter/core‑requirements‑of‑successful‑managers/) from Boundless
Management by Lumen Learning, originally published by Boundless.com, is available under
a Crea�ve Commons A�ribu�on‑ShareAlike 4.0 Interna�onal
(h�ps://crea�vecommons.org/licenses/by‑sa/4.0/) license. UMUC has modified this work and
it is available under the original license.
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