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Chapter 1 An Overview of Management

Chapter 2 The History of Management Thought

Principles of Management Part1

O.C. Ferrell

Robert Gatewood

Linda Ferrell

Robert Taylor

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PRINCIPLES OF MANAGEMENT

O.C. Ferrell, University of Mexico Robert Gatewood, University of Geogia Linda Ferrell, University of Mexico Robert Taylor, University of Memphis

The authors would like to acknowledge Jennifer Sawayda and Jennifer Jackson for conducting research, editing and assisting in the preparation of this manuscript. We also would like to thank Terri Merrill and Mary Jacobsen for editing, designing and the production of the book. In addition, we would like to thank numerous authors of cases created for this textbook. Finally, we would like to thank Nassar Nassar for his guidance, support and encourage- ment in the development of this book.

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iii Contents

Contents

part 1 An Overview & History of Management Chapter One An Overview of Management 2

Inside Management - Ursula Burns An American Success Story 3 Introduction 4 The Nature of Management 4 The Impact of Management 5 The Functions of Management 7 Planning 7 Organizing 8 Leading 8 Controlling 8 Management Decision Making 9 Management Roles 11 Interpersonal Roles 12 Informational Roles 12 Decisional Roles 13 Management Skills 15 General Skills 15 Business Dilemma: You’re the Manager ... What Would You Do? 18 Specific Skills 20 Situational Differences in Management Activities 21 Level of Management 22 Area of Management 22 Organizational Size 23 Organizational Culture 24 Industry 25 Profit versus Nonprofit Organizations 26 Can You Learn Management in a Manage- ment Class? 26 Eye on Management - Can Management Restore Bank of America’s Reputation? 28 Summary and Review 30 Key Terms and Concepts 31 Ready Recall 31 Expand Your Experience 32 Strengthen Your Skills: Flexibility 32

Chapter Two The History of Management Thought 36

Inside Management - Business Maxims, Circa 1890 37 Introduction 38 A Cultural Framework for the Development of Management Theory 38 The Protestant Ethic 39 Capitalism and Division of Labor 40 The Industrial Revolution 41 The Productivity Problem 41 The Development of Management Theories 43 The Classical Approach 44 Scientific Management 44 Administrative Management 49 Contributions of the Classical Approach to Management Theory 53 The Behavioral Approach 53 Mary Parker Follett 54 The Hawthorne Studies 55 Abraham H. Maslow 56 Douglas McGregor 57 The Systems Approach 57 Chester Barnard 59 W. Edwards Deming 60 The Contingency Approach 60 Business Dilemma: You’re the Manager ... What Would You Do? 61 Management Theory: Past, Present, and Future 62 Eye on Management - Lundberg Farms Uses a Behavioral Approach to Management 65 Summary and Review 66 Key Terms and Concepts 67 Ready Recall 68 Expand Your Experience 68 Strengthen Your Skills: Thinking 68 Case Studies - Sigma Marketing: Managing in a Changing Market 73 Glossary 83

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After reading this chapter, you will be able to:

Outline

An Overview of Management

Introduction

The Nature of Management

The Impact of Management

The Functions of Management

Management Decision Making

Management Roles

Management Skills

Situational Differences in Management Activities

Can You Learn Management?

Chapter1

Define management and describe its purpose in organizations. •

Determine the effect that management actions have on the manager •

and others in the organization.

List the major functions of managers. •

Explain the importance of decision making in management activities. •

Describe the many roles managers play in an organization. •

Specify why different managers perform different job activities. •

Review what you can reasonably learn from a textbook about how to •

perform management activities.

Evaluate a small business owner’s management skills and propose a •

future course of action for the firm.

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Ursula Burns an American Success Story

In 2009, Ursula Burns became the first African American female CEO of a major corpo- ration (Xerox). Individuals in business, nonprofits, and the U.S. in general herald her succession as a major motivator for young women and minorities to achieve their goals. Burns, however, credits her rise from intern to CEO to hard work. While she admits that Xerox’s support of diversity probably helped at the beginning, her straightforward

style and high work ethic have driven her to the top.

Raised in poverty by a single mother who embraced an entrepreneurial at- titude to acquire a high quality educa- tion for her children, Burns excelled in math and earned degrees in engineering at Brooklyn’s Polytechnic Institute and Columbia University. She first went to work at Xerox as an intern in 1980 and never left. Burns was quickly promoted, finally becoming president in 2007 and CEO in 2009.

Thanks to her no-nonsense management style, Burns has been credited with Xerox’s turnaround. According to her peers, she has all the skills necessary to successfully lead Xerox as the company’s top manager: technical expertise and conceptual, analytical, and human relations skills. Her abilities to make tough decisions, explore options, and handle the consequences appear impressive. When Xerox was in a crisis, Burns acted quickly. She moved Xerox away from manufacturing and focused on Xerox’s core com- petencies. Burns also identified gaps in Xerox’s product offerings and filled them with lower-end Xerox products, giving the company the largest product offering in Xerox’s history. By reducing costs and recognizing creative opportunities, Burns has helped increase Xerox’s profitability and has demonstrated adept leadership skills.

Burns will need these skills in coming years. During the most recent and deepest eco- nomic recession in 80 years, Xerox faced losses as customers purchased less and prod- uct prices fell. A growing concern for the environment is also impacting Xerox. As people reduce, they use less paper and move away from xeroxing to e-mail as a means of shar- ing information. On her side is Burn’s ability to see the innovative path. If anyone can turn Xerox in a new direction that matches the changes being made worldwide, Burns may just be the one to make it happen.1

3Chapter One: An Overview of Management

INSIDE MANAGEMENT

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T he different skills and creativity that Ursula Burns possesses illustrates the diversity in management activities, which is one reason why management seems difficult to teach and learn. We

believe that general principles or concepts exist that can be applied to all these different activities. Not surprisingly, our purpose is to share with you these general principles, which are important for understand- ing and learning management.

Our basic idea in this chapter is that, in order to understand what management is, it is necessary to know how it is similar and different across organizations. There are a number of similarities. All manag- ers make decisions about the use of organizational resources to reach organizational goals; engage in the same basic activities of planning, organizing, leading and controlling; and act in the same general roles for their organizations. On the other hand, the specific task activities of managers can vary greatly due to differences—such as size and indus- try—in the characteristics of the organizations to which they belong.

THE NATURE OF MANAGEMENT

Management is a set of activities designed to achieve an organiza- tion’s objectives by using its resources effectively and efficiently in a changing environment. Resources are used to accomplish the man- ager’s intended purpose. Effectively means having the intended re- sult; efficiently means accomplishing the objectives with a minimum of resources. Both are part of good management—reaching objectives with a minimum of cost. One factor that makes management difficult is that the work situation constantly changes. That is, such factors as employees, technology, competition, and cost vary greatly. Managers are individuals who make decisions about the use of the organization’s resources, and are concerned with planning, organizing. leading, and controlling the organization’s activities so as to reach its objectives. (See Figure 1.1.)

Although it may seem that management activities are quite diverse, they share some common characteristics. First, all activities occur

Introduction Introduction

4 Part One: Principles of Management

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5Chapter One: An Overview of Management

within the context of an organization. Organizations are groups of in- dividuals who work together to achieve the goals or objectives that are important to these individuals. For example, the New York Yankees is an organization that tries to win baseball games and is in the sports and entertainment business. The Red Cross tried to attract donations and volunteers to assist with disasters. General Motors is trying to sur- vive my making and selling vehicles that satisfy customers. Thus, these organizations must have managers who are essential to their success.

Second, managers are in charge of the organization’s resources—peo- ple, equipment, finances, data—and of using these resources to help the organization reach its objectives. How well a manager coordinates the firm’s activities and organizations and uses its resources deter- mines not only how well the organization accomplishes it objectives but also how the manager will be judged in terms of job performance. Financial institutions, such as Lehman Brothers, Merrill Lynch, and Countrywide Financial, all failed to properly determine risks and made poor decisions resulting in their failures.

THE IMPACT OF MANAGEMENT

The management practices of an individual affect more than just one person. Management is characterized by interaction with others, deci- sion making, and the completion of work tasks. Because such activities are not carried out in isolation, management reaches several different groups connected with the organization. Moreover, management’s ef- fect is not neutral. If management is done well, it has a positive impact

FIGURE 1.1

Common Characteristics of Management Characteristics

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6 Part One: Principles of Management

on these groups; if management is done poorly, it has a negative effect. It is important to recognize that all management decisions have conse- quences.

As shown in Table 1.1, the three groups most impacted by management activities are the manager, the manager’s immediate subordinates, and the manager’s organization. This table illustrates some of the effects on all three of these groups. You can probably think of others, based on your own experiences. From the manager’s perspective, those who manage well are distinctly successful. Successful managers will be given the opportunity to manage more resources and will be asked to make decisions that have even more impact on the organization.

Obviously, a manager’s subordinates are directly affected by his or her actions. If the work process is organized well, everyone performs better, which is reflected by the performance appraisals of individual workers. Good performance appraisals can result in increased financial rewards and advancement opportunities. Research also suggests that employ- ees’ relationships with their manager strongly affect their work atti- tudes, such as commitment, satisfaction, and work involvement.2

Finally, by its very nature, management affects the number and the quality of the organization’s goods and services. As we have said ear- lier, managers coordinate the organization’s resources to help it reach organizational objectives. If the manager coordinates poorly or makes poor decisions, the organization’s objectives will not be met as well or as quickly.

A good example of the impact of management decisions is an operation that we all are familiar with—an auto repair shop. Customers are dra- matically affected by a number of decisions: the quality of parts used

TABLE 1.1

The Manager

Self-esteem

Career development

Time allocation

Relationship with others

Subordinates

Work attitudes

Self-esteem

Performance

Career development

Organization

Productivity

Quality

Customer service

Environment

The Impact of Management

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7Chapter One: An Overview of Management

in the maintenance of repair equipment and the extent to which lead- ing technology is utilized. Even more noticeable to most customers is how the manager handles disputes. The extreme ranges from the shop redoing questioned work at no expense to refusing to adjust any but very obvious mistakes. Employees are greatly affected by other types of decisions: the extent of training that is company sponsored, the com- pensation system used, and the maintenance of the physical facilities.

THE FUNCTIONS OF MANAGEMENT

All management activities can be classified into four major functions: planning, organizing, leading, and controlling. We will discuss these separately, but they usually occur simultaneously in management activities.

Planning

Planning involves determining what the organization will specifically accomplish and deciding how to accomplish these goals. How to use the resources at the command of the manager is the objective of plan- ning. For example, after the manager of the New York Yankees base- ball team determines which opposing team is next on the schedule, he plans which pitchers and players to use in the line-up to try to win the game. At Pizza Hut, an individual store manager plans ahead by antici- pating the next week’s demand for food, which may be affected by vari-

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8 Part One: Principles of Management

ables such as weather and holidays. She then plans a work schedule of employees, orders supplies, and inspects all equipment, including delivery vehicles, to try to meet that demand.

Organizing

Organizing refers to the activities involved in designing jobs for em- ployees, grouping these jobs together into departments, and developing working relationships among organizational units/departments and em- ployees to carry out the plans. Some organizing activities, such as form- ing committees, developing work teams, and staffing for special projects, occur frequently. Others are more periodic. For example, the depart- mental structure that results from the organizing function is retained until something suggests that a change in structure is needed. Within the New York Yankees baseball organization, for instance, there may be departments for scouting, player development, ticket sales, and promo- tion. The Yankees’ manager can use all these departments to carry out his plans for leading the team to success and financial profits.

Leading

Leading refers to influencing others’ activities to achieve set goals. Lead- ing is based on knowledge of the principles of human behavior. Basi- cally. a manager attempts to organize the work environment to obtain high work performance from employees. Even though there is much more to be learned, we already understand a lot about how to influence individuals’ performance. For example, there are ample data to indicate that selection, training, and communication along with goal-setting lev- els, compensation, and work design are among the organizational fac- tors that managers can use to significantly affect an employee’s job per- formance.3 The manager of the Yankees, for example, must lead and motivate highly publicized athletes who often earn millions of dollars. They also maintain the support of the fans and other stakeholders. On the other hand, employees at a Pizza Hut restaurant, for the most part, are students working part time for minimum wage and who do not view the work as part of their careers. In each organization, the manager at- tempts to influence the level of employees’ work performance by applying principles of human behavior.

Controlling

The management activities that we have described so far establish fu- ture goals, specify how to reach these goals, and attempt to motivate

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9Chapter One: An Overview of Management

organizational members to work toward the attainment of these goals. If all these functions are carried out properly, goals should be attained. However, we’ve all heard the expression, “the best-laid plans of mice and men.” The management function of controlling refers to those activities that an organization undertakes to ensure that its actions lead to achievement of its objectives. It involves collecting and analyz- ing information about work performance and taking corrective action if this information indicates that performance is not contributing to goal achievement.

Returning to the Yankees baseball team, the man- ager will examine batting averages, pitching records, and other data and make changes in the line-up accord- ingly to try to win more games. Base- ball is far more than a game, however.

It is a big business. Management must take into account and analyze revenues statistics related to ticket sales, concessions, sales of team- related retail products, and other promotional items.

MANAGEMENT DECISION MAKING

Along with the four basic management functions, all managers engage in the decision-making process—gathering information, using informa- tion to reach a decision, and implementing the decision (Figure 1.2). Each of the four management functions requires a manager to make decisions. Planning, for example, requires gathering information about future objectives, assessing the organization’s ability to reach those objectives, and drawing up specific actions needed to guide the organi- zation toward achievement of its objectives. In essence, processing the appropriate information is the key to planning.

As another example, leading—influencing employees’ performance— also requires a lot of information gathering. The manager must under- stand the principles of human behavior and the factors that positively and negatively influence performance. He or she must also be familiar with employees’ characteristics such as job skills, desire for achieve-

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10 Part One: Principles of Management

ment, and work commitment because these are linked to individual work performance. Moreover, the manager should know what char- acteristics of the work situation influence performance, such as the level of difficulty of operating the technology and the time allowed for completing each task. Obtaining this information should precede the manager’s evaluation of what alternatives are available in a particular situation, as well as the implementation of the chosen alternative.

While this decision-making process may sound easy to carry out, it is very difficult. The difficulty lies in the complexity of the information gathered and the uncertainty of the decision process and the meth- ods of implementing the decision. For example, account managers in computer software firms have a number of important decisions to make with very little certain information. Typically the account man- ager comes in after the sales representative has made the sale and has promised services and programs to the new client. In a short time, the account manager must prepare a service plan that includes a schedule of events such as training, on-site visits, trials of the software pro- grams, and quality-control test runs. To do this, the account manager must make specific commitments of personnel, products, and equip-

FIGURE 1.2

An Example of Management Decision Making: Influencing Employees’ Performance

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11Chapter One: An Overview of Management

ment. These commitments, in turn, become the milestones upon which the software company is judged by the client. Yet, these decisions are often made with only limited data about the expertise of the client’s employees, the condition of the necessary company data and records, and the accuracy of the client’s own judgment of needs.

TABLE 1.2

General Role Category

Interpersonal

Informational

Decisional

Specific Role

Figurehead Liaison

Leadership

Monitor Disseminator

Spokesperson

Entrepreneur Disturbance Handler Resource Allocator

Negotiator

Example Activity

Attending award banquet Coordinating production schedule with supply manager Conducting performance appraisal for subordinates Contacting government regulatory agencies Conducting meetings with subordinates to pass along policy changes Meeting with consumer group to discuss product safety Changing work process Deciding which unit moves into new facilities Deciding who receives new computer equipment Settling union grievance

Mintzberg’s Ten Management Roles

MANAGEMENT ROLES

Another aspect common to all managers is the role that management activities serve within organizations. By role, we mean a set of similar organized activities that serve a specific purpose for the organization. Henry Mintzberg, a noted management professor, has published sev- eral reports about what managers did for a number of days and took detailed notes about whom they met with, what they did, and the pur- pose of their activities.4

We have already grouped management activities into planning, orga- nizing, leading, or controlling, all of which emphasize the work process for which managers are responsible. Mintzberg described ten specific roles that managers perform, which, in turn, can be grouped into three larger categories—interpersonal, informational, and decisional (Table 1.2). While Mintzberg’s roles also categorize management activities, they describe more specific categories of work, activities with individu-

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12 Part One: Principles of Management

als external to the organization, and activities that support work ac- tivities. As such, Mintzberg’s roles provide additional information for understanding management. His ten categories, taken together, also underscore our previous point that gathering information, making de- cisions, and implementing decisions are the critical processes of man- agement. Mintzberg’s ten roles identify ten sets of activities used to carry out decision making.

Interpersonal Roles

Interpersonal roles refer to activities that involve interacting with others who may be external or internal to the organization at a higher or lower level than the manager. These roles allow the man- ager to gather information for the decisions that must be made. The first of the interpersonal roles describes the formal activities in which the manager acts as a public official for the company. These activities may range from award banquets to ribbon-cutting cer- emonies for the opening of new offices. In this role, managers often deal with people external to the organization, and the activities are not directly related to the work process.

In the liaison role, the manager interacts with peers outside of the or- ganization. This role is, therefore, composed of a network of relation- ships. Online social networking sites, such as Facebook, LinkedIn, and Twitter, provide the opportunity to reach almost anyone interested in the organization.

As we have already mentioned, the leadership role requires actions that define and direct the work activities of employees. This role naturally requires the manager to obtain information concerning the status of the work activities of members of the organization.

Informational Roles

The second category of roles includes activities that Mintzberg regarded as focused almost exclusively on the transmission of information. In- formational roles are activities—including reporting, preparing data analyses, briefings, delivering mail, emailing, websites, and making telephone calls—that focus on data important for the decisions the manager needs to make. In describing these roles, Mintzberg referred to the manager as being the “nerve center” and the “focal point” of in- formation for the organization. For example, a manager of a securities investment group receives information from the company’s research division and outside consultants regarding both securities that are ex-

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13Chapter One: An Overview of Management

pected to do well in the future and those that are not, and passes this information to the brokers in the group. The brokers, in turn, gather information about clients’ attitudes concerning investing. They then give this information back to the manager.

As monitor, a manager seeks information to detect problems or oppor- tunities, obtain general knowledge about the work situation, and make necessary changes. While much of this information comes from formal mechanisms such as websites, reports, news media, and public fore- casts, more comes from informal conversations with both organization members and those external to the organization. Managers use this in- formation in two ways: (a) to review performance and plans for changes in the work process and (b) partly to pass on to others in the manager’s informational roles of disseminator and spokesperson.

As disseminator, the manager sends information from external sources to various parts of the work group and information from internal sourc- es to those both internal and external to the organization. This infor- mation is of two types: facts and value information. Factual data are of observable events that can be checked for accuracy, such as produc- tion figures, contract specifications, and so on. A United Way manager, for example, will tell the volunteer fund raiser how close to the goal is the total amount raised. Value information is about preferences—that is, the opinions and attitudes of others about “what ought to be” or the present condition of the work or products. Customer judgments of product safety are one example.

In the spokesperson role, the manager provides information about the work group to those outside of the group. Two parties are of special concern. One is the manager’s own immediate superior, because the manager’s boss is also involved in planning, coordinating, leading, and controlling and must have as much information as possible to perform those functions. For example, a regional sales manager needs to know the correct sales performance of all the groups in the region before planning an upcoming sales campaign. The second is the organiza- tion’s “public,’ which includes customers, suppliers, trade organiza- tions, government agencies, consumer groups, and the press. Because of the manager’s position in the work unit, he or she becomes the ex- pert and the logical contact person for all information about the unit.

Decisional Roles

Mintzberg describes decisional roles as the most crucial part of the manager’s work. Decisional roles are activities that deal primarily with the allocation of resources in order to reach organizational objec-

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14 Part One: Principles of Management

tives. Managers use the information gathered in the interpersonal and informational roles to make judgments that affect both the short- and long-term well-being of the firm. In the role of entrepreneur, the man- ager acts as the initiator and designer of changes within the work group. These changes may be in employee skills, work redesign, infor- mation reports, and goods or services provided. The decisions require as much factual data as possible. For example, productivity reports, customer satisfaction surveys, consumer buying patterns, trends in the cost of raw materials, and educational and training statistics are some of the data that can be used.

While the entrepreneur role deals with voluntary change by the man- ager, the role of disturbance handler deals with change forced on the manager by other factors. The manager acts because it is a neces- sity—a disturbance occurs and a solution must be found. There are three types of disturbances: conflicts among individuals, interaction difficulties between one unit and another, and conflicts over the re- sources of conditions that may cause such disturbances as departure damage to the physical facility, the loss of an important customer, a sudden rise in the price of labor or raw materials, or a disagreement between subordinates. An economic or financial crisis can change purchasing patterns and the business environment. For the most part, these disturbances require quick action and solutions to the problem. More long-term adaptations are subsequently developed.

Another decisional role is that of resource allocator, who both protects and uses the unit’s assets—money, time, material and equipment, human resources, data, and reputation. Control systems are used to protect resources such as cost of travel, materials, and training. Such control systems are the result of decisions to conserve resources.

The final role is that of negotiator, which focuses on reaching agree- ments with others outside the work group on work-related issues or materials, such as labor unions and leasing agreements concerning machinery and vehicles. This role includes agreements with other units within the organization regarding the arrival and quantity of necessary goods, use of common equipment, and the exchange of rare personal skills. It can also include reforming and restructuring companies.

Mintzberg’s description of roles provides important information about the specific activities that managers perform in carrying out the plan- ning, organizing, and leading functions. In addition, it also provides more detail about activities involved in the management process of collecting information, making decisions, and implementing them. All of this information is intended to present the clear idea that man-

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15Chapter One: An Overview of Management

agement is not “the ability to work with others” or a function of the “personality” of the manager. Rather, management is a complex set of activities that use extensive skills, knowledge, and abilities to per- form—many of which can be learned.

MANAGEMENT SKILLS

In a general discussion of management such as this, it is useful to de- scribe what skills are necessary to operate successfully as a manager. Given the complexity of management, it is not possible to list all of the necessary skills; instead, we will discuss a representative sample of the general and specific skills that managers need.

General Skills

One way to categorize skills that managers need are by classifying them as interpersonal, technical, or conceptual.5

Interpersonal Skills. Many of the ten management roles described by Mintzberg involved interacting with others inside and outside of the or- ganization. The success of these depends directly on a manager’s inter- personal skills, such as communication, listening, conflict resolution, and leading that are necessary to work with others.

Interactions with others take many forms. Within a work unit, for exam- ple, a manager might select and set up new computer systems, review an employee’s work performance, or try to determine if an employee’s poor performance is a result of drug or alcohol addiction. Activities outside the work unit are equally varied, and may include responding to hostile consumer or environmental groups concerning the firm’s sustainability; joining a trade association to learn more about ethics and compliance programs; or donating time to a community service organization. In each of these instances, the manager’s interpersonal skills in clearly communicating, listening to others, and arriving at a mutually accept- able agreement become essential to the organization’s well-being.

Technical Skills. Most managers work within a specific department or administrative unit of an organization, and, in most cases, such depart- ments handle a specialized portion of the firm’s work. Therefore, there are accounting managers, research and development managers, sales managers, scheduling managers, and so on. These managers use their departments’ resources to plan, organize, lead, and control the work of the organization.

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16 Part One: Principles of Management

To manage their departments’ work, managers must have techni- cal skills, or the knowledge and ability to accomplish the specialized activities of the work group. For example, the accounting manager must know current tax reporting regulations, how to apply account- ing systems to new products, and how to compile financial report- ing data. If the manager lacks these skills, he or she will not be able to make correct decisions or answer employees’ questions about job tasks. Obviously, the more complex and advanced the work of the department becomes, the more technical skill the manager requires. For example, financial managers in investment banks frequently are concerned with only one investment area such as bonds, derivatives, or hedge funds. Therefore, these managers must he extremely knowl- edgeable about the particular investment area they are managing. In many organizations, a manager’s career track is within one technical area until he or she reaches the very highest levels of management.

Conceptual Skills. Earlier, we said that a key part of management is gathering information and making and implementing decisions. Conceptual skills, the intellectual abilities to process information and make accurate decisions about the work group and the job tasks, are essential to this process. First, a manager must be able to understand and retain a large amount of data, obtained while carrying out his or her informational role. Second, he or she must analyze this data in various ways in order to understand their mean- ing. Some analyses are statistical, such as forecasts of consumer

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17Chapter One: An Overview of Management

demand based on past buying patterns. Other analyses are essen- tially judgmental, such as estimating consumer demand by tak- ing into account expected changes in the local economy. Third, the manager must use an analysis to select a course of action among several options. If the economy is expected to expand over the next six months, for example, should the firm increase production and marketing activities? These decisions require the conceptual skills of reasoning, information processing, and evaluation.

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18 Part One: Principles of Management

B U S I N E S S D I L E M M A

As a child growing up in the Midwest, Shelly Acres learned how to make pies from her mother and grand- mother—rhubarb, boysenberry, ap- ple, almost any variety you can imag- ine. The pies were always praised and never lasted long enough to cool off. When Acres graduated from Iowa State University with a business administration degree, she decided to take some big risks and enter the world of business by making and m a r k e t i n g specialty pies. She had to plan, organize, and control the business with lim- ited experience.

Acres and a supportive friend bought a commercial oven from a bakery that had gone out of business and purchased used food processors to knead the pie crusts. She converted one of the machine sheds on her fam- ily’s farm into a small pie factory. To support the business and convert the shed, Acres borrowed $25,000 from a local bank. As she was unable to get the loan on her own financial merit, her parents had to cosign the note and put up their home as collateral. They cosigned because they believed

You’re the Manager . . . What Would You Do?

THE COMPANY: Mrs. Acres Homemade Pies YOUR POSITION: Owner THE PLACE: Ames, Iowa

in their daughter’s skills and vision in organizing the venture.

Acre’s conservative business plan for Mrs. Acres Homemade Pies was to sell them initially through local su- permarkets and select family restau- rants. This required communicating

with customers about the quality of the product. The company

name sprang from the notion that the

image for the pies should be that of a

grandmother, not a 23-year-

old college grad- uate. The image

was further extended to incorporate the use of all natu-

ral ingredients, the fact that the pies were homemade, and the unique variety of flavors available.

In the first six months, Acres and a few part-time employees made 100 pies per day at a gross profit margin of $1.70 for each pie. The reception to the pies was extraordinary: restau- rants began to produce table promo- tional pieces featuring the local pies, and production could not keep up with demand. Acres made a profit of nearly $3,500 per month of the first half year. Local magazines and news papers approached her for interviews

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19Chapter One: An Overview of Management

B U S I N E S S D I L E M M A

and recipes for these “hot” pies. She seemed to have the ability to control daily operations and continue expan- sion.

Acres began expanding operations, borrowing an additional $10,000. The staff increased from three part- time to four full-time employees, and sales increased from 100 to 400 pies per day. All the employees were loyal friends whom she knew growing up in Iowa. Profits soared to $18,000 per month. The key to success for Mrs. Acres Pies was Acres’ close supervi- sion, the strong support and motiva- tion of her employees, a profit-sharing plan that spurred productivity and innovation for new recipes/flavors of pies, and a keen business sense. Her employees began to feel they were part owners of the business.

Currently, demand has again accel- erated beyond supply and Acres is faced with several options. She can expand present facilities and add more staff possibly beyond her in- ner circle of friends. She can lease or purchase new facilities—with higher production and lower distribution costs, the gross margin could be in- creased. A national frozen pie com- pany has suggested a joint alliance to make pies for national supermarket chains under her name, recipes, and guidance, and she would not have to continue to manage production. A breakfast chain has also proposed a joint venture for production and mar-

keting of her pies under a licensing arrangement that would give her a percentage of each pie sold with min- imal involvement on her part.

QUESTIONS

What management skills has 1. Acres used to make Mrs. Acres Homemade Pies successful?

What challenges does she face 2. as she evaluates these op- tions?

What is your recommendation 3. for the future of Acres’ busi- ness?

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20 Part One: Principles of Management

Specific Skills

For many years, organizations have been trying to identify the specific skills that are related to managerial job performance. Following are a few that researchers have identified across several different organizations.

• Job knowledge: Knowing the facts about equipment. materials and the work process, as well as the relationships amoung all parts of the work organization. Wxample: Knowing about personal computers’ anti-software programs.

• Oral communication: Verbally presenting information to others in such a manner that the information means the same to every- one. Example: Communicating work objectives to all members of a work team.

• Persuasiveness: Influencing others who have different viewpoints to reach agreement on an acceptable plan of action. Example: A committee member explaining a possible solution that would im- pact future group actions.

• Problem analysis: Determining why a situation does not confirm to standards and deciding what to do about it. Example; determin- ing why a group of products has failed final inspection.

• Cooperativeness: Working easily and well with others in group projects. Example: The interaction of members of a strategic plan- ning committee.

• Tolerance of stress: Continuing work performance in adverse or hostile circumstances. Example: Multiple projects coming to com- pletion at approximately the same time.

• Negotiation: Arriving at mutually acceptable joint decisions. Ex- ample: Agreeing with a supplier as to a mutually acceptable price for raw materials.

• Assertiveness: Clearly and consistently expressing a point of view on a topic being discussed. Example: Individual performance review with a subordinate who has a deficiency in work activities.

• Initiative: Determining what work activities must be pursued and starting them. Example: Determining what must be done to successfully operate new production equipment.

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21Chapter One: An Overview of Management

These are only a few of the skills research has identified as necessary for successful managerial work. Hopefully, the relationship between these specific skills and the general categories of technical, interper- sonal, and conceptual skills is obvious: These specific skills are subparts of the general categories. They all involve interacting with others, evaluating the work process, or making decisions.

Electronic social networking has advanced through email, text mes- saging, social networking websites, and various computer software ap- plications. Some specific skills many need to be refined for these elec- tronic environments. For example, email is not always a substitute for oral communication to negotiate on initiatives. Many firms are trying to find the best way to use Twitter, Facebook, and other social network sites to enhance management skills and business activities.

SITUATIONAL DIFFERENCES IN MANAGEMENT ACTIVITIES

The main emphasis of this chapter so far has been on the similarities of management activities across organizations. However, if you were to observe the activities of several managers, you would probably be im- pressed with how different their specific tasks are, even though these tasks address the same management process and functions. In this section we will explore some of the characteristics of organizations that cause these differences in management activities: level of management, area of management, organizational size, organizational culture, indus- try, and whether the organization is for-profit or nonprofit (Figure 1.3).

FIGURE 1.3

Factors in Organizations That Cause Differences in Management Activities

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22 Part One: Principles of Management

Level of Management

Managers may be classified according to their level or position within the organization. We commonly categorize managers as being in lower, middle, or upper levels of management; however, these terms generally apply only in organizations large enough to have specialization. Upper managers spend most of their time planning and leading because they make decisions about the overall performance and direction of the orga- nization. Therefore, they are usually involved in the development of goals and strategies to achieve those goals. Conceptual and interpersonal skills are especially important. Chief executive officer (CEO), chief finan- cial officer (CFO), chairman, president, and executive vice president are common titles at this level. Middle managers are those managers who receive broad statements of strategy and policy from upper-level manag- ers and develop specific objectives and plans. They spend a large por- tion of their time in planning and organizing activities. Conceptual and technical skills underlie these activities. Examples of the titles of middle managers are product manager, department head, plant manager, and quality control manager. Lower or first-line managers are those con- cerned with the direct production of items or delivery of service. These actions require leading and controlling. Because first-line managers train and monitor the performance of their subordinates, technical skills are especially important. Common titles are supervisor, sales manager, loan officer, and store manager. Middle- and upper-level managers coor- dinate the activities of specialized lower-level managers.

In terms of differences in activities necessary for performance, upper-lev- el managers have numerous contacts with people external to the organi- zation, such as when they negotiate agreements or provide information about organizational activities. Middle-level managers often associate with other managers of the organization to collect information and plan how to implement programs. Lower-level managers generally work with non-managerial employees on technical tasks.

Area of Management

We will discuss functional units, or areas of organization, in more de- tail later on. For now we will refer to these functional areas in terms of jobs with similar technical content. Human resource management, marketing, and production could all be functional areas of one organi- zation, and managers in each of these areas must gather information, make decisions, and implement programs that are appropriate for their area. For example, human resources managers are concerned with developing and carrying out systems that are used to make deci- sions about employees such as selection, training, and compensation.

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23Chapter One: An Overview of Management

Marketing managers develop marketing strategies and make deci- sions about how to implement those strategies. Finance managers fo- cus on obtaining the money needed for the successful operation of the organization and using that money in accordance with organizational goals. Financial managers project income and expenses, determine short- and long-term financing needs, and monitor and protect the financial resources of the organization. Production and operations managers schedule and monitor the work process that turns out the goods or services of the organization.

Although each of these managers engage in planning, organizing, lead- ing, and controlling, these functions take different forms due to the different technical information among them. The human resources manager may plan an instructional program on sexual harassment, while a marketing manager may plan a national television sales cam- paign. Both programs are developed to provide information to others. However, how the two proceed and the activities that they perform are quite different. (Figure 1.4).

Organizational Size

Generally, the larger a firm is, the more specialized will be its manag- ers’ activities. For example, the owner of a small business often func- tions as the chief executive officer, chief financial officer, marketing director, and production manager. On the other hand, large firms tend to employ managers who have the specialized training and experience required to work in a narrow range of activities.

Large organizations are also characterized by more formalized rules, procedures, and policies, essential to coordinating the work activities of

FIGURE 1.4

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24 Part One: Principles of Management

a large number of employees. Formalization affects a manager’s activi- ties in many ways, including the requirement of much more paperwork and reporting forms—such as work schedules, selection procedures for hiring new employees, and production or quality reports. Many interac- tions between manager and subordinates are also formalized, such as grievance and discipline meetings, performance evaluation sessions, and salary adjustment discussions. Small firms frequently have much less formalization, and coordination of employees is achieved through daily interaction. Often the only reports or forms a small business manager must complete are those necessary for legal compliance or financial reporting.

Organizational Culture

Organizational culture refers to the values, beliefs, traditions, philoso- phies, rules, and heroes that are shared by members of the organization. The culture of an organization distinguishes it from others and shapes the actions of its members. For example, by pending necessary time and re- sources, 3M encourages individuals to experiment with the development of products. Much latitude is given to an individual at 3M to pursue projects that initially do not look promising. As an example, Post-it brand notes were developed from glue that failed in its initial purpose. The glue was not able to bond items together very well. However, over time, this inadequate glue became the critical feature of a multimillion dollar product. Other organiza- tions have cultures that use financial data as the primary basis of decision making. A manager at 3M might engage in actions that encourage an em- ployee to develop a potential product, but at another company, the manager may order the employee to cease all activities because of the cost.

There are four main components of culture. The first of these is values are the basic beliefs that define success of employees in the organi- zation. For example, many state universities value academic journal publications. Others demand high student evaluations and additional signs of teaching excellence.

Heroes, the second component, are individuals who personify the com- pany’s values and serve as role models to other employees. Individuals use the norms and behavioral expectations of the organization in their decisions. The third component, rites, rituals, routines or ceremonies, and artifacts that the company uses to show employees corporate ex- pectations. For example, the Colorado-based sustainable brewery New Belgium gives employees ownership in the company and will send em- ployees that have been with the company for five years on an all-ex- penses paid trip to Belgium to learn about beer culture. Finally, the cultural network is the informal means of communication within an

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25Chapter One: An Overview of Management

organization that is the carrier of corporate stories of both heroes and those who have failed. It is difficult, if not impossible, to understand the organization without being familiar with this network.

Industry

The industry that an organization operates in determines the knowl- edge and skills its managers must possess. A manager in an oil-re- fining company needs knowledge of manufacturing, chemistry, and environmental laws, whereas a banking manager needs knowledge of investments, risk management, currency exchange rates, and titles laws. There are major differences in the activities of managers with the same titles but who operate in different industries. For example, a regional marketing manager for a consumer package goods company may deal extensively with planning, advertising, and sales promo- tions. On the other hand, a regional marketing manager for an indus- trial equipment manufacturing company may spend little time with such activities, and instead communicate directly with current and potential clients to determine specifications and the uses of equip- ment for the future. A manager in a health care organization may spend a great deal of time managing government regulations, and ethics and compliance requirements.

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26 Part One: Principles of Management

Profit versus Nonprofit Organizations

For-profit companies are owned either privately by one or more indi- viduals or publicly by stockholders. These organizations must pay taxes on profits and may be bought and sold. Nonprofit organizations are institutions such as governments, social cause organizations and reli- gious groups that cannot retain earnings over, do not have equity inter- ests, and cannot be bought or sold. Greenpeace, the Special Olympics, and United Way are examples of nonprofits.

There are two differences between these two types of organizations that af- fect management activities. First, nonprofit organizations frequently have several groups of individuals who have a major influence in setting the goals of the organization. For example, state universities are influenced by legislators, university administrators, faculty, staff, students, and state taxpayers in determining their goals and operations. Often, these groups have conflicting opinions as to what is desirable. For example, faculty may wish for fewer classes and more time allocated for research. State legisla- tors often ask for more classes and less time for research. In contrast, for- profit organizations, such as Microsoft or Apple Computer ordinarily have closer agreement as to their goals and activities.

The second difference is in how funds are generated and what may be done with them. Nonprofit organizations generally raise part of their necessary funds from the sale of goods or services; often the remainder is from government support or charitable contributions. For-profit or- ganizations exist primarily on the sale of goods and services and, sec- ondarily, on investments of corporate assets. These differences affect, among other things, the planning and organizing activities of managers in the two types of organizations.

CAN YOU LEARN MANAGEMENT IN A MANAGEMENT CLASS? The answer to this, not surprisingly, is “Sure!” If the answer were no, what would we do with the rest of the book? You can certainly learn valuable aspects of management in a college or university class. As evi- dence, many organizations develop or require formal training in man- agement that is very similar to the topics of this text and the format of your class.6

We have discussed that management is a process of collecting infor- mation, making decisions, and implementing decisions about how to use the organization’s resources to reach its objectives. Formal classes like this one are valuable for learning what data sources and types of

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27Chapter One: An Overview of Management

information are useful for making specific decisions. Classes can also point out the relationships among variables used in decision making. For example, you will learn about the relationship of organizational re- wards to the employee’s job performance in a later chapter. Knowing this relationship will be useful in deciding how to use rewards within the organization.

In addition to presenting factual data and relationships among data, formal classes can help you develop conceptual and analytical skills, which are needed by all managers. The vignettes, cases, and boxes in the chapters of this text describe work situations that can be valuable in helping you develop these skills. Finally, the discussion of organiza- tion and human behavior principles should serve as an important basis for the managerial activities associated with leading.

However, there are two aspects of management that cannot be taught fully in an introductory management textbook or class. The first is the job knowledge necessary to be successful as a manager in a specific functional area of an organization; you must acquire this knowledge from your other courses and job experience. If you are interested in being a financial manager, for example, you must acquire the basic knowledge from your finance courses and perhaps from internships or other employment in the finance industry; if your interest is in market- ing management, this job knowledge must come from your marketing courses as well as from experience as a consumer and employee.

The second aspect that cannot be taught fully is implementation of deci- sion making. We will discuss how managers go about getting their plans and decisions carried out within organizations. Simulations, role plays, and exercises can help you reproduce and develop these skills. How- ever, these teaching techniques frequently lack the long-term, repetitive interaction that characterizes management. Some form of on-the-job training is a more appropriate vehicle for teaching this skill.

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28 Part One: Principles of Management

EYE ON MANAGEMENT

Can Management Restore Bank of America’s Reputation?

B a n k o f A m e r i c a ( B o f A ) f a c e d a d i f f i c u l t f i n a n c i a l s i t u a t i o n i n t h e m i d s t o f a g l o b a l b a n k i n g c r i s i s r e l a t e d t o s u b p r i m e l o a n s a n d l o a n d e f a u l t s . B o f A w a s f o r c e d t o a c c e p t a $ 4 5 b i l l i o n g o v e r n m e n t r e s c u e i n o r d e r t o s t a y i n b u s i n e s s a n d w a s a m o u n g t h e f i r s t b a n k s t o a g r e e t o p a y o f f t h e g o v e r n - m e n t l o a n b y 2 0 1 0 i n i n s t a l l m e n t s . S h a r e h o l d e r s w e r e c o n c e r n e d a b o u t t h e q u a l i t y o f l e a d e r s h i p a n d d e c i s i o n m a k i n g a t B o f A a n d t h e y a p p r o v e d a p r o p o s a l t o s p l i t t h e p o s i t i o n s o f C h a i r m a n o f t h e B o a r d a n d C E O . T h i s c a m e i n r e s p o n s e t o t h e f i n a n c i a l c r i s i s a n d B o f A ’ s d e c i s i o n t o a c q u i r e f a i l i n g M e r r i l l L y n c h a n d C o u n t r y w i d e F i n a n c i a l . A s c a n d a l e m e r g e d r e - g a r d i n g $ 3 . 6 b i l l i o n i n b o n u s e s p a i d t o M e r r i l l e x e c u t i v e s , w h i c h c o n t r i b - u t e d t o t h e m a s s i v e l o s s e s a s s o c i a t e d w i t h t h a t b a n k . M a n y c a l l e d i n t o q u e s t i o n t h e d e c i s i o n - m a k i n g o f m a n a g e r s , e s p e c i a l l y r e l a t e d t o f i n a n c i a l r i s k t a k i n g a n d c o m p e n s a t i o n o f e m p l o y e e s .

B o f A a g r e e d t o a $ 3 3 m i l l i o n s e t t l e m e n t w i t h t h e S E C r e g a r d i n g M e r r i l l L y n c h b o n u s e s . M e r r i l l L y n c h p a i d e x e c u t i v e s b i l l i o n s i n b o n u s e s r i g h t b e f o r e i t s a c q u i s i t i o n , d e s p i t e i t s w i d e s p r e a d s h a r e h o l d e r l o s s e s . D u e t o t h i s a l l e g e d m i s c o n d u c t a n d B o f A ’ s a l l e g e d p a r t i n i t , a j u d g e t h r e w o u t t h e s e t t l e m e n t b e t w e e n t h e S E C a n d B o f A a n d o r d e r e d t h e c a s e t o t r i a l . T h e c o u r t a c c u s e d B o f A o f n o t o n l y k n o w i n g a b o u t t h e M e r r i l l L y n c h b o - n u s e s , b u t o f w i t h h o l d i n g t h i s i n f o r m a t i o n f r o m i t s s h a r e h o l d e r s a s t h e y v o t e d o n w h e t h e r t o a c q u i r e M e r r i l l L y n c h .

T h i s i s n ’ t t o s a y t h a t B o f A i s n o t m a k i n g g o o d d e c i s i o n s i n o t h e r a r e a s . F o r t w o d e c a d e s , B o f A h a s f o c u s e d o n s u s t a i n a b i l i t y i n i t i a t i v e s , a n d t h e i r e n v i r o n m e n t a l l y - f r i e n d l y a c t i v i t i e s a r e c o n t i n u i n g d u r i n g t h e r e c e s s i o n . T h e c o m p a n y o f f e r s c u s t o m e r s e c o - f r i e n d l y p r o d u c t s a n d s e r v i c e s s u c h a s t h e B r i g h t e r P l a n e t ™ V i s a ® a n d o n l i n e b a n k i n g t o r e d u c e p a p e r . B o f A w o n C a l i f o r n i a ’ s 2 0 0 8 G o v e r n o r ’ s E n v i r o n m e n t a l a n d E c o n o m i c L e a d e r -

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29Chapter One: An Overview of Management

s h i p A w a r d ( G E E L A ) f o r i t s f o c u s o n m e l d i n g e n v i r o n m e n t a l s t e w a r d s h i p w i t h l o n g - t e r m c o m p a n y m a n a g e m e n t . T h i s a w a r d w a s i s s u e d t o B o f A b e - c a u s e o f i t s i n v o l v e m e n t i n s o l a r s c h o o l i n i t i a t i v e s , t h e c r e a t i o n o f C l e a n R e n e w a b l e E n e r g y B o n d s , a n d t h e p r e s e r v a t i o n o f r e d w o o d f o r e s t s .

B o f A ’ s d e d i c a t i o n t o s u s t a i n a b i l i t y w i l l p e r h a p s s e r v e t o r e b u i l d i t s r e p u - t a t i o n a m o n g i t s e c o - c o n s c i o u s c u s t o m e r s . Y e t d e s p i t e i t s g r e a t s t r i d e s i n s u s t a i n a b i l i t y , i t r e m a i n s t o b e s e e n w h e t h e r B o f A ’ s e f f o r t s w i l l m i t i - g a t e i t s a l l e g e d p a r t i n t h e M e r r i l l L y n c h s c a n d a l a n d r e s t o r e s t a k e h o l d e r t r u s t i n i t s o p e r a t i o n s . I n t h e f u t u r e , t h e r i g h t m a n a g e r i a l d e c i s i o n s a n d g o o d m a n a g e m e n t s k i l l s w i l l b e r e q u i r e d f o r s u c c e s s . 7C

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30 Part One: Principles of Management

correct decision can be useless if it is not implemented appropriately.

• Describe the many roles managers play in an organization. Henry Mintzbezg de- scribed ten specific roles that can he placed into three broad categories. Interpersonal roles involve interaction with others who are external or internal to the organiza- tion, at the same level as the manager or at higher or lower levels. Informational roles focus on obtaining data that are important for the decisions made by the manager. Decisional roles deal primarily with the allocation of resources in order to reach organizational objectives. Mintzberg’s de- tailed description of each of the specific roles provide valuable descriptions of man- agement tasks.

• Specify why different managers perform

different job activities. Management is similar across all organizations in that managers are all involved with planning, organizing, leading, controlling, and deci- sion making; their activities may also be described in terms of common roles they play within their organizations. However, the specific job activities of managers dif- fer greatly both among and within organi- zations because of differences in the level of management, functional area, organiza- tional size and culture, and industry.

• Review what you can reasonably learn from a textbook about how to perform management activities. Some aspects of management can be learned in formal classroom situations. Most organizations teach management to their employees through training programs that are similar in format to college classrooms. Learning management in this format can help you

SUMMARY AND REVIEW

• Define management and describe its purpose in organizations. Management is concerned with using the resources of the organization to reach the organization’s objectives. Its purpose is to use these re- sources effectively and efficiently so that the objectives of the organization arc achieved with a minimum of cost.

• Determine the effect that management actions have on the manager and others in the organization. Because manage- ment is essentially a decision-making pro- cess, it affects others. The consequences of a manager’s decisions may have either a positive or negative effect on the manager, the manager’s subordinates, and the orga- nization, as well as other groups.

• List the major functions of managers.

The four management functions are plan- ning (determining what the organization will specifically accomplish and deciding how to accomplish these goals); organizing (designing jobs for employees, grouping these jobs together into departments. and developing working relationships between organizational departments and employees to carry out the plans); leading (influenc- ing others’ activities to achieve set goals); and controlling (ensuring that an organi- zation’s actions lead to achievement of its objectives).

• Explain the importance of decision mak- ing in management activities. Because managers must use resources to reach the organization’s objectives, they insist on continuously make decisions about how to best use these resources. The manager must gather important data to be consid- ered and, based on the data, make and then implement the decision required. A

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31Chapter One: An Overview of Management

understand sources of information and relationships among variables, basic prin- ciples to use in decision making, and the fundamentals of how to implement deci- sions. However, job knowledge relevant for specific functional areas of an organization and the requisite interpersonal skills can most effectively be learned in one’s unique working environment.

• Evaluate a small business owner’s man- agement skills and propose a future course of action for the firm. “The Busi- ness Dilemma” box presents questions for the owner of the firm. Should the owner continue to expand or form a joint venture with large companies for expansion? Your assessment of the owner’s skills and ability to manage rapid expansion will determine your answer.

Ready Recall

1. Define management and indicate what its principal purposes are and why managers are essential to organizations.

2. What are the resources of the organization? How are these used in management deci- sion making?

3. What are the four functions of manage- ment? How are they related to the work process?

4. Describe the steps in management decision making. What are the difficulties in making management decisions?

5. Discuss the three general roles of manage- ment. What are the purposes of these roles? What specific roles fall under each general role?

6. Discuss the general skills necessary to be successful in management. How do these relate to both the management roles and management decision making?

7. How do management activities differ across organizations? Describe the specific effects of organization size, industry type, organizational culture, and profit vs. non- profit organizations on these differences.

8. How do management activities differ with in an organization? Describe the specific effects of level of management and func- tional specialty on these differences.

9. Discuss the impact that management deci- sions have on others.

10. Discuss how management may be learned in a class setting.

Key Terms and Concepts

management 4 effectively 4 efficiently 4 managers 4 organizations 5 resources 5 planning 7 organizing 8 leading 8

controlling 9 interpersonal roles 12 informational roles 12 decisional roles 13 interpersonal skills 15 technical skills 15 conceptual skills 16 upper managers 22 middle managers 22

lower or first-line managers 22 human resource managers 22 marketing managers 23 finance managers 23 production and operations managers 23 organizational culture 24 for-profit companies 26 nonprofit organizations 26

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32 Part One: Principles of Management

Wall Street Journal. Discuss what infor- mation would be useful to know before making the decisions. Also discuss how accessible and accurate such informa- tion may be.

Obtain job descriptions of various man-3. agement positions. Discuss the specific skills that are necessary to perform the tasks of these job descriptions.

Expand Your Experience

Interview a small sample of managers. 1. Discuss the specific, major tasks that these managers perform. Relate these tasks to the management functions of planning, organizing, leading, and con- trolling.

Obtain descriptions of recent decisions 2. made by managers in specific organiza- tions as reported in sources such as The

1. It is important for me to have a place for everything.

2. I make strong demands on myself.

3. I feel uncomfortable when I have to break an appointment.

4. When leaving home I find that I have to check and recheck doors, lights, windows, stove, etc.

5. It bothers me when people do not put things back exactly as I left them.

6. I think it’s a good idea to plan and schedule activities very carefully.

7. I get upset if things do not go as planned.

8. After completing a task, I have doubts about whether I did it right.

Almost Always Sometimes Rarely Never

Flexibility Many management experts agree that flexibility is essential for managing in today’s business environment. Flexibility is your ally in dealing with the unexpected problems that are a regular part of a manager’s day.

The following self-assessment will help you find out how flexible you are. Select the response that most accurately describes your behavior by checking the appropriate box. Be as candid as pos- sible so that you can get feedback that will be helpful in improving your flexibility.

STRENGTHEN YOUR SKILLS

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Almost Always Sometimes Rarely Never

9. I do certain things over and over even though I know it is pointless to do them.

10. I don’t dwell on my problems too long.

11. I worry about a lot of things.

12. I react quickly to unexpected situations.

13. I am meticulous and orderly with most of my possessions.

14. I strive for perfection in what I do.

15. I don’t care if people laugh at my ideas.

16. I feel I miss out on a lot of opportunities because I don’t act quickly enough.

17. I find time to relax and simply do nothing.

18. I move, walk, and eat rapidly because I don’t like wasting time.

19. I go back and forth searching for the right decision.

20. I’m very punctual.

21. Stress makes me disorganized.

22. I like to make lists of my daily tasks and activities.

23. I often feel anxious or apprehensive even though I don’t know what has caused the worry.

24. I frequently get angry or annoyed at others for not keeping on schedule with plans we’ve made.

25. I seldom act without thinking.

26. I sometimes get a kick out of breaking the rules and doing things I’m not supposed to do.

27. I tend to dwell on things I did but shouldn’t have done.

28. I’m frequently tense or nervous.

29. There is frequently a discrepancy between the way I want to behave and the way I actually behave.

30. My work tends to pile up so much that I have difficulty completing it.

Agree Disagree

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34 Part One: Principles of Management

Add up your points using the numbers provided in the chart below:

Almost Always Sometimes Rarely Never Your ScoreNumber

10.

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12.

13.

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15.

16.

17.

18.

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20.

21.

22.

Agree Disagree Your Score

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35Chapter One: An Overview of Management

Interpreting Your Score In order to get an interpretation of your performance on this self-assessment, your instructor will tell you what your score indicates based upon the following point cat- egories. Circle the category in which your score falls: 30—52 53—84 85-132 133-182

How to Increase Your Flexibility Because flexibility is something you can learn, here are some steps you can follow:

1. Take more risks. People who successfully achieve their goals often do so by go- ing out on a limb. It’s a self-reinforcing cycle of improvement. Taking a risk and ven- turing into uncharted territory forces you to become more flexible—and opens up a wider range of opportunities for fulfillment. As a result, you develop a greater sense of self-worth, which in turn breeds self-confidence. And the competitive edge that self- confidence brings emboldens you to take even greater risks. That in turn breeds more success and a sense of control over your career destiny.

Identify a risk you can take this week: _______________________________________________ What’s the best-case scenario if your risk-taking succeeds? __________________________ What’s the worst-case scenario if you fail? _________________________________________ Is it worth the risk to go out on a limb and make it happen? ________________________

2. Make a deliberate change in your routines. Identify a routine you have that you can change today: ______________________________

3. Make a point of being in touch with people who are completely different from you. Identify three people who are completely different from you with whom you can spend at least a half hour this week: ______________________________________________________

Ironically, avoiding risk and changing to the predictable doesn’t always reduce fear and uncertainty. It often creates worries, increases frustration, and throws up barriers to action. Flexibility arms you for the future—whatever it may be.

Source: Eugene Raudsepp, “Are You Flexible Enough to Succeed?” First appeared in Working Woman, October 1990: 106—107. Re- printed with the permission of WORKING WOMAN magazine. Copyright © 1990 by WORKING WOMAN, Inc.

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Chapter

Outline

After reading this chapter, you will be able to: Specify the major cultural changes that preceded the development of •

modern management practice and thought.

Explain the major theories within the classical approach to management. •

Examine some of the major contributions to the development of the be- •

havioral approach to management.

Describe the systems approach to management theory and identify the •

early contributors to this perspective.

Relate the significance of the contingency approach within the study and •

practice of management.

Summarize how current management knowledge and practices are a re- •

sult of the work and ideas of many management scholars and practitioners

over the past century.

Apply the management theories discussed in this chapter to a manager’s •

efforts to revitalize a small business.

Introduction

A Cultural Framework for the Development of Management Theory

The Development of Management Theories

The Classical Approach

The Behavioral Approach

The Systems Approach

The Contingency Approach

Management Theory: Past, Present, and Future

The History of Management Thought2

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INSIDE MANAGEMENT

The History of Management Thought

Business Maxims, Circa 1890

The following maxims are typical of the simpl e and straightforward advice for the prac- tice of good management that prevailed in the late 19th century.

5. Lead a regular life, avoid display, and choose your associates discreetly, and prefer the society of men of your own type.

6. Avoid litigation as much as possible, study for yourself the theory of commercial law, and be your own lawyer.

7. Never run down a neighbor’s property or goods praise up your own. It is a mark of low breeding and will gain you nothing.

8. Never misrepresent, falsify, or deceive; have one rule of moral life, never swerve from it, whatever may be the acts or opinions of other men.

9. Watch the course of politics in national affairs, read the papers, but decline the ac- ceptance of political positions if you wish to succeed in a certain line of business. Never be an office seeker.

10. Be affable, polite, and obliging to everybody. Avoid discussions, anger and pettish- ness. Interfere with no disputes that are the creation of others.

11. Never form the habit of talking about your neighbors, or repeating things that you hears others say,. You will avoid much unpleasantness, and sometimes serious difficulties.

12. Never sign a paper for a stranger. Never sign a paper without first reading it carefully.

13. Goods well bought are half sold, and goods in a store are better than bad debts. 14. Write in a good, plain, legible hand. 15. Never gamble or take chances on the Board of Trade. 16. Keep your word as good as a bank.1

37Chapter Two: History of Management Thought

1. Your first ambition should be the aqui- sition of knowledge pertaining to your business.

2. Above all things acquire a good, correct epistolary style, for you are judged by the busness world according to the charac- ter, expression, and style of your letters.

3. During business hours attend to nothing but business, be prompt in responding to all communications, and never suffer a letter to remain without an answer.

4. Never fail to meet a business engage- ment, however irksome it may be at that moment.

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38 Part One: Principles of Management

H undreds of thousands of students will complete some sort of formal undergraduate or graduate course in management this year, and next year, and probably the next. Every day, millions

of people go to work and perform a managerially oriented job. However, the large-scale study and practice of management, as we know it today, has not always been the case. There was a time in history when not only was management not commonly practiced and studied, but those people who engaged in commerce and trading were considered lower class and were denied the right to vote.2 The topic of this chapter will focus on the development of management as a widely accepted body of knowledge. It may be interesting for you to learn why you are taking a Principles of Management class when your grandparents or great- grandparents probably did not have the opportunity.

In this chapter, we will consider two major aspects of the history of management thought. One is the major developments within the his- tory of Western civilization that stimulated the evolution of the practice and study of management. The other is the development of major per- spectives of management thought and some of the important contribu- tors to the various perspectives.

A CULTURAL FRAMEWORK FOR THE

DEVELOPMENT OF MANAGEMENT THEORY

To understand the evolution of the study and teaching of management principles and concepts, we need to establish a general cultural frame- work of the social, economic, and political forces that have influenced our ideas about management. Social forces refer to the relationship of people to each other within a particular culture. Economic forces refer to the relationship of people to resources, and political forces re- fer to the relationship of individuals, their rights, and their property in regards to the state.3 Four major developments in Western culture set the stage for the study and teaching of management that began during the late 1800s and early 1900s: (1) the Protestant ethic, (2) capitalism and division of labor, (3) the Industrial Revolution, and (4) the produc- tivity problem.

Introduction Introduction

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39Chapter Two: The History of Management Thought

The Protestant Ethic

Between the fall of the Roman Empire and the Renaissance, from about A.D. 600 to A.D. 1500, was a period of time known as the Middle Ages. Frequently described by historians as the “Dark Ages,” this was a time of almost complete stagnation of educational, scientific, and literary progress. Poverty and ignorance were the principal characteristics of the masses, and the primary concern of individuals was to protect themselves against murder, robbery, and violence.4 During this period, the church’s promise of an afterlife was virtually the only consolation for bearing the hardships and bleakness of life on earth. This promise required that people think only of salvation from this life and moving on to the next world, and little thought was given to how life on earth might be improved.

A challenge to this philosophy of life was led by Martin Luther and John Calvin, who believed that each person should consider him- self or herself part of the “elect,” those who would be treated well in the afterlife. As a member of this elect, each individual was urged to fulfill the obligations of his or her earthly calling. This notion of indi- vidual worth and earthly callings, as opposed to the Dark Ages belief in the calling of only a royal few, led to a new interpretation of the purpose of life—referred to as the Protestant ethic. The Protestant ethic, or work ethic, held that in- stead of merely waiting on earth for release into the next world, people should pursue an occupa- tion and engage in high levels of worldly activity so that they could fulfill their calling.5 Society inter- preted the Protestant ethic as a mandate for people to work hard, to use their wealth wisely, and to live self-denying lives. This created a new age of self-determination, self- control, and individualism.6

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40 Part One: Principles of Management

Capitalism and the Division of Labor

Another major societal change that occurred following the Middle Ages was the move from feudalism to capitalism and the division of labor. Af- ter the fall of the Roman Empire, slavery in Europe became uneconom- ical. Feudalism prevailed in place of slavery as serfs tilled plots of land owned by lords in exchange for military protection. Feudalism resulted in a society of rigid class distinctions in which all rights of ownership, wealth, and control of all markets were assigned to the government, the church, and a small privileged class of people. The masses had no such rights.

In the I700s, this rigid system of allocation of resources was challenged by the ideas set forth in the economic theory of capitalism. As described in economist Adam Smith’s The Wealth of Nations, the basic tenets of capitalism are the following:

1. Natural laws of supply and demand and free competition with- in the marketplace will efficiently regulate the flow of resources within a society.

2. All individuals should have the right to accumulate wealth. 3. All individuals should have the right to private ownership of

property. 4. Division of labor would lead to great gains in productivity.7

Division of labor, also called specialization, is the simple idea of breaking an entire job into its component parts and assigning each spe- cific task to an individual worker. This contrasts with the traditional craft approach to production in which one craftsman performs all the

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41Chapter Two: The History of Management Thought

component tasks required to produce an entire product from beginning to end. Smith described in detail the outcome and advantages of division of labor in the first three chapters of The Wealth of Nations.8 Increased output would result due to increased expertise by each worker (because each is concentrating on a smaller component of the task), time saved from not repeatedly switching from one task to another, and the inven- tion of specialized machines for each component of the overall job. Smith also acknowledged that the dysfunctional aspect of division of labor was that a lifetime spent doing a very specialized, narrow job could result in boredom, and lack of intellectual and/or social development.9

The Industrial Revolution

The final development needed to launch the world toward large-scale business and industrialization was the refinement of the use of the steam engine and the ensuing Industrial Revolution in England and America. In 1765 James Watt developed the first workable steam en- gine and twelve years later began the manufacture of the engines for industrial use.10 Power-driven machinery gave rise to the factory sys- tem where people came together under one roof to manufacture prod- ucts rather than working in their homes. This was necessary because even though power-driven machinery lowered production costs, capital requirements were increased to the point where few individuals could buy and install machinery at home. Instead, workers had to travel to the factory.11

Techniques for mass-production of standardized products, made from interchangeable parts in a factory system using steam-powered ma- chines, were the hallmarks of the American manufacturing system in the late 1800s.12 By the turn of the twentieth century, the possibilities of manufacturing seemed endless. Lower production costs led to lower prices and expanded markets. Innovation led to countless new inven- tions. Inventions and expanded markets led to large-scale production, which resulted in an abundance of material goods such as the world had never seen.

The Productivity Problem

These major developments in Western culture led to an age of great technological advancement and creation of individual wealth, but these gains did not come about easily. Instead of steady progress, a certain degree of chaos existed in industry at the dawn of the twentieth cen- tury due to changes in philosophies of life, economic structures, and manufacturing systems. Businessmen and politicians perceived the

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42 Part One: Principles of Management

chaos in terms of a national “productivity problem.” Frustration with the inefficiencies of manufacturing practices of the day and concern over the “question of national efficiency”—waste of natural resources and human effort— was widely expressed.13 Three issues formed the basis of the productivity problem.

First, there was the technical and behavioral problem of meshing work- ers and machines. With so many new machines available, there was confusion as to how best to use them in the workplace. Moreover, wide- spread fear of machines existed among factory workers. People feared that substituting machine power for human energy would result in the elimination of their jobs, and they were often physically afraid of large, dirty, noisy, and dangerous factory machines.

A second obstacle to the improvement of efficiency was general inexpe- rience in the operation of organizations and factories of the size needed to achieve the economics of scale inherent in mass production and dis- tribution (that is, making large volumes of a product to lower the cost per item). With the exception of the church and military, large organi- zations did not exist. Few owners and employees were accustomed to working in groups much larger than an extended family. Size brought with it a need for different authority structures, standardized operat- ing procedures, and overall depersonalization of the workplace. These phenomena were new to most people and not welcomed by many.

Finally, the third and most critical issue was the widespread lack of both management and trained managers. Slowly the realization oc- curred that further progress in industry depended on systematic man- agement rather than on the charismatic talents of a few extraordinary men—the so-called “captains of industry.” With this realization came

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43Chapter Two: The History of Management Thought

the need to define the role of management and managers as a unique and necessary factor of production. Bringing the first three factors of production—raw materials, capital, and labor—together on a large scale with power driven machines could no longer be accomplished without the presence of management. Management was the missing link to future productivity gains, and it was now time to begin its for- mal, systematic study and teaching.

THE DEVELOPMENT OF MANAGEMENT THEORIES

A management theory is a systematic statement, based on observa- tions, of how the management process might best occur, given stated underlying principles. However, there is no single universally accepted and practiced management theory—instead, there are many. Although the practice of management has existed in its most basic forms since ancient times, the systematic study and teaching of management has existed on a widespread basis for only the past 70 to 90 years. Relative to other areas of study such as mathematics and literature, this makes management a young discipline.

One commonly accepted system of grouping management theories, which we will follow in this chapter, categorizes the major perspectives from which to study management as the (1) classical approach, (2) be- havioral approach, (3) systems approach, and (4) contingency approach (see Figure 2.1). Our main concern in this chapter is to establish the major categories of’ management theories and how they came to exist in the development of management thought.

FIGURE 2.1

The Major Management Theories

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44 Part One: Principles of Management

THE CLASSICAL APPROACH

The classical approach to management stresses the manager’s role in a formal hierarchy of authority and focuses on the task, machines, and systems needed to accomplish the task efficiently. This approach to management thought has two components: scientific management and administrative management. The theories included in the classi- cal approach—the first well-developed frameworks of management— emerged in the late 1800s and early 1900s.

Scientific Management

Scientific management is a theory within the classical approach that focuses on improvement of operational efficiencies through the systematic and scientific study of work methods, tools, and perfor- mance standards. The development of scientific management began as a movement to define management as a separate and systematic factor of production.

In 1886 Henry Towne (1844–1924) presented a paper to the Ameri- can Society of Mechanical Engineers (ASME) in which he stated that the time had come to blend the study and functions of engineering with those of business economics into one field and function. He labeled this function the “management of works” or “shop manage- ment” and argued that it was such an important industrial function that ASME should form a separate division for the recording and sharing of experiences related to shop management.14 It is impor- tant to note that, like Towne, most of the first management writ- ers were engineers by training, which explains much of the overall emphasis of early management theories on machines, tools, work methods, and costs of production,

The notion of shop management developed into an entirely new sci- ence mostly due to the efforts of Frederick W. Taylor, who is often called the “father of scientific management.” As a result of time spent in the steel mills of Philadelphia, first as a laborer and later as an engineer, Taylor concluded that the productivity problem of the day was due to lack of attention given to the management of men and their work. This was contrary to the beliefs of many businessmen of the day, who chose to blame the productivity problem on the pure laziness of common laborers. Taylor’s drive to develop principles and methods of management based on logic, reason, and the scientific method of experimentation and observation was based mainly on his observations of “soldiering” among steel mill laborers.

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45Chapter Two: The History of Management Thought

Beyond the natural tendency of humans to “take it easy and work at a slow, easy gait,” sol- diering is the systematic slow- down in work by laborers with the deliberate purpose of keep- ing their employers ignorant of how fast the work can be done.15 Taylor said that soldiering exist- ed in factories because employ- ers did not know how much work could be done; laborers believed that if they worked too fast, they would work themselves and oth- ers out of jobs, and workers did not know how to do their jobs efficiently. Consequently, Taylor argued that the lack of produc- tivity was management’s fault, not laborers’.16

Principles of Scientific Management. After almost 26 years of inves- tigating the problems of low productivity, Taylor devised the principles of scientific management. According to these scientifically derived prin- ciples, the role of management is to perform the following:

1. Develop the “one best way” to perform any task.

2. Scientifically select, train, teach, and develop each worker.

3. Cooperate with workers and provide an incentive to ensure that the work is done according to the “one best way.”

4. Divide the work and the responsibility equally between manage- ment and the workers.

The first principle refers to the idea that, for every task, there exists one way to do the job that will result in the highest rates of output and the highest rates of earnings for the laborer, and will not totally physically drain the laborer. The manager will develop the one best way based on reason, logic, and scientific observation and experimentation. It will in- clude the movements and motions of the laborer as well as the correct tools and placement of machines within the work area.

The second principle states that it should not be up to the worker to pick the job he or she wants to do and then learn it through trial and error. Rather, it is the manager’s job to select people for jobs based on their

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46 Part One: Principles of Management

mental and physi- cal traits and abil- ities and to place only those individ- uals best suited for a particular task in the job. Then it is the manager’s job to continue to train and develop the selected em- ployee until he or she is successful at the task.

Principle three implies that it is the manager’s job to devise methods and rates of pay that will make it in the workers’ best interests to per- form their jobs according to the one best way they have been taught to do the job for which they were selected. Overall, this principle also means that it is the manager’s job to look after the best interests of his or her employees as well as the best interests of the firm.

The last principle states that managers must take over all the work for which they are better prepared than the worker is (the planning or pri- marily mental aspects of work). In the past, almost all work—physical and mental—and the greater part of responsibility for getting the work done were thrown on the workers. In other words, Taylor was convey- ing that workers will not be able to, and should not he expected to, per- form to the fullest extent unless management has already determined the best way to do the job, selected and trained the best people for each job, provided adequate rewards for work done well, and take over the work for which they themselves are better prepared.

Assumptions of Scientific Management. The assumptions of Tay- lor’s scientific management, for which he was later criticized, related to his view of the nature of people. The first assumption was that em- ployers and employees had mutual interests associated with economic gain. Taylor believed that it was possible for employees to get what they wanted—high wages—at the same time that employers got what they wanted—low costs. He philosophized that a “mental revolution” had to occur among employees and employers whereby both groups would come to believe that mutual interests did exist and could be achieved through mutual cooperation.

A second assumption was that man is a rational being and economi- cally motivated. Taylor assumed that people would follow any work

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47Chapter Two: The History of Management Thought

methods and system based on reason and logic if it would allow them to fulfill their economic needs.

The last assumption Taylor made was that, for every man willing to work hard, there was a job for which he was ideally suited accord- ing to his mental and physical traits and abilities. If placed in this job, he could be a “first-class-man,” one who performed better than most at his job and earned higher than average wages for his work at that job.

Criticisms and Contributions of Taylor. Frederick Taylor and sci- entific management became quite well known throughout the country in 1910, when newspapers reported expert testimony before the In- terstate Commerce Commission that railroads should not be allowed to raise their rates, but should instead reduce their costs through the use of scientific management. Scientific management achieved even more notoriety in 1911–1912, when a congressional investigation was held to determine if scientific management was abusive to workers. This was in response to strikes that had occurred over the use of Tay- lor’s methods and philosophy. The investigation found no concrete ev- idence of abuse, but the negative publicity was devastating to Taylor. He was quite impatient with critics, who were often not well informed, and who argued that the use of scientific management’s efficiency methods led to exploitation of workers by getting them to produce more and causing large reductions in the work forces of companies using scientific management. Years after his death, Taylor’s critics have said that he failed to give credit to others for the work they did and that perhaps some of the data reported in his studies of various jobs may have been fabricated to some extent.17

Despite the criticisms, there is much evidence that Taylor’s ideas about management and methods of studying work remain in use to- day. His strong support of the use of science and precise measurement methods prevails currently in the areas of management study and practice known as the quantitative approach, management science, and production/operations management. The quantitative approach emerged several decades later, during World War II, as a viewpoint of management that emphasizes the application of mathematical mod- els, statistics, and structured information systems to support rational management decision making. Management science has developed into the field of management that includes the study and use of math- ematical models and statistical methods to improve the effectiveness of managerial decision making. Production/operations management is a somewhat narrower branch of the quantitative approach that fo- cuses on managing the process of transforming materials, labor, and capital into useful goods and/or services.18

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48 Part One: Principles of Management

The Gilbreths. Frank Bunker Gilbreth (1868–1924) and Lillian Moller Gilbreth (1878–1972) were perhaps the first “dual-career couple” and are known for their contributions to the scientific management movement. Through his careful study of bricklaying, Frank was able to reduce the number of motions necessary to lay bricks by 89 percent and increased the number of bricks laid from 120 to 350 per hour. His methods are still used by modem bricklayers.

Frank Gilbreth met and married Lillian Moller in 1904. She pursued formal studies in psychology in the belief that it would help in her hus- band’s work. Her thesis was published as a book, The Psychology of Management, which stands in management literature as one of the first contributions to understanding the human implications of scientific management.19

Another of Frank Gilbreth’s innovations was the use of motion picture technology to analyze the motions used in a job. Gilbreth attached small lights to an employee’s hand, while he was filmed performing a manual task, to trace the movements of the lights through time exposure (called a cyclegraph). The findings of these studies resulted in a classification of 16 basic work motions Gilbreth called “therbligs” (which is Gilbreth spelled backwards).20

Based upon their time and motion studies, the Gilbreths made many specific recom- mendations for means of re- ducing fatigue. Examples of these include improved foot- rests and chairs, comfort- able shoes and clothing, rest periods and comfortable rest rooms, elimination of unnec- essary bending and twisting of the body, and proper heating and cooling of the work area.21

Henry Gantt. If not for Henry L. Gantt (1861–1919), scientific man- agement might have been lost in a storm of criticism. He spent many years as a mechanical engineer and consultant making it plain that scientific management was more than just inhuman attempts to speed up labor. Though he is best known for creating the Gantt chart—a simple graph method of scheduling work according to the amount of time required instead of the quantity of work to be performed—his real claim to fame lies in his role as a passionate advocate of workplace de- mocracy and humanitarian management.

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49Chapter Two: The History of Management Thought

Gantt took every opportunity to humanize scientific management, such as inventing a task and bonus system that offered foremen a bonus for every worker who succeeded, which motivated foremen to show inter- est in their employees and help them achieve as much as they could. Gantt’s concern for devotion to service in the business system, and his call for “amorality in the habits of industry,” made him a pioneer in the area of business ethics and corporate social responsibility as they are studied in management today.22

Morris L Cooke. Morris Llewellyn Cooke (1872–1960) was one of the four men originally authorized to teach Taylor’s management methods. He is remembered as a true “radical” of his time for his role as a mili- tant proponent of conservation, public power, and regional planning. Cooke’s unique contribution to scientific management lies in his re- lentless attempts to apply the gospel of efficiency in higher education, in government agencies, and in the management of World War I. As the appointed management expert to the Carnegie Foundation for the Advancement of Teaching, Cooke compiled a report on the efficiency of university management practices that was considered a “bombshell.” The gist of the report was that universities did not follow a single prin- ciple of scientific management and that there was an alarming lack of cooperation among professors, which resulted in intolerable levels of inefficiency. Cooke went so far as to suggest that college professors be paid based on their efficiency and that the system of life-long tenure should be eliminated.23

Administrative Management

Another component of the classical approach to management theory is administrative management, which emphasizes the universality of management as a function that can be applied to all organizations— large, small, for-profit, not-for- profit, political, religious, or any other. This contrasts with scientific management’s emphasis on the role of a manager in the efficient use of resources primarily in industrial orga- nizations. Administrative management theories focus on the need to organize and coordinate the workings of the entire organization instead of dwelling on organizing the work of individual workers, as in scientific management. Two important contributors to administrative manage- ment are Henri Fayol and Max Weber.

Henri Fayol. Henri Fayol (1841–1925) was well educated and had a long and distinguished career as an engineer and manager in a large mining company in his native France. Fayol’s work as a philosopher of administration, done mostly during the last ten years of his life, earned him a place of respect and importance in French history similar to that

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50 Part One: Principles of Management

held by Frederick Taylor in the United States. His theories were origi- nally published in a monograph, General and Industrial Management, in 1916. Although Taylor and Fayol were contemporaries, writing at about the same time, Fayol’s work did not become well known in the United States until the 1950s because translation of his work into Eng- lish was slow and did not begin until 1930.

One of Fayol’s main contributions to management thought is that he devised what has become known as the functional definition of man- agement (Figure 2.2), which states that management is “to forecast and plan, to organize, to command, to co-ordinate and to control….”24 You will recognize that this definition of management is similar to our own and forms the basis of the organization for this text—and almost all Principles of Management books—with major sections about planning, organizing, leading (commanding and coordinating), and controlling.

Another of Fayol’s major contributions was the development of a com- prehensive list of general principles of management (Table 2.1). Fayol referred to this list as an indispensable code needed for the manage- ment of business, industry, politics, religion, war, or philanthropy, in addition to religious and moral codes already in existence.

Fayol’s final contribution to the development of management thought is his ideas about the possibility and necessity of teaching manage- ment. He believed that the education available for future managers in his day was much too oriented toward mathematics and engineering, and that managers needed to know much more about how to read

FIGURE 2.2

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51Chapter Two: The History of Management Thought

Division of Work

Authority and Responsibility

Discipline

Unity of Command

Unity of Direction

Remuneration of Personnel

Centralization

Scalar Chain

Order

Equity

Stability of Tenure of Personnel

Initiative

Esprit de Corps Managers

The object of division of work is to produce more and better work with the same effort. It reduces the number of things one has to pay attention to and is applicable to all work involving a considerable number of people.

Authority is the right to give orders and the power to exact obedience. A manager must have both personal and official authority. Responsibility is the natural consequence of authority and accepting responsibility requires courage. Fear of responsibility must be reduced in both managers and sub- ordinates.

Discipline is basically a respect of the agreements between the firm and its employees. It is absolutely necessary for the smooth running of a business, and it requires good leaders at all levels, clear and fair agreements between the firm and its employees, and penalties for disobedience fairly applied.

An employee should receive orders from one superior only. If it is violated, authority is undermined and discipline, order, and stability are threatened.

Activities with the same purpose should have one plan with one person in charge.

Pay should be fair and as satisfying as possible to both employees and the firm. A method of payment should encourage and reward good performance, should not lead to overpayment, and may include rewards other than just money.

Everything that increases the importance of subordinates’ roles is decentral- ization; everything that reduces it is centralization. Every organization will naturally have some degree of centralization; however the exact degree must vary according to different cases, with an objective of optimum utilization of all talents/skills of personnel.

The scalar chain is the chain of authority ranging from the top to the bottom of the organization. This is the route by which all communication should flow except in cases requiring quick action. In this case communication between peers is appropriate as long as all managers in the chain are kept informed.

All material things should have a well-chosen place and be kept in that place. All people should be carefully selected and placed in well-organized posi- tions—the right person in the right place.

In order to ensure devotion and loyalty from employees, they must be treated with kindness and justice.

Managerial personnel must be given enough time to get to know their jobs and to succeed in doing the job well. Turnover is expensive and has negative effects on the firm.

Initiative Managers should encourage all members of the organization to de- velop and implement plans. The manager who encourages initiative on the part of employees and allows the exercise of initiative is a superior man- ager.

Managers should try hard to create harmony and unity among the employees of a firm. Toward this end managers should encourage the use of oral com- munication between employees as opposed to written communication, and managers must take care not to create jealousy between workers.

Fayol’s General Principles of Management

Source: Henri Fayol, General and Industrial Management (London: Sir Isaac Pitman & Sons, Ltd, 1949).

TABLE 2.1

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and write than about mathematics. Further, Fayol strongly advocated experience—in the shop and at home through the management of fam- ily affairs—as an important component of management education.25 In Table 2.2 we share some interesting facts about Fayol, Taylor, the Gilbreths, and others discussed throughout this chapter.

Max Weber. German philosopher Max Weber (1864–1920) spent most of his life as a student and scholar in a broad range of areas such as sociology, religion, economics, and political science. He fo- cused all of his education with his observations of industry in both Germany and the United States to form a theory of how large orga- nizations might operate more efficiently. Weber saw the issue of size as the impediment to the progress of industry. He felt that the only means of operating large organizations efficiently was to design and operate them as rationally as possible. Toward that end, he devised a pure form of organization based on rationality called bureaucracy (from the German word Büro, meaning office).

According to Weber, bureaucracy is a theory of management by office or position, rather than by person, based on rational authority. In bureau- cracy, it matters not who (from what family or class) you are, but instead it matters what (job or position within the organization) you are, where

• Frank and Lillian Gilbreth had 12 children, and a book and movie, Cheaper by the Dozen, depicts their life and attempts to apply their ideas about elimination of wasted motion to everyday family life?

• Frederick Taylor and a partner won the U.S. Doubles Tennis Champi- onship in 1881?

• Chester Barnard failed to receive an undergraduate degree from Har- vard University because he completed all requirements except for the lab portion of a science course, which he was “too busy” to take?

• One of Edwards Deming’s first jobs in the 1920s was at Western Elec- tric’s Hawthorne Plant in Chicago, where the famous Hawthorne Ex- periments took place?

• Lillian Gilbreth’s doctoral dissertation was published under the name L. Gilbreth, as a means of disguising the fact that it was written by a woman?

• Frederick Taylor never accepted a penny of pay or traveling expense reimbursement for any of his lectures at Harvard or other places?

• Henri Fayol had intended to write two more parts to his book, General and Industrial Management, but died before they could be completed?

TABLE 2.2

Did You Know? . . .

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53Chapter Two: The History of Management Thought

matters of authority and value are concerned. Due probably to his aca- demic rather than practitioner background, Weber never intended for his very theoretical ideas of the ideal— but probably not attainable—form of organizations to be used as guidelines for practicing managers; rather he intended them as food for thought as to a new basis for authority.

Weber envisioned an organization developed around a set of imperson- al and logical rules, routines, clear divisions of labor, selection based on technical qualifications, and strict adherence to a clear chain of command. He felt that observance of these disciplines would allow for orderly and systematic management of large groups of people that was not possible when personal preferences, which were likely to be illogi- cal, and loyalty to individuals were the basis for operations.26

Indeed, many of us cringe at the word bureaucracy, as it brings to mind frustration, waste, and red tape. It is interesting to note that this would not have surprised Weber. He expressed his own doubts about the overuse of his model when he said, “It is horrible to think that the world could one day be filled with nothing hut those little cogs, little men clinging to little jobs and striving towards bigger ones... A passion for bureaucracy... is enough to drive one to despair.”27

Contributions of the Classical Approach to Management Theory

As indicated by the label “classical,” the theories we have explored in this section are those that have formed the main roots of the study and practice of management as we know it today. Within the classical approach we find the very definition of management as it had to be initially carved out as a separate and distinct function from economics, sociology, and engineering in the late nineteenth and early twentieth centuries. Often the main criticism of the classical theories is that they focused too narrowly on work, machines, authority structures, and ef- ficiency, and that they ignored the human aspect of work. However, while these theories certainly emphasized work and getting it done ef- ficiently, you should not forget the basic purpose behind each theory: to improve the standard of living and quality of life for all members of the organization and society in general.

THE BEHAVIORAL APPROACH

Classical management theories are broadly based on the assumption that work is a rational endeavor pursued for almost purely economic

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reasons, and, consequently, that the behavior of people at work will be fairly predictable and easy to understand. However, when you realize that this assumption often does not hold true—that often work is not a rational, logical, or reasonable process and that, to many people, work is more than just a means of satisfying economic needs—the need to study and understand human behavior becomes very important. The theories of management beginning to develop during the early 1900s that looked at the role of management in this light, as well as the effects of machines, authority, and systematic management on human behav- ior, are referred to as the behavioral approach to management theory. The behavioral approach is a view of management that emphasizes understanding the importance of human behavior, needs, and atti- tudes within formal organizations. In our study of this approach we will discuss the ideas of Mary Parker Follett, the conclusions of the Hawthorne Experiments, and the contributions of Abraham Maslow and Douglas McGregor.

Mary Parker Follett

Mary Parker Follett (1868–1933) was not an engineer, psychologist, or manager of any sort, yet she has been credited with making contribu- tions to the development of management thought that are as important as those made by Taylor and Fayol.28 Follett was one of the earliest management thinkers to advocate a break from the classical manage- ment school and to view effective management as based on the self- control of groups of workers and cooperation.

Follett’s strong views on the importance of society “learning to live to- gether” and group efforts as solutions to problems of both business and society grew out of her political science education and her experiences in social work.29 In addition to many published papers and lectures giv- en during the early 1930s, Follett’s best known works were two books she wrote: The New State, published in 1918, and Creative Experience, first published in 1924.

One of Follett’s contributions to the behavioral approach to manage- ment was her ideas about the importance of groups in managing work situations. She argued that work groups are one of the primary sourc- es of influence on worker behavior—more so even than management’s control and reward systems. In fact, she believed that groups of work- ers had the ability to control themselves, and she advocated a group- oriented process of shared self-control based on group members’ power with each other rather than power over each other.30 This idea is cur- rently considered as “innovative” relative to the use of self-regulating or self-managing groups. Follett’s ideas of shared power and human

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55Chapter Two: The History of Management Thought

cooperation earned her an international reputation as a political and business philosopher. She viewed business leaders, rather than politi- cal leaders, as the hope for the future.31

The Hawthorne Studies

One of the most often told—some would say “mistold”—stories’ con- cerning management history is that of the Hawthorne studies. The Hawthorne studies provided the stimulus for the human relations movement within management theory and practice. The story began at Western Electric Company’s Hawthorne plant in Cicero, Illinois, in 1924. It was there that a series of experiments were begun to try to answer scientifically a fairly simple question: What is the effect of work- place lighting on workers’ output?

To answer this seemingly simple question, researchers from MIT came to the Western Electric plant and began a series of experiments with several different groups of factory operators. After three years of ex- perimentation, careful observation, and record keeping, the research- ers concluded that productivity rose regardless of whether the level of lighting was increased or decreased. Something other than lighting was affecting worker output to a great degree.32

George Pennock, the assistant works manager, had been following the studies and was very interested in the notion that something other than the lighting changes had caused worker output to increase. So, begin- ning in April 1927 and continuing until May 1933, Western Electric conducted more experiments, involving a group of six female telephone relay assemblers. Every few weeks, the company made some change re- lated to hours worked, rest periods, incentive pay, hot lunches, etc.33

According to published reports, output bounced up and down through- out the manipulations with an overall trend toward greater output than before the experiments began. No clear relationships between any of the varied factors and worker output could be detected. It became clear that something unusual was occurring. Pennock sought professional advice from two professors, Claire Turner of MIT and Elton Mayo of Harvard University.34

Upon joining the research team, Mayo conducted a phase of the Haw- thorne Experiments known as the interviewing program. During inter- views with members of the research team, employees were given an opportunity to talk freely in complete confidence about anything, per- sonal or work related, of concern or interest to them. Mayo observed that the employees seemed to lose their shyness and fear. In short, the

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employees mentioned that they had come to trust and feel valued by their coworkers, supervisors, and the company.35 After studying all the data and conducting even more experiments, Turner and Mayo both concluded separately that the rise in output was due to workplace fac- tors related to the social relationships among the workers themselves and between the workers and their supervisors.

Contribution of the Hawthorne Experiments. The general conclu- sion drawn from the Hawthorne studies was that human relations and the social needs of workers are a crucial aspect of business manage- ment. This gave factory management a social dimension as well as an economic dimension. From this point on, employees would be viewed as members of informal groups of their own, with their own leadership and codes of behavior, instead of as just unrelated individual work- ers assigned to perform individual tasks. This change in direction of management theory and practice is often referred to as the human- relations movement.

Nothing as well known as the Hawthorne studies could go without criti- cism. Scholars have criticized the studies as having too many uncon- trolled variables to permit valid conclusions.36 Others have (1) criticized the interpretation of the data as having been biased toward pushing for support of the importance of the social and human relations aspects of work, (2) said that the results have been overstated, and (3) said that re-analysis of the data does not support the conclusions that physical and economical factors did not affect workers’ output.37

Regardless of the actual experimental results, the fact remains that the Hawthorne Experiments were the first set of lengthy tests conducted in the workplace to study actual worker behavior. Many, including Mayo, see their main contribution as stimulating thinking and research about the nature and significance of human behavior, feelings, and attitudes at work, and the role of the informal group in formal organizations.

Abraham H. Maslow

Psychologist Abraham H. Maslow (1908–1970), an early humanist psy- chologist, developed one of the most widely recognized needs theories of human motivation, He is best known for his hierarchy of human needs theory, published in 1943, in which he proposed that humans have five needs: physiological, safety, social, self-esteem, and self-ac- tualization needs.

Maslow advocated a humanistic approach to management, which did not mean simply being nice and maintaining good human relations.

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57Chapter Two: The History of Management Thought

It required taking the basic innate nature and needs of human beings into account in management theories and practices. Maslow proposed that people’s behavior at work could be explained by a need for some- thing beyond the money essential for their basic existence. This differed from classical management theories, which emphasized the role of pay as the sole source of employee motivation. Maslow also stated that after an employee’s basic survival and security needs were fulfilled by money, other needs would become important as a source of continued motivation to work. The top rung and ultimate need of all humans was self-actualization, the need to fulfill one’s full potential. Work could be a major source of fulfillment of this need.

Douglas McGregor

Douglas McGregor (1906–1964) spent most of his career teaching and conducting research at MIT. As president of Antioch College he came to realize, as a practicing manager, that effective management required a thorough understanding and consideration of human nature and human behavior. Like Maslow, McGregor advocated a humanistic ap- proach to management.

McGregor is best known for Theory X and Theory Y, as presented in his book, The Human Side of Enterprise (1960). He felt that managers’ individual assumptions about human nature and behavior determined how they managed their employees. How managers treated employees then led to how employees behaved. Theory X is the assumption that people are naturally lazy, must be threatened and forced to work, have little ambition or initiative, and do not try to fulfill any need higher than security needs at work. Theory X assumptions represented traditional management views of direction and control. Theory Y is the assump- tion that people naturally want to work, are capable of self-control, seek responsibility, are creative, and try to fulfill higher-order needs at work. Theory Y assumptions represented a new view of integration of human and organizational needs and goals. Theory X and Y are in- tuitively simple and easy-to-understand concepts that are still widely applied today.

THE SYSTEMS APPROACH

The systems approach to management theory views organizations and the environments within which they operate as sets of interrelated parts to be managed as a whole in order to achieve a common goal.38

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58 Part One: Principles of Management

A system is an arrangement of related or connected parts that form a whole unit. As systems, organizations consist of inputs, transformation processes, outputs, and feedback (see Figure 2.3). Contemporary sys- tem theorists find it helpful to analyze the effectiveness of organizations according to the degree to which they are open or closed. A closed sys- tem interacts little with its external environment and therefore receives little feedback from or information about its surroundings. An open system, on the other hand, continually interacts with its environment and therefore is well informed about changes within its surroundings and its position relative to these changes.

A subsystem is any system that is part of a larger one. Entropy is the tendency of systems to deteriorate or break down over time. Synergy is the ability of the whole system to equal more than the sum of its parts.39 In other words, when we view organizations as systems, we must un-

FIGURE 2.3

Organizations as Systems

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59Chapter Two: The History of Management Thought

derstand that there is a natural tendency for the organization to be- come less effective over time unless feedback and information from the environment are integrated into the system. The ultimate advantage of forming an organization is that it allows us to achieve more together than all of us as individuals could achieve separately. Management is indeed just one component of an organization that must be carefully attuned to the other components. In this section we will consider two systems theorists, Chester Barnard and W. Edwards Deming.

Chester Barnard

Chester Barnard (1886–1961) rose through the ranks to become pres- ident of New Jersey Bell, then a division of American Telephone and Telegraph (AT&T). Barnard was a self-made scholar whose ideas have influenced the development of the systems approach, the behavioral approach, and the field of organization or administrative theory that is an aspect of the classical approach to management theory.40

Cooperative Systems. In the early pages of his book, The Functions of the Executive, Barnard expressed the need for a universal theory of management that would guide managers in effectively adjusting the workings of the organization to a constantly changing external environment.41 Toward this end, he devised a theory of managing or- ganizations as cooperative systems. Barnard’s basic premise is that formal organizations—within which we all work and by which we are all educated and governed—are necessary so that individuals can ac- complish tasks that they could not accomplish working on their own. An important factor in cooperation is the recognition of each indi- vidual’s special abilities. Barnard cautions that cooperation requires the acceptance and adoption of a group, not a personal purpose. He wrote that members of an organization are more willing to cooperate when they believe in the organization’s purpose or goal. Getting them to believe is a major function of a manager.42

Acceptance Theory of Authority. Barnard stated that the major means of ensuring cooperation of individuals was through commu- nication. He even defined authority relative to communication: Au- thority is the degree to which an organizational member accepts communication directed at him or her as something that should govern his or her actions. The acceptance theory of authority states that in formal organizations, authority flows up, because the decision as to whether an order, or communication, has authority lies with the person who receives the communication. Organiza- tion members will accept communications (orders) as authoritative if four conditions are met: (1) they could and did understand the com-

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municated order; (2) they believed that the order was consistent with the organization’s purpose at the time of their decision; (3) they be- lieved that the order was compatible with their personal interests as a whole; and (4) they were mentally and physically able to comply with the order.43

W. Edwards Deming

W. Edwards Deming (1900–4993) has been credited with transforming Japan’s postwar economy more than 40 years ago. During his lifetime he was desperate to get his dual message of continuous improvement of the system and zero defects through to American managers, workers, government officials, and educators.44 It is important for you to learn that Deming’s work is appropriately classified as a systems theory of management.

One of Deming’s major contributions was to integrate emphasis on quantitative methods and efficiency (relative to the classical approach) with emphasis on the psychological and social dimensions of the work environment (relative to the behavioral approach) into an approach in which all dimensions of the formal organization and its environment are considered as part of one system. Some have referred to Deming as a capitalistic revolutionary who transformed our notions of quality into a driver of profits instead of a cost of doing business.45

THE CONTINGENCY APPROACH

During the 1960s a new phrase, “it depends,” began to appear regu- larly in management literature. This signaled a move by theorists to yet another perspective of management that was noticeably different from the “one best way” approach followed by previous management theorists. The phrase “it depends” characterized the contingency ap- proach to management theories, which emphasizes identifying the key variables in each management situation, understanding the rela- tionships among these variables, and recognizing the complex system of cause and effects that exists in each and every managerial situ- ation.46 For example, an organization with a highly unstable operat- ing environment should be structured and organized quite differently than one operating in a very stable environment. This is in contrast to Weber’s idea of a pure bureaucracy as the one best way of organizing. Further, managers should use a different degree of supervision and control on employees who are very willing and able to do a job than on those who are not willing or able to perform their jobs.

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61Chapter Two: The History of Management Thought

B U S I N E S S D I L E M M A

When Jim Keller took over EMS Corporation, a linen and bedding manufactur- er, the company was near bankruptcy and employee morale was at an all-time low. EMS was losing $2 million a year and was plagued with high absen- teeism, employee turnover, and accidents. At his first meeting with employees, Jim saw a level of apathy and abandonment that spurred his determination to revitalize the plant and its employees. He realized that the only way to save the company was to rekin- dle the employees’ interest in its survival.

Jim, along with key employees, de- veloped the “Initiative,” a program he designed to get employees interested in the plant and to raise productivity. He set simple goals for product qual- ity, safety, cleanliness of workspaces, and productivity. When the employ- ees attained 100,000 hours with no recordable accidents, Jim closed the plant for a day and everyone celebrat- ed with a “Barbecue Bash.” When Jim had the departments compete against one another for a trophy, pro- duction increased dramatically. As a result of the company’s setting mea-

You’re the Manager . . . What Would You Do?

THE COMPANY: EMS Corporation YOUR POSITION: Owner

surable performance goals and offer- ing rewards, employees began to care about the company’s fate. After just four months, EMS showed a profit for the first time in years.

Keller improved the “Initiative” by of- fering all employees a full range of business courses—accounting, plant auditing, purchasing, etc.—to help them understand EMS’s production reports and financial status. The goal was to get employees to understand the huge amount of data required to monitor the firm’s performance.

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The contingency approach is especially common in areas of manage- ment such as strategic planning, leadership styles, use of technology, design of reward systems, and organizational design. Generally, it is considered to be an outgrowth of the systems approach. While criti- cized as being inadequate as a true theoretical basis, the contingency approach has inspired research and understanding relative to how the gap between theory and practice may be bridged.

MANAGEMENT THEORY: PAST, PRESENT, AND FUTURE

This chapter has been about beginnings, the individuals who pioneered these beginnings, and the times in which the beginnings occurred. Within the ideas of those before us lie our directions for the future. If we include

B U S I N E S S D I L E M M A

Keller wanted employees to be able to gauge the impact of their activities on the plant and set their own perfor- mance standards to help improve the company.

Employees were given constant re- minders of how they were doing. An electronic message board running continuous production reports was installed in the cafeteria. Employ- ees who exceeded their production quotas were given a bonus under a plan known as “Output is sunny ... now give us some money.” Employ- ees also received bonuses for ideas that improved the company’s opera- tions. The employees were motivated to make EMS succeed because they understood not only the physical as- pects of their jobs, but also how the company was doing and what need- ed to he done for success. When the company did well, so did they. Jim Keller’s efforts and plans were enor- mously successful.

QUESTIONS

What schools of management 1. thought is the owner applying in revitalizing EMS?

What other management theo-2. ries could you apply in the revitalization effort?

Contrast these actions against 3. those that a factory manager of the early 1900s might have taken.

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63Chapter Two: The History of Management Thought

the beginnings of management history, theory, and practice in our ideas and behaviors, then our journey through organizations may be a little smoother and more meaningful. Each major approach to management theory that we have examined has added significantly to our current knowledge about management. The ideas embedded in each approach have also changed, in some respects, the way managers think and act. Contemporary managers and managers of the future benefit most from understanding and applying selected aspects of each approach.

The classical approach is still very evident today in our continued em- phasis on the importance of efficient methods of operations and the use of quantitative methods in basic administrative principles of authority and division of labor, as well as in the prevalence of bureaucracy in our formal organizations. The behavioral approach is evident in the impor- tance placed on people as the most valuable assets of organizations and in the increasing attention paid to creating a working environ- ment in which all our human needs are addressed, as well as the over- whelming emphasis placed today on the importance of effective work groups and teams and the means of improving them. Evidence of the systems approach to management theory is quite apparent in attempts to manage organizations so that they meet the needs and challenges of the external environment and in the strong interest in total quality management methods. Finally, evidence of the influence of contingency approaches to management is found in the unique and varied success stories we hear every day from managers in many different and com- plex managerial situations.

Contemporary views of management that are in the process of be- ing tested and evaluated today are fundamentally based on some as- pect of theories we have considered in this chapter. For example, the eight attributes of excellence described by consultants Thomas Peters and Robert Waterman in their book, In Search of Excellence, are all in some way just new, unconventional terminology for convention- al management concepts and practices. Their attribute, “productiv- ity through people,” expresses all the beliefs and principles offered through the decades by the behavioral approach to management the- ory. More than anything else, Peters and Waterman remind managers that they must pay attention to the basics of customers, employees, and ideas.47 Their mandate to encourage creativity and innovation is quite consistent with McGregor’s concept of Theory Y management. For more than a decade, this line of management thought has been popular and well received by managers. However, with the passage of time, some of the “excellent companies” have indeed lost their excel- lent status. This is a good example of the complex, contingent, and dynamic nature of management.

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64 Part One: Principles of Management

Another relatively recent perspective on management is William Ouchi’s idea of how Japanese and American management practices and philos- ophies should be combined into one integrated approach. This result is what Ouchi has labeled Theory Z, and it involves increased concern for quality of work-life, job security, group decision making, cooperation between groups, informal control mechanisms, and concern for work- family issues.48 Obviously, Ouchi’s contribution to management theory is consistent with theories of cooperation and self-control espoused nearly six decades ago by Follett and Barnard, and with theories of hu- man needs for autonomy, respect, and meaningful work advanced by Maslow and McGregor.

Nothing stays the same. Remember we said that what we have studied in this chapter, although it spans a time period of nearly a hundred years (Figure 2.4), is only the beginning. Management theories and the study of management will continue to change today and tomorrow. While the changes are bound to be many and varied, they are likely to revolve around our efforts to compete in a global economy and our need to simultaneously increase productivity (benefits to the firm) and quality of work-life (benefits to the individual). These are important challenges for which we will be well prepared if we follow the ideas of the past, present, and future.

FIGURE 2.4

A Time Line of the Development of Management Theory

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65Chapter Two: The History of Management Thought

EYE ON MANAGEMENT

Lundberg Farms Uses a Behavioral Approach to Management

Lundberg Family Farms, whose rice products are available nationwide, is one of the original organic farming pioneers in the U.S. The company was founded by Albert and Francis Lundberg in 1937. Having witnessed soil de- struction during the Dust Bowl era of the 1930s, the Lundbergs moved west, vowing to protect the soil, wildlife, air, and water. True to their word, Lun- dberg Farms (now run by third generation family members) ex- cels in organic and eco-friendly farming. The company has won the Organic Trade Association’s Organic Leadership Award and the EPA’s Green Power Partner- ship Award. In addition to its organic practices, the company is 100 percent renewably pow- ered. By developing renewable energy and environmentally friendly organic farming, Lund- berg Family Farms has created an organizational culture that provides an opportunity for employees to cooperate, form teams, and achieve their own personal goals.

The Lundbergs, clearly passionate about the environment, are also passion- ate about their employees. The company does a great deal to support them, such as providing annual bonuses, encouraging profit sharing, making all employees eligible for promotions and 100 percent tuition reimbursement for employee training, implementing the “Above and Beyond” program (which offers prizes each month for those who go above and beyond their normal duties), growing an employee garden, offering a wellness program, and re- warding children of employees for good grades in school. Lundberg has been named California Workplace of the Year for its emphasis on wellness. Given all this, why would employees want to leave? Many of them do not. Of Lun- dberg’s 180 employees, 22 have been employed for over 20 years and 60 have over 10 years. For those passionate about farming, the environment, or simply being treated well as an employee, Lundberg Family Farms is a great place to be. 49

dberg Farms (now run by third

cels in organic and eco-friendly farming. The company has won

Organic Leadership Award and

ship Award. In addition to its organic practices, the company

ered. By developing renewable energy and environmentally

berg Family Farms has created an organizational culture that

employees to cooperate, form teams, and achieve their own

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66 Part One: Principles of Management

ioral approach to management. The be- havioral approach to management thought emphasizes the importance of human be- havior, needs, and attitudes within organi- zations. Some management theorists and researchers who made major contributions to the development of the behavioral ap- proach were Mary Parker Follett, those associated with the Hawthorne studies, Abraham Maslow, and Douglas McGregor. Follett had strong views on the importance of integrative unity, shared power, and hu- man cooperation. She looked to managers as the means for improving society. The Hawthorne studies, through a long series of different experiments, brought to man- agers’ attention the critical nature of the social needs of workers and led to the de- velopment of the human-relations move- ment. This signaled the beginning of the joining of management with psychology. Maslow proposed that people’s behavior at work could be explained by human needs for something beyond the money earned for basic existence. Self-actualization was the highest-order need identified by Maslow, and management practices directed to- ward satisfying this need pointed to a new direction for management theory and prac- tice. McGregor labeled and explained such a nontraditional approach as Theory Y, in contrast to the traditional approach of Theory X.

• Describe the systems approach to man- agement theory and identify the early contributors to this perspective. The systems approach to management theory views organizations and the environment within which they operate as sets of inter- related parts to be managed as a whole in order to achieve a common goal. Cooper- ative systems and the acceptance theory

SUMMARY AND REVIEW

• Specify the major cultural changes that preceded the development of modem management practice and thought. Major cultural changes that preceded the evolution of modem management practice and thought were the development of the Protestant ethic, capitalism, and the In- dustrial Revolution. These changes culmi- nated in a period of industrial chaos and low productivity, which gave rise to the def- inition and development of management as a critical factor of production.

• Explain the major theories within the classical approach to management. The classical approach to management stress- es the manager’s role in a formal hierarchy of authority and focuses on the task, ma- chines, and systems needed to accomplish the task efficiently. The major theories that developed within this approach were Tay- lor’s scientific management, Fayol’s admin- istrative theory, and Weber’s theory of bu- reaucracy. Scientific management’s overall emphasis was the systematic study of and experimentation with workers’ tasks, methods, and tools as a means of improv- ing worker efficiency. It had many con- tributors in addition to Taylor, including Frank and Lillian Gilbreth, Henry Gantt, and Morris L. Cooke. Fayol’s theory was broader than scientific management and was directed at defining management as a universal process composed of four func- tions, and at developing principles needed to coordinate all the activities of the entire organization. Weber’s ideas about bureau- cracy added the concept of rational author- ity and management by position to classi- cal management theory.

• Examine some of the major contribu-

tions to the development of the behav-

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67Chapter Two: The History of Management Thought

century. Widespread attention placed on job redesign and the use of technology that will result in efficiency and meaningful work to fulfill individuals’ higher-order needs is based on the theories of the classical and behavioral approaches. The overwhelm- ing emphasis on team building and imple- mentation of total quality management is consistent with and based on the theories found in the systems and behavioral ap- proaches. Finally, the emerging sense of experimentation and innovation found in small and large organizations indicates the influence of the contingency approach to management

• Apply the management theories dis- cussed in this chapter to a manager’s efforts to revitalize a small business. The “Business Dilemma” box describes the steps a manager took to revitalize a failing small business. You should be able to as- sess and apply the schools of management thought that Keller applied to the situation and understand why he chose those theo- ries over others.

of authority were two aspects of Barnard’s view of how organizations must be man- aged so that they can adjust effectively to a constantly changing external environment. Deming was a contemporary contributor to the systems approach whose work began in the 1940s.

• Relate the significance of the contin- gency approach within the study and practice of management. The contingen- cy approach is significant because it has helped bridge the gap between theory and practice. It emphasizes identification of key variables in each management situa- tion and as such maintains that there is no one best way to manage. The contin- gency approach is widely followed in areas of management such as strategic planning, leadership, and organization design.

• Summarize how current management

knowledge and practices are a result of the work and ideas of many management scholars and practitioners over the past

Key Terms and Concepts

social forces 38 economic forces 38 political forces 38 Protestant ethic 39 capitalism 40 division of labor 40 management theory 43 classical approach 44 scientific management 44 soldiering 45

quantitative approach 47 management science 47 administrative management 49 bureaucracy 52 behavioral approach 54 Hawthorne studies 55 human-relations movement 56 Theory X 57 Theory Y 57 systems approach 57

system 58 closed system 58 open system 58 subsystem 58 entropy 58 synergy 58 acceptance theory of authority 59 contingency approach 60 Theory Z 64

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Ready Recall

1. What cultural changes led to the emer gence of management as the fourth fac- tor of production? What are the other three factors of production?

2. Compare and contrast the various ap- proaches to management theory.

3. What are the principles and assumptions of scientific management?

4. What contributions to scientific manage- ment were made by people other than Taylor?

5. On what type of authority is bureaucracy based?

6. What four things should managers do to ensure that their authority will be accept- ed by subordinates?

7. What were the unexpected results of the Hawthorne studies and what conclusions were drawn from these results?

8. What issues formed the basis of the pro- ductivity problem at the turn of the twenti- eth century?

9. What were Fayol’s main contributions to management thought?

10. What are the various characteristics of systems?

What events and trends in society, tech-2. nology’, and economics do you think will shape management theory in the future? View the movie “Cheaper by the Dozen” 3. and report on how the Gilbreths tried to incorporate their passion for efficiency into their family life.

Expand Your Experience

Do you think too much or too little em-1. phasis is placed on human relations within the work environment? What direc- tion do you think should be taken in the future relative to emphasis on human relations? Why?

Thinking To conclude this chapter on the development of management thought, you will look at brain lateralization to help you understand your own thoughts, or thinking style. Brain lateralization is the term used to describe how the human brain is split into two halves, with each having its own special abilities. The following table summarizes the basic underlying ideas of the brain lat- eralization studies conducted at the California Institute of Technology by Nobel Prize winner Dr. Roger Speny and his associates.

STRENGTHEN YOUR SKILLS

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69Chapter Two: The History of Management Thought

Left-brain thinkers (those who rely more on their left hemispheres)

Right-brain thinkers (those who rely more on their right hemi- spheres).

Gathering Information

Often impose a system or concept on how information should be arranged and weighed; tend to start with a conceptual framework, then look for facts to fit it

Digest and ponder facts and clues first, then develop a theory around them.

Problem-Solving Style

Adept at solving problems that call for planning and organization; excel in working with and analyzing sets of numbers; develop an understanding of a problem or situation by concentrating on its details

More comfortable with problems that are complex, ambiguous, and difficult to define; often more resourceful and ingenious in solving problems with incomplete data; can come up with a number of different scenarios, trust their hunches, and don’t act until they’ve considered multiple alternatives; often see mental images, alternatives, and possibilities that left- brain thinkers can’t

Characteristics of Dominant Brain Hemisphere

Active, verbal, logical, rational, and analytical; tend to process words and numbers in a linear, ordered way; capable of cataloging and analyzing information quickly

Intuitive, creative, primarily nonverbal; deal in three- dimensional forms, images, and gestalts (see the forest versus the trees); perceive relationships in complex configurations and structures; create metaphors, analogies, and new combinations of ideas

A thick cable or core of nerve fibers called the corpus calossum connects the left and right hemi- spheres. Its main function is to transmit memory and learning between the two. Therefore, in the creative process, both hemispheres work together. the right brain devises the idea; and the left brain finds the appropriate tools to express it, whether in words, colors, sounds, or movement. For example, novelists may use right-brain inspiration to generate plot outlines. They engage in left-brain processes to manipulate dialogue, scenes, and characters that tell the finished stories.

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70 Part One: Principles of Management

The following brain dominance and thinking styles inventory will help you determine and clarify which side of the brain you rely on more when thinking and solving problems. you will use the results of this inventory in the exercise at the end of Chapter 3 to help you decide what job you’d enjoy most.

Brain Dominance and Thinking Styles Inventory

Directions: Examine each set of four statements below and rank each of the statements from 1 to 4 in terms of your preferences, with

4 = most preferred 1 = least preferred

Make sure your ranking in each set uses all four numbers—1, 2, 3, and 4.

Brain dominance and thinking styles inventory something I took for granted. ___d. Has been shown to have worked in practice. 7. When I have to make an important decision, I rely mostly on: ___a. Orderly sequencing of all the pros and cons. ___b. My past experience. ___c. My feelings of rightness or wrongness. ___d. My hunch or intuition. 8. When I wish to persuade another person about the soundness of my suggestion or idea, I: ___a. Demonstrate in a step-by- step fashion how the details and principles would work out in reality. ___b. Construct a logical rationale that would be difficult to refute. ___c. Picture the benefits and personal satisfaction the adoption of my idea would bring to that person. ___d. Emphasize the unique features of my idea that would open up new opportunities. 9. When it comes to problem solving, I prefer to: ___a. Discuss the problem with others in order to get different feelings and opinions about the situation. ___b. Come up with a number of

implementing an important plan. ___d. I can quantify and therefore truly understand some difficult choices.

4. During the first five years in a new job I would like to: ___a. Launch new, innovative ventures. ___b. Help improve the quality of people’s working lives. ___c. Plan for and manage a task force responsible for improving an organization’s performance and profits. ___d. Be a resource person and technical consultant for solving day-to-day problems. 5. If I were to be tested or examined for a job, I would prefer: ___a. Developing methods to apply in concrete situations. ___b. A discussion or debate with other candidates for the position. ___c. Objective, problem-oriented questions on how I would solve a particular problem. ___d. An opportunity to make a visual-deal presentation of my knowledge on the subject. 6. I am most likely to believe something if it: ___a. Fits in with the other things I believe. ___b. Makes sense and is logical. ___c. Gives me a new insight into

Examine each set of four statements below and rank each of the statements from one to four in terms of your preferences, with four being your most preferred response and one your least preferred response. Make sure to rank order statements to each set.

* * *

1. I would like to be involved in work situations that deal with: ___a. Doing detective work or hard-to-solve problems. ___b. Setting realistic and practical goals, then helping to achieve them. ___c. Helping the people I work with to grow and progress. ___d. Coming up with innovative ideas that will improve the organization. 2. I consider information to be good if it provides: ___a. Usefullness. ___b. Facts. ___c. Meaning. ___d. Hidden possibilities.

3. The most exciting times for me occur when: ___a. I can communicate with someone with whom I’ve had past difficulties. ___b. I discover a unique breakthrough solution for a chronic, long-standing problem. ___c. I put together a step-by- step procedure for

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71Chapter Two: The History of Management Thought

___a. Unreasonable. ___b. Illogical. ___c. Unsympathetic. ___d. Unimaginative. 21. Which of the following statements applies mostly to you: ___a. I prefer doing things with others rather than alone. ___b. I like to come up with new ideas. ___c. I enjoy supervising and directing others. ___d. I like to work according to a well-thought-out plan. 22. After reading a book of fiction, I best remember: ___a. The further possibilities or alternatives the author could have used. ___b. The feelings and emotions the story evoked in me. ___c. Portions of the book I liked and/or didn’t like. ___d. The development of the story line. 23. I prefer to spend my time in surroundings that: ___a. Are neat and orderly. ___b. Provide warm and friendly conversations with other people. ___c. Are appropriate to the task at hand. ___d. Stimulate and excite my imagination. 24. People whose abilities I admire the most are: ___a. Teachers and doctors. ___b. Engineers and economists. ___c. Artists, writers and philosophers. ___d. Business and government leaders. 25. The quote that provides me with most comfort and guidance is: ___a. Learn from the mistakes of others since you can’t live long enough to make them all yourself. ___b. Balloonists have an unsurpassed view of the scenery, but there’s always the possibility that it may collide with them. ___c. The wealth of a soul is measured by how much it feels, and poverty by how little. ___d. I’ll not listen to reason since reason always means what someone else has to say.

___b. A person who uses sound logic in arriving at decisions. ___c. A good listener able to empathize with other people’s feelings. ___d. An imaginative person who sees new possibilities. 15. If I strongly disagree with another person, I would: ___a. Seek the most agreeable compromise with the least fuss. ___b. Outline the unique features and ideas of my position. ___c. Argue out the differences in value, principle, or policy. ___d. Show in a logical fashion how I arrived at my position. 16. I experience great difficulties communicating with people who: ___a. Don’t seem to grasp what I’m trying to say. ___b. Are insensitive to the feelings I’m trying to express. ___c. Constantly jump from one subject to another. ___d. Don’t make much sense and are illogical. 17. My major source of enjoyment during leisure time comes from: ___a. Competing with other people in a challenging situation and moving ahead. ___b. Doing things with close friends and family that make me feel good. ___c. Working on complex puzzles and problems that require careful thought. ___d. Expressing myself and my personal values in some imaginative way. 18. I am especially good at: ___a. Motivating others. ___b. Strategic planning. ___c. Creative problem solving. ___d. Organizing projects. 19. 1 would rather be considered: ___a. Reliable. ___b. Practical. ___c. Cooperative. ___d. Resourceful.

20. I feel it is a worse fault to be considered:

innovative solutions to the problem. ___c. Implement the agreed-upon solution. ___d. Research the facts and/or figures in order to define the problem. 10. I find a theory to be useful if it: ___a. Shows me a new way to think about something. ___b. Serves to clarify my own feelings about something. ___c. Leads to a practical and concrete application. ___d. Can systematically shed light on a number of situations. 11. When starting to work on a group project, I would first like to: ___a. Determine how to organize and implement it. ___b. Understand how it would benefit each member of the group. ___c. Determine exactly how the group should be doing the project. ___d. Understand what further opportunities it might open up for the future. 12. The magazine articles I prefer to read in my leisure time are: ___a. Descriptions of how someone resolved a personal or interpersonal problem. ___b. Accounts of technical or scientific research. ___c. Descriptions of historical events. ___d. Humorous depictions of events or humorous people.

13. I prefer dealing with people who know how to: ___a. Plan and successfully implement each step necessary to get a job done. ___b. Make decisions and set priorities. ___c. Get support from others. ___d. Generate new ideas and alternative solutions. 14. People who know me well would describe me as: ___a. A person who implements and follows through on plans.

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72 Part One: Principles of Management

Scoring yourself:

1. Copy your rank orderings for each question in each set (A,B,C,D). 2. Total each column. The four totals should add up to 250. If they don’t, go back and check your rank orderings on the test and whether you copied them correctly in each column.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

34.

25.

Totals

___________a.

___________b.

___________d.

___________c.

___________b.

___________a.

___________b.

___________d.

___________c.

___________b.

___________a.

___________b.

___________d.

___________c.

___________b.

___________a.

___________b.

___________d.

___________c.

___________b.

___________a.

___________

A Upper Left

D Right Left

C Right Right

B Left Right

___________d.

___________b.

___________a.

___________d.

___________c.

___________d.

___________b.

___________a.

___________d.

___________c.

___________d.

___________b.

___________a.

___________d.

___________c.

___________d.

___________b.

___________a.

___________d.

___________c.

___________d.

___________

___________c.

___________a.

___________b.

___________a.

___________c.

___________a.

___________b.

___________a.

___________c.

___________a.

___________b.

___________a.

___________c.

___________a.

___________b.

___________a.

___________c.

___________

___________b.

___________a.

___________c.

___________a.

___________d.

___________b.

___________a.

___________c.

___________a.

___________d.

___________b.

___________a.

___________c.

___________a.

___________d.

___________b.

___________a.

___________c.

___________a.

___________d.

___________b.

___________

Interpreting your scores:

You will interpret your scores when you complete the exercise for Chapter 3.

Source: Eugene Raudsepp, “Finding the Perfect Career,” National Business Employment Weekly: Managing Your Career, Fall 1992, 7-11. This article isreprinted

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UNIT 1

Sigm Cha

PRIN CASE S

ma M anging

HISTOR

In 1967 hands‐o specialty unique i compan firms lea to a mar through Sigma is

Founder in Ottaw Dayne P for Wes purchas while st Dayne a little out the oper corpora hired wh absente increase were typ Sigma m

In spite potentia substan radius o

NCIP STUDIES

Market g Env RY

, a small prin off personal i y advertising identity that ny to a marke arn more abo rketing orien h the plannin s an excellent

r Donald Sap wa, eighty mi Printing Com ton Laborato se at an attra till focusing m at the time of tside help. D ration could ate image, the ho focused o e owner. Ove es in volume. pical of those mainly focuse

of the fact th al for making tial gains aga of approxima

LES O S

ting: viron

nting compan nvestment th g business lo has evolved eting services out their ma ntation. Don S g, organizing t example of

pit was presid les southwes pany. Sapit h ories. Dayne ctive price. S most of his da f the sale wer on felt that w become prof e name was c on the sales a er the next fe . The busines e experience ed on the pro

hat Sigma wa g it into a qua ainst its loca ately 30 miles

OF M

Mana ment

ny in Streato hat would lat ocated in Jack over the pas s company w rket, they oft Supit effectiv g, leading and f managemen

dent of West st of Chicago had purchase was on the v Sapit was abl ay‐to‐day eff re willing to with the incr fitable within changed to S aspect of the ew years, sal ss held its ow ed by most ab oduction proc

as making litt ality‐oriented l competition s around the

MANA

aging t1

r, Illinois wa ter grow into ksonville, Flo st forty years with diverse, ten switch fr vely brought d controlling nt decision m

ton Laborato o, when he ha ed printing fr verge of bank le to buy the forts on Wes stay on and h eased volum n a twelve‐m igma Press, I business, an es efforts pro wn, but made bsentee‐own cess and sell

tle progress, d printing bu n. The area s e city of Strea

AGEM

g in a

as purchased o what is tod orida. Sigma M s from a sma multinationa rom a produc t about this tr g functions of making.

ries, a small ad an opport rom Dayne fo kruptcy and w company as ton Labs. Th handle the op me that Westo month period Inc. A new sa d Sapit took ovided only e little progre ned businesse ing generic p

Sapit contin usiness that c erved by the ator. The area

MENT

by Don Sapi day a success Marketing ha ll‐town print al clientele. A ction orienta ransformatio f managemen

research fac unity to acqu or several ye was availabl an investme e managers o perations wi on would pro . To enhance ales manager the position minimal ess. The resu es. In additio printing serv

nued to see th could make e shop covere a had a numb

it as a ful as a ting As tion on nt.

cility uire ears e for ent of ith ovide, e the r was of

ults on, vices.

ed a ber

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Case Study UNIT 1: SIGMA MARKETING: MANAGING IN A CHANGING ENVIRONMENT

of major manufacturing plants that were potential users of substantial quantities of printing. Unfortunately, most of these plants were headquartered in other cities and did not have authority for local purchasing of anything beyond the basic necessities required for daily plant operations. While Sigma could do custom printing, the small firm did not have a unique niche other than its quality and service.

THE DESK CALENDAR: A STRATEGIC OPPORTUNITY

In seeking alternatives to improve sales, Sapit and Sigma’s staff developed an advertising desk pad calendar for distribution as a customer gift. Its purpose was to keep the Sigma name, phone number, and list of services in front of the customer as a constant reminder of its existence. It was freely offered to any customer thought to have sufficient volume potential to justify the expense of the calendar and its distribution costs. Sigma never thought of the calendar as a product that could be a means of differentiating itself and giving it a competitive edge, but rather as an internal promotional tool.

One of the customers that received the calendar, Oak State Products, an Archway Cookie Bakery, asked if Sigma could produce similar calendars for them with the Archway advertisement printed at the top. Sigma filled this initial order, and it proved popular with Archway’s customers. The next year, Archway asked if the calendars could be produced with a color photo of the plant in the ad space. This version was so well received that Oak State recommended the use of the calendar as a marketing tool to all of the other Archway Bakeries around the country. Sigma recognized that the opportunity for a new business strategy was developing. The small printer with a generic product identified an opportunity to expand its market beyond its small geographic service area.

The sales volume realized from the calendar sales was not substantial, but Sapit saw in it a good possibility for a totally new strategy, divorced from the limitations imposed by Sigma’s present sales territory. Furthermore, he perceived a market that could be developed by a direct marketing effort that would permit sales penetration into a much larger geographical area than was practical to serve with Sigma’s limited sales staff.

It was at this time that Weston Laboratories was sold, and Sapit was forced to make a decision to leave the company due to philosophical differences with the new owners. Although Sigma was starting to show potential for very modest profitability and good growth, it was still just barely able to support itself. After a family council meeting in 1971, the decision was made to “tough it out.” Sapit chose to enter the Sigma operation on a full‐time basis and to prove that it really could become a first‐class operation based on a new marketing strategy.

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Case Study UNIT 1: SIGMA MARKETING: MANAGING IN A CHANGING ENVIRONMENT

THE NEW MARKETING STRATEGY

Sapit came on board with Sigma and assumed all marketing and management responsibilities himself. Sapit used his interpersonal, technical, and conceptual skills in implementing this new corporate plan. His leadership helped all employees focus on the firm’s objectives. Previously, sales representatives had been making calls on a hit‐or‐miss basis with no real continuity. Sapit developed a general marketing strategy, which included defining specific sales territories, developing target markets and sales prospect databases. He also implemented a scheduled mailing program as part of the strategy. On the commercial printing side, a sample “job of the month” was sent to customers and prospects at regular intervals. On the calendar side, direct mail materials promoting the desk pad calendar to specific target markets were utilized. At that time, direct mail promotion of printing services was relatively unheard of in the printing industry. Most of Sigma’s competitors performed custom printing based on the needs and projects that the customer desired, and did not promote specific products.

The advertising desk calendar was marketed on the theme of “constant exposure advertising.” It was given the product name “Salesbuilder,” which moved Sigma into the specialty advertising business. Each customer was offered a standard calendar format with an individual ad imprint customized to fit the needs of the company’s business. The imprint could contain line drawings, photos, product lists, or any special information necessary to convey the company’s message to customers. Sigma’s willingness to encourage attractive and creative designs received immediate attention and acceptance by customers. It set the company apart from the competition, which would allow “four lines of block type, not to exceed thirty‐two letters.” In effect, Sigma was at the forefront of a new specialty advertising product.

SIGMA DEVELOPS A NEW CORPORATE PLAN

Within a year after Sapit’s entry into the business, total volume was up 50 percent; even more important, the response to the calendar marketing effort was starting to show real promise. As a result, Sigma was experiencing the need for additional capital to finance the growth. Capital was obtained through the private sale of one‐third of the company stock to Sapit’s friend and colleague, who was a local attorney. The new investor was not involved in the daily operations of the business, but served as corporate secretary, legal counsel, board member, and advisor. The cash raised from the stock was used to help fund the day‐to‐day operations and expand accounts receivable resulting from the increased volume.

By late 1972, Sigma’s commercial printing sales were gaining at a modest rate of increase, but calendar sales were increasing at a rate of 40 percent per year. It was becoming apparent that larger manufacturing facilities would be required in the immediate future or the sales efforts would have to be scaled back. The Company

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Case Study UNIT 1: SIGMA MARKETING: MANAGING IN A CHANGING ENVIRONMENT

purchased a more visible and accessible five‐acre site at the intersection of Route 23 and Interstate 80 in Ottawa, IL, and constructed a new facility, with a focus on improved production as well as image. Sapit decided to capitalize on the new visibility and image by changing the strategic emphasis of the business.

Over the next few years, Sigma Marketing’s strategy was oriented toward building a reputation for producing the most creative and highest quality printing in its service area, which had a thirty‐five to forty‐mile radius around Ottawa. The firm took a calculated risk. Sapit anticipated that this new direction would give his firm a solid reputation as a quality printer, one that fully justified the higher prices it charged. Several of the larger local companies obtained permission from their corporate offices to procure their printing locally. The downstate division of Carson Pirie Scott & Company, a large department store chain, chose Sigma for the production of its catalogs. The new marketing strategy paid off, and total sales volume had increased 220 percent by 1976.

Sales of the calendar increased slowly but steadily. Management wanted growth, but it wanted it in an orderly and controlled manner. Management also wanted its growth to be more profitable than the industry average of approximately five percent on sales. It was becoming obvious that to be successful in the printing business, it was necessary to specialize. After long and deliberate discussion and investigation during 1976, the company management wrote a three‐year corporate plan.

The corporate plan emphasized marketing, which at this time was considered unique for a small commercial printer. The marketing plan focused a major share of the sales and marketing effort on building a market for the “Salesbuilder” desk calendar. The target market consisted primarily of smaller corporate accounts, while the marketing mix emphasized a quality product and advertising with an internal sales staff, direct marketing distribution and a superior price point. Space advertising in sales and marketing‐oriented publications created substantial numbers of inquiries, but sales levels did not follow. Direct mail, primarily to manufacturers, produced a much higher response and return on investment. Sigma had created a unique product that was very flexible in terms of unique designs, advertising messages, photographic techniques, and other special requirements—a highly effective marketing tool.

Within the next few calendar seasons, solid accounts such as Serta Mattress, Domino Sugar, and Borden, Inc. were added to the list of satisfied customers. Reorder rates were very high, usually in the 88‐90 percent range. Quantities ordered by individual companies tended to increase annually for three or four years and then level off. Total calendar sales had increased at a rate of approximately 40 percent per year during the 1976‐1980 period, during which time commercial printing sales increased at a rate of about 15 percent annually.

IMPLEMENTING THE NEW STRATEGY

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Case Study UNIT 1: SIGMA MARKETING: MANAGING IN A CHANGING ENVIRONMENT

Because of the success of the new corporate strategy and marketing plan, production capacity was being taxed. In 1979‐1980, major capital commitments were made to add a new high‐speed two‐color press and to purchase, redesign, and rebuild a specialized collating machine to further automate calendar assembly, previously assembled by hand. Since Sapit is an engineer by training, who also possesses an M.B.A., he used his technical and conceptual skills to create a new production process. This opened the way to mass marketing of the “Salesbuilder” calendar line. Direct mail techniques were improved to allow selection of prospects by SIC number and sales volume. A toll‐free 1‐800 number encouraged direct response by interested parties. Whenever possible, Sigma responded to inquiries by sending a sample calendar that contained advertising ideas related to the respondent’s line of business. The sample would be followed up with a personal phone call within two to three weeks. Calendar sales continued to improve until, by 1983, they represented 50 percent of total sales and approximately 75 percent of net profit.

In spite of the success of the calendar marketing programs and attractive profit levels, Sapit was disturbed by trends in the printing industry that pointed toward a diminishing market and increased competition for the commercial segment, particularly in Sigma’s local Rust Belt area. Rapid development of new technology and high‐speed equipment had caused industry‐wide investments in new equipment well beyond immediate need, creating excess capacity. The result was cost cutting and reduced margins.

Sigma’s management had for some time been considering selling the commercial portion of its business in favor of becoming an exclusive marketer of calendar products. Through its membership in the Printing Industry of Illinois, a buyer was found for the plant, equipment, and the goodwill of the commercial portion of the business. The buyer agreed to enter into a long‐term contract to handle the majority of calendar production for Sigma, using the same plant and staff that had been handling the production for the previous ten years. The sale was completed in June 1983. This signaled the strategic move from a company based on production to one based on marketing. This provides evidence of Sapit’s decision making capabilities He was able to use all available information to reach a decision to sell the commercial part of the business; then to develop and implement a new strategy.

Sigma’s management now found itself free of the daily problems of production and plant management and able to commit all its efforts to creating and marketing new calendar products. Sapit had a long‐standing personal desire to move the business to the Sun Belt for the better weather and, more importantly, for the better business climate. In May 1985, corporate offices were moved to Jacksonville, Florida. Concurrently, Sapit’s son, Mike, a graduate of Illinois State University in graphic arts management, joined the business.

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Case Study UNIT 1: SIGMA MARKETING: MANAGING IN A CHANGING ENVIRONMENT

CHANGING THE MARKETING STRATEGY AGAIN

To take advantage of Sigma’s marketing expertise, Sigma took actions to expand its product line to include several additional calendar items, all designed to be personalized. The new items included a year‐at‐a‐glance wall planning calendar, desk diary, pocket diary, and a smaller version of the original desk calendar.

Sigma had built its calendar business on products that were basically “off‐the‐shelf” formats that could be imprinted with the customer’s advertising message. In the late eighties and into the nineties, Sigma began to see a growing demand for products that were totally customized not only in graphic design, but in product specifications as well. Sigma’s management perceived the market for their new line of “super customized” calendars to be the medium‐to‐large corporation with a substantial customer base. These companies were service‐oriented with large advertising budgets, thus providing the potential for orders of larger magnitudes. The market being studied was relatively small in terms of number of companies, but very large with respect to total sales potential. It would require a totally different marketing approach than previously utilized.

Test advertisements for custom‐designed calendars were run in Advertising Age and in several marketing journals. These advertisements appealed to larger corporate accounts. In addition, the Sigma sales staff became much more aggressive in searching out individual accounts that appeared to have a high potential as customized calendar customers. Prospects were researched, and contacted by phone and mail, to determine the individual with the responsibility to specify and authorize this type of purchase. Unsolicited samples of several different customized products were sent via FedEx in order to attract attention. Each prospect was followed up by a phone call within a few days to confirm interest and provide additional information.

The goal was to establish Sigma as a publisher of high‐quality, creatively designed custom calendars. Initial response to the new marketing strategy was good, with indications that the blue chip companies could, in fact, be reached through this approach. To reach its growth goals, Sigma felt it had to be successful in this marketing strategy. This type of highly customized product design was very demanding on the creative staff. Because only ten to fifteen new accounts of this type could be handled each year, it was important that creative time be spent on high‐ potential accounts. The new strategy was successful in landing substantial orders from Nabisco, Fidelity Investments, and FedEx. Realizing that these blue chip companies were consumers, Sigma focused the entire organization on meeting five customer needs:

1. Flexibility

2. Production of a quality product consistent with the client’s image and marketing goals

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Case Study UNIT 1: SIGMA MARKETING: MANAGING IN A CHANGING ENVIRONMENT

3. Personal service and attention from beginning to end

4. Fair pricing

5. Timely, efficient fulfillment.

THE TOTAL SERVICE PACKAGE

With the blue chip accounts, Sigma realized that it had to be able to offer its products on a turnkey, or concept‐through‐fulfillment, basis. Many of these corporations wanted to use a calendar program, but were not able to devote staff, time, or expertise to such a project. Sigma offered the solution—handling the entire calendar promotion, including conception, design, production, and delivery—so that customers could devote their time to more productive efforts, confident that their calendar program was running smoothly and efficiently. They dubbed this the “Total Service Package.”

In order to provide total service effectively, Sigma installed new computer equipment and programs to enable comprehensive order fulfillment for a variety of programs. Special shipping manifest programs were developed to simplify the handling of large quantities of drop shipments. From established customer lists or those generated through Sigma’s direct order programs, calendars could be shipped to as many as 20,000 locations for a single account. This was particularly helpful to accounts that had dealers or customers scattered across the country.

The business grew rapidly from 1985 to 1990, and by 1991, Don and Mike Sapit saw a new opportunity to expand the business again. After carefully analyzing the characteristics of its buyers and their buying decisions, Sigma found new market opportunities. During its first fifteen years in the promotional calendar business, Sigma focused on large companies which usually distributed their promotional calendars through their sales forces to customers. These companies usually supplied Sigma with the basic idea for their calendar promotion, including an imprint or art design for the firm’s individualized calendar.

With its own computer order tracking and manifest system in place, Sigma was able to offer its customers and prospects an efficient and cost‐saving order and distribution system. With a customer‐supplied list, Sigma began marketing the calendars directly to the customer’s distributors. Flyers and samples were produced and mailed by Sigma. Orders were then returned directly to Sigma. This process allowed individual distributors or a single branch to include its own imprint on the calendar. A customer list may have over 10,000 names, and a single order may consist of over 1,000 different imprints. Because each customer has its own requirements, a staff member dedicated to personalized service is assigned to each customer. Sigma learned how its customers made decisions about specialty advertising purchases such as promotional calendars and then developed a program to satisfy the needs of purchasing agents and buyers in large organizations. The strategy was very successful, and during the 90s,

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Case Study UNIT 1: SIGMA MARKETING: MANAGING IN A CHANGING ENVIRONMENT

the company added prime accounts such as Milwaukee Electric Tool Corporation, HoffmanLaRoche, Inc., International Paper Company, and Nabisco Brands, Inc.

EMPHASIS ON IMPLEMENTATION: THE KEY TO SERVICE

Since focusing on the “Total Service Package” approach as its primary marketing strategy, Sigma experienced a large increase in corporate clientele with very specialized product and service requirements. The Salesbuilder orders that were the foundation of the business became secondary to “programs”—larger corporate accounts with networks of dealers, franchises, or sales representatives to place orders—as well as multiple products and services offered as part of their calendar promotion. Sigma’s reputation was bolstered by strong clientele references and testimonials. Companies were drawn to the custom calendar vendor known for high‐ quality products and a staff with tremendous flexibility and creativity. In an effort to distance itself from competitors, Sigma improved on the “Total Service Package,” which had become an important part of its marketing strategy. Customers were surveyed before and after they received the product, and large corporate account contacts received a visit from their account representative early in the year to review the previous year’s program and begin laying groundwork on the upcoming promotion. In addition, international promotions and shipping became important aspects of several large accounts. Account representatives began developing large corporate accounts by promoting multiple products, while some promotional items beyond calendars were produced in an effort to maintain exclusivity with a client.

The company continued to add to its list of satisfied customers such prime accounts as Unisource, xpedx, Volvo Cars, Volvo Trucks, Ditch Witch, and Enterprise Leasing. Mega‐accounts also came on board, such as Yellow Freight Systems (including all of its subsidiaries) and CNH, the parent company who brought along the business of its multiple operating divisions including Case IH/Case Construction and New Holland Agricultural/New Holland Construction.

After many instances of being asked by corporate clients to include additional advertising products as companion pieces to their calendar program, management began to consider the viability of becoming an ASI (Advertising Specialty Institute) dealer. The annual cost was seen to be acceptable, considering the cost savings to be realized in purchasing specialty items and specialized printing products wholesale through ASI vendors. Sigma became an ASI distributor in March of 2000, providing new and useful resources for products to enhance the calendar programs, and to meet specific needs of established customers. The ASI resources opened up new markets for additional business from many of their existing customers, without the need to aggressively sell the specialty promotions segment of business and diluting the focus on calendar programs.

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Case Study UNIT 1: SIGMA MARKETING: MANAGING IN A CHANGING ENVIRONMENT

Customer demand has obviously led to changes and the expansion of the sales and administrative areas, as well as the graphics department. A stronger focus on the service aspect of the business was a strategic move for the sales and administrative areas, resulting in the creation of a dedicated customer service department. Sigma has also seen tremendous growth in its graphics capabilities—a response to the major technical changes in the printing industry itself, as well as the needs of its customers.

Despite the additional staff and resources, the demand from program accounts is so great that the company is in danger of overselling its production capabilities to its vendors. Recognizing that possibility, Sigma has become more selective in its marketing efforts for program accounts. In recent years, the company has begun to re‐ evaluate the potential of the smaller, easy‐to‐produce and profitable “Salesbuilder” calendar orders as a product to be marketed on their corporate e‐commerce website, suitable for smaller companies who can’t support a completely customized program.

THE FUTURE CHALLENGES TO SIGMA

During the expansion period, Don began to turn over the daily operations of the business to his son Mike. In early 1996, the transition was complete, with Mike in full charge of the business. Don has retired but remains chairman of the board, acting in an advisory capacity. Stock was purchased back from Don’s attorney/colleague who had invested in the company many years ago, and Sigma issued stock to key employees, creating a greater sense of ownership and commitment to the business. With the growth of the company, key employees took on the role of upper level managers. While most employees remained first‐line managers concerned with production, sales and delivery of services.

A major concern was to develop personnel strategies and a succession plan in the event of Mike’s death or disability. Key employees with long tenure will soon be considering retirement, and the skills held by management and key employees would need to be taught and transferred to newer employees. In 2007, a succession plan was developed for the company to ensure its continuation.

Annual marketing meetings have been scheduled each year since 1991 for staff members to meet and review the past year, addressing and solving both internal and external problems. The meetings encourage teamwork, foster company loyalty, and increase employee’s knowledge about Sigma’s status in the marketplace. In addition to the business meetings, the Company has also conducted a number of pleasure trips for employees (sometimes with their spouses and/or families) to promote stronger personal relationships and interaction. The employees have visited a number of resort complexes, major cities, and even sailed together on a cruise ship to the Caribbean. These events have contributed to a strong sense of community and teamwork among the employees.

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Case Study UNIT 1: SIGMA MARKETING: MANAGING IN A CHANGING ENVIRONMENT

CONCLUSIONS

One of the many strengths of Sigma is the ability to understand market opportunities and to develop and continue to adapt its strategic focus. As the environment changes, Sigma gathers information from existing and potential customers to develop the most effective marketing strategy. This ability to adapt has moved the company from a small generic printer serving customers in a 30‐mile radius to a national specialty advertising company serving primarily large corporate customers.

As customers’ interests change, Sigma quickly adapts. For example, as more companies become concerned about sustainability issues, particularly renewable resources, Sigma has responded. Sigma has constructed a diverse team of people with a wide range of skills. Each member of the team plays a key role in the overall success of the company. Within that core of employees, top management selects two people with the strongest potential. One of these people focuses on sales and marketing, while the other takes over management of IT, personnel, finance and operations. Sapit believes that the knowledge and skills of these key managers are an important part of what gives Sigma its edge.

To serve their green‐conscious customers, in 2008 Sigma joined the list of Chain‐of‐ Custody (CoC) certified companies. Sigma became certified with the Forest Stewardship Council (FSC), which promotes responsible forestry management standards. Sigma now uses paper and other products that come from FSC‐certified forests. The company is also working on becoming certified with the Sustainable Forestry Initiative and the Programme for the Endorsement of Forest Certification in 2009. CoC certification is a response to the demands of Sigma’s customers and the company’s own desires to reduce their environmental impact.

In the future there will be new challenges, including the changing environment related to technology, communication, and methods of advertising. So far, the desktop calendar has not been replaced by potential competitors like Google, Bing or other specialty advertising methods. However, Sigma’s team is aware that the industry is constantly changing, and in order to survive a company must adapt and must be prepared. Above all, Sigma holds a philosophy of always being prepared. In the words of Mike Sapit, “the future is bright.”

SOURCE:

“Chain‐of‐Custody Certification.” Sigma Marketing. http://www.sigmamktg.com/coc.html (accessed on Apr. 29, 2009); “Up Close with Mike Sapit, President of Sigma Marketing,” Hpxpressions, 14‐15.

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i GlossaryGlossary

Abilene Paradox A situation occurring when mem- bers of a group publicly agree on a course of action even though there is an underlying consensus agreement that an alternative course is preferred. page 325

ability tests Paper-and-pencil quizzes, usually mul- tiple choice, that measure an applicant’s knowledge of specific work content or cognitive ability. page 265

acceptance theory of authority The theory that, in formal organizations, authority flows up, because the decision as to whether an order, or communication, has authority lies with the person who receives the commu- nication. page 59

accommodating style A style exhibiting low assertive- ness and high cooperation. page 319

activity planning Refers to designing the road map and noting specific events and activities that must be timed and integrated to produce change. page 461

adhocracy A centralized, informal, but complex orga- nization which tries to maintain flexibility in the face of rapid environmental changes by using a matrix or net- work formal structure. page 245

adjourning stage The stage when in which task forces, project teams, or committees complete their task and disband. page 307

administrative management The universality of man- agement as a function that can be applied to all organi- zations. page 49

administrative model of decision making A descrip- tive approach, recognizing that people do not always make decisions with logic and rationality, that outlines how managers actually do make decisions; also known as the organizational, neoclassical, or behavioral model. page 211

affiliative power Power that is derived by virtue of a person’s association with someone else who has some source of power. page 388

antigroup roles Behaviors that disrupt the group, draw attention to individual rather than group function- ing, and detract from positive interactions. page 314

assessment center tests Programs that typically sim- ulate managerial tasks. page 266

authority The right to give work orders to others in the organization; associated with a position within an organization, not with the individual occupying that po- sition. page 358

avoidance The act of strengthening a desired behavior by allowing individuals to avoid negative consequences by performing the behavior. page 349

avoiding style A style displaying low assertiveness and low cooperation. page 318

behavior modification An application of reinforcement theory, which involves change in behavior and encour- aging appropriate actions by relating the consequences of behavior to the behavior itself. page 349

behavior-based appraisal A subjective evaluation of the way an employee performs job tasks. page 273

behavioral approach A view of management that ema- phasizes understanding the importance of human be- havior, needs, and attitudes within formal organizations. page 54

behavioral approach to job design The design of jobs based on the view that workers are independent parts of the production process whose individual characteristics should be taken into account in forming jobs. page 365

birth The initial stage when the product is introduced. page 188

body language The broad range of body motions and behaviors, from facial expressions to the distance one person stands from another, that send messages to a receiver. page 433

boundary-spanning roles Group behaviors involving interaction with members in other units of the organiza- tion or outside the organization. page 315

bounded rationality The idea that people have limits, or boundaries, to their rationality. page 211

brainstorming A technique in which group mem- bers spontaneously suggest ideas to solve a problem. page 220

bureaucracy A theory of management by office or posi- tion, rather than by person, based on rational authority. page 52

business ethics Moral principles and standards that define acceptable behavior in business. page 115

business-level strategy The area of responsibility usually assigned to the divisional-level managers. page 180

capitalism An economic system wherein the natural laws of supply and demand and free competition within the marketplace will efficiently regulate the flow of re- sources within a society. page 40

cash cows Those businesses that tend to generate excess cash over what is needed for their continued growth due to their high market share in a slow-growing market. page 184

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ii Glossary

commitment planning Starts with identifying key po- litical powers in the organization. page 461

committee A permanent formal group that does some specific task; maybe either a functional or cross-func- tional group. page 301

communication The process through which informa- tion and meaning are transferred from one person to another. page 427

compensation system The basis on which an organi- zation gives money, goods, or services to its employees in exchange for their work. page 276

competing style A management style involving a stance of high assertiveness with low cooperation. page 318

competitors Other organizations that produce similar, or in some cases identical, goods or services. page 86

complexity The level of differentiation among structural units, including the specialization of jobs, geographical disper- sion, and height of the firm. page 232

comprehensive model of planned change A step-by-step plan for implementing major. change. page 457

compressed work week A four-day (or shorter) period in which an employee works 40 hours. page 354

compromising style A style that reflects a moderate concern for both your goals and the other person’s goals. page 319

conceptual skills The intellectual abilities to process infor- mation and make accurate decisions about the work group and the job task. page 16

confidence A person’s faith that his or her decisions are reli- able and good. page 217

conformity Adherence to the group’s norms, values, and goals. page 323

conglomerates Firms that pursue unrelated diversification strategies. page 183

consideration behaviors Patterns of being friendly and sup- portive by listening to employees’ problems, supporting their actions, “going to bat” for them, and getting their input on a variety of issues. page 392

consumerism The activities undertaken by independent in- dividuals, groups, and organizations to protect their rights as consumers. page 134

content theories A group of theories that assume that work- ers are motivated by the desire to satisfy needs and that seek to identify what their needs are. page 341

centralization The pattern of concentrating authority in a relatively few, high-level positions. page 374

certainty The condition that exists when decision makers are fully informed about a problem, its alterna- tive solutions, and their respective outcomes. page 204

chain of command An organizing concept that en- sures that all positions are directly linked in some way to top management. page 371

channel The medium or method used to transmit the intended information and mean- tug, such as by phone or in person. page 429

channel richness A channel’s ability to transmit in- formation, including the ability to handle multiple cues simultaneously, encourage feedback, and focus person- ally on the receiver. page 434

charisma The ability to inspire admiration, respect, loyalty, and a desire to emulate, based on some intangi- ble set of personality traits; a personal source of power. page 388

classical approach An approach to management that stresses the manager’s rule in a formal hierarchy of au- thority and focuses on the task, machines, and systems needed to accomplish the task effectively. page 44

classical model of decision making A prescriptive approach, asserting that managers are logical, rational individuals who make decisions that are in the best in- terests of the organization, that outlines how manag- ers should make decisions; also known as the rational model. page 210

closed system An organization that interacts little with its external environment and therefore receives little feedback from or information about its sur- roundings. page 58

cluster chain An exchange in which one person or a selected few share information with only a few others. page 440

codes of ethics Formalized rules and standards that describe and delineate what the organization expects of its employees. page 128 coercive power An organizationally based source of power derived from a leader’s control over punishments or the capacity to deny rewards. page 387

cohesiveness The tendency of group members to unite in their pursuit of group goals and to be attracted to the group and each other. page 315

collaborating style A style displaying both high asser- tiveness and high competition. page 319

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iii Glossary

decision making The process of choosing among alter- native courses of action to resolve a problem. page 203

decisional roles Activities that deal primarily with the allocation of resources in order to reach organizational objectives. page 13

decline The stage marked by decreases in the product’s market share. page 188

decoding The process of interpreting and attaching personal meaning to the message. page 429

delegation The assignment of work activities and authority to a subordinate. page 372

diagonal communication The flow of information, of- ten in matrix structures, between individuals from dif- ferent units and organizational levels. page 440

differentiation A business strategy in which the SBU offers a unique good or service to a customer at a premium price. page 187

distinctive competence What a firm does well relative to its competitors. page 174

distortion A deviation between the sent message and the received message. page 436

diversification A strategy of acquiring other businesses. page 182

divestment A strategy of selling off businesses that the company no longer wishes to maintain, either because they are failing or because the company has changed its corporate strategy and does not wish to be in those businesses any longer. page 183

division of labor The idea of breaking down an entire job into its component parts and assigning each specific task to an individual member; also called specialization. page 40

divisionalized form A multidivisional structure or hy- brid; typically a very large corporation that has orga- nized its departments into divisions. page 245

dogs Businesses that have only minimal profits or even losses due to their low market share in slow growing markets. page 184

downward communication The traditional flow of information from upper organizational levels to lower levels, such as job directions, assignment of tasks, per- formance feedback, and information concerning the or- ganization’s goals. page 439

economic dimension The overall condition of the com- plex economies throughout the world. page 83

contingency approach An approach to management theories that emphasizes identifying the key variables in each management situation, understanding the re- lationship among these variables, and recognizing the complex system of cause and effects that exists in each and every managerial situation. page 60

contingency plans Alternate courses of action to be undertaken if certain organizational or environmental conditions change. page 193

contingency theory The suggestion that successful leadership requires matching leaders with primarily stable leadership styles to the demands of the situation. page 398

continuous technology A method of production in which raw materials flow continuously through a system that transforms them into finished products. page 241

contracting for leadership style A process whereby employees may not initially agree with a manager’s as- sessment of their developmental level, thus requiring a leader’s skill in arriving at an assessment consensus and an agreed-upon leadership style. page 398

controlling Those activities that an organization un- dertakes to ensure that its activities lead to achievement of its objectives. page 9

coordination The linking of jobs, departments, and divisions so that all parts of the organization work to- gether to achieve goals. page 242

corporate governance The formal system of oversight, accountability, and control for organizational decisions and resources. page 90

corporate strategy The scope and resource deploy- ment components of strategy for the enterprise as a whole. page 180

cost leadership A business-level strategy aimed at achieving the overall lowest cost structure in an industry. page 187

cross-functional groups Groups that cut across the firm’s hierarchy and are composed of people from dif- ferent functional areas and possibly different levels. page 300

customer division structure The organization of divi- sions by customer. page 227

customers Those who purchase an organization’s goods and/or services. page 85

decision A choice made from alternative courses of ac- tion in order to deal with a problem. page 203

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iv Glossary

ganization that may affect its managers’ actions. page 76

extinction Weakening an undesired behavior by not providing positive consequences. page 350

facilitators Leaders who help the group overcome in- ternal obstacles or difficulties so that it may achieve de- sired outcomes. page 321 feedback The receiver’s response to the sender’s com- munication. page 429

finance managers Managers concerned with the val- ue of the organization’s assets and various investment strategies that would increase net worth. page 23

fixed-interval schedule A pattern of reinforcement at specified periods of time, regardless of behavior. page 350

fixed-ratio schedule A pattern offering reinforcement after a specified number of desired performance behaviors, regardless of the time elapsed between them. page 350

flextime A work schedule that allows employees to choose their staffing and ending times as long as they are at work during a specified time period. page 354

focus A business strategy in which the business con- centrates on one part or segment of the market and tries to meet the demands of that segment. page 188

for-profit companies Companies owned either pri- vately by one or more individuals or publicly by stock- holders. page 26

formal groups Groups created by the organization that generally have their own formal structure. page 299

formal organization The arrangement of positions, as shown on an organizational chart, that dictates where work activities are completed, where decisions should be made, and the flow of information. page 358

formalization The degree to which the organization’s procedures, rules, and personnel requirements are writ- ten down and enforced. page 232

forming stage The stage when group members meet for the first time or two, become acquainted, and famil- iarize themselves with the group’s task. page 306

framing The tendency to view positively presented in- formation favorably and negatively presented informa- tion unfavorably. page 215

free-riding The tendency of some individuals to per- form at less than their optimum in groups, relying in- stead on others to carry their share of the workload. page 303

economic forces The relationship of people to resources. page 38

effectively Having the intended result. page 4

efficiently Accomplishing objectives with a minimum of resources. page 4

employee-centered leaders The most effective man- agers, who engage in both dimensions of leadership be- haviors by getting employees involved in the operation of their departments or divisions in a positive and con- structive manner, setting general goals, providing fairly loose supervision, and recognizing employees’ contribu- tions. page 393 empowerment The extent of a group’s authority and ability to make and implement work decisions. page 299

encoding The process of transforming information into understandable symbols, typically spoken or written words or gestures. page 429

entropy The tendency of systems to deteriorate or break down over time. page 58

environment All of those factors that affect the opera- tion of the organization. page 76

equity theory A theory stating that the extent to which people are willing to contribute to an organization de- pends on their assessment of the fairness of the rewards they will receive in exchange. page 346

escalation of commitment The tendency to persist with a failing course of action. page 215 ethical formalism A philosophy that focuses on hu- man rights and values and on the intentions associated with a particular behavior. page 126

ethical issue An identifiable problem, situation, or opportunity that requires a person or organization to choose among several actions that may be evaluated as ethical or unethical. page 117

expectancy theory A theory stating that motivation depends not only on how much a person wants some- thing but also on the person’s perception of how likely he or she is to get it. page 347

expectancy A person’s expectation that effort will lead to high performance. page 348

expert power Power or influence derived from a per- son’s special knowledge or expertise in a particular area. page 387

external environment All of the factors outside the or-

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v Glossary

horizontal coordination The linking of subunits on the same level. page 242

human resource management (HRM) All activities that forecast the number and type of employees an orga- nization will need and then find and develop employees with necessary skills. page 259

human resource managers Managers concerned with developing and carrying out programs used to make decisions about employees, such as selection, training, and compensation. page 22

human-relations movement A practice whereby em- ployees came to be viewed as informal groups of their own, with their own leadership and codes of behavior, instead of as unrelated individual workers assigned to perform individual tasks. page 56 hybrid structure A combination of several different structures; the most common form of organizational structure. page 228

incremental change A relatively small change in pro- cesses and behaviors within just one or a few systems or levels of the organization. page 452

individual characteristics Individual characteristics have to do with personality, background, basic beliefs and attitudes, and even mood. page 443

informal groups Groups that arise naturally from so- cial interaction and relationships and are usually very loosely organized. page 299

informal organization The relationships among posi- tions that are not connected by the organizational chart. page 360

information overload The condition of having too much information to process. page 446

information power Power that is a result of having access to important information that is not common knowledge, or of having the ability to control the flow of information to and from others. page 388

informational roles Activities, such as reports or briefings, that focus on obtaining data important for the decisions the manager needs to make. page 12

initiating-structure behaviors Defining and struc- turing leader-employee roles through activities such as scheduling, defining work tasks, setting deadlines, criticizing poor work, getting employees to accept work standards, and resolving problems. page 392

integrity tests Tests that measure an applicant’s at- titudes and opinions about dysfunctional behaviors

functional groups Groups that perform specific orga- nizational functions, with members from several vertical levels of the hierarchy. page 299

functional structure The grouping of jobs according to similar economic activities, such as finance, produc- tion and operations, and marketing. page 224

general environment The broad, complex factors that affect all organizations. page 77

geographic division structure The organization of di- visions by geographic region. page 226

global dimension Pertaining to the general environ- ment, those factors in other countries that affect the or- ganization. page 84

goal-setting theory A theory which recognizes the im- portance of goals in improving employee performance. page 352

goal The final result that a firm wishes to achieve. page 162

gossip chain The spreading of information by one per- son to many others. page 440

grapevine lnformal communication channels, found in virtually all organizations. page 440

group-maintenance roles Behaviors that help the group engage in constructive interpersonal relation- ships, and help members fulfill personal needs and de- rive satisfaction from group participation. page 313

group Two or more individuals who communicate with one another, share a collective identity, and have a com- mon goal. page 295 groupthink A phenomenon occurring when cohesive “in-groups” let the desire for unanimity, or consensus, override sound judgment in generating and evaluating alternative courses of action. page 223

growth The stage characterized by dramatic increases in the product’s market share. page 188

Hawthorne studies A group of studies that provided the stimulus for the human relations movement within management theory and practice. page 55

holding company An organization coin- posed of sev- eral very different kinds of businesses, each of which is permitted to operate largely autonomously. page 228

horizontal communication The exchange of informa- tion among individuals on the same organizational level, either across or within departments. page 439

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vi Glossary

leader-member exchange (LMX) theory A description of how leaders develop “unique” working relationships with each of their employees, based on the nature of their social exchanges. page 408

leadership The process of influencing the activities of an individual or a group toward the achievement of a goal. page 384

leadership enhancers Aspects of the task, subordi- nates, or organization that amplify a leader’s impact on employees. page 408

leadership neutralizers Aspects of the task, subordi- nates, or organization that have the effect of paralyzing, destroying, or counteracting the effect of a leadership behavior. page 407

leadership substitutes Aspects of the task, subordi- nates, or organization that act in place of leader behav- ior and thus render it unnecessary. page 406

leading The act of influencing others’ activities to achieve set goals. page 8

least preferred coworker (LPC) scale A measurement of a leader’s style consisting of a series of adjective con- tinuums. page 398 legitimate power The influence that comes from a per- son’s formal position in an organization and the author- ity that accompanies that position. page 386

lower (first-line) managers Those concerned with the direct production of items or delivery of service. page 22

maintenance factors Those aspects of a Job that relate to the work setting, including, adequate wages, comfortable working conditions, fair company policies, and job security. page 344

management A set of activities designed to achieve an organization’s objectives by using its resources ef- fectively and efficiently. page 4

management by walking around Another form of in- formal communication that has evolved is “management by walking around” (MBWA), in which managers infor- mally interact and exchange information with employ- ees by simply circulating around the office or plant on a regular basis. page 441

management science The field of management that includes the study and use of mathematical models and statistical methods to improve the effectiveness of man- agerial decision making. page 47

management structures Must be used to help run things during the transition, plan the direction of changes, and keep ongo- ing operations running smoothly as the change occurs. page 462

such as theft, sabotage, physical abuse, and substance abuse. page 266

internal environment All factors that make up the or- ganization, such as the owners, management, employ- ees, and board of directors. page 77

interpersonal roles Activities that involve interacting with others who may be external or internal to the orga- nization and, at the same time, at a higher or lower level than the manager. page 12

interpersonal skills Those management skills, such as communication, conflict resolution, and leading, that are necessary to work with others. page 15

intuition The immediate comprehension that some- thing is the case, seemingly without the use of any rea- soning process or conscious analysis. page 213

job analysis The systematic process of gathering infor- mation about important work-related aspects of a job. page 260

job design The process of grouping tasks into jobs. page 363

job enlargement A behavioral approach to job design aimed at increasing the number of tasks that comprise a job. page 365

job enrichment A behavioral approach in which jobs are designed to increase the number of similar tasks involved, especially tasks that require information pro- cessing and decision making. page 366

job evaluation methods Techniques that determine the value of an organization’s jobs and arrange these jobs in order of pay according to their value. page 277

job rotation A behavioral approach to job design in- volving a deliberate plan to move workers to various jobs on a consistent, scheduled basis. page 365

job sharing A working arrangement whereby two em- ployees do one job. page 355

job specialization The division of work into smaller, distinct tasks. page 362

job-centered leaders Less-effective managers, who are mostly directive in their approaches and more con- cerned with closely supervising employees, explaining work procedures, and monitoring progress in task ac- complishment. page 393

joint venture An agreement by which a company that wants to do business in another country may find a lo- cal partner (occasionally, the host nation itself) to share the costs and operation of the business. page 183

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vii Glossary

multidivisional structure The organization of depart- ments together into larger groups called divisions. page 225

munificent environment An environment in which the organization has a large market for its product and has funds needed to continue operations readily available, and other stakeholder groups are satisfied or pleased with the organization’s performance. page 239

network organization A structure, primarily a com- mand unit, that does not make a good or provide a ser- vice but instead coordinates agreements and contracts with other organizations to produce, distribute, and sell products. page 231

noise Anything acting as an information filter, such as knowledge, attitudes, and other factors, that interferes with the message being communicated effectively. page 429

nominal group technique A process that involves the use of a highly structured meeting agenda and restricts discussion or interpersonal communication during the decision making process. page 221

nonprofit organizations Institutions such as govern- ments, churches, and universities that cannot retain earnings over expenses, do not have equity interests, and cannot be bought or sold. page 26

nonprogrammed decisions Decisions made in re- sponse to situations that are unique, relatively unstruc- tured, undefined, and/or of major consequence to the organization. page 203

nonverbal communication Information conveyed by actions and behaviors rather than by spoken or written words. page 432

norming stage The stage when conflicts are largely resolved and harmony ensues. page 307

norms Prescriptions for appropriate behavior of group members that help reduce the disruption and chaos that would ensue if groups members didn’t know how to act. page 308

on-the-job training A technique in which the employ- ee learns the job tasks while actually performing the job. page 270

open system An organization that interacts continu- ally with its environment and therefore is well informed about changes within its surroundings and its position relative to these changes. page 58

operational plans Plans that are intended to achieve operational goals. page 171

operations control The regulation of one or more in-

management theory A systematic statement, based on observations, of how the management process might best occur, given stated underlying principles. page 43

managers Individuals who make decisions about the use of the organization’s resources and are concerned with planning, organizing, leading, and controlling the organization’s activities in order to reach its objectives. page 4

marketing managers Managers who develop programs that provide information about the company’s goods or services and encourage potential customers to purchase these. page 23

Maslow’s hierarchy of needs The order in which people strive to satisfy the five basic needs as theorized by Maslow—physiological, security, social, esteem, and self-actualization. page 341

mass technology The production of large numbers of the same product. page 241

matrix structure A structure in which members of dif- ferent functional departments are chosen to work together temporarily on a specific contract or project. page 230

maturity The stage when the product’s market share either slows or has no growth. page 188

mechanistic organizations Structures that are highly formal, complex, and centralized. page 233

middle managers Those who receive broad statements of strategy and policy from upper-level managers and develop specific objectives and plans. page 22

mission A definition of an organization’s fundamental purpose and its basic philosophy. page 159

mission statement A formal written declaration of the organization’s mission; often includes the firm’s philos- ophy, its primary products and markets, the intended geographic scope, and the nature of the relationships be- tween the firm, its stakeholders, and society. page 160

morale The sum total of employees’ attitudes toward their jobs, employer, and colleagues. page 337

moral philosophy A set of principles that describe what a person believes is the right way to behave. page 125

motivation An inner drive that directs behavior to- ward goals. page 336

motivational factors Those aspects of a job that re- late to the content of the work, including achievement, recognition, the work itself, involvement, responsibility, and advancement. page 344

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viii Glossary

tion’s desired and actual performance levels. page 451

performance or work-sample tests Examinations that verify an applicant’s ability to perform actual job behav- iors identified from a job analysis. page 266

performing stage The stage in which members have reached a level of maturity that facilitates total task in- volvement. page 307

peripheral norms Norms that are accepted by some, but are not important for organizational success. page 309

personal power A person’s ability to satisfy or deny sat- isfaction of another’s need, based on an interpersonal re- lationship between individuals or on his or her personal characteristics. page 386

personality inventories Programs that measure the thoughts, feelings, and behaviors that define an individu- al and determine that person’s pattern of interaction with the environment. page 266

physical examinations Tests that qualify an individ- ual’s placement in manually and physically demanding jobs. page 266

pivotal norms Standards that are critical for group success. page 308

plan A set of activities intended to achieve goals, whether for an entire organization, department, or an individual. page 155 planned change The deliberate structuring of opera- tions and behaviors, often in anticipation of environmen- tal forces. page 451 planning The process of determining what the organi- zation will specifically accomplish and deciding how to accomplish these goals. page 7

political forces The relationship of individuals, their rights, and their property to the state. page 38

political-legal dimension Within the general environ- ment, the nature of the relationship between various ar- eas of government and the organization. page 79

politics The maneuvering by an individual to try to gain an advantage in the distribution of organizational rewards or resources. page 326

portfolio analysis A technique allowing for managers to visualize their businesses as a set or portfolio using certain common criteria, such as profitability or growth potential. page 183

positive reinforcement The act of strengthening a de-

dividual operating systems within an organization. page 164

organic organizations Structures that are less formal, fairly simple, and decentralized. page 233

organizational change Any modification in the behav- iors or ideas of an organization or its units. page 448

organizational chart A pictorial display of the official lines of authority and communication within the orga- nization. page 358

organizational culture The value, beliefs, traditions, philosophies, rules, and heroes that are shared by mem- bers of the organization. page 24

organizational power A person’s ability to satisfy or deny satisfaction of anothers’ need, based on a formal contractual relationship between an organization and the individual. page 386

organizational structure The way managers group jobs into departments and departments into divisions. page 224

organizations Groups of individuals who work togeth- er to achieve desired objectives. page 5

organizing The activities involved in designing jobs for employees, grouping these jobs together into depart- ments, and developing working relationships among or- ganizational units and employees to carry out the plans. page 8

orientation The process of familiarizing newly hired employees with fellow workers, company procedures, and the physical properties of the organization. page 268

path-goal theory A model concerned with how a lead- er affects employees’ perceptions of their personal and work goals and the paths to goal attainment. page 400

perception The process through which we receive, fil- ter, organize, interpret, and attach meaning to informa- tion taken in from the environment. page 436

perceptual organization The natural and essential process of organizing, interpreting, and attaching value to the selected stimuli. page 437

perceptual selection The choosing of stimuli from the environment for further processing; also known as fil- tering or screening. page 436

performance appraisal A formal measurement of the quantity and quality of an employee’s work within a spe- cific period of time. page 272

performance gap The difference between an organiza-

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ix Glossary

quantitative approach A viewpoint of management that emphasizes the application of mathematical models, statistics, and structured information systems to support rational management decision making. page 47

quantum change A large-scale planned change in how the firm operates. page 452

question marks Those businesses, that are viewed positively in the sense that they are located in attractive, fast-growing markets, but for which there is a question as to their ability to compete, given their low market share. page 184

reactive change A situation in which organizational members react spontaneously to external and internal forces but do little to modify these forces or their behaviors. page 451

receiver The person to whom the information and meaning are sent. page 429

recruiting The process of attracting potential new em- ployees to the organization. page 261

referent power Personal power that results when one person identifies with and admires another. page 387

reinforcement theory A process theory which as- sumes that behavior may be reinforced by relating it to its consequences. page 349 related diversification A firm’s acquisition of a busi- ness that has some connection with the company’s ex- isting businesses. page 182

relationship-oriented behaviors Behaviors such as being considerate, supportive, and helpful to employees by showing trust and confidence, listening to employ- ees’ problems and suggestions, showing appreciation for contributions, and supporting employees’ concerns. page 393

relevant norms Norms that are important, but not as critical as the pivotal norms. page 309

resources The people, equipment, finances, and data an organization uses in order to reach its objectives. page 5

responsibility The individual’s burden of accountabil- ity for attainment of the organization’s goals. page 369

reward power Organizational power that stems from a person’s ability to bestow rewards. page 387

risk The condition that cysts when decision mak- ers must rely on incomplete, yet reliable informa- tion. page 204

sired behavior by rewarding it or providing other positive outcomes. page 349

potential new competitors Companies not current- ly operating in a business’s industry but which have a high potential for entering the industry. page 87

power A person’s capacity to influence the behavior and attitudes of others. page 386

primary stakeholders Those who have a formal and/ or contractual relationship with the firm, such as cus- tomers, suppliers, and employees. page 94

problem The difference between a desired situation and the actual situation. page 203

process theories A set of theories that try to determine “how” and “why” employees are motivated to perform. page 346

product division structure The organization of divi- sions by product. page 226

product life cycle The cycle of birth, growth, and de- cline of a product. page 188

product-development teams A special type of project team formed to devise, design, and implement a new product. page 301

production and operations managers Managers who schedule and monitor the work process that turns out the firm’s goods and services. page 23

professional bureaucracy An organization that has a functional structure, is medium sized, and works best in stable environments, but has primarily professional em- ployees and a decentralized informal structure. page 245

programmed decisions Decisions made in response to situations that are routine, somewhat structured, and fairly repetitive. page 203

project teams Groups similar to task forces, but usu- ally responsible for running an operation and in control of a specific work project. page 301

promotion The advancement of a current employee to a higher-level job within the organization. page 281

Protestant ethic An interpretation of the purpose of life, stating that, instead of merely waiting on earth for release into the next world, people should pursue an oc- cupation and engage in high levels of worldly activity so that they will fulfill their calling. page 39

punishment The act of weakening or eliminating an undesired behavior by providing negative consequences. page 349

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tives, strategies, organization, and performance of the social responsibility function. page 142

social forces The relationship of people to each other within a particular culture. page 38

social responsibility The obligation a business as- sumes to maximize its positive impact and minimize its negative impact on society. page 129

socialization The process by which an individual learns the norms, values, goals, and expectations of the organization. page 311 socio-cultural dimension The aspect of the general environment that includes the demographics and the val- ues of the society within which an organization operates. page 78

soldiering The systematic slowdown in work by labor- ers, with the deliberate purpose of keeping their employers ignorant of how fast the work can be done. page 45

span of control The actual number of subordinates over which a position has authority. page 370

stable environment An environment in which stake- holder demands, and specifically customer desires, are well understood and relatively stable over time. page 239

Stakeholder A person or group which can affect, or is affected by, an organization’s goals or the means to achieve those goals. page 94

stakeholder map A representation of the organiza- tion’s stakeholders and their stakes. page 95

stars Those businesses that have high market shares and operate in industries experiencing major growth. page 184

stereotyping A type of perceptual organization in which we categorize people into groups based on certain characteristics such as race, sex, or education level, and then make generalizations about them according to their group. page 437

storming stage The stage when conflict ....‘ usually oc- curs and in which group members begin to assert their roles, jockey for leadership positions, and make known their feelings about a task. page 306

strategic business unit (SBU) A separate division within a company that has its own mission, goals, strat- egy, and competitors. page 183

strategic goals Goals set by higher managers that deal with such general topics as the firm’s growth, new mar- kets, or new goods and services. page 163

risk propensity A person’s willingness to take risks when making decisions. page 217

role A description of the behaviors expected of a spe- cific group member. page 311

satisficing The decision maker’s decision to choose the first alternative that appears to resolve the problem satisfactorily. page 211

scalar chain The principle of organizing whereby au- thority should flow through the organization from the top down, one level at a time. page 371

scarce environment An environment wherein mon- ey is tight, the market is stagnant or declining, or stakeholder groups are making conflicting or difficult demands. page 239

scientific management A theory within the classical approach that focuses on improvement of operational efficiencies through the systematic and scientific study of work methods, tools, and performance standards. page 44

secondary stakeholders Groups which have a less formal connection to the organization, such as envi- ronmentalists, community activists, and the media. page 94

selection The process of collecting systematic infor- mation about applicants and using that information to decide which applicants to hire. page 263

self-directed work team (SDWT) An intact group of employees who are responsible for a whole work process or segment that delivers a product or service to an inter- nal or external customer. page 301

semantics The different uses and meanings of words, often influencing the effectiveness of a message. page 443

sender The person who wishes to relay or share par- ticular information and meaning, and initiates the com- munication process. page 428

simple structure A structure with few departments, arranged by function, headed by an entrepreneur/owner, and with few technical support staff. page 244

situational leadership theory A leadership model whose premise is that a leader’s style should be con- tingent on subordinates’ competence and commitment. page 396

small-batch technology The production of small num- bers of goods in response to a specific customer request. page 241

social audit A systematic examination of the objec-

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xi Glossary

performance goals, and approach for which they hold themselves mutually accountable. page 295

technical skills The knowledge and ability to ac- complish the specialized activities of the work group. page 15

technological dimension Within the general environ- ment, the knowledge and process of changing inputs (resources, labor, and money) to outputs (goods and services). page 81

termination The separation of an employee from the organization. page 281

Theory X The assumption that people are naturally lazy, must be threatened and forced to work, have little ambition or initiative, and do not try to fulfill any need higher than security needs at work. page 57

Theory Y The assumption that people naturally want to work, are capable of self-control, seek responsibil- ity, are creative, and try to fulfill higher-order needs at work. page 57

Theory Z A management theory involving increased concern for quality of work-life, job security, group deci- sion making, cooperation between groups, informal cen- tral mechanisms, and concern for work-family issues. page 64

training The process of instructing employees in their Job tasks and socializing them into the organization’s values, attitudes, and other aspects of its culture. page 268

training and experience form An application device that presents a small number of the important tasks of a job and asks the applicants whether they have ever performed or been trained in each of the activities. Page 264

trait appraisal A subjective evaluation of an employ- ee’s personal characteristics such as attitude, motiva- tion, cooperation, and dependability. page 272

transactional leadership A more traditional approach in which managers engage in both task- and consid- eration-oriented behaviors in an exchange manner. page 411

transfer The reassignment of a current employee to another job at the same level as the original job. page 281

transformational leadership A style that goes beyond mere exchange relationships by inspiring employees to look beyond their own self-interests and by generating awareness and acceptance of the group’s purposes and mission. page 411

strategic management All the processes an organiza- tion undertakes to develop and implement its strategic plan. page 171

strategic plans Plans that are intended to achieve strategic goals. page 171

strategy A course of action for implementing strategic plans and achieving strategic goals; a general statement of actions an organization intends to take or is taking that is based on the fit of the organization with its exter- nal environment. page 173

substitutes Goods or services that may be used in place of those furnished by a given business. page 86

subsystem Any system that is part of a larger one. page 58

suppliers Organizations and individuals who provide resources to other organizations. page 85

SWOT analysis The evaluation of the organization’s internal strengths and weaknesses and the opportuni- ties and threats associated with the business’s external environment. page 176

synergy The ability of the whole system to equal more than the sum of its parts. page 58

system An arrangement of related or connected parts that form a whole unit. page 58

systems approach An approach to management theo- ry that views organizations and the environments within which they operate as sets of interrelated parts to be managed as a whole in order to achieve a common goal. page 57

tactical goals The intermediate goals of the firm, which are designed to stimulate actions necessary for achiev- ing the strategic goals. page 164

tactical plans Plans that are designed to achieve tacti- cal goals. page 171

task force A temporary group of employees responsible for bringing about a particular change. page 300

task-oriented behaviors Behaviors—such as planning and scheduling work, coordinating employee activities, and providing necessary supplies, equipment, and tech- nical assistance—designed primarily and specifically to get tasks completed. page 393

task-specialist roles Behaviors oriented toward gener- ating information and resolving problems. page 313

team A small number of people with complementary skills who are committed to a common purpose, set of

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variable-interval schedule A pattern whereby the period of reinforcement varies between one reinforce- ment and the next. page 350

variable-ratio schedule A pattern whereby the num- ber of behaviors required for reinforcement is varied. page 351

verbal or oral communication Words spoken through various channels to convey information and meaning. page 431

vertical coordination The integration of succeeding levels of the organization. page 242

Vroom-Yetton-Jago (VYJ) participation model A model that provides a set of rules for employee participation in decision making. page 402

wage and salary survey A study that tells the com- pany how much compensation is paid by compara- ble firms for specific jobs the firms have in common. page 277

whistle blowing The act of an employee’s exposing an employer’s wrongdoing; typically such reporting is to outsiders, the media, or government regulatory agencies. page 128

written communication Information and meaning transferred as recorded words, such as memos, re- ports, and electronic mail. page 432

transition state The period during which the or- ganization learns the behaviors needed to reach the desired future state. page 461

turbulent environment An environment wherein customer or other stakeholder demands are continu- ously changing or the primary technology of the firm is constantly being improved and updated. page 239

uncertainty The condition that exists when little or no factual information is available about a prob- lem, its alternative solutions, and their respective out- comes. page 205

unity of command The principle that a subordi- nate should report to only one immediate superior. page 371

unrelated diversification The action of diversifying into any business that is potentially profitable for the organization. page 182

upper managers Those who make decisions about the overall performance and direction of the organization. page 22

upward communication Communication flowing from lower to higher levels of the organization, such as progress reports, suggestions, inquiries, and grievances. page 439

utilitarian philosophy A philosophy where believers seek the greatest satisfaction for the largest number of individuals. page 125

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Case Study: �Sigma Marketing