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MANAGEMENT T H I R T E E N T H E D I T I O N

Management

JOHN R. SCHERMERHORN, JR. OHIO UNIVERSITY

DANIEL G. BACHRACH UNIVERSITY OF ALABAMA

THIRTEENTH EDITION

VICE PRESIDENT & EXECUTIVE PUBLISHER George Hoff man

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Library of Congress Cataloging in Publication Data:

Schermerhorn, John R.

Management / John R. Schermerhorn.—13th ed.

p. cm.

ISBN 978-1-118-84151-8 (unbound)

1. Management. I. Title.

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

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While you played

I wrote.

But always,

I was listening

and loving

you.

1984 It’s later now.

Don’t worry.

Time

means love shared,

by you

and me.

1986 Th ink

of all the fun

we have.

Here, there, everywhere,

doing things

together.

1989 Home,

now and forever,

will always be

wherever

I can be

with you.

1992 Time

has its ways,

doesn’t it?

Not enough,

not enough,

I often say.

1996

Hurry home

when you can.

Come laughing, sons.

Tell us

your

wonderful stories.

1999 Songs riding winds.

Mimi,

Uncle George,

Uncle Nelson.

Whispers and choirs.

Silence speaks.

2002 On the mountain,

by Irish lakes,

fi nd beauty and

peace.

Fairies dance

there.

2004 Mom loves

us, cats

and rainy days.

Nana and Poppy

loved us

too.

2007 Bookstores, museums,

stories, paintings.

And dreams.

We travel,

we laugh,

joined in life.

2009

While you work,

I’m starting to play

again.

Still listening,

and loving

you.

2011 When I

was young

I never knew

you would make

dreams

come true.

2013 No matter

the time

or day.

With a thought,

a memory,

I smile.

2015

From John

To my sons, John Christian and Charles Porter

From Dan

For Julie, Sammy, Eliana, Jakey, Jessica, Caleb, and Lilah—I love you!

iii

About the Authors Dr. John R. Schermerhorn, Jr., is the Charles G. O’Bleness Professor of Management Emeri-

tus in the College of Business at Ohio University, where he teaches graduate courses in manage-

ment and organizational behavior. Dr. Schermerhorn earned a PhD in organizational behavior

from Northwestern University, an MBA (with distinction) in management and international

business from New York University, and a BS in business administration from the State Univer-

sity of New York at Buff alo. He previously taught at Tulane University, the University of Vermont,

and Southern Illinois University at Carbondale, where he also served as head of the Department

of Management and associate dean of the College of Business Administration.

International experience adds a unique global dimension to Dr. Schermerhorn’s teaching

and writing. He holds an honorary doctorate from the University of Pécs in Hungary. He was

a visiting professor of management at the Chinese University of Hong Kong, on-site coordi-

nator of the Ohio University MBA and Executive MBA programs in Malaysia, and Kohei

Miura visiting professor at Chubu University in Japan. He has served as adjunct professor at

the National University of Ireland at Galway and advisor to the Lao-American College in

Vientiane, Laos. He presently teaches an MBA course at Università Politecnica Delle Marche

in Ancona, Italy, and PhD seminars in the Knowledge and Innovation Management doctoral

program at Bangkok University, Th ailand. At Ohio University he has twice been Director of

the Center for Southeast Asian Studies.

A member of the Academy of Management, Dr. Schermerhorn was chairperson of the

Management Education and Development Division. Management educators and students

alike know him as author of Exploring Management 4e (Wiley, 2014), Management 12e (Wiley,

2013), and co-author of Organizational Behavior 13e (Wiley, 2014). Dr. Schermerhorn has

also published numerous articles, including ones in the Academy of Management Journal,

Academy of Management Review, Academy of Management Executive, Organizational

Dynamics, Asia-Pacifi c Journal of Management, the Journal of Management Development, and

the Journal of Management Education.

Ohio University named Dr. Schermerhorn a University Professor, the university’s highest

campus-wide honor for excellence in undergraduate teaching. He is a popular guest speaker

at colleges and universities. He is available for student lectures and classroom visits, as well

as for faculty workshops on scholarly manuscript development, textbook writing, high

engagement teaching, and instructional and curriculum innovations.

Dr. Daniel G. Bachrach (Dan) is the Robert C. and Rosa P. Morrow Faculty Excellence Fellow

and Professor of Management in the Culverhouse College of Commerce and Business Admin-

istration at the University of Alabama, where he teaches graduate and undergraduate courses

in management. Dr. Bachrach earned a PhD in organizational behavior and human resource

management—with a minor emphasis in strategic management—from Indiana University’s

Kelley School of Business, an MS in industrial/organizational psychology from the University

of Wisconsin-Oshkosh, and a BA in psychology from Bates College in Lewiston, Maine.

A member of the Academy of Management and the Society for Industrial and Organiza-

tional Psychology, Dr. Bachrach serves on the editorial boards of the Journal of Applied Psy-

chology and Organizational Behavior and Human Decision Processes. He is co-editor of the

Handbook of Behavioral Operations Management: Social and Psychological Dynamics in

Production and Service Settings (Oxford University Press, 2014), co-author of Transformative

Selling: Becoming a Resource Manager and a Knowledge Broker (Axcess Capon, 2014), and

senior co-author of 10 Don’ts on your Digital Devices: Th e Non-Techie’s Survival Guide to Digital

Security and Privacy (Apress, 2014). Dr. Bachrach also has published extensively in a number

of academic journals including Organization Science, Journal of Applied Psychology, Strategic

Management Journal, Organizational Behavior and Human Decision Processes, Personnel Psy-

chology, Journal of Management, Leadership Quarterly, Production and Operations Manage-

ment, Journal of Operations Management, Journal of Supply Chain Management, and the

Journal of Personal Selling and Sales Management.

Ohio University named Dr. Schermerhorn a

University Professor, the university’s highest

campus-wide honor for exellence in

undergraduate teaching.

Dr. Bachrach serves on the editorial boards

of the Journal of Applied Psychology and Organizational Behavior and Human Decision Processes.

Preface

From the beautiful cover of this book to the realities of organizations today, great accom-

plishments are much like inspired works of art. Whether one is talking about arranging

objects or bringing together people, technology, and other resources in organizational sys-

tems, it is a balancing act. But the results are spectacular when goals and talent combine to

create a lasting and positive impact.

Just as artists fi nd inspiration in all the senses that bring our world to life, managers fi nd

inspiration in daily experiences, from the insights of scholars, through relationships with

other people, and among the goals that guide organizations in an ever more demanding

society. And like artists, managers must master many challenges as they strive to create the

future from the opportunities of the present.

A well-managed organization—for profi t or nonprofi t, large or small—can build, mix, and

integrate all the beauties of human talent to achieve great things. Th is capacity for positive

impact through people is the goal bound into the pages of Management 13e. It is an oppor-

tunity to gain knowledge, fi nd inspiration, and learn practices that can help build the orga-

nizations we need to forge a better world.

New to Management 13e Management 13e has been revised and updated with a focus on real-world anchors for timely

content, student engagement in critical thinking about real-world and personal career

issues, and instructor opportunities for enriched classroom activities and assignments.

Timely content—All chapters have been updated. Examples of new and expanded coverage

include triple bottom line and shared value view (Chapter 3), disruptive innovation and human

sustainability (Chapter 4), reshoring and tax inversions (Chapter 5), social entrepreneurship and

crowdfunding (Chapter 6), data mining and analytics (Chapter 7), goal management and goal

downsides (Chapter 8 and Chapter 16), employment issues and controversies (Chapter 13),

followership and leadership (chapter 14), technology personality and mood contagion (Chap-

ter 15), and team virtuousness (Chapter 17).

Student engagement features—Student engagement is an embedded theme in Manage-

ment 13e. Look for these chapter features that bring life to disciplinary content: Analysis—

Make Data your Friend, Choices—Th ink Before You Act, Ethics—Know Right from Wrong,

Insight—Learn About Yourself, and Wisdom—Learn from Role Models. Each feature is

designed and visually presented to attract student attention and engage theme in refl ection

and critical thinking. Th ese features are introduced in the chapter opening page as part of

What to Look for Inside: Management Is Real.

Enriched Classroom Opportunities—Th e active and enriched classroom is also an embed-

ded theme in Management 13e. Look for these end-of-chapter opportunities that make it

easy to bring text content to life in discussions, activities, and individual and team assign-

ments: Evaluate Career Situations, Refl ect on the Self-Assessment, Contribute to the Class

Exercise, Manage a Critical Incident, Collaborate on the Team Activity, and Analyze the Case

Study. Th ese instructional enrichments are introduced in the chapter opening page as part

of What to Look for Inside: Skills Make You Valuable.

NNNeww ttoo MMMaanaagemmmmeennt 133e

vi PREFACE

Management 13e Philosophy Today’s students are tomorrow’s leaders and managers. Th ey are our hope for the future

during this time of social transformation. New values and management approaches are

appearing; organizations are changing forms and practices; jobs are being redefi ned and

relocated; the age of information is a major force in our lives; and, the intricacies of global-

ization are presenting major organizational and economic challenges.

Management 13e and its rich selection of timely examples and thought provoking

features for analysis and refl ection is designed for this new world of work. It is crafted to

help students understand that management is real and that is an everyday part of their

lives. By engaging with Management 13e, students explore the essentials of management

while also discovering their true potential for developing useful career skills. Th e con-

tent, pedagogy, and features of this edition were carefully blended to support manage-

ment educators who want their students to:

• grow in career readiness,

• become attractive internship and job candidates,

• gain confi dence in critical thinking,

• identify timely social and organizational issues,

• embrace lifelong learning for career success.

Management 13e Pedagogy Th e pedagogical foundations of Management 13e are based on four constructive balances

that are essential to higher education for business and management.

• Th e balance of research insights with formative education. As educators we must be

willing to make choices when bringing the theories and concepts of our discipline to

the attention of the introductory student. We cannot do everything in one course. Th e

goal should be to make good content choices that set the best possible foundations for

lifelong learning.

• Th e balance of management theory with management practice. As educators we

must understand the compelling needs of students to learn and appreciate the applica-

tions of the material they are reading and thinking about. We must continually bring to

their attention interesting and relevant examples.

• Th e balance of present understandings with future possibilities. As educators we

must continually search for the directions in which the real world of management is

heading. We must select and present materials that can both point students in the

right directions and help them develop the confi dence and self-respect needed to

best pursue them.

• Th e balance of what “can” be done with what is, purely and simply, the “right” thing

to do. As educators we are role models; we set the examples. We must be willing to take

stands on issues such as managerial ethics and social responsibility. We must be careful

not to let the concept of “contingency” betray the need for positive “action” and “account-

ability” in managerial practice.

Our students have pressing needs for direction as well as suggestion. Th ey have needs for

application as well as information. Th ey have needs for integration as well as presentation.

And they have needs for confi dence that comes from solid understanding. Our goal is to

put into your hands and into those of your students a learning resource that can help meet

these needs.

Management 13e is designed to help

students discover their true potential

and accept personal responsibilities for

developing career skills.

We are role models . . . we must be

willing to take stands on issues such

as managerial ethics and social

responsibility.

Our goal as educators should be to

make good content and pedagogical

choices that set the best possible foun-

dations for lifelong learning.

MMaanaggeeemmenttt 3ee oossoppp yyy

MMaanaggeeemmenttt 13ee PPeedaaggoggyy

viiPreface

Management 13e Highlights Management 13e introduces the essentials of management as they apply to organizations

and careers in a complex global society. Th e subject matter is carefully chosen to meet

AACSB accreditation guidelines, while still allowing extensive fl exibility to fi t various course

designs, class sizes, and delivery formats.

Th e timely chapter content off ers fl exibility in meeting a wide variety of course objectives

and instructor preferences. Th e chapters are organized in fi ve logical parts—Management,

Environment, Planning and Controlling, Organizing, and Leading. Th e parts and individual

chapters can be used in any order and combination. All chapters have been updated and

enriched with new features and examples from the latest current events.

Learning Model

Th e Management 13e learning model makes it easy for students to read, study, refl ect, and

use critical thinking. Th eir attention is focused on building management skills and compe-

tencies through active learning, and on discovering that management issues and themes

permeate current events that aff ect everyday living.

Each chapter opens with a compelling photo and quote, followed by a learning dash-

board that provides a Quick Start overview, list of Key Takeaways, and a What to Look for

Inside directory in two parts: Management Is Real—with features on Analysis, Choices,

Ethics, Insight, and Wisdom; and, Skills Make You Valuable—with features on Evaluate,

Refl ect, Contribute, Manage, Collaborate, and Analyze. Major Figures within chapters pro-

vide visual support for student comprehension as concepts, theories, and terms are intro-

duced. Where appropriate, Small Boxed Figures and Content Summaries are embedded in the

text to help clarify major points. Th e Management Learning Review section at the end of each

chapter helps students prepare for quizzes and exams by completing a Takeaway Question

Summary and Chapter Self-Test.

Self-Refl ection, Active Learning, and Critical Th inking

Th e What to Look for Inside guide in the chapter-opening learning dashboard points out the

many features in Management 13e that provide students with important opportunities for

self-refl ection, active learning, and critical thinking. Within each chapter, Management Is

Real features present current events, timely issues, and real people and situations to build

awareness and stimulate personal refl ection. Examples include:

MANAGEMENT IS REAL MAKE DATA YOUR FRIEND

Multiple Generations Meet and Greet in the Workplace

THINK BEFORE YOU ACT

Want Vacation? No Problem, Take as Much as You Want

KNOW RIGHT FROM WRONG

Social Media Searches Linked with Discrimination in Hiring

LEARN ABOUT YOURSELF

Self-Awareness and the Johari Window

LEARN FROM ROLE MODELS

Ursula Burns Moves from Student Intern to Fortune 500 CEO

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Management is Real features present

current events, timely issues, and

real people and situations to build

awareness and stimulate personal

refl ection.

Th e Management 13e learning model

makes it easy for students to study,

refl ect, and use critical thinking as they

read.

MMMaanaaggemmmeentt 33ee gg g ttts

viii PREFACE

Management 13e Teaching and Learning Resources

Instructor’s Resource Manual. Th e Instructor’s Resource Manual off ers helpful teaching ideas. It has advice on course development, sample assignments, and recommended activi-

ties. It also off ers chapter-by-chapter text highlights, learning objectives, lecture outlines,

class exercises, lecture notes, answers to end-of-chapter material, and tips on using cases.

Test Bank. Th is comprehensive Test Bank (available on the instructor portion of the Management 13e website) has more than 175 questions per chapter. Th e true/false,

multiple-choice, and short-essay questions vary in degree of diffi culty. All questions are

tagged with learning objectives, Bloom’s Taxonomy categories, and AACSB Standards. Th e

Computerized Test Bank allows instructors to modify and add questions to the master bank

and to customize their exams.

PowerPoint Presentation Slides. Th is robust set of slides can be accessed on the instructor portion of the Management 13e website. Lecture notes accompany each slide.

Pre- and Post-Lecture Quizzes. Included in WileyPLUS Learning Space, the Pre- and Post-Lecture Quizzes focus on the key terms and concepts. Th ey can be used as stand-alone

quizzes, or in combination to evaluate students’ progress before and after lectures.

Lecture Launcher Videos. Short video clips developed from CBS News source materials provide an excellent starting point for lectures or for general class discussion. Teaching

Notes are available and include video summaries and quiz and discussion questions.

Movies and Music. Th e Art Imitates Life supplement, prepared by Robert L. Holbrook of Ohio University, off ers tips for those interested in integrating popular culture and the

humanities into their courses. It provides innovative teaching ideas and scripts for using

movies and music to enrich day-to-day classroom activities. It is widely praised for increas-

ing student involvement and enthusiasm for learning. Th e Art Imitates Life supplement

off ers tips for those interested in integrating popular culture and the humanities into their

courses.

SKILLS MAKE YOU VALUABLE EVALUATE Career Situations: What Would You Do?

REFLECT On the Self-Assessment: Career Readiness “Big 20”

CONTRIBUTE To the Class Exercise: My Best Manager

MANAGE A Critical Incident: Team Leader Faces Test

COLLABORATE On the Team Activity: The Amazing Great Job Race

ANALYZE Th e Case Study: Trader Joe’s: Keeping a Cool Edge

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At the end of each chapter, Skills Make You Valuable features provide a variety of opportu-

nities to build management skills through individual and team learning activities. Examples

include:

Skills Make You Valuable features

provide a variety of opportunities to

build management skills through

individual and team learning activities.

anndd Leeaaarnninggg Reeesourccees

ixPreface

Practice Quizzes. An online study guide with quizzes of varying levels of diffi culty helps students evaluate their progress through a chapter. It is available on the student portion of

the Management 13e website.

Student Portfolio Builder. Th is special guide to building a student portfolio is complete with professional résumé and competency documentation templates. It is on the student

portion of the Management 13e website.

Companion Website. Th e Management 13e website at www.wiley.com/college/ schermerhorn contains a myriad of tools and links to aid both teaching and learning,

including resources described earlier.

WileyPlus Learning Space

What is WileyPLUS Learning Space? It’s a place where students can learn, collaborate, and

grow. Th rough a personalized experience, students create their own study guide while they

interact with course content and work on learning activities.

WileyPLUS Learning Space combines adaptive learning functionality with a dynamic new

e-textbook for your course—giving you tools to quickly organize learning activities, manage

student collaboration, and customize your course so that you have full control over content

as well as the amount of interactivity between students.

You can:

• Assign activities and add your own materials

• Guide students through what’s important in the e-textbook by easily assigning specifi c

content

• Set up and monitor collaborative learning groups

• Assess student engagement

• Benefi t from a sophisticated set of reporting and diagnostic tools that give greater

insight into class activity

Learn more at www.wileypluslearningspace.com. If you have questions, please contact your

Wiley representative.

Acknowledgments Management 13e was initiated and completed with the support of our dedicated and help-

ful Project Editor, Jennifer Manias; Executive Editor, Lisé Johnson, who again rallied the

expertise of a great Wiley team; and Susan McLaughlin, a talented and dedicated “Jack of

all trades.” We all have benefi tted from the special support of George Hoff man (Publisher),

Yana Mermel (Editorial Operations Manager), Tom Nery (designer), Mary Ann Price (photo

research), Suzie Chapman (production), and Kelly Simmons and Amy Scholz (marketing).

We also thank the numerous colleagues—too many to list here—whose help with this book

at various stages of its life added to our understanding of management and management

education.

As always, John works with the support and encouragement of his wife Ann. She perse-

veres even when “the book” overwhelms many of life’s opportunities. Dan is grateful for the

love, support, and guidance of his wife Julie, and the opportunity to work with John.

Brief Contents 1 Management Today 3

2 Management Learning Past to Present 29

3 Ethics and Social Responsibility 51

Part One Management

Part Th ree Planning and

Controlling

7 Information and Decision Making 147

8 Planning Processes and Techniques 173

9 Control Processes and Systems 195

10 Strategy and Strategic Management 215

Part Five Leading 14 Leading and Leadership Development 317

15 Individual Behavior 339

16 Motivation Th eory and Practice 365

17 Teams and Teamwork 389

18 Communication and Collaboration 415

Part Two Environment 4 Environment, Innovation, and Sustainability 77

5 Global Management and Cultural Diversity 97

6 Entrepreneurship and New Ventures 123

Part Four Organizing 11 Organization Structures and Design 241

12 Organization Culture and Change 265

13 Human Resource Management 291

Management Cases for

Critical Th inking

Chapter Cases 438

Self-Test Answers 467

Glossary 477

Endnotes 491

Name Index 523

Organizational Index 526

Subject Index 529

Part One Management

1 Management Today 3

Working Today 4

Talent 4

Technology 5

Globalization 6

Ethics 6

Diversity 8

Careers and Connections 9

Organizations 10

Organizational Purpose 10

Organizations as Systems 10

Organizational Performance 11

Changing Nature of Organizations 12

Managers 12

What Is a Manager? 12

Levels of Managers 13

Types of Managers 14

Managerial Performance 14

Changing Nature of Managerial Work 14

Th e Management Process 16

Functions of Management 16

Managerial Roles and Activities 18

Managerial Agendas and Networks 19

Learning How to Manage 20

Technical Skills 21

Human and Interpersonal Skills 21

Conceptual and Critical-Th inking Skills 22

Management Learning Review 23

Summary 23

Self-Test 1 24

Management Skills & Competencies 25

Evaluate Career Situations: What Would You Do? 25 Refl ect on the Self-Assessment: Career Readiness “Big 20” 25 Contribute to the Class Exercise: My Best Manager 26

Manage a Critical Incident: Team Leader Faces Test 26 Collaborate on the Team Activity: Th e Amazing Great Job Race 27 Analyze the Case Study: Trader Joe’s 27

2 Management Learning Past

to Present 29

Classical Management Approaches 30

Scientifi c Management 30

Administrative Principles 31

Bureaucratic Organization 32

Behavioral Management Approaches 33

Follett’s Organizations as Communities 33

Th e Hawthorne Studies 35

Maslow’s Th eory of Human Needs 36

McGregor’s Th eory X and Th eory Y 37

Argyris’s Th eory of Adult Personality 37

Modern Management Foundations 39

Quantitative Analysis and Tools 39

Organizations as Systems 40

Contingency Th inking 41

Quality Management 42

Evidence-Based Management 43

Management Learning Review 45

Summary 45

Self-Test 2 46

Management Skills & Competencies 47

Evaluate Career Situations: What Would You Do? 47 Refl ect on the Self-Assessment: Managerial Assumptions 47 Contribute to the Class Exercise: Evidence-Based Management Quiz 48 Manage a Critical Incident: Th eory X versus Th eory Y 48 Collaborate on the Team Activity: Management in Popular Culture 49 Analyze the Case Study: Zara International 49

Contents

xii CONTENTS

3 Ethics and Social Responsibility 51

Ethics 52

Laws and Values as Infl uences on Ethical Behavior 52

Alternative Views of Ethics 53

Cultural Issues in Ethical Behavior 55

Ethics in the Workplace 56

Ethical Dilemmas 56

Infl uences on Ethical Decision Making 57

Rationalizations for Unethical Behavior 60

Maintaining High Ethical Standards 61

Moral Management 61

Ethics Training 62

Codes of Ethical Conduct 62

Whistleblower Protection 63

Social Responsibility 64

Social Responsibility, Sustainability, and the Triple Bottom Line 64

Perspectives on Corporate Social Responsibility 65

Evaluating Corporate Social Performance 68

Corporate Governance 69

Management Learning Review 71

Summary 71

Self-Test 3 72

Management Skills & Competencies 73

Evaluate Career Situations: What Would You Do? 73 Refl ect on the Self-Assessment: Terminal Values 73 Contribute to the Class Exercise: Confronting Ethical Dilemmas 74 Manage a Critical Incident: Dealing with a Global Supply Chain 74 Collaborate on the Team Activity: Stakeholder Maps 75 Analyze the Case Study: Patagonia 75

Part Two Environment

4 Environment, Innovation,

and Sustainability 77

Th e External Environment 78

Economic Conditions 79

Legal-Political Conditions 79

Sociocultural Conditions 80

Technological Conditions 80

Natural Environment Conditions 82

Environment and Value Creation 83

Value Creation and Competitive Advantage 83

Uncertainty, Complexity, and Change 85

Environment and Innovation 85

Types of Innovations 86

Th e Innovation Process 86

Disruptive Innovation and Technology 87

Environment and Sustainability 88

Sustainable Development 89

Sustainable Business 89

Human Sustainability 90

Management Learning Review 91

Summary 91

Self-Test 4 92

Management Skills & Competencies 93

Evaluate Career Situations: What Would You Do? 93 Refl ect on the Self-Assessment: Tolerance for Ambiguity 94 Contribute to the Class Exercise: Th e Future Workplace 94 Manage a Critical Incident: It’s Also about Respect 94 Collaborate on the Team Activity: Organizational Commitment to Sustainability Scorecard 95 Analyze the Case Study: Timberland 95

5 Global Management and Cultural

Diversity 97

Management and Globalization 98

Global Management 99

Why Companies Go Global 99

How Companies Go Global 101

Global Business Environments 104

Global Businesses 107

Types of Global Businesses 107

Pros and Cons of Global Businesses 107

Ethics Challenges for Global Businesses 108

Cultures and Global Diversity 111

Cultural Intelligence 111

Silent Languages of Culture 112

xiiiContents

Tight and Loose Cultures 113

Values and National Cultures 114

Global Management Learning 115

Are Management Th eories Universal? 115

Intercultural Competencies 116

Global Learning Goals 116

Management Learning Review 117

Summary 117

Self-Test 5 118

Management Skills & Competencies 119

Evaluate Career Situations: What Would You Do? 119 Refl ect on the Self-Assessment: Global Intelligence 120 Contribute to the Class Exercise: American Football 120 Manage a Critical Incident: Silent Team Members 120 Collaborate on the Team Activity: Globalization Pros and Cons 121 Analyze the Case Study: Harley-Davidson 121

6 Entrepreneurship and New

Ventures 123

Th e Nature of Entrepreneurship 124

Who Are the Entrepreneurs? 124

Characteristics of Entrepreneurs 126

Female and Minority Entrepreneurs 128

Social Entrepreneurship 129

Entrepreneurship and Small Business 131

How Small Businesses Get Started 131

Why Small Businesses Fail 132

Family-Owned Small Businesses 133

Small Business Development 134

New Venture Creation 135

Life Cycles of Entrepreneurial Firms 135

Writing a Business Plan 136

Choosing a Form of Ownership 137

Financing a New Venture 139

Management Learning Review 141

Summary 141

Self-Test 6 142

Management Skills & Competencies 143

Evaluate Career Situations: What Would You Do? 143

Refl ect on the Self-Assessment: Entrepreneurial Orientation 143 Contribute to the Class Exercise: Entrepreneurs Among Us 144 Manage a Critical Incident: Craft Brewery in—or Out—of the Money? 145 Collaborate on the Team Activity: Community Entrepreneurs 145 Analyze the Case Study: In-N-Out Burger 145

Part Th ree Planning and Controlling

7 Information and Decision Making 147

Information, Technology, and Management 148

Information and Information Systems 148

Data Mining and Analytics 149

Business Intelligence and Executive Dashboards 150

Problem-Solving and Managerial Decisions 151

Managers as Problem Solvers 152

Problem-Solving Approaches and Styles 152

Structured and Unstructured Problems 154

Crisis Problems 154

Problem-Solving Environments 155

Th e Decision-Making Process 156

Step 1—Identify and Defi ne the Problem 157

Step 2—Generate and Evaluate Alternative Courses of Action 158

Step 3—Choose a Preferred Course of Action 159

Step 4—Implement the Decision 160

Step 5—Evaluate Results 161

At All Steps—Check Ethical Reasoning 161

Decision-Making Pitfalls and Creativity 162

Decision Errors and Traps 162

Creativity in Decision Making 164

Management Learning Review 167

Summary 167

Self-Test 7 168

Management Skills & Competencies 169

Evaluate Career Situations: What Would You Do? 169 Refl ect on the Self-Assessment: Cognitive Style 169 Contribute to the Team Exercise: Lost at Sea 170 Manage a Critical Incident: Asking for a Raise 170

xiv

Collaborate on the Team Project: Crisis Management Realities 171 Analyze the Case Study: Amazon.com 171

8 Planning Processes

and Techniques 173

Why and How Managers Plan 174

Importance of Planning 174

Th e Planning Process 175

Benefi ts of Planning 176

Planning and Time Management 177

Types of Plans Used by Managers 178

Long-Range and Short-Range Plans 178

Strategic and Tactical Plans 179

Operational Plans 179

Planning Tools and Techniques 182

Forecasting 182

Contingency Planning 182

Scenario Planning 183

Benchmarking 184

Staff Planning 185

Implementing Plans to Achieve Results 185

Goal Setting 185

Goal Management 187

Goal Alignment 187

Participation and Involvement 188

Management Learning Review 190

Summary 190

Self-Test 8 191

Management Skills & Competencies 192

Evaluate Career Situations: What Would You Do? 192 Refl ect on the Self-Assessment: Time Management Profi le 192 Contribute to the Team Exercise: Personal Career Planning 192 Manage a Critical Incident: Policy on Paternity Leave for New Dads 193 Collaborate on a Team Activity: Th e Future Workplace 193 Analyze the Case Study: Walgreens 193

9 Control Processes and Systems 195

Why and How Managers Control 196

Importance of Controlling 196

Types of Controls 197

Internal and External Control 198

Th e Control Process 201

Step 1—Establish Objectives and Standards 202

Step 2—Measure Actual Performance 202

Step 3—Compare Results with Objectives and Standards 203

Step 4—Take Corrective Action 204

Control Tools and Techniques 205

Project Management and Control 205

Inventory Control 205

Breakeven Analysis 206

Financial Controls 206

Balanced Scorecards 207

Management Learning Review 209

Summary 209

Self-Test 9 210

Management Skills & Competencies 211

Evaluate Career Situations: What Would You Do? 211 Refl ect on the Self-Assessment: Internal/External Control 211 Contribute to the Class Exercise: After-Meeting/ Project Remorse 212 Manage a Critical Incident: High Performer but Late for Work 212 Collaborate on the Team Activity: Building a Balanced Scorecard 213 Analyze the Case Study: Electronic Arts 213

10 Strategy and Strategic

Management 215

Strategic Management 216

Competitive Advantage 216

Strategy and Strategic Intent 217

Levels of Strategy 218

Strategic Management Process 219

Essentials of Strategic Analysis 220

Analysis of Mission, Values, and Objectives 220

SWOT Analysis of Organization and Environment 222

Five Forces Analysis of Industry Attractiveness 223

Corporate-Level Strategy Formulation 224

Portfolio Planning Model 225

Growth and Diversifi cation Strategies 226

Retrenchment and Restructuring Strategies 227

Global Strategies 228

Cooperative Strategies 229

CONTENTS

Business-Level Strategy Formulation 229

Competitive Strategies Model 230

Diff erentiation Strategy 230

Cost Leadership Strategy 230

Focus Strategy 231

Strategy Implementation 232

Management Practices and Systems 232

Strategic Control and Corporate Governance 232

Strategic Leadership 234

Management Learning Review 235

Summary 235

Self-Test 10 236

Management Skills & Competencies 237

Evaluate Career Situations: What Would You Do? 237 Refl ect on the Self-Assessment: Intuitive Ability 237 Contribute to the Class Exercise: Strategic Scenarios 238 Manage a Critical Incident: Kickstarting a Friend’s Business Idea 238 Collaborate on the Team Activity: Contrasting Strategies 239 Analyze the Case Study: Dunkin’ Donuts 239

Part Four Organizing

11 Organization Structures

and Design 241

Organizing as a Management Function 242

What Is Organization Structure? 242

Formal Structures 243

Informal Structures and Social Networks 243

Traditional Organization Structures 244

Functional Structures 245

Divisional Structures 246

Matrix Structures 249

Horizontal Organization Structures 250

Team Structures 250

Network Structures 251

Boundaryless Structures 253

Organizational Designs 254

Contingency in Organizational Design 255

Mechanistic and Organic Designs 256

Trends in Organizational Designs 257

Management Learning Review 260

Summary 260

Self-Test 11 261

Management Skills & Competencies 262

Evaluate Career Situations: What Would You Do? 262 Refl ect on the Self-Assessment: Empowering Others 262 Contribute to the Class Exercise: Organizational Metaphors 262 Manage a Critical Incident: Crowdsourcing Evaluations to Cut Management Levels 263 Collaborate on the Team Activity: Designing a Network University 263 Analyze the Case Study: Nike 263

12 Organization Culture and Change 265

Organizational Cultures 266

Understanding Organizational Cultures 266

Observable Culture of Organizations 268

Values and the Core Culture of Organizations 269

Multicultural Organizations and Diversity 272

Multicultural Organizations 272

Organizational Subcultures 273

Power, Diversity, and Organizational Subcultures 274

Organizational Change 276

Models of Change Leadership 276

Transformational and Incremental Change 278

Phases of Planned Change 278

Change Strategies 281

Resistance to Change 283

Management Learning Review 285

Summary 285

Self-Test 12 286

Management Skills & Competencies 287

Evaluate Career Situations: What Would You Do? 287 Refl ect on the Self-Assessment: Change Leadership IQ 287 Contribute to the Class Exercise: Force-Field Analysis 288 Manage a Critical Incident: Proposal for Open Offi ce Design and Hotdesking 288 Collaborate on the Team Activity: Organizational Culture Walk 288 Analyze the Case Study: Gamifi cation 289

Contents

xvi

13 Human Resource Management 291

Human Resource Management 292

Human Resource Management Process 292

Strategic Human Resource Management 293

Legal Environment of Human Resource Management 294

Attracting a Quality Workforce 298

Human Resource Planning 298

Recruitment Process 298

Selection Techniques 300

Developing a Quality Workforce 303

Onboarding and Socialization 303

Training and Development 304

Performance Management 305

Maintaining a Quality Workforce 307

Flexibility and Work–Life Balance 307

Compensation and Benefi ts 308

Retention and Turnover 310

Labor–Management Relations 311

Management Learning Review 312

Summary 312

Self-Test 13 313

Management Skills & Competencies 314

Evaluate Career Situations: What Would You Do? 314 Refl ect on the Self-Assessment: Performance Assessment Assumptions 314 Contribute to the Class Exercise: Upward Appraisal 315 Manage a Critical Incident: Athletic Director’s Dilemma 315 Collaborate on the Team Activity: Future of Labor Unions 315 Analyze the Case Study: Two-Tier Wages 315

Part Five Leading

14 Leading and Leadership

Development 317

Th e Nature of Leadership 318

Leadership and Power 319

Leadership and Vision 320

Leadership and Service 321

Leadership and Followership 322

Leadership Traits and Behaviors 322

Leadership Traits 322

Leadership Behaviors 323

Classic Leadership Styles 324

Contingency Approaches to Leadership 325

Fiedler’s Contingency Model 325

Hersey-Blanchard Situational Leadership Model 326

House’s Path–Goal Leadership Th eory 327

Leader–Member Exchange Th eory 328

Leader-Participation Model 329

Personal Leadership Development 330

Charismatic and Transformational Leadership 330

Emotional Intelligence and Leadership 331

Gender and Leadership 331

Moral Leadership 333

Drucker’s “Good Old-Fashioned” Leadership 333

Management Learning Review 334

Summary 334

Self-Test 14 335

Management Skills & Competencies 336

Evaluate Career Situations: What Would You Do? 336 Refl ect on the Self-Assessment: Least-Preferred Co-Worker Scale 336 Contribute to the Class Exercise: Most Needed Leadership Skills 337 Manage a Critical Incident: Playing Favorites as a Team Leader 337 Collaborate on the Team Activity: Leadership Believe-It-or-Not 337 Analyze the Case Study: Zappos 337

15 Individual Behavior 339

Perception 340

Perception and Psychological Contracts 341

Perception and Attribution 341

Perception Tendencies and Distortions 342

Perception and Impression Management 344

Personality 345

Big Five Personality Dimensions 345

Myers-Briggs Type Indicator 346

Technology Personality 347

Personal Conception and Emotional Adjustment Traits 348

CONTENTS

xvii

Attitudes 350

What Is an Attitude? 350

What Is Job Satisfaction? 351

Job Satisfaction Trends 352

Job Satisfaction Outcomes 352

Emotions, Moods, and Stress 355

Emotions 355

Moods 355

Stress and Strain 356

Management Learning Review 359

Summary 359

Self-Test 15 360

Management Skills & Competencies 361

Evaluate Career Situations: What Would You Do? 361 Refl ect on the Self-Assessment: Self- Monitoring 361 Contribute to the Class Exercise: Job Satisfaction Preferences 362 Manage a Critical Incident: Facing Up to Attributions 362 Collaborate on the Team Activity: Diffi cult Personalities 363 Analyze the Case Study: Panera Bread 363

16 Motivation Th eory and Practice 365

Individual Needs and Motivation 366

Hierarchy of Needs Th eory 366

ERG Th eory 367

Two-Factor Th eory 368

Acquired Needs Th eory 370

Process Th eories of Motivation 370

Equity Th eory 371

Expectancy Th eory 373

Goal-Setting Th eory 374

Self-Effi cacy Th eory 376

Reinforcement Th eory 377

Th e Law of Eff ect 377

Reinforcement Strategies 378

Positive Reinforcement 378

Punishment 379

Motivation and Job Design 379

Job Simplifi cation 380

Job Enrichment 380

Alternative Work Schedules 381

Management Learning Review 384

Summary 384

Self-Test 16 385

Management Skills & Competencies 386

Evaluate Career Situations: What Would You Do? 386 Refl ect on the Self-Assessment: Student Engagement Survey 386 Contribute to the Class Exercise: Why We Work 387 Manage a Critical Incident: Great Worker Won’t Take Vacation 387 Collaborate on the Team Activity: CEO Pay . . . Too High, or Just Right? 387 Analyze the Case Study: SAS 387

17 Teams and Teamwork 389

Teams in Organizations 390

Teamwork Pros 391

Teamwork Cons 391

Meetings, Meetings, Meetings 392

Organizations as Networks of Groups 393

Trends in the Use of Teams 393

Committees, Project Teams, and Task Forces 393

Cross-Functional Teams 394

Self-Managing Teams 394

Virtual Teams 395

Team Building 396

How Teams Work 397

Team Inputs 398

Stages of Team Development 399

Norms and Cohesiveness 401

Task and Maintenance Roles 402

Communication Networks 403

Decision Making in Teams 405

Ways Teams Make Decisions 406

Advantages and Disadvantages of Team Decisions 406

Groupthink 407

Creativity in Team Decision Making 408

Management Learning Review 409

Summary 409

Self-Test 17 410

Management Skills & Competencies 411

Evaluate Career Situations: What Would You Do? 411 Refl ect on the Self-Assessment: Team Leader Skills 411

Contents

xviii

Contribute to the Class Exercise: Work Team Dynamics 412 Manage a Critical Incident: Th e Rejected Team Leader 412 Collaborate on the Team Activity: Superstars on the Team 413 Analyze the Case Study: Auto Racing 413

18 Communication and

Collaboration 415

Th e Communication Process 416

Eff ective Communication 416

Persuasion and Credibility in Communication 417

Communication Barriers 418

Cross-Cultural Communication 421

Improving Collaboration through

Communication 422

Transparency and Openness 422

Use of Electronic Media 422

Active Listening 424

Constructive Feedback 425

Space Design 425

Managing Confl ict 426

Functional and Dysfunctional Confl ict 426

Causes of Confl ict 426

Confl ict Resolution 427

Confl ict Management Styles 427

Structural Approaches to Confl ict Management 428

Managing Negotiation 429

Negotiation Goals and Approaches 430

Gaining Agreements 430

Negotiation Pitfalls 431

Th ird-Party Dispute Resolution 431

Management Learning Review 433

Summary 433

Self-Test 18 434

Management Skills & Competencies 435

Evaluate Career Situations: What Would You Do? 435 Refl ect on the Self-Assessment: Confl ict Management Strategies 435 Contribute to the Class Exercise: Feedback Sensitivities 436

Manage a Critical Incident: Headphones on in the Offi ce 436 Collaborate on the Team Activity: How Words Count 437 Analyze the Case Study: Twitter 437

Management Cases for

Critical Th inking

1 Trader Joe’s—Keeping a Cool Edge 440

2 Zara International—Fashion at the Speed

of Light 441

3 Patagonia—Leading a Green Revolution 442

4 Timberland —From Bootmaker to

Earthkeeper 444

5 Harley-Davidson —Style and Strategy with a

Global Reach 445

6 In-N-Out Burger —Building Th em Better 447

7 Amazon.com —One E-Store to Rule Th em All 448

8 Walgreens—Staying One Step Ahead 449

9 Electronic Arts—Inside Fantasy Sports 450

10 Dunkin’ Donuts—Betting Dollars on Donuts 451

11 Nike—Spreading Out to Win the Race 453

12 Gamifi cation—Finding Legitimacy in the

New Corporate Culture 454

13 Two-Tier Wages —Same Job, Diff erent Pay 455

14 Zappos—Th ey Did It with Humor 456

15 Panera Bread—Growing a Company

with Personality 457

16 SAS—Business Success Starts on the Inside 458

17 Auto Racing—When the Driver Takes

a Back Seat 459

18 Twitter—Rewriting (or Killing)

Communication 461

Self-Test Answers 467

Glossary 477

Endnotes 491

Name Index 523

Organizational Index 526

Subject Index 529

CONTENTS

Management THIRTEENTH EDITION

Zappos CEO Tony Hsieh believes in happiness. His goal is “to set up an environment where the personalities, creativities, and individuality of all diff erent employees come out and shine.”

Brad Swonetz/Redux Pictures

Management

Today Everyone needs management skills

1 Key Takeaways

■ Recognize the challenges

of working in the new

economy.

■ Describe the nature of

organizations as work

settings.

■ Discuss what it means

to be a manager.

■ Explain the functions,

roles, and activities of

managers.

■ Identify essential

managerial skills and

discuss how they are

learned.

C H A P T E R Q U I C K STA RT

Management is part of our everyday lives. We manage ourselves, we manage

relationships, we manage families, and we manage teams and co-workers. Now is

a good time to study the fundamentals of management, learn more about your

capabilities, and start building skills for career and life success.

MANAGEMENT IS REAL MAKE DATA YOUR FRIEND

Multiple Generations Meet and Greet in the Workplace

THINK BEFORE YOU ACT

Want Vacation? No Problem, Take as Much as You Want

KNOW RIGHT FROM WRONG

Social Media Searches Linked with Discrimination in Hiring

LEARN ABOUT YOURSELF

Self-Awareness and the Johari Window

LEARN FROM ROLE MODELS

Ursula Burns Moves from Student Intern to Fortune 500 CEO

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Career Readiness “Big 20”

■ CONTRIBUTE To the Class Exercise: My Best Manager

■ MANAGE A Critical Incident: Team Leader Faces Test

■ COLLABORATE On the Team Activity: The Amazing Great Job Race

■ ANALYZE Th e Case Study: Trader Joe’s: Keeping a Cool Edge

what to look for inside >

4 CHAPTER 1 ■ Management Today

W elcome to Management 13/e and its theme of personal development

for career success. We live and work in a very complex world. Unem-

ployment and job scarcities, ethical miscues by business and government

leaders, fi nancial turmoil and uncertainties, environmental challenges, and

complex global economics and politics are regularly in the news. Today’s

organizations are fast changing, as is the nature of work itself. Talent and

technology reign supreme in the most desired jobs. Learning, performance, and

fl exibility are in as individual attributes; habit, complacency, and free-riding

are out. Employers expect the best from us, and the best employers provide

us with inspiring leadership and supportive work environments full of

respect, involvement, teamwork, and rewards. 1

Working Today TAKEAWAY 1 What are the challenges of working in the new economy?

Talent • Technology • Globalization • Ethics • Diversity Careers and Connections

In her book Th e Shift: Th e Future of Work Is Already Here, scholar Lynda Gratton describes

why things are changing so quickly today and how young people can navigate their careers

through these changes. “Technology shrinks the world but consumes all of our time,” Grat-

ton says; “globalization means we can work anywhere, but must compete with people from

everywhere.” 2 What does the changing nature of work mean as you plan for career entry and

advancement? You can’t expect a guarantee of long-term employment in today’s workplace.

More and more jobs have to be continually earned and re-earned through everyday perfor-

mance and accomplishments. And in times of continuous change, you have to accept that

your career will be defi ned by “fl exibility,” “free agency,” “skill portfolios,” and “entrepreneur-

ship.” Th ere is also no escaping the fact that your career success will require a lot of initiative,

self-awareness, and continuous learning. Th e question is: Are you ready?

Talent

A study by management scholars Charles O’Reilly and Jeff rey Pfeff er found that high-

performing companies are better than their competitors at getting extraordinary results

from employees. “Th ese companies have won the war for talent,” they argue, “not just by

being great places to work—although they are that—but by fi guring out how to get the best

out of all of their people, every day.” 3

People and their talents—what they know, what they learn, and what they achieve—are the

crucial foundations for organizational performance. Th ey represent what managers call

intellectual capital, which is the combined brainpower and shared knowledge of an organi-

zation’s employees. 4

Intellectual capital is a strategic asset that organizations can use to trans-

form human creativity, insight, and decision making into performance. Intellectual capital also

is a personal asset, one to be nurtured and continually updated. It is the package of intellect,

skills, and capabilities that sets us apart, and that makes us valuable to potential employers.

Th ink about the personal implications of this intellectual capital equation: Intellectual

Capital 5 Competency 3 Commitment.5 What does it suggest in terms of developing your talents for career success? Competency represents your personal talents or job-related

capabilities. Although extremely important, by itself competency won’t guarantee success.

You have to be committed. Commitment represents how hard you work to apply your tal-

ents and capabilities to important tasks. Both are essential. Having one without the other

won’t allow you to achieve important career goals or to meet even basic performance

requirements. It takes both competency and commitment to generate intellectual capital.

LEARN MORE

ABOUT

Intellectual capital is the collective

brainpower or shared knowledge of a

workforce.

Competency represents your personal

talents or job-related capabilities.

Commitment represents how hard

you work to apply your talents and

capabilities to important tasks.

WWWooorkkkiingg TTTooddaayyW

5Working Today

Workplace talents in today’s age of information, technology, and change are dominated

by knowledge workers whose minds—their creativity and insight—are critical assets. 6

Futurist Daniel Pink says we will soon enter a conceptual age where the premium will be on

“whole mind” competencies. Th ose who have them will be both “high concept”—creative

and good with ideas—and “high touch”—joyful and good with relationships. 7 Management

scholar and consultant Gary Hamel talks about a creative economy “where even knowledge

itself is becoming a commodity” and “the most important diff erentiator will be how fast you

can create something new.” 8 Mastering these intellectual challenges requires ongoing devel-

opment of multiple skill sets that always keep your personal competencies aligned with—

and at the forefront of—emerging job trends.

Technology

Technology continuously tests our talents and intrudes into every aspect of our lives. Th ink

Skype, Twitter, Instagram, Facebook, and more. We are continuously bombarded with

advertisements for the latest developments—from smartphones to smart apparel to smart

cars to smart homes, and from tablets to mini-tablets to e-readers. We struggle to keep up

with our social media involvements, stay connected with messaging, and deal with inboxes

full of e-mail and voice mail. It is likely that, right now, you are reading this “book” on your

favorite tablet or smartphone rather than in its traditional form. Given what has already

happened with how we use technology, what will things look like tomorrow?

A knowledge worker is someone

whose mind is a critical asset to

employers.

Is the notion of a “9 to 5” job about to become a relic? What happens as younger workers advance into management? How can baby boomers and millennials work well with each other? Th e

changing mix of ages and attitudes in the workplace is putting the

pressure on traditional employment practices. Here’s some survey

data to consider.

■ 60% of millennials change their fi rst jobs after three years and

employers spend $15,000 to $25,000 recruiting replacements.

■ Th e best predictor of job loyalty for millennials is “a good culture

fi t.”

■ 45% of millennials rate workplace fl exibility higher than pay and

71% hope co-workers will become a “second family.”

■ 68% of millennials get high scores for being enthusiastic

about work, 45% for being team players, and 39% for being

hardworking.

■ 73% of boomer managers get high scores for being hardworking,

55% for being team players, 21% for fl exibility, and 16% for inclu-

sive leadership.

■ 72% of college students say they want “a job where I can make

an impact.”

WHAT ARE THE IMPLICATIONS?

How do these fi ndings compare with your own career prefer- ences or what you hear from people you know? How might this evidence infl uence your approach to seeking a job? What char- acteristics and practices defi ne your ideal employer? What can employers do to attract and retain talented millennials while keeping older generations happy? Is what’s good for millenni- als necessarily good for everyone? How can managers effec- tively integrate people with varying needs and interests so employees from different generations work together with respect and pride?

analysis> MAKE DATA YOUR FRIEND > 72% of college students want “a job where I can make an impact.”

Multiple Generations Meet and Greet in the New World of Work

6 CHAPTER 1 ■ Management Today

It is critical to build and to maintain a high Tech IQ—the ability to use current technolo-

gies at work and in your personal life, combined with the commitment to keep yourself

updated as technology continues to evolve. Whether you’re checking inventory, making a

sale, ordering supplies, sourcing customers, prioritizing accounts, handling payrolls, recruit-

ing new hires, or analyzing customer preferences, Tech IQ is indispensable. More and more

people spend at least part of their workday “telecommuting” or “working from home” or in

“mobile offi ces.” Workplaces are full of “virtual teams” with members who meet, access com-

mon databases, share information and fi les, make plans and decisions, solve problems

together, and complete tasks without ever meeting face to face. Tech IQ is a baseline foun-

dation for succeeding in this fast-changing world of technological innovation.

Even fi nding work and succeeding in the job selection process today involves skilled use

of technology. Poor communication, sloppy approaches, and under-researched attempts do

not work in the world of electronic job search. Filling in your online profi le with the right key

words does work. Many employers use sophisticated software to scan online profi les for

indicators of real job skills and experiences that fi t their needs. Most recruiters today also

check social media for negative indicators about applicants.

Globalization

You can’t function National boundaries hardly count anymore in the world of business. 9

Over 5 million Americans work in the United States for foreign employers. 10

We buy cars like

Toyota, Nissan, BMW, and Mercedes that are assembled in America. We buy appliances

from the Chinese fi rm Haier and Eight O’Clock coff ee from India’s Tata Group. Top managers

at Starbucks, IBM, Sony, Ford, and other global companies have little need for the words

“overseas” or “international” in their vocabulary. Th ey operate as global businesses serving

customers around the globe. Th ey source materials and talent wherever in the world it can

be found at the lowest cost.

Th ese are among the many consequences of globalization, which is the worldwide inter-

dependence of resource fl ows, product markets, and business competition. 11

Under its infl u-

ence, government leaders worry about the competitiveness of nations, just as corporate

leaders worry about business competitiveness. 12

Countries and people are interconnected

through labor markets, employment patterns, and fi nancial systems. We are hardly sur-

prised anymore to fi nd that our customer service call is answered in Ghana, CT scans are

read by a radiologist in India, and business records maintained by accountants in the

Philippines.

One controversial consequence of globalization is job migration, which is the shifting of

jobs from one country to another. While the United States has been a net loser to job migra-

tion, countries like China, India, and the Philippines have been net gainers. Politicians and

policymakers regularly debate the costs of job migration as local jobs are lost and communi-

ties lose economic vitality. One side looks for new government policies to stop job migration

and protect U.S. jobs. Th e other side calls for patience, arguing that the national economy

will grow jobs in the long run as the global economy readjusts.

Th e fl ip side of job migration is reshoring, which is the shift of manufacturing and jobs

back home from overseas. As global manufacturing and transportation costs rise along with

worries about intellectual property protection in countries like China, manufacturing fi rms

including Caterpillar, Ford, and General Electric are doing more reshoring. 13

When Intel

announced an expansion of its semiconductor plant in Arizona, an industry analyst said:

“Th e huge advantage of keeping manufacturing in the U.S. is you don’t have to worry about

your intellectual property walking out the door every evening.” 14

Ethics

It’s old news now that Bernard Madoff was sentenced to 150 years in jail for a Ponzi scheme

costing investors billions of dollars. But the message is still timely and crystal clear: Commit

white-collar crime and you will be punished. 15

Madoff ’s crime did terrible harm to numerous

individuals who lost their life savings, charitable foundations that lost millions in charitable

Tech IQ is the ability to use technology

and to stay updated as technology

continues to evolve.

Globalization is the worldwide inter-

dependence of resource fl ows, product

markets, and business competition.

Job migration occurs when fi rms shift

jobs from a home country to foreign

ones.

Reshoring occurs when fi rms move

jobs back home from foreign locations.

7Working Today

gifts, and employees who lost their jobs. Our society also paid a large price as investors’ faith

in the business system was damaged by the scandal. Although very high profi le, the Madoff

scandal was by no means a unique or isolated case of bad behavior by a lone executive. Fresh

scandals regularly make the news.

Th e issues here move beyond criminal behavior and into the broader notion of ethics—a

code of moral principles that sets standards for conduct that is “good” and “right” versus

“bad” and “wrong.” 16

At the end of the day we depend on individuals, working at all organi-

zational levels, to conduct themselves in ethical ways. And even though ethics failures get

most of the publicity, you’ll fi nd many examples of managers who demonstrate moral lead-

ership and integrity. Believing that most CEOs are overpaid, the former CEO of Dial Corpo-

ration, Herb Baum, once gave his annual bonus to the fi rm’s lowest-paid workers. 17

In his

book Th e Transparent Leader, he argues that integrity is a key to leadership success and that

the responsibility for setting an organization’s ethical tone begins at the top.

One indicator of ethics in organizations is the emphasis given to social responsibility and

sustainability practices. Patagonia, for example, states its commitment to a responsible econ-

omy “that allows healthy communities, creates meaningful work, and takes from the earth

only what it can replenish.” 18

Another ethics indicator is the strength of corporate governance.

Th ink of it as the active oversight of top management decisions, corporate strategy, and fi nan-

cial reporting by a company’s board of directors.

Ethics set moral standards of what is

“good” and “right” in one’s behavior.

Corporate governance is the active

oversight of management decisions and

performance by a company’s board of

directors.

subtle cues—background photos and quotes, for example, on

the candidates’ religion (Muslim or Christian) and sexuality

(gay or straight). Results showed that Muslims (2%) were less

likely to be called for follow-up interviews than Christians

(17%). Sexuality cues made no significant difference in call-

back rates. It’s against U.S. employment law to use religion or

sexuality as hiring criteria, but the researchers point out that

discrimination based on social media investigations can be

unconscious rather than intentional, with the employer show-

ing the bias without realizing it. Professor Acquisti says: “By

and large, employers avoid asking questions about these traits

in interviews. But now technology makes it easier to find that

information.” Other social media cues at risk of discriminatory

behavior are photos of women showing pregnancies or chil-

dren, and applicants with names often associated with ethnic,

racial, or religious communities.

WHAT DO YOU THINK?

Facebook offers privacy settings to shield from public consump- tion information intended only for friends. But does this go far enough to protect individual privacy? Is it ethical for employers to use social media to “peek” at the personal lives of prospec- tive candidates? Should there be laws preventing them from do- ing so? What about individual responsibility? Given so much publicity on social media use by recruiters, shouldn’t job seekers be informed and aware enough to screen out potentially harmful and discriminatory information? Are these job seekers at fault if negative consequences result when they don’t?

ethics> KNOW RIGHT FROM WRONG > Subtleties in social media postings can contribute to discrimination in the recruitment process.

Social Media Searches Linked with Discrimination in Hiring

It’s no secret that a growing number of employers (more than a third) browse the Web and follow social media to gather information and impressions about job candidates. It is also well

known that inappropriate postings can hurt you. So much so that

people are increasingly trying to edit the bad things out of their

public profi les. New research reported from Carnegie Mellon

University, however, also suggests that subtleties in social media

postings can contribute to discrimination in the recruitment pro-

cess. One of the researchers, Professor Alessandro Acquisti, said:

“Th ere is so much information we reveal about ourselves online,

sometimes in ways we do not even realize.”

Researchers distributed 4,000 résumés to job posting sites

and associated the résumés with Facebook profiles offering

Loic Venance/AFP/Getty Images, Inc.

8 CHAPTER 1 ■ Management Today

Diversity

Th e term workforce diversity describes the composition of a workforce in terms of gender,

age, race, ethnicity, religion, sexual orientation, and able-bodiedness. 19

Th e changing demo-

graphics in society are well recognized. Members of minority groups now constitute more

than one-third of the U.S. population, and women may soon outnumber men in the U.S.

workforce. 20

By the year 2050, African Americans, Native Americans, Asians, and Hispanics

will be the new majority, and by 2050 the U.S. Census Bureau also expects that more than

20% of the population will be at least 65 years old.

Despite these changes, the way we deal with diversity in the workplace remains compli-

cated. Women now lead global companies like IBM, PepsiCo, Xerox, and Kraft, but they

hold only just 4% of all top jobs in American fi rms and 5% in large fi rms worldwide. 21

Th e

proportion of women at the top is growing, but female CEOs are also getting fi red at a

higher rate than their male counterparts. 22

People of color hold just 11% of executive jobs

in the Fortune 500, and among the CEOs there are six African-Americans, eight Asians, and

eight Hispanics. 23

Why aren’t there more women and people of color leading organizations? To what

extent does diversity bias still infl uence recruitment and selection decisions? Researchers

have found that résumés with white-sounding fi rst names, such as Brett, receive 50% more

responses from employers than equivalent résumés with black-sounding fi rst names, such

as Kareem. 24

Researchers also note that white leaders are viewed as more successful than

Workforce diversity describes workers’

diff erences in terms of gender, race, age,

ethnicity, religion, sexual orientation,

and able-bodiedness.

“Frankness,” “sharp humor,” “willingness to take risks,” “deep industry knowledge,” “technical prowess.” Th ese are all phrases used to describe Ursula Burns, CEO of Xerox Corporation.

She started as a mechanical engineering intern and moved up

to become the fi rst African American woman to head a Fortune

500 fi rm. Her experience and leadership skills were well matched

to the job’s many challenges.

In her prior role as president, Burns made tough decisions to

downsize the fi rm, close manufacturing operations, and change

the product mix. She also knew how to work well with the fi rm’s

board. Director Robert A. McDonald of Procter & Gamble says:

“She understands the technology and can communicate it in a

way that a director can understand it.”

A working mother and spouse, Burns was raised in a low- income

environment by a single mom in New York City public housing. She

says her mom “did everything you could imagine” and was “amazing.”

Th e advice she passed along included: “Don’t get confused when you

are rich and famous.” Burns studied hard, earned a master’s degree in

mechanical engineering from Columbia University, and from there

started the internship with Xerox. Th e rest is corporate history.

Pride in her achievements comes across loud and clear when

Burns talks about her work. “I’m in this job because I believe I

earned it through hard work and high performance,” she says. “Did

I get some opportunities early in my career because of my race and

gender? Probably . . . I imagine race and gender got the hiring guys’

attention. And the rest was really up to me.”

FIND INSPIRATION

Ursula Burns’s trajectory from student intern to CEO of a Fortune 500 fi rm is impressive. What career lessons are here for others to follow? Which special skills and personal characteristics may have helped Burns grow into her corporate leadership role? She’s an African American woman who grew up poor. How can her success in the male-dominated corporate environment serve as a role model for others?

wisdom> LEARN FROM ROLE MODELS > “I’m in this job because I believe I earned it through hard work and high performance.”

Ursula Burns Moves from Student Intern to Fortune 500 CEO

Ramin Talale/Bloomberg/Getty Images

9Working Today

minority leaders, and that white leaders are expected to succeed because of competence

while non-white leaders are expected to succeed despite incompetence. 25

Th e stage for diversity bias is set by prejudice—which is the display of negative, irrational

opinions and attitudes regarding members of diverse populations. An example of bias is linger-

ing prejudice against working mothers. Th e nonprofi t Families and Work Institute reported

that in 1977 49% of men and 71% of women believed that mothers can be good employees; by

2008 the fi gures had risen to 67% and 80%. 26

Don’t you wonder why there isn’t 100% support

for working mothers? And, how do you account for a study that sent faux résumés to recruiters

and found that the least desirable candidates were women with children? 27

Prejudice becomes active discrimination when minority members are unfairly treated

and denied the full benefi ts of organizational membership. One example of discrimination

is a manager inventing reasons not to interview a minority job candidate. Another example

is a supervisor who refuses to promote a working mother for fear that parenting responsibil-

ities will make it hard for her to do a good job. Th is thinking shows a subtle form of discrim-

ination called the glass ceiling eff ect, an invisible barrier or ceiling that prevents women

and minorities from rising to top jobs.

Scholar Judith Rosener warns that discrimination of any sort leads to “undervalued

and underutilized human capital.” 28

To avoid this problem the position of chief diversity

offi cer, or CDO, is gaining stature in organizations. Its presence recognizes that diversity

is not only a moral issue but an opportunity for real performance gains. Th e job of CDO is

to make sure the work environment allows women and minorities to fl ourish, and fully

utilizes their talents. 29

Careers and Connections

When the economy is down and employment markets are tight, the task of fi nding a career

entry point can be daunting. It always pays to remember the importance of online résumés

and job searches, and the power of social networking with established professionals. In addi-

tion, job seekers should consider internships as pathways to fi rst-job placements. But every-

thing still depends on the mix of skills you can off er a potential employer and how well you

communicate those skills. Picture yourself in a job interview. Th e recruiter asks this ques-

tion: “What can you do for us?” How do you reply? Your answer can set the stage for your

career success . . . or something less.

British scholar and consultant Charles Handy uses the analogy of the shamrock

organization to highlight the challenges of developing skill portfolios that fi t the new work-

place. 30

Th e fi rst leaf in the shamrock is a core group of permanent, full-time employees who

follow standard career paths. Th e number of people in this fi rst leaf is shrinking. 31

Th ey are

being replaced by a second leaf of “freelancers” and “independent contractors” who off er

specialized skills and talents on a contract basis, then change employers when projects are

completed. 32

Full-time employees are also

being replaced by a third leaf of temporary

part-timers. Th ey often work without bene-

fi ts and are the fi rst to lose their jobs when

an employer runs into economic diffi culties.

Th e fact is that you will have to succeed in a

free-agent economy, one where people

change jobs more often and work on fl exible

contracts with a shifting mix of employers over

time. Skills like those in the nearby box must

be kept up-to-date and portable. 33

Th ey can’t

be gained once and then forgotten. Th ey must

be carefully maintained and upgraded all the

time. All this places a premium on your capac-

ity for self-management—being able to

assess yourself realistically, recognize strengths

and weaknesses, make constructive changes,

and manage your personal development.

Prejudice is the display of negative,

irrational attitudes toward members of

diverse populations.

Discrimination actively denies

minority members the full benefi ts of

organizational membership.

Th e glass ceiling eff ect is an invisible

barrier limiting career advancement of

women and minorities.

Mastery: You need to be good at something; you need to be able to contribute

real value to your employer.

Networking: You need to know people and get connected; networking with

others within and outside the organization is essential.

Entrepreneurship: You must act as if you are running your own business,

spotting ideas and opportunities and pursuing them.

Technology: You have to embrace technology; you have to stay up-to-date and

fully utilize all that is available.

Marketing: You need to communicate your successes and progress—both

yours personally and those of your work team.

Renewal: You need to learn and change continuously, always improving

yourself for the future.

Early Career Survival Skills

A shamrock organization operates

with a core group of full-time long-term

workers supported by others who work

on contracts and part-time.

In a free-agent economy people

change jobs more often, and many

work on independent contracts with a

shifting mix of employers.

Self-management is the ability to

understand oneself, exercise initiative,

accept responsibility, and learn from

experience.

10 CHAPTER 1 ■ Management Today

Connections count highly in the free-agent economy. Th ey open doors to opportunities

and resources that otherwise wouldn’t be available. People with connections gain access to

valuable information about potential jobs and often score more interviews and better jobs

than those without connections. While in the past the best connections may have been lim-

ited to people who had gone to the “right” kinds of schools or came from the “right” kinds of

families, this is no longer the case. Social networking tools—such as LinkedIn, Facebook,

Google1, and Reddit—that connect users with similar interests have become the great equalizer. Th ey make the process of connecting much easier and more democratic than ever

before. Importantly, they are readily available ways for you to make connections that can help

with job searches and career advancement.

Social networking is the use of

dedicated websites and applications to

connect people having similar interests.

Organizations TAKEAWAY 2 What are organizations like as work settings?

Organizational purpose • Organizations as systems Organizational performance • Changing nature of organizations

As pointed out earlier, what happens from this point forward in your career is largely up to

you. So, let’s start with organizations. In order to make good employment choices and per-

form well in a career, you need to understand the nature of organizations and recognize how

they work as complex systems.

Organizational Purpose

An organization is a collection of people working together to achieve a common purpose.

It is a unique social phenomenon that enables its members to perform tasks far beyond the

reach of individual accomplishment. Th is description applies to organizations of all sizes

and types that make up the life of any community, from large corporations to small

businesses, as well as such nonprofi t organizations as schools, government agencies, and

community hospitals.

Th e broad purpose of any organization is to provide goods or services of value to

customers and clients. A clear sense of purpose tied to “quality products and services,”

“customer satisfaction,” and “social responsibility” can be an important source of organi-

zational strength and performance advantage. IBM’s former CEO, Samuel Palmisano,

once said: “One simple way to assess the impact of any organization is to ask the question:

How is the world diff erent because it existed?” 34

Whole Foods founder John Mackey

answers by saying: “I think that business has a noble purpose. It means that businesses

serve society. Th ey produce goods and services that make people’s lives better.” On the

Whole Foods website this is stated as a commitment to “Whole Foods—Whole People—

Whole Planet.” 35

Organizations as Systems

All organizations are open systems that interact with their environments. Th ey do so in a

continual process of obtaining resource inputs—people, information, resources, and

capital—and transforming them into outputs in the form of fi nished goods and services for

customers. 36

LEARN MORE

ABOUT

An organization is a collection of

people working together to achieve a

common purpose.

An open system transforms resource

inputs from the environment into

product outputs.

Learning Check 1

TAKEAWAYQUESTION 1 What are the challenges of working in the new economy?

BE SURE YOU CAN • describe how intellectual capital, ethics, diversity, globalization, technology, and the changing nature of

careers infl uence working in the new economy • defi ne intellectual capital, workforce diversity, and globalization • explain how

prejudice, discrimination, and the glass ceiling can hurt people at work

OOOrrggaannnizzatttioonnsO

11Organizations

As shown in Figure 1.1, feedback from the environment indicates how well an organiza-

tion is doing. When Starbucks started a customer blog, for example, requests for speedier

service popped up. Th e company quickly made changes that eliminated required signatures

on credit card charges less than $25. Salesforce.com is another company that thrives on

feedback. It set up a website called Idea Exchange to get customer suggestions, even asking

them at one point to vote on a possible name change—the response was “No!” 37

Gathering

and listening to customer feedback is important; without loyal customers, a business can’t

survive. When you hear or read about bankruptcies, they are stark testimonies to this fact of

the marketplace.

Organizational Performance

Organizations create value when they use resources well to produce good products and take

care of their customers. When operations add value to the original cost of resource inputs,

then a business organization can earn a profi t—selling a product for more than the costs of

making it, and a nonprofi t organization can add wealth to society—providing a public

service like fi re protection that is worth more than its cost.

One of the most common ways to assess performance by and within organizations is

productivity. It measures the quantity and quality of outputs relative to the cost of inputs.

And as Figure 1.2 shows, productivity involves both performance eff ectiveness and perfor-

mance effi ciency.

Performance eff ectiveness is an output measure of task or goal accomplishment. If you

are working as a software engineer for a computer game developer, performance eff ective-

ness may mean that you meet a daily production target in terms of the quantity and quality

of lines of code written. Th is productivity helps the company meet customer demands for

timely delivery of high-quality gaming products.

Productivity is the quantity and quality

of work performance, with resource

utilization considered.

Performance eff ectiveness is

an output measure of task or goal

accomplishment.

Resource inputs

The environment supplies

Product outputs

People Money Materials Technology Information

Work activities turn

resources into outputs

Finished goods and services

Consumer feedback

The environment consumes

Transformation process

The organization creates value

FIGURE 1.1 Organizations as open systems interacting with their environments.

FIGURE 1.2 Productivity and the dimensions of organizational

performance.

Goal Attainment

High

Low

Effective but not efficient • Goals achieved • Resources wasted

Neither effective nor efficient • Goals not achieved • Resources wasted

Effective and efficient • Goals achieved • No wasted resources High productivity

Not effective but efficient • Goals not achieved • No wasted resources

Resource Utilization GoodPoor

12 CHAPTER 1 ■ Management Today

Performance effi ciency is an input measure of the resource costs associated with goal

accomplishment. Returning to the gaming example, the most effi cient software production

is accomplished at a minimum cost in materials and labor. If you are producing fewer lines

of code in a day than you are capable of, this amounts to ineffi ciency; if you make lots of

mistakes that require extensive rewrites, this is also ineffi cient work. All such ineffi ciencies

drive up costs and reduce productivity.

Changing Nature of Organizations

Change is a continuing theme in our society, and organizations are no exception. Th e

following list shows some organizational trends and transitions relevant to the study of

management. 38

• Focus on valuing human capital: Th e premium is on high-involvement work settings that

rally the knowledge, experience, and commitment of all members.

• Demise of “command-and-control”: Traditional top-down “do as I say” bosses are giving

way to participatory bosses who treat people with respect.

• Emphasis on teamwork: Organizations are becoming less hierarchical and more driven

by teamwork that pools talents for creative problem solving.

• Preeminence of technology: Developments in computer and information technology

keep changing the way organizations operate and how people work.

• Importance of networking: Organizations and their members are networked for intense,

real-time communication and coordination.

• New workforce expectations: A new generation of workers is less tolerant of hierarchy,

attentive to performance merit, more informal, and concerned for work–life balance.

• Concern for sustainability: Social values call for more attention on the preservation of

natural resources for future generations and understanding how work aff ects human

well-being.

Performance effi ciency is an input

measure of resource cost associated

with goal accomplishment.

Management trends and transitions

Learning Check 2

TAKEAWAYQUESTION 2 What are organizations like as work settings?

BE SURE YOU CAN • describe how organizations operate as open systems • explain productivity as a measure of

organizational performance • distinguish between performance eff ectiveness and performance effi ciency • list several ways in

which organizations are changing today

Managers TAKEAWAY 3 What does it mean to be a manager?

Importance of managers • Levels of managers • Types of managers Managerial performance • Changing nature of managerial work

In an article titled “Putting People First for Organizational Success,” Jeff rey Pfeff er and John

F. Veiga argue forcefully that organizations perform better when they treat their members

better. 39

Managers in these high-performing organizations don’t treat people as costs to be

controlled; they treat them as valuable strategic assets to be carefully nurtured and devel-

oped. So, who are today’s managers and just what do they do?

What Is a Manager?

You fi nd them in all organizations and with a wide variety of job titles—team leader, depart-

ment head, supervisor, project manager, president, administrator, and more. We call them

LEARN MORE

ABOUT

MMMaaanaaaggeersssM

13Managers

managers, people in organizations who directly support, supervise, and help activate the

work eff orts and performance accomplishments of others. Whether they are called direct

reports, team members, work associates, or subordinates, these “other people” are the essen-

tial human resources whose contributions represent the real work of the organization. And

as pointed out by management scholar Henry Mintzberg, being a manager remains an

important and socially responsible job. “No job is more vital to our society than that of the

manager,” he says. “It is the manager who determines whether our social institutions serve

us well or whether they squander our talents and resources.” 40

Levels of Managers

At the highest levels of business organizations, as shown in Figure 1.3, we fi nd a board of

directors whose members are elected by stockholders to represent their ownership inter-

ests. In nonprofi t organizations such as a hospital or university, this level is often called a

board of trustees, and it may be elected by local citizens, appointed by government bodies, or

invited by existing members. Th e basic responsibilities of board members are the same in

both business and the public sector—to make sure that the organization is always being well

run and managed in a lawful and ethical manner. 41

Common job titles just below the board level are chief executive offi cer (CEO), chief oper-

ating offi cer (COO), chief fi nancial offi cer (CFO), chief information offi cer (CIO), chief diver-

sity offi cer (CDO), president, and vice president. Th ese top managers constitute an

executive team that reports to the board and is responsible for the performance of an orga-

nization as a whole or for one of its larger parts. It is common to fi nd the members of an

organization’s top management team referred to as part of the C-suite.

Top managers are supposed to set strategy and lead the organization consistent with its

purpose and mission. Th ey should pay special attention to the external environment and be

alert to potential long-run problems and opportunities. Th e best top managers are strategic

thinkers able to make good decisions under highly competitive and even uncertain condi-

tions. A CEO at Procter & Gamble once said the job of top managers is to “link the external

world with the internal organization . . . make sure the voice of the consumer is heard . . .

shape values and standards.” 42

Reporting to top managers are the middle managers, who are in charge of relatively

large departments or divisions consisting of several smaller work units. Examples include

clinic directors in hospitals; deans in universities; and division managers, plant managers,

and regional sales managers in businesses. Job descriptions for middle managers may

include working with top managers, coordinating with peers, and supporting lower–level

team members to develop and pursue action plans that implement organizational strate-

gies to accomplish key objectives.

A manager is a person who supports,

activates, and is responsible for the

work of others.

Members of a board of directors

or board of trustees are supposed to

make sure an organization is well run

and managed in a lawful and ethical

manner.

Top managers guide the performance

of the organization as a whole or of one

of its major parts.

Middle managers oversee the work of

large departments or divisions.

Typical Business

Board of Directors

Top Managers

Executive Director President, Administrator Vice President

Chief Executive Officer President Vice President

Middle Managers

Division Manager Regional Manager Branch Manager

Division Manager Regional Manager Plant Manager

First-line Managers

Nonmanagerial Workers

Department Head Supervisor Team Leader

Typical Nonprofit

Board of Trustees

FIGURE 1.3 Management levels in typical business and nonprofi t

organizations.

14 CHAPTER 1 ■ Management Today

A fi rst job in management typically involves serving as a team leader or supervisor—

someone in charge of a small work group composed of non-managerial workers. 43

Typical

job titles for these fi rst-line managers include department head, team leader, and supervi-

sor. Th e leader of an auditing team, for example, is considered a fi rst-line manager, as is the

head of an academic department in a university. Even though most people enter the work-

force as technical specialists such as engineer, market researcher, or systems analyst, at

some point they probably advance to positions of initial managerial responsibility.

Types of Managers

Many types of managers comprise an organization. Line managers are responsible for

work that makes a direct contribution to the organization’s outputs. For example, the pres-

ident, retail manager, and department supervisors of a local department store all have line

responsibilities. Th eir jobs in one way or another are directly related to the sales operations

of the store. Staff managers, by contrast, use special technical expertise to advise and

support the eff orts of line workers. In a department store chain like Nordstrom or Macy’s,

the corporate director of human resources and chief fi nancial offi cer would have staff

responsibilities.

Functional managers have responsibility for a single area of activity such as fi nance,

marketing, production, human resources, accounting, or sales. General managers are

responsible for activities covering many functional areas. An example is a plant manager

who oversees everything from purchasing to manufacturing to human resources to fi nance

and accounting functions. In public or nonprofi t organizations, managers may be called

administrators. Examples include hospital administrators, public administrators, and city

administrators.

Managerial Performance

All managers help people, working individually and in teams, to perform. Th ey do this while

being personally accountable for results achieved. Accountability is the requirement of one

person to answer to a higher authority for performance results in his or her area of work

responsibility. Th is accountability fl ows upward in the traditional organizational pyramid.

Th e team leader is accountable to a middle manager, the middle manager is accountable to

a top manager, and even the top manager is accountable through corporate governance to

a board of directors or board of trustees.

But what, you might ask, constitutes excellence in managerial performance?

When is a manager “eff ective”? A good answer is that eff ective managers suc-

cessfully help others achieve both high performance and satisfaction in their

work. Th is dual concern for performance and satisfaction introduces quality

of work life (QWL) as an indicator of the overall quality of human experiences

at work. A “high-QWL” workplace off ers such things as respect, fair pay, safe

conditions, opportunities to learn and use new skills, room to grow and prog-

ress in a career, and protection of individual rights and wellness.

Scholar Jeff rey Pfeff er considers QWL a high-priority issue of human sus-

tainability. Why, he asks, don’t we give more attention to human sustainabil-

ity and “organizational eff ects on employee health and mortality”? 44

What do

you think? Should managers be held accountable not just for performance

accomplishments of their teams and work units, but also for the human sus-

tainability of those who work with and for them? In other words, shouldn’t

productivity and quality of working life go hand in hand?

Changing Nature of Managerial Work

Cindy Zollinger, president and CEO of Cornerstone Research, directly super-

vises more than 20 people. But, she says: “I don’t really manage them in a

Team leaders report to middle

managers and supervise

non-managerial workers.

Line managers directly contribute to

producing the organization’s goods or

services.

Staff managers use special technical

expertise to advise and support line

workers.

Functional managers are responsible

for one area, such as fi nance, marketing,

production, personnel, accounting, or

sales.

General managers are responsible for

complex, multifunctional units.

An administrator is a manager in a

public or nonprofi t organization.

Accountability is the requirement

to show performance results to a

supervisor.

An eff ective manager helps others

achieve high performance and

satisfaction at work.

Quality of work life is the overall

quality of human experiences in the

workplace.

HIGHER MANAGEMENT

Accountability

Dependency

Work team membersbW k tWW

Manager

15Managers

typical way; they largely run themselves. I help them in dealing with obstacles they face, or

in making the most of opportunities they fi nd.” 45

Th ese comments describe a workplace

where the best managers are known more for “helping” and “supporting” than for “directing”

and “order giving.” Th e words coordinator, coach, and team leader are heard as often as super-

visor or boss.

Th e concept of the upside-down pyramid shown in Figure 1.4 fi ts well with the chang-

ing mind-set of managerial work today. Notice that the operating and frontline workers

are at the top of the upside-down pyramid, just below the customers and clients they

serve. Th ey are supported in their work eff orts by managers below them. Th ese managers

Th e upside-down pyramid view of

organizations shows customers at the

top being served by workers who are

supported by managers.

Women Who Don’t Wait in Line: Break the Mold, Lead the Way (New Harvest, 2013)

by Reshma Saujani Women need to overcome their aversion to risk and fear of failure. Th at’s one of the messages

in this book by Reshma Saujani, founder of the nonprofi t Girls Who Code, which encourages

young women to study science and technology. Saujani’s take is that women are pretty much

the majority—in college, in the workplace, in the population at large—everywhere but at the

top of corporate leadership. She wants that changed and uses her own immigrant story plus

interviews to communicate the message that women must actively help or “sponsor” one

another to reach their full potential. Th is means encouraging a willingness to be competitive,

take risks, and embrace ambition. In her words: “Either we hang back because we’re afraid

we won’t excel, or we content ourselves with baby steps in our careers, instead of taking

ambitious leaps.”

RecommendedReading

N ic

o le

B en

g iv

en o

/T he

N ew

Y o

rk T

im es

/R ed

ux g

Customers and clients

Ultimate beneficiaries of the organization's efforts

Frontline operating workers

Do work directly affecting customer/client satisfaction

Team leaders and managers

Help the operating workers do their jobs and solve problems

Top managers

Keep organization's mission and strategies

clear

Serve

Support

FIGURE 1.4 Th e organization viewed as an upside-down pyramid.

16 CHAPTER 1 ■ Management Today

aren’t just order-givers; they are there to mobilize and deliver the support others need to

do their jobs best and serve customer needs. Sitting at the bottom are top managers and

C-suite executives; their jobs are to support everyone and everything above them. Th e

upside-down pyramid view leaves no doubt that the entire organization is devoted to

serving customers and that the job of managers is to support the workers who make this

possible.

Learning Check 3

TAKEAWAYQUESTION 3 What does it mean to be a manager?

BE SURE YOU CAN • describe the various types and levels of managers • defi ne accountability and quality of work life, and

explain their importance to managerial performance • discuss how managerial work is changing today • explain the role of

managers in the upside-down pyramid view of organizations

Th e Management Process TAKEAWAY 4 What are the functions, roles, and activities of managers?

Functions of management • Managerial roles and activities Managerial agendas and networks

Th e ultimate “bottom line” in every manager’s job is to help an organization achieve high

performance by best utilizing its human and material resources. Th is is accomplished

through the four functions of management in what is called the management process of

planning, organizing, leading, and controlling.

Functions of Management

All managers, regardless of title, level, type, and organizational setting, are responsible for

the four management functions shown in Figure 1.5. Th ese functions are continually

engaged as a manager moves from task to task and opportunity to opportunity in his or

her work.

LEARN MORE

ABOUT

Th e management process is planning,

organizing, leading, and controlling

the use of resources to accomplish

performance goals.

Planning Setting performance

objectives and deciding how to achieve them

Organizing Arranging tasks, people,

and other resources to accomplish the work

Controlling Measuring performance

and taking action to ensure desired results

Leading Inspiring people to

work hard to achieve high performance

The Management

Process

FIGURE 1.5 Four functions of management—planning, organizing, leading, and controlling.

ThThThTh ee MMMMannaaageeemmeenntt PProoceesssTh

17Th e Management Process

Planning Planning is the process of setting performance objectives and determining what actions

should be taken to accomplish them. Th rough planning, a manager identifi es desired

results—goals and objectives, and ways to achieve them—action plans.

Th ere was a time, for example, when top management at EY (previously Ernst & Young)

became concerned about the fi rm’s retention of female professionals. 46

Th en-chairman

Philip A. Laskawy launched a Diversity Task Force with the planning objective to reduce

turnover rates for women. When the task force began its work, this turnover was running

some 22% per year, and it cost the fi rm about 150% of a departing employee’s annual salary

to hire and train each replacement. Laskawy considered this performance unacceptable and

put plans in place to improve it.

Organizing Once plans are set, they must be implemented. Th is begins with organizing, the process of

assigning tasks, allocating resources, and coordinating the activities of individuals and

groups to accomplish plans. Organizing is how managers put plans into action by defi ning

jobs and tasks, assigning them to responsible persons, and then providing support such as

technology, time, and other resources.

Planning is the process of setting goals

and objectives and making plans to

accomplish them.

Organizing is the process of defi ning

and assigning tasks, allocating

resources, and providing resource

support.

How about a job with “unlimited” vacation? Sounds unreal, doesn’t it? But don’t be too fast to dismiss the idea. Some fashion-forward employers are already doing it. Netfl ix is one.

Th e fi rm prizes what CEO Reed Hastings calls its “freedom and

responsibility culture.” One of the things that brings this culture

to life is how vacation time is handled. Hastings says this about

the Netfl ix culture and vacation policy: “We want responsible

people who are self-motivating and self-disciplined, and we

reward them with freedom. Th e best example is our vacation

policy. It’s simple and understandable: We don’t have one. We

focus on what people get done, not on how many days they

worked.”

Netfl ix used to follow what Hastings calls a “standard vacation

model,” but fi nally realized it was just “an industrial era habit.” He

wonders why employers should track vacation days when people

don’t keep track of the number of hours they work? And he sets

the example. “I make sure to take lots of vacation . . . ,” says Hast-

ings, “and I do some of my creative thinking on vacation.”

Th e Society for Human Resource Management reports that

only about 1% of employers off er unlimited vacation time. Many of

them are smaller organizations. Red Frog Events is an entertain-

ment organizer with 80 full-time employees who get to take vaca-

tion when they want. Th e fi rm’s HR director hasn’t found any

major abuses. Dov Seidman, CEO of the 300-employee fi rm LRN,

also off ers unlimited vacation time. He says: “People are a lot more

honest and responsible when they are trusted.”

YOUR TAKE?

So, is this approach to vacation time something that more em- ployers should be planning? Is it the next hot thing sought by new college graduates? What are the risks and limits for employ- ers, if any? How about the “motivation” issues? Would this be a turn-on for you, something that would keep you productive and loyal? If unlimited vacation time is such a good idea, why aren’t more employers doing it?

choices> THINK BEFORE YOU ACT > “We want responsible people who are self-motivating and self-disciplined,

and we reward them with freedom.”

Want Vacation? No Problem, Take as Much as You Want

Gareth Cattermole/Getty Images

18 CHAPTER 1 ■ Management Today

At EY, Laskawy organized and chaired a Diversity Task Force to meet his planning

objective. He also established a new Offi ce of Retention and hired Deborah K. Holmes,

now serving as global director of corporate responsibility, to head it. Holmes’s offi ce was

responsible for identifying retention problems in various parts of the fi rm, creating special

task forces to tackle them, and recommend location-specifi c solutions to the Diversity

Task Force.

Leading Leading is the process of arousing people’s enthusiasm and inspiring their eff orts to work

hard to fulfi ll plans and accomplish objectives. Managers lead by building commitments to

a common vision, encouraging activities that support goals, and infl uencing others to do

their best work on the organization’s behalf.

Deborah K. Holmes actively pursued her leadership responsibilities at EY. She noticed

that, in addition to stress caused by intense work at the fi rm, women often faced more stress

because their spouses also worked. She became a champion for improved work–life balance

and pursued it vigorously. She started “call-free holidays” where professionals did not check

voice mail or e-mail on weekends and holidays. She started a “travel sanity” program that

limited staff ers’ travel to four days a week so they could be home for weekends. And, she

started a Woman’s Access Program to provide mentoring and career development.

Controlling The management function of controlling is the process of measuring work perfor-

mance, comparing results to objectives, and taking corrective action as needed. Manag-

ers exercise control by staying in active contact with people as they work, gathering and

interpreting performance measurements, and using this information to make

constructive changes. Control is indispensable in the management process. Things

don’t always go as anticipated, and plans must often be modified and redefined to fit

new circumstances.

At EY, Laskawy and Holmes documented what the fi rm’s retention rates for women were

when they started the new programs. Th is gave them a clear baseline against which they

were able to track progress. Th ey regularly measured retention rates for women and com-

pared them to the baseline. Th ey were able to identify successes and pinpoint where they

needed to further improve their work–life balance programs. Over time, collected data

showed that turnover rates for women were reduced at all levels.

Managerial Roles and Activities

Th e management process and its responsibilities for planning, organizing, leading, and con-

trolling are more complicated than they appear at fi rst glance. Th ey must be successfully

accomplished during a workday that can be very challenging. In a classic book, Th e Nature

of Managerial Work, Henry Mintzberg describes the daily work of corporate chief executives

as follows: “Th ere was no break in the pace of activity during offi ce hours. Th e mail . . .

telephone calls . . . and meetings . . . accounted for almost every minute from the moment

these executives entered their offi ces in the morning until they departed in the evenings.” 47

Today, we might add to Mintzberg’s list of executive preoccupations relentless “work any-

time and anywhere” demands of smartphones, ever-full e-mail and voice mail in-boxes, chat

and instant message streams, and social media alerts.

Managerial Roles In trying to better understand the complex nature of managerial work, Mintzberg identifi ed

a set of roles commonly fi lled by managers. 48

Shown in the nearby fi gure, they describe how

managers must be prepared to succeed in in a variety of interpersonal, informational, and

decisional responsibilities.

Leading is the process of arousing

enthusiasm and inspiring eff orts to

achieve goals.

Controlling is the process of measuring

performance and taking action to

ensure desired results.

19Th e Management Process

A manager’s interpersonal roles involve interactions with people inside and outside the

work unit. A manager fulfi lling these roles will be a fi gurehead, modeling and setting forth

key principles and policies; a leader, providing direction and instilling enthusiasm; and a

liaison, coordinating with others. A manager’s informational roles involve the giving, receiv-

ing, and analyzing of information. A manager fulfi lling these roles will be a monitor, scanning

for information; a disseminator, sharing information; and a spokesperson, acting as offi cial

communicator. Th e decisional roles involve using information to make decisions to solve

problems or address opportunities. A manager fulfi lling these roles will be a disturbance

handler, dealing with problems and confl icts; a resource allocator, handling budgets and dis-

tributing resources; a negotiator, making deals and forging agreements; and an entrepreneur,

developing new initiatives.

Managerial Activities Managers must not only master key roles, they must implement them in intense and

complex work settings. Th eir work is busy, demanding, and stressful at all levels of

responsibility. Th e managers Mintzberg studied had little free time to themselves.

In fact, unexpected problems and continuing requests for meetings consumed

almost all available time. Th e small box shows their workdays were hectic; the pres-

sure for continuously improving performance was all-encompassing. 49

Mintzberg

summarized his observations this way: “Th e manager can never be free to forget

the job, and never has the pleasure of knowing, even temporarily, that there is noth-

ing else to do. . . . Managers always carry the nagging suspicion that they might be

able to contribute just a little bit more. Hence they assume an unrelenting pace in

their work.” 50

Managerial Agendas and Networks

Scene: On the way to a meeting, a general manager bumped into a colleague from another

department. In a two-minute conversation she used this opportunity to (a) ask two ques-

tions and receive the information she had been needing; (b) reinforce their good relationship

by sincerely complimenting the colleague on something he had recently done; and (c) get a

commitment for the colleague to do something else that the general manager needed done.

Analysis: Th is brief incident provides a glimpse of an eff ective general manager in action. It

also portrays two activities that consultant and scholar John Kotter considers critical to a

manager’s success—agenda setting and networking. 51

Th rough agenda setting, good managers develop action priorities that include goals and

plans spanning long and short time frames. Th ese agendas are usually incomplete and

loosely connected in the beginning, but they become more specifi c as the manager utilizes

information continually gleaned from many diff erent sources. Th e agendas are always pres-

ent in the manager’s mind and are played out or pushed ahead whenever an opportunity

arises, as in the preceding example.

Good managers implement their agendas by networking, the process of building and

maintaining positive relationships with people whose help may be needed to implement

Agenda setting develops action

priorities for accomplishing goals and

plans.

Networking is the process of creating

positive relationships with people who

can help advance agendas.

Interpersonal roles Informational roles Decisional roles

Figurehead Leader Liaison

Monitor Disseminator Spokesperson

Entrepreneur Disturbance handler Resource allocator Negotiator

How a manager interacts with other people

How a manager exchanges and processes information

How a manager uses information in decision making

• long hours

• intense pace

• fragmented and varied tasks

• many communication media

• fi lled with interpersonal relationships

A Manager’s Workday

20 CHAPTER 1 ■ Management Today

one’s agendas. Such networking creates social capital—a capacity to attract support and

help from others in order to get things done. In the earlier example, the general manager

received help from a colleague who did not report directly to her. Th e manager’s networks

and social capital would also include relationships she cultivates with other peers,

higher-level executives, subordinates and members of their work teams, as well as with

external customers, suppliers, and community representatives.

Social capital is a capacity to get things

done with the support and help of

others.

Learning Check 4

TAKEAWAYQUESTION 4 What are the functions, roles, and activities of managers?

BE SURE YOU CAN • defi ne and give examples of each of the management functions—planning, organizing, leading, and

controlling • explain Mintzberg’s view of what managers do, including the 10 key managerial roles • explain Kotter’s points on

how managers use agendas and networks to fulfi ll their work responsibilities

Learning How to Manage TAKEAWAY 5 What are the essential managerial skills and how do we learn them?

Learning and lifelong learning • Technical skills • Human and interpersonal skills Conceptual and critical-thinking skills

A survey of corporate CEOs of major employers like Accenture, Unilever, and Liberty Mutual

Insurance revealed dissatisfaction with what they are seeing in business school students.

Top criticisms were a lack of self-awareness, poor teamwork and critical thinking skills, and

an absence of creativity. 52

Th ere’s no doubt that career success in today’s turbulent times

depends greatly on learning—changing behavior through experience. But, learning begins

with self-awareness—a real, unbiased, understanding of your strengths and weaknesses.

And when it comes to self-awareness in a management context, the learning focus in is on

skills and competencies that help you to confi dently deal with the complexities of human

behavior and problem solving in organizations.

As you read the various chapters and special features in this book and participate in

course discussions and activities, be sure to self-assess in regard to your career readiness

and the learning that might advance that success immediately and in the longer term. And

don’t forget, it’s not just formal learning in the classroom that counts. Th e events of everyday

life—from full-time and part-time jobs to teamwork in school, sports, and leisure activities

to customer interactions—are rich in learning opportunities . . . if you take advantage of

them. Th ere’s a lot to be gained from making a sincere commitment to lifelong learning—

the process of continuous learning from all of our daily experiences and opportunities.

LEARN MORE

ABOUT

Learning is a change in behavior that

results from experience.

Lifelong learning is continuous

learning from daily experiences.

Self-Management Lessons in Slumdog Millionaire What’s your take on this story of an orphan growing up in Mumbai, India, and fi nding

his way to riches on a TV game show? Watch it again for lessons in self-management.

When the police chief roughs up the main character Jamal (Dev Patel) the night before

the big show, he asks: “What the hell can a slum boy possibly know?” Jamal looks him in

the eye and says: “Th e answers.” He held up under the police chief ’s torture. He also

resisted the quizmaster’s repeated attempts to deceive and pressure him into not believ-

ing his own correct answers. M C

T/ N

ew sC

o m

Management&PopularCulture

LLLeeaarnnniinng HHoooww too MMMannagggeeL

21Learning How to Manage

A skill is the ability to translate knowledge into action that results in desired perfor-

mance. 53

Harvard scholar Robert L. Katz described the essential, or baseline, skills of man-

agers in three categories: technical, human, and conceptual. 54

He suggests that all three sets

of skills are necessary for management success, and that their relative importance varies by

level of managerial responsibility as shown in Figure 1.6.

Technical Skills

A technical skill is the ability to use a special profi ciency or expertise to perform partic-

ular tasks. Th is is what someone can do that brings value to an employer. Accountants,

engineers, market researchers, fi nancial planners, and systems analysts, for example,

possess technical skills within their areas of expertise. Knowing how to write a business

plan with a cash fl ow projection, use statistics to analyze data from a market survey,

update software on a computer network, and deliver a persuasive oral presentation are

also technical skills. Although initially acquired through formal education, technical

skills can become quickly outdated in today’s world. It is important to nurture and

develop them through ongoing learning that takes full advantage of training and job

experiences.

Figure 1.6 shows that technical skills are very important at job entry and early career

levels. As you look at this fi gure, take a quick inventory of your technical skills. Th ey are

things you must be able to tell a prospective employer when interviewing for a new job. Get

prepared by asking this all-important self-assessment question: “What, exactly, can I do for

a prospective employer?”

Human and Interpersonal Skills

Recruiters today put a lot of emphasis on a job candidate’s “soft” skills—things like ability to

communicate, collaborate, and network, to lead and contribute to teams, and to engage

others with a spirit of trust, enthusiasm, and positive impact. 55

Th ese are all part of what

Katz called the ability to work well in cooperation with other persons, or human skill. As

pointed out in Figure 1.6, the interpersonal nature of managerial work makes human skills

consistently important across all levels of managerial responsibility.

A manager with good human skills will have a high degree of emotional intelligence,

defi ned by scholar and consultant Daniel Goleman as the “ability to manage ourselves and

our relationships eff ectively.” 56

Strength or weakness in emotional intelligence shows up as

the ability to recognize, understand, and manage feelings while interacting and dealing with

others. Someone high in emotional intelligence will know when her or his emotions are

about to become disruptive, and act to control them. Th is same person will sense when

another person’s emotions are negatively infl uencing a relationship, and act to understand

and better deal with them. 57

Check your interpersonal skills and emotional intelligence by

asking and answering this self-assessment question: “Just how well do I relate with and work

with others in team and interpersonal situations?”

A skill is the ability to translate

knowledge into action that results in

desired performance.

A technical skill is the ability to

use expertise to perform a task with

profi ciency.

A human skill or interpersonal skill is

the ability to work well in cooperation

with other people.

Emotional intelligence is the ability to

manage ourselves and our relationships

eff ectively.

Lower-level managers

Middle-level managers

Top-level managers

Conceptual skills—The ability to think analytically and achieve integrative problem solving

Human skills—The ability to work well in cooperation with other persons; emotional intelligence

Technical skills—The ability to apply expertise and perform a special task with proficiency

FIGURE 1.6 Katz’s essential managerial skills—technical,

human, and conceptual.

22 CHAPTER 1 ■ Management Today

Conceptual and Critical-Th inking Skills

Th e ability to think analytically is a conceptual skill. It involves the capacity to break prob-

lems into smaller parts, see the relations between the parts, and recognize the implications

of any one problem for others. We call this a critical-thinking skill, and it is a top priority

when recruiters screen candidates for sought-after jobs. 58

Annmarie Neal, Vice President,

Cisco Center for Collaborative Leadership within Human Resources, describes it as an abil-

ity to “approach problems as a learner as opposed to a knower” and “taking issues and situ-

ations and problems and going to root components . . . looking at it [a problem] from a

systematic perspective and not accepting things at face value . . . being curious about why

things are the way they are and being able to think about why something is important.” 59

Figure 1.6 shows that conceptual skills gain in importance as one moves up from lower

to higher levels of management. Th is is because the problems faced at higher levels of

responsibility are often ambiguous and unstructured, full of complications and interconnec-

tions, and pose longer-term consequences. Th e end-of-chapter features—Manage a Critical

Incident and Analyze the Case Study—are ways to further develop your conceptual skills in

management. And, the relevant self-assessment question to ask and honestly answer is: “Am

I developing the strong critical-thinking and problem-solving capabilities I will need for

long-term career success?”

A conceptual skill is the ability to

think analytically to diagnose and solve

complex problems.

Although it’s an important career skill, self-awareness can be easy to talk about but hard to master. Self-awareness helps us build on strengths and overcome weaknesses, and it helps us

avoid seeing ourselves more favorably than is justifi ed.

How often do you take a critical look at your attitudes, behav-

iors, skills, personal characteristics, and accomplishments? When

was the last time you thought about them from a career

perspective—as you see them and as others do?

Known to others

Unknown to others

Blind Spot

Open Area

The Unknown

Hidden Self

Unknown to you Known to you

Exploring your Johari Window is one way to gain more

self-awareness. It’s a way of comparing what we know about our-

selves with what others know about us. Th e “open” areas known to

ourselves and others are often small. Th e “blind spot,” “the un-

known,” and the “hidden” areas can be quite large. Th ey challenge

our capacities for self-discovery.

Self-awareness is a pathway to adaptability, something we

need to keep learning and growing in changing times. But remem-

ber the insights of the Johari Window. True self-awareness means

not just knowing your idealized self—the person you want or hope

to be. It also means knowing who you really are in the eyes of

others and as defi ned by your actions.

GET TO KNOW YOURSELF BETTER

Map your Johari Window. Make notes on your “Open Area” and “Hidden Self.” Speculate about your “Unknown.” Ask friends, family, and co-workers for insights to your “Blind Spot.” Write a summary of what you learn about possible career strengths and weaknesses.

insight> LEARN ABOUT YOURSELF > Self-awareness helps us avoid seeing ourselves more favorably than is justifi ed.

Self-Awareness and the Johari Window

Learning Check 5

TAKEAWAYQUESTION 5 What are the essential managerial skills and how do we learn them?

BE SURE YOU CAN • discuss the career importance of learning and lifelong learning • defi ne three essential managerial

skills—technical, human, and conceptual skills • explain how these skills vary in importance across management levels • defi ne

emotional intelligence as an important human skill

Summary

TAKEAWAYQUESTION 1 What are the challenges of working in the new economy?

• Work in the new economy is increasingly knowledge based, and intellectual capital is the foundation of organizational performance.

• Organizations must value the talents of a workforce whose members are increasingly diverse with respect to gender, age, race and ethnicity, able-bodiedness, and lifestyles.

• The forces of globalization are bringing increased interdependencies among nations and economies, as customer markets and resource fl ows create intense business competition.

• Ever-present developments in information technology are reshaping organizations, changing the nature of work, and increasing the value of knowledge workers.

• Society has high expectations for organizations and their members to perform with commitment to high ethical standards and in socially responsible ways.

• Careers in the new economy require great personal initiative to build and maintain skill “portfolios” that are always up-to-date and valuable in a free agent economy.

FOR DISCUSSION What career risks and opportunities is globalization creating for today’s college graduates?

TAKEAWAYQUESTION 2 What are organizations like as work settings?

• Organizations are collections of people working together to achieve a common purpose.

• As open systems, organizations interact with their environ- ments in the process of transforming resource inputs into product and service outputs.

• Productivity is a measure of the quantity and quality of work performance, with resource costs taken into account.

• High-performing organizations achieve both performance effectiveness in terms of goal accomplishment, and performance effi ciency in terms of resource utilization.

FOR DISCUSSION When is it acceptable to sacrifi ce performance effi ciency for performance effectiveness?

TAKEAWAYQUESTION 3 What does it mean to be a manager?

• Managers directly support and facilitate the work efforts of other people in organizations.

• Top managers scan the environment, create strategies, and emphasize long-term goals; middle managers coordinate activities in large departments or divisions; team leaders and supervisors support performance of frontline workers at the team or work-unit level.

• Functional managers work in specifi c areas such as fi nance or marketing; general managers are responsible for larger multifunctional units; administrators are managers in public or nonprofi t organizations.

• The upside-down pyramid view of organizations shows operating workers at the top, serving customer needs while being supported from below by various levels of management.

• The changing nature of managerial work emphasizes being good at “coaching” and “supporting” others, rather than simply “directing” and “order-giving.”

FOR DISCUSSION In what ways should the work of a top manager to differ from that of a team leader?

TAKEAWAYQUESTION 4 What are the functions, roles, and activities of managers?

• The management process consists of the four functions of planning, organizing, leading, and controlling.

• Planning sets the direction; organizing assembles the human and material resources; leading provides the enthusiasm and direction; controlling ensures results.

• Managers implement the four functions in daily work that is often intense and stressful, involving long hours and continuous performance pressures.

• Managerial success requires the ability to perform well in interpersonal, informational, and decision-making roles.

• Managerial success also requires the ability to build interpersonal networks and use them to accomplish well-selected task agendas.

FOR DISCUSSION How might the upside-down pyramid view of organizations affect a manager’s approach to planning, organizing, leading, and controlling?

TAKEAWAYQUESTION 5 What are the essential managerial skills and how do we learn them?

• Careers in the new economy demand continual attention to lifelong learning from all aspects of daily experience and job opportunities.

• Skills considered essential for managers are broadly described as technical—ability to use expertise; human— ability to work well with other people, including emotional intelligence; and conceptual—ability to analyze and solve complex problems with critical thinking.

• Human skills are equally important for all management levels, whereas conceptual skills gain importance at higher levels and technical skills gain importance at lower levels.

FOR DISCUSSION Which management skills and competencies do you consider the most diffi cult to develop, and why?

Management Learning Review Get Prepared for Quizzes and Exams

23Management Learning Review

24 CHAPTER 1 ■ Management Today

Multiple-ChoiceQuestions 1. The process of management involves the functions of

planning, ___________, leading, and controlling. (a) accounting (b) creating (c) innovating (d) organizing

2. An effective manager achieves both high-performance results and high levels of ___________ among people doing the required work. (a) turnover (b) effectiveness (c) satisfaction (d) stress

3. Performance effi ciency is a measure of the ___________ associated with task accomplishment. (a) resource costs (b) goal specifi city (c) product quality (d) product quantity

4. The requirement that a manager answer to a higher- level boss for performance results achieved by a work team is called ___________. (a) dependency (b) accountability (c) authority (d) empowerment

5. Productivity is a measure of the quantity and ___________ of work produced, relative to the cost of inputs. (a) quality (c) timeliness (b) cost (d) value

6. ___________ managers pay special attention to the external environment, looking for problems and opportunities and fi nding ways for the organization to best deal with them. (a) Top (c) Lower (b) Middle (d) First-line

7. The accounting manager for a local newspaper would be considered a ________ manager, whereas the editorial director for sports would be considered a ___________ manager. (a) general, functional (b) middle, top (c) staff, line (d) senior, junior

8. When a team leader clarifi es desired work targets and deadlines for members of a work team, he or she is fulfi lling the management function of ___________. (a) planning (b) delegating (c) controlling (d) supervising

9. The process of building and maintaining good relationships with others who may help implement a manager’s work agendas is called ___________. (a) governance (c) authority (b) networking (d) entrepreneurship

10. In Katz’s framework, top managers tend to rely more on their ___________ skills than do fi rst-line managers. (a) human (b) conceptual (c) decision-making (d) technical

11. The research of Mintzberg and others concludes that managers ___________. (a) work at a leisurely pace (b) have blocks of private time for planning (c) are never free from the pressures of performance

responsibility (d) have the advantages of fl exible work hours

12. When someone holds a negative attitude toward minorities, this is an example of _______. When a team leader with a negative attitude toward minorities makes a decision to deny advancement opportunities to a Hispanic team member, this is an example of ___________. (a) discrimination, prejudice (b) emotional intelligence, social capital (c) performance effi ciency, performance effectiveness (d) prejudice, discrimination

13. Trends in the new workplace include which of the following? (a) More emphasis by managers on giving orders. (b) More attention by organizations to valuing people

as human assets. (c) Less teamwork. (d) Less concern for work–life balance among the new

generation of workers.

14. The manager’s role in the “upside-down pyramid” view of organizations is best described as providing ___________ so that workers can directly serve ___________. (a) direction, top management (b) leadership, organizational goals (c) support, customers (d) agendas, networking

15. The management function of ___________ is being performed when a retail manager measures daily sales in the women’s apparel department and compares them with daily sales targets. (a) planning (b) agenda setting (c) controlling (d) delegating

Self-Test 1

25Management Skills & Competencies

Evaluate Career Situations

for New Managers

What Would You Do?

1. Opportunity with Foreign Employer

One of the plus sides of globalization is new jobs created by

foreign employers setting up operations in local communi-

ties. How about you: Does it make any diff erence if you re-

ceive a job off er from a foreign employer such as Honda or a

domestic one such as Ford? Assume you just had an off er

from Honda for a great job in Marysville, Ohio. Prepare a Job

Hunter’s Balance Sheet. On the left list the “pluses” and on the

right the “minuses” of working at home for a foreign employer.

2. Interviewing for Dream Job

It’s time to take your fi rst interview for a “dream” job. Th e

interviewer is sitting across the table from you. She smiles,

looks you in the eye, and says: “You have a very nice aca-

demic record and we’re impressed with your extracurricu-

lar activities.” But she then says: “Now tell me, just what can

you do for us that will add value to the organization right

from day one?” You’re on the spot. How will you answer?

What can you add to the conversation that clearly shows

you have strong human and conceptual skills, not just tech-

nical ones?

3. Supervising Old Friends

When people are promoted into management, they some-

times end up supervising friends and colleagues they previ-

ously worked with. Th is could happen to you. When it does,

how can you best deal with this situation right from the start?

What will you do to earn the respect of everyone under your

supervision and set the foundations for what will become a

well-regarded and high-performing work team?

Refl ect on the

Self-Assessment

Career Readiness “Big 20”

Instructions Use this scale to rate yourself on the following “Big 20” personal

characteristics for management and career success. 60

(S) Strong, I am very confi dent with this one. (G) Good, but I still have room to grow. (W) Weak, I really need work on this one. (U) Unsure, I just don’t know.

Big 20 Personal Characteristics 1. Inner work standards: Th e ability to personally set and work

to high performance standards.

2. Initiative: Th e ability to actively tackle problems and take

advantage of opportunities.

3. Analytical thinking: Th e ability to think systematically and

identify cause–eff ect patterns in data and events.

4. Creative thinking: Th e ability to generate novel responses to

problems and opportunities.

5. Refl ective thinking: Th e ability to understand yourself and

your actions in the context of society.

6. Social objectivity: Th e ability to act free of racial, ethnic,

gender, and other prejudices or biases.

ManagementSkills& Competencies Make yourself valuable!

Short-ResponseQuestions 16. Discuss the importance of ethics in the relationship

between managers and the people they supervise.

17. Explain how “accountability” operates in the relationship between (a) a team leader and her team members, and (b) the same team leader and her boss.

18. Explain how the “glass ceiling effect” may disadvantage newly hired African American college graduates in a large corporation.

19. What is globalization, and what are its implications for working in the new economy?

EssayQuestion 20. You have just been hired as the new head of an audit

team for a national accounting fi rm. With four years of experience, you feel technically well prepared for the assignment. However, this is your fi rst formal appointment as a “manager.” Things are complicated at the moment. The team has 12 members of diverse demographic and cultural backgrounds, as well as work experience. There is an intense workload and lots of performance pressure. How will this situation challenge you to develop and use essential managerial skills and related competencies to manage the team successfully to high levels of auditing performance?

26 CHAPTER 1 ■ Management Today

7. Social intelligence: Th e ability to understand another person’s

needs and feelings.

8. Emotional intelligence: Th e ability to recognize and manage

emotions.

9. Cultural intelligence: Th e ability to respect other cultures and

work well in diverse cultural settings.

10. Interpersonal relations: Th e ability to work well with others

and in teams.

11. Self-confi dence: Th e ability to be consistently decisive and

willing to take action.

12. Self-objectivity: Th e ability to evaluate realistically personal

strengths, weaknesses, motives, and skills.

13. Tolerance for uncertainty: Th e ability to work in ambiguous

and uncertain conditions.

14. Adaptability: Th e ability to be fl exible and adapt to changes.

15. Stress management: Th e ability to get work under stressful

conditions.

16. Stamina: Th e ability to sustain long work hours.

17. Communication: Th e ability to communicate well orally and

in writing.

18. Impression management: Th e ability to create and sustain a

positive impression in the eyes of others.

19. Introspection: Th e ability to learn from experience, awareness,

and self-study.

20. Application: Th e ability to apply learning and use knowledge

to accomplish things.

Self-Assessment Scoring Give yourself 1 point for each S, and 1/2 point for each G. Do not

give yourself points for W and U responses. Total your points

and enter the result here [ _________ ].

Interpretation Th is assessment is a good starting point for considering where

and how you can further develop useful managerial skills and

competencies. It off ers a self-described profi le of your personal

management foundations—things that establish strong career

readiness. Th e higher you score the better. Are you a perfect 10,

or something less? Th ere shouldn’t be too many 10s around. Ask

someone you know to assess you on this instrument as well. You

may be surprised at the diff erences between your score and the

one they come up with.

Contribute to the

Class Exercise

My Best Manager

Preparation Working alone, make a list of the behavioral attributes that

describe the “best” manager you have ever had. Th is could be

someone you worked for in a full-time or part-time job, summer

job, volunteer job, student organization, or elsewhere. If you

have trouble identifying an actual manager, make a list of behav-

ioral attributes of the manager you would most like to work for

in your next job.

1. Make of list of the behavioral attributes that describe the

“worst” manager you have ever had.

2. Write a short synopsis of things that this bad manager

actually did or said that would qualify for “Believe it or not, it’s

really true!” status.

3. If you also made a list of attributes for your “best” manager,

write a quick summary of the most important diff erences

that quickly sort out your best from your worst.

Activity Form into groups as assigned by your instructor, or work with a

nearby classmate. Share your list of attributes and listen to the

lists of others. Be sure to ask questions and make comments on

items of special interest.

Work together in the group to create a master list that com-

bines the unique attributes of the “best” and/or “worst” manag-

ers experienced by members. Have a spokesperson share that

list with the rest of the class for further discussion. Share the

“Believe it or not!” stories provided by group members.

Manage a Critical Incident

Team Leader Faces Test

It’s happened again for the second time in a week. Charles

walked into your cubicle and started a rant about his not getting

enough support from you as his team leader. Before you could

say anything, he accused you of playing favorites in assigning

projects and not giving him the respect he deserved for his sen-

iority and expertise. Th en he gave you an angry look, turned

around, and stomped off . You let it go the last time he exploded

like this. And after cooling down, he came by later to apologize

and give you a fi st-bump of reconciliation. You’ve since learned,

however, that the other team members have been on the receiv-

ing end of his outbursts and are starting to complain to one an-

other about him. Charles is your top software engineer and has

a lot of technical expertise to off er the team and you. He’s a valu-

able talent, but his behavior has become intolerable. It’s time for

action.

Questions How do you handle Charles and the full team in these circum-

stances? Does this call for direct confrontation between you and

him? If so, how do you handle it? If not, how do you handle it? Is

this something that the team as a whole needs to get involved

with? If so, how do you proceed as team leader? How can you

use each of the management functions to best deal with this sit-

uation? How can essential managerial skills help you succeed in

this and similar situations?

27Analyze the Case Study

Collaborate on the

Team Activity

Th e Amazing Great Job Race

Th e fantastic variety of jobs out there for the well-prepared can-

didate is almost unimaginable. But our lives have gotten busy—

really complicated! We spend time with work, school work,

meetings, friends, family, video games, listening to music, watch-

ing television, surfi ng the Internet, going to concerts, social en-

gagements, and so on! It seems like our calendars are always full

with activities, leaving less time available to fi gure out what we

really want from a fi rst “real” job and a career.

You might say or hear: “I haven’t got time for that—I need a

job now . . . !” It’s easy to overestimate how much you can get

done at the last minute. Th ere may also be lots of uncertainty as

to what kind of job you really want. Th inking about likes and

dislikes, talents and areas of defi cit, goals, aspirations, wants,

needs, understanding yourself and what makes you happy—all

take time. It also takes time spent in the right ways.

A job that looks really great to you might require a series of

classes that you haven’t taken, an internship that you haven’t

done, software that you don’t know, or a foreign language you

don’t speak. If you spend time thinking about what you want,

searching for what’s out there, and fi guring out now what you’ll

need in order to be prepared when you graduate, you just

might fi nd yourself running and winning the Amazing Great

Job Race.

Instructions 1. Refl ect: What classes have you enjoyed the most? What did

you like most about them? How was your thinking challenged

in these courses? What work experiences have been most

satisfying for you? Why?

2. Share: Listen without criticism to how others in the group

answered these refl ection questions. Share your answers and

listen to the comments of others. Turn group discussion into

a brainstorming session about the kinds of jobs each member

might like to do and the careers they might pursue.

3. Debate: Push each other to identify baseline requirements

for jobs that might be good fi ts for them. Ask: What classes

would you need to take to be in a position to compete for

these jobs? What kinds of internships would you need to

participate in order to gain experience and access? What

tests and certifi cations might be necessary? How much

time would these preparations take so that you are ready to

compete for your best job with other candidates who might

want it also?

AnalyzeTHE CaseStudy

TRADER JOE’S

Keeping a Cool Edge Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

Great management isn’t new and it isn’t all about technology. People have created wonderful things for centuries, and management lessons are part of our history.

Latitudestock/Getty Images

Management

Learning Past

to Present Great things grow from strong

foundations

Key Takeaways

■ Identify what can be

learned from the classical

management approaches.

■ Identify what can be

learned from the behavioral

management approaches.

■ Identify what can be

learned from the modern

management approaches.

C H A P T E R Q U I C K STA RT

Ancestry.com is a hugely popular website. It helps people learn more about their

roots—and by extension, themselves. Th e history of management thought off ers

similar insights. In order to manage successfully today, and into the ever-changing

future, it is critical to understand the insights and lessons of the past. Knowing

where you’re going requires knowledge of where you’ve been. Th at is our focus in

this chapter.

MANAGEMENT IS REAL MAKE DATA YOUR FRIEND

Best Employers for Work–Life Balance

THINK BEFORE YOU ACT

Employers Differ on Hiring and Retention Strategies

KNOW RIGHT FROM WRONG

Tracking Technology Monitors Worker Behavior

LEARN ABOUT YOURSELF

Make Learning Style Work for You

LEARN FROM ROLE MODELS

Former Microsoft Executive Fights Illiteracy and Gains Fulfi llment

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Managerial Assumptions

■ CONTRIBUTE To the Class Exercise: Evidence-Based Management Quiz

■ MANAGE A Critical Incident: Theory X versus Theory Y

■ COLLABORATE On the Team Activity: Management in Popular Culture

■ ANALYZE Th e Case Study: Zara International: Fashion at the Speed of Light

what to look for inside >

30 CHAPTER 2 ■ Management Learning Past to Present

I n his book Th e Evolution of Management Th ought, Daniel Wren traces man-

agement as far back as 5000 BC, when the ancient Sumerians used written

records to improve government and business activities. 1 Management was

crucial in the construction of the Egyptian pyramids, the spread of the

Roman Empire across the globe, and the renowned commercial success of

14th-century Venice. By the time of the start of the Industrial Revolution in

the late 1700s, great social changes helped stimulate major manufacturing

advances in basic products and consumer goods. Adam Smith’s revolutionary

(at the time) concepts of division of labor and task specialization accelerated

industrial development. With the turn of the 20th century, Henry Ford had

made mass production a core aspect of the emerging economy. Since then,

both the science and practice of management have been on the fast track

toward continued development. 2

Many crucial insights can be taken from the history of management thought.

Rather than assuming that our generation invented current management

practice out of thin air, it is important to understand the historical roots of what

we think of today as modern ideas, and also to admit that we are still trying to

perfect these ideas and approaches to best match current business reality.

Classical Management Approaches TAKEAWAY 1 What can we learn from classical management thinking?

Scientifi c management • Administrative principles • Bureaucratic organization

Our study of management begins with a focus on the three major classical approaches:

(1) scientifi c management, (2) administrative principles, and (3) bureaucratic organization. 3

Figure 2.1 ties each of these classical approaches to a prominent historical fi gure—Taylor,

Fayol, and Weber. What can be seen here is that the classical approaches share a common

assumption: People rationally consider their opportunities and do whatever is necessary to

achieve the greatest personal and monetary gain. 4

Scientifi c Management

In 1911, Frederick W. Taylor published Th e Principles of Scientifi c Management, where he

stated: “Th e principal object of management should be to secure maximum prosperity for

the employer, coupled with the maximum prosperity for the employee.” 5 Taylor, often called

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FIGURE 2.1 Major branches in the classical approach to management.

CClaassssicccall MMaannaaggeemmmentttt AAAppppprrrooaaacchhhees

Classical approaches

Assumption: People are rational

Scientific management

Frederick Taylor

Administrative principles

Henri Fayol

Bureaucratic organization

Max Weber

31Classical Management Approaches

the “father of scientifi c management,” noticed that workers often did their jobs with wasted

motions and without a consistent approach. Th is resulted in ineffi ciency and low perfor-

mance. He believed that this problem could be fi xed if workers were taught to do their jobs

in the best ways and then were helped and guided by supervisors to always work this way.

Taylor’s goal was to improve workers’ productivity. He used the concept of “time study”

to analyze the motions and tasks required to do a job, and to develop the most effi cient

ways to perform that job. He then linked these job requirements to both worker training

and support from supervisors in the form of precise direction, work assistance, and mon-

etary incentives. Taylor’s approach, known as scientifi c management, includes four

guiding principles.

1. Develop a “science” that includes rules of motion, standardized work implements, and

proper working conditions for every job.

2. Carefully select workers with the right abilities for the job.

3. Carefully train workers to do the job and give them incentives to cooperate with the

job “science.”

4. Support workers by carefully planning their work and by smoothing the way as they

do their work.

Although Taylor called his approach “scientifi c” management, contemporary scholars have

questioned his truthfulness in reporting and the scientifi c rigor of his studies. 6 But Taylor’s

ideas still infl uence management thinking. 7 A contemporary example is the United Parcel

Service (UPS). UPS workers are guided by carefully calibrated productivity standards. Sort-

ers at regional hubs are timed according to strict task requirements and are expected to load

vans at a set number of packages-per-hour.

A GPS is used to plot the shortest delivery

routes; delivery stops are registered in

on-board computers that are studied to

identify wasted time. Industrial engineers

design explicit procedures for drivers—with

340 delivery and pickup rules like avoid left

turns in traffi c, unbuckle seat belt with left

hand, and walk at a “brisk” pace. Consistent

with scientifi c management principles, effi -

ciency is a top priority at UPS; saving a few

seconds at each stop adds up to signifi cant

increases in productivity. 8

One of the most enduring legacies of scientifi c management grew from Taylor’s interest

in motion study, the science of reducing a job or a task to its most basic physical aspects.

Two of his contemporaries, Frank and Lillian Gilbreth, pioneered the use of motion studies

as a management tool. 9 In one famous case, the Gilbreths cut down the number of motions

used by bricklayers and tripled their productivity!

Insights from scientifi c management have led to advances in job design, work standards,

and incentive wage plans—all of which are techniques organizations use today. Th e next

time you pass by a Taco Bell, think of the number 164, which is the average number of sec-

onds it takes from the point of order to taco-in-hand. Taco Bell measures performance based

on both time and accuracy, which are linked to standardized systems for order taking,

money handling, food preparation, and order delivery. Workers’ actions are carefully

designed in assembly-line style, where each worker learns the script for his or her station

and then delivers it over and over again. Th e whole process is supported by training, and

rewards are given to employees for doing things the Taco Bell way. 10

Administrative Principles

In 1916, after a career in French industry, Henri Fayol published Administration Industrielle

et Générale 11

in which he outlines his views on the management of organizations and workers.

Scientifi c management emphasizes

careful alignment of worker training,

incentives, and supervisory support

with job requirements.

Motion study is the science of reducing

a task to its basic physical motions.

• Make results-based compensation a performance incentive.

• Carefully design jobs with effi cient work methods.

• Carefully select workers with the abilities to do these jobs.

• Train workers to perform jobs to the best of their abilities.

• Train supervisors to support workers so they can perform to the best of their

abilities.

Practical Insights from Scientifi c Management

32 CHAPTER 2 ■ Management Learning Past to Present

Fayol identifi es fi ve “rules” or “duties” of management, which support the four functions of

management—planning, organizing, leading, and controlling—that we talk about today:

1. Foresight—to complete a plan of action for the future.

2. Organization—to provide and mobilize resources to implement the plan.

3. Command—to lead, select, and evaluate workers to get the best work toward the plan.

4. Coordination—to fi t diverse eff orts together and to ensure information is shared and

problems solved.

5. Control—to make sure things happen according to plan and to take necessary correc-

tive action.

Fayol believed that management could be taught. He wanted to improve the quality of man-

agement and defi ned a number of “principles” to help managers. A number of these princi-

ples still guide managers today. Th ey include the scalar chain principle—there should be a

clear and unbroken line of communication from the top to the bottom of the organization;

the unity of command principle—each person should receive orders from only one boss; and

the unity of direction principle—one person should be in charge of all activities that have the

same performance objective.

Bureaucratic Organization

Max Weber was a late-19th-century German political economist who had a major impact in

the fi elds of management and sociology. His ideas developed after noticing that organiza-

tions often performed poorly. Among other things, Weber noticed that employees often held

positions of authority not because of their capabilities, but because of their “privileged”

social status in German society. At the heart of Weber’s thinking was an ideal; an intention-

ally rational, and very effi cient form of organization called a bureaucracy. 12

It was founded

on principles of logic, order, and legitimate authority. Th e defi ning characteristics of Weber’s

bureaucratic organization are:

• Clear division of labor: Jobs are well defi ned, and workers are highly skilled at performing them.

• Clear hierarchy of authority: Authority and responsibility are well defi ned for each posi-

tion, and each position reports to a higher level.

• Formal rules and procedures: Written guidelines direct behavior and decisions in jobs,

and written fi les are kept for historical record.

• Impersonality: Rules and procedures are impartially and uniformly applied, with no one

receiving preferential treatment.

• Careers based on merit: Workers are selected and promoted on ability, competency, and

performance, and managers are career employees of the organizations.

Weber believed that organizations structured as bureaucracies would use resources more effi -

ciently and treat employees more fairly than other systems. He wrote: 13

Th e purely bureaucratic type of administrative organization . . . is, from a purely technical

point of view, capable of attaining the highest degree of effi ciency. . . . It is superior to any

other form in precision, in stability, in the stringency of its discipline, and in its reliability.

It thus makes possible a particularly high degree of calculability of results for the heads

of the organization and for those acting in relation to it.

Today we recognize that bureaucracy works well sometimes, but not all of the time. In fact

it’s common to hear the terms bureaucracy and bureaucrat used with negative connotations.

We picture bureaucracies as bogged down in excessive paperwork or “red tape,” slow in han-

dling problems, rigid in the face of shifting customer needs, and high in resistance to change

and employee apathy. 14

Th ese are disadvantages for organizations that have to be fl exible

and adaptive to the changing circumstances that are common today. A major manage-

ment challenge is to know when bureaucratic features work well and what are the best

alternatives when they don’t. Later in the chapter we’ll call this contingency thinking.

A bureaucracy is a rational and

effi cient form of organization founded

on logic, order, and legitimate authority.

Fair Impersonal

Career managers Clear division of labor

Promotion based on merit Formal hierarchy of authority

Written rules and standard procedures

The Classic Bureaucracy

Characteristics of Weber’s bureaucracy

33Behavioral Management Approaches

Th e United States Postal Service (USPS) is perhaps the most current, large-scale example

of the problems bureaucracies face in meeting customers’ constantly evolving needs. As

more and more business is conducted online and through web-based services, a Govern-

ment Accountability Offi ce (GAO) report stated that the “USPS’s business model is not viable.” 15

Th is conclusion is not surprising in light of continuing, annual losses of billions of dollars.

What is clear is that if Weber’s bureaucratic principles are to retain practical viability in the

USPS and other organizations, they need to be modifi ed to best handle the constraints of the

modern marketplace—more fl exibility and creativity, and a better customer focus. Would

you agree that bureaucracies like the USPS can be retrofi tted to today’s challenges, or is it

time to put in place all-new organizational designs?

Learning Check 1

TAKEAWAYQUESTION 1 What can we learn from classical management thinking?

BE SURE YOU CAN • state the underlying assumption of the classical management approaches • list the principles of

Taylor’s scientifi c management • identify three of Fayol’s principles for guiding managerial action • list the key characteristics

of bureaucracy and explain why Weber considered it an ideal form of organization • identify possible disadvantages of

bureaucracy in today’s environment

Behavioral Management Approaches TAKEAWAY 2 What insights come from the behavioral management approaches?

Follett’s organizations as communities • Th e Hawthorne studies Maslow’s hierarchy of needs • McGregor’s Th eory X and Th eory Y Argyris’s personality and organization

During the 1920s an emphasis on the human side of the workplace began to infl uence

management thinking. Major branches in the behavioral—or human resource—approaches

to management are shown in Figure 2.2. Th ese include Follett’s ideas about organizations as

communities, the Hawthorne studies, Maslow’s theory of human needs, and related ideas

of Douglas McGregor and Chris Argyris. Th e behavioral approaches assume that people enjoy

social relationships, respond to group pressures, and search for personal fulfi llment. Th ese

historical foundations set the stage for what is now known as the fi eld of organizational

behavior, the study of individuals and groups in organizations.

Follett’s Organizations as Communities

Th e work of Mary Parker Follett was part of an important transition from classical thinking

into behavioral management. Th e book Mary Parker Follett—Prophet of Management: A

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Organizational behavior is the

study of individuals and groups in

organizations.

BBBeeehhhhaaaavvvvviooooorrraaaall MMMMMMaannnnnaaaggggggemmmeenntt AApppproooaaccheess

FIGURE 2.2 Foundations in the behavioral or human resource

approaches to management.

Hawthorne studies

Elton Mayo

Theory of human needs

Abraham Maslow

Personality and organization

Chris Argyris

Theory X and Theory Y

Douglas McGregor

Human resource approaches

Assumption:

People are social and self-actualizing

Organizations as communities

Mary Parker Follett

34 CHAPTER 2 ■ Management Learning Past to Present

Celebration of Writings from the 1920s off ers an important reminder of the wisdom that can

come from an understanding of history. Although Follett wrote at a diff erent time in history,

her ideas are rich with foresight. She taught respect for workers’ experience and knowledge,

warned against the dangers of too much hierarchy, and called for visionary leadership.

Follett was eulogized upon her death in 1933 as “one of the most important women America

has yet produced in the fi elds of civics and sociology.” 16

Follett thought of organizations as “communities” where managers and workers should

labor in harmony without one party dominating the other, and with the freedom to talk over

and truly reconcile confl icts and diff erences. For her, groups were a way for individuals to

combine their talents toward a greater good. She believed it was the job of managers to help

workers cooperate with one another and to integrate their goals and interests.

Follett’s emphasis on groups and her commitment to human cooperation are highly rel-

evant themes today. 17

She believed that making every employee an owner in a business

would create feelings of collective responsibility. Today, we address the same issues under

such labels as employee ownership, profi t sharing, and gain-sharing plans. She believed that

business problems involve a wide variety of factors that must be considered in relationship

to one another. Today, we talk about “systems” and “contingency thinking.” Follett also

believed that businesses were service organizations and that private profi ts should always

be considered vis-à-vis the public good. Today, we pursue the same issues under the labels

managerial ethics and corporate social responsibility. Follett was, in many ways, a woman

ahead of her time, and whose insights and philosophy bear on organizational practice today.

It’s easy to fi nd the results from surveys on the Web today of the 10-best or Top-100 companies to work for in a particular area, and it is well worth your time and eff ort to follow these companies

(particularly as graduation approaches . . . !). When the job search

site Indeed.com surveyed employees of large fi rms to fi nd the best

places for work–life balance, Colgate-Palmolive (back-up child

care centers) and Wegmans topped the list. Other top-ranked

employers included American Express, Coldwell Banker, Johnson

& Johnson, and Motorola. Complaints about those that didn’t

make the list include:

■ Poor vacation coverage—many employees say they have to

work while on vacation.

■ Lack of fl exible schedules—fl extime that allows one to balance

work with family and leisure activities is highly valued.

■ Inadequate staffi ng—some employees feel overworked because

their employers don’t hire enough workers.

■ Poor support of working moms and dads—employees with chil-

dren want on-site child care, part-time work options, maternity

and paternity leave.

■ Lack of lifestyle perks—things like gym memberships or con-

cierge services such as dry cleaning pick up/delivery are valued.

WHAT ARE THE IMPLICATIONS?

Mike Steinerd, director of research for Indeed.com, says: “Work– life balance feeds passion for the workplace and contributes to a better overall work environment and morale.” Given the impor- tance of these issues to workers today, why aren’t all employers on board? What holds some back and what causes others to step up with lots of work–life balance support? How important are these issues to you? What is on your checklist of “must-haves” for your next job, as it pertains to work–life balance?

analysis> MAKE DATA YOUR FRIEND > Employees with children want on-site child care, part-time work options,

maternity and paternity leave.

Best Employers for Work–Life Balance

35Behavioral Management Approaches

Th e Hawthorne Studies

Th e shift toward behavioral thinking in management gained momentum in 1924 when the

Western Electric Company commissioned a research program to study worker productivity at

the Hawthorne Works of the fi rm’s Chicago plant. 18

A team led by Harvard’s Elton Mayo set out

to learn how economic incentives and workplace conditions aff ected workers’ output. But they

concluded that unforeseen “psychological factors” somehow interfered with their experiments.

Social Setting and Human Relations One study focused on worker fatigue and output. Six assembly workers were isolated for

intensive study in a special test room. Th eir production was measured as changes were

made to the length of rest pauses, workdays, and workweeks. Results showed that produc-

tivity increased regardless of the changes. Researchers concluded that the new “social setting”

in the test room made workers want to do a good job. Th ey shared pleasant social interac-

tions with one another and received special attention that made them feel important. Th ey

If you put technology together with scientifi c management, what do you get? For many in the trucking industry the answer is GPS tracking technology that monitors drivers to make sure they

follow their engineered routes and aren’t wasting—or even

stealing—company time. How far should this tracking technology

go and what ground rules should be followed?

At a small pest control company the general manager secretly

installed GPS software on company-issued smartphones. Th is

allowed him to track drivers. After noticing that one was stopping

regularly at a single address, the manager confronted the driver

and learned he was seeing a woman. Th e driver was fi red. Th at was

the fi rst anyone knew the manager was using the tracking

technology. Now, the manager says: “If our drivers have to veer

off , they call and say we are taking a little personal time. It is

changing their behavior in a positive way.”

Th e founder of the National Workrights Institute, Lewis Maltby,

champions worker privacy. But he also says the issue is not

“whether employers should monitor” but “a question of how.” Th e

institute’s position is that employees have the right to know they

are being monitored and also what the procedures are for han-

dling alleged violations. Th e landscaping fi rm Plants, Inc., follows

that advice, and all 16 employees know their company phones

have mobile monitoring turned on. Still, some employees com-

plain that their privacy rights are being violated.

Employees who don’t like tracking technology have little legal

recourse. Employment law professor Matt Finkin from the Univer-

sity of Illinois says that this is an area where “technology is ahead

of the law by about a generation.” Unions are taking issue with

the practice in some cases and negotiating rules of use, including

disciplinary procedures. But for now electronic monitoring has

gained a strong foothold both inside and outside the offi ce.

WHAT DO YOU THINK?

Should the use of tracking technology to monitor employee behavior be regulated by law? Or, is it a practice that employers have rights to use at their discretion? Would you be comfortable being monitored when making outside sales calls, for example, or when using your company phone for private browsing and conversations? What message does the use of electronic moni- toring communicate to employees? What are the limits to using technology this way, and who has rights to what in this case? How would you feel if your phone or computer had a tracking device on it that informed your parents what sites you’d visited, or what people you’d called? Would it matter if they were paying for these devices? Why or why not?

ethics> KNOW RIGHT FROM WRONG > “If our drivers have to veer off, they call and say we are taking a little personal time.

It is changing their behavior in a positive way.”

Tracking Technology Monitors Worker Behavior

36 CHAPTER 2 ■ Management Learning Past to Present

were given a lot of information and were frequently asked for their opinions. None of this

was the case in their regular jobs. In other words, good “human relations” seemed to result

in higher productivity.

Further studies of employee attitudes, interpersonal relations, and group dynamics also

led to “complex” and “baffl ing” results. Factors like work conditions or wages were found to

increase satisfaction for some workers and dissatisfaction for others. Some workers were

willing to restrict their output to avoid upsetting the group, even if it meant sacrifi cing pay

that could otherwise be earned by increasing output.

Lessons of the Hawthorne Studies Scholars now criticize the Hawthorne studies for poor research design and weak empirical

support for the conclusions drawn. 19

Yet, despite these problems, the studies shifted

managers’ and researchers’ attention toward social and human factors as drivers of

productivity. Th ey brought visibility to the idea that workers’ feelings, attitudes, and rela-

tionships with co-workers aff ected their work, and that groups have important infl uences

on individuals. They also identified the Hawthorne effect—the tendency of workers

singled out for special attention to perform as good—or better than anticipated—because

of expectations created by the situation.

Maslow’s Th eory of Human Needs

Th e work of psychologist Abraham Maslow, in the area of human “needs,” also has had a

major impact on the behavioral approach to management. 20

Maslow described a need as a

physiological or psychological defi ciency a person feels compelled to satisfy. Importantly,

needs create tensions that can infl uence workers’ attitudes and behaviors. Maslow placed

needs into the hierarchy shown in Figure 2.3. From lowest to highest in order, they are phys-

iological, safety, social, esteem, and self-actualization needs.

Th e Hawthorne eff ect is the tendency

of persons singled out for special

attention to perform as expected.

A need is a physiological or

psychological defi ciency that a

person feels compelled to satisfy.

FIGURE 2.3 Maslow’s hierachy of human needs.

Self-actualization needs

Highest level: need for self-fulfillment; to grow and use abilities to fullest and most creative extent

Esteem needs

Need for esteem in eyes of others; need for respect, prestige, recognition; need for self-esteem, personal sense of competence, mastery

Social needs

Need for love, affection, sense of belongingness in one's relationships with other people

Safety needs

Need for security, protection, and stability in the events of day-to-day life

Physiological needs

Most basic of all human needs: need for biological maintenance; food, water, and physical well-being

HIGHER-ORDER NEEDS

LOWER-ORDER NEEDS

37Behavioral Management Approaches

Maslow’s theory is based on two underlying principles—the defi cit principle and the

progression principle. Th e defi cit principle is a satisfi ed need that does not motivate

behavior. People try to satisfy “deprived” needs or those for which there is a “defi cit” (i.e.,

when I’m hungry, I seek to satisfy my hunger by eating—when I’m done eating, hunger

doesn’t motivate me anymore). Th e progression principle is the fi ve needs that exist in a

hierarchy of “prepotency.” A need at any level becomes active only when the next-lower-level

need is satisfi ed (i.e., I’m thirsty and lonely—but I won’t be motivated to chat with my friends

until I’ve had something to drink). Maslow argued that people try to satisfy these fi ve needs

in sequence. Th ey progress, step by step, from the lowest level in the hierarchy up to the

highest. Along the way, a deprived need dominates attention and determines behavior until

it is satisfi ed. Th en, the next-higher-level need is activated. At the level of self-actualization,

the defi cit and progression principles cease to operate. Th e more this need is satisfi ed, the

stronger it grows.

Consistent with human relations thinking, Maslow’s theory implies that managers who

understand and help workers to satisfy their important needs at work will get more produc-

tivity out of their employees. Although scholars now recognize things are more complicated

than this, Maslow’s ideas are still relevant. Consider the case of volunteer workers at the

local Red Cross, animal shelter, or other community organizations. What can be done to

motivate workers who aren’t paid? Maslow’s ideas suggest linking volunteer work with

opportunities to satisfy higher-order needs like esteem and self-actualization.

McGregor’s Th eory X and Th eory Y

Douglas McGregor was heavily infl uenced by both the Hawthorne studies and Abraham

Maslow. In his classic book, Th e Human Side of Enterprise, McGregor argued that managers

should give more attention to workers’ social and self-actualizing needs. 21

He called on man-

agers to shift their view of human nature away from a set of assumptions he called Th eory X

and toward ones he called Th eory Y. You can check your own managerial assumptions by

completing the self-assessment at the end of the chapter.

According to McGregor, managers with Th eory X assumptions believe that employees

generally dislike work, have little ambition, are irresponsible, resistant to change, and prefer

to be led rather than to lead. In contrast, managers with Th eory Y assumptions believe

employees are willing to work hard, accept responsibility, are capable of self-control and

self-direction, and are imaginative and creative.

One important point regarding Th eory X and Th eory Y is that McGregor believed these

assumptions create self-fulfi lling prophecies. When managers behave consistent with

the assumptions, he said, they end up encouraging employees to act in ways that confi rm

managers’ original expectations. 22

Managers with Th eory X assumptions tend to act in a very directive, command-and-control,

top-down way that gives employees little say over their work. Th ese behaviors create passive,

dependent, reluctant subordinates, who tend to do only what they are told to do or required

to do, reinforcing the original Th eory X viewpoint. In contrast, managers with Th eory Y

assumptions tend to behave in ways that engage workers, giving them more job involvement,

freedom, and responsibility. Th is creates opportunities for employees to satisfy esteem

and self-actualization needs, and they respond by performing with initiative and high

performance, creating a positive self-fulfi lling prophecy. 23

Th eory Y thinking is refl ected in a lot of the ideas and developments discussed in this

book, such as valuing diversity, employee engagement, self-managing teams, empowerment,

and leadership. You need to ponder your Th eory X and Y assumptions and think through

their implications for how you behave as a manager and team leader. You also must be pre-

pared to meet and work with others holding diff erent assumptions.

Argyris’s Th eory of Adult Personality

Th e ideas of Maslow and McGregor inspired the well-regarded scholar and business consultant

Chris Argyris. In his book Personality and Organization, Argyris contrasts management

According to the defi cit principle a

satisfi ed need does not motivate behavior.

According to the progression

principle a need is activated only when

the next-lower-level need is satisfi ed.

Th eory X assumes people dislike work,

lack ambition, act irresponsibly, and

prefer to be led.

Th eory Y assumes people are willing to

work, like responsibility, and are self-

directed and creative.

A self-fulfi lling prophecy occurs when

a person acts in ways that confi rm

another’s expectations.

38 CHAPTER 2 ■ Management Learning Past to Present

practices found in traditional, bureaucratic organizations with the needs and capabilities of

mature adults. 24

Argyris believed that common problems, such as absenteeism, turnover,

apathy, alienation, and low morale may be signs of a mismatch. He also argued that manag-

ers who treat employees as responsible adults will achieve the highest productivity. It’s the

self-fulfi lling prophecy notion again: If you treat people as grown-ups, that’s the way they’ll

behave.

Consider these examples of how Argyris’s thinking diff ers from that of earlier management

thinking. In scientifi c management, the principle of specialization assumes that people

will work more effi ciently as tasks become simpler and better defi ned. Argyris believed that

this principle limits opportunities for self-actualization. In Weber’s bureaucracy, people

work in a clear hierarchy of authority, with higher levels directing and controlling lower

levels. Argyris worried that this creates dependent, passive workers who feel they have

little control over their work environments. In Fayol’s administrative principles, the concept

of unity of direction assumes that effi ciency increases when work is planned and directed by

There are many ways to help build a better society. John Wood’s choice is social entrepreneurship that promotes literacy for children in the developing world. During a successful career as a

Microsoft executive, his life changed after he went on a trekking

vacation to the Himalayas of Nepal. While there, Wood was

shocked at the lack of schools and limited access to educational

materials. He pledged to collect books for a Nepalese school that

he visited on his trip, and he returned a year later with 3,000 to

give to the students. But the impact on his future didn’t end there.

Wood was inspired to leverage his years of executive experience to

accomplish more through nonprofi t work.

Wood quit his Microsoft job to found Room to Read. It builds

libraries and schools in poor nations like Nepal, Cambodia, Vietnam,

and Laos, and publishes local language books to help fi ll them.

Now in what he calls the “second chapter” in his life, Wood’s passion

is to provide the lifelong benefi ts of education to poor children.

His organization’s website describes the vision this way: “We envi-

sion a world in which all children can pursue a quality education

that enables them to reach their full potential and contribute to

their community and the world.”

Picture this scene in Laos, one of the world’s poorest nations.

Children sit happily in a small library fi lled with books reading a

story with their teacher. It’s a Room to Read project. So far the or-

ganization has put in place over 700 libraries and built 140 schools

in this small land-locked Southeast Asian country. Laos has just

over 8,000 primary schools nationwide and the majority off er only

incomplete educational experiences.

Th e Room to Read model is so effi cient that it can build schools

for as little as $6,000 and is now setting up fi ve or six new libraries

each day. Over 10,000 libraries are already in place in Asia and

Sub-Saharan Africa. Time magazine called Wood and his team

“Asian Heroes.” Fast Company magazine gave Room to Read its

Social Capitalist Award. Noting that one-seventh of the global

population can’t read or write, Wood says: “I don’t see how we are

going to solve the world’s problems without literacy.”

FIND THE INSPIRATION

Room to Read builds one school or library at a time, but the re- sults add up quickly—almost 10 million children have benefi ted from Room to Read’s programs to date. Is the success of Room to Read due in part to Wood’s prior business and management experience? How can such experience help nonprofi t organiza- tions? Can you identify a social problem in your community that might be addressed using John Wood and his work with Room to Read as a role model? How do you see yourself fulfi lling higher order needs in the future? Will earning good money at work be enough, or will your self-actualization require something more?

wisdom> LEARN FROM ROLE MODELS > His life changed and its “second chapter” started after a trekking holiday in Nepal.

Former Microsoft Executive Fights Illiteracy and Gains Fulfi llment

AFP Photo/Room To Read/NewsCom

39Modern Management Foundations

supervisors. Argyris argued that this may create conditions for psychological failure;

conversely, psychological success is more likely when employees are allowed to defi ne their

own goals.

Modern Management Foundations TAKEAWAY 3 What are the foundations of modern management thinking?

Quantitative analysis and tools • Organizations as systems Contingency thinking • Quality management • Evidence-based management

Th e concepts, models, and ideas discussed so far helped set the stage for continuing devel-

opments in management thought. Th ey ushered in modern management approaches that

include the use of quantitative analysis and tools, a systems view of organizations, contin-

gency thinking, commitment to quality management, and the importance of evidence-based

management.

Quantitative Analysis and Tools

Th e typical quantitative approach to management works like this: a problem is encoun-

tered, it is systematically analyzed, appropriate mathematical techniques are applied, and

an optimum solution is identifi ed. Th e following examples show this in action.

Problem: An oil exploration company is worried

about future petroleum reserves in various

parts of the world. Quantitative approach—

Mathematical forecasting makes future projec-

tions for reserve sizes and depletion rates that

are used in the planning process and oil pros-

pecting strategies.

Problem: A “big box” retailer is trying to deal

with decreasing profi t margins by minimizing

inventory costs, but must also avoid being “out

of stock” for customers. Quantitative approach—

Inventory analysis helps control inventories by

mathematically determining how much inven-

tory to automatically order and when to order it.

Problem: A grocery store is getting complaints

from customers that wait times are too long for

checkouts during certain times of the day.

Quantitative approach—Queuing theory allocates

service personnel and workstations based on

alternative workload demands in a way that

minimizes both customer wait time and per-

sonnel costs.

Problem: A manufacturer wants to maximize

profi ts on the production of three diff erent

LEARN MORE

ABOUT

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Learning Check 2

TAKEAWAYQUESTION 2 What insights come from the behavioral management approaches?

BE SURE YOU CAN • explain Follett’s concept of organizations as communities • defi ne the Hawthorne eff ect • explain how

the Hawthorne fi ndings infl uenced the development of management thought • explain how Maslow’s hierarchy of needs

operates in the workplace • distinguish between Th eory X and Th eory Y assumptions, and explain why McGregor favored

Th eory Y • explain Argyris’s criticism that traditional organizational practices are inconsistent with mature adult personalities

A n

al yt

ic s

Decision Making

Quantitative Methods

Managers

S ta

ti st

ic s

M at

h em

at ic

P ro

d u

ct iv

it y ForecastingInventory

Analysis

Queuing Theory

Linear Programming

N et

w o

rk M

o d

el s

Organizations

S ys

te m

S u

b sy

st em

Open Systems

Contingency Thinking

Q u

al it

K n

o w

le d

g e

Accountability

Effectiveness

Efficiency

40 CHAPTER 2 ■ Management Learning Past to Present

products on three diff erent machines, each of which can be only be used at distinct peri-

ods of times and for runs at diff erent costs. Quantitative approach—Linear programming

calculates how best to allocate production across the three machines.

Problem: A real estate developer wants to control costs and fi nish building an apartment

complex on schedule. Quantitative approach—Network models break large tasks into

smaller components and diagram them in step-by-step sequences. Th is allows project

managers to analyze, plan, and control timetables for the completion of activity sub-sets.

Although quantitative analysis has always been useful in management, the availability of

inexpensive, convenient, aff ordable computing is dramatically expanding its power. With

the collection, storage, and analysis of data now easier than ever before, an area known as

analytics is becoming indispensable to organizations of all types. Th ink of analytics as the

systematic analysis of large databases—often called “big data”—to solve problems and make

informed decisions. 25

Here are two examples.

Problem—Sales were fl at and inventories were high at the Schwan Food Company. Delivery

drivers were using six-week-old lists of customers’ prior orders to decide who to visit and

what to off er them. Solution—Th e situation improved substantially after Schwan installed

a new analytics program. It churns vast amounts of historical data to predict customer

preferences and sends daily sales recommendations directly to each driver’s tablet.

Problem—Software engineering talent is in short supply for Google and other high-tech

companies. Competition for new hires is intense and retention is diffi cult as experienced

engineers become poaching targets for rival fi rms. Solution—Google has an analytics tool

that pools information from performance reviews, surveys, and pay and promotion histo-

ries, and uses a math formula (algorithm) to identify engineers who might be open to off ers

from other fi rms. Managers use this information to develop plans for retaining these

talented engineers and reduce the likelihood that they will fi nd competing off ers attractive. 26

Organizations as Systems

Organizations have long been described as cooperative systems that achieve great things by

focusing resources and the contributions of many individuals toward a common purpose. In

reality cooperation among people and diff erent moving parts is imperfect and can be

improved. Th at is why it’s critical to understand the full complexity of organizations as a

system of interrelated parts or subsystems that work together to achieve common goals. 27

Organizations function as open systems that interact with their environment in a

continual process of transforming inputs—people, technology, information, money, and

supplies—into outputs—goods and services. Figure 2.4 shows how an organization functions

Analytics is the systematic analysis of

large databases to solve problems and

make informed decisions.

A system is a collection of interrelated

parts working together for a purpose.

A subsystem is a smaller component of

a larger system.

An open system interacts with its

environment and transforms resource

inputs into outputs.

FIGURE 2.4 Organizations as complex networks of interacting

subsystems. Organizational

network of subsystems

Purchasing and inventory systems

Marketing, sales, and distribution

systems

Accounting and financial

systems

Information and technology

systems

Operations and service

management systems

Inputs Outputs

Suppliers Customers

41Modern Management Foundations

as an interacting network of subsystems. Th e activities of these subsystems individually and

collectively support the larger system to make things happen. Th e operations and service

management subsystems anchor the transformation process, while linking with other sub-

systems such as purchasing, accounting, and sales. Organizations can only perform well

when each subsystem both performs its tasks well and cooperates with other subsystems.

Contingency Th inking

Successful managers identify and implement practices that best fi t with the unique demands

of diff erent situations. Th is requires contingency thinking that matches actions with

problems and opportunities specifi c to diff erent people and settings. From a contingency

perspective there is no “one best way” to manage in all circumstances. Th e challenge is to

understand situational diff erences and respond to them in ways that fi t with their unique

characteristics. 28

Can you think of situations at work or at school where you need to adjust

your interpersonal behavior, for example, to succeed?

Contingency thinking is an important theme in this book, and its implications extend to

all of the management functions—from planning and controlling for diverse environmen-

tal conditions, to organizing for diff erent strategies, to leading in diff erent performance

situations. A good illustration takes us back once again to the concept of bureaucracy,

Contingency thinking tries to match

management practices with situational

demands.

In light of all the complexities associated with modern manage-ment practice, it is important to know your own personal learn- ing style. Th ink of learning style as how you like to learn through

receiving, processing, and recalling new information.

Each of us tends to learn in slightly diff erent ways. Look how

some students do well in lecture classes, while others do not. But

these others might excel in case study or project classes that

emphasize discussion and problem solving rather than digesting

information.

insight> LEARN ABOUT YOURSELF > There’s no right or wrong when it comes to learning styles. But we should recognize

and understand them.

Make Learning Style Work for You Th ere’s no right or wrong learning style; however, it is critical to

recognize and understand some underlying diff erences. Some

people learn by watching. Th ey observe others and model what

they see. Others learn by doing. Th ey act and experiment, learning

as they go. Some people are feelers, for whom emotions and values

are very important. Others are thinkers who emphasize reason

and analysis.

It’s a personal challenge to learn something new every day, and

it’s a managerial challenge to consistently help employees learn as

well. One of our most signifi cant challenges is to always embrace

experiences at school, at work, and in everyday living and try our

best to learn from these experiences. Every employee is unique,

most problem situations are complex, and key performance

factors are constantly changing. Professional success is much

more likely for managers who are excited to learn, and also are

excited to help others to learn.

GET TO KNOW YOURSELF BETTER

Look at the diagram of learning styles and think about your own preferences. Shade in each circle to show the degree to which that description best fi ts with your preferences. This snapshot of your personal learning style is good food for thought. Ask: (1) “What are the implications of my learning style for how I perform academically and how well I perform at work? (2) “How does my learning style infl uence my relationships with others in study groups and work teams?” (3) “How does my learning style infl u- ence the kinds of information I pay the most attention to and the kind of information I tend to overlook?”

Accommodator

Likes hands on activities,

to learn by doing

Converger

Likes to experiment,

learn by problem solving

Assimilator

Likes logical reasoning,

to learn by information

Diverger

Likes imagining,

to learn by observing

Your

Learning

Style

42 CHAPTER 2 ■ Management Learning Past to Present

which Weber off ered as an ideal form of organization. But from a contingency perspective,

bureaucracy is only one possible way of organizing. What turns out to be the “best” struc-

ture in any given situation will depend on a range of factors, including environmental

uncertainty, an organization’s primary technology, and the strategy being pursued. A tight

bureaucracy works best when the environment is relatively stable and operations are pre-

dictable and uncomplicated. In complex and changing situations more fl exible structures

are needed. 29

Quality Management

Th e work of W. Edwards Deming is a cornerstone of the quality movement in management. 30

His story began in 1951, when he was invited to Japan to explain quality control techniques

that had been developed in the United States. “When Deming spoke,” we might say, “the

Japanese listened.” Th e principles he taught the Japanese were straightforward and they

worked: Tally defects, analyze and trace them to the source, make corrections, and keep a

record of what happens afterward. Deming’s approach emphasizes the use of statistical

tools, commitment to quality assurance training, and constant innovation. 31

Th ese ideas contributed to the emergence of total quality management, or TQM, which

incorporates quality principles in organizations’ strategic objectives. TQM principles are

applied to all aspects of operations with a focus on meeting customers’ needs by doing

things right the fi rst time. Most TQM approaches begin with buy-in on a total quality

commitment. Th is applies to all employees and every organizational subsystem—from

Total quality management is an

organization-wide commitment to

continuous improvement, product

quality, and customer needs.

Facebook and the online retailer Zappos are both entrepre-neurial startups that made it big. And they did so while follow- ing very diff erent approaches to employee hiring and retention. Is

one of these approaches right and the other wrong?

Facebook’s founder and CEO, Mark Zuckerberg, likes to hire

“hackers” with an entrepreneurial side. He’s interested in people

who like to create new things quickly rather than those who

want long-term employment. Zuckerberg compares Facebook to

colleges with great sports programs. Athletes go to play for these

programs—and coaches—and excel, and also to prepare for a

career in professional sports. Th e great “hackers,” according to

Zuckerberg, don’t “want to stay at one place forever.”

Zappos CEO, Tony Hsieh, says, “We have a diff erent approach

from what Mark was talking about. We actually want our employ-

ees to stay with the company for a long time, for 10 years, maybe

for their entire life.” Internal career paths are clear at Zappos, with

frequent promotions and lots of personal time off . Zappos invests

heavily in staff training and mentoring. According to Hsieh the key

is “constant growth” along with a strong dose of job satisfaction.

YOUR TAKE?

The lesson here is there are many ways for people and organiza- tions to reach their goals. But when it comes to you specifi cally, a critical issue will always be the fi t—or match—between what you want and the way you like to work and the employer’s prac- tices. Which fi rm would you most like to join— Facebook or Zap- pos? What does this choice say about your career needs and aspirations? Are you someone who gets excited about switching to a new organization every few years, or would you rather fol- low an internal career path and rise to the top of the employer you start with out of college?

choices> THINK BEFORE YOU ACT > “We actually want our employees to stay with the company for a long time, for 10 years, maybe for their entire life.”

Employers Differ on Hiring and Retention Strategies

Peter DaSilva/The New York Times/Redux Pictures

43Modern Management Foundations

resource acquisition and supply chain management, through production and into physical

distribution of fi nished goods and services, and ultimately to customer relationships. Th e

search for and commitment to quality refl ects an emphasis on continuous improvement—

always looking for new ways to improve on current practices. Th e key takeaway is that it is

critical to never be satisfi ed; something always can and should be improved—whether it is

machines, people, processes, or relationships.

ISO certifi cation by the International Standards Organization in Geneva, Switzerland,

has become a global stamp of approval for quality management. Businesses and nonprofi ts

that strive to be “world-class” are increasingly expected to have ISO certifi cation. To obtain

it, they undergo a rigorous assessment by independent auditors to determine whether ISO’s

strict quality requirements have been met.

Evidence-Based Management

Managers are always searching for practical answers to questions dealing with day-to-day

dilemmas and situations. 32

What is the best performance appraisal method? What selection

method works best for high-performance teams? How should a merit pay system be

designed and implemented? When does directive leadership work best? How do you struc-

ture organizations for innovation? Given the importance of the answers to such questions,

it is critical to be cautious and a bit skeptical when separating fads from facts and assump-

tions from informed insight based on empirical data and analysis.

In light of the complexity of work and organizations today, a critical concern of manage-

ment scholars is that we may be too quick to accept the results of studies based on poor

science or questionable evidence. And if research may be fl awed or preliminary in terms of

drawing fi rm conclusions, extra care needs to be taken interpreting and applying results to

management practice. 33

Scholars Jeff rey Pfeff er and Robert Sutton make the case for evidence-based manage-

ment where management decisions are made based on “hard facts”—that is, about what

really works—rather than on “dangerous half-truths”—things that sound good but lack solid

evidence. 34

Pfeff er and Sutton want managers to be well informed and knowledgeable when

making decisions. Evidence-based management is about managers “making decisions

through the conscientious, explicit, and judicious use of four sources of information: practi-

tioner expertise and judgment, evidence from the local context, a critical evaluation of the

best available research evidence, and the perspectives of those people who might be aff ected

by the decision.” 35

You may recognize incidents in your personal aff airs where you make

decisions based on less-than-complete information, or even hearsay. When you do, are you

Continuous improvement involves

always searching for new ways to

improve work quality and performance.

ISO certifi cation indicates

conformance with a rigorous set

of international quality standards.

Evidence-based management involves

making decisions based on hard facts

about what really works.

Great by Choice: Uncertainty, Chaos, and Luck— Why Some Thrive Despite Them All (HarperBusiness, 2011)

by Jim Collins and Morten T. Hansen When Jim Collins wrote a book titled Good to Great and described characteristics of high-

performing companies, it became a best seller. So did his follow-up book, How the Mighty Fall.

It discussed why some of his previous picks for greatness had major problems owing to manage-

ment egos that fueled excessive risks in the quest for fast growth. In Great by Choice, Collins and

co-author Morten T. Hansen focus on how companies succeed in a world of uncertainty and

rapid change. Interestingly, the researchers say it’s not making fast decisions that leads to success.

Rather, it’s making decisions in empirical and disciplined ways.

RecommendedReading

B C

ar rie

D ev

o ra

h/ W

E N

N /N

ew sC

o m

prepared to learn from experience and rely more on evidence-based decision making in the

future?

Management scholars support and inform evidence-based management by conducting

solid and meaningful research using scientifi c methods, and by rigorously examining and

reporting case studies and insights from managers’ experiences. 36

Some research carves out

new and innovative territory while other research refi nes and extends knowledge that has

come down in building-block fashion over time. You’ll notice that management research

involves data collection and analysis in one form or another. But just because a research

study uses data, doesn’t make it solid and scientifi c. Th e following criteria are useful as a fi rst

step to determine whether or not good scientifi c methods have been used.

• A research question or problem is clearly identifi ed.

• One or more hypotheses is stated to describe possible explanations.

• Th e research design provides a good test of the hypotheses.

• Data are rigorously gathered, analyzed, and interpreted.

• Hypotheses are accepted or rejected and conclusions made based on the evidence.

When research satisfi es the scientifi c methods test, managers can be more confi dent

accepting and applying results in actual practice. Gathering data from a sample of some

1,000 fi rms, for example, Pfeff er and a colleague studied the link between human resource

management and organizational performance. 37

Th ey found that fi rms using a mix of

positive human resource management practices had more sales-per-employee and higher

profi ts-per-employee than fi rms that did not. Th ese positive practices included employment

security, selective hiring, self-managed teams, high wages based on performance merit,

training and skill development, minimal status diff erences, and shared information. 38

Criteria for evaluating scientifi c methods

Learning Check 3

TAKEAWAYQUESTION 3 What are the foundations of modern management thinking?

BE SURE YOU CAN • defi ne system, subsystem, and open system • apply these concepts to describe the operations of an

organization in your community • defi ne contingency thinking and give examples of how it is used by managers • describe

evidence-based management and its link with scientifi c methods

44 CHAPTER 2 ■ Management Learning Past to Present

45Management Learning Review

Summary

TAKEAWAYQUESTION 1 What can we learn from classical management thinking?

• Frederick Taylor’s four principles of scientifi c management focused on the need to carefully select, train, and support workers for individual task performance.

• Henri Fayol suggested that managers should learn what are now known as the management functions of planning, organizing, leading, and controlling.

• Max Weber described bureaucracy with its clear hierarchy, formal rules, and well-defi ned jobs as an ideal form of organization.

FOR DISCUSSION Should Weber’s notion of the ideal bureaucracy be scrapped altogether, or is it still relevant today?

TAKEAWAYQUESTION 2 What insights come from the behavioral management approaches?

• The behavioral approaches shifted management attention toward the human factor as a key element in organiza- tional performance.

• Mary Parker Follett describes organizations as communi- ties within which members combine talents to work for a greater good.

• The Hawthorne studies suggested that work behavior is infl uenced by social and psychological forces and that work performance may be improved by better “human relations.”

• Abraham Maslow’s hierarchy of human needs introduced the concept of self-actualization and the potential for people to experience self-fulfi llment in their work.

• Douglas McGregor urged managers to shift away from Theory X and toward Theory Y thinking, which views

people as independent, responsible, and capable of self-direction in their work.

• Chris Argyris pointed out that adults may react negatively when constrained by strict management practices and rigid organizational structures.

FOR DISCUSSION How can a manager benefi t by using insights from Maslow’s hierarchy of needs theory?

TAKEAWAYQUESTION 3 What are the foundations of modern management thinking?

• Analytics that use advanced quantitative analysis techniques in decision sciences and operations management can help managers solve complex problems.

• Organizations are open systems that interact with their external environments, while consisting of many internal subsystems that must work together in a coordinated way to support the organization’s overall success.

• Contingency thinking avoids “one best way” arguments, instead recognizing the need to understand situational differences and respond appropriately to them.

• Quality management focuses on making a total commitment to product and service quality throughout an organization, maintaining continuous improvement and meeting worldwide quality standards such as ISO certifi cation.

• Evidence-based management uses fi ndings from rigorous scientifi c research to identify management practices for high performance.

FOR DISCUSSION Can system and subsystem dynamics help describe and explain performance problems for an organization in your community?

Management Learning Review Get Prepared for Quizzes and Exams

46 CHAPTER 2 ■ Management Learning Past to Present

Multiple-ChoiceQuestions 1. The assumption that people are complex with widely

varying needs is most associated with the management approaches. (a) classical (b) neoclassical (c) behavioral (d) modern

2. The father of scientifi c management is . (a) Weber (b) Taylor (c) Mintzberg (d) Katz

3. When the registrar of a university deals with students by an identifi cation number rather than a name, which characteristic of bureaucracy is being displayed and what is its intended benefi t? (a) division of labor, competency (b) merit-based careers, productivity (c) rules and procedures, effi ciency (d) impersonality, fairness

4. If an organization was performing poorly and Henri Fayol was called in as a consultant, what would he most likely suggest to improve things? (a) Teach managers to better plan and control. (b) Teach workers more effi cient job methods. (c) Promote to management only the most competent

workers. (d) Find ways to increase corporate social responsibility.

5. One example of how scientifi c management principles are applied in organizations today would be: (a) conducting studies to increase effi ciencies in job

performance. (b) fi nding alternatives to a bureaucratic structure. (c) training managers to better understand worker

attitudes. (d) focusing managers on teamwork rather than

individual jobs.

6. The Hawthorne studies raised awareness of how can be important infl uences on

productivity. (a) structures (b) human factors (c) physical work conditions (d) pay and rewards

7. Advice to study a job, carefully train workers to do that job, and link fi nancial incentives to job performance would most likely come from . (a) scientifi c management (b) contingency management (c) Henri Fayol (d) Abraham Maslow

8. The highest level in Maslow’s hierarchy includes needs.

(a) safety (b) esteem (c) self-actualization (d) physiological

9. Which management theorist would most agree with the statement “If you treat people as grownups they will perform that way”? (a) Argyris (b) Deming (c) Weber (d) Fuller

10. When people perform in a situation as they are expected to, this is sometimes called the ____________ Effect. (a) Hawthorne (b) systems (c) contingency (d) open-systems

11. Resource acquisition and customer satisfaction are important when an organization is viewed as a(n) ____________. (a) bureaucracy (b) closed system (c) open system (d) pyramid

12. The loan-processing department would be considered a ____________ of your local bank or credit union. (a) subsystem (b) closed system (c) resource input (d) cost center

13. When a manager notices that Sheryl has strong social needs and assigns her a job in customer relations and gives Kwabena lots of praise because of his strong ego needs, the manager is displaying ____________. (a) systems thinking (b) Theory X (c) motion study (d) contingency thinking

14. Which is the correct match? (a) Follet–analytics (b) McGregor–motion study (c) Deming–quality management (d) Maslow–Theory X and Y

15. When managers try to avoid hearsay and make decisions based on solid facts and information, this is known as ____________. (a) continuous improvement (b) evidence-based management (c) TQM (d) Theory X management

Self-Test 2

47Management Skills & Competencies

Short-ResponseQuestions 16. Explain how McGregor’s Theory Y assumptions can

create self-fulfi lling prophecies consistent with the current emphasis on participation and involvement in the workplace.

17. How do the defi cit and progression principles operate in Maslow’s hierarchy-of-needs theory?

18. Defi ne contingency thinking and give an example of how it might apply to management.

19. Explain why the external environment is so important in the open-systems view of organizations.

EssayQuestion 20. Enrique Temoltzin has just been appointed the new

manager of your local college bookstore. Enrique would like to make sure the store operates according to Weber’s bureaucracy. Describe the characteristics of bureaucracy and answer this question: Is the bureaucracy a good management approach for Enrique to follow? Discuss the possible limitations of bureaucracy and the implications for managing people as key assets of the store.

Evaluate Career Situations

What Would You Do?

1. Paying a Summer Worker

It’s summer job time and you’ve found something that just

might work—handling technical support inquiries at a local

Internet provider. Th e regular full-time employees are paid by

the hour. Summer hires like you fi ll in when they go on vaca-

tion. However, you will be paid by the call for each customer

that you handle. How will this pay plan aff ect your work be-

havior as a customer service representative? Is this summer

pay plan a good choice by the management of the Internet

provider?

2. Good Performance but No Pay Raises

As a manager in a small local fi rm you’ve been told that be-

cause of the poor economy workers can’t be given any pay

raises this year. You have some really hardworking and

high-performing people on your team whom you were count-

ing on giving solid raises to. Now what can you do? How can

you use insights from Maslow’s hierarchy of needs to solve this

dilemma of fi nding suitable rewards for high performance?

3. I’ve Got Th is Great Idea

You’ve just come up with a great idea for improving produc-

tivity and morale in a shop that silk-screen T-shirts. You want

to allow workers to work four 10-hour days if they want in-

stead of the normal fi ve day/40-hour week. With the added

time off , you reason, they’ll be happier and more productive

while working. But your boss isn’t so sure. “Show me some

evidence,” she says. Can you design a research study that can be

done in the shop to show whether your proposal is a good one?

Refl ect on the

Self-Assessment

Managerial Assumptions

Instructions Read the following statements. Use the space in the margins

to write “Yes” if you agree with the statement, or “No” if you

disagree with it. Force yourself to take a Yes or No position.

1. Is good pay and a secure job enough to satisfy most

workers?

2. Should a manager help and coach subordinates in their

work?

3. Do most people like real responsibility in their jobs?

4. Are most people afraid to learn new things in their jobs?

5. Should managers let subordinates control the quality of

their work?

6. Do most people dislike work?

7. Are most people creative?

8. Should a manager closely supervise and direct the work of

subordinates?

9. Do most people tend to resist change?

10. Do most people work only as hard as they have to?

11. Should workers be allowed to set their own job goals?

12. Are most people happiest off the job?

13. Do most workers really care about the organization they

work for?

14. Should a manager help subordinates advance and grow in

their jobs?

ManagementSkills& Competencies Make yourself valuable!

48 CHAPTER 2 ■ Management Learning Past to Present

Scoring Count the number of yes responses to items 1, 4, 6, 8, 9, 10, 12.

Write that number here as [X = ________].

Count the number of yes responses to items 2, 3, 5, 7, 11, 13, 14.

Write that score here as [Y = _________].

Interpretation Th is assessment provides insight into your orientation toward

Douglas McGregor’s Th eory X (your “X” score) and Th eory Y

(your “Y” score) assumptions as discussed earlier in the chapter.

You should review the discussion of McGregor’s thinking in this

chapter and consider the ways you are likely to behave toward

other people at work. Th ink, in particular, about the types of

“self-fulfi lling prophecies” your managerial assumptions are

likely to create.

Contribute to the

Class Exercise

Evidence-Based Management Quiz

Instructions 1. For each of the following questions answer “T” (true) if you

believe the statement is backed by solid research evidence,

or “F” ( false) if you do not believe it is an evidence-based

statement. 39

T F 1. Intelligence is a better predictor of job performance

than having a conscientious personality.

T F 2. Job candidates screened for values perform better

than those screened for intelligence.

T F 3. A highly intelligent person will have a hard time

performing well in a low-skill job.

T F 4. “Integrity tests” are good predictors of whether

employees will steal, be absent, or take advantage of

their employers in other ways.

T F 5. Goal setting is more likely to result in improved

performance than is participation in decision

making.

T F 6. Errors in performance appraisals can be reduced

through proper training.

T F 7. People behave in ways that show pay is more important

to them than what they indicate on surveys.

T F 8. People hired through employee referrals have better

retention rates than those hired from other recruiting

sources.

T F 9. Workers who get training and development opportu-

nities at work tend to have lower desires to change

employers.

T F 10. Being “realistic” in job interviews and telling

prospective employees about both negative and

positive job aspects improves employee retention.

2. Share your answers with others in your assigned group.

Discuss the reasons members chose the answers they did;

arrive at a fi nal answer to each question for the group as a

whole.

3. Compare your results with these answers “from the

evidence.”

4. Engage in a class discussion of how commonsense answers

can sometimes diff er from answers provided by evidence. Ask:

What are the implications of this discussion for management

practice?

Manage a Critical Incident

Th eory X versus Th eory Y

You’ve been at Magnetar Logistics Solutions for nine years

and earned a reputation for leading a team that gets done

what you say it will get done when you say it will be done.

Now your sales team is close to landing a new 10-figure con-

tract with an established client, Peterson Warehousing, Inc.

You brought Peterson on board six years ago and have since

grown and nurtured the relationship, and gotten to know this

client in depth. One of the reasons you’ve achieved so much

over the years is that you’ve always trusted your team mem-

bers and given them the room and support they need to oper-

ate in their own way. They’ve repaid you by coming through

time and time again with top quality solutions that always

matched clients’ needs. But Peterson is a different case—at

least it seems that way to you; —it’s your baby and it’s a big

account. You know Peterson better than anyone else, and

now you’re facing a very hard deadline in only weeks, which

will determine whether or not you get the new contract. At

this point you’re doing a lot of close supervision on this pro-

ject and not giving team members very much space to oper-

ate. There are many complexities with Peterson that you’re

worried the team will overlook, but which you are on top of.

The team as a whole is starting to feel the impact of your

switch in management style.

Questions (1) What are the consequences of your shifting management style

midstream on this project . . . for success with the client? . . .

for your team? . . . for your reputation as a successful manager?

(2) Is a hands-on Th eory X approach the best way to go here, or

have you made a miscalculation? (3) Should you back off and

return to the Th eory Y assumptions that worked well in the

past? (4) Is it too late to revert to your normal approach? (5)

How can you infuse your Peterson expertise into the project

while still keeping team members motivated and satisfi ed with

your leadership?

49Analyze the Case Study

Collaborate on the

Team Activity

Management in Popular Culture

Movies, television shows, and music display a lot about our pop-

ular culture. Many deal with work situations and themes—things

like leadership, team dynamics, attitudes, personalities—that are

topics of the management course. Management learning is

readily available in popular culture. We just have to look for it.

Team Task Choose one or more topics from this or a prior chapter and

discuss popular culture examples that off er insights into them.

Select one to share with the class at large in a multimedia

presentation. Be sure to include a strong justifi cation for your

choice.

Suggestions • Listen to music. Pick out themes that refl ect important

management concepts and theories. Identify what their

messages say about management and working today.

• Watch movies, YouTube videos, and television episodes and advertisements. Look for the workplace issues and

management themes.

• Read the comics. Compare and contrast management and working themes in two or three popular comic strips.

• Create your own alternative to the above suggestions.

AnalyzeTHE CaseStudy

ZARA INTERNATIONAL

Fashion at the Speed of Light Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

“Corporations are a legal fi ction. You have to deter bad individual conduct within corporations. People who did the conduct are going to be held accountable.”

Benjamin Lawsky, New York’s Banking Regulator

2011 Bloomberg/Getty Images

Ethics

and Social

Responsibility Character doesn’t stay home when

we go to work

Key Takeaways

■ Defi ne ethics and describe

the foundations of ethical

behavior.

■ Discuss ethical dilemmas

and issues in the workplace.

■ Describe approaches to

maintaining high ethical

standards.

■ Discuss social responsibility

and corporate governance.

C H A P T E R Q U I C K STA RT

From the classroom to the meeting room to the boardroom and on into the family

room, we often fi nd ourselves confronting complex and debatable issues. We live

in a world of great transparency where information fl ows freely and actions are

closely scrutinized. It’s easy to get caught up in dilemmas that put values and eth-

ics to the test. And it’s not going to get any easier in the days ahead. Th is chapter is

an opportunity to think about ethics in our personal lives and at work, as well as in

the responsibilities organizations have to society.

MANAGEMENT IS REAL MAKE DATA YOUR FRIEND

Manager Behavior Key to Ethical Workplace

THINK BEFORE YOU ACT

Europe Turns to Quotas to Get Women on Boards

KNOW RIGHT FROM WRONG

Interns Sue their Employers for Back Pay

LEARN ABOUT YOURSELF

Individual Character is a Confi dence Builder

LEARN FROM ROLE MODELS

Gary Hirshberg Grows Company that Makes Planet a Priority

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Terminal Values

■ CONTRIBUTE To the Class Exercise: Confronting Ethical Dilemmas

■ MANAGE A Critical Incident: Dealing with a Global Supply Chain

■ COLLABORATE On the Team Activity: Stakeholder Maps

■ ANALYZE Th e Case Study: Patagonia: Leading a Green Revolution

what to look for inside >

52 CHAPTER 3 ■ Ethics and Social Responsibility

W ho doesn’t want high ethics, social responsibility, and principled

leadership in business, government, and all of the organizations of

our society? But isn’t it easy to become cynical when the news reports yet

another scandal and shows photos of some fi nancial fi gure, corporate exec-

utive, or government offi cial doing the “perp walk” into the police station?

Why do some people and organizations fall prey to avarice and greed, while

others are positive role models for ethical practices and admirable behavior?

In business, think of the good examples set by Ben and Jerry’s, Burt’s Bees,

Patagonia, Tom’s of Maine, and Whole Foods Markets. Surely there are others

right in your local community.

Th e actions of organizations are ultimately driven by the people who run

them. Principled—or ethical—behavior by people at the top and at all levels

is the real diff erentiator between organizations that do good things and those

that don’t. When criticizing Toyota Motor Corporation for misleading con-

sumers about vehicle safety issues, for example, U.S. District Court Judge

William H. Pauley declared that corporate misconduct is driven by people.

He urged prosecutors “to hold those individuals responsible for making these

decisions accountable.” 1 Th ere’s no doubt that managers hold special ethical

responsibilities in this regard. Consider this reminder from Desmond Tutu,

archbishop of Capetown, South Africa, and winner of the Nobel Peace Prize.

You are powerful people. You can make this world a better place where

business decisions and methods take account of right and wrong as well as

profi tability. . . . You must take a stand on important issues: the environment

and ecology, affi rmative action, sexual harassment, racism and sexism, the

arms race, poverty, the obligations of the affl uent West to its less-well-off

sisters and brothers elsewhere. 2

Ethics TAKEAWAY 1 What is ethical behavior?

Laws and values as infl uences on ethical behavior • Alternative views of ethics Cultural issues and ethical behavior

How many times a day do you ask this question: What should I do? How often do you con-

sider “ethics” when formulating your answer? Ethics is defi ned as the moral code of princi-

ples that sets standards of good or bad, or right or wrong, in one’s conduct. 3 An individual’s

moral code is infl uenced by a variety of sources including family, friends, local culture, reli-

gion, educational institutions, and individual experiences. 4 Importantly, ethics guide and

help people make moral choices. Th ey give us confi dence when taking action in diffi cult

situations. Th ey encourage ethical behavior that is accepted as “good” and “right” in the

context of the governing moral code.

Laws and Values as Infl uences on Ethical Behavior

Individuals often assume that anything that is legal should be considered ethical. Slavery

was once legal in the United States, and laws once permitted only men to vote. 5 But that

doesn’t mean these practices were ethical. Sometimes legislation lags behind changes in a

Ethics establish standards of good or

bad, or right or wrong, in one’s conduct.

Ethical behavior is “good” or “right” in

the context of a governing moral code.

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53Ethics

society’s moral position. Th e delay makes it possible for something to be legal during a time

when most people think it should be illegal. 6 On the fl ip side, some actions or activities may

be illegal when many or most people think they should be legal. High-profi le examples

include gay marriage—legal in an increasing number of states but banned in others, and

marijuana use—legal for medical use in more than 20 states and legalized for recreational

use in two. Although the “law” serves as a broad-stroke benchmark, social complexity and

change may call for a more nuanced approach to determine whether behavior is ethical or

not.

By the same token, just because an action is not strictly illegal doesn’t make it ethical. 7

Matching up behavior to the “letter of the law” doesn’t guarantee that one’s actions are

ethical. Is it truly ethical, for example, for an employee to take longer than necessary to do a

job? . . . to call in sick in order to take a day off work for leisure? . . . to fail to report rule

violations or antisocial behavior by a co-worker? Although none of these acts is strictly

illegal, many would consider them to be unethical.

Most ethical problems in the workplace arise when people are asked to do, or fi nd they

are about to do, something that violates their personal beliefs. For some, if the act is legal,

they proceed without worrying about it. For others, the ethical test goes beyond legality and

into the domain of personal values—the underlying beliefs and attitudes that help infl uence

individual behavior.

Th e psychologist Milton Rokeach distinguishes between “terminal” and “instrumental”

values. 8 Terminal values are preferences about desired ends, such as the goals one strives

to achieve in life. Examples of terminal values include self-respect, family security, freedom,

and happiness. Instrumental values are preferences regarding the means for accomplish-

ing these ends. Among the instrumental values are honesty, ambition, imagination, and

self-discipline.

Although value patterns for individuals tend to be very enduring, values also vary signifi -

cantly from person to person. Th is can result in diff erent interpretations of what behavior is

ethical or unethical, even in what might be thought of as a clear-cut situation like taking an

exam. After encountering cheating problems, an ethics professor once told business school

students they were emphasizing means over ends: “Th e academic values of integrity and

honesty in your work can seem to be less relevant than the instrumental goal of getting a

good job.” 9 And when about 10% of an MBA class was caught cheating on a take-home fi nal,

some argued the behavior should be expected from students taught to value collaboration,

teamwork, and mobile communications. Others argued that the instrumental values driving

such behavior were totally unacceptable—it was an individual exam, the students cheated,

and they should be penalized. 10

Alternative Views of Ethics

Figure 3.1 shows four views of ethical behavior—the utilitarian, individualism, moral rights,

and justice views. 11

Each view off ers a slightly diff erent way to assess whether a behavior in

a given situation is ethical or unethical, and each has its drawbacks. Examining issues

through all four viewpoints provides a more complete picture of the ethicality of a decision

than reliance on a single point of view alone.

Values are broad beliefs about what is

appropriate behavior.

Terminal values are preferences about

desired end states.

Instrumental values are preferences

regarding the means to desired ends.

FIGURE 3.1 Four views of ethical behavior.

Moral rights view

Individualism view

Does a decision or behavior maintain the fundamental rights of all human beings?

Utilitarian view Does a decision or behavior do the greatest good for the most people?

Does a decision or behavior promote one's long-term self-interests?

Justice view Does a decision or behavior show fairness and impartiality?

54 CHAPTER 3 ■ Ethics and Social Responsibility

Utilitarian View Th e utilitarian view considers ethical behavior to be that which delivers the greatest good

to the greatest number of people. Based on the work of 19th-century philosopher John

Stuart Mill, this results-oriented view assesses the moral implications of actions in terms of

their consequences. Managers, for example, are inclined to use profi ts, effi ciency, and other

performance criteria to judge what is best for the most people. An executive leading a fi rm

facing hard fi nancial times may decide to cut 30% of the workforce to keep the company

profi table and save the jobs of remaining workers. She could justify this decision based on a

utilitarian sense of business ethics. But she can’t know for sure if the economy gets better or

worse, nor can she accurately measure the social and economic consequences for those

losing their jobs.

Individualism View Th e individualism view of ethical behavior is based on the belief that one’s primary com-

mitment should be to advance long-term self-interests. Th e basic idea is that society will be

best off if everyone acts in ways that maximize their own utility or happiness. Th e assump-

tion is that people are self-regulating in the quest for long-term individual advantage. For

example, lying and cheating for short-term gain should not be tolerated, because if everyone

behaves this way, then no one’s long-term

interests are served. Th e individualism view

is supposed to promote honesty and integ-

rity. But not everyone has the same capac-

ity or desire to self-control. If only a few

individuals driven by greed take advantage

of the freedom allowed by this approach,

trust in the system dissolves. One executive

described this as the tendency to “push the

law to its outer limits” and “run roughshod

over other individuals to achieve one’s

objectives.” 12

Moral Rights View Behavior is ethical under a moral rights view when it respects and protects the fundamen-

tal rights of people. Th e teachings of John Locke and Th omas Jeff erson uphold the rights of

all people to life, liberty, and fair treatment under the law as sacred. In organizations today,

the moral rights view bears on employees’ right to privacy, due process, free speech, health,

safety, and freedom of conscience. It is evidenced at the global level by the Universal Decla-

ration of Human Rights, passed by the United Nations General Assembly in 1948 and high-

lighted in the nearby box. 13

Although the moral rights view emphasizes individual rights, it

does not address whether the outcomes associated with protecting those rights are benefi -

cial to the majority of society. What happens, for example, when someone’s right to free

speech makes the workplace uncomfortable for others or off ends a key customer or stake-

holder of the organization?

Justice View Th e justice view maintains that behavior is ethical when people are treated impartially,

according to legal rules and standards. Th is approach defi nes the ethics of a decision based

on whether it is “equitable” for everyone aff ected. 14

Justice issues in organizations often focus

on four dimensions—procedural, distributive, interactional, and commutative justice. 15

Procedural justice involves the degree to which policies and rules are fairly applied

to all individuals. For example, does a sexual harassment charge levied against a senior

executive receive the same full hearing as one made against a fi rst-level supervisor?

Distributive justice involves the degree to which outcomes (i.e., rewards, vacation time, etc.)

In the utilitarian view, ethical behavior

delivers the greatest good to the most

people.

In the individualism view ethical

behavior advances long-term

self-interests.

In the moral rights view ethical behavior

respects and protects fundamental

rights.

In the justice view ethical behavior

treats people impartially and fairly.

Procedural justice is concerned that

policies and rules are fairly applied.

Distributive justice focuses on whether

or not outcomes are distributed fairly.

• All human beings are born free and equal in dignity and rights.

• Everyone has the right to life, liberty, and security of person.

• No one shall be held in slavery or servitude.

• No one shall be subjected to torture or to cruel, inhuman, or degrading

treatment or punishment.

• All are equal before the law and are entitled without any discrimination to

equal protection of the law.

Selections from Universal Declaration of Human Rights

55Ethics

FIGURE 3.2 Cultural relativism and universalism in international business ethics. Source: Developed from Th omas Donaldson, “Values in Tension: Ethics Away from Home,” Harvard Business Review, vol. 74 (September–October 1996), pp. 48–62.

are allocated fairly across employees without respect to individual characteristics such as

ethnicity, race, gender, age, or other individual characteristics. For example, are women and

minorities treated fairly when pay raises and promotions are made? Do universities allocate

a proportionate share of athletic scholarships to male and female students?

Interactional justice involves the degree to which people treat one another with dignity

and respect. For example, does a bank loan offi cer take the time to fully explain to an appli-

cant why he or she was turned down for a loan? 16

Commutative justice focuses on the

fairness of exchanges or transactions. Th ings are fair if all parties have access to relevant

information and obtain some benefi t. 17

Does a bank loan offi cer make it clear, for example,

that an applicant may have diffi culty repaying the loan if interest rates increase and the

applicant’s income does not?

Cultural Issues in Ethical Behavior

Situation: A 12-year-old boy is working in a garment factory in Bangladesh. He is the sole

income earner for his family. He often works 12-hour days and was once burned badly by

a hot iron. One day he is fi red. His employer had been given an ultimatum by a major

American customer: “No child workers if you want to keep our contracts.” Th e boy says, “I

don’t understand. I could do my job very well. My family and I need the money.” Question:

Should the boy be allowed to work?

Th is diffi cult and perplexing situation is one example of the many ethics challenges faced

in international business. Former Levi Strauss CEO Robert Haas once said that an ethical

problem “becomes even more diffi cult when you overlay the complexities of diff erent cul-

tures and values systems that exist throughout the world.” 18

Th ose who believe that behavior

in foreign settings should be guided by the classic rule of “when in Rome, do as the Romans

do” refl ect an ethical position known as cultural relativism. 19

Th is is the belief that there is

no one right way to behave and that ethical behavior is always determined by its cultural

context. An American business executive guided by rules of cultural relativism, for example,

would argue that the use of child labor is acceptable in another country as long as it is con-

sistent with local laws and customs.

Figure 3.2 contrasts cultural relativism with moral absolutism. Th is is the belief that if a

behavior or practice is not ethical in one’s home environment, it is not acceptable anywhere

else. Moral absolutism holds that ethical standards are universal and should apply abso-

lutely across cultures and national boundaries. In the former example, the American execu-

tive would not do business in a setting where child labor was used since it is unacceptable

at home. Critics of the absolutist approach maintain it is a form of ethical imperialism, an

attempt to impose one’s ethical standards on others.

Business ethicist Th omas Donaldson fi nds fault with both cultural relativism and ethical

imperialism. He argues instead that certain fundamental rights and ethical standards can

be preserved at the same time that values and traditions of a given culture are respected. 20

Core values or “hyper-norms” that should transcend cultural boundaries include respect for

human dignity, basic rights, and good citizenship. Donaldson believes international business

Interactional justice is the degree to

which others are treated with dignity

and respect.

Commutative justice is the degree to

which an exchange or a transaction is

fair to all parties.

Cultural relativism suggests there

is no one right way to behave; ethical

behavior is determined by its cultural

context.

Moral absolutism suggests ethical

standards apply universally across all

cultures.

Ethical imperialism is an attempt to

impose one’s ethical standards on other

cultures.

Cultural relativism Moral absolutism

No culture's ethics are superior. The values and practices of the local setting determine what is right or wrong.

When in Rome, do as the Romans do.

Certain absolute truths apply everywhere. Universal values transcend cultures

in determining what is right or wrong.

Don't do anything you wouldn't do at home.

56 CHAPTER 3 ■ Ethics and Social Responsibility

Child Labor Controversies Are an International Business Reality

Th e International Labour Organization reports there are 168 million child laborers

worldwide and that 85 million of them work in hazardous conditions. Th e ILO recog-

nizes that labor can be good for kids when it “does not aff ect their health and personal

development or interfere with their schooling.” Examples include “helping their parents

around the home, assisting in a family business or earning pocket money outside school

hours and during school holidays.” But, the bad side occurs with work that “deprives

children of their childhood, their potential and their dignity, and that is harmful to

physical and mental development.” Examples include abuse of children through

outright slavery, forced labor or armed violence, prostitution, drug traffi cking, and

pornography. It was once commonplace for children to work in factories in the United

States. Some would say this contributed to the country’s economic development. Today,

U.S. laws strictly govern the employment of children. Yet child labor is part of the

economies of some countries and many families depend on the income that children

provide.Th o

m as

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Issues&Trends

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Learning Check 1

TAKEAWAYQUESTION 1 What is ethical behavior?

BE SURE YOU CAN • defi ne ethics • explain why obeying the law is not necessarily the same as behaving ethically • explain

the diff erence between terminal and instrumental values • identify the four alternative views of ethics • contrast cultural

relativism with moral relativism

Ethics in the Workplace TAKEAWAY 2 How do ethical dilemmas complicate the workplace?

Ethical dilemmas • Infl uences on ethical decision making Rationalizations for unethical behavior

Th e real test of ethics occurs when individuals encounter a situation that challenges their

personal values and standards. Often ambiguous and unexpected, these ethical challenges

are inevitable. Everyone has to be prepared to deal with them, even students. A college

student gets a job off er and accepts it, only to get a better off er two weeks later. Is it right for

her to reject the fi rst job to accept the second? A student knows that his roommate submitted

a term paper purchased on the Internet. Is it right for the student not to tell the instructor?

One student confi des to another that a faculty member promised her a high fi nal grade in

return for sexual favors. Is it right for the confi dant to inform the instructor’s department head?

Ethical Dilemmas

An ethical dilemma is a situation that requires a choice regarding possible courses of action

that, although off ering the potential for personal or organizational benefi t, or both, may be

unethical. It is often a situation in which action must be taken but for which there is no clear

consensus on “right” and “wrong.” An engineering manager speaking from experience sums it

An ethical dilemma is a situation that

off ers potential benefi t or gain and that

may also be considered unethical.

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practices can be tailored to local and regional cultural contexts while upholding these core

values. In the case of child labor, the American executive might take steps so that children

working in a factory under contract to his or her business are provided daily scheduled

schooling, as well as employment. 21

57Ethics in the Workplace

up this way: “I defi ne an unethical situation as one in which I have to do something I don’t feel

good about.” 22

Here are some common examples of situations that present ethical dilemmas. 23

• Discrimination—Your boss suggests that it would be a mistake to hire a qualifi ed job

candidate because she wears a headscarf for religious purposes. Th e boss believes your

traditional customers might be uncomfortable with her appearance.

• Sexual harassment—A female subordinate asks you to discipline a co-worker whom she

claims is making her feel uncomfortable with inappropriate sexual remarks. Th e

co-worker, your friend, says that he was just kidding around and asks you not to take

any action that would harm his career.

• Confl icts of interest—You are working in another country and are off ered an expensive

gift in return for making a decision favorable to the gift giver. You know that such

exchanges are common practice in this culture and that several of your colleagues have

accepted similar gifts in the past.

• Product safety—Your company is struggling fi nancially and can make one of its major

products more cheaply by purchasing lower-quality materials, although doing so would

slightly increase the risk of consumer injury.

• Use of organizational resources—You bring an offi ce laptop computer home so you can

work after hours. Your wife likes the computer better than hers and asks if she can use

it for her online business during the weekends.

It is almost too easy to confront ethical

dilemmas from the safety of a textbook or

a classroom discussion. In reality it is a

lot harder to consistently choose ethical

courses of action. We end up facing ethical

dilemmas at unexpected and inconvenient

times, in situations where events and facts

are ambiguous, and when pressures to per-

form seem unforgiving and intense. Is it any

surprise, then, that 56% of U.S. workers in

one survey reported feeling pressured to act

unethically in their jobs? Or that 48% said

they had committed questionable acts

within the past year? 24

Look at the box with a six-step checklist

for dealing with an ethical dilemma. 25

Th e

checklist is a way to double-check the eth-

ics of decisions before taking action. Step 5

highlights a key test: the risk of public disclosure. Asking and answering the recommended

spotlight questions is a powerful way to test whether a decision is consistent with your

personal ethical standards. Use them the next time you’re making an uncomfortable deci-

sion. Question: “How will I feel if my family fi nds out, or if this gets reported in the local

newspaper or posted on the Internet?” If the answer is “embarrassed,” “mortifi ed,” or

“anxious,” the decision is probably not the one you should be making. Question: “What

would the person I admire most for their character and ethical judgment say about my

decision?” If the answer is “bad choice” or “I don’t agree,” the decision is probably not the

one you should be making.

Infl uences on Ethical Decision Making

Standing up for what you believe is not always easy, especially in social situations full of con-

tradictory or just plain bad advice. Consider these words from a commencement address

delivered some years ago at a well-known school of business administration. “Greed is all right,”

the speaker said. “Greed is healthy. You can be greedy and still feel good about yourself.” How

would this speech be received today? Students at the time greeted the remarks with laughter

Step 1. Recognize the ethical dilemma.

Step 2. Get the facts and identify your options.

Step 3. Test each option: Is it legal? Is it right? Whom does it aff ect? Who

benefi ts? Who gets hurt?

Step 4. Decide which option to follow.

Step 5. Double-check your ethics by asking these spotlight questions:

“How will I feel if my family fi nds out about my decision?”

“How will I feel about this if my decision is reported in the local

newspaper or posted on the Internet?”

“What would the person I admire most for their character and ethical

judgment say about my decision?”

Step 6. Take action.

Quick Check for Dealing with Ethical Dilemmas

58 CHAPTER 3 ■ Ethics and Social Responsibility

and applause. Th e speaker was Ivan Boesky, once considered the

“king of the arbitragers.” 26

Not long after his commencement

speech, however, Boesky was arrested, tried, convicted, and sen-

tenced to prison for trading on inside information.

Personal Infl uences on Ethics Values, family, religion, and personal needs all help determine a

person’s ethics. Managers without a strong, clear set of personal

ethics will fi nd their decisions varying from situation to situa-

tion. Th ose with a solid ethical framework a set of personal

rules or strategies for ethical decision making, will act more

consistently and confi dently. Th ese frameworks serve as moral

anchors that support ethical decision making even in diffi cult

circumstances. Th eir foundations rest on individual character

and personal values that emphasize virtues such as courage, honesty, fairness, integrity, and

self-respect.

Stages of Moral Development Lawrence Kohlberg identifi ed the three levels of moral development, shown in Figure 3.3—

preconventional, conventional, and postconventional. 27

People at the diff erent levels have

diff erent ethical approaches to situations. Very few of us consistently act at the postconven-

tional level, and most operate at the preconventional or conventional levels.

People are self-centered at the preconventional level of moral development. Moral

thinking is largely limited to issues of punishment, obedience, and self-interest. Decisions

are focused on personal gain or avoiding punishment, and

following the rules. Behavior at the conventional level of moral

development is more social-centered. Decisions are likely

to follow social norms, to meet the expectations of group

memberships, and to live up to agreed-on role obligations.

Moral development at the postconventional level is princi-

ple-centered and a strong ethics framework is evident. Indi-

viduals at this level are willing to break with norms and

conventions, even laws, to make decisions consistent with

universal principles. An example might be the student who

doesn’t cheat on a take-home examination because he or she

believes it’s wrong. Th is belief holds even though other stu-

dents will cheat, there is almost no chance of getting caught,

and the consequence of not cheating is likely to be a lower

grade on the test.

Situational Context and Ethics Intensity Ethical dilemmas sometimes catch us off guard and we strug-

gle to respond morally. Other times, we might fail to see that

an issue or a situation has an ethics component. Th is may

happen with cheating, for example, when it becomes so commonplace it results in an

accepted standard of behavior. Scholars discuss this as an issue of ethics intensity or issue

intensity, the extent to which situations are perceived to pose important ethics challenges. 28

Th e greater the ethics intensity of the situation, the more attention decision makers

give to ethics issues and the more likely it is that their behavior will be ethical. Ethics

intensity rises when the potential harm is perceived as great, likely, and imminent, when

the potential victims are visible and close by, and when there is more social agreement on

what is good or bad about what is taking place. How do you assess the ethics intensity of

pirated music or movie downloads? Does low ethics intensity contribute to the likelihood

of pirating?

An ethical framework is a personal

rule or strategy for making ethical

decisions.

Ethics intensity or issue intensity

indicates the degree to which an issue

or a situation is recognized to pose

important ethical challenges.

Situation Ethical Intensity

Environment Industry Norms

Organization Ethics Culture

Person Moral Development

Ethical Decision Making

FIGURE 3.3 Kohlberg’s levels of individual moral development.

• Stage 2—Make deals for personal gain • Stage 1—Avoid harm or punishment

Preconventional Self-Centered Behavior

• Stage 4—Follow rules to help society run smoothly • Stage 3—Act consistently with peers, others

Conventional Social-Centered Behavior

• Stage 6—Act according to internal principles • Stage 5—Live up to societal agreement concerning individual rights

Postconventional Principle-Centered Behavior

59Ethics in the Workplace

Organization Setting Th e work and social settings of organizations have a strong infl uence on the ethics of mem-

bers. Some organizations set a high ethics bar by issuing formal policy statements and

guidelines. But these ethics codes often have a limited impact. Th e way top managers, team

leaders, and supervisors act; what they request; and what they reward or punish have strong

impacts, as do the expectations of peers and group norms. 29

In some cases, members fi nd

themselves shunned from a team when they don’t do things that outsiders would consider

unethical—for example, slacking off or abusing privileges. In other cases, high ethics stan-

dards may push employees to behave more ethically than they otherwise would.

External Environment, Government Regulation, and Industry Norms Government laws and regulations can describe and encourage ethical behavior, but they

can’t guarantee ethical conduct. Laws refl ect social values and defi ne appropriate behav-

ior for the members of organizations; regulations help governments monitor these behav-

iors and keep them within acceptable limits. After a number of high-profi le corporate

scandals hit the news, for example, the U.S. Congress passed the Sarbanes-Oxley Act of

2002 to make it easier for corporate executives to be tried and sent to prison for fi nancial

misconduct.

There is no doubt that individual character is evident in all we do. Persons with high character act consistently and confi - dently due to the self-respect it provides, even in diffi cult situa-

tions. Th ose with less character are more insecure. Th ey act

inconsistently and suff er in self-esteem and in the esteem of others.

Ethics and social responsibility issues facing organizations

today can put individual character to a very stiff test. We need to

know ourselves well enough to make principled decisions that we

can be proud of and that others will respect. After all, it’s the char-

acter of the people making key decisions that determines whether

our organizations act in socially responsible or irresponsible ways.

Personal integrity is a foundation for individual character. It

provides an ethical anchor shaping how we behave at work and in

life. Th ink of it as demonstrated honesty, civility, caring, and sense

of fair play. Your integrity and character should be more than

occasional concerns. Th ey deserve constant attention. Ethical

dilemmas can arise unexpectedly. Expediency pressures—meeting

deadlines, for example, can cause action without having thought

through the consequences. To deal with these situations we have

to know ourselves well enough to make principled decisions we

can be proud of and that others will respect.

One trait that can undermine individual character is hyper-

competitiveness. You see it in people who think that winning—or

getting ahead—is the only thing that matters. Th ey hate to lose.

Th ese types judge themselves more on their outcomes achieved

than the methods used to get there. Moreover, they may be quick to

put aside virtues to succeed in competitive situations, including

those in the workplace.

GET TO KNOW YOURSELF BETTER

Do a personal integrity and individual character self-check. Make notes on two situations that presented you with some ethical test. From the perspectives of a parent, loved one, or good friend, write a critique of how you handled each incident and what this shows about your individual character. Did you act with high integrity, or not? Watch yourself for signs of hyper-competitiveness in school and work situations. Ask: What are the ethical implications of my behavior?

insight> LEARN ABOUT YOURSELF > It’s the character of the people making key decisions that determines whether our

organizations act in socially responsible or irresponsible ways.

Individual Character Is a Confi dence Builder

Self-Check for Signs of Hyper-Competitiveness

Y or N Winning makes me feel powerful

Y or N Winning increases my sense of self-worth

Y or N I hate to lose an argument

Y or N I turn everything into a contest

Y or N I am not satisfi ed unless I win a competition

Y or N If it helps me win, I am willing to obstruct my opponent

60 CHAPTER 3 ■ Ethics and Social Responsibility

Th e climate of competition in an industry also sets standards for what may be considered

ethical or unethical behavior. Former American Airlines president Robert Crandall once

telephoned Howard Putnam, then president of the now-defunct Braniff Airlines. Both com-

panies were suff ering from money-losing competition on routes from their home base of

Dallas. A portion of their conversation follows. 30

Putnam: Do you have a suggestion for me?

Crandall: Yes . . . Raise your fares 20 percent. I’ll raise mine the next morning.

Putnam: Robert, we—

Crandall: You’ll make more money and I will, too.

Putnam: We can’t talk about pricing.

Crandall: Oh, Howard. We can talk about anything we want to talk about.

Th e U.S. Justice Department strongly disagreed with Crandall. It alleged that his suggestion

of a coordinated fare increase amounted to an illegal attempt to monopolize airline routes.

Rationalizations for Unethical Behavior

Picture this: A college professor sends students an e-mail containing both the school’s

honor code and a link to answers from the prior year’s fi nal exam. Th e link is clicked by

41% of students. Why? How about this? An internal audit by Avon revealed that executives

in its China operation made illegal payments to obtain local direct sales licenses for the

fi rm. 31

Why?

There’s no question that managers strongly infl uence ethical behavior at work. Whether you call them bosses, team leaders, supervisors, or higher-ups, people in management positions make

decisions every day that set an ethics-tone aff ecting their co-workers.

A survey conducted for Deloitte & Touche USA found the following.

■ Most common unethical acts by managers and supervisors

include verbal, sexual, and racial harassment, misuse of com-

pany property, and giving preferential treatment.

■ 91% of workers are more likely to behave ethically when they

have work–life balance; 30% say they suff er from poor work–life

balance.

■ Top reasons for unethical behavior are low personal integrity

(80%) and poor job satisfaction (60%).

■ Most workers consider it unacceptable to steal from an em-

ployer, cheat on expense reports, take credit for another’s ac-

complishments, and lie on time sheets.

■ Most workers consider it acceptable to ask a work colleague for

a personal favor, take sick days when not ill, or use company

technology for personal aff airs.

WHAT DOES THIS MEAN?

Are there any surprises in these data? Is this emphasis on man- ager and direct supervisor behavior justifi ed as the key to an ethical workplace? What is your reaction to what the workers in this survey reported as acceptable and unacceptable work be- haviors? Based on your experiences, what would you add to the list of unacceptable behaviors? Have you seen these kinds of behaviors where you work? What would your supervisor say if you reported these behaviors? Would you feel safe doing so? Why or why not?

analysis> MAKE DATA YOUR FRIEND > The most common unethical acts by managers involve verbal,

sexual, and racial harassment.

Manager Behavior Key to Ethical Workplace

Masterfi le

61Maintaining High Ethical Standards

Maintaining High Ethical Standards TAKEAWAY 3 How can high ethical standards be maintained?

Moral management • Ethics training • Codes of ethical conduct Whistleblower protection

Item: Bernard Madoff sentenced to 150 years in prison for masterminding the largest fraud

in history by swindling billions of dollars from thousands of investors. Item: H-P pays $108

million to settle a bribery case for corruption in Russia, Mexico and Poland. Item: U.S. safety

regulators demand that General Motors answer 107 questions regarding the fi rm’s handling

of faulty ignition switches that resulted in thirteen deaths. 33

Th ere is no shortage of this kind

of bad news from the fi nancial, corporate, and government worlds. You just have to follow

the headlines. Th e stories behind the headlines reveal that there is no substitute for making

sure organizations are staff ed with honest people and principled leaders who set positive

examples and always act as ethical role models.

Moral Management

Management scholar Archie Carroll distinguishes among immoral, amoral, and moral

managers. 34

Immoral managers choose to behave unethically. Th ey make choices purely

for personal gain and knowingly disregard the ethics of their choice or the situation. Amoral

managers also disregard the ethics of their choices and decisions, but do so unintentionally

or unknowingly. Th ese managers do not consider the ethical consequences of their actions,

An immoral manager chooses to

behave unethically.

An amoral manager fails to consider

the ethics of her or his behavior.

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MMMMMaaaaiinnnnttaaiiinnniinnnngggg HHHHHiiiggghhhhhh Etthhiicaaall SStaaanddaarrdss

Th e fact is that people often rationalize ethical transgressions with after-the-fact justi-

fi cations like “It’s not really illegal.” 32

Th is expresses a mistaken belief that one’s behavior is

acceptable in shady or borderline situations. When you are having trouble precisely deter-

mining right from wrong, the advice is quite simple: Don’t do it. “It’s in everyone’s best

interests.” Th is excuse involves the mistaken belief that because someone can be found

who benefi ts from the behavior, the behavior is also good for everyone. Overcoming this

rationalization depends on the ability to look beyond short-term results to address

longer-term implications, and to examine the way in which results are obtained. Th e best

answer to the question “How far can I push it to accomplish this goal?” is probably “Don’t

try to fi nd out.”

Sometimes rationalizers tell themselves that “no one will ever know about it.” Th ey mis-

takenly believe that questionable behavior is safe from discovery and will never be made

public. And if no one knows, the argument goes, no crime was actually committed. Lack

of accountability, unrealistic pressures to perform, and a supervisor who prefers “not to

know” can reinforce this kind of wrongful thinking. Th e best deterrent is for everyone to

understand that unethical behavior will be punished whenever it is discovered. Finally,

rationalizers may mistakenly believe that “the organization will stand behind me.” Th is is

misperceived loyalty. Believing that the organization benefi ts from their actions, the indi-

vidual expects to be protected from harm. However, showing loyalty to the organization is

not an acceptable excuse for misconduct. It shouldn’t stand above the law and social

morality.

Learning Check 2

TAKEAWAYQUESTION 2 How do ethical dilemmas complicate the workplace?

BE SURE YOU CAN • defi ne ethical dilemma and give workplace examples • identify Kohlberg’s stages of moral development

• explain how ethics intensity infl uences ethical decision making • explain how ethics decisions are infl uenced by an organization’s

culture and the external environment • list four common rationalizations for unethical behavior

62 CHAPTER 3 ■ Ethics and Social Responsibility

and they typically use the law as a behavioral guideline. Moral managers pursue ethical

behavior as a personal goal. Th ey make decisions and choices in full consideration of ethical

issues. 35

It may surprise you that Carroll believes that most managers act

amorally. Although well intentioned, they remain mostly uninformed

or undisciplined regarding the ethical aspects of their behavior. Th ey

don’t make unethical choices on purpose. Th ey just don’t think

through the ethics issues associated with their decisions. Moral

managers, by contrast, always have ethics on their mind. Th ey cham-

pion ethical behavior and serve as an ethics role model for their

co-workers.

Ethics Training

Ethics training is one way to try to instill ethical behavior in an organization. It takes the form

of structured programs to help members understand the ethical aspects of decision making

and better integrate high ethical standards into their everyday behaviors. Look back to the six-

step quick check for dealing with ethical dilemmas that was introduced earlier. It is a sample

from an ethics training session designed to provide participants with a simple but powerful

frameworks for double-checking the ethics of their decisions. Other common ethics training

topics include ways to deal with confl icts of interest, gifts, client relationships, and bribery.

Colleges and universities are strengthening ethics coverage in academic curricula. But,

do you think that you and your classmates benefi t from these initiatives? Are coursework

and discussions of ethics conducted in ways that keep cynicism from diminishing their

potential positive impact? Regardless of when, where, or how ethics training is conducted,

it is important to recognize the limits: It is no guarantee of ethical behavior. A banking exec-

utive once summed things up this way: “We aren’t teaching people right from wrong—we

assume they know that. We aren’t giving people moral courage to do what is right—they

should be able to do that anyhow. We focus on dilemmas.” 36

Codes of Ethical Conduct

It is now common for most organizations to have codes of ethics. In fact, you may be asked

to sign one as a condition of employment. Th ese codes are formal statements of an organi-

zation’s values and ethical principles that set expectations for behavior. Ethics codes typi-

cally address organizational citizenship, illegal or improper acts, and relationships with

co-workers and customers. Specifi c guidelines are often set for bribes and kickbacks, politi-

cal contributions, records-keeping honesty, and confi dentiality of corporate information.

A moral manager makes ethical

behavior a personal goal.

Ethics training seeks to help people

understand the ethical aspects of

decision making and to incorporate

high ethical standards into their daily

behavior.

A code of ethics is a formal statement

of values and ethical standards.

Immoral manager

Chooses to behave

unethically

Amoral manager

Fails to consider

ethics

Moral manager

Makes ethical behavior a

personal goal

Ambition Is on the Line in The Social Network Jesse Eisenberg’s portrayal of Facebook CEO Mark Zuckerberg in Th e Social Network

won rave reviews from moviegoers and critics alike. But Zuckerberg’s behavior during

the start-up days of Facebook is less praiseworthy, certainly from what was depicted in

the movie version of key events. Th ere are times when ambition may have gotten the

better of him. Watch the movie. Pick out scenes bearing on his dealings with former

classmates at Harvard, Cameron and Tyler Winklevoss, and also with early collaborator

and Facebook co-founder Eduardo Saverin. In reviewing the movie, Entertainment

Weekly asked: “Why did Zuckerberg betray these people? Or, in fact, did he really?”

Check out the fi lm and develop your own conclusions.C o

lu m

b ia

P ic

tu re

s/ Ph

o to

fe st

Management&PopularCulture

63Maintaining High Ethical Standards

Ethics codes are very common in the increasingly complicated world of International

Business. For example, global manufacturing at Gap, Inc., is governed by a Code of Vendor

Conduct. 37

Th e document addresses several issues, including:

Discrimination—“Factories shall employ workers on the basis of their ability to do the job,

not on the basis of their personal characteristics or beliefs.”

Forced labor—“Factories shall not use any prison, indentured or forced labor.”

Working conditions—“Factories must treat all workers with respect and dignity and pro-

vide them with a safe and healthy environment.”

Freedom of association—“Factories must not interfere with workers who wish to lawfully

and peacefully associate, organize or bargain collectively.”

But even as global fi rms like the Gap have ethics codes in place, it is hard for them to police

practices when they have many, potentially hundreds, of suppliers from diff erent parts of the

world. In international business, as elsewhere, ethics codes are good at describing ethical

expectations, but they cannot always guarantee ethical conduct.

Whistleblower Protection

• Agnes Connolly pressed her employer to report two toxic chemical accidents.

• Dave Jones reported that his company used unqualifi ed suppliers in the construction of

a nuclear power plant.

• Margaret Newsham revealed that her fi rm allowed workers to do personal business

while on government contracts.

• Herman Cohen charged that the ASPCA in New York was mistreating animals.

• Barry Adams complained that his hospital followed unsafe practices. 38

Th ese fi ve people come from diff erent work settings and are linked to diff erent issues. How-

ever, they share two important things in common. First, each was a whistleblower who

exposed misconduct in and by their organizations while hoping to preserve ethical stan-

dards and protect against further wasteful, harmful, or illegal acts. 39

Second, each of these

individuals was fi red from their job.

At the same time that we can admire whistleblowers for taking ethical stances, there is

no doubt they risk impaired career progress and other forms of organizational retaliation,

up to and including termination. Although laws such as the Whistleblower Protection Act of

1989 off er some defense against “retaliatory discharge,” legal protections for whistleblowers

are continually being tested in court and many consider them inadequate. 40

Laws vary from

state to state, and federal laws primarily protect government workers.

Research on whistleblowing that reports violations within organizations indicates that

even though 20% of workers notice ethical violations by co-workers, only half of them

report the wrongdoing. 41

Top reasons why people fail to report such misdeeds include

lack of ethical leadership, unethical peers, lack of confi dence that corrective action will be

taken, and fear of public disclosure as the whistleblower. 42

Typical barriers to whistleblow-

ing within an organization include a strict chain of command that makes it hard to bypass

immediate supervisors, strong work group identities that encourage loyalty and self-

censorship, and ambiguous priorities that make it hard to distinguish right from wrong. 43

A whistleblower exposes the misdeeds

of others in organizations.

Learning Check 3

TAKEAWAYQUESTION 3 How can high ethical standards be maintained?

BE SURE YOU CAN • compare and contrast ethics training and codes of ethical conduct as methods for encouraging ethical

behavior in organizations • diff erentiate between amoral, immoral, and moral management • defi ne whistleblower • identify

common barriers to whistleblowing and the factors to consider when determining whether whistleblowing is appropriate

64 CHAPTER 3 ■ Ethics and Social Responsibility

Social Responsibility TAKEAWAY 4 What is an organization’s social responsibility?

Stakeholders and stakeholder management • Social responsibility, sustainability, and the triple bottom line • Perspectives on corporate social responsibility Evaluating corporate social performance • Corporate governance

All organizations have stakeholders, the persons, groups, and other organizations directly

aff ected by the behavior of the organization and that hold a stake in its performance. 44

Figure 3.4 shows a typical stakeholder network that includes owners or shareholders,

employees, customers, suppliers, business partners, government representatives and regula-

tors, community members, and future generations.

An organization’s stakeholders can have diff erent and confl icting interests that make it

hard for all of them to be satisfi ed all the time. Customers typically want value prices and

quality products; owners want profi ts and a strong return on their investment; suppliers

want long-term business relationships; communities want good corporate citizenship and

support for public services; employees want good wages, benefi ts, security, and satisfaction

in their work; and future generations want a clean environment that isn’t polluted by manu-

facturing by-products and industrial waste. When stakeholders’ interests clash, an organiza-

tion’s leadership can face diffi cult challenges and controversial decisions. 45

One way to deal with confl icting stakeholder interests is to assess the power of the stake-

holder, the legitimacy of the demand, and the urgency of the issue. 46

Stakeholder power

refers to the capacity of the stakeholder to positively or negatively aff ect the operations of

the organization. Demand legitimacy refl ects the extent to which the stakeholder’s demand

is perceived as valid and the extent to which the demand comes from a party with a legiti-

mate stake in the organization. Issue urgency deals with the extent to which the issues

require immediate attention or action.

Social Responsibility, Sustainability, and the

Triple Bottom Line

Th e way organizations behave in relation to their stakeholders is a good indication of their

underlying ethics cultures and moral characters. When we talk about the “good” and the

“bad” in business and society relationships, corporate social responsibility, or CSR, is cen-

ter stage. It is defi ned as the obligation of an organization to act in ways that serve the inter-

ests of multiple stakeholders, including society at large.

Th e good and the bad in CSR come to life in day-

to-day practice as a result of decisions made and

actions taken by people in organizations. When

hazardous waste fi nds its way into landfi lls, it does

so because of human decision making. When an

automaker fails to recall vehicles known to have

dangerous defects, it does so because of human

decision making. As pointed out in the chapter

opening photo caption, you have to “deter bad indi-

vidual conduct” in order to keep organizations

from doing bad things. 47

And in order to get organi-

zations to do the right things, their members—

especially managers and leaders—must continually

exercise good stewardship. Th is means taking

personal responsibility to act in ways that always

respect and protect the interests of the full range of

organizational stakeholders.

Sustainability is one of the pillars of steward-

ship. Procter & Gamble defi nes it as acting in ways

that help ensure “a better quality of life for everyone

Stakeholders are the persons, groups,

and other organizations that are

directly aff ected by the behavior of the

organization and that hold a stake in its

performance.

Stakeholder power refers to the

capacity of the stakeholder to positively

or negatively aff ect the operations of the

organization.

Demand legitimacy indicates the

validity and legitimacy of a stakeholder’s

interest in the organization.

Issue urgency indicates the extent to

which a stakeholder’s concerns need

immediate attention.

Corporate social responsibility is the

obligation of an organization to serve

the interests of multiple stakeholders,

including society at large.

Stewardship means taking personal

responsibility to always respect and

protect the interests of organizational

stakeholders, including society at large.

Sustainability means acting in ways

that support a high quality of life for

present and future generations.

SSoocciaaall RRessspoonnssibbiiiliity

FIGURE 3.4 Th e many stakeholders of organizations.

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BUSINESS FIRM

BUSINESS FIRMFIRFFIRFIRRRMMMMMMRMRMRM

Stockholders

BUSINBUSINBUSINBUSINNNNNESSESSESSESSEEEENENENENE FIRFIRFIRRRRMMMMMMMRMRMRM

Suppliers

Customers

Competitors

Labor unions

Employees

Financial institutions

Legal institutions

Future generations

Public-interest groups

Educational institutions

Federal, state, local

governments

65Social Responsibility

now and for generations to come”. 48

Good stewardship and sustainability opportunities are

evident when organizations invest in things like clean energy, recycling, water conservation,

and waste avoidance. Bad stewardship and sustainability problems can be seen when ques-

tionable decisions cause organizations to create preventable disasters like massive oil spills

or to pollute soil with harmful waste that ends up fi nding its way into the food stream.

Th e tendency in the past was to defi ne stewardship rather narrowly and focus its atten-

tion on what accountants call the “bottom line” of business profi tability. Today’s notion of

stewardship is broader and more attention is being given to the triple bottom line of eco-

nomic, social, and environmental performance. 49

Many call this the 3 P’s of organiza-

tional performance—profi t, people, and planet. 50

Triple bottom line outcomes can be

assessed by asking questions like these: Profi t—Is the decision economically sound? People—

Does the decision treat people with respect and dignity? Planet—Is the decision good for

the environment?

Perspectives on Corporate Social Responsibility

Chances are you’d like your employer to value social responsibility. Surveys report that 70%

of students believe “a company’s reputation and ethics” is “very important” when deciding

whether or not to accept a job off er; and that 79% of 13–25-year-olds “want to work for a

Th e triple bottom line evaluates orga-

nizational performance on economic,

social, and environmental criteria.

Th e 3 P’s of organizational

performance are profi t, people,

and planet.

It’s true. Two interns sued Fox Searchlight Pictures claiming they did work that would otherwise have been done by paid employees . . . and they wanted to be paid for it. A federal judge in

New York agreed and turned the notion of the unpaid internship

upside down. In the Fox case there wasn’t a lot of money at stake,

about $8 an hour. But there is a lot at stake in the controversy

created by the legal ruling. Fox’s lead attorney Juno Turner says:

“I think it would be the very rare internship that would meet the

criteria set forth in this decision.”

Th e U.S. Fair Labor Standards Act allows businesses to hire un-

paid interns but sets forth rules that must be followed. For example,

interns can’t “displace regular employees” and employers can’t

receive “immediate advantage from the activities of the intern.” A

strict interpretation of these guidelines seems to push employers in

the direction of off ering only paid internships. Turner claims it

would be “rare” for an unpaid internship to meet the legal criteria

applied in the Fox case. Th e exception is in the public sector where

the law allows nonprofi ts to employee interns as volunteers.

Internships are a well-established source of valuable experience

for students and a job entry point for many. Heather Huhman,

author of Lies, Damned Lies & Internships, says: “A job listed on a

resume wouldn’t impress me just because it was a paid position.

What matters is the experience you get from a job.” Data show that

37% of unpaid interns and 60% of paid interns get job off ers.

So, who benefi ts from the Fox case? Are we about to see the

demise of the student internship?

WHAT DO YOU THINK?

Is it right for interns to demand pay in return for valuable work experience and a possible job entry point? Are employers taking advantage of interns by not paying them for doing real work? What’s the dividing line between fairness and exploitation in an internship contract? Who benefi ts from the Fox case? Are we about to see a decline in the number of available student intern- ships? What’s your internship experience? Did you engage in tasks that had an immediate positive benefi t for the fi rm you were working for? Did it seem wrong to you that you weren’t being paid?

ethics> KNOW RIGHT FROM WRONG > “A job listed on a resume wouldn’t impress me just because it was a paid position.

What matters is the experience you get from a job.”

Interns Are Suing Their Employers for Back Pay

Alex Brandon/AP Photo

66 CHAPTER 3 ■ Ethics and Social Responsibility

“Business is the most powerful force in the world,” says Gary Hirshberg, “I believe that virtually every problem in the world exists because business hasn’t made fi nding a solution

a priority.” Co-founder, former CEO, and current chairman of

Stonyfi eld Farm, the world’s largest producer of organic yogurt,

he’s the author of Stirring It Up: How to Make Money and Save the

World and was named one of “America’s Most Promising Social

Entrepreneurs” by BusinessWeek magazine.

Th e mission of Stonyfi eld Farm is straightforward: “Off er a pure

and healthy product that tastes good and earn a profi t without harm-

ing the environment.” Th is translates into a triple bottom line of being

economically, socially, and environmentally responsible. Hirshberg

says that Stonyfi eld Farm “factors the planet into all our decisions. . . .

Going green is not just the right thing to do, but a great way to build a

successful business.” He further states that Stonyfi eld is always “look-

ing at every aspect of our business to make ourselves more green.”

Th at thinking has helped grow Stonyfi eld Farm into the num-

ber one maker of organic yogurt in the world. Th e company uses

dairy-farm suppliers who pledge not to use bovine growth hor-

mone (BGH) and operates on the principle that “healthy food can

only come from a healthy planet.” Hirshberg’s current focus is on

better labeling for genetically engineered foods and new national

food and agriculture policies.

FIND INSPIRATION

In a commencement address at Bates College, Hirshberg told graduates there is no need to trade off ecological responsibility for economic success. Is this the message you get when you go to school or work and talk to friends or co-workers? Can the Stonyfi eld Farms business model be applied to other fi rms in a wide variety of industries? How can you make a commitment to the 3 P’s and positive stewardship a part of your career plan? As a manager, how can you integrate your decision making so the 3 P’s are always in focus?

wisdom> LEARN FROM ROLE MODELS > “I believe that virtually every problem in the world exists because business hasn’t made

fi nding a solution a priority.”

Gary Hirshberg Grows Company That Makes Planet a Priority

JODI HILTON/The New York Times/Redux Pictures

company that cares about how it aff ects or contributes to society.” 51

“Students nowadays

want to work for companies that help enhance the quality of life in their surrounding com-

munity,” says one recruiter. 52

So, would it surprise you to learn that CSR as a business priority

has been a subject of considerable debate? 53

Classical View Th e classical view of CSR holds that management’s only responsibility is to maximize prof-

its. In other words, “the business of business is business” and the principal obligation of

management is to owners and shareholders. Th is narrow stakeholder perspective is linked

to the respected economist and Nobel Laureate, Milton Friedman, who once said: “Few

trends could so thoroughly undermine the very foundations of our free society as the accep-

tance by corporate offi cials of social responsibility other than to make as much money for

their stockholders as possible.” 54

Although not explicitly against CSR in its own right, proponents of the classical view

maintain that society’s interests are served in the long run by executives focused on maxi-

mizing profi ts. Th ey believe that society gains when business competition makes things like

healthier foods and energy-effi cient products attractive to produce because they are profi t-

able. 55

Th ey fear that pursuit of CSR as a separate business goal will reduce profi ts, raise

costs, reduce competitiveness with foreign fi rms, and give business too much social power

with too little accountability to the public.

Th e classical view of CSR is that

business should focus on profi ts.

67Social Responsibility

Socioeconomic View Th e socioeconomic view of CSR holds that managers should explicitly focus on the orga-

nization’s eff ect on the broader social welfare and not just with corporate profi ts. Th is broad

stakeholder perspective puts the focus on the triple bottom line that emphasizes not just

fi nancial performance but also social and environmental performance as well. In its sup-

port, another distinguished economist and Nobel Laureate, Paul Samuelson, has said: “A

large corporation these days not only may engage in social responsibility, it had damn well

better try to do so.” 56

Proponents of the socioeconomic view argue that the pursuit of CSR will enhance long-

run profi ts, improve public image, make organizations more attractive places to work, and

help avoid government regulation. Th ey also believe that businesses should act responsibly

because society provides them with the infrastructure they need to operate.

Shared Value View Mark Kramer and Michael Porter advocate a shared value view of CSR where economic

progress for the fi rm and social progress for the broader community are fundamentally

interconnected. 57

Th ey believe that “the purpose of a corporation must be redefi ned as cre-

ating shared value, not just profi t per se.” 58

Th is creates a win-win situation for both business

and society. It eliminates the tendency to pit the interests of shareholders and owners

against one another, and it moves CSR priorities from serving mainly reputational and

branding goals for the organization up to the level of being strategic components of the core

business model.

Organizations pursuing a shared value approach try to align their strategies and prac-

tices with social issues like aging, illiteracy, nutrition, resource conservation, and poverty.

Th is ideally creates a virtuous circle in which investments in CSR lead to improved fi nan-

cial performance, which, in turn, leads to more socially responsible actions in the future. 59

Len Sauers, Procter & Gamble’s Vice President of Global Sustainability, says that the fi rm’s

priority on reducing waste “almost always results in cost savings.” Nestlé’s support for local

sourcing and rural businesses near its factories helps build communities while reducing

distribution costs for the fi rm and ensuring its supplies of high-quality products. Carpet

manufacturer Desso’s CEO Stef Kranendijk says that investments in a green supply chain

and cradle-to-grave manufacturing have paid off in more innovation. 60

Th e socioeconomic view of CSR is that

business should focus on broader social

welfare as well as profi ts.

Th e shared value view of CSR sees

economic progress for a fi rm and social

progress for society as fundamentally

interconnected.

Th e virtuous circle occurs when

socially responsible behavior improves

fi nancial performance, which leads to

more responsible behavior in the future.

Conscious Capitalism: Liberating the Heroic Spirit of Business (Harvard Business Review Press, 2013)

by John Mackey and Raj Sisodia According to John Mackey, CEO of Whole Foods, and Raj Sisodia, Bentley College Professor,

business and capitalism are good for us when they come together in “conscious capitalism.”

Businesses following this model create lots of value for society, act ethically, and help people

and communities gain prosperity. Th e key is for leaders to understand that the needs of all

stakeholders must be considered when decisions are made and that the purpose of the business

goes beyond just making profi t for the owners. Mackey and Sisodia believe capitalism

becomes “heroic” when it is good for people, planet, and environment. Th ey also point out,

however, that we only get to this result when business leaders are “primarily motivated by

service to the purposes of the business and its stakeholders, and not by the pursuit of power

and personal enrichment.”

RecommendedReading

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68 CHAPTER 3 ■ Ethics and Social Responsibility

Evaluating Corporate Social Performance

If we are to get serious about social responsibility and shared value, we need to get

rigorous about measuring social performance and holding organizational leaders

accountable for the results. It is increasingly common for organizations to take social

responsibility audits at regular intervals and issue formal reports on their social

performance. And, research finds that mandatory social reporting of this nature

improves socially responsible behavior. 61

In other words, the more we measure CSR, the

better it gets.

When social responsibility audits are taken, the performance of fi rms can be scored on

behaviors that range from compliance—acting to avoid adverse consequences—to conviction—

acting to create positive impact. 62

Compliance behaviors focus on being profi table and

obeying the law, while conviction behaviors focus on doing what is right and contributing to

the broader community. Figure 3.5 shows how diff erent emphases on compliance and con-

viction result in alternative social responsibility strategies, ones you may recognize in news

reports and current events. 63

On the compliance side, an obstructionist strategy (“Fight social demands”) focuses

mainly on economic priorities. Social demands lying outside the organization’s perceived

self-interests are resisted. Cigarette manufacturers, for example, tried to minimize the nega-

tive health eff ects of smoking for decades until indisputable evidence became available. A

defensive strategy (“Do minimum legally required”) focuses on protecting the organization

by meeting minimum legal requirements and responding to competitive market forces, per-

haps even activist pressures. Mortgage lenders are required to provide certain information

to customers concerning loans they may be receiving. But whereas some take time to care-

fully review everything with customers, others may rush the conversation in hopes the

customer won’t question details.

On the conviction side, an accommodative strategy (“Do minimum ethically required”)

focuses on satisfying society’s ethics expectations. An oil fi rm may engage in appropriate

cleanup activities following a spill and provide compensation to communities harmed by

the spill. But the fi rm may be slow to invest in new technologies to prevent future spills.

Following a more proactive strategy (“Take leadership in social initiatives”), the fi rm would

invest in these technologies, and in the search for alternative energy sources, taking discre-

tionary steps toward making things better in the future.

A social responsibility audit measures

an organization’s performance in various

areas of social responsibility.

An obstructionist strategy tries to

avoid and resist pressures for social

responsibility.

A defensive strategy does the

minimum legally required to display

social responsibility.

An accommodative strategy accepts

social responsibility and tries to satisfy

society’s basic ethical expectations.

A proactive strategy actively pursues

social responsibility by taking

discretionary actions to make things

better in the future.

FIGURE 3.5 Four strategies of corporate social responsibility—from obstructionist to proactive behavior.

Proactive strategy

Accommodative strategy

Defensive strategy

Obstructionist strategy

“Take leadership in social initiatives” Meet economic, legal, ethical, and discretionary responsibilities

“Do minimum ethically required” Meet economic, legal, and ethical responsibilities

“Do minimum legally required” Meet economic and legal responsibilities

“Fight social demands” Meet economic responsibilities

Commitment to corporate social responsibilities

69Social Responsibility

Corporate Governance

Th e term corporate governance refers to the active oversight of management decisions

and company actions by boards of directors. 64

Businesses are required by law to have

boards of directors elected by shareholders to represent their interests. Most public

organizations, like state universities, have boards of trustees whose elected and appointed

members serve the same purpose. Th e governance exercised by boards involves hiring,

fi ring, and compensating the executives in the C-suite—CEO, CFO, CIO, and other members

of top management. It also involves verifying fi nancial records and assessing strategies,

including CSR.

Th e expectation is that board members will hold management accountable for high-

performance leadership that is always ethical and socially responsible. Ethics failures and

CSR controversies by organizations are often blamed on weak governance. And, you will

sometimes see government stepping in to take actions designed to reduce the likelihood of

future failures. Hearings are held, bills are proposed and laws passed, and government agen-

cies are directed or created to better control business practices.

Th e Sarbanes-Oxley Act of 2002, for example, was passed by Congress in response to

loud public outcries over major ethics and business scandals. Th e goal of Sarbanes-Oxley, or

SOX, is to protect investors and the public by making sure that top managers properly over-

see and are held accountable for the fi nancial conduct of the organizations they lead. Here

are some SOX facts to remember from executive briefi ngs on the the law. 1) Saying “I didn’t

Corporate governance is the oversight

of top management by a board of

directors.

Th e Sarbanes-Oxley Act of 2002,

SOX, is designed to hold top managers

accountable for the fi nancial conduct of

the organizations they lead.

The consulting fi rm McKinsey & Company reports that women are hired into more than 50% of professional jobs in America’s largest corporations. But they gradually leak from the career pipe-

line. Women hold just 16.9% of director positions on Fortune 500

corporate boards. Data from Europe are worse—13.7% of board

seats are fi lled by women. Diane Segalen, senior executive at a

Paris-based executive search company, says: “Some men over

60 think suitable females don’t exist because they have never had

women as their peers. Th ey think women can’t take the pressure

involved in serving on a board.”

Some European countries have turned to gender quotas to rec-

tify this imbalance at the board level. British fi rms have been

threatened with mandatory quotas unless the proportion of non-

executive board seats fi lled by women rises to 25% in the near

future. Norway, Spain, Iceland, and France have already set quotas

of 40% female board members. In the United States, however, a

Heidrick & Struggles survey of boards shows that whereas 51% of

females support quotas like those appearing in Europe, only 25%

of males agree.

YOUR TAKE?

Is underrepresentation of women on boards a “pipeline” problem— not enough qualifi ed women available for these senior positions at this point in time? Or, is it a “discrimination” problem—men at the top still aren’t ready to open the doors to female candidates? What are the ethics of setting gender quotas at the board level, top management, and the C-suite? Are you willing to sit back and wait for change in female representation on boards? Or do you support quotas to motivate faster positive action?

choices> THINK BEFORE YOU ACT > “Some men over 60 think . . . women can’t take the pressure involved in serving on a board.”

Europe Turns to Quotas to Get Women on Boards

70 CHAPTER 3 ■ Ethics and Social Responsibility

Learning Check 4

TAKEAWAYQUESTION 4 What is an organization’s social responsibility?

BE SURE YOU CAN • identify key organizational stakeholders and discuss stakeholder management • defi ne corporate

social responsibility • summarize arguments for and against CSR • defi ne shared value and describe how it links business and

society • explain the diff erence between compliance and commitment in social responsibility • identify four possible social

responsibility strategies • defi ne corporate governance and ethics self-governance, and discuss their importance to managers

at all organizational levels

Ethics Self-governance

Leader Performance achieved with • High ethical standards • Social responsibility

FIGURE 3.6 Ethics self-governance in leadership and the managerial role.

know” doesn’t count—SOX “removes the defense of ‘I wasn’t aware of fi nancial issues’ from

CEOs and CFOs, holding them accountable for the accuracy of fi nancial statements.” 2)

Violators can expect to be punished and penalties are tough—under SOX a “CEO or CFO

who submits a wrong certifi cation is subject to a fi ne up to $1 million and imprisonment

for up to ten years. If the wrong certifi cation was submitted ‘willfully’, the fi ne can be

increased up to $5 million and the prison term can be increased up to twenty years.” 3)

Whistleblowers are protected—SOX prohibits employers “from retaliating against employees

who raise various protected concerns or provide protected information to the employer or

the government.” 65

While the behavior and examples set by top-level or C-suite executives have the longest

reach, it is critical to recognize that all managers have personal responsibility for good stew-

ardship of the organization and doing the “right” things in their day-to-day work. Figure 3.6

highlights ethics self-governance and points out that it isn’t enough to fulfi ll daily task

responsibilities; they must be performed in an ethical, socially responsible way. Managers

shoulder the full weight of this responsibility, and it holds in every organizational setting,

from small to large, from private to nonprofi t, and at every managerial level from top to bot-

tom. Th ere is no escaping the ultimate reality—every manager is a steward of stakeholder

interests, and being a manager is an extremely socially responsible job!

Ethics self-governance is making sure

day-to-day performance is achieved

ethically and in socially responsible

ways.

71Management Learning Review

Summary

TAKEAWAYQUESTION 1 What is ethical behavior?

• Ethical behavior is behavior accepted as “good” or “right” as opposed to “bad” or “wrong.”

• Because an action is not illegal does not necessarily make it ethical.

• Because values vary, the question “What is ethical behavior?” may be answered differently by different people.

• The utilitarian, individualism, moral-rights, and justice views offer alternative ways of thinking about ethical behavior.

• Cultural relativism argues that no culture is ethically superior to any other; universalism argues that certain ethical standards apply everywhere.

FOR DISCUSSION Is there ever a justifi cation for cultural relativism in international business ethics?

TAKEAWAYQUESTION 2 How do ethical dilemmas complicate the workplace?

• An ethical dilemma occurs when someone must decide whether to pursue a course of action that, although offering the potential for personal or organizational benefi t or both, may be unethical.

• Managers report that ethical dilemmas often involve confl icts with superiors, customers, and subordinates over issues such as dishonesty in advertising and communication, as well as pressure from supervisors to do unethical things.

• Common rationalizations for unethical behavior include believing the behavior is not illegal, is in everyone’s best interests, will never be noticed, or will be supported by the organization.

FOR DISCUSSION Are ethical dilemmas always problems, or can they also be opportunities?

TAKEAWAYQUESTION 3 How can high ethical standards be maintained?

• Ethics training can help people better deal with ethical dilemmas in the workplace.

• Written codes of ethical conduct formally state what an organization expects of its employees regarding ethical behavior at work.

• Immoral managers intentionally choose to behave unethically; amoral managers do not really pay attention to or think through the ethics of their actions or decisions; moral managers consider ethical behavior a personal goal.

• Whistleblowers expose the unethical acts of others in organizations, even while facing career risks for doing so.

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

TAKEAWAYQUESTION 4 What is an organization’s social responsibility?

• Social responsibility is an organizational obligation to act in ways that serve both its own interests and the interests of its stakeholders.

• The triple bottom line for assessing organizational performance refl ects how well organizations achieve economic, social, and environmental performance outcomes.

• The argument against corporate social responsibility holds that businesses should focus on profi t; the argument for corporate social responsibility holds that businesses should serve broader social concerns.

• The shared value concept links business and social goals with the idea that businesses can fi nd economic value by pursuing opportunities and practices that advance societal well-being.

• An organization’s social performance can be evaluated based on how well it meets economic, legal, ethical, and discretionary responsibilities.

• Corporate strategies in response to demands for socially responsible behavior include obstruction, defense, accommodation, and proactivity.

• Corporate governance is the responsibility of a board of directors to oversee the performance of C-suite executives.

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

Management Learning Review Get Prepared for Quizzes and Exams

72 CHAPTER 3 ■ Ethics and Social Responsibility

Multiple-ChoiceQuestions 1. Values are personal beliefs that help determine

whether a behavior is considered ethical or unethical. An example of a terminal value is . (a) ambition (b) self-respect (c) courage (d) imagination

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

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

4. The Sarbanes-Oxley Act of 2002 makes it easier for corporate executives to . (a) protect themselves from shareholder lawsuits (b) sue employees who commit illegal acts (c) be tried and sentenced to jail for fi nancial

misconduct (d) shift blame for wrongdoing to boards of directors

5. Two “spotlight” questions for conducting the ethics double-check of a decision are (a) “How would I feel if my family found out about this?” and (b) “How would I feel if ?” (a) my boss found out about this (b) my subordinates found out about this (c) this was published in the local newspaper (d) this went into my personnel fi le

6. Research on ethical dilemmas indicates that is/are often the cause of unethical

behavior by people at work. (a) declining morals in society (b) lack of religious beliefs (c) the absence of whistleblowers (d) pressures from bosses and superiors

7. Customers, investors, employees, and regulators are examples of that are important in the analysis of corporate social responsibility (CSR). (a) special-interest groups (b) stakeholders (c) ethics advocates (d) whistleblowers

8. A(n) is someone who exposes the ethical misdeeds of others. (a) whistleblower (b) ethics advocate (c) ombudsman (d) stakeholder

9. A proponent of the classical view of corporate social responsibility would most likely agree with which of these statements? (a) Social responsibility improves the public image of

business. (b) The primary responsibility of business is to maximize

business profi ts. (c) By acting responsibly, businesses avoid government

regulation. (d) Businesses can and should do “good” while doing

business.

10. An amoral manager . (a) always acts in consideration of ethical issues (b) chooses to behave unethically (c) makes ethics a personal goal (d) acts without considering whether or not the

behavior is ethical

11. An organization that takes the lead in addressing emerging social issues is being , showing the most progressive corporate social responsibility strategy. (a) accommodative (b) defensive (c) proactive (d) obstructionist

12. The criterion of identifi es the highest level of conviction by an organization to operate in a socially responsible manner. (a) economic justice (b) legal requirements (c) ethical commitment (d) discretionary responsibility

13. Which viewpoint emphasizes that business can fi nd ways to profi t by doing things that advance the well being of society? (a) classical (b) shared value (c) defensive (d) obstructionist

14. Managers show self-governance when they always try to achieve performance objectives in ways that are

. (a) performance effective (b) cost effi cient (c) quality oriented (d) ethical and socially responsible

Self-Test 3

73Management Skills & Competencies

15. The triple bottom line of organizational performance focuses on the “3 Ps” of profi t, people, and

. (a) principle (b) procedure (c) planet (d) progress

Short-ResponseQuestions 16. Explain the difference between the individualism and

justice views of ethical behavior. 17. List four common rationalizations for unethical

managerial behavior. 18. What are the major arguments for and against

corporate social responsibility?

19. What is the primary difference between immoral and amoral management?

EssayQuestion 20. A small outdoor clothing company has just received

an attractive offer from a business in Bangladesh to manufacture its work gloves. The offer would allow for substantial cost savings over the current supplier. The company manager, however, has read reports that some Bangladeshi businesses break their own laws and operate with child labor. How would differences in the following corporate responsibility strategies affect the manager’s decision regarding whether to accept the offer: obstruction, defense, accommodation, and proaction?

Evaluate Career Situations

What Would You Do?

1. Window to the Future

You’ve just seen one of your classmates take a picture of an

essay question on the exam everyone is taking. Th e instructor

missed it and you’re not sure if anyone else saw it. You know

that the instructor is giving an exam to another section the

next class period. Do you let it pass and pretend it isn’t all that

important? If you won’t let it pass, what will you do?

2. Intern’s Assignment

One of your fi rst tasks as a summer intern is to design an

ethics training program for the fi rm’s new hires. Your super-

visor says that the program should familiarize hires with the

corporate code of ethics. But it should also go beyond this to

help establish a solid foundation for handling a range of

ethical dilemmas in a confi dent and moral way. What would

your training program look like?

3. New Person at the Table

Your employer has a “roundtable” program that brings younger

hires together with senior executives on a monthly basis. Each

session tackles a topic. Th is month it’s “CSR as a business pri-

ority.” You’ve heard that some of the senior execs are skeptical

of CSR, believing that business is business and the fi rm’s prior-

ity should be on profi ts. What arguments might you make in

support of CSR and the concept of “shared value”?

Refl ect on the

Self-Assessment

Terminal Values

Instructions 1. Read the following list of things people value. Th ink about

each value in terms of its importance as a guiding principle in

your life.

A comfortable life Inner harmony

An exciting life Mature love

A sense of accomplishment National security

A world at peace Pleasure

A world of beauty Salvation

Equality Self-respect

Family security Social recognition

Freedom True friendship

Happiness Wisdom

2. Circle six of these 18 values to indicate that they are most

important to you. If you can, rank-order these most important

values by writing a number above them—with “1” 5 the most important value in my life, and so on through “6.”

3. Underline the six of these 18 values that are least important

to you.

ManagementSkills& Competencies Make yourself valuable!

74 CHAPTER 3 ■ Ethics and Social Responsibility

Interpretation Terminal values refl ect a person’s preferences concerning the

ends to be achieved. Th ey are the goals individuals would like to

achieve in their lifetimes. As you look at the items you’ve se-

lected as most and least important, what major diff erences are

present in the items across the two sets? Th ink about this and

then answer the following questions.

A. What does your selection of most and least important

values say about you as a person?

B. What does your selection of most and least important

values suggest about the type of work and career that might

be best for you?

C. Which values among your most and least important selec-

tions might cause problems for you in the future—at work

and/or in your personal life? What problems might they

cause and why? How might you prepare now to best deal

with these problems in the future?

D. How might your choices of most and least important values

turn out to be major strengths or assets for you—at work

and/or in your personal life, and why?

Contribute to the Class

Exercise

Confronting Ethical Dilemmas

Preparation Read and indicate your response to each of the following situa-

tions.

A. Ron Jones, vice president of a large construction fi rm, re-

ceives in the mail a large envelope marked “personal.” It con-

tains a competitor’s cost data for a project that both fi rms

will be bidding on shortly.

Th e data are accompanied by a note from one of Ron’s

subordinates. It says: “Th is is the real thing!”

Ron knows that the data could be a major advantage to

his fi rm in preparing a bid that can win the contract. What

should he do?

B. Kay Smith is one of your top-performing subordinates. She

has shared with you her desire to apply for promotion to a

new position just announced in a diff erent division of the

company. Th is will be tough on you since recent budget cuts

mean you will be unable to replace anyone who leaves, at

least for quite some time.

Kay knows all of this and, in all fairness, has asked your

permission before she submits an application. It is rumored

that the son of a good friend of your boss is going to apply for

the job. Although his credentials are less impressive than

Kay’s, the likelihood is that he will get the job if she doesn’t

apply. What will you do?

C. Marty was pleased to represent her fi rm as head of the local

community development committee. In fact, her supervisor’s

boss once held this position and told her in a hallway conver-

sation, “Do your best and give them every support possible.”

Going along with this advice, Marty agreed to pick up the

bill (several hundred dollars) for a dinner meeting with local

civic and business leaders. Shortly thereafter, her supervisor

informed everyone that the entertainment budget was being

eliminated in a cost-saving eff ort.

Not wanting to renege on supporting the community

development committee, Marty charged the dinner bill to

an advertising budget. An internal auditor discovered the

charge and reported it to you, the fi rm’s human resource

manager.

Marty is scheduled to meet with you in a few minutes.

What will you do?

Instructions 1. Working alone, make the requested decisions in each of these

incidents. Th ink carefully about your justifi cation for the

decision.

2. Meet in a group assigned by your instructor. Share your

decisions and justifi cations in each case with other group

members. Listen to theirs.

3. Try to reach a group consensus on what to do in each situation

and why.

4. Be prepared to share the group decisions, and any dissenting

views, in general class discussion.

Manage a Critical Incident

Dealing with a Global Supply Chain

Situation As the co-founder of a small outdoor clothing start-up, you

have just received an attractive proposal from a business in

Tanzania that wants to manufacture cotton textiles for your

warm-up suits. Accepting the off er from the Tanzanian fi rm

would allow for substantial cost savings compared to your

current domestic supplier. At this point in your fi rm’s life,

every dollar you save really helps. Th e proposal is now being

considered in a meeting that includes you and others in the

executive group. Someone mentions that she had recently

read reports that some companies in Tanzania use child labor.

Her comment immediately broadens the discussion to issues

of ethics and business opportunity. Everyone agrees that re-

search on the Tanzanian fi rm is necessary before any decision

can be made on the proposal. You agree and point out that

now is a good time to consider not only what course of action

is best in this case, but also what policy should be set for deal-

ing with future situations involving how global suppliers treat

their workforces. You stand up and say, “Let’s assume the fi rm

can meet all of our delivery times and quality standards,” and

then write these options on the whiteboard: (1) Accept the

proposal. (2) Reject the proposal. (3) Reject the proposal if any

laws in Tanzania are being violated. (4) Accept the proposal

only if the head of the Tanzanian fi rm agrees not to employ

children.

75Analyze the Case Study

Questions Does this list include all possible action alternatives? What

others, if any, would you add? What alternative do you sup-

port and why? How could you defend your preference in the

executive group meeting using concepts and ideas from this

chapter?

Collaborate on the Team

Activity

Stakeholder Maps

Preparation Review the discussion of organizational stakeholders in the text-

book. (1) Make a list of the stakeholders that would apply to all

organizations—for example, local communities, employees, and

customers. What others would you add to this starter listing?

(2) Choose one organization that you are familiar with from

each list that follows. (3) Draw a map of key stakeholders for

each organization. (4) For each stakeholder, indicate its major

interest in the organization. (5) For each organization, make a

list of possible confl icts among stakeholders that the top man-

ager should recognize.

Instructions In teams assigned by your instructor, choose one organization

from each list. Create “master” stakeholder maps for each organ-

ization. Th ese should include (1) statements of stakeholder

interests and (2) lists of potential stakeholder confl icts. Assume

the position of top manager for each organization. Prepare a

“stakeholder management plan” that represents the high-

priority issues the manager should address with respect to

stakeholder interest. Make a presentation to the class for each of

your organizations and discuss the importance and complexity

of stakeholder analysis.

Nonprofi t

Elementary school

Community hospital

Church

University

United Way

Government

Local mayor’s offi ce

State police

U.S. Senator

IRS

Child Services

Business

Convenience store

Movie theater

National retailer

Local pizza shop

Urgent care medical clinic

AnalyzeTHE CaseStudy

PATAGONIA

Leading a Green Revolution Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

Carlos Caetano/Shutterstock

Less than 35% of America’s 250 million tons of annual waste gets recycled . . . one ton of recycled paper saves 17 large pulp trees and 7,000 gallons of water . . . a TV runs for three hours on energy savings from one recycled aluminum can.

Environment,

Innovation, and

Sustainability 4

Key Takeaways

■ Identify key elements in

the external environment

of organizations.

■ Discuss how organizations

pursue value creation and

competitive advantage in a

dynamic environment.

■ Describe how

organizations pursue

innovation in a dynamic

environment.

■ Explain key issues of

sustainability as an

environmental priority.

C H A P T E R Q U I C K STA RT

We live in a complex and dynamic environment that presents a continual stream

of problems and opportunities to us as individuals, to the organizations in which

we work, and to society at large. Managers need to understand the environment in

order to help lead their organizations to create value for society, accomplish inno-

vation, and contribute to sustainability.

MANAGEMENT IS REAL MAKE DATA YOUR FRIEND

Social Attitudes Shift on Women at Work, but Concerns for Equality Persist

THINK BEFORE YOU ACT

Sustainability Ranks Low among Global Executive Challenges

FIND AND KEEP MORAL CONFIDENCE

Offshore E-Waste Graveyards Bury a Problem

LEARN ABOUT YOURSELF

Risk Taking Has Its Ups and Downs

LEARN FROM ROLE MODELS

Marc Benioff’s Keen Eye Spots Opportunities in the Cloud

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations for a

Complex Environment:

What Would You Do?

■ REFLECT On the Self-Assessment: Tolerance for Ambiguity

■ CONTRIBUTE To the Class Exercise: The Future Workplace

■ MANAGE A Critical Incident: It’s Also about Respect

■ COLLABORATE On the Team Activity: Organizational Commitment to Sustainability Scorecard

■ ANALYZE Th e Case Study: Timberland: Walking a Green Path

what to look for inside >

78 CHAPTER 4 ■ Environment, Innovation, and Sustainability

“Today’s GM will do the right thing. Th at begins with my sincere apologies to

everyone who has been aff ected by this recall, especially the families and

friends (of those) who lost their lives or were injured. I am deeply sorry.” Gen-

eral Motors CEO Mary Barra, testifying before U.S. Congress

“GM engineers knew about the defect, GM investigators knew about the

defect, GM lawyers knew about the defect, but GM did not act to protect

Americans from that defect. Th e fact that GM took so long to report this

defect says something was very wrong with the company’s values.” National

Highway Traffi c Safety Administration (NHTSA) acting administrator David

Friedman.

W hen General Motors belatedly recalled 2.6 million vehicles for ignition

switch problems–linked with 13 deaths and known to the company

for 10 years, it wasn’t just customers and the marketplace that reacted; U.S.

regulators and lawmakers did too. 1 GM’s new CEO Mary Barra experienced

the anger of society when she was called to testify before a Congressional

Committee. Although she apologized and pledged a comprehensive review

and response, the public wondered why this giant corporation ignored for so

many years and with such dire consequences the existence of a defective

part that would have cost just about a dollar per car to fi x. For starters, GM

was fi ned $35 million by the U.S. government. Th e fi nal cost of claims and

litigation is expected to exceed $2 billion. 2

Th is interaction between General Motors, its customers, and U.S. lawmak-

ers is an example of the complex relationship that organizations maintain

with their external environments. Whereas some managers embrace the

environment, continually scan it for information on trends and issues, and

proactively try to deal with challenges, others view it as a source of trouble-

some problems that are best ignored. GM’s Mary Barra claimed that a past

culture that valued cost control above other considerations was behind the

company’s failure to act when the defective ignition switches were fi rst dis-

covered and customers were injured in questionable crashes. As the new

CEO she said: “We have learned a great deal from this recall. . . . We will

emerge from this situation a stronger company.” 3

Th e External Environment TAKEAWAY 1 What is in the external environment of organizations?

Economic conditions • Legal-political conditions • Sociocultural conditions Technological conditions issues • Natural environment conditions

Th e general environment of organizations consists of all external conditions that set the

context for managerial decision making. You might think of it as a broad envelope of dynamic

forces that surround and infl uence an organization. Figure 4.1 classifi es these forces as eco-

nomic, legal-political, sociocultural, technological, and natural environment conditions. Top

managers and C-suite executives bear special responsibility for monitoring these conditions

LEARN MORE

ABOUT

Th e general environment consists of

economic, legal-political, sociocultural,

technological, and natural environment

conditions in which the organization

operates.

ThThThTh ee EEExxterrnnaaal EEnvviiironnmeennntTh

79Th e External Environment

and linking them with the mission, strategies, and internal practices of their organizations.

You can say that their job is to make sure that the voice of the environment gets heard within

the organization, something that was missing in the General Motors ignition switch debacle

but which new CEO Mary Barra has pledged to correct.

Economic Conditions

High unemployment • Long-term joblessness • Rising income inequality Falling middle-class incomes • Debates on minimum wage

When economic conditions in the external environment begin to refl ect extreme imbalances

of this kind, what does it mean for organizations and managers? 4 Th ese conditions are part of

a larger and ever-changing set of environmental forces. Th e overall health of the economy in

terms of fi nancial markets, infl ation, income levels, and job creation also are critical environ-

mental drivers. Th ese macro-economic conditions aff ect the prospects for companies, con-

sumer spending patterns and lifestyles, and even state and national priorities. Th ey must be

assessed, forecasted, and considered when policymakers and executives make decisions.

States now compete on tax incentives to attract new plants from companies like Boeing,

and Apple. At stake are hundreds of new jobs and a fi nancial boost for local economies.

Global economic trends are always an issue. For years American companies have pursued

off shoring by outsourcing work and jobs to lower-cost foreign locations. But new economic

signals are now signaling it’s time to consider reshoring, which moves jobs back home. If you

bought a Maytag brand Maxima front-load washer fi ve years ago it would have been made in

Germany. Today it is built in Ohio by the parent company Whirlpool. 5 Th e shift toward reshor-

ing is driven by rising labor costs in foreign countries, higher transoceanic shipping costs,

complicated logistics, complaints about poor customer service, public criticism of lost local

jobs, and economic incentives for job creation off ered by local communities. 6

Legal-Political Conditions

Immigration reform • Education reform • Tax reform • Health care reform

All the above issues were voted top priorities by 100 chief executives participating in a

Wall Street Journal conference on business and public policy. 7 Th ey represent just a sample

of legal-political conditions with major implications for organizations and managers.

Th ese conditions refl ect current and proposed laws and regulations, government policies,

and the philosophy and objectives of political parties. U.S. lawmakers are debating issues

such as regulation of banks and the fi nancial services industry, foreign trade agreements,

protection of U.S. jobs and industries, and the minimum wage. Corporate executives fol-

low such debates to monitor trends that can aff ect the regulation, oversight, and compet-

itive direction of their businesses. What is your position on things like increased regulation

in banking and fi nancial services or increases to the minimum wage?

Off shoring is the outsourcing of jobs

to foreign locations.

Reshoring is the movement of jobs

from foreign locations back to domestic

ones.

Economic Environment • economic growth

• unemployment rate • disposable income

Sociocultural Environment • population demographics

• education system • health/nutrition values

Legal-Political Environment • laws and regulations

• business forms • political trends

Natural Environment • “green” values

• recycling infrastructure

Technological Environment • IT systems/infrastructure

• broadband Internet access

Organization

FIGURE 4.1 Sample elements in the general environments of

organizations.

80 CHAPTER 4 ■ Environment, Innovation, and Sustainability

As if the domestic scene wasn’t complicated enough, the legal-political conditions in the

global business environment also vary signifi cantly from one country to the next. Just as

foreign fi rms have to learn to deal with U.S. laws and politics, U.S. fi rms must adjust to them

when operating in other countries. Th e European Union fi ned Microsoft $1.35 billion for

antitrust violations involving the practice of bundling media and Windows software and

making the source code for interoperability unavailable to competitors. 8 Apple was sued by

a Chinese company that had previously trademarked the name “iPad.” It ended up paying

$60 million to retain rights to use the iPad name in China. 9 Importantly, too, not all countries

support international copyright and intellectual property protection. Reports on music,

movie, product, and software piracy regularly make the news, aff ecting companies from

SONY pictures to Louis Vuitton to Microsoft.

National policies also vary on Internet censorship—the deliberate blockage and denial

of public access to information otherwise available on the Internet, and global fi rms face

many dilemmas in dealing with them. Google, Yahoo!, and Twitter, for example, have all

faced problems in China where laws restrict access to Internet sites with content deemed

off limits by the government. A Google spokesperson described the global environment as “a

delicate balancing act between being a platform for free expression and also obeying local

laws around the world.” 10

Sociocultural Conditions

Unemployment of African Americans doubles that of Whites • White households out-earn African American households by 20 times and Hispanic households by 18 times • Men out-earn women by 23.5 cents per hour

Data like these aren’t only of economic significance. 11

They reflect social issues relating

to educational opportunity, social network connections, access to technology, mentor-

ing, job options, and the glass ceiling. Think of sociocultural conditions in the general

environment as demographics and norms of a society or region, as well as social values

pertaining to such things as employment, gender roles, ethics, human rights, and life-

styles.

With respect to demographics and norms, for example, the workplace is a mix of

generational cohorts—people born within a few years of one another and who experi-

ence somewhat similar life events during their formative years. 12

And, sometimes these

generational subcultures clash. Whereas older generations are “digital immigrants” who

have had to learn technology, the younger millennials, Gen Ys, and the iGeneration grew up

as “digital natives” in technology-enriched homes, schools, and friendship environments.

Th ese diff ering life experiences aff ect everything from how the generations shop, to how

they learn, to how they like to work. Characteristics often used to describe digital natives

include ease of multitasking, the desire for immediate gratifi cation, continuous contact

with others, and less concern with knowing things than with knowing where to fi nd out

about things. 13

With respect to social values, shifting currents and trends aff ect how organizations focus

on employment practices, reputation management, product development, advertising mes-

sages, and internal policies. Th ere was a time, for example, when the compensation of uni-

versity presidents—averaging $480,000 in total compensation—or corporate CEOs like

Apple CEO Tim Cook’s $40.6 million wasn’t a hot-button topic. 14

No more. In a time of per-

sistently high unemployment, limited job opportunities, and income inequality, public

values are growing more critical of high executive pay—CEOs at S&P 500 fi rms average $11.7

million per year while their employees earn $35,239 (a ratio of 331 to 1). 15

Th ere has even

been some pressure—unsuccessful to date—for the U.S. Congress to place limits on the pay

of top managers in publicly traded fi rms.

Technological Conditions

63% of smartphone owners say their employers expect more work availability • Average teenagers spend just seven minutes per day reading off line • When e-mail is constantly open, people switch tasks 37 times per hour

Internet censorship is the deliberate

blockage and denial of public access to

information posted on the Internet.

Generational cohorts consist of people

born within a few years of one another

and who experience somewhat similar

life events during their formative years.

81Th e External Environment

No one doubts that continuing technological developments aff ect everything from the way

we work to how we live to how we raise our children. It shouldn’t be any surprise that busi-

nesses are quickly ramping up their spending on social media for product promotions, rep-

utation management, internal communication, and more. 16

A continuing wave of social

media applications for the workplace ranges from new product development and advertis-

ing, to employee networking and data sharing, to virtual meetings and always-available

chats. Between new apps for fast-developing smart device technologies and ever-increasing

bandwidth, technology continues to penetrate further and further into everyday life.

On the employee side of things, technology easily carries work responsibilities into non-

work lives. How often do you hear people complaining that they can “never get away from

the job” and that work follows them home, on vacation, and just about everywhere they go

with a smart device turned on? How often do you hear warnings about career and reputa-

tion risk because of poorly chosen social media decisions? A CareerBuilder.com survey

reports that about one-third of executives visiting social-network sites of job candidates

said they found information that gave them reasons not to hire the person. 17

Th e employer side of ever-present and constantly-changing technology is full of potential

problems as well as opportunities. It is a fact that many employees spend lots of time doing

personal things online. Some employers call this loss of productivity “social notworking.” 18

Th is practice isn’t limited to the work environment; it’s a signifi cant classroom issue as well.

In one survey, 65% of business students said they sent at least one text message during each

Social attitudes toward women at work are shifting in a positive direction. But polls and surveys show that a gender wage gap and bias toward women remains. For example:

■ More women than men now receive college degrees and com-

prise almost half the workforce.

■ Young women earn 93 cents per dollar earned by young men,

while women in general earn 76.5 cents per dollar earned by

men, a figure that is actually up slightly from 71.6 cents in

1991.

■ Among full-time workers, women earn 79 cents per dollar

earned by men.

■ Th e percent of women who believe they can’t have a career and

family without sacrifi ces to each fell from 78% in 1997 to 66% in

2013, while 64% of men now say women can’t “have it all.”

■ 35% of women report experiencing some form of discrimination

at work versus 15% of women aged 18–32.

■ 84% of women versus 63% of men believe women are paid less

than men for the same work.

■ 75% of women between18–32 believe more must be done to

ensure workplace equality.

WHAT ARE THE IMPLICATIONS?

What reasons—other than discrimination—can you give for the lingering wage gap between women and men? Do these expla- nations make the gap more justifi able, or not? What are the implications of this wage gap for the economy, for families, for businesses, and communities? How about the belief that women can’t have it all—career and family, without making sacrifi ces? Is this your belief? What are the implications for society at large as well as for women and their families? If more needs to be done to create workplace equality, what steps should next be taken— by government, by employers, and by educators? Have you seen examples of age, racial- or gender-based imbalance in compen- sation? What do you think drives any such gaps?

analysis> MAKE DATA YOUR FRIEND > 75% of women 18–32 believe more must be done to ensure workplace equality.

Social Attitudes Shift on Women at Work, but Concerns for Equality Persist

82 CHAPTER 4 ■ Environment, Innovation, and Sustainability

class, but only 49% felt guilty about it. 19

Further down the negative end of the spectrum,

recent airplane crashes have raised questions about pilot training and technological depen-

dency. Th e National Transportation Safety Board (NTSB) is worried that over- reliance on

automation causes pilots to lose manual fl ight skills that are necessary cross-checks and

last-resorts in crisis situations. 20

Natural Environment Conditions

Magnitude 9.0 earthquake and large tsunami hit Japan • 20,000 people killed Fukushima Daiichi nuclear power station badly damaged • 80,000 residents evacuated Nuclear radiation may prohibit return to some communities for decades

We tend to think most about natural environment conditions following a disaster—a

nuclear plant failure, a major oil spill, or an enormous hurricane. 21

But concerns for the sta-

tus and preservation of our natural environment are ever-present and global. Calls for being

“carbon neutral,” “green,” and “sustainable” are common on college campuses, in local com-

munities, and in our everyday lives. Th e intent is to protect natural resources that are essen-

tial to society and ensure their availability for future generations.

What are your top environmental concerns and priorities? How about for your com-

munity? Is it toxic waste that may be getting dumped in a regional landfi ll? Could it be

global warming prompted by unusually high seasonal temperatures? Or is it fossil fuel

consumption and the search for reliable and aff ordable alternative sources of energy? 22

Just look around and you’ll see people and organizations working harder to reduce water

consumption, cut back waste and increase recycling, improve energy effi ciency, buy and

“Give me a plan,” says the boss. “We need to get rid of this electronic waste.” Th is isn’t an uncommon problem. Just think about all those

old stereo components, televisions, out-of-date cell phones,

used computers and monitors, and so on. Did you know that

they often end up in e-waste graveyards in countries like Ghana,

China, and Vietnam? Th e waste arrives by sea container or barge

and ends up in huge dumps. Local laborers, often children, go to

work disassembling the waste products to salvage valuable scrap

metals, often burning the plastic and motherboards to access

the sought-after scraps.

Th ose who work in and live around e-waste graveyards face

real hazards to their health and welfare. Th at’s the hidden problem

behind the boss’s directive; an off shore e-waste graveyard is an at-

tractive low-cost option. But the price is paid in adverse environ-

mental and health eff ects. What is the human and environmental

price for the scrap materials being disassembled, recovered, and

buried? It isn’t a stretch to assume that the workers often inhale

toxic fumes; nearby streams can get polluted with runoff waste;

and even streets and living areas of the workers get cluttered with

electronic debris.

WHAT DO YOU THINK?

Even as some countries become hosts for e-waste products, their governments may look the other way when it comes to the environmental and human costs. Whose responsibility is it to deal with the negative consequences of e-waste disposal? Does the originating country or consumer have any obligation to re- duce waste creation and assist with safe waste disposal? If the “plan” given to the boss in this case is simply “ship it to Ghana,” is that acceptable business practice? What are the long-term im- plications of this kind of approach? Do you see a world over the next 50 years where it will be possible for corporations to con- tinue to function without addressing these issues?

ethics> KNOW RIGHT FROM WRONG > It’s a lot easier to send hazardous waste to another country than dispose of it at home.

Offshore E-Waste Graveyards Bury a Problem

Ermin Gutenberger/iStockphoto

83Environment and Value Creation

consume more local produce, and eliminate pollution. As consumers we are asking for

and getting more access to “green products and services.” As job candidates, we increas-

ingly seek “green job” opportunities. As investors we can even buy “green mutual funds”

and “green bonds.” 23

It is important to recognize that we increasingly expect organizations and their manag-

ers to help preserve and respect the environment. When they don’t, public criticism can be

vocal, harsh, and expensive. Th ink about public debates over “fracking” in the search for

natural gas supplies and the use of coal for electricity generation. Th ink about the outrage

that quickly surfaced over the disastrous BP oil spill in the Gulf of Mexico, the $401 billion cleanup and settlement costs to the company, and the subsequent calls for stronger gov-

ernment oversight and control over corporate practices that put our natural world at risk. 24

And, think about the value placed on a university’s sustainability practices by prospective

new students.

Learning Check 1

TAKEAWAYQUESTION 1 What is in the external environment of organizations?

BE SURE YOU CAN • list the key elements in the external environments of organizations • give examples of how present

conditions for each element pose immediate challenges to organizations • give examples of how possible future developments

for each of these elements might require signifi cant changes in how organizations operate

Environment and Value Creation TAKEAWAY 2 How do organizations create value and competitive advantage in a

dynamic environment?

Value creation and competitive advantage • Environmental uncertainty

Th e specifi c environment or task environment is composed of the organizations, groups,

and persons with whom an organization interacts and conducts business. Its members,

referred to as stakeholders, are the persons, groups, and institutions aff ected by the organi-

zation’s performance. 25

Stakeholders are key constituents that have an interest in how an

organization operates. Th ey are infl uenced by it, and they can infl uence it in return. Th e

important stakeholders for most organizations include customers, suppliers, competitors,

regulators, advocacy groups, investors/owners, employees, and society at large—including

future generations.

Value Creation and Competitive Advantage

Organizations are expected to contribute to their environments by cre-

ating value for—and satisfying the needs of—their multiple stakehold-

ers. For example, businesses create value for customers through product

pricing and quality, and for owners in realized profi ts. Businesses create

value for suppliers through the benefi ts of long-term business relation-

ships. Th ey create value for employees through earned wages and job

satisfaction. Businesses create value for local communities through

their citizenship. Th ey can even create value for competitors by stimu-

lating market activity and product/process innovations.

Organizations also strive for competitive advantage in their environments—

something that they do extremely well, is difficult to copy, and gives them an advan-

tage over competitors in the marketplace. 26

Think competitive advantage when you

turn to Google for search, shop with “one-click” at Amazon, and stream movies from

LEARN MORE

ABOUT

Th e specifi c environment, or task

environment, includes the people and

groups with whom an organization

interacts.

Stakeholders are the persons, groups,

and institutions directly aff ected by an

organization.

Competitive advantage is something

that an organization does extremely

well, is diffi cult to copy, and that gives

it an advantage over competitors in the

marketplace.

Local communities

Employees Government

Customers

Future generationsOwnersBusiness

partners

Suppliers Organization

EEEnnnnnvvviiirrrooonnnnnmmmmeeennnnnttt aaaannndddd VVVaalluuee CCrreaaatioonnV

84 CHAPTER 4 ■ Environment, Innovation, and Sustainability

Netflix. The ultimate competitive advantage test for an organization’s leadership is a

good answer to this question: “What does my organization do better than any other?”

Many of the answers today are framed in technology utilization and innovation in the

following areas: 27

• Competitive advantage can be achieved through costs—fi nding ways and using technol-

ogy to operate with lower costs than competitors and thus earn profi ts with prices that

competitors have diffi culty matching.

• Competitive advantage can be achieved through quality—fi nding ways and using tech-

nology to create products and services that are consistently higher quality than com-

petitors off er.

• Competitive advantage can be achieved through delivery—fi nding ways and using tech-

nology to outperform competitors by delivering products and services to customers

faster, more consistently on time, and by developing timely new products.

Why is there so much interest in adventure sports like ice climbing, river running, base jumping, spelunking, and more? Some people assume it is a quest for the adrenaline rush:

others argue that the “thrill” is addictive. What is clear is that it’s

all about risk taking, and people vary in the degree that they are

comfortable taking risks in uncertain situations.

Risk taking is a way to step forward, stop “playing it safe,” and

try new things that can enrich our lifestyle. But there’s need for

caution as well. Th e risks we take in our personal lives and in our

careers aren’t always for the best. Th ere is a diff erence between a

crazy gamble and calculated risk.

Research shows that executives in higher-performing organi-

zations take risks while motivated by confi dence. Th is helps them

pursue opportunities and adapt well to emergent problems. Exec-

utives in lower-performing organizations may take risks while

motivated by desperation to escape present diffi culties. Because

they lack confi dence, they are likely to jump from one problem to

the next without making any real sustainable gains.

Consider the nearby fi gure. On which side of the “risk line” do

you most often fall—the positive side motivated by confi dence, or

the negative side motivated by desperation? It is interesting to

note that research links high risk taking with boredom and dissat-

isfaction. Can this explain why some people engage in risky sports

or personal behaviors—because they’re bored or dissatisfi ed?

It is important to understand our tendencies toward risk

taking and its potential to increase or decrease success. Th e

fi gure identifi es a “risk line” above which risk can be a positive

infl uence on behavior and below which it can be a negative in-

fl uence. Th e former is driven by opportunity and confi dence,

the latter by fear and desperation. As you ponder the many

complexities of organizations’ external environment, including

opportunities of innovation and sustainability, stop and ask:

How do we individually, organizationally, and as a society deal

with risk in our environments, and how can we do better?

GET TO KNOW YOURSELF BETTER

Use the above fi gure to do a quick self-check of your risk-taking tendencies. Which side of the risk line are you most often on— positive or negative? Write short descriptions of risks you’ve taken at school, at work, and your personal life that were driven (a) by confi dence and (b) by desperation. What do these descrip- tions suggest about how risk taking infl uences your behavior in professional and personal areas of your life?

insight> KEEP LEARNING ABOUT YOURSELF > Can boredom and dissatisfaction explain pursuit of risky sports or personal behaviors?

Risk Taking Has Its Ups and Downs

Walking the Fine Line of Risk Taking

Positive Side of Risk-Taking Behavior

Risk taking from base of performance

success; motivated by confi dence in

moving to even better situation; able to

deal with problems as they arise; lots of

staying power

Risk Line --------------------------- Risk Line

Negative Side of Risk-Taking Behavior

Risk taking from position of performance

diffi culty; motivated by desperation to get

out of bad situation; hard time dealing

with problems without losing focus; little

staying power

85Environment and Value Creation

• Competitive advantage can be achieved through fl exibility—fi nding ways and using tech-

nology to adjust and tailor products and services to fi t customer needs in ways that are

diffi cult or expensive for competitors to match.

Uncertainty, Complexity, and Change

As managers deal with stakeholders, seek to create value, and gain competitive advan-

tage, these pursuits often are complicated by environmental uncertainty—a lack of

complete information regarding what is present in the environment and what develop-

ments may occur. Th e more uncertain the environment, the harder it is to analyze envi-

ronmental conditions and predict future states of aff airs. Th e greater the environmental

uncertainty, the more risk taking that may be required to act on perceived problems and

opportunities.

Two dimensions of environmental uncertainty

are shown in Figure 4.2. 28

Th e fi rst is the degree of

complexity, or the number of diff erent factors

present in the environment. An environment is

typically classifi ed as relatively simple or complex.

Th e second is the rate of change in and among

these factors. An environment is typically classi-

fi ed as being stable or dynamic. Th e most chal-

lenging and uncertain situation is an environment

that is both complex and dynamic. High-

uncertainty environments require fl exibility and

adaptability in organizational designs and work

practices, as well as decision makers who are

comfortable with risk and able to respond quickly

as new circumstances arise and new information

becomes available.

Environmental uncertainty is a lack of

information regarding what exists in the

environment and what developments

may occur.

Low

High

Complexity of environment

High-moderate uncertainty

Low-moderate uncertainty

Low uncertainty

Rate of change in environment

High uncertainty

Requires greatest flexibility and adaptation

FIGURE 4.2 Dimensions of uncertainty in the external

environments of organizations.

Learning Check 2

TAKEAWAYQUESTION 2 How do organizations create value and gain competitive advantage in a dynamic environment?

BE SURE YOU CAN • describe how a business can create value for four key stakeholders • explain competitive advantage and

give examples of how a business might achieve it • analyze the uncertainty of an organization’s external environment using

degree of complexity and rate of change

Environment and Innovation TAKEAWAY 3 How do organizations achieve innovation in a dynamic environment?

Types of innovations • Th e innovation process Disruptive innovation and technology

One of the things we can say for sure about organizational environments today is that

change, uncertainty, and complexity call for constant innovation. It is the process of

coming up with new ideas and putting them into practice. And, it’s a major driver of

competitive advantage. 29

When you think “innovation,” what comes to mind? Is it a prod-

uct like the iPad or Kindle e-reader or Google Glass? Is it something fun like an online

game or a Super Soaker water gun? Or is it a customer experience such as using your

smart phone to tap an app and pay for a Starbucks coff ee, or scan a check to make an

electronic bank deposit?

LEARN MORE

ABOUT

Innovation is the process of taking a

new idea and putting it into practice.

EEEnnnnnvvviiirrrooonnnnnmmmmeeennnnnttt aaaannnddddd Innnnoovvaaatiionnn

86 CHAPTER 4 ■ Environment, Innovation, and Sustainability

Scaling—implementing and commercializing as

new products or services

Assessing—identifying costs/benefits,

markets/applications

Experimenting—examining practicality,

doing feasibility studies

Designing—building first models, prototypes

Imagining—thinking about new possibilities

FIGURE 4.3 Th e fi ve steps in Hamel’s “wheel of innovation.”

Types of Innovations

Th e innovations we experience every day sort into three broad forms: (1) Product innovations

result in the creation of new or improved goods and services. (2) Process innovations result in

better ways of doing things. (3) Business model innovations result in new ways of making

money for the fi rm. Consider these examples:

Product Innovation—Groupon put coupons on the Web; Apple introduced the iPod,

iPhone, and iPad world; Amazon’s Kindle launched a new era of e-readers; Facebook and

Instagram made social media part of everyday life, and Twitter introduced communica-

tion in 140 characters or less.

Process Innovation—IKEA’s “ready to assemble” furniture and fi xtures transformed retail

shopping; Amazon.com’s “1-Click” ordering streamlined the online shopping experience;

Nike allows online customers to design their own shoes.

Business Model Innovation—Netfl ix turned movie rental into a subscription business and

Redbox put it into a vending machine; Zynga made “paying for extras” profi table in free

online games; eBay created the world’s largest online marketplace.

Although the tendency is to view innovation as being primarily focused in the business

and economic context, innovation applies equally well when we talk about the world’s

social problems—poverty, famine, literacy, disease—and the general conditions for eco-

nomic and social development. Social business innovation uses business models to

address important social problems. Th ink of it as business innovation with a focus on

critical social issues.

Microcredit lending is an example of social business innovation. It was pioneered in

Bangladesh, where economist Muhammad Yunus started the Grameen Bank. Recognizing

that many of the country’s citizens who are poor couldn’t obtain regular bank loans because

of insuffi cient collateral, Yunus introduced the “microcredit.” He set up the Grameen Bank

to lend small amounts of money to these citizens at very low interest rates, with the goal of

promoting self-suffi ciency through owning small enterprises. At one level this is a business

model innovation—microcredit lending. But at another level it is a social business

innovation—using microcredit lending to help tackle the ever-challenging issue of poverty. 30

Th e Innovation Process

Whatever the goal, whether it be a new product, an improved process, a unique business

model, or solving social problems, the innovation process begins with invention—the act

of discovery—and ends with application—the act of use. Consultant Gary Hamel described

innovation in the fi ve-step wheel of innovation shown in Figure 4.3. 31

Step 1 is imagining—

thinking about new possibilities. Step 2 is designing—

building initial models, prototypes, or samples. Step 3 is

experimenting—examining practicality and fi nancial

value through experiments and feasibility studies. Step 4

is assessing—identifying strengths and weaknesses,

potential costs and benefi ts, and potential markets or

applications. Step 5 is scaling— implementing what has

been learned and commercializing new products or

services. In business this fi nal step involves commer-

cializing innovation by turning it into actual products,

services, or processes that increase profi ts by improv-

ing sales or lowering costs.

Something called reverse innovation is now getting

lots of attention. It refers to innovation that comes

from lower organizational levels and is found in diverse

settings or locations. 32

Th e concept got its start as

global fi rms realized that innovation wasn’t just a

“home market” activity that creates new products and

Product innovations result in new or

improved goods or services.

Process innovations result in better

ways of doing things.

Business model innovations result in

ways for fi rms to make money.

Social business innovation fi nds

ways to use business models to address

important social problems.

Reverse innovation is launched from

lower organizational levels and diverse

locations, including emerging markets.

87Environment and Innovation

services for distribution to “foreign markets.” Instead, they realized that there were lots of

innovations to be found in environments where new products and services had to be cre-

ated under income and pricing constraints. GE, for example, developed low-priced and

portable electrocardiogram and ultrasound machines in India where the prices of its

existing lines were prohibitive. Th e fi rm brought the new machines through reverse inno-

vation into U.S. markets, where their mobility and low prices made them popular with

emergency units.

Disruptive Innovation and Technology

Th e innovation process is sometimes so successful that disruptive innovation occurs.

Harvard scholar Clay Christensen defi nes it as the creation of an innovative product or

service that starts out small scale and then moves “up market” to where it becomes so widely

used that it displaces prior practices and competitors. 33

Historical examples include cellular

phones that disrupted traditional landlines, MP3 digital music players that disrupted tradi-

tional physical transmission of music from CDs and cassettes, and discount retailers that

disrupted traditional full-line department stores. We already see online e-retailers disrupting

fi xed-place brick and mortar stores, online gaming and movie streaming disrupting “buy and

Disruptive innovation creates

products or services that become so

widely used that they largely replace

prior practices and competitors.

Cloud computing now supports a great deal of our personal music, videos, and fi les. Who would have predicted 10 years ago that cloud computing would change the way software fi rms

sell to customers? Marc Benioff did. He started Salesforce.com to

sell customer relationship management software not as a product

but as a service fed from the cloud.

Th e whole idea is to free users from costly software ownership.

Instead, users basically “rent” services that are delivered from remote

servers. Benioff ’s genius in anticipating this market scored a bull’s-eye.

He recognized how a changing technological environment

could create opportunity. Benioff ’s breakthrough idea started with

his admiration for the online businesses pioneered by Amazon

and eBay. He realized that enterprise system software could be

sold the same way. Th e result was a new business model. Custom-

ers buy only what they want and drop the service if they become

dissatisfi ed.

Forward looking and confi dent in taking risk, Benioff isn’t done

with innovation. He has moved into human capital management

software with the acquisition of Rypple. Salesforce-Rypple is a

cloud-based performance review program that allows users to get

real-time feedback and coaching on their performance. Questions

posted for performance feedback in 50 words or less include

issues like “What did you think of my presentation?” “What could

I do better?”

With respect to corporate philanthropy, Benioff follows what

he calls the 1-1-1 rule. Donate 1% of equity, 1% of profi t, 1% of

employee time to charity.

FIND INSPIRATION

Benioff had the insight to spot business opportunities as cloud technology developed, and he had the wisdom to start with customer relationship management software. Are these unique characteristics that only a few special people possess, or are they things many people can nurture and develop for future success? Where do you stand in terms of ideas, innova- tion potential, and the willingness to take risks to give them a chance?

wisdom> LEARN FROM ROLE MODELS > Benioff still follows what he calls the 1-1-1 rule. Donate to charity 1% of equity,

1% of profi t, 1% of employee time.

Marc Benioff’s Keen Eye Spots Opportunities in the Cloud

Jim Wilson/Redux Pictures

88 CHAPTER 4 ■ Environment, Innovation, and Sustainability

Environment and Sustainability TAKEAWAY 4 What is sustainability as an organizational priority?

Sustainable development • Sustainable business • Human sustainability

Th ink about climate change, carbon footprints, alternative energy, local foods, and broader

links between people, organizations, and nature. Th ey highlight issues of sustainability,

a commitment to live and work in ways that protect the rights of both present and

LEARN MORE

ABOUT Sustainability is a commitment to

protect the rights of present and future

generations as co-stakeholders of the

world’s resources.

Learning Check 3

TAKEAWAYQUESTION 3 How do organizations achieve innovation in a dynamic environment?

BE SURE YOU CAN • defi ne innovation • discuss diff erences between process, product, business model, and social business

innovations • list the fi ve steps in Hamel’s wheel of innovation • explain how innovations get commercialized • defi ne reverse

innovation and disruptive innovation • give an example of a disruptive innovation that you use almost every day

A poll conducted by the Conference Board asked 729 global business leaders to prioritize the top 10 challenges facing them in the coming year. Th e results showed the top four con-

cerns as: 1—human capital, 2—operational excellence, 3—innova-

tion, and 4— customer relationships. Th e bottom three challenges

were: 8—corporate brand and reputation, 9—sustainability, and

10—trust in business.

Put in a positive light, it is possible that the low rank on the

challenges list indicates that business leaders believe their fi rms

have sustainability issues under control. Th ey may be acting

with confi dence that sustainability isn’t a crisis concern any-

more, and that their fi rm’s reputations in this area are secure.

But if we frame the results in a negative light, these results also

could mean that sustainability is losing out to other concerns in

the quest for profi ts. Th ese business leaders may be making deci-

sions that are disconnected from prevailing social values. Or

perhaps it may refl ect the fact that there is still a lot of global

disparity regarding just how important sustainability issues are

for businesses today.

WHAT’S YOUR TAKE?

What do these results say about commitments to sustainabil- ity? Do they show that sustainability is already fi rmly entrenched as an executive priority and thus secure as a corporate value? Or, do they indicate that much of the talk about sustainability is just that—”talk,” and that the issues of sustainability, reputation, and trust are still not getting the attention they deserve when it comes to executive decisions and actions?

choices> THINK BEFORE YOU ACT > Sustainability ranked number 9 when the Conference Board asked 729 global business leaders

to prioritize their top 10 challenges for the coming year.

Sustainability Ranks Low among Global Executive Challenges

Justin Hession/Getty Images

EEEnnvvirrroonnmmmennntt aandddd SSusstaaiinnabbiilittyE

own” models, and tablet devices disrupting desktop computing. What’s on your list for the

next great disruptor of today’s established products or business practices? Will electric cars

like Tesla’s Model S disrupt historical internal combustion technology? Will the success of

private room rentals through Airbnb drive further developments in the community market-

place model that end up disrupting not just hotels but also businesses in other industries?

89Environment and Sustainability

future generations as co-stakeholders of the world’s resources. It applies to everything

from the air we breathe and the water we consume, to the spaces we inhabit, to

the human labor that gives life to our best-loved foods, beverages, and electronic

devices.

Sustainable Development

We live and work at a time when global consumption of fossil fuels is at an all-time high,

water shortages are reaching critical proportions in many parts of the world, and air

quality in major metropolitan areas around the globe is reaching all-time lows. It only

makes sense that sustainable development is a major concern for governments, lead-

ers, and the public at large. Th e term describes the use of environmental resources to

support society’s needs today, while also preserving and protecting them for use by

future generations. 34

“Renew,” “recycle,” “conserve,” and “preserve” are all well-recognized sustainable devel-

opment catchwords. Th ey highlight desires to preserve environmental capital or

natural capital as the world’s supply of natural resources—atmosphere, land, water, and

minerals—that sustain life on Earth. 35

But how do we balance aspirations to consume our

environmental capital for everyday prosperity, convenience, comfort, and luxury, with the

potential costs of losing it in the future? PepsiCo’s CEO Indra Nooyi says: “All corporations

operate with a license from society. It’s critically important that we take that responsibil-

ity very, very seriously; we have to make sure that what corporations do doesn’t add costs

to society.” 36

Nooyi’s point directs attention toward a triple bottom line that evaluates

not only an organization’s economic performance but also its social and environmental

performance. 37

Th is is often called the 3 P’s of organizational performance—profi t,

people, and planet.

Sustainable Business

Pursuit of the triple bottom line and the 3 P’s is a hallmark of sustainable businesses

that both meet the needs of customers and protect or advance the well-being of the nat-

ural environment. 38

Sustainable businesses operate in harmony with nature rather than

by exploiting it. Th ey set goals for things like “recycling percentage,” “carbon reduction,”

“energy effi ciency,” “ethical sourcing,” “food security,” among others. 39

Th ey employ people

with job titles like Corporate Sustainability Offi cer, Green Building Manager, Staff Ecolo-

gist, Sustainability Program Director, and Sustainability Planner. Th ey also pursue

sustainable innovation or green innovation to create new products, practices, and

methods that reduce negative impact on the environment and even seek to achieve pos-

itive impact. 40

Sustainable development uses envi-

ronmental resources to support societal

needs today while also preserving and

protecting them for future generations.

A sustainable business operates

in ways that meet the needs of

customers while protecting or

advancing the well-being of our natural

environment.

Sustainable innovations or

green innovations help reduce an

organization’s negative impact and

enhance its positive impact on the

natural environment.

Environmental capital or natural

capital is the supply of natural

resources—atmosphere, land, water,

and minerals—that sustains life and

produces goods and services for society.

Th e triple bottom line assesses the

economic, social, and environmental

performance of organizations.

Th e 3 P’s of organizational

performance are profi t, people,

and planet.

Sustainability Warms the Heart in Chipotle Commercial

Some people admit that the commercial makes them cry. Watch “Back to the Start”

on YouTube and see whether you’re one of them. Listen to Willie Nelson sing

Coldplay’s “Th e Scientist,” while taking an animated journey through the assembly

line world of a factory farm. Watch the farmer send his animals to market and then

realize there’s a better way of doing things. As Willie sings “I’m going back to the

start . . . ,” the farmer goes home and makes signifi cant changes. His goal is still the

same—producing food for people, but the means he employs are very diff erent as he

remakes the farm into a sustainable food venture. Chipotle’s tag line is: “Cultivate a

Better World.”TJ P/

A la

m y

Management&PopularCulture

90 CHAPTER 4 ■ Environment, Innovation, and Sustainability

A sustainable business model seeks

win–win outcomes for the organization

and the environment. Can you think of

some good examples? Actually, a lot of

fi rms approach their markets in this way.

For example, Stonyfi eld Farm saved over

$1.7 million in energy costs after putting in

a large solar photovoltaic array. Clif Bar cut

shrink-wrapping and saved $400,000 a year

in plastic costs. Seventh Generation built

$401 million of revenues from green per- sonal care and household products.

41 Sub-

aru of Indiana Automotive saved $5.3

million in one year as 98% of plant waste

was recycled or reduced, paint solvents

were fi ltered and reused, and compost

from food waste was sold to local farm-

ers. 42

Even basic changes in work practices

can help with sustainability. Using virtual teams and conferences lowers travel costs;

off ering work-at-home alternatives helps attract and retain talent; both practices help

reduce carbon emissions by cutting back on employee travel. 43

Human Sustainability

Th e notion of sustainability in management applies to more than the natural environment

alone. Scholar Jeff rey Pfeff er off ers a strong case for giving greater management attention

to social and human sustainability—the “People” part of the 3 P’s. 44

He says: “Just as there

is concern for protecting natural resources, there could be a similar level of concern for

protecting human resources. . . . Being a socially responsible business ought to encompass

the eff ect of management practices on employee physical and psychological well-being.” 45

Pfeff er’s concern for human sustainability highlights the importance of including

employees as organizational stakeholders. Human sustainability issues like those in the

nearby box remind us that management practices have major consequences for the

health and well- being of the individuals who do the everyday work of organizations. A

tragic example of the failure to embrace human sustainability is the collapse of an indus-

trial complex in Bangladesh that housed outsourcing suppliers to several well-known

global clothing retailers. Th e incident killed more than 1,100 people and exposed unsafe

building and sweatshop conditions in factories throughout the country. The nonprofit

Institute for Global Labour and Human Rights is dedicated to improving human sus-

tainability through its mission “to promote and defend human, women’s and workers’

rights in the global economy.” 46

Learning Check 4

TAKEAWAYQUESTION 4 What is sustainability as an organizational priority?

BE SURE YOU CAN • explain the triple bottom line and 3 P’s of organizational performance • defi ne the terms sustainable

development and environmental capital • give examples of sustainability issues today • explain and give examples of sustainable

business practices • discuss human sustainability as a management concern

Ask to what extent the organization helps support and advance human

health and well-being by:

• Providing health insurance to employees?

• Providing wellness programs for employees?

• Avoiding job layoff s?

• Structuring work hours to reduce stress?

• Structuring work hours to minimize work–family confl ict?

• Designing jobs to reduce stress?

• Designing jobs to give people control over their work?

• Being transparent and fair in handling wage and status inequalities?

How to Assess Organizational Commitment to Human Sustainability

91Management Learning Review

Summary

TAKEAWAYQUESTION 1 What is in the external environment of organizations?

• The general environment includes background economic, sociocultural, legal-political, technological, and natural environment conditions.

• The economic environment infl uences organizations through the health of the local, domestic, and global economies in terms of such things as fi nancial markets, infl ation, income levels, unemployment, and job outlook.

• The legal-political environment infl uences organizations through existing and proposed laws and regulations, government policies, and the philosophy and objectives of political parties.

• The sociocultural environment infl uences organizations through the norms, customs, and demographics of a society or region, as well as social values on such matters as ethics, human rights, gender roles, and lifestyles.

• The technological environment infl uences organizations through continuing advancement of information and computer technologies that affect the way we work, how we live, and how we raise our children.

• The natural environment conditions infl uence organiza- tions through the abundance of natural resources pro- vided, and the need for organizational practices that both meet the needs of customers and protect future well-being.

FOR DISCUSSION If the interests of a business fi rm’s owners and investors confl ict with those of the community, which stakeholder gets preference? What situational factors infl uence whose interests take precedence?

TAKEWAYQUESTION 2 How do organizations create value and competitive advantage in a dynamic environment?

• The specifi c environment or task environment consists of suppliers, customers, competitors, regulators, and other stakeholders with which an organization interacts.

• A competitive advantage is achieved when an organiza- tion does something very well that allows it to outperform its competitors.

• Environmental uncertainty is created by the rate of change of factors in the external environment and the complexity of this environment in terms of the number of factors that are relevant and important.

FOR DISCUSSION Which of the two or three retail stores that you shop at weekly has the strongest competitive advantage and why?

TAKEAWAYQUESTION 3 How do organizations achieve innovation in a dynamic environment?

• Product innovations deliver new products and services to customers; process innovations improve operations; and business model innovations fi nd new ways of creating value and making profi ts.

• Social business innovations use business models to help address social problems, things like poverty, famine, disease, and literacy.

• The innovation process involves moving from the stage of invention that involves discovery and idea creation all the way to fi nal application that involves actual use of what has been created.

• Reverse innovation fi nds innovation opportunities in diverse locations, such as taking products and services developed in emerging markets and fi nding ways to utilize them elsewhere.

• Disruptive innovation, often involving technological advancements, is the creation of a new product or service that starts out small scale and then becomes so widely used that it displaces prior practices and competitors.

FOR DISCUSSION Housing for the homeless is a problem in many communities. In what way might this problem be addressed through some form of social business innovation?

TAKEAWAYQUESTION 4 What is sustainability as an organizational priority?

• The concept of sustainability describes a commitment to recognize and protect the rights of both present and future generations as co-stakeholders of the world’s natural resources.

• The triple bottom line evaluates how well organizations perform on economic, social, and environmental perfor- mance criteria; it is also called the 3 P’s of organizational performance—profi ts, people, planet.

• Sustainable development uses environmental resources to support society today while also preserving and protect- ing those resources for use by future generations.

• Sustainable innovations pursue new ways for minimizing the negative impact and maximizing positive impact of organizations on the natural environment by reducing energy and natural resource consumption.

FOR DISCUSSION When the costs of pursuing sustainability goals reduce business profi ts, which stakeholder interests should take priority, business owners or society at large? Where do you think the balance between profi ts and sustainability should naturally emerge?

Management Learning Review Get Prepared for Quizzes and Exams

92 CHAPTER 4 ■ Environment, Innovation, and Sustainability

Multiple-ChoiceQuestions 1. The general environment of an organization would

include ____________. (a) population demographics (b) activist groups (c) competitors (d) customers

2. Internet censorship faced in foreign countries by fi rms such as Google is an example of how differences in ____________ factors in the general environment can cause complications for global business executives. (a) economic (b) legal-political (c) natural environment (d) demographic

3. If the term offshoring describes outsourcing of work and jobs to foreign locations, what is it called when fi rms like Caterpillar move jobs back into the United States from foreign locations? (a) protectionism (c) disrupting (b) reshoring (d) upscaling

4. Work preferences of different generations and public values over things like high pay for corporate executives are examples of developments in the ____________ environment of organizations. (a) task (b) specifi c (c) socio-cultural (d) economic

5. A business that has found ways to use technology to outperform its rivals in the marketplace can be said to have gained ____________. (a) environmental capital (b) competitive advantage (c) sustainable development (d) environmental certainty

6. Apps for an Apple iPhone or Google Android phone are examples of ____________ innovations, whereas the use of robotics in performing manufacturing tasks previously done by humans is an example of ____________ innovation. (a) cost-benefi t, process (b) product, cost-benefi t (c) value-driven, service-driven (d) product, process

7. Micro-credit lending that makes it possible for poor people to get small loans so they can start small businesses is an example of a business model innovation that is also a ____________ innovation. (a) social business (c) disruptive (b) technological (d) green

8. Two dimensions that determine the level of environmental uncertainty are the number of factors in the external environment and the ____________ of these factors. (a) location (b) rate of change (c) importance (d) interdependence

9. One of the ways that corporations might better take into account their responsibility for being good environmental citizens is to redefi ne the notion of profi t to: Profi t 5 Revenue 2 Cost of Goods Sold 2____________ . (a) operating expenses (b) dividends (c) costs to society (d) loan interest

10. The three P’s of organizational performance are Profi t, People, and ____________. (a) Philanthropy (b) Principle (c) Potential (d) Planet

11. What organizational stakeholder must be considered in any serious discussion about how a fi rm can better fulfi ll its obligations for sustainable development? (a) owners or investors (b) customers (c) suppliers (d) future generations

12. The fi rst step in Hamel’s wheel of innovation is ____________. (a) imagining (b) assessing (c) experimenting (d) scaling

13. When a medical device is developed in India so that it can sell at a low price and still deliver high-quality results, and then that device is transferred for sale in the United States also at a low price, this is an example of ____________. (a) trickle-down innovation (b) disruptive innovation (c) reverse innovation (d) sustainable innovation

Self-Test 4

93Management Skills & Competencies

14. What term is used to describe the world’s supply of natural resources, things like land, water, and minerals? (a) sustainable development (b) global warming (c) climate justice (d) environmental capital

15. Health insurance for employees, fl exible work hours to balance work and family responsibilities, and programs to help employees deal with stress in their lives, are ways organizations might try to improve their accomplishments in respect to ____________. (a) profi ts (b) human sustainability (c) innovation (d) natural capital

Short-ResponseQuestions 16. Who and/or what should be considered as key

stakeholders by a business executive when mapping the task environment for her organization?

17. Exactly how should “sustainability” be best defi ned when making it part of a goal statement or strategic objective for a business or nonprofi t organization?

18. How do product, process, and business model innovations differ from one another?

19. How does the process of reverse innovation work?

EssayQuestion

20. At a reunion of graduates from a college of business at the local university, two former roommates engaged in a discussion about environment and sustainability. One is a senior executive with a global manufacturer, and the other owns a sandwich shop in the college town.

Global executive: “We include sustainability in our corporate mission and have a chief sustainability offi cer on the senior management team. The CSO is really good and makes sure that we don’t do anything that could cause a lack of public confi dence in our commitment to sustainability.”

Sandwich shop owner: “That’s all well and good, but what are you doing on the positive side in terms of environmental care. It sounds like you do just enough to avoid public scrutiny. Shouldn’t the CSO be a real advocate for the environment rather than just a protector of the corporate reputation? We, for example, use only natural foods and ingredients, recycle everything that is recyclable, and compost all possible waste.”

Question: If you were establishing a new position called corporate sustainability offi cer, what would you include in the job description as a way of both clarifying the responsibilities of the person hired and establishing clear accountability for what sustainability means to your organization?

Evaluate Career Situations

What Would You Do?

1. Social Values on the Line

It is uncomfortable just to hear it. One of your friends brought

his friend to lunch. When discussing a new female boss, he

says: “It really irritates me not only that she gets the job just

because she’s a woman, but she’s also Hispanic. No way that

someone like me had a chance against her ‘credentials.’ Now

she has the gall to act as if we’re all one big happy team and

the rest of us should accept her leadership. As for me, I’ll do

my best to make it diffi cult for her to succeed.” Your friend

looks dismayed but isn’t saying anything. What will you say

or do? How does this kind of exchange make you feel?

2. Innovation Isn’t Everything

A member of your team comes into the offi ce with a com-

plaint. “You’re a great boss,” she says, “but . . .” Well, it turns

out the “but” has to do with an apparent bias on your part

for praising in public only those members of the team who

come up with new ideas. You seem to overlook or neglect

the fact that other team members are working hard and

producing good—albeit standard—work every day. Are you

ready to accept the point that not all high performers are

going to be great innovators? If so, what changes in your

behavior might be made to refl ect this belief ? How can you

balance great “conventional” work with eff orts to innovate?

3. Humans Count, Too

Your boss is enthusiastic about making sustainability a top

organizational priority. In a recent meeting he kept talking about

“nature,” “green practices,” and “resource protection.” You listened

and fi nally said: “What about people—shouldn’t they count

when it comes to issues of sustainability?” After listening, per-

haps after an initial thought to be critical of your response, he

said in return: “Give me a proposal that we can discuss at the next

staff meeting.” What are you going to give him? How can you

make sustainability part of the program at your place of work?

ManagementSkills& Competencies Make yourself valuable!

94 CHAPTER 4 ■ Environment, Innovation, and Sustainability

Refl ect on the

Self-Assessment

Tolerance for Ambiguity

Instructions To determine your level of tolerance for ambiguity, rate each of

the following items on this 7-point scale. 47

1 strongly disagree

3 slightly agree

5 slightly agree

7 strongly disagree

___ 1. An expert who doesn’t come up with a defi nite answer

probably doesn’t know too much.

___ 2. Th ere is really no such thing as a problem that can’t be

solved.

___ 3. I would like to live in a foreign country for a while.

___ 4. People who fi t their lives to a schedule probably miss

the joy of living.

___ 5. A good job is one where what is to be done and how it

is to be done are always clear.

___ 6. In the long run it is possible to get more done by tackling

small, simple problems rather than large, complicated

ones.

___ 7. It is more fun to tackle a complicated problem than it is

to solve a simple one.

___ 8. Often the most interesting and stimulating people are

those who don’t mind being diff erent and original.

___ 9. What we are used to is always preferable to what is

unfamiliar.

___ 10. A person who leads an even, regular life in which few

surprises or unexpected happenings arise really has a

lot to be grateful for.

___ 11. People who insist upon a yes or no answer just don’t

know how complicated things really are.

___ 12. Many of our most important decisions are based on

insuffi cient information.

___ 13. I like parties where I know most of the people more than

ones where most of the people are complete strangers.

___ 14. Th e sooner we all acquire ideals, the better.

___ 15. Teachers or supervisors who hand out vague assignments

give a chance for one to show initiative and originality.

___ 16. A good teacher is one who makes you wonder about

your way of looking at things.

___ Total Score

Scoring To obtain a score, fi rst reverse the scale score for the eight

“reverse” items, 3, 4, 7, 8, 11, 12, 15, and 16 (i.e., a rating of 1 5 7, 2

5 6, 3 5 5, etc.), then add up the rating scores for all 16 items.

Interpretation Individuals with a greater tolerance for ambiguity are more likely to

be able to function eff ectively in organizations and contexts with

high turbulence, a high rate of change, and less certainty about

expectations, performance standards, what needs to be done, and

so on. Th ey are likely to “roll with the punches” as organizations,

environmental conditions, and demands change rapidly.

Individuals with a lower tolerance for ambiguity are more

likely to be unable to adapt or adjust quickly in turbulence,

uncertainty, and change. Th ese individuals are likely to become

rigid, angry, stressed, and frustrated when there is a high level of

uncertainty and ambiguity in the environment.

Contribute to the

Class Exercise

Th e Future Workplace

Instructions Form teams as assigned by the instructor.

1. Brainstorm to develop a master list of the major characteristics

you expect to fi nd in the workplace in the year 2020. Use this

list as background for completing the following tasks:

2. Write a one-paragraph description of what the typical

“Workplace 2020” manager’s workday will be like.

3. Draw a “picture” representing what the “Workplace 2020”

organization will look like.

4. Summarize in list form what you consider to be the

personal implications of your future workplace scenario for

management students today. Th at is, explain what this means

in terms of using academic and extracurricular activities to

best prepare for success in this future scenario.

5. Choose a spokesperson to share your results with the class as

a whole and explain their implications for the class members.

Manage a Critical Incident

It’s Also about Respect

Situation For three years you have worked in a small retail store selling gifts

and party goods in a college town. Th is year the owner appointed

you as manager and you’ve run into a perplexing situation. Of the

store’s eight employees, the only full-timer is a single mother who

struggles fi nancially to make ends meet. She lives in public hous-

ing, receives food stamps, and overall fi nds it almost impossible

to survive on the minimum wage all employees receive. She just

came to you and said that the national debate on raising the min-

imum wage prompted her to (fi nally) ask for an increase at least

up to the level of the minimum wage ($15 per hour) being advo-

cated by fast-food workers who are threatening strikes. Her point

is not just that the wage she receives isn’t a “livable” wage, but

that “it’s also about respect.” You have listened to her story and

95Analyze the Case Study

fi nd her case troubling. But you’ve also got seven part-timers to

consider, as well as the owner’s needs. At this point you arrange

for a meeting with the owner to discuss what you call “wage and

motivation issues” at the store. You want to have some concrete

ideas ready to drive your discussion with the owner.

Questions How will you frame your assessment of the situation for the

store owner? What alternative courses of action can you sug-

gest? What alternative do you prefer in this situation, and why?

How does the preferred alternative handle wage and motivation

issues for . . . the full-timer? the part-timers? yourself ?

Collaborate on the

Team Activity

Organizational Commitment

to Sustainability Scorecard

Instructions In your assigned teams do the following:

1. Agree on a defi nition of “sustainability” that should fi t the

operations of any organization.

2. Brainstorm and agree on criteria for an Organizational

Commitment to Sustainability Scorecard (OCSS) that can

be used to audit an organization’s sustainability practices.

Be sure that an organization being audited would not

only receive scores on individual dimensions or categories

of sustainability performance, but also receive a total

overall “Sustainability Score” for comparison with other

organizations.

3. Present and defend your OCSS publically to the whole class.

4. Use feedback received from the class presentation to revise

your OCSS so that it can be used to conduct an actual

organizational sustainability audit.

5. Use your OCSS to complete a sustainability audit for a local

organization.

6. Present the results of your audit to the instructor and

the whole class. Include in the presentation not only the

audit scores, but also: (a) recommendations for how this

organization could improve its sustainability practices in the

future, and (b) any benchmarks from this organization that

might be considered sustainability “best practices” for other

organizations to follow.

AnalyzeTHE CaseStudy

TIMBERLAND

Walking a Green Path Go to Management Cases for Critical Th inking at the back of the book to fi nd this case.

International travel is rich with cultural diversity. But even a day out shopping or a walk across the college campus can be a trip around the world . . . if you are willing to take it.

UniversalImagesGroup/Getty Images

Global

Management

and Cultural

Diversity Th ere are many faces in the

neighborhood

C H A P T E R Q U I C K STA RT

Our time of global change and turmoil makes the implications of globalization for

managers, organizations, and everyday living ever more important to understand.

Global corporations off er benefi ts and create controversies; cultural diff erences are

a source of enrichment and the roots of misunderstandings for travelers, business

executives, and government leaders. Th is chapter introduces the essentials of global

management and cultural diversity with a focus on global learning.

Key Takeaways

■ Discuss the implications

of globalization for

management and

organizations.

■ Describe global

corporations and the

issues they face and create.

■ Defi ne culture and identify

ways to describe diversity

in global cultures.

■ Identify the benefi ts

of global learning for

management and

organizations.

MANAGEMENT IS REAL MAKE DATA YOUR FRIEND

Corruption and Bribes Haunt Global Business

THINK BEFORE YOU ACT

Reshoring Offers Alternative to China Manufacturing

KNOW RIGHT FROM WRONG

Nationalism and Protectionism a Potent Mix

LEARN ABOUT YOURSELF

Cultural Intelligence Opens Doors to Opportunity

LEARN FROM ROLE MODELS

Nobel Peace Prize Winner Asks Global Firms to Fight Poverty

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Global Intelligence

■ CONTRIBUTE To the Class Exercise: American Football

■ MANAGE A Critical Incident: Silent Team Members

■ COLLABORATE On the Team Activity: Globalization Pros and Cons

■ ANALYZE Th e Case Study: Harley-Davidson: Style and Strategy with a Global Reach

what to look for inside >

98 CHAPTER 5 ■ Global Management and Cultural Diversity

Management and Globalization TAKEAWAY 1 What are the management challenges of globalization?

Global management • Why companies go global • How companies go global Global business environments

We live and work in the age of the global economy in which resources, supplies, product

markets, and business competition have a worldwide—rather than a local or national—

scope. It is a time heavily infl uenced by the forces of globalization, defi ned as the growing

interdependence among the components in the global economy. Some see globalization as

creating a “borderless world” where economic integration becomes so extreme that nation-

states hardly matter anymore. 4 But international management scholar Pankaj Ghemawat

describes what he calls World 3.0, a form of globalization in which national identities

remain strong even as countries cooperate in the global economy. 5 National leaders try to

balance economic gains from global integration with local needs and priorities.

Th ere’s no better way to illustrate the global economy than with the example of the

clothes we wear. For example, where did you buy your favorite T-shirt? Where was it made?

Where will it end up? In a fascinating book titled Th e Travels of a T-Shirt in the Global Econ-

omy, economist Pietra Rivoli tracks the origins and disposition of a T-shirt that she bought

while on vacation in Florida. 6

As can be seen here, Rivoli’s T-shirt lived a very complicated global life before she bought

it. Th at life began with cotton grown in Texas. It then moved on to China where the cotton

was processed and white T-shirts were manufactured. Th e T-shirts were then sold to a fi rm

in the United States that silk-screened and sold them to retail shops for resale to American

customers. Th ese customers eventually donated the used T-shirts to a charity that sold

them to a recycler. Th e recycler sold them to a vendor in Africa, who then distributed the

T-shirts to local markets to be sold yet again to local customers.

It’s quite an international story, as this T-shirt travels the global commercial highways

and byways of the world. Th e Limited Brands story, and many other examples like it, leave

LEARN MORE

ABOUT

In the global economy, resources,

markets, and competition are worldwide

in scope.

Globalization is the growing

interdependence among elements

of the global economy.

MMMaaanaaaggeemmmennntt aandddd GGloobaaallizzaattioonM

O ur dynamic, growing global community is rich with information, oppor-

tunities, controversies, and complications. We get real-time news from

around the world on our smart mobile devices—giving us in the truest sense,

the wherewithal to be true global citizens. When such crises as the Japanese

tsunami or civil unrest like the Arab Spring occur, social media, including

Twitter, Instagram, and Facebook, join major news organizations to get

information and news out instantaneously. We play online games like World

of WarCraft or Rift with people from around the world in actual time, and

colleges and universities in the United States off er a vast array of interna-

tional study-abroad programs for students.

As for traveling the globe, companies today really are travelers also.

IBM has more employees in India than the U.S. 1 Anheuser-Busch, maker of

“America’s King of Beers,” is owned by the Belgian fi rm InBev. Ben & Jerry’s is

owned by the British-Dutch fi rm Unilever. India’s Tata Group owns Jaguar,

Land Rover, Tetley, and Eight O’Clock. China’s Geely owns Volvo. Japan’s

Honda, Nissan, and Toyota receive 80% to 90% of their profi ts from sales in

America. 2 Components for Boeing planes come from 5,400 suppliers located

in 40 countries! 3

World 3.0 is a world where nations

balance cooperation in the global

economy with national identities

and interests.

99Management and Globalization

little doubt as to why Harvard

scholar and consultant Rosabeth

Moss Kanter once described global-

ization as “one of the most powerful

and pervasive infl uences on nations,

businesses, workplaces, communi-

ties, and lives.” 7

Global Management

Honda in Ohio—Allen Kinzer,

now retired, was the fi rst Ameri-

can manager Honda hired for

its Marysville, Ohio, plant. Many

people were worried whether

U.S. workers could adapt to the

Japanese fi rm’s production meth-

ods, technology, and style. Says

Kinzer: “It wasn’t easy blending

the cultures; anyone who knew anything about the industry at the time would have to say

it was a bold move.” Honda now employs 4,200 workers, who produce 440,000 vehicles

per year. It is one among literally hundreds of foreign fi rms off ering employment

opportunities to U.S. workers. 8

Haier in South Carolina—Th e Haier Group is one of China’s best-known appliance mak-

ers. CEO Zhang Ruimin built a factory in Camden, South Carolina, with the goal of taking

a larger share of America’s refrigerator market. But the plant was expensive and American

workers resented Haier’s organizational culture and top-down management style. Work

hats that showed diff erent ranks and seniority, for example, didn’t go over well in South

Carolina. But Zhang stayed with the project, saying, “First the hard, then smooth. Th at’s

the way to win.” 9

Th e prior vignettes introduce the opportunities and complexities of global management,

which describes management in businesses and organizations with interests in more than

one country. For many fi rms, global management is a way of life today. Procter & Gamble, for

example, pursues a global strategy with customers in over 180 countries. Th e majority of

McDonald’s sales now come from outside the United States, with the “Golden Arches” prom-

inent on city streets from Moscow to Tokyo to Budapest to Rio de Janeiro. Toyota has 14

plants employing more than 35,000 workers in North America. Th e success of fi rms like these

depends on attracting and hiring truly global managers with a strong global perspective, who

are culturally aware, and who are informed about current international issues and events.

Why Companies Go Global

John Chambers, chairman and CEO of Cisco Systems Inc., once said: “I will put my jobs

anywhere in the world where the right infrastructure is, with the right educated workforce,

with the right supportive government.” 10

Cisco, Honda, Haier, and other fi rms like these

are classic international businesses that conduct for-profi t transactions of goods and

services across national boundaries. Nike is another truly international business—its

swoosh is one of the world’s most recognized brands.

Did you know that Nike has no domestic manufacturing infrastructure? All of its prod-

ucts are sourced internationally, including 1001 factories in China alone. Its competitor, New Balance, takes a diff erent approach. Although extensively leveraging global suppliers

and licensing its products internationally, New Balance still produces one out of every four

of its shoes at factories in the United States. 11

Th e two fi rms follow somewhat diff erent strat-

egies, but each is actively global. Both fi rms—and others like them—seek these benefi ts of

international business.

Global management involves

managing business and organizations

with interests in more than one country.

A truly global manager is culturally

aware and informed on international

aff airs.

An international business conducts

for-profi t transactions of goods and

services across national boundaries.

American customer gives used t-shirt to

local charity

American customer buys new t-shirt at

tourist shop in Florida

Local charity sells used t-shirt to recycling firm

Travels of a

T-Shirt

Recycling firm sells t-shirt to vendor in

East Africa

American firm buys white t-shirts, silk-

screens them, sells to local vendors

Finish African customer

buys used t-shirt at local market in Tanzania

Chinese factory manufactures white

t-shirts for export

Start Cotton is raised on

west Texas farm and sold to China

100 CHAPTER 5 ■ Global Management and Cultural Diversity

Profi ts—Gain profi ts through expanded operations.

Customers—Enter new markets to gain new customers.

Suppliers—Get access to materials, products, and services.

Labor—Get access to lower-cost, talented workers.

Capital—Tap into a larger pool of fi nancial resources.

Risk—Spread assets among multiple countries.

Today you can add another benefi t to this list, economic development—where a global

fi rm does business in foreign countries with direct intent to help the local economy. Coff ee

giants Green Mountain Coff ee, Peet’s Coff ee & Tea, and Starbucks, for example, help Rwandan

farmers improve production and marketing methods. Th ey send advisers to teach local

coff ee growers how to meet high international standards so that their products can be sold

worldwide. Th is commitment to economic development generates a win–win scenario: Th e

global coff ee fi rm gets a quality product at a good price, the local coff ee growers gain skills

and market opportunities, and the domestic economy improves. 12

A development-focused

approach to international business energizes a virtuous circle, where all parties to the rela-

tionship keep getting stronger as they work with one another.

Benefi ts of international business

Should global businesses balance the pursuit of profi t with genuine eff orts to do public good? A strong and positive “Yes!” is the answer off ered by economist and Nobel Peace Prize winner

Muhammad Yunus. He gained fame for creating the Grameen

Bank to off er microcredit loans to help fi ght poverty in his home

country of Bangladesh. Th e bank loans small amounts (as low as

$30) to applicants of low income (96% of whom are women) so

that they can start their own small businesses and establish fi nan-

cial independence. Th is model of microfi nance has now spread

around the world, serving some 200 million borrowers.

Th e next step for Yunus has been to ask global fi rms to unlock

the power of business to tackle poverty and other enduring social

problems. In his book Creating a World without Poverty, Yunus

advocates a social business model whereby a company’s products

or services are targeted to benefi t people suff ering from social

ills. “Now every time I want to address a problem, I create a

business” that he says is “focused on problem solving, not on

money making.”

Yunus’s call to the global business community was heard by

German yogurt maker Danone. Danone joined with Yunus to

start Grameen Danone as the world’s fi rst multinational social

business. It manufactures nutritional yogurt and sells it at low

prices in Bangladesh to help the 46% of local children who are

undernourished. Profi ts are reinvested rather than paid out as

dividends.

“We can create a world where poverty doesn’t exist,” claims

Yunus, who hopes that “at least 1 percent of the world economy be

made up with social business” within fi ve years. He was awarded

the Congressional Gold Medal in 2013 in recognition of his eff orts

“to combat global poverty.”

FIND INSPIRATION

When a multinational company travels into countries where social problems like poverty, disease, and illiteracy are present, should it fi nd a way to help? Can the social business model work in the global business context? Or is this something most likely to remain “unusual” rather than “common” in the future? Do you agree that global corporations can become powerful tools for eliminating social problems? Why or why not?

wisdom> LEARN FROM ROLE MODELS > “Now every time I want to address a problem, I create a business . . . we can create a world

where poverty doesn’t exist.”

Nobel Peace Prize Winner Asks Global Firms to Fight Poverty

101Management and Globalization

How Companies Go Global

Th e ways of pursuing international business are shown in Figure 5.1. When a business is

becoming international, global sourcing, exporting/importing, licensing and franchising are

typically the most common ways to begin. Th ese are market-entry strategies that involve the

sale of goods or services to foreign markets that don’t require an expensive investment.

Strategic alliances, joint ventures, and wholly owned subsidiaries are direct investment

strategies. Th ese approaches do require a major capital commitment, but also create rights

of ownership and control over operations in the foreign country.

Global Sourcing Th e fi rst step taken into international business by many fi rms is global sourcing—the

process of purchasing materials, manufacturing components, or locating business services

around the world. It is an international division of labor in which activities are performed in

countries where they can be accomplished eff ectively at low cost. Global sourcing at Boeing,

for example, means that aircraft parts and components fl ow in from a complex global

supply chain for fi nal assembly into 787 Dreamliners at American plants—center fuselage

from Italy, landing gear from France, fl ight deck interiors from Japan, and more. In the

service sector, it may mean setting up toll-free customer support call centers in the

Philippines, locating research and development centers in Brazil or Russia, or hiring

physicians in India to read medical X-rays. 13

Most manufacturers today—of toys, shoes, electronics, furniture, clothing, aircraft—

make extensive use of global sourcing. China is still a major outsourcing destination

and in many areas has become the factory for the world. If you use an Apple iPod,

iPhone, or iPad, for example, the chances are good that it was assembled by a Taiwanese-

owned company called Hon Hai Precision Industry at plants located in China. These

plants are huge—employing as many as 350,0001 workers, who produce products not just for Apple, but for other firms like Sony and Hewlett-Packard. You may have heard of

Hon Hai through its trade name, Foxconn, and from news coverage of controversies

over its treatment of workers. 14

Global firms have to work hard to maintain brand repu-

tations while dealing with complex global supply chains, and aggressive international

audits are now common. Even with a rigorous auditing program, however, Apple suf-

fered a blow to its reputation when a financial analyst downgraded the firm’s stock for

“moral reasons” after discovering some of its global suppliers paid low wages to their

workers. 15

Problems with sketchy foreign contractors, rising labor rates, and higher costs for

transportation in global supply chains are among the reasons why some fi rms have

started to reduce their outsourcing and do more reshoring—moving foreign manufac-

turing and jobs back home. Further reasons for reshoring include opportunities to access

cheaper energy, stable wage rates, better quality control, and good public relations by

starting or expanding domestic operations. A survey of large U.S.-based manufacturers

by the Boston Consulting Group (BCG) found that over half of U.S. fi rms had either

started reshoring or were likely to do so in the future. The report concluded that

“Companies are realizing that the economics of manufacturing are swinging in favor of

the U.S.” 16

In global sourcing, materials or

services are purchased around the

world for local use.

Reshoring shifts foreign manufacturing

and jobs back to domestic locations.

Global sourcing

Exporting and importing

Licensing and franchising Joint ventures

Foreign subsidiaries

Increasing involvement in ownership and control of foreign operations

Market entry strategies Direct investment strategies

FIGURE 5.1 Common forms of international business—from market entry to direct invest- ment increasing involvement in ownership and control of foreign operations strategies.

102 CHAPTER 5 ■ Global Management and Cultural Diversity

Exporting and Importing A second form of international business involves exporting—selling locally made products

in foreign markets. Th e fl ipside of exporting is importing—buying foreign-made products

and selling them in domestic markets.

Because the growth of export industries creates local jobs, governments often off er spe-

cial advice and assistance to businesses seeking to develop or expand export markets. After

visiting a U.S. government–sponsored trade fair in China, Bruce Boxerman, president of a

then small Cincinnati fi rm, Richards Industries, decided to take advantage of the growing

market for precision valves. Th e decision doubled export sales in 10 years and one his

employees said: “It wasn’t long ago that guys looked at globalization like it is going to cause

all of us to lose our jobs. Now it’s probably going to save our jobs.” 17

And it certainly did.

Richards is now the parent company to six product lines and has over 200 sales representa-

tives around the world.

Licensing and Franchising International business also takes place through the licensing agreement, where foreign

fi rms pay a fee for rights to make or sell another company’s products in a specifi ed region.

Th e license typically grants access to a unique manufacturing technology, special patent, or

trademark. Such licensing, however, involves potential risk. 18

New Balance, for example,

licensed a Chinese supplier to produce one of its brands. Even after New Balance revoked

In exporting, local products are sold

abroad to foreign customers.

Importing involves the selling in

domestic markets of products acquired

abroad.

In a licensing agreement a local fi rm

pays a fee to a foreign fi rm for rights

to make or sell its products.

Over the past 15 to 20 years, if you were a manufacturer you went to China, at least as a fi rst stop on your global scouting trip. However, things have changed. A San Diego–based CEO says:

“Now people are trying to come back.”

Why so?

LightSaver Technologies tried for two years to get things done

in China. Now its work is back in California. CEO Jerry Anderson

says China has lost its allure: “It’s probably 30 percent cheaper to

manufacture in China. But factor in shipping and all the other B.S.

that you have to endure.” Transportation costs and time are up for

goods moved from China to the United States and other world

markets. Labor costs are up; rising about 20% a year. Business

risks in China, if not up, are at least more visible. Th eft of intellec-

tual property is a problem. One small manufacturer says: “Th ey’re

infamous over there for knocking [products] off .” Another com-

plains: “Now prices are escalating, quality is dropping, and deliver-

ies are being delayed.”

YOUR TAKE?

The Economist says China “is still a manufacturing power.” With super-effi cient plants and supply chain infrastructure it remains a bargain for labor costs. So, are you on the reshoring side or the offshoring side of the issue? What facts are available to support or undermine your position? Try to think of this issue from a consumer’s perspective. If you can buy a child’s toy made in China for $8, would you be willing to pay $12 so that it could be labeled “Made in America”? Should more of America’s businesses, large and small, say, “Not worth the trouble!” when Chinese manufacturers come calling with offers?

choices> THINK BEFORE YOU ACT > “It’s probably 30 percent cheaper to manufacture in China. But factor in shipping

and all the other B.S. that you have to endure.”

Reshoring Offers Alternative to China Manufacturing

Pgiam/iStockphoto

103Management and Globalization

the license, the supplier continued to produce and distribute the shoes around Asia. It was

only through expensive, drawn-out litigation in China’s courts that New Balance was able to

deal with the problem. 19

Franchising is a form of licensing in which a foreign fi rm buys the rights to use another’s

name and operating methods in its home country. Th e international version operates in

a similar way to domestic franchising agreements. Such fi rms as McDonald’s, Wendy’s,

and Subway, for example, sell facility designs, equipment, product ingredients, recipes, and

management systems to foreign investors, while retaining certain brand, product, and

operating controls. One of the challenges associated with international franchising can

be the creation of locally popular menu items while retaining coherence with broader

branding goals.

Joint Ventures and Strategic Alliances Foreign direct investment, or FDI, involves setting up and buying all or part of a business in

another country. For many countries, the ability to attract foreign business investors has

been a key to succeeding in the global economy. Th e term insourcing is often used to

describe foreign direct investment, or FDI, that results in local job creation. FDI in the United

States totals over $125 billion, for example, and creates just under 6 million local jobs. 20

When foreign fi rms do invest in another country, a common way to start is with a joint

venture. Th is is a co-ownership arrangement in which foreign and local partners agree to

pool resources, share risks, and jointly operate the new business. Sometimes the joint

venture is formed when a foreign partner buys part ownership in an existing local fi rm. In

other cases it is formed as an entirely new operation that the foreign and local partners

jointly start up together.

International joint ventures are types of global strategic alliances in which foreign and

domestic fi rms work together for mutual benefi t. Partners in alliance hope to generate more

market penetration and profi ts by cooperating than they would have been able to achieve

alone. For the local partner, an alliance may bring access to technology and opportunities to

learn new skills. For the foreign partner, an alliance may bring access to new markets and the

expert assistance of locals who understand domestic markets and the local busi-

ness context.

Joint ventures pose potential business risks and partners must be carefully

chosen. 21

Sometimes partners’ goals do not match, for example, when the for-

eign fi rm seeks profi ts and cost effi ciencies while the local fi rm seeks maximum

employment and acquisition of new technology. 22

Although the loss of business

secrets also is a potential risk, the line between acceptable business practice and

infringement can be very hard to defi ne in international contexts. Some time ago

a new car was marketed in China by a fi rm partially owned by General Motor’s

Chinese joint venture partner. Th e car—called “Chery”—looked very similar

to a GM model, and the fi rm complained that its design had been copied. Th e

competitor denied it and went on to become China’s largest independent

automaker—Chery International, which sells its cars at home and abroad. 23

Foreign Subsidiaries One way around some of the risks and problems associated with joint ventures and strategic

alliances is full ownership of the foreign operation. A foreign subsidiary is a local operation

completely owned and controlled by a foreign fi rm. Th ese subsidiaries may be built from the

ground up as a greenfi eld venture. Th ey also can be established by acquisition, wherein the

outside fi rm purchases an entire local operation.

Although a foreign subsidiary represents the highest level of involvement in international

operations, it can be very profi table to approach an international venture in this way. When

Nissan opened a plant in Canton, Mississippi, an auto analyst said: “It’s a smart strategy . . .

building more in their regional markets, as well as being able to meet consumers’ needs

more quickly.” 24

Th e analyst could also have pointed out that this plant allowed Nissan to

claim reputational benefi ts by dealing with American customers as a “local” employer rather

than a “foreign” company.

In franchising, a fee is paid to a foreign

business for rights to locally operate

using its name, branding, and methods.

Insourcing is job creation through

foreign direct investment.

A joint venture operates in a foreign

country through co-ownership by

foreign and local partners.

A global strategic alliance is a

partnership in which foreign and

domestic fi rms share resources and

knowledge for mutual gains.

A foreign subsidiary is a local

operation completely owned by a

foreign fi rm.

A greenfi eld venture is a foreign

subsidiary built from the ground up

by the foreign owner.

• Familiar with fi rm’s major business

• Employs a strong local workforce

• Values its customers

• Has potential for future expansion

• Has strong local market

• Has good profi t potential

• Has sound fi nancial standing

How to Choose a Joint Venture Partner

104 CHAPTER 5 ■ Global Management and Cultural Diversity

Global Business Environments

When Nissan comes to America or GM goes to China, a lot of what takes place in the for-

eign business environment is very diff erent from what is common at home. Not only must

global managers master the demands of operating with worldwide suppliers, distributors,

customers, and competitors, they must also deal successfully with many unique local

challenges.

Legal and Political Systems Some of the most substantial risks in international business come from diff erences in legal

and political systems. Global fi rms are expected to abide by local laws, many of which may

be unfamiliar. Th e more home-country and host-country laws diff er, the harder it is for

international businesses to adapt to local rules, regulations, and customs. See, for example,

the legal complications faced by Google with the European Union. 25

Common legal problems faced by inter-

national businesses involve incorporation

practices and business ownership; negotia-

tion and implementation of contracts with

foreign parties; handling of foreign exchange;

and intellectual property rights—patents,

trademarks, and copyrights. You may be

most familiar with the intellectual property

issue as it relates to movie and music down-

loads, sale of fake designer fashions, or

software pirating. Companies like Microsoft,

Sony, and Louis Vuitton think about this

issue in terms of lost profi ts due to their

products or designs being copied and sold as

imitations by foreign fi rms. After a lengthy

and complex legal battle, for example, Star-

bucks won a major intellectual property case it had taken to the Chinese courts. A local fi rm

was using Starbucks’ Chinese name, “Xingbake” (Xing means “star” and bake is pronounced

“bah kuh”), and was also copying its café designs. 26

Political turmoil, violence, and government changes constitute another area of concern

known as political risk—the potential loss in value of an investment in or managerial

control over a foreign asset because of instability and political changes in the host country.

Th e major threats associated with political risk today come from terrorism, civil wars,

armed confl icts, and new government systems and policies. Although these threats can’t be

prevented, they can be anticipated.

Most global fi rms use a planning technique called political-risk analysis to forecast the

probability of disruptive events that can threaten the security of foreign investments.

Consider, for example, the criminal drug violence in Mexico. What are some of the implica-

tions for business investors? Although involvement in Mexico clearly represents an exercise

in political risk, thus far, foreign investment in Mexico is on the increase. Th e country’s prox-

imity to U.S. markets and low-cost skilled labor are still attractive. Gonzalo Cano, quality

manager at a large Lego plant in Monterrey, says: “Security is an issue but it does not get in

the way. Companies are taking the long view.” 27

Trade Agreements and Trade Barriers When international businesses believe they are being mistreated in foreign countries, or

when local companies believe foreign competitors are disadvantaging them, their respec-

tive governments can take these cases to the World Trade Organization (WTO). Th e WTO

is a global organization established to promote free trade and open markets around the

world. Its member nations, presently 151 of them, agree to negotiate and resolve disputes

about tariff s and trade restrictions. 28

Political risk is the potential loss in

value of a foreign investment due to

instability and political changes in the

host country.

Political-risk analysis tries to forecast

political disruptions that can threaten

the value of a foreign investment.

World Trade Organization member

nations agree to negotiate and resolve

disputes about tariff s and trade

restrictions.

• Th e European Court of Justice rules that individuals have a “right to be

forgotten” in some instances and that Google must delete their search

results on request.

• Tax authorities in France bill Google for 1 billion Euro in back taxes.

• German economy minister Sigmar Gabriel says that breaking up Google

“must be seriously considered” because of its market dominance.

• European Commission under pressure to revise and strengthen an antitrust

agreement previously reached with Google over precedence shown to its

own businesses in search results.

Legal Problems Faced by Google in Europe

105Management and Globalization

WTO members are supposed to give one another most favored nation status—the

most favorable treatment for imports and exports. Yet trade barriers are still common. Th ey

include outright tariff s, which constitute taxes that governments impose on imports. Th ey

also include nontariff barriers that discourage imports in nontax ways. Th ese include

quotas, import restrictions, and other forms of protectionism that give favorable treatment

to domestic businesses. Foreign fi rms complain, for example, that the Chinese government

creates barriers that make it hard for them to succeed. A spokesperson for the U.S. Chamber

of Commerce says that American multinationals like Caterpillar, Boeing, Motorola, and

others have been hurt by “systematic eff orts by China to develop policies that build their

domestic enterprises at the expense of U.S. fi rms.” 29

One goal of most tariff s and protectionism is to protect local fi rms from foreign compe-

tition and save local jobs. Th ese issues are refl ected in political campaigns and election-year

debates. Th ese aren’t easy issues to solve. Government leaders face the often confl icting

goals of seeking freer international trade, while still protecting domestic industries. Such

political dilemmas create controversies for the WTO in its role as a global arbiter of trade

issues. For example, in one claim fi led with the WTO, the United States complained that

China’s “legal structure for protecting and enforcing copyright and trademark protections”

was “deficient” and not in compliance with WTO rules. China’s response was that the

suit was out of line with WTO rules and that “we strongly oppose the U.S. attempt to impose

Most favored nation status gives a

trading partner most favorable treat-

ment for imports and exports.

Tariff s are taxes governments levy on

imports from abroad.

Nontariff barriers to trade discourage

imports in nontax ways such as quotas

and government import restrictions.

Protectionism is a call for tariff s and

favorable treatments to protect domes-

tic fi rms from foreign competition.

and gas fi elds. Th e announcement said: “We are beginning by

nationalizing oil and gas; tomorrow we will add mining, forestry,

and all natural resources, what our ancestors fought for.”

Immediately following the announcement, Bolivia’s armed

forces secured all of the country’s oil and gas fi elds. President Evo

Morales set forth new terms that gave a state-owned fi rm 82% of

all revenues, leaving 18% for the foreign fi rms. He said: “Only those

fi rms that respect these new terms will be allowed to operate in

the country.” Th e implicit threat was that any fi rms not willing to

sign new contracts would be sent home.

While foreign governments described this nationalization as

an “unfriendly move,” Morales considered it patriotic. His position

was that any existing contracts with the state were in violation of

the constitution, and that Bolivia’s natural resources belonged to

its people.

WHAT DO YOU THINK?

If you were the CEO of one of the global oil fi rms operating in Bolivia, how would you react to this nationalization? Would you resist and raise the ethics issue of honoring existing contracts with the Bolivian government? Or would you comply and accept the new terms being offered? As an everyday citizen of the world, do you agree or disagree with the argument that Bolivia’s natural resources are national treasures that belong to the people, not foreign investors? What ethical issues inform the decision to nationalize Bolivia’s oil and gas industry?

ethics> KNOW RIGHT FROM WRONG > Bolivia’s president announced that his government was nationalizing “all natural resources,

what our ancestors fought for.”

Nationalism and Protectionism a Potent Mix

AIZAR RALDES/AFP/Getty Images/Newscom

The headline read “Bolivia Seizes Control of Oil and Gas Fields.” Although oil industry executives couldn’t say that this wasn’t anticipated, it still must have been shocking when Bolivia’s gov-

ernment announced that it was taking control of the country’s oil

106 CHAPTER 5 ■ Global Management and Cultural Diversity

on developing members through this case.” 30

When both sides of a case like this present

defensible positions it is difficult to establish a clear way to resolving the key issues,

particularly when the issues are shaded by cultural diff erences.

Regional Economic Alliances One of the characteristics of globalization is the growth of regional economic alliances,

where nations agree to work together for economic gains. NAFTA, the North American Free

Trade Agreement, is an example. Formed in 1994 by the United States, Canada, and Mexico,

NAFTA created a trade zone that frees the fl ow of goods and services, workers, and invest-

ment among the three countries.

Many American fi rms have taken advantage of NAFTA, moving production facilities from

the United States to Mexico, largely to benefi t from lower wages paid to skilled Mexican

workers. Th is labor shift has both pros and cons, and NAFTA remains a controversial topic

in some political debates. Arguments in support credit NAFTA with greater cross-border

trade, greater productivity of U.S. manufacturers, and reform of the Mexican business envi-

ronment. Arguments against blame NAFTA for substantial job losses to Mexico, lower wages

for American workers who want to keep their jobs, and a wider trade defi cit with Mexico. 31

Th at said, the NAFTA story is increasingly positive. Intellectual property is well protected

under the agreement, and global supply chain issues are making Mexico increasingly attrac-

tive as a manufacturing destination. Th e Boston Consulting Group estimates that by 2015

Mexico will off er manufacturers a 30% labor cost advantage over China. 32

Th e European Union (EU) is a regional economic and political alliance of global impor-

tance. Th e fi nancial health of the EU is regularly in the news, as upswings and downswings

in its economy aff ect the entire world. Th e EU comprises 28 member countries that have

agreed to support mutual interests by integrating themselves politically—there is now a

European Parliament, and economically—member countries have removed barriers that

previously limited cross-border trade and business development. Seventeen EU members

also are part of a common currency, the Euro, which has grown to the point where it is a

major alternative and competitor to the U.S. dollar in the global economy.

In Asia and the Pacifi c Rim, 21 member nations established the Asia Pacifi c Economic

Cooperation (APEC) to promote free trade and investment in the Pacifi c region. Businesses

from APEC countries have access to a region of superstar economic status, home to some of

the world’s fastest growing economies such as China, Republic of Korea, Indonesia, Russia,

and Australia. Th e market potential of member countries, close to 3 billion consumers, far

exceeds NAFTA and the EU. Also in Asia, the 10 nations of the Association of Southeast

Asian Nations (ASEAN) cooperate with a stated goal of promoting economic growth and

progress.

Africa also is increasingly center stage in world business headlines. 33

Th e region’s economies

are growing, the middle class is expanding, and there is a promising rise in entrepreneurship. 34

Companies like Harley-Davidson, Walmart, Caterpillar, and Google are making their

presence—and continental ambitions—known as they set up offi ces, invest in dealerships,

and buy local companies. 35

Th e Southern Africa Development Community (SADC) links

14 countries in southern Africa in trade and economic development eff orts. Its website

posts this vision: “a future in a regional community that will ensure economic well-being,

improvement of the standards of living and quality of life, freedom and social justice, and

peace and security for the peoples of Southern Africa.” 36

Regional economic alliances link

member countries in agreements to

work together for economic gains.

NAFTA is the North American Free

Trade Agreement linking Canada, the

United States, and Mexico in an

economic alliance.

Th e European Union is a political

and economic alliance of European

countries.

Th e Euro is now the common

European currency.

Th e Asia Pacifi c Economic

Cooperation (APEC) links 21 countries

to promote free trade and investment in

the Pacifi c region.

Th e Southern Africa Development

Community (SADC) links 14 countries

of southern Africa in trade and

economic development eff orts.

Learning Check 1

TAKEAWAYQUESTION 1 What are the management challenges of globalization?

BE SURE YOU CAN • defi ne globalization and discuss its implications for international management • list fi ve reasons

companies pursue international business opportunities • describe and give examples of global sourcing, exporting/importing,

franchising/licensing, joint ventures, and foreign subsidiaries • discuss how diff erences in legal environments can aff ect

businesses operating internationally • explain the goals of the WTO • discuss the signifi cance of regional economic alliances

such as NAFTA, the EU, APEC, and SADC

107Global Businesses

Global Businesses TAKEAWAY 2 What are global businesses and how do they work?

Types of global businesses • Pros and cons of global businesses Ethics challenges for global businesses

If you travel abroad, many of your favorite brands and products will travel with you.

You can have a McDonald’s sandwich in over 100 countries, follow it with a Häagen-Dazs

ice cream in 50, and then brush up with Procter & Gamble’s Crest toothpaste in 180.

Economists even use the “Big Mac” index, which compares the U.S. dollar price of the

McDonald’s sandwich around the world, to track purchasing power parity among the

world’s currencies. 37

Types of Global Businesses

Global corporations, also called multinational enterprises (MNEs) and multina-

tional corporations (MNCs), are business fi rms with extensive international opera-

tions in many foreign countries. Th e largest global corporations are identifi ed in

annual listings such as Fortune magazine’s Global 500 and the Financial Times’ FT

Global 500. Th ey include familiar names such as Walmart, BP, Toyota, Nestlé, BMW,

Hitachi, Caterpillar, Sony, and Samsung, as well as others you may not recognize, such as the

big oil and gas producers PetroChina (China), Gazprom (Russia), and Total (France).

Th ere is likely no doubt in your mind that Hewlett-Packard and General Motors are

American fi rms, while Sony and Honda are Japanese. But, this may not be how executives at

these companies want their fi rms to be viewed. Th ese fi rms and many other global fi rms act

more like transnational corporations that do business around the world without being

identifi ed with one national home. 38

Th e Economist magazine has even started publishing a

“Domestic Density Index” as a measure of corporate identity using the percentage of sales,

employees, and shareholders that are domestic to the home country as well as the national-

ity of the CEO. Sample domestic identity scores include Coca-Cola (62%), Apple (65%), and

GE (63%). 39

Executives of transnational fi rms view the entire world as their domain for acquiring

resources, locating production facilities, marketing goods and services, and communicating

brand images. Th e goal is described by a global executive as “source everywhere, manufac-

ture everywhere, sell everywhere.” 40

Th e resulting dense, overlapping, and worldwide manu-

facturing and marketing networks often make it diffi cult to distinguish one country’s fi rms

from the next. When shopping at an Aldi store or browsing Hugo Boss clothes, would you

know they’re German companies? Which company is really more American—the Indian

giant Tata, which gets some 50% of its revenues from North America, or IBM, which gets

over 65% of its revenues from outside the United States? 41

Pros and Cons of Global Businesses

What diff erence does a company’s nationality make? Does it really matter to an American

whether local jobs come from a domestic giant like IBM or a foreign fi rm like Honda? How

about size? Does it matter that Exxon/Mobil’s revenues are larger than Sweden’s gross

domestic product (GDP)? 42

What about wealth? Is what some call the globalization gap—

large multinationals and industrialized nations gaining disproportionately from globaliza-

tion, a matter for social and personal concern? 43

Host-Country Issues Ideally, global corporations and the countries that host them should both reap benefi ts. But

things can go right and wrong in these relationships. 44

Potential host-country benefi ts

shown in Figure 5.2 include a larger tax base, increased employment opportunities, technol-

ogy transfers, introduction of new industries, and development of local resources. Potential

host-country costs include complaints that global corporations extract excessive profi ts,

LEARN MORE

ABOUT

A global corporation is a multinational

enterprise (MNE) or multinational

corporation (MNC) that conducts

commercial transactions across

national boundaries.

A transnational corporation is a

global corporation or MNE that

operates worldwide on a borderless

basis.

Th e globalization gap is where large

multinational corporations and

industrialized nations gain

disproportionately from the benefi ts

of globalization.

GGGGllooooobbbaaaall BBBBuuuussssiinnnneeeessssseessssss

United States $4.62

Sweden $6.29

Brazil $5.25

Euro area $4.96

Australia $4.47

Mexico $2.78

China $2.64

Russia $2.62

Sample Big Mac Index

108 CHAPTER 5 ■ Global Management and Cultural Diversity

dominate the local economy, interfere with the local governments, fail to respect local

customs and laws, fail to help domestic fi rms develop, hire the most talented local personnel

away from domestic fi rms, and fail to transfer their most advanced technologies to the host

country.

Home-Country Issues Global corporations also can get into trouble at home in the countries where they were

founded and where their headquarters are located. Even as many global fi rms try to operate

as transnationals, home-country governments and citizens still tend to identify them with

local and national interests. Th ey also expect global fi rms to act as good domestic citizens. 45

When a global business cuts back home-country jobs, or closes a domestic operation in

order to source work to lower-cost international providers, the loss is controversial. Corpo-

rate decision makers are likely to be called on by government and community leaders to

reconsider and give priority to domestic social responsibilities. Other home-country criti-

cisms of global fi rms include sending investment capital abroad and engaging in corruption.

American lawmakers are concerned about corporate tax inversion, where a U.S.-based

MNC buys a fi rm in a low-tax country in order to shield foreign earnings from U.S. taxes.

Ethics Challenges for Global Businesses

Dateline Bangladesh: Th e collapse of eight-story Rana Plaza, an industrial building for

garment factories, resulted in 1,129 deaths and 2,215 injuries. Although warnings had

been issued about cracks in the building, employees faced loss of pay if they refused to

work. Rana Plaza factories are connected to a global supply chain producing apparel for

brands including Benetton, Cato Fashions, the Children’s Place, and Walmart. 46

We live at a time of increasing global democratization of information and communica-

tion technologies, and the ready availability of reports on ethics-tied outcomes from global

business activity. Customers, governments and other stakeholders, and the public at large

have access to more information about what is happening with MNCs and their complex

supply chains than ever before. Th e consequences of business actions—the good and the

bad, and anywhere in the world—have never been more visible and impactful. Although bad

decisions will continue to be made, it’s harder to hide them from intense public scrutiny and

signifi cant public relations and fi nancial backlash. 47

Corruption Corruption occurs when people engage illegal practices to further their personal busi-

ness interests. It’s a source of continuing controversy and often makes headline news in

the international business context. 48

Th ere is no doubt that corruption poses signifi cant

Tax inversion is where a U.S.-based

MNC buys a fi rm in a low-tax country

in order to shield foreign earnings from

U.S. taxes.

Corruption involves illegal practices to

further one’s business interests.

Mutual benefits Shared opportunities with potential for Growth Income Learning Development

What should go right in MNC host-country relationships

Host-country complaints about MNCs Excessive profits Economic domination Interference with government Hire best local talent Limited technology transfer Disrespect for local customs

MNC complaints about host countries Profit limitations Overpriced resources Exploitative rules Foreign exchange restrictions Failure to uphold contracts

What can go wrong in MNC host-country

relationships

FIGURE 5.2 What should go right and what can go wrong in global corporation and host-country relationships.

109Global Businesses

challenges for global managers. Th e civic society organization Transparency International

is devoted to eliminating corrupt practices around the world. Its annual reports and publi-

cations track corruption and are a source of insight for both executives and policymakers. 49

But corruption issues aren’t always neat and clear-cut. An American executive, for example,

says that payoff s are needed to get shipments through customs in Russia even though all

legal taxes and tariff s are already paid. Local customs brokers build these payments into

their invoices. 50

What do you think? Should the act of paying for what you already deserve

to receive be considered a bribe? Should U.S. fi rms facing such situations be allowed to do

whatever is locally acceptable? How do you sort right from wrong when considering how to

negotiate local customs and business expectations?

Th e Foreign Corrupt Practices Act (FCPA) makes it illegal for U.S. fi rms and their

representatives to engage in corrupt practices overseas. 51

U.S. companies are not supposed

to pay or off er bribes or excessive commissions—including nonmonetary gifts—to foreign

offi cials in return for business favors. Critics claim that the FCPA fails to recognize the realities

of business practice in many foreign nations. Critics believe the FCPA puts U.S. companies

at a competitive disadvantage because they can’t off er the same “deals” or “perks” as businesses

from other nations, deals locals may regard as standard business practice. But other nations,

such as the United Kingdom with its Bribery Act, have begun to pass similar laws and the

U.S. Department of Justice isn’t backing down. Penalties levied by the U.S. government are

now running over $1 billion per year. 52

Th e Foreign Corrupt Practices Act

(FCPA) makes it illegal for U.S. fi rms

and their representatives to engage in

corrupt practices overseas.

If you want a world free of corruption and bribes, you share a lot in common with the global civil society organization Transparency International. TI’s mission is to “create change for a world free of cor-

ruption.” Th e organization publishes regular surveys and reports on

corruption and bribery around the world. Some recent data refl ect-

ing on country-specifi c patterns of corruption can be seen below:

Corruption: Best and worst out of 178 countries in perceived

public sector corruption. (Note: & 5 ties)

Best—Denmark, Finland, & New Zealand (#1), Sweden (#4),

Singapore (#5)

Worst—Afghanistan, North Korea, Somalia (#174), Sudan

(#173), Myanmar (#172)

In Betweens—United States (#19), Costa Rica (#48), Italy (#72),

India (#94), Vietnam (#123)

Bribery: Best and worst of 20 countries in likelihood of home

country fi rms’ willingness to pay bribes abroad.

Best—Netherlands & Switzerland (#1), Belgium (#3), Germany

& Japan (#4)

Worst—Russia (#28), China (#27), Mexico (#26), Indonesia

(#25)

In Betweens—Canada (#6), United States (#10), Brazil (#14),

Turkey (#19)

YOUR THOUGHTS?

Are there any patterns evident in these data? Does it surprise you that the United States didn’t make the “best” lists? How could TI’s website be used by global business executives? Is there a meaningful difference between “corruption” and “bribery” in international business? What does the absence of a set of standardized global practices mean for an even interna- tional business playing fi eld?

analysis> MAKE DATA YOUR FRIEND > Transparency International wants to end the “devastating impact of corruption on men,

women, and children around the world.”

Corruption and Bribes Haunt Global Business

AFP/Getty Images

110 CHAPTER 5 ■ Global Management and Cultural Diversity

Child Labor and Sweatshops Th e facts are startling: 215 million child laborers worldwide, 115 million of them working in

hazardous conditions. 53

Child labor—the employment of children to perform work other-

wise performed by adults, is a major ethics issue that haunts global businesses as they fol-

low the world’s low-cost manufacturing from country to country. More than likely, you’ve

heard about child labor used in the manufacture of handmade carpets, but what about

your favorite electronic device whose components are largely made by foreign suppliers? 54

Companies fi nd it diffi cult to always know for certain just who is employed in a foreign

factory producing for global brands. After an Apple audit identifi ed 106 underage workers

used by 11 of its 400 suppliers, Apple required the fi rms to return children to their homes,

pay for their enrollment in local schools, and pay their families what the children would

have earned in annual income. 55

Child labor isn’t the only ethics-critical labor issue facing global managers. Sweatshops—

business operations that employ workers at low wages for long hours in poor working

conditions—are another key ethical issue. Th e Bangladesh garment industry, for example,

depends on workers, often female and illiterate, who are trying to escape lives of poverty.

Th eir complaints include blocked elevators, fi lthy tap water, and unclean overfl owing toilets

in the factories. 56

Th e Rana Plaza tragedy mentioned earlier exposed unsafe buildings and

sweatshop conditions in factories throughout the country. When Walmart audited some

200 factories in its Bangladesh supply chains, 15% failed safety inspections. Walmart now

claims it has a “zero tolerance policy” when its standards are violated and will cancel

business contracts with any supplier that subcontracts work to others without informing

Walmart. 57

Confl ict Minerals It’s no secret that the sale of scarce minerals helps support warlords and perpetuates

strife in places such as the Democratic Republic of Congo and surrounding region. Called

confl ict minerals because monies gained from their sale help fi nance armed violence, they

also are indispensable to many—if not all—the electrical devices we love and are so depen-

dent upon in everyday living. 58

It just isn’t possible to make a phone, tablet, gaming console,

or other smart device, without components that use minerals like tin, tungsten, gold, and

tantalum, each of which might be mined in confl ict areas. 59

Identifying the source of the minerals used in electronics manufacturing is extremely

diffi cult in the dense and sometimes murky world of global sourcing. Who knows, for example,

how many times a supply of tungsten may have been passed from hand to hand and where

its original source might be located? Yet, certifi cation of sourced minerals as “confl ict free” is

exactly what section 1502 of the Dodd-Frank Act of 2010 required of U.S. companies. After

the law was appealed, the court ruled that fi rms would only have to report to the Securities

and Exchange Commission that they had investigated their supply chains for confl ict

minerals. 60

Whether you believe the original Dodd-Frank provision requiring “confl ict-free”

certifi cation or the later court ruling requiring “investigation” is the right approach, the fact

is that companies have a lot to gain in reputation and moral standing by tracing the minerals

used in their products and rejecting those sourced in confl ict areas. But, this task is exceedingly

complex. Apple, for example, says it uses some 200 smelters in 30 countries. H-P says as

many as 10 middlemen may stand between it and the original sources of some minerals.

And Intel, which was one of the fi rst fi rms to submit an audit report to the SEC, says that

its chips are confl ict free but that it had visited 85 smelters in 21 countries to establish the

audit trail. 61

Child labor is the employment of

children for work otherwise done by

adults.

Sweatshops employ workers at very

low wages for long hours in poor

working conditions.

Confl ict minerals are ones sourced

in the Democratic Republic of Congo

and surrounding region and whose sale

fi nances armed groups that perpetuate

violence.

Learning Check 2

TAKEAWAYQUESTION 2 What are global businesses and how do they work?

BE SURE YOU CAN • diff erentiate a multinational corporation from a transnational corporation • list at least three host-

country complaints and three home-country complaints about global business operations • give examples of corruption,

sweatshops, and child labor in international businesses

111Cultures and Global Diversity

Cultures and Global Diversity TAKEAWAY 3 What is culture and how does it infl uence global management?

Cultural intelligence • Silent languages of culture • Tight and loose cultures Values and national cultures

Situation: A U.S. executive goes to meet a business contact in Saudi Arabia. He sits in the

offi ce with crossed legs and the sole of his shoe exposed. Both are unintentional signs of

disrespect in the local culture. He passes documents to the host using his left hand, which

Muslims in Saudi Arabia generally consider to be unclean. He declines when coff ee is

off ered, which suggests criticism of the Saudi’s hospitality. Outcome: A $10 million contract

is lost to a Korean executive better versed in the local culture. 62

“Culture” matters, as we often say, and cultural miscues can be costly in international

business and politics. Culture is the shared set of beliefs, values, and patterns of behavior

common to a group of people. 63

Culture shock is the confusion and discomfort a person

experiences when in an unfamiliar culture. Th e box on stages in adjusting to a new culture

is a reminder that these feelings must be mastered to travel comfortably and do business

around the world. Have you ever had a surprising cross-cultural experience? Have you

personally experienced culture shock?

Cultural Intelligence

Th e American’s behavior in Saudi Arabia was self-centered. He ignored and showed no con-

cern for the culture of his Arab host. Th is displayed ethnocentrism, a tendency to view one’s

culture as superior to that of others. Some might excuse him as suff ering from culture shock.

Perhaps he was exhausted after a long international fl ight. Maybe he was so uncomfortable

Culture is a shared set of beliefs, values,

and patterns of behavior common to a

group of people.

Culture shock is the confusion and

discomfort a person experiences when

in an unfamiliar culture.

Ethnocentrism is the tendency to

consider one’s culture superior to

others.

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CCCuuuu tuuuu eeess aaaa dddd GGGG ooobbbbbba vveee ss ttyyy

The complications and drama of global events are constant re-minders that the ability to work and communicate well across cultures is one of the great challenges of our time. It is hard to pass

a day, for example, without encountering Asia’s infl uence on

global politics and economics. When our business and govern-

ment leaders venture into Asia, we want them to be successful.

Th ey must have high cultural intelligence, including an awareness

of Confucian values such as those shown in the box.

Cultural diff erences can be frustrating and even feel threatening.

Our ways of doing things may seem strange or even off ensive to

others, and vice-versa. Consultant Richard Lewis warns of “cultural

spectacles” that limit our vision, causing us to see and interpret

things with the biases of our own culture. Cultural intelligence, by

contrast, helps us to adapt to new cultures and work well in cul-

turally diverse situations. It helps us break the habits of our culture

and engage the ways of others with interest, respect, and learning.

Importantly, it is a must-have competency in our global marketplace.

GET TO KNOW YOURSELF BETTER

The cultural diversity of a college campus offers a trip around the world . . . if we’re willing to reach out, learn, and embrace it. Take advantage of global diversity in your community. Observe and criticize yourself as you meet, interact with, and otherwise come into contact with persons from other cultures. Take notes on what you perceive as cultural differences and on your “fi rst ten- dencies” in reacting to these differences. Assess what this sug- gests about your cultural intelligence. Make a list of what could be your strengths and weaknesses as a global manager. Write down personal refl ections on your capacity to work well across cultural boundaries.

insight> LEARN ABOUT YOURSELF Cultural Intelligence Opens Doors to Opportunity

Confucian Values in Asian Cultures

• Harmony—works well in a group, doesn’t disrupt group

order, puts group before self-interests

• Hierarchy—accepts authority and hierarchical nature of

society; doesn’t challenge superiors

• Benevolence—acts kindly and understandingly toward

others; paternalistic, willing to teach and help subordinates

• Loyalty—loyal to organization and supervisor, dedicated to

job, grateful for job and supportive of superiors

• Learning—eager for new knowledge, works hard to learn

new job skills, strives for high performance

112 CHAPTER 5 ■ Global Management and Cultural Diversity

upon arrival that all he could think about was making a deal and leaving Saudi Arabia as

quickly as possible. Still others might give him the benefi t of the doubt as being well-

intentioned but not having time to learn enough about Saudi culture before making the trip.

Regardless of possible reasons for the executive’s cultural mistakes, they still worked to

this his disadvantage. Th ey also showed a lack of something critical to success in global

management—cultural intelligence. Often called “CQ” for “cultural quotient,” cultural

intelligence is the ability to adapt, adjust, and work well across cultures. 64

Where do you stand when it comes to cultural intelligence? People with cultural intelli-

gence are fl exible in dealing with cultural diff erences and willing to learn from what is

unfamiliar. Th ey use that learning to self-regulate and modify their behaviors to act with

sensitivity toward another culture’s ways. In other words, someone high in cultural intelli-

gence views cultural diff erences not as a threat but as an opportunity to learn. 65

You can do

a quick test of your CQ by asking and answering these questions: 66

1. Am I aware of the cultural knowledge I use in cross-cultural situations?

2. Do I know about the cultural values, practices, and religious beliefs of other cultures?

3. Do I enjoy interacting with people from diverse cultures?

4. Do I change my behavior when a cross-cultural situation requires it?

Silent Languages of Culture

Th e capacities to listen, observe, and learn are key building blocks of cultural intelligence.

Th ese skills and competencies can be developed by better understanding what the anthro-

pologist Edward T. Hall calls the “silent” languages of culture. 67

He believes that these silent

languages are found in a culture’s approach to context, time, and space.

Context If we look and listen carefully, Hall says we’ll recognize how cultures diff er in their use of

language in communication. 68

Most communication in low-context cultures takes place

via the written or spoken word. Th is is common in the United States, Canada, and Germany,

for example. Americans in particular tend to say or write what they mean and mean what

they say. Th ings aren’t this way in many parts of the world.

In high-context cultures what is actually said or written may convey only part, and

sometimes a very small part, of the real message. Th e rest must be interpreted from the

situation, body language, physical setting, and even past relationships among the people

involved. Dinner parties, social gatherings, and golf outings in high-context cultures such as

Th ailand and Malaysia, for example, are ways for potential business partners to get to know

one another. Only after social relationships are established and a context for communica-

tion is developed does it become possible to begin making business deals.

Time Hall describes diff erences in how cultures deal with time. People in monochronic cultures

often do one thing at a time. It is common in the United States, for example, to schedule

meetings with specifi c people and focus on a specifi c agenda for an allotted period of time. 69

If someone is late to a meeting or brings an uninvited guest, this is viewed unfavorably.

Members of polychronic cultures are more fl exible in their views of time. Th ey often try

to work on many diff erent things at once, perhaps not in any particular order, and give in to

distractions and interruptions. A monochronic American visitor to the offi ce of a polychronic

Egyptian client may be frustrated. He may not get dedicated attention as the client greets

and deals with a continuous stream of people fl owing in and out of his offi ce.

Space Th e use of space is also one of the silent languages of culture. Hall describes these cultural

tendencies in terms of proxemics, the study of how people use space to communicate. 70

Cultural intelligence is the ability to

adapt, adjust, and work well across

cultures.

Low-context cultures emphasize

communication via spoken or written

words.

High-context cultures rely on

nonverbal and situational cues as

well as on spoken or written words in

communication.

In monochronic cultures people tend

to do one thing at a time.

In polychronic cultures time is used

to accomplish many diff erent things at

once.

Proxemics is how people use space to

communicate.

113Cultures and Global Diversity

Americans tend to like and value their own space, perhaps as much space as they can get.

We like big offi ces, big cars, big homes, and big yards. We tend to get uncomfortable in tight

spaces and when others stand too close to us in lines. When someone “talks right in our

face,” we don’t like it; the behavior may even be interpreted as an expression of anger.

Members of some cultures are quite comfortable surrounded by smaller spaces and closer

physical distances. If you visit Japan you are likely to notice very quickly that space is pre-

cious. Small homes, offi ces, and shops are the norm; gardens are tiny, but immaculate; public

spaces are carefully organized for most effi cient use; privacy is highly valued and protected.

In many Latin cultures the abrazzo, or strong embrace, is a common greeting. In Vietnam,

men often hold hands or link arms as a sign of friendship when talking with one another.

Tight and Loose Cultures

Th e nail that sticks up will be hammered down.

Asian Proverb

Th e squeaking wheel gets the grease.

American Idiom

Th ese two sayings are representative of two very diff erent cultural settings. What are the

implications of these two diff erent ways of viewing outliers? Try to picture young children

listening to their parents or elders as they off er these words of wisdom. One child grows up

being careful to not speak out, stand out, or attract attention. Th e other grows up trying to

speak up and stand out in order to get attention.

Th e contrast in childhoods just described introduces the concept of cultural

tightness-looseness. Scholars Michele J. Gelfand, Lisa H. Nishii, and Jana L. Raver describe this

as “the strength of social norms and degree of sanctioning within societies.” 71

Two things are

at issue in this defi nition: (1) the strength of norms that govern social behavior and (2) the

tolerance for any deviations from the norms. Empirical studies have classifi ed 33 societal

cultures around the world on their tightness and looseness. 72

In a tight culture, such as ones found in Korea, Japan, or Malaysia, social norms are

strong and clear. Members are expected to know the prevailing norms and let them guide

their behavior. Th ey tend to self-govern and conform, understanding that deviations are

likely to be noticed, discouraged, and even sanctioned. Th e goal in tight cultures, as sug-

gested in the Asian proverb, is to fi t in with society’s expectations and not stand out.

In a loose culture, such as ones found in Australia, Brazil, or Hungary, social norms are

relaxed and less clear-cut. Members may be more or less concerned with them, and confor-

mity varies a good deal. Deviations from norms tend to be tolerated unless they take the

form of criminal behavior or test the extremes of morality. It is acceptable for individuals in

loose cultures, as suggested in the American idiom, to show unique identities and express

themselves independently of the masses.

It can be challenging to go from a tight to a loose culture, or vice-versa, for travel or work.

Being eff ective requires cultural awareness

to understand differences, and self-

management to handle these diff erences

well. One of the most common settings where

the dynamics of tight and loose cultures

emerge is a class group or work team whose

members come from diff erent cultures.

You’ve probably been there; what did you

see and what might you expect?

A mix of cultural tightness and looseness

on a cross-cultural team may result in soft or

unstated confl ict and missed performance

opportunities. Members from tight cultures

may be slow to volunteer, criticize, show

emotion, or seek praise. Th ey may look

toward formal authority for direction while

A tight culture has rigid social norms

expects members to conform with

them.

A loose culture has relaxed social

norms and allows conformity by

members to vary a good deal.

Confusion: First contacts with the new culture leave you anxious,

uncomfortable, and in need of information and advice.

Small victories: Continued interactions bring some “successes,” and your

confi dence grows in handling daily aff airs.

Th e honeymoon: A time of wonderment, cultural immersion, and even

infatuation with local ways that are viewed positively.

Irritation and anger: A time when the “negatives” overwhelm the “positives,”

and the new culture becomes a target of your criticism.

Reality: A time of rebalancing; you are able to enjoy the new culture while

accommodating its less desirable elements.

Culture Shock: Stages in Adjusting to a New Culture

114 CHAPTER 5 ■ Global Management and Cultural Diversity

trying to always be on time and prepared. Members from loose cultures may be quick to voice

opinions, criticize others, display emotions, and look for recognition. Th ey may not show much

respect for authority, and punctuality may be inconsistent. It takes a lot of cultural awareness

for a team leader and team members to identify these culturally derived behaviors. It takes a

lot of skill to create a team environment where everyone gets a chance both to contribute to

team performance and to take satisfaction from the experience.

Values and National Cultures

Th e ideas of Geert Hofstede on value diff erences in national cultures are another useful way

for considering how cultural diff erences can infl uence management and organizational

practices. After studying employees of a global corporation operating in 40 countries,

Hofstede identifi ed four cultural dimensions: power distance, uncertainty avoidance,

individualism–collectivism, and masculinity–femininity. 73

Later studies added a fi fth now

called time orientation. 74

Figure 5.3 shows how national cultures can vary on these dimensions. Try to imagine

what these cultural diff erences might mean when global business executives try to work and

make deals around the world, or when representatives of national governments meet to

seek agreements or resolve problems. Remember that Hofstede warns against falling prey to

the ecological fallacy. Th is is acting with the mistaken assumption that a generalized

cultural value, such as individualism in American culture or masculinity in Japanese culture,

applies equally to all members of the culture. 75

Power Distance Power distance is the degree that society accepts or rejects the unequal distribution of power

among people in organizations and the institutions of society. In high-power-distance

cultures we expect to fi nd great respect for age, status, and titles. People in these cultures

tend to be tolerant of power and are prone to follow orders and accept diff erences in rank.

Picture a businesswoman from low-moderate-power-distance America visiting her fi rm’s

joint venture partner in high-power-distance Malaysia. Could her tendencies toward infor-

mality, for example, using fi rst names to address superiors and dressing casually in the

offi ce, create discomfort for local executives less accustomed to such social egalitarianism?

Individualism–Collectivism Individualism–collectivism is the degree to which a society emphasizes individual accom-

plishments and self-interests versus the collective accomplishments and interests of

groups. 76

Th e United States had the highest individualism score of any country in Hofstede’s

data. Do you fi nd the “I” and “me” words used a lot in conversations and meetings, or even

when students are making team presentations in class? Such self-referential expressions

refl ect a cultural tendency toward individualism. Th is contrasts with the importance placed

on group harmony in the Confucian and more

collectivist cultures of Asia, as pointed out in

the chapter opener. What might go wrong

when team members from individualistic cul-

tures try to work with those from more collec-

tivist ones?

Uncertainty Avoidance Uncertainty avoidance is the degree to

which a society is uncomfortable with risk,

change, and situational uncertainty, versus

having tolerance for them. Members of low

uncertainty-avoidance cultures often display

openness to change and innovation. In high

uncertainty-avoidance cultures, by contrast,

Th e ecological fallacy assumes that

a generalized cultural value applies

equally well to all members of the

culture.

Power distance is the degree to which

a society accepts unequal distribution

of power.

Individualism–collectivism is the

degree to which a society emphasizes

individuals and their self-interests.

Uncertainty avoidance is the degree

to which a society tolerates risk and

uncertainty.

Japan Mexico USA

Masculinity Femininity

SwedenThailand

India Malaysia Japan USA

High power distance Low power distance

Australia

Costa RicaJapan France

High uncertainty avoidance

SwedenUSA

Low uncertainty avoidance

USA Australia Japan

Individualism Collectivism

Mexico Thailand

NetherlandsUSA

Short-term thinking Long-term thinking

JapanIndia

FIGURE 5.3 How countries’ short- term thinking and long-term thinking

compare on Hofstede’s dimensions of

national culture.

115Global Management Learning

preferences for structure, order, and predictability are likely to be more prevalent. Persons in

these cultures may have diffi culty dealing with ambiguity, and tend to follow rules, prefer-

ring more structure in their lives. Do you think that high uncertainty avoidance be one of the

reasons why Europeans seem to favor employment practices that provide job security?

Masculinity–Femininity Masculinity–femininity is the degree to which a society values assertiveness and material-

ism versus feelings, relationships, and quality of life. 77

You might think of it as a tendency for

members of a culture to show stereotypically masculine versus feminine traits that refl ect

diff erent attitudes toward gender roles. Visitors to Japan, with the highest masculinity score

in Hofstede’s research, may be surprised at how restricted career opportunities can still be

for women. Th e Wall Street Journal has pointed out that “In Japan, professional women face

a set of socially complex issues—from overt sexism to deep-seated attitudes about the divi-

sion of labor.” One female Japanese manager says: “Men tend to have very fi xed ideas about

what women are like.” 78

Time Orientation Time orientation is the degree to which a society emphasizes short-term versus long-term

goals and gratifi cations. 79

American tendencies toward impatience and desire for quick,

even instantaneous, gratifi cation show short-term thinking. Even our companies are

expected to achieve short-term results; those failing to meet quarterly fi nancial targets often

suff er immediate stock price declines. Many Asian cultures are quite the opposite, display-

ing Confucian values of persistence, thrift, patience, and a willingness to work for long-term

success. Th is might help explain why Japan’s auto executives were more willing than their

American counterparts to invest years ago in hybrid engine technologies even though mar-

ket demand was very low and any return on the investments were likely to take a long time

to materialize.

Masculinity–femininity is the degree

to which a society values assertiveness

and materialism.

Time orientation is the degree to

which a society emphasizes short-term

or long-term goals.

Learning Check 3

TAKEAWAYQUESTION 3 What is culture and how does it infl uence global management?

BE SURE YOU CAN • defi ne culture and culture shock • explain how ethnocentrism can create diffi culties for people working

across cultures • diff erentiate between low-context and high-context cultures, and monochronic and polychronic cultures

• explain the diff erences between tight and loose cultures • list and illustrate Hofstede’s fi ve dimensions of value diff erences

among national cultures

Global Management Learning TAKEAWAY 4 How can we benefi t from global management learning?

Are management theories universal? • Intercultural competencies Global learning goals

Scholars in the area of comparative management study how management perspectives

and practices systematically diff er among countries and cultures. 80

Th ey use cultural models

like those just described for Hall, Gelfand, et al., and Hofstede, in the search for meaningful

insights on management around the globe. 81

Are Management Th eories Universal?

You might think that all the management theories in this book and your course apply

universally from one country and culture to the next. Th e fact is that the world is a complex

LEARN MORE

ABOUT

Comparative management studies

how management practices diff er

among countries and cultures.

GGGGllooooobbbaaaall MMMMMMaaaannaaaggggeeeemmmmeennnt LLLeaaarrnninnngn

116 CHAPTER 5 ■ Global Management and Cultural Diversity

Learning Check 4

TAKEAWAYQUESTION 4 How can we benefi t from global management learning?

BE SURE YOU CAN • describe the concept of global organizational learning • defi ne intercultural competency and identify

three of its major components • answer this question: “Do management theories apply universally around the world?”

place and management scholars understand this. If anything, they agree that there is lots

left to understand and learn about global management. 82

Geert Hofstede, whose framework for understanding national cultures was just dis-

cussed, urges caution when transferring practices across cultures. He points out that many

management theories are really ethnocentric because they come from a single cultural con-

text—often North American. 83

By way of example, he says that the American emphasis on

participation in leadership refl ects the culture’s moderate stance on power distance. It

should be understood and respected that the cultures of countries with higher power-dis-

tance scores—such as France or Malaysia—will show more tolerance for hierarchy and

directive leadership. Hofstede also notes that the American cultural value of individualism is

quite prominent in management theories on individual performance, rewards, and job

design. Th ese theories may be less applicable in countries where cultural values are more

collectivist. Sweden, for example, has a history of designing jobs for groups of workers rather

than for individuals.

Intercultural Competencies

Even though management theories are not always universal, it may be that intercultural

competencies are. Th ese are skills and personal characteristics that help us function

successfully in cross-cultural situations.

Intercultural competencies are “must haves” for anyone seeking a career as a global

manager. Th ey begin with—but add specifi cs to—the notion of cultural awareness that

introduced this chapter. Rather than having just a generalized openness to learning about

other cultures and being sensitive to diff erent cultural ways, the focus is on acting competent

when working in another culture or in culturally mixed settings. What scholars know in this

regard is summarized in three pillars of intercultural competency—perception management,

relationship management, and self-management. 84

In perception management, a person must be inquisitive and curious about cultural

diff erences. Being fl exible and nonjudgmental are important when interpreting and dealing

with situations in which diff erences are present. In relationship management, a person must

be genuinely interested in others, be sensitive to one’s own emotions and feelings, and be

able to make personal adjustments while engaging in cross-cultural interactions. In self-

management, a person must have a strong sense of personal identity and understand his or

her own emotions and values. One must also stay self-confi dent even in situations that call

for personal adaptations because of cultural diff erences.

Global Learning Goals

In order to compete in the global economy, aspiring and seasoned professionals should

continually seek to strengthen personal intercultural competencies, particularly if the

goal is to have a successful career as a global manager. A truly global manager will look

everywhere and anywhere in the world for new ideas, and will reject the view the home

country and culture have monopolies on the best practices. Th e intent of comparative

management studies is to engage in critical thinking about the ways managers around the

world do things and about how they might do them better. As we try to engage in global

management learning, however, it is important to hesitate before accepting any idea or

practice as a universal prescription for action. Culture and cultural diff erences always

have to be considered. According to Hofstede, “Disregard of other cultures is a luxury only

the strong can aff ord . . . increase in cultural awareness represents an intellectual and

spiritual gain.” 85

Intercultural competencies are

skills and personal characteristics that

help us be successful in cross-cultural

situations.

117Management Learning Review

Summary

TAKEAWAYQUESTION 1 What are the management challenges of globalization?

• Global managers are informed about world developments and are competent in working with people from different cultures.

• The forces of globalization create international business opportunities to pursue profits, customers, capital, and low-cost suppliers and labor in different countries.

• Market-entry strategies for international business include global sourcing, exporting and importing, and licensing and franchising.

• Direct investment strategies of international business establish joint ventures or wholly owned subsidiaries in foreign countries.

• General environment differences, including legal and political systems, often complicate international business activities.

• Regional economic alliances such as NAFTA, the EU, and SADC link nations of the world with the goals of promot- ing economic development.

• The World Trade Organization is a global institution that promotes free trade and open markets around the world.

FOR DISCUSSION What aspects of the U.S. legal-political environment could prove diffi cult for a Chinese fi rm setting up a factory in America?

TAKEAWAYQUESTION 2 What are global businesses and how do they work?

• A global corporation is a multinational enterprise or multinational corporation with extensive operations in multiple foreign countries.

• A transnational corporation tries to operate globally without a strong national identity and with a worldwide mission and strategies.

• Global corporations can benefi t host countries by offering broader tax bases, new technologies, and employment opportunities.

• Global corporations can cause problems for host countries if they interfere in local government, extract excessive profi ts, and dominate the local economy.

• The U.S. Foreign Corrupt Practices Act prohibits American multinational corporations from engaging in bribery and corrupt practices abroad.

FOR DISCUSSION Is the Foreign Corrupt Practices Act unfair to American fi rms trying to compete for business around the world?

TAKEAWAYQUESTION 3 What is culture and how does it infl uence global management?

• Culture is a shared set of beliefs, values, and behavior patterns common to a group of people.

• Culture shock is the discomfort people sometimes experience when interacting with persons from cultures different from their own.

• Cultural intelligence is an individual capacity to understand, respect, and adapt to cultural differences.

• Hall’s “silent” languages of culture include the use of context, time, and interpersonal space.

• Hofstede’s fi ve dimensions of value differences in national cultures are power distance, uncertainty avoidance, individualism–collectivism, masculinity–femininity, and time orientation.

FOR DISCUSSION Should religion be included on Hall’s list of the silent languages of culture?

TAKEAWAYQUESTION 4 How can we benefi t from global management learning?

• The fi eld of comparative management studies how management is practiced around the world and how management ideas are transferred from one country or culture to the next.

• The foundations for intercultural competency are perception management, relationship management, and self- management.

• Global management learning must recognize that successful practices in one culture may work less well in others.

FOR DISCUSSION Even though cultural differences are readily apparent, is the tendency today for the world’s cultures to converge and become more alike?

Management Learning Review Get Prepared for Quizzes and Exams

118 CHAPTER 5 ■ Global Management and Cultural Diversity

Multiple-ChoiceQuestions

1. The reasons why businesses go international include gaining new markets, fi nding investment capital, and reducing ____________. (a) political risk (b) protectionism (c) labor costs (d) most favored nation status

2. When shoe maker Rocky Brands decided to buy full ownership of a manufacturing company in the Dominican Republic, Rocky was engaging in which form of international business? (a) import/export (b) licensing (c) foreign subsidiary (d) joint venture

3. A form of international business that falls into the category of a direct investment strategy is ____________. (a) exporting (b) joint venture (c) licensing (d) global sourcing

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

5. Business complaints about copyright protection and intellectual property rights in some countries illustrate how differences in ____________ can impact international operations. (a) legal environments (b) political stability (c) sustainable development (d) economic systems

6. In ____________ cultures, members tend to do one thing at a time; in ____________ cultures, members tend to do many things at once. (a) monochronic, polychronic (b) polycentric, geocentric (c) collectivist, individualist (d) neutral, affective

7. A culture that places great value on expressing meaning in the written or spoken word is described as ____________ by Hall. (a) monochromic (b) proxemic (c) collectivist (d) low-context

8. It is common in Malaysian culture for people to value teamwork and to display great respect for authority. Hofstede would describe this culture as high in both ____________. (a) uncertainty avoidance and feminism (b) universalism and particularism (c) collectivism and power distance (d) long-term orientation and masculinity

9. In Hofstede’s study of national cultures, America was found to be the most ____________ compared with other countries in his sample. (a) individualistic (b) collectivist (c) feminine (d) long-term oriented

10. It is ____________ when a foreign visitor takes offense at a local custom such as dining with one’s fi ngers, considering it inferior to practices of his or her own culture. (a) universalist (b) prescriptive (c) monochromic (d) enthnocentric

11. When Limited Brands buys cotton in Egypt, has tops sewn from it in Sri Lanka according to designs made in Italy, and then offers the garments for sale in the United States, this form of international business is known as ____________. (a) licensing (b) importing (c) joint venturing (d) global sourcing

12. The difference between an international business and a transnational corporation is that the transnational ____________. (a) tries to operate around the world without a strong

national identity (b) does business in only one or two foreign

countries (c) is led by ethnocentric managers (d) is based outside North America

13. The Foreign Corrupt Practices Act makes it illegal for ____________. (a) Americans to engage in joint ventures abroad (b) foreign businesses to pay bribes to U.S. government

offi cials (c) U.S. businesses to make payoffs abroad to gain

international business contracts (d) foreign businesses to steal intellectual property from

U.S. fi rms operating in their countries

Self-Test 5

119Management Skills & Competencies

14. When a member of a cross-cultural team is hesitant to speak up and offer ideas, defers to the team leader, and avoids accepting praise for individual work, the person is displaying characteristics consistent with a ____________ culture. (a) monochromic (b) low-context (c) tight (d) loose

15. Hofstede would describe a culture whose members respect age and authority and whose workers defer to the preferences of their supervisors as ____________. (a) low masculinity (b) high particularism (c) high power distance (d) monochronic

Short-ResponseQuestions

16. Why do host countries sometimes complain about how global corporations operate within their borders?

17. Why is the “power-distance” dimension of national culture important in management?

18. What is the difference between a culture that is tight and one that is loose?

19. How do regional economic alliances impact the global economy?

EssayQuestion

20. Kim has just returned from her fi rst business trip to Japan. While there, she was impressed with the intense use of work teams. Now back in Iowa, she would like to totally reorganize the workfl ows and processes of her canoe manufacturing company and its 75 employees around teams. There has been very little emphasis on teamwork, and she now believes this is “the way to go.” Based on the discussion of culture and management in this chapter, what advice would you offer Kim?

Evaluate Career Situations

What would you do?

1. To Buy or Not to Buy

You’ve just read in the newspaper that the maker of one of

your favorite brands of sports shoes is being investigated for

using sweatshop factories in Asia. It really disturbs you, but

the shoes are great! One of your friends says it’s time to boy-

cott the brand. You’re not sure. Do you engage in a personal

boycott or not, and why?

2. China Beckons

Your new design for a revolutionary golf putter is a big hit

with friends at the local golf course. You decide to have clubs

with your design manufactured in China so that you can sell

them to pro shops around the country. How can you make

ManagementSkills& Competencies Make yourself valuable!

sure that your design won’t be copied by the Chinese manu-

facturer and then used to make low-price knock-off s? What

should you do in this situation?

3. Cross-Cultural Teamwork

You’ve just been asked to join a team being sent to Poland

for 10 days to discuss a new software development pro-

ject with your firm’s Polish engineers. It is your first busi-

ness trip out of the country. In fact, you’ve only been to

Europe once, as part of a study-abroad semester in col-

lege. How will you prepare for the trip and for work with

your Polish colleagues there? What worries you the most

under the circumstances? After all, if you do well here

more international assignments are likely to come your

way.

120 CHAPTER 5 ■ Global Management and Cultural Diversity

Refl ect on the Self-Assessment

Global Intelligence

Instructions Use the following scale to rate yourself on each of these 10 items:

1 Very Poor

2 Poor

3 Acceptable

4 Good

5 Very Good

___ 1. I understand my own culture in terms of its expectations,

values, and infl uence on communication and relationships.

___ 2. When someone presents me with a diff erent point of

view, I try to understand it rather than attack it.

___ 3. I am comfortable dealing with situations where the

available information is incomplete and the outcomes

are unpredictable.

___ 4. I am open to new situations and am always looking for

new information and learning opportunities.

___ 5. I have a good understanding of the attitudes and

perceptions toward my culture as they are held by

people from other cultures.

___ 6. I am always gathering information about other countries

and cultures and trying to learn from them.

___ 7. I am well informed regarding the major diff erences

in the government, political, and economic systems

around the world.

___ 8. I work hard to increase my understanding of people

from other cultures.

___ 9. I am able to adjust my communication style to work

eff ectively with people from diff erent cultures.

___ 10. I can recognize when cultural diff erences are infl uencing

working relationships, and I adjust my attitudes and

behavior accordingly.

Interpretation In order to be successful in the global economy, you must be

comfortable with cultural diversity. Th is requires a global mind-

set that is receptive to and respectful of cultural diff erences,

global knowledge that includes the continuing quest to know

and learn more about other nations and cultures, and global

work skills that allow you to work eff ectively across cultures.

Scoring Th e goal is to score as close to a perfect “5” as possible on each of

the three dimensions of global intelligence. Develop your scores

as follows:

1. Items (1 1 2 1 3 1 4)/4 5 Global Mind-Set Score

2. Items (5 1 6 1 7)/3 5 Global Knowledge Score

3. Items (8 1 9 1 10)/3 5 Global Work Skills Score

Contribute to the

Class Exercise

American Football

Instructions Form into groups as assigned by the instructor. In the group do

the following: 87

1. Discuss “American Football”—the rules, the way the game is

played, the way players and coaches behave, and the roles of

owners and fans.

2. Use “American Football” as a metaphor to explain the way

U.S. corporations run and how they tend to behave in terms

of strategies and goals.

3. Prepare a class presentation for a group of visiting Japanese

business executives. In this presentation, use the metaphor

of “American Football” to (1) explain American business

strategies and practices to the Japanese and (2) critique the

potential strengths and weaknesses of the American business

approach in terms of success in the global marketplace.

Manage a Critical Incident

Silent Team Members

Th e course instructor professor assigned students to teams for a

case study in two parts spaced two weeks apart: Part A requires a

preliminary oral presentation and Part B requires a fi nal presenta-

tion and written report. Your team has fi ve members, including

one each from Japan and Indonesia. Th e team had three face-to-

face meetings while preparing Part A. Th e Japanese and Indone-

sian members said very little, although they had extensive notes of

information retrieved from research on the Internet. But they

were even hesitant to answer when asked direct questions. Th e

other three members created the preliminary presentation and

assigned parts for everyone to deliver. Th e Japanese and Indone-

sian team members struggled with their parts of the presenta-

tion and didn’t contribute during the question-and-answer

session. Th e instructor said the team’s Part A presentation wasn’t

focused and well integrated. She said things would have to go

much better on Part B if the team expected a high grade. Th e

team is scheduled to meet tonight to recap Part A and start work

on Part B.

Questions What can you say and do at this meeting to set the stage for

higher performance on Part B? How might team dynamics

and cross-cultural diversity have contributed to the Part A

results? What insights from cultural models might explain the

behavior of your Japanese and Indonesian teammates? How can

they be better engaged so that the team takes best advantage of

all of members’ talents going forward? What role can you play in

f uture team meetings to help accomplish this goal?

121Analyze the Case Study

Collaborate on the

Team Activity

Globalization Pros and Cons

Question “Globalization” is frequently in the news. You can easily read or

listen to both advocates and opponents. What is the bottom

line? Is globalization good or bad, and for whom? What are the

important issues to consider as the world becomes even more

connected?

Instructions 1. Agree on a good defi nition for the term “globalization.” Review

various defi nitions and fi nd the common ground.

AnalyzeTHE CaseStudy

HARLEY-DAVIDSON

Style and Strategy with a Global Reach Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

2. Read current events relating to globalization. Summarize the

issues and arguments. What is the positive side of globalization?

What are the negatives that some might call its “dark” side?

3. Read what scholars say about globalization. Summarize

their views on the forces and consequences of globalization

for small and large companies, for countries, for people and

society at large.

4. Consider globalization from the perspective of your local

community and its major employers. Is globalization a threat

or an opportunity in this context, and why?

5. Take a position on globalization pros and cons, and share it

with the class. Justify your position.

Nick D'Aloisio—17 years old . . . writes Summly app while in high school . . . puts $30 million in the bank. He says: “My parents at fi rst were a bit concerned. . . . You shouldn't be keeping these hours.”

Bloomberg/Getty Images

Entrepreneurship

and New

Ventures

Taking risks can make dreams

come true

C H A P T E R Q U I C K STA RT

Entrepreneurship is an attractive opportunity that is enticing more and more

college students and experienced workers alike. Many of us have good ideas for

business and social entrepreneurship that go unfulfi lled. Understanding the nature

of entrepreneurs, the challenges of running small businesses, and alternative ways

of setting up and funding new ventures can go a long way toward opening the

doors to this career pathway.

Key Takeaways

■ Defi ne entrepreneurship

and identify entrepreneurs.

■ Describe how small

businesses get started

and common problems

they face.

■ Explain how entrepreneurs

plan, legally structure, and

fund new business ventures.MANAGEMENT IS REAL MAKE DATA YOUR FRIEND

Minority Entrepreneurs Lead the Way

THINK BEFORE YOU ACT

Students Are Crowdfunding Their Human Capital

KNOW RIGHT FROM WRONG

Entrepreneurship Meets Caring Capitalism Meets Big Business

LEARN ABOUT YOURSELF

Self-Management Keeps You Growing

LEARN FROM ROLE MODELS

Grad-School Startup Takes on Global Competitors

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Entrepreneurial Orientation

■ CONTRIBUTE To the Class Exercise: Entrepreneurs among Us

■ MANAGE A Critical Incident: Craft Brewery In—or Out—of the Money?

■ COLLABORATE On the Team Activity: Community Entrepreneurs

■ ANALYZE Th e Case Study: In-N-Out Burger: Building Them Better

what to look for inside >

123

124 CHAPTER 6 ■ Entrepreneur ship and New Ventures

J ust out of the military and starting again? Why not create your own job?

John Raftery did. After a four-year tour with the Marines—including two on

deployment—he earned an accounting degree with help from the GI Bill. But

after being disappointed with slow advancement at an accounting fi rm, he

answered an e-mail about a free Entrepreneurship Bootcamp for Veterans with

Disabilities at Syracuse University. Raftery went to the camp and ended up with

a business plan to start his own fi rm, Patriot Contractors, in Waxahachie, Texas. 1

Struggling with work–life balance as a mother? Why not fi nd fl exibility and

opportunity in entrepreneurship? Denise Devine did just that. Once a fi nan-

cial executive with Campbell Soup Co., she now has her own line of fi ber-rich

juice drinks for kids. Called mompreneurs, women like Devine fi nd opportu-

nity in market niches for safe, useful, and healthy products they spot as

moms. Says Devine: “As entrepreneurs we’re working harder than we did, but

we’re doing it on our own schedules.” 2

Female, thinking about starting a small business, but don't have the money?

Find help from organizations like Count-Me-In. Started by co-founders Nell

Merlino and Iris Burnett, it off ers “microcredit” loans of $500 to $10,000 to

help women start and expand small businesses. A unique credit scoring

system doesn’t penalize for things such as a divorce, time off to raise a family,

or age—all things that might discourage conventional lenders. Merlino says:

“Women own 38% of all businesses in this country, but still have far less

access to capital than men because of today’s process.” 3

Th ese examples are hopefully inspiring. In fact, this is really a chapter of

examples. Th e goal is not only to inform you, but also to get you thinking about

starting your own business, becoming your own boss, and making your own

special contribution to society as a whole. How does that sound? Could you get

excited to join the world of entrepreneurship and small business management?

Mompreneurs pursue business

opportunities they spot as mothers.

Th e Nature of Entrepreneurship TAKEAWAY 1 What is entrepreneurship and who are the entrepreneurs?

Who are the entrepreneurs? • Characteristics of entrepreneurs Women and minority entrepreneurs • Social entrepreneurship

Th e term entrepreneurship describes strategic thinking and risk-taking behavior that results

in the creation of new opportunities. H. Wayne Huizenga started Waste Management with just

$5,000 and once owned the Miami Dolphins. He says: “An important part of being an entrepre-

neur is a gut instinct that allows you to believe in your heart that something will work even

though everyone else says it will not.” 4 Have you had experiences in your own life where you’ve

continued along a particular path and succeeded, despite the advice of friends or family not to?

Who Are the Entrepreneurs?

A classic entrepreneur is a risk-taking individual who takes action to pursue opportunities

others fail to recognize, or even view as problems or threats. Who, for example, would consider

starting a bookstore in a place like Nashville, Tennessee, where Borders and Barnes & Noble

had already closed shop? Against the advice of family and friends, Ann Patchett did. She

LEARN MORE

ABOUT

Entrepreneurship is risk-taking

behavior that results in new

opportunities.

A classic entrepreneur is someone

willing to pursue opportunities in

situations others view as problems or

threats.

ThThThTh ee NNNaatturrre ooff EEnntttreeprrennneeuurssshiippTh

125Th e Nature of Entrepreneurship

reasoned that a place that had previously supported 60,000 square feet of bookstore space

still had enough customer potential to support a small center-city store. “Why can’t I open

2,500 square feet of bookstore?” she reasoned. Th at confi dence gave birth to Parnassus

Books and a sales record that went on to exceed expectations. 5

Some people become serial entrepreneurs that start and run new ventures over and

over again, moving from one interest and opportunity to the next. Serial entrepreneurs can

be found both in business and nonprofi t settings. H. Wayne Huizenga, mentioned earlier, is

a great example. He made his fortune founding and selling businesses like Blockbuster

Entertainment, Waste Management, and AutoNation. A member of the Entrepreneurs’ Hall

of Fame, he describes being an entrepreneur this way: “We’re looking for something where

we can make something happen: an industry where the competition is asleep, hasn’t taken

advantage.” 6

A common pattern among successful entrepreneurs is fi rst-mover advantage. Th ey

move quickly to spot, exploit, and deliver a product or service to a new market or an unrec-

ognized niche in an existing one. Consider some other brief examples of entrepreneurs who

were willing to take risks and sharp enough to pursue fi rst-mover advantage. 7

Caterina Fake. From idea to buyout took only 16

months. Th at’s quite a benchmark for would-be Internet

entrepreneurs. Welcome to the world of Flickr, co-founded

by Caterina Fake. Flickr took the notion of online photo

sharing and turned it into an almost viral Internet phenom-

enon. Startup capital came from families, friends, and angel

investors. Th e payoff came when Yahoo! bought them out

for $30 million. Fake then started Hunch.com, a website

designed to help people make decisions (e.g., should I buy

that Porsche?). She sold it to eBay for $80 million. She says: “You pick a big, ambitious

problem, and look for great people to solve it.” 8

Earl Graves. Earl G. Graves Sr. started Black Enterprise

magazine with a vision and a $175,000 loan. Its success

grew into the diversified business information company

Earl G. Graves Ltd.—a multimedia venture spanning tele-

vision, radio, and digital media including BlackEnterprise.

com. Graves’s accomplishments led Fortune magazine to

call him one of the 50 most powerful and infl uential Af-

rican Americans in corporate America. Th e author of the

best-selling book How to Succeed in Business without Be-

ing White, Graves received a Lifetime Achievement Award

from the National Association of Black Journalists. He is a member of many business

and nonprofit boards, and the business school at his college alma mater—Baltimore’s

Morgan State University, is named after him. Graves says: “I feel that a large part of my

role as publisher of Black Enterprise is to be a catalyst for Black economic development in

this country.” 9

Anita Roddick. In 1973, Anita Roddick was a

33-year-old housewife looking for a way to support her-

self and her two children. She spotted a niche for nat-

ural-based skin and health care products, and started

mixing and selling them from a small shop in Brighton,

England. It became Body Shop, a global retailer selling a

product every half-second around the world. Known for

her commitment to human rights, the environment, and economic development, Rod-

dick was an early advocate of “profi ts with principles” and business social responsibility.

She once said: “If you think you’re too small to have an impact, try going to bed with a

mosquito.” 10

A serial entrepreneur starts and runs

businesses and nonprofi ts over and over

again, moving from one interest and

opportunity to the next.

A fi rst-mover advantage comes from

being fi rst to exploit a niche or enter a

market.

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126 CHAPTER 6 ■ Entrepreneur ship and New Ventures

Shawn Corey Carter. You prob-

ably know him as Jay Z, and there’s an

entrepreneurial story behind the name.

Carter began rapping on the streets of

Brooklyn where he lived with his sin-

gle mom and three brothers. Hip-hop

turned into his ticket to travel. “When

I left the block,” he told an interviewer,

“everyone was saying I was crazy, I was

doing well for myself on the streets, and

cats around me were like, these rappers

. . . just record, tour, and get separated

from their families, while some white

person takes all their money. I was determined to do it diff erently.” 11

He did. Carter used his

music millions to found the media fi rm Roc Nation, co-found the apparel fi rm Rocawear,

and become part owner of the New Jersey Nets.

Characteristics of Entrepreneurs

Entrepreneurs and entrepreneurship are everywhere. Th ere is no age prerequisite. At the

age of 22, Richard Ludlow turned down a full-time job off er and an MBA admission to

start New York’s Academic Earth. It’s an online location for posting and sharing faculty

lectures and other educational materials. His goals are both to make a profi t and help

society by lowering the cost of education. While in high school Jasmine Lawrence created

her own natural cosmetics after having problems with a purchased hair relaxer. Products

from her fi rm, Eden BodyWorks, can now be found at Walmart and Whole Foods. 12

Th ere are lots of entrepreneurs in almost

any community. Just look at those individu-

als who take the risk of buying a local

McDonald’s or Subway or Papa John’s franchise,

open a small retail shop selling used video

games or bicycles, start a self-employed service

business such as fi nancial planning or man-

agement consulting, or establish a nonprofi t

organization to provide housing for the

homeless or deliver hot meals to house-

bound senior citizens. All of these individuals

are entrepreneurs in their own way. 13

Is there something in your experience

that could be a pathway to entrepreneur-

ship? Have you thought about better ways to

do things that everyone does? or a product

to do it with? As you think about these ques-

tions, don’t let the myths shown in the

nearby box discourage you. 14

Attitudes and Personal Interests Researchers point out that entrepreneurs tend to share certain attitudes and personal char-

acteristics. Th e general entrepreneurial profi le is of an individual who is self-confi dent,

determined, resilient, adaptable, and driven by excellence. 15

Th ey also share personality

traits and characteristics like those shown in Figure 6.1 and described here. 16

• Internal locus of control: Entrepreneurs believe that they are in control of their own

destiny; they are self-directing and like autonomy.

• High energy level: Entrepreneurs are persistent, hardworking, and willing to exert

extraordinary eff orts to succeed.

Characteristics of entrepreneurs

• Entrepreneurs are born, not made.

Not true! Talent gained and enhanced by experience is a foundation for

entrepreneurial success.

• Entrepreneurs are gamblers.

Not true! Entrepreneurs are risk takers, but the risks are informed and calculated.

• Money is the key to entrepreneurial success.

Not true! Money is no guarantee of success. Th ere’s a lot more to it than that;

many entrepreneurs start with very little.

• You have to be young to be an entrepreneur.

Not true! Age is no barrier to entrepreneurship; with age often comes

experience, contacts, and other useful resources.

• You have to have a degree in business to be an entrepreneur.

Not true! You may not need a degree at all. Although a business degree is not

necessary, it helps to study and understand business fundamentals.

Challenging the Myths about Entrepreneurs

Andrew Milligan/PA Photos/Landov

127Th e Nature of Entrepreneurship

• Self-confi dence: Entrepreneurs feel competent, believe in themselves, and are willing to

make decisions.

• Tolerance for ambiguity: Entrepreneurs are risk takers; they tolerate situations with

high degrees of uncertainty.

• Self-reliance and desire for independence: Entrepreneurs want independence; they are

self-reliant; they want to be their own bosses, not work for others.

• High need for achievement: Entrepreneurs are motivated to accomplish challenging

goals; they thrive on performance feedback.

• Flexibility: Entrepreneurs are willing to admit problems and errors, and are willing to

change a course of action when plans aren’t working.

• Passion and action orientation: Entrepreneurs try to act ahead of problems; they want to

get things done and not waste valuable time.

Background, Experiences, and Interests Entrepreneurs tend to have a unique background and personal experiences.

17 Childhood

experiences and family environment appear to make a diff erence. Evidence links entrepre-

neurship with parents who were entrepreneurial and self-employed. Entrepreneurs

often are raised in families that encourage responsibility, initiative, and independence.

Another issue is career or work history. Entrepreneurs who try one venture often go on to

others. Prior work experience in the business area or the industry being entered can be

helpful.

A report in the Harvard Business Review suggests that entrepreneurs may have unique

and deeply embedded life interests. 18

Th e article describes entrepreneurs as having strong

interests in starting things. Th ey enjoy creative production—things like project initiation,

working with the unknown, and fi nding unconventional solutions. Entrepreneurs also have

strong interests in running things. Th ey enjoy enterprise control—being in charge, being

accountable, and making decisions while moving others toward a goal. Are these character-

istics family and friends might use to describe you?

Entrepreneurs also tend to emerge during certain windows of career opportunity. Most

start their businesses between the ages of 22 and 45, an age spread that seems to allow for

risk taking. However, being older in age shouldn’t be viewed as a barrier. When Tony DeSio

Who are the entrepreneurs?

Flexibility Self-confidence

Passion and action orientation

High energy level

High need for achievement

Tolerance for ambiguity

Internal locus of control

Self-reliance and desire for

independence

FIGURE 6.1 Personality traits and characteristics of entrepreneurs.

128 CHAPTER 6 ■ Entrepreneur ship and New Ventures

was 50, he founded the Mail Boxes Etc. chain. He sold it for $300 million when he was 67 and

suff ering heart problems. Within a year he launched PixArts, another franchise chain based

on photography and art. When asked by a reporter what he liked most about entrepreneur-

ship, DeSio replied: “Being able to make decisions without having to go through layers of

corporate hierarchy—just being a master of your own destiny.” 19

Female and Minority Entrepreneurs

When economists speak about entrepreneurs, they diff erentiate between entrepreneurs

driven by the search for new opportunities and those driven by absolute need. Entrepre-

neurs in the latter category pursue necessity-based entrepreneurship, meaning that

they start new ventures because they have few or no other employment and career

options. This was the case for Anita Roddick, the Body Shop founder introduced

earlier. She said her entrepreneurship began because she needed “to create a livelihood

for myself and my two daughters, while my husband, Gordon, was trekking across the

Americas.” 20

Necessity-driven entrepreneurship is one way for women and minorities who have hit

the “glass ceiling” in their careers or are otherwise cut off from mainstream employment

opportunities to strike out on their own and gain economic independence. One survey of

women who left private-sector employment to work on their own reported that 33% of these

women were not being taken seriously by their prior employer, and 29% who had experi-

enced glass ceiling issues. 21

As to entrepreneurship by women of color, the report Women

Business Owners of Color: Challenges and Accomplishments points out that glass ceiling

issues include not being recognized or valued by their employers, not being taken seriously,

and seeing others promoted ahead of them. 22

Necessity-based entrepreneurship

takes place because other employment

options don’t exist.

Economic necessity and career diffi culties may help to explain the growth of minority entrepreneurship in the United States. Consider these facts and trends.

■ Th ere are close to 6 million minority-owned fi rms in the United

States (29% of all business), and they contribute $1 trillion

annually to the economy.

■ In the last census of small businesses, those owned by African

Americans had grown by 45%, by Hispanics 31%, and by

Asians 24%.

■ Minority entrepreneurs are less successful than majority entre-

preneurs when making pitches to angel investors—15% versus

22% success rate.

■ Among angel investors, 4.5% are minority and 18% female.

■ Immigrants are twice as likely as native-born Americans to start

new businesses.

■ If minority business ownership was proportionate to the mi-

nority share of the U.S. population, they would number more

than 8 million fi rms and provide more than 17 million jobs.

■ Minority businesses export to 41 countries on six continents.

YOUR THOUGHTS?

What factors can help or hinder the growth of minority-owned businesses? Should we invest more in minority entrepreneurship as a way to fi ght economic disparities in our society? What can be done to reduce or eliminate obstacles minorities and women face on their pathway toward entrepreneurship? Why aren’t minorities more successful in pitches to angel investors? Why are minorities and women underrepresented in the ranks of angel investors?

analysis> MAKE DATA YOUR FRIEND > Minority entrepreneurs provide 6 million jobs but attract less than 1% of venture capital.

Minority Entrepreneurs Lead the Way

Jacob Wackerhausen/iStockphoto

129Th e Nature of Entrepreneurship

Th e National Foundation for Women Business Owners (NFWBO) reports that women

own close to 8 million of U.S. non-farm businesses. Th ese fi rms are forecasted to create one-

third of the 151 million new jobs predicted by 2018.23 Although the top four industries for female entrepreneurs are the same as for men—construction, manufacturing, wholesale

trade, and retail trade, a Kauff man report notes that only 19.8% of the female business own-

ers earned $100,0001 per year compared to 32.8% for men. Th e report states that women “seem to be encountering ‘glass walls’ that keep their businesses from expanding.”

Th e last U.S. small business census identifi ed almost 2 million small fi rms owned by

African Americans, a growth of 60% over prior numbers, representing 7% of total busi-

nesses. Among new startups in 2010, 9% were led by African American entrepreneurs and

23% by Latinos. 25

Even so, obstacles to minority entrepreneurship—as with female entre-

preneurship—are real and shouldn’t be underestimated. Less than 1% of the available ven-

ture capital in the United States goes to minority entrepreneurs. High unemployment and

declining wealth among African American households also make it hard to fi nd startup

fi nancing. In an eff ort to address such issues, the U.S. Minority Business Development

Agency of the Department of Commerce set up a nationwide network of 40 business devel-

opment centers with the goal of helping minority-owned businesses grow in “size, scale,

and capacity.” 26

Social Entrepreneurship

Entrepreneurship also plays a critical social role in society. For example, it can help to

address social issues such as housing and job training for the homeless, bringing technology

to poor families, improving literacy among disadvantaged youth, reducing poverty, and

improving nutrition. Th ese and other social issues are targets for social entrepreneurship,

a form of ethical entrepreneurship that seeks novel ways to solve pressing social problems.

Social entrepreneurs take risks and create social enterprises with the mission to help make

lives better for underserved populations. 27

Social entrepreneurs and their enterprises, both nonprofi t and for-profi t, devise new

ways to meet needs that are not being served eff ectively by government or the private

sector. 28

Fast Company magazine tries to spot and honor social entrepreneurs that run their

organizations with “innovative thinking that can transform lives and change the world.”

Consider these examples of those who strive to live up to these expectations. 29

• Chip Ransler and Manoj Sinha—tackled the lack of power in many of India’s poor

villages. As University of Virginia business students, they realized that 350 million

people lived in India’s rice-growing regions without reliable electricity. After discovering

that tons of rice husks were being discarded with every harvest, Ransler and Sinha

started Husk Power Systems. It creates biogas from the husks and uses the gas to fuel

small power plants.

• Rose Donna and Joel Selanikio—tackled public health problems in sub-Saharan Africa.

After realizing that public health services in developing nations often are bogged down

in paperwork, they created software to make the process quicker and more effi cient

while increasing the reliability of databases. Th e UN, the World Health Organization,

and the Vodafone Foundation are now helping their fi rm, DataDyne, move the program

into 22 other African nations.

• Nissan Bahar and Franky Imbesi—tackled lack of computers for African children

living in poverty. Th ey created Keepod, which puts an Android operating system on a

USB drive that can be used in old PCs. Th is “operating system on a stick” makes each

child an “owner” of a PC even when sharing machines with others. Bahar and Imbesi

are testing the model in a Nairobi, Kenya, slum. Local workers buy fl ash drives for

about $7, install the Keepod operating system, resell the drives for $9, and use the

profi t to pay themselves and fuel further expansion.

Lots of social entrepreneurship takes place without much notice, as most attention

often goes to business entrepreneurs making lots of money. However, you can fi nd social

entrepreneurs right in your own community. Lewisville, Texas, for example, is the home of

Social entrepreneurship is a unique

form of ethical entrepreneurship that

seeks novel ways to solve pressing social

problems.

Social enterprises have a social

mission to help make lives better for

underserved populations.

130 CHAPTER 6 ■ Entrepreneur ship and New Ventures

the housekeeping service Buckets & Bows, owned by Deborah Sardone. She became

alarmed after noticing that many of her clients with cancer struggled hard with everyday

household chores. Her response to this problem was to start Cleaning for a Reason. It’s a

nonprofi t that builds networks of linkages with cleaning fi rms around the country with

owners willing to off er free home cleaning to cancer patients. 30

Learning Check 1

TAKEAWAYQUESTION 1 What is entrepreneurship and who are the entrepreneurs?

BE SURE YOU CAN • defi ne entrepreneurship and diff erentiate between classic and serial entrepreneurs • list key personal

characteristics of entrepreneurs • explain the infl uence of background and experience on entrepreneurs • discuss motivations

for entrepreneurship by women and minorities • defi ne social entrepreneurship and social enterprises

When four MBA students at Wharton asked that question they found an oligopoly industry where supply was con- trolled by just a few fi rms who had as a result a disproportionate

infl uence on prices. Spotting both a business opportunity and a

social calling, they decided to start a company to do what they felt

was the right thing to do—make eyeglasses available to people at a

reasonable price. Th eir creation, Warby Parker, is described as being

“founded with a rebellious spirit and a lofty objective: to create

boutique-quality, classically crafted eyewear at a revolutionary

price point.”

Th e founders—David Gilboa, Neil Blumenthal, Andrew Hunt,

and Jeff rey Raider—wrote a Web-driven business plan that many

questioned at fi rst. Could eyeglasses be sold over the Internet? Th e

Warby Parker answer was: “Of course!” If you’re in doubt, and espe-

cially if you wear glasses, check out the off erings on warbyparker.com.

You can buy stylish glasses for as low as $95—frames with Rx

lenses and free shipping. All this is made possible by the founders’

careful analysis of the industry and its supply chains. Th ey source

directly from manufacturers and then sell direct to customers,

cutting out a lot of costs and profi t-taking in the middle of the

chain.

Warby Parker is e-commerce and customer friendly—letting

you have free home try-ons of up to fi ve “loaner” pairs. On the social

side of the business model, if you end up buying from Warby

Parker, you’re actually also helping someone else who can’t aff ord

to buy new glasses for themselves. Warby Parker donates one pair

of glasses to someone in need for every pair of glasses that it sells.

Th at adds up quickly when you consider that they sell more than

250,000 pairs a year.

Th e company’s website proudly announces: “Let’s do good.

We’re building a company to do good in the world. . . . We think it’s

good business to do good.” Th ey call their business model “eye-

wear with a purpose.” Th at purpose is anchored in the fact that

over a billion people in the world don’t have the eyeglasses they

need for school, work, or everyday living. Th is is a pervasive social

problem that Warby Parker aims to help solve through business.

FIND INSPIRATION

Warby Parker’s founders discovered that prescription eyeglasses could be sold for less than the current market. By selling for less they created more value for both customers and for society at large. Instead of buying glasses at a boutique for $695 you can buy a stylish pair online from Warby Parker for $95. Central to the founders’ purpose, each purchase sends a free pair of eye- glasses to someone in need. Why aren’t there more businesses like Warby Parker? Why aren’t there more entrepreneurs who try to match social problems and business opportunities? How about you? Do you have any good ideas matching business op- portunity with social need?

wisdom> LEARN FROM ROLE MODELS > “Founded with a rebellious spirit and a lofty objective: to create boutique-quality, classically

crafted eyewear at a revolutionary price point.”

Grad-School Startup Takes On Global Competitors

Kathy Willens/AP

131Entrepreneurship and Small Business

Etsy Turns “Handmade” into Entrepreneurship

Etsy’s mission is described as empowering people and creating “a world in which

very-very small businesses have much-much more sway in shaping the economy.”

Th e original idea came from painter and photographer Rob Kalin who wanted an

online market for his works. Along with Chris Maguire and Haim Schoppik, Kalin

founded Etsy as an online marketplace where artists and craftspersons could

showcase their work and network with customers. Th e business model, which was

as neat as a hand-stitched quilt—take a 3.5% transaction fee and 20¢ listing charge,

and sell ads—worked. Etsy, now well-known as an online market for vintage and

handmade products, has over 900,000 active sellers and 30 million members. It’s a

leader in what is now known as “artisanal capitalism.”B ria

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Entrepreneurship and Small Business TAKEAWAY 2 How do small businesses get started and what common problems do

they face?

Why and how small businesses get started • Why small businesses fail Family-owned small businesses

Th e U.S. Small Business Administration (SBA) defi nes a small business as a company that

has 500 or fewer employees, is independently owned and operated, and does not dominate its

industry. Over 99% of American businesses meet this defi nition. 31

Th ey provide employment

for 46.7% of private-sector workers, create as many as 6 out of every 10 new jobs in the econ-

omy, and employ 49.2% of private sector workers. 32

Small businesses employ 43% of high-tech

workers such as scientists, engineers, and computer programmers. Th ey produce more

patents-per-employee than large fi rms, receive 35% of federal government contract dollars,

and export more than $400 billion of goods and services annually. 33

Th e most common

small business areas are restaurants, skilled professions such as craftspeople and doctors,

general services such as hairdressers and repair shops, and independent retailers. 34

Th e vast

majority of small businesses employ fewer than 20 workers, and over half of small businesses

are home-based.

How Small Businesses Get Started

Th ere are many reasons why people start their own small businesses—from necessity, as

discussed earlier as a stimulus to entrepreneurship, to wanting to be your own boss,

control your future, and fulfill a dream. 35

Would you be surprised to learn that the

Gallup-Healthways Well-Being Index points to high satisfaction among small business

owners? Self-employed business and store owners outrank working adults in 10 other

occupations—including professional, manager/executive, and sales—on factors such as

job satisfaction and emotional and physical health. 36

Once a decision is made to go the small business route, the most common ways entrepre-

neurs get involved are to start a small business, buy an existing one, or buy and run a

franchise—where a business owner sells the right to operate the same business in another

location. A franchise such as Subway, Quiznos, or Domino’s Pizza runs under the original

owner’s business name and guidance. In return, the franchise parent receives a specifi ed

share of income or a fl at fee from the franchisee.

Any business—large or small, franchise or startup, needs a solid underlying business

model. Think of a business model as a plan for making a profit by generating revenues

that are greater than the costs of doing business. Serial entrepreneur Steven Blank calls

A small business has fewer than 500

employees, is independently owned

and operated, and does not dominate

its industry.

A franchise is when one business

owner sells to another the right to

operate the same business in another

location.

A business model is a plan for making

a profi t by generating revenues that are

greater than costs.

LEARN MORE

ABOUT

EEEnnnnntttrrreeeppprrrreeennnneeuuuurrrsshhhhiipppp aannddd SSmmmaall Buuussineessssa

132 CHAPTER 6 ■ Entrepreneur ship and New Ventures

business startups temporary organizations that are trying “to discover a profi table, scalable

business model.” 37

A startup is just that—a “start”; it’s a new venture the entrepreneur is

hoping will take shape and prove successful as the business develops and matures.

Blank’s advice for those starting up a new venture is to move fast and create a “minimum

viable product” that will attract customers, and that can be further developed and made more

sophisticated over time. An example is Facebook, which started with simple message sharing

and quickly grew into the complex social media operation we know today. Blank also favors

something called a lean startup. It takes maximum advantage of resources like open-source

software and free Web services to save on costs, while staying small and keeping operations as

simple as possible. 38

Why Small Businesses Fail

Small businesses have a high failure rate—one high enough to be intimidating. Th e SBA

reports that about 50% of new small businesses fail in their fi rst fi ve years of operation, and

only one-third survive for 10 years or more. 39

Part of this daunting statistic is a “counting”

issue—the government counts as a “failure” any business that closes, whether it is because

of the death or retirement of an owner, sale to someone else, or inability to earn a profi t. 40

Nevertheless, the fact is that a lot of small business startups don’t make it for reasons such

as the following (see also Figure 6.2). 41

• Insuffi cient fi nancing—not having enough money to maintain operations while still

building the business and gaining access to customers and markets.

• Lack of experience—not having suffi cient know-how to run a business in the chosen market

or geographic area.

• Lack of commitment—not devoting enough time to the requirements of running a com-

petitive business.

• Lack of strategy and strategic leadership—not taking the time to craft a vision and mis-

sion, or formulate and properly implement a strategy.

• Ethical failure—falling prey to the temptations of fraud, deception, and embezzlement.

• Lack of expertise—not having expertise in the essentials of business operations, includ-

ing fi nance, purchasing, selling, and production.

• Growing too fast—not taking the time to consolidate a position, fi ne-tune the organiza-

tion, and systematically meet the challenges of growth.

• Poor fi nancial control—not keeping track of the numbers, and failure to control business

fi nances and use money to best advantage.

A startup is a new and temporary

venture that is trying to discover a

profi table business model for future

success.

Lean startups use resources like

open-source software, while containing

costs, staying small, and keeping

operations as simple as possible.

Reasons startups fail

Small business failures

Poor Financial Control Lack of strategy

Insufficient Financing

Lack of commitment

Growing too fast Ethical failure

Lack of experience

Lack of expertise

FIGURE 6.2 Eight reasons why many small businesses fail.

133Entrepreneurship and Small Business

Family-Owned Small Businesses

In the little town of Utica, Ohio, there is a small child’s desk in the corner of the president’s

offi ce at Velvet Ice Cream Company. Its purpose is to help grow the next generation of lead-

ership for the fi rm. “Th at’s the way Dad did it,” says Luconda Dager, the current head of the

fi rm. “He exposed us all to the business at an early age.” She and her two sisters, now both

vice presidents, started working at the fi rm when they were 13 years old. When it came

time for Joseph Dager to retire and pass the business on to the next generation, he said: “It is

very special for me to pass the baton to my oldest daughter. Luconda has been with us for

15 years. She understands and breathes the ice cream business, and there is no one better

suited for this position.” 42

Velvet Ice Cream is the classic family business, owned and fi nancially controlled by

family members. Th e Family Firm Institute reports that family businesses account for 78%

of new jobs created in the United States and provide 60% of the nation’s employment. 43

A family business is owned and

controlled by members of a family.

Would or do you buy shoes just because the company that sells them also is pledged to philanthropy? Blake Mycoskie, founder of TOMS Shoes, wants you to do just that. He says: “giving

back feels good, and that alone is a reason to make it part of your

life and part of your business . . . When you incorporate giving into

your model, your customers become your marketers.”

Mycoskie’s journey to entrepreneurship began on the reality

TV show, Th e Amazing Race, which whetted his appetite for

travel. He had a revelation while visiting Argentina and after

coming face-to-face with lots of young children without shoes.

He would return home and start a sustainable business to help

address the problem. He named the business TOMS, short for

“better tomorrow.”

TOMS sells shoes made in a classic Argentinean style, but

with a twist. For each pair of shoes sold, TOMS donates a pair to

needy children. Mycoskie calls this One for One, a “movement”

that involves “people making everyday choices that improve the

lives of children.” Th e business model is refl ective of what’s been

called Caring Capitalism or profi ts with principles. TOMS has

expanded to include eyewear. Buy a pair of eyeglasses and the

fi rm will pay for saving someone’s eyesight with prescription

glasses and medical care. Further product expansion seems

likely.

Who knows what the future holds for TOMS if it grows to the

point where corporate buyers begin to take an interest in the

company. It’s happened to profi ts-with-principles businesses in

the past. For example, Ben & Jerry’s is now owned by Unilever and

Tom’s of Maine is owned by Colgate-Palmolive. Many states are

now passing laws creating the “benefi t corporation” as a new legal

entity. It is designed to protect fi rms whose charters spell out

special values; it also requires them to report their social benefi t

activities and impact.

WHAT DO YOU THINK?

Is TOMS’ business model one that other entrepreneurs could—or should—adopt? Is it ethical to link personal philan- thropic goals with the products that a for-profi t business sells? Which stakeholders’ interests take precedence when issues of philanthropic enterprise come into focus? When an entrepre- neurial fi rm is founded on a caring capitalism model, is it ethical for a future buyer of the business to reduce or limit the emphasis on social benefi ts? What about if/when the company goes public, and shareholders’ interests become a relevant issue in the decision-making process? Is the concept of the benefit corporation the way we as a society should be heading?

ethics> KNOW RIGHT FROM WRONG > For each pair of shoes it sells, this caring capitalism fi rm donates another pair to needy children.

Entrepreneurship Meets Caring Capitalism Meets Big Business

Todd Williamson/Getty Images, Inc.

134 CHAPTER 6 ■ Entrepreneur ship and New Ventures

Family businesses must solve the same problems of other small or large businesses—

meeting the challenges of strategy, competitive advantage, and operational excellence.

When everything goes right, as in the Velvet Ice Cream case, the family fi rm is almost an

ideal situation—everyone working together, sharing values and a common goal, and know-

ing that what they do benefi ts the family. But it doesn’t always work out this way or stay this

way. Indeed, family businesses often face unique problems.

“Okay, Dad, so he’s your brother. But does that mean we have to put up with inferior

work and an erratic schedule that we would never tolerate from anyone else in the busi-

ness?” 44

This complaint introduces a problem that can all too often set the stage for

failure in a family business—the family business feud. Simply put, members of the con-

trolling family get into disagreements about work responsibilities, business strategy,

operating approaches, finances, or other matters. Although this example is of an inter-

generational problem, the feud can be between spouses, among siblings, or between

parents and children. It really doesn’t matter. Unless family disagreements are resolved

to the benefit of the business itself, the firm will have difficulty surviving in a highly

competitive environment.

Family businesses also can suff er from the succession problem—transferring leader-

ship from one generation to the next. A survey of small and midsized family businesses

showed that 66% of these fi rms planned to keep the business within the family. 45

But the key

management questions are: How will the assets be distributed, and who will run the busi-

ness when the current head leaves? A family business that has been in operation for some

time is often a source of both business momentum and fi nancial wealth. Ideally, both are

maintained in the succession process. But data on succession are quite sobering. Approxi-

mately 30% of family fi rms survive to the second generation; 12% survive to the third; and

only 3% are expected to survive beyond that. 46

Business advisers recommend having a succession plan—a formal statement that

describes how the leadership transition and related fi nancial matters will be handled during

changeover. A succession plan should include procedures for choosing or designating the

fi rm’s new leadership, legal aspects of any ownership transfer, and fi nancial and estate plans

relating to the transfer. Th is plan should be shared and understood by all employees aff ected

by it. Th e chosen successor should be prepared through experience and training to perform

in the new role when the time comes to take over the business.

Small Business Development

One way that startup diffi culties can be managed is for business owners to join a business

incubator. Sometimes called business accelerators, these are special facilities that off er

space, shared administrative services, special equipment, and management advice at

reduced costs. Th e goal is to help new businesses become healthy enough to survive on their

own. Some incubators are focused on specifi c business areas, such as technology, light man-

ufacturing, or professional services; some provide access to expensive equipment like laser

cutters and 3-D printing; some are located in rural areas, while others are based in urban

centers; some focus only on socially responsible businesses.

Regardless of their focus or location, business incubators seek to increase the survival

rates for new startups. Th eir goal is to help build new businesses that will create new jobs

and expand economic opportunities in their local communities. An example is Y Combinator,

an incubator located in Mountain View, California. It was founded by Paul Graham with

a focus on Web businesses, and supports about 10 startups at any given time. Member

entrepreneurs get offi ces, regular meetings with Graham and other business experts, and

access to potential investors. Th ey also receive $15,000 grants in exchange for the incubator

taking a 6% ownership stake. Prominent Y Combinator graduates include Airbnb and

Dropbox, and more than 500 startups have received its help. 47

Another resource for small business development is the U.S. Small Business Administra-

tion. Because small business plays such a signifi cant role in the economy, the SBA works

with state and local agencies as well as the private sector to support a network of over 1,100

A family business feud occurs

when family members have major

disagreements over how the business

should be run.

Th e succession problem is the issue

of who will run the business when the

current head leaves.

A succession plan describes how the

leadership transition and related

fi nancial matters will be handled.

Business incubators off er space,

shared services, and advice to help get

small businesses started.

135New Venture Creation

Learning Check 2

TAKEAWAYQUESTION 2 How do small businesses get started and what common problems do they face?

BE SURE YOU CAN • give the SBA defi nition of small business • discuss the succession problem in family-owned businesses

and possible ways to deal with it • list several reasons why many small businesses fail • explain how business incubators work

and how both they and SBDCs can help new small businesses

New Venture Creation TAKEAWAY 3 How do entrepreneurs start, legally structure, and fi nance new business

ventures?

Life cycles of entrepreneurial fi rms • Writing a business plan Choosing the form of ownership • Financing the new venture

Whether your interest is low-tech or high-tech, online or bricks and mortar, opportunities

for new ventures are always there for true entrepreneurs. Entrepreneurs start with good

ideas and the courage to give them a chance. But in order to succeed, entrepreneurs must

then master the test of strategy and competitive advantage. Can you identify a market niche

or a new market that is being missed by other established fi rms? Can you generate a fi rst-

mover advantage by exploiting a niche or entering a market before other competitors estab-

lish themselves? Do you have a viable business model, or a plan, for your business? Th ese are

among the questions that entrepreneurs must ask and answer in the process of beginning a

new venture.

Life Cycles of Entrepreneurial Firms

Figure 6.3 describes the stages common to the life cycles of entrepreneurial companies.

It shows the relatively typical progression from birth to breakthrough to maturity. Th e

firm begins with the birth stage—where the entrepreneur struggles to get the new

venture established and to survive long enough to test the viability of the underlying

business model in the marketplace. Th e fi rm then passes into the breakthrough stage—

where the business model begins to work well, the fi rm grows, and the complexity of

LEARN MORE

ABOUT

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FIGURE 6.3 Stages in the life cycle of an entrepreneurial fi rm.

• Refining the strategy • Continuing growth • Managing for success

Maturity Stage

Investing wisely and staying flexible

• Working on finances • Becoming profitable • Growing

Breakthrough Stage

Coping with growth and takeoff

• Establishing the firm • Getting customers • Finding the money

Birth Stage

Fighting for existence and survival

Small Business Development Centers (SBDCs) nationwide. 48

Th ese SBDCs off er guidance

to entrepreneurs and small business owners (both actual and prospective) on how to set up

and manage business operations. Th ese centers are often associated with colleges and uni-

versities, and some give students a chance to work as consultants with small businesses at

the same time that they pursue their academic programs.

Small Business Development Centers

founded with support from the U.S. Small

Business Administration provide advice

to new and existing small businesses.

136 CHAPTER 6 ■ Entrepreneur ship and New Ventures

Entrepreneurship involves risk, confi dence, insight, and more. But for those who have both the desire to attempt new things and self-management skills, it’s a course with the potential for

great personal and financial reward. Self-management skills

refl ect the ability to be objective in understanding personal

strengths and weaknesses, and the capacity to make personal

changes to continue improving and growing—both personally

and professionally.

Being strong in self-management requires a great deal of

self-awareness in addition to the ability to self-regulate. Self-

management requires self-knowledge as a person and in relation-

ships with others, the exercise of initiative, acceptance of respon-

sibility for good and bad behavior and accomplishments, and

continuing adaptation for self-improvement. Self-management

skills are critical for anyone seeking a successful career or wanting

to do well in school, at work, and in everyday life. We are operating

in challenging times full of uncertainty, change, and increasing

complexity. Th e skills that serve us professionally and personally

today may not serve well tomorrow as the relationships and

technologies that defi ne our lives continue to evolve.

Look at the self-management tips in the nearby box. Th ese

and other foundational tools for career success are available

and can be grown and developed. But the motivation and the

effort required to succeed through self-management must

come from within. Only you can make the commitment to take

charge of your personal and professional destiny and become a

self-manager.

GET TO KNOW YOURSELF BETTER

One of the best ways to check your capacity for self-management is to examine how you approach college, your academic courses, and the rich variety of development opportunities available on and off campus. Ask: What activities am I involved in currently? How well do I balance these activities with academic and personal responsibilities? Do I miss deadlines or turn in assign- ments pulled together at the last minute? Do I accept poor or mediocre performance? Do I learn from my mistakes?

insight> LEARN ABOUT YOURSELF > To be strong in self-management, you need lots of self-awareness

plus the ability to self-regulate.

Self-Management Keeps You Growing

Self-Management Tips for Career Success

• Perform to your best. No matter what the assignment, you must

work hard to quickly establish your credibility and work value.

• Be and stay fl exible. Don’t hide from ambiguity. Don’t wait

for structure. You must always adapt to new work demands,

new situations, and new people.

• Keep the focus. You can’t go forward without talent. Be a

talent builder—always adding to and refi ning your talents

to make them valuable to an employer.

• Do the work. Practice makes perfect. Like a professional

golfer, you have to hit lots and lots of practice balls in order

to make perfect shots during the match.

• Don’t give up. Certainly never give up too soon. You have to

stick with it, even during tough times. Remember—resilience

counts. If you have talent and know what you love, go for it.

Self-management is a way to realize your dreams.

managing the business expands signifi cantly. Finally, the fi rm enters the maturity stage—

where the entrepreneur experiences market success and fi nancial stability, while also

facing the continuing management challenges associated with remaining competitive in

a changing environment.

Entrepreneurs often face control problems and other management dilemmas when their

fi rms start to grow rapidly. Th e problems often involve the diff erent skills needed for entre-

preneurial leadership in the early life cycle stages versus strategic leadership in the later

stages of maturity. Entrepreneurial leadership helps to bring venture into being and steers

ventures through the early stages of life. Strategic leadership requires managing and leading

the venture into maturity as an ever-evolving and still-growing enterprise. If the founding

entrepreneur doesn’t have the skills or interests required to meet the fi rm’s strategic leader-

ship needs, its continued success may depend on selling to other owners or passing day-to-

day management to professionals with these skills.

Writing a Business Plan

When people start new businesses or launch new units within existing businesses, they can

benefi t from a good business plan. Th is plan describes the details needed to obtain startup

A business plan describes the direction

for a new business and the fi nancing

needed to operate it.

137New Venture Creation

fi nancing and operate a new business. 49

Banks and other sources of fi nance want to

see a business plan before they loan money

or invest in a new venture. Senior managers

want to see a business plan before they

allocate scarce organizational resources

to support a new entrepreneurial project.

Th ere’s good reason for this.

Th e detailed thinking required to pre-

pare a business plan can contribute to the

success of the new initiative. It forces the

entrepreneur to be clear about the business

model and think through important issues

and challenges—fi nancial, competitive, and

managerial—before starting out. Ed Feder-

keil, who founded a small business called

California Custom Sport Trucks, says: “It

gives you direction instead of haphazardly

sticking your key in the door every day and

saying, ‘What are we going to do?’” 50

More thoughts on why you need a business plan are

presented in the nearby box. 51

Although there is no single template, it is generally agreed that a good business plan

includes an executive summary, covers certain business fundamentals, is well organized

with headings, is easy to read, and runs no more than about 20 pages in length. Here is a

sample business plan outline. 52

• Executive summary—overview of the business purpose and the business model for

making money.

• Industry analysis—nature of the industry, including economic trends, important legal or

regulatory issues, and potential risks.

• Company description—mission, owners, and legal form.

• Products and services description—major goods or services, with competitive uniqueness.

• Market description—size of market, competitor strengths and weaknesses, fi ve-year

sales goals.

• Marketing strategy—product characteristics, distribution, promotion, pricing, and market

research.

• Operations description—manufacturing or service methods, supplies and suppliers, and

control procedures.

• Staffi ng description—management and staffi ng skills needed and available, compensa-

tion, and human resource systems.

• Financial projection—cash fl ow projections for one to fi ve years, break-even points, and

phased investment capital.

• Capital needs—amount of funds needed to run the business, amount available, and

amount requested from new sources.

• Milestones—a timetable of dates showing when key stages of the new venture will be

completed.

Choosing a Form of Ownership

One of the important choices that must be made in starting a new venture is the legal form

of ownership. A number of ownership alternatives are most common, and making the

choice among these alternatives requires careful consideration of their respective advan-

tages and disadvantages in light of the proposed business.

• It forces you to be clear about your business model—how your business will

make money.

• It makes you identify and confront the potential strengths and weaknesses

of your proposed business.

• It makes you examine the market potential for your business’s products or

services.

• It makes you examine the strengths and weaknesses of the competitors for

your proposed business.

• It helps you clarify the mission and key directions for the business, helping

you to stay focused.

• It helps you determine how much money will be needed to launch and

operate the business.

• It helps you communicate more confi dently and credibly with potential

lenders and investors.

Why You Need a Business Plan

What goes in a business plan

138 CHAPTER 6 ■ Entrepreneur ship and New Ventures

A sole proprietorship is simply an individual or a married couple pursuing business

for a profit. This does not involve incorporation. One does business, for example, under

a personal name—such as “Tiaña Lopez Designs.” A sole proprietorship is simple to start,

run, and terminate, and it is the most common form of small business ownership in the

United States. However, the business owner is personally liable for business debts and

claims.

A partnership is formed when two or more people agree to start and operate a busi-

ness together. It is usually backed by a legal and written partnership agreement. Business

partners agree on the relative contribution of resources and skills to the new venture, and

on the sharing of profi ts and losses. Th e simplest and most common form is a general

partnership where the partners share management responsibilities. A limited partnership

consists of a general partner and one or more “limited” partners who do not participate in

day-to-day business management. Th ey share in the profi ts, but their losses are limited to

the amount of their investment. A limited liability partnership, common among profes-

sionals such as accountants and attorneys, limits the liability of one partner for the negli-

gence of another.

A corporation, commonly identifi ed by the “Inc.” designation in a company name, is

a legal entity that is chartered by the state and exists separately from its owners. Th e

corporation can be for-profi t, such as Microsoft, Inc., or nonprofi t, such as Count-Me-In,

Inc.—a fi rm featured early in the chapter for helping female entrepreneurs get started

with small loans. Th e corporate form off ers two major advantages: (1) It grants the orga-

nization certain legal rights (e.g., to engage in contracts), and (2) the corporation becomes

responsible for its own liabilities. Th is separates the owners from personal liability and

gives the fi rm a life of its own that can extend beyond the life of its owners. Th e disadvan-

tage of incorporation rests largely with the cost of incorporating and the complexity of

required documentation.

Th e benefi t corporation is a new corporate form for businesses with stated goals to

benefi t society while making a profi t. 53

Businesses that choose this ownership type formally

adopt the goals of social entrepreneurship and social enterprises to help solve social and

environmental problems. Often called “B Corps” for short, these goals must be stated in the

fi rm’s bylaws or rules of incorporation. Each B Corp is required to fi le an annual “benefi t

report” as well as an annual fi nancial report so that both social and fi nancial performance

can be properly assessed against stated goals. Th e adoption of this form by a number of

larger and well-recognized businesses—Ben & Jerry’s, Patagonia, and Etsy, for example—

have given the B Corp form growing public visibility. 54

Th e limited liability corporation, or LLC, has gained popularity because it combines

the advantages of the other forms—sole proprietorship, partnership, and corporation. For

liability purposes, LLCs function like a corporation and protect owners’ assets against claims

made against the company. For tax purposes, an LLC functions as a partnership in the case

of multiple owners and as a sole proprietorship in the case of a single owner.

A sole proprietorship is an individual

pursuing business for a profi t.

A partnership is when two or more

people agree to contribute resources to

start and operate a business together.

A corporation is a legal entity that

exists separately from its owners.

A benefi t corporation, or B Corp, is a

corporate form for businesses whose

stated goals are to combine making a

profi t with benefi ting society and the

environment.

A limited liability corporation (LLC)

is a hybrid business form combining the

advantages of the sole proprietorship,

partnership, and corporation.

Would-Be Entrepreneurs Dive for Dollars in the Shark Tank

Th e reality TV show Shark Tank pits entrepreneurs against potential investors called

“sharks.” Th e entrepreneurs present their ideas, and the sharks, people with money to

invest, debate the merits of investing in these businesses. Brian Duggan went on the show

to pitch his Element Bars, a custom energy bar he developed as an MBA student. He

previously tried to get a bank loan, but failed. His presentation impressed the sharks. By

the end of the show they had given him $150,000 to help turn his energy bars into a popular

product. But it came at a price. He gave them 30% ownership in his business in return.M ic

ha el

A ns

el l/

G et

ty Im

ag es

Management&PopularCulture

y g

139New Venture Creation

Financing a New Venture

Check out the photo feature on the reality TV show, Shark Tank. While being part of a

reality TV show isn’t common, Brian Duggan’s situation is characteristic of that faced by

entrepreneurs. Starting a new venture takes money, and that money must often be raised.

Th e cost of setting up a new business or expanding an existing business can easily exceed

the amount a would-be entrepreneur has available from personal sources. Initial startup

fi nancing might come from personal bank accounts and credit cards. Very soon, how-

ever, the chances are that much more money will be needed to sustain and grow the

business. Th ere are two major ways an entrepreneur can obtain such outside fi nancing

for a new venture.

Debt fi nancing involves going into debt by borrowing money from another person,

bank, or fi nancial institution. Th is loan must be paid back over time, with interest. It also

requires collateral that is pledged against business assets or personal assets, such as a home,

to secure the loan in case of default. Th e lack of availability of debt fi nancing became a big

issue during the recent fi nancial crisis, and the problem hit entrepreneurs and small business

owners especially hard.

Equity fi nancing is an alternative to debt fi nancing. It involves giving ownership shares

in the business to outside investors in return for their investment. Th is money does not need

to be paid back. It is an investment, and the investor assumes the risk for potential gains and

losses. Th e equity investor gains some proportionate ownership control in return for taking

a risk on the venture.

Equity fi nancing is usually obtained from venture capitalists, companies and individu-

als that make investments in new ventures in return for an equity stake in the business. Most

venture capitalists tend to focus on relatively large investments of $1 million or more, and

they usually take a management role, such as a seat on the board of directors, in order to

oversee business growth. Th e hope is that a fast-growing fi rm will gain a solid market base

and be either sold at a profi t to another fi rm or become a candidate for an initial public

off ering, or IPO. An IPO is where shares of stock in the business are fi rst sold to the public

and begin trading on a public stock exchange. When an IPO is successful and the share

prices are bid up by the market, the original investment made by a venture capitalist and

entrepreneur rise in value. Th e quest for such returns on investment is the business model

of the venture capitalist.

When large amounts of venture capital aren’t available to the entrepreneur, another

fi nancing option is the angel investor. An angel investor is a wealthy individual willing to

make a personal investment in return for equity in a new venture. Angel investors are

especially common and helpful in the very early stages of a startup. Th eir presence can

serve as a positive market signal, raise investor confi dence, and help to attract additional

venture funding that would otherwise not be available. When Liz Cobb wanted to

start her sales compensation fi rm, Incentive Systems, for example, she contacted 15 to

20 venture capital fi rms. She was interviewed by 10 and turned down by all of them. After

she located $250,000 from two angel investors, the venture capital fi rms got interested.

She was able to obtain her fi rst $2 million in fi nancing and has since built the fi rm into a

70-plus-employee business. 55

Th e rise of social media has given birth to crowdfunding, where entrepreneurs go

online to obtain startup fi nancing from a “crowd” of willing providers. Kickstarter, for

example, focuses on fund-raising for innovative and imaginative projects from software to

literature to fi lms and more. Founder Yancy Strickler describes it as “a place of opportu-

nity for anyone to make things happen.” 56

Investors don’t get ownership rights, but they do

get the satisfaction of sponsorship and in some cases early access to the results. Owner-

ship rights are part of the deal at AngelList, a crowdfunding site that off ers equity partici-

pation and bills itself as the place “Where startups meet investors.” AngelList matches

entrepreneurs with pools of potential investors—called syndicates—willing to put up as

little as $1,000 to back a new venture. All investors are vetted for fi nancial background and

legitimacy. 57

Th e JOBS Act—Jumpstart Our Business Startups—made it easier for small U.S. com-

panies to sell equity on the Internet. President Obama called crowdfunding a “game

Debt fi nancing involves borrowing

money that must be repaid over time,

with interest.

Equity fi nancing involves exchanging

ownership shares for outside investment

monies.

Venture capitalists make large

investments in new ventures in return

for an equity stake in the business.

An initial public off ering, or IPO, is an

initial selling of shares of stock to the

public at large.

An angel investor is a wealthy

individual willing to invest in a new

venture in return for an equity stake.

In crowdfunding, entrepreneurs

starting new ventures go online to

get startup fi nancing from crowds of

investors.

140 CHAPTER 6 ■ Entrepreneur ship and New Ventures

changer” when he signed the act in 2012. 58

Th e U.S. Securities and Exchange Commis-

sion, which oversees the practice, has implemented strict guidelines for both investors

and the startup entrepreneurs. 59

As you might expect, crowdfunding has both advocates

and skeptics. Advocates claim it spurs entrepreneurship by giving small startups a better

shot at raising investment capital and helps small investors join in the venture capital

area. Skeptics worry that small investors in a crowd may be easy prey for fraudsters

because they won’t do enough analysis or have the fi nancial expertise to ensure they are

making a good investment. 60

Learning Check 3

TAKEAWAYQUESTION 3 How do entrepreneurs start, legally structure, and fi nance new business ventures?

BE SURE YOU CAN • explain the concept of fi rst-mover advantage • illustrate the life cycle of an entrepreneurial fi rm

• identify the major elements in a business plan • diff erentiate sole proprietorship, partnership, corporation, and limited

liability corporation (LLC) • diff erentiate debt fi nancing and equity fi nancing • explain the roles of venture capitalists

and angel investors in new venture fi nancing

Situation: An undergraduate student at an art and design school needs money to pay back student loans and fund ideas for a startup company. He goes online at Upstart.com and fi nds

investors willing to give him upfront money in return for a portion

of what he earns in the future. He signs on and takes in $38,500.

Th e idea here is to sell equity stakes in your human capital. In

other words, get money now from people willing to invest in you

while hoping for a good return from rights to a percentage of your

future pre-tax earnings. Terms used to describe this form of

crowdfunding are “human-capital contracts” or “social fi nancial

agreements.”

Th ose in favor of students’ crowdfunding their human capital are

likely to say that it helps students get the education or resources

they need to succeed. It’s also a way to avoiding interest on debt. If

the student fails to earn enough or the project fails, the investor

loses his/her money. Th e investors may turn out to be good men-

tors and motivators that help the student to achieve higher levels

of accomplishment. Th ose against students’ crowdfunding their

human capital are likely to say that it’s a form of servitude. It’s not

right for one person to indenture themselves to another in this

way. Young students, furthermore, may not be mature or insightful

enough to make good decisions that commit them to long-term

fi nancial contracts. If the student’s “back is to the wall,” she or he

is vulnerable to making a really bad personal decision.

YOUR TAKE?

What do you think? Is crowdfunding human capital something that sounds attractive to you? What are the possible risks and returns associated with crowdfunding as you see them? If you were a parent, would you let your child sell shares in his/her future? If you were an investor, would you consider this a legiti- mate way to earn a return on your money? Why or why not?

choices> THINK BEFORE YOU ACT > Undergraduate student gets $38,500 from investors who give him upfront money in return

for a portion of what he earns in the future.

Students Are Crowdfunding Their Human Capital

Kevork DjansezianJ/Reuters/Corbis

141Management Learning Review

Summary

TAKEAWAYQUESTION 1 What is entrepreneurship and who are the entrepreneurs?

• Entrepreneurship is risk-taking behavior that results in the creation of new opportunities.

• A classic entrepreneur is someone who takes risks to pursue opportunities in situations that others may view as problems or threats.

• A serial entrepreneur is someone who starts and runs businesses and other organizations one after another.

• Entrepreneurs tend to be creative, self-confi dent people who are determined, resilient, adaptable, and driven to excel; they like to be the master of their own destinies.

• Females and minorities are well represented among entrepreneurs, with some being driven by necessity or the lack of alternative, mainstream career options.

• Social entrepreneurs set up social enterprises to pursue novel ways to help solve social problems.

FOR DISCUSSION If “necessity is the mother of invention,” will a poor economy result in lots of entrepreneurship and new small business startups?

TAKEAWAYQUESTION 2 How do small businesses get started and what common problems do they face?

• Entrepreneurship results in the founding of many small businesses that offer new jobs and other benefi ts to local economies.

• The Internet has opened a whole new array of entrepre- neurial possibilities for small businesses.

• Family businesses, which are owned and fi nancially controlled by family members, represent the largest percentage of businesses operating worldwide; they sometimes suffer from succession problems.

• Small businesses have a high failure rate, with as many as 60% to 80% failing within fi ve years; many failures result from poor management.

• Entrepreneurs and small business owners can often get help in the startup stages of their venture by working with business incubators and Small Business Development Centers in their local communities.

FOR DISCUSSION Given that so many small businesses fail due to poor management practices, what type of advice and assistance should a Small Business Development Center offer to boost their success rate?

TAKEAWAYQUESTION 3 How do entrepreneurs start, legally structure, and fi nance new business ventures?

• Entrepreneurial fi rms tend to follow the life-cycle stages of birth, breakthrough, and maturity, with each stage offering new and different management challenges.

• A new startup should be guided by a good business plan that describes the intended nature of the business, how it will operate, and how financing will be obtained.

• An important choice is the form of business ownership for a new venture, with the proprietorship, corporate, and limited liability forms offering different advantages and disadvantages.

• Two basic ways of fi nancing a new venture are through debt fi nancing—by taking loans, and equity fi nancing— exchanging ownership shares in return for outside investment in the venture.

• Venture capitalists pool capital and make investments in new ventures in return for an equity stake in the business; an angel investor is a wealthy individual who is willing to invest money in return for equity in a new venture.

FOR DISCUSSION If an entrepreneur has a good idea and his or her startup is beginning to take off, is it better to get money for growth by taking an offer of equity fi nancing from an angel investor or taking a business loan from a bank?

Management Learning Review Get Prepared for Quizzes and Exams

142 CHAPTER 6 ■ Entrepreneur ship and New Ventures

Multiple-ChoiceQuestions 1. ___________ is among the personality characteristics

commonly found among entrepreneurs. (a) External locus of control (b) Infl exibility (c) Self-confi dence (d) Low self-reliance

2. When an entrepreneur is comfortable with uncertainty and willing to take risks, these are indicators of someone with a(n) ___________. (a) high tolerance for ambiguity (b) internal locus of control (c) need for achievement (d) action orientation

3. Somewhere around ___________ % of American businesses meet the defi nition of “small business” used by the Small Business Administration. (a) 40 (b) 99 (c) 75 (d) 81

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

5. A small business owner who is concerned about passing the business on to heirs after retirement or death should prepare a formal ___________ plan. (a) retirement (b) succession (c) franchising (d) liquidation

6. What is one of the most common reasons why new small business startups often fail? (a) The founders lack business expertise. (b) The founders are too strict with fi nancial controls. (c) The founders don’t want fast growth. (d) The founders have high ethical standards.

7. When a new business is quick to act and captures a market niche before competitors, this is called___________. (a) intrapreneurship (b) an initial public offering (c) succession planning (d) fi rst-mover advantage

8. When a small business is just starting up, the business owner is typically most focused on ___________. (a) gaining acceptance in the marketplace (b) fi nding partners for expansion (c) preparing an initial public offering (d) bringing professional skills into the management team

9. At which stage in the life cycle of an entrepreneurial fi rm does the underlying business model begin to work well and growth starts to occur? (a) birth (b) early childhood (c) maturity (d) breakthrough

10. A venture capitalist who receives an ownership share in return for investing in a new business is providing ___________ fi nancing. (a) debt (b) equity (c) corporate (d) partnership

11. In ___________ fi nancing, a business owner borrows money as a loan that must eventually be repaid to the lender along with agreed-upon interest. (a) debt (b) equity (c) partnership (d) limited

12. The people who take ownership shares in new ventures in return for providing the entrepreneurs with critical startup funds are called ___________. (a) business incubators (b) angel investors (c) SBDCs (d) intrapreneurs

13. The ___________ form of small business ownership protects owners from any personal losses greater than their original investments; while the ___________ form separates them completely from any personal liabilities. (a) sole proprietorship, partnership (b) general partnership, sole proprietorship (c) limited partnership, corporation (d) corporation, general partnership

14. The fi rst component of a good business plan is usually a/an ___________. (a) industry analysis (b) marketing strategy (c) executive summary of mission and business model (d) set of fi nancial milestones

15. If a new venture has reached the point where it is pursuing an IPO, the fi rm is most likely ___________. (a) going into bankruptcy (b) trying to fi nd an angel investor (c) fi ling legal documents to become a LLC (d) successful enough that the public at large will want

to buy its shares

Self-Test 6

143Management Skills & Competencies

Short-ResponseQuestions 16. What is the relationship between diversity and

entrepreneurship?

17. What are the major stages in the life cycle of an entrepreneurial fi rm, and what are the management challenges at each stage?

18. What are the advantages of a limited partnership form of small business ownership?

19. What is the difference, if any, between a venture capitalist and an angel investor?

EssayQuestion 20. Assume for the moment that you have a great idea for a

potential Internet-based startup business. In discussing the idea with a friend, she advises you to be very careful to tie your business idea to potential customers and then describe it well in a business plan. “After all,” she says, “you won’t succeed without customers, and you’ll never ge t a chance to succeed if you can’t attract fi nancial backers through a good business plan.” With these words to the wise, you proceed. What questions will you ask and answer to ensure that you are customer- focused in this business? What are the major areas that you should address in writing your initial business plan?

Evaluate Career Situations

What Would You Do?

1. Becoming Your Own Boss

It could be very nice to be your own boss, do your own thing,

and make a decent living in the process. What are your three

top choices for potential business entrepreneurship? How

would you rank them on potential for personal satisfaction

and long-term fi nancial success?

2. Becoming a Social Entrepreneur

Make a list of social problems present in your local commu-

nity. Choose one that might be addressed through social en-

trepreneurship. Explain the basic plan or business model you

would recommend. How will you or another social entrepre-

neur earn a living wage from this venture while doing good

things for the community?

3. Making Your Startup Legal

Your small startup textbook-rating website is attracting

followers. One angel investor is willing to put up $150,000 to

help move things to the next level. But, you and your two

co-founders haven’t done anything to legally structure the

business. You’ve managed so far on personal resources and a

“handshake” agreement among friends. What is the best

choice of ownership to prepare the company for future growth

and outside investors?

Refl ect on the Self-Assessment

Entrepreneurial Orientation

Instructions Distribute five points between each pair of statements to

indicate the extent to which you agree with “a” and “b.” 61

1. _____ (a) Success as an entrepreneur depends on many

factors. Personal capabilities may have very little to do with

one’s success.

_____ (b) A capable entrepreneur can always shape his or

her own destiny.

2. _____ (a) Entrepreneurs are born, not made.

_____ (b) People can learn to be more enterprising even if

they do not start out that way.

3. _____ (a) Whether or not a salesperson will be able to sell his

or her product depends on how eff ective the competitors are.

_____ (b) No matter how good the competitors are, an

eff ective salesperson always will be able to sell his or her

product.

4. _____ (a) Capable entrepreneurs believe in planning their

activities in advance.

_____ (b) Th ere is no need for advance planning, because no

matter how enterprising one is there always will be chance

factors that infl uence success.

ManagementSkills& Competencies Make yourself valuable!

144 CHAPTER 6 ■ Entrepreneur ship and New Ventures

5. _____ (a) A person’s success as an entrepreneur depends on

social and economic conditions.

_____ (b) Real entrepreneurs can always be successful

irrespective of social and economic conditions.

6. _____ (a) Entrepreneurs fail because of their own lack of

ability and perceptiveness.

_____ (b) Entrepreneurs often fail because of factors beyond

their control.

7. _____ (a) Entrepreneurs are often victims of forces that they

can neither understand nor control.

_____ (b) By taking an active part in economic, social, and

political aff airs, entrepreneurs can control events that aff ect

their businesses.

8. _____ (a) Whether or not you get a business loan depends

on how fair the bank offi cer you deal with is.

_____ (b) Whether or not you get a business loan depends

on how good your project plan is.

9. _____ (a) When purchasing something, it is wise to collect

as much information as possible and then make a fi nal

choice.

_____ (b) Th ere is no point in collecting a lot of information;

in the long run, the more you pay the better the product is.

10. _____ (a) Whether or not you make a profi t in business

depends on how lucky you are.

_____ (b) Whether or not you make a profi t in business

depends on how capable you are as an entrepreneur.

11. _____ (a) Some types of people can never be successful

entrepreneurs.

_____ (b) Entrepreneurial ability can be developed in

diff erent types of people.

12. _____ (a) Whether or not you will be a successful

entrepreneur depends on the social environment into

which you were born.

_____ (b) People can become successful entrepreneurs with

eff ort and capability irrespective of the social strata from

which they originated.

13. _____ (a) Th ese days business and personal success

depends on the actions of government, banks, and other

outside institutions.

_____ (b) It is possible to succeed without depending too

much outside institutions. What is required is insight and a

knack for dealing with people.

14. _____ (a) Even perceptive entrepreneurs falter quite often

because the market situation is very unpredictable.

_____ (b) When an entrepreneur’s prediction of the market

situation is wrong, he or she is to blame for failing to read

things correctly.

15. _____ (a) With eff ort, people can determine their own

destinies.

_____ (b) Th ere is no point in spending time planning. What

is going to happen will happen.

16. _____ (a) Th ere are many events beyond the control of

entrepreneurs.

_____ (b) Entrepreneurs are the creators of their own

experiences.

17. _____ (a) No matter how hard a person works, he or she will

achieve only what is destined.

_____ (b) Th e rewards one achieves depend solely on the

eff ort one makes.

18. _____ (a) Organizational success can be achieved by

employing competent and eff ective people.

_____ (b) No matter how competent the employees are, the

organization will have problems if socioeconomic conditions

are not good.

19. _____ (a) Leaving things to chance and letting time take

care of them helps a person to relax and enjoy life.

_____ (b) Working for things always turns out better than

leaving things to chance.

20. _____ (a) Th e work of competent people will always be

rewarded.

_____ (b) No matter how competent one is, it is hard to

succeed without contacts.

Scoring _______ External Orientation Score. Total your points for the

following items: 1a, 2a, 3a, 4b, 5a, 6b, 7a, 8a, 9b, 10a, 11a, 12a, 13a,

14a, 15b, 16a, 17a, 18b, 19a, 20b.

_______ Internal Orientation Score. Total your points for the

following items: 1b, 2b, 3b, 4a, 5b, 6a, 7b, 8b, 9a, 10b, 11b, 12b,

13b, 14b, 15a, 16b, 17b, 18a, 19b, 20a.

Interpretation Th is Inventory measures the extent to which a person is inter-

nally or externally oriented in entrepreneurial activities. Scores

greater than fi fty indicate more of that orientation. Th ose who

score high on entrepreneurial internality tend to believe that

entrepreneurs can shape their own destinies through their own

capabilities and eff orts. Th ose who score high on entrepreneur-

ial externality believe that the success of entrepreneurs depends

on factors such as chance, political climate, community condi-

tions, and economic environment—factors beyond their own

capabilities and control.

Contribute to the

Class Exercise

Entrepreneurs among Us

Question Who are the entrepreneurs or potential entrepreneurs in your

class? What kinds of businesses are they involved in?

Instructions Interview one another to fi nd out who is already an entrepre-

neur and who would like to be one. Discuss your classmates’

entrepreneurial examples and aspirations. Make an inventory of

entrepreneurship insights and lessons available within the class.

Critique them in terms of successes and failures, both real and

potential. Choose one or two to share with the class as a whole.

145Analyze the Case Study

What challenges have these entrepreneurs faced? What funding

directions have they pursued? What kinds of relationships have

they developed in the process?

Manage a Critical Incident

Craft Brewery In—or Out—

of the Money?

As the loan offi cer of a small community bank, you’ve just been

approached for a commercial business loan. A group of three

entrepreneurs are asking for $250,000 to start a craft brewery

producing beers with a local fl avor. Th ere is already one micro-

brewery in your town of 20,000 full-timers and another 20,000

university students. It has been linked with a popular tavern

and music venue for several years, and recently expanded its

brewing capacity to allow distribution into regional markets.

Th e entrepreneurs proposing the new craft brewery include a

brewer who learned his trade in Portland, Oregon, and won a

national award for a strong, vanilla-mint specialty brew. Th e

plan is to take his expertise and create spin-off brews that will

be both national award-winners and local favorites. Th ey want

the bank fi nancing to purchase and equip a brewing facility on

the outskirts of town.

Questions What will you look for as positive and negative signals in the

business plan? When you meet with the would-be entrepre-

neurs, what will be the fi rst fi ve questions you will ask and what

answers will you want to receive before deciding whether to

lend them the funds? Overall, what are the major risks associ-

ated with this proposal and what is the probability of it being

successful enough to justify a startup loan?

Collaborate on the

Team Activity

Community Entrepreneurs

Entrepreneurs are everywhere. Some might live next door to you,

many own and operate the small businesses in and around your

community, and you might even be one of them—or aspiring to be.

Question Who are the entrepreneurs in your community and what are

they accomplishing?

Instructions 1. Read the local news, talk to your friends and other locals, and

think about where you shop. Make a list of the businesses and

other organizations that have an entrepreneurial character.

Be as complete as possible—look at both commercial busi-

nesses and nonprofi ts.

2. For each of the organizations, do further research to identify

the people who are the entrepreneurs responsible for them.

3. Contact as many of the entrepreneurs as possible and

interview them. Try to learn how they got started, why, what

obstacles or problems they encountered, and what they

learned about entrepreneurship that could be passed along

to others. Ask for their “founding stories” and ask for advice

they might give to aspiring entrepreneurs.

4. Analyze your results for class presentation and discussion.

Look for patterns and diff erences in terms of the entrepreneurs

as people, their entrepreneurial experiences, and potential

insights into business versus social entrepreneurship.

5. Consider writing short cases of the entrepreneurs you fi nd

especially interesting. What kinds of stories would you tell?

How would these stories probably end?

AnalyzeTHE CaseStudy

IN-N-OUT BURGER

Building Them Better Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

“Estamos bien en el réfugio–los 33.” For 69 days shift leader Luis Urzúa kept the trapped men in the Chilean mine organized and hopeful. On the 70th day, he was the last man safely out.

UPI/Hugo Infante/Chilean Government/HO/Landov

Information

and Decision

Making Nothing beats a great decision

7 C H A P T E R Q U I C K STA RT

Decisions . . . decisions . . . decisions. We all make them and we all have to live with

their consequences, both for ourselves and for others aff ected by them. Managers

must gather and use information eff ectively in order to solve problems and explore

opportunities. They must be familiar with the steps in the decision-making

process and understand current issues that potentially infl uence the quality of

their decisions and outcomes.

Key Takeaways

■ Discuss the role of

information in the

management process.

■ Identify how managers

approach problems and

decisions.

■ Describe the six steps

in the decision-making

process.

■ Describe the potential

pitfalls and sources of

creativity in managerial

decision making.

MANAGEMENT IS REAL MAKE DATA YOUR FRIEND

Intelligent Enterprises Know How to Win with Analytics

THINK BEFORE YOU ACT

Yahoo CEO Marissa Mayer Bans Telecommuting

KNOW RIGHT FROM WRONG

Climber Left to Die on Mt. Everest

LEARN ABOUT YOURSELF

Self-Confi dence Builds Better Decisions

LEARN FROM ROLE MODELS

Tom Szaky’s Creative Decisions Fuel Sustainability Gains

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Cognitive Style

■ CONTRIBUTE To the Class Exercise: Lost at Sea

■ MANAGE A Critical Incident: Asking for a Raise

■ COLLABORATE On the Team Project: Crisis Management Realities

■ ANALYZE Th e Case Study: Amazon.com: One E-Store to Rule Them All

what to look for inside >

147

148 CHAPTER 7 ■ Information and Decision Making

W hen the San José copper and gold mine collapsed in Chile, 32 miners

and their shift leader, Luis Urzúa, were trapped inside. 1 “Th e most

diffi cult moment was when the air cleared and we saw the rock,” said Urzúa.

“I had thought maybe it was going to be a day or two days, but not when I

saw the rock. . . .” In fact, the miners were trapped 2,300 feet below the surface

for 69 days. Getting them out alive was a problem that captured the attention

of the entire world.

After the rescue shaft was completed, Urzúa was the last man out. “Th e

job was hard,” he said. “Th ey were days of great pain and sorrow.” But the

decisions Urzúa made as shift leader—organizing the miners into work

shifts, keeping them busy, studying mine diagrams, making escape plans,

raising morale—all contributed to the successful rescue of the miners. After

embracing Urzúa when he arrived at the surface, Chile’s President Sebastian

Pinera said, “He was a shift boss who made us proud.”

Most managers will never have to face such an extreme crisis, but decision

making and problem solving are a critical aspect of every manager’s job. Not

all decisions are going to be easy; some will have to be made under tough

conditions; and, not all decisions will turn out right. But as with the case of

Luis Urzúa trapped in the Chilean mine with 32 other miners, the goal is to

do the best you can under the circumstances.

Information, Technology, and Management TAKEAWAY 1 What is the role of information in the management process?

Information and information systems • Data mining and analytics Business intelligence and executive dashboards

Tests of our abilities to make good decisions occur every day in situations that may not be

crisis driven, but which nevertheless have real consequences for ourselves and others. Th e

challenges begin with the fact that our society is now highly information-driven, digital,

socially networked, transparent, and continuously evolving. Career and personal success

increasingly requires three “must-have” competencies: technological competency—the

ability to understand new technologies and to use them to their best advantage; information

competency—the ability to locate, gather, organize, and display information; and analytical

competency—the ability to evaluate and analyze information to make actual decisions and

solve real problems. 2 How about it—are you ready?

Information and Information Systems

Th is sign should be on every manager’s desk—Warning: Data fi Information! Data are raw facts and observations. In contrast, information is data made useful and meaningful for

decision making. We all have lots of access to data, but we don’t always gather and use this

data to create useful information that meets the test of these fi ve criteria:

1. Timely—Th e information is available when needed; it meets deadlines for decision

making and action.

2. High quality—Th e information is accurate, and it is reliable; it can be used with confi dence.

3. Complete—Th e information is complete and suffi cient for the task at hand; it is as

current and up to date as possible.

Technological competency is the

ability to understand new technologies

and to use them to their best advantage.

Information competency is the

ability to locate, gather, and organize

information for use in decision making.

Analytical competency is the ability

to evaluate and analyze information to

make actual decisions and solve real

problems.

Data are raw facts and observations.

Information is data made useful for

decision making.

LEARN MORE

ABOUT

IIInffoorrmmmaatiionnn, TTecchhhnnolloggyyy, annnd MMaaaannagggeemmmenttI

149Information, Technology, and Management

4. Relevant—Th e information is appropriate for the task at hand; it is free from extrane-

ous or irrelevant material.

5. Understandable—Th e information is clear and easily understood by the user; it is free

from unnecessary detail.

People and organizations perform best when they have available to them the right infor-

mation at the right time and in the right place. Th is is the function served by management

information systems that use the latest technologies to collect, organize, and distribute

data. Information departments or centers are now mainstream features on organization

charts, and the CIO (chief information offi cer), CKO (chief knowledge offi cer), CTO (chief

technology offi cer), or CDO (chief digital offi cer) are prominent members of the C-suite

within top management teams. Th e number and variety of information-driven career fi elds

are growing fast.

Information systems serve the variety of needs described in Figure 7.1. Within organizations,

people need vast amounts of internal information to make decisions and solve problems in their

daily work. Th ey need information from their immediate work setting and from other parts of the

organization. Internal information fl ows downward in the form of goals, instructions, and feed-

back. It fl ows horizontally in ways that assist in cross-functional coordination and problem solv-

ing. And, it fl ows upward as performance reports, suggestions for improvement, and even policy

and personnel disputes. At the organization’s boundaries, information in the external environ-

ment is accessed. Managers use this intelligence information to deal with customers, competitors,

and other stakeholders such as government agencies, creditors, suppliers, shareholders, and

community members. Organizations also send vast amounts of public information to stakehold-

ers and the external environment. Th is often takes the form of advertising, public relations cam-

paigns, social media posts, and fi nancial reports that serve a variety of purposes, ranging from

image-building to product promotion to fi nancial documentation to damage control.

Data Mining and Analytics

Data mining is the process of analyzing data to produce useful information for decision

makers. Th ere is now so much computing power available that we increasingly talk about

big data, which is collected in huge quantities and is diffi cult to mine without using sophis-

ticated mathematical and analytical techniques. UPS, for example, spends over $1 billion per

year on technology. In one big data program, some 250 million data points are run through an

algorithm with over 1,000 pages of code to calculate optimum daily routes for drivers. Th e

company expects to save some $50 million per year from eliminating excess driving miles. 3

Even when data is available, we don’t always use it well. Th e challenge in data mining, espe-

cially when mining big data, comes down to strength in analytics. Th is is sometimes called busi-

ness analytics or management analytics, which is the systematic evaluation and analysis of data

to make informed decisions. Th ink, for example, of the vast amounts of data being collected by

Management information systems

collect, organize, and distribute data for

use in decision making.

Data mining is the process of analyzing

data to produce useful information for

decision makers.

Big data exists in huge quantities and

is diffi cult to process without sophis-

ticated mathematical and computing

techniques.

Management with analytics involves

systematic gathering and processing of

data to make informed decisions.

Internal and external information flows are essential to problem solving and decision making in organizations

Intelligence information– gathered from

stakeholders and external environment

Public information– disseminated to

stakeholders and external environment

Internal information– flows up, down,

around, and across

organizations

FIGURE 7.1 Internal and external information needs in organizations.

150 CHAPTER 7 ■ Information and Decision Making

social media sites. Th ese sites—Facebook, Twitter, LinkedIn, and others—mine the data for their

own business uses, and they also sell the data to others. Would you be surprised that the United

Nations buys social data from Twitter? It does, and it mines this data for insights into social

unrest around the world. 4 Organizations of all types are investing heavily in big data initiatives,

hiring people with strong analytics skills, and setting up analytics units and teams to make avail-

able data valuable. Th e top management role of Chief Data Offi cer is appearing in more C-suites

and the job of data scientist is appearing more and more often in help wanted ads.

Business Intelligence and Executive Dashboards

Business intelligence is the process of tapping or mining information systems to extract

data that is most potentially useful for decision makers. It sorts and reports data in orga-

nized ways that help decision makers detect, digest, and deal with patterns posing import-

ant implications. Some of that data provides competitive information. At Amazon, for

example, a “competitive intelligence” team buys products from other retailers to check on

their quality, speed, and customer service. Data on the purchases is presented to top man-

agement and analyzed to keep Amazon ahead of the competition. 5 Some of that data

provides big picture information. For example, companies can now easily share the latest

fi nancial results across diff erent levels in the organization so that employees know current

profi ts and how they compare to past results and desired targets. Other data provides

function-specifi c information. An example is ensuring that manufacturing workers are always

aware of costs, marketing people are aware of sales expenses relative to sales revenues, and

customer service employees know cost per service contact. 6

Business intelligence taps

information systems to extract and

report data in organized ways that are

helpful to decision makers.

A survey on “Th e New Intelligent Enterprise” conducted by the Sloan Management Review asked 3,000 executives from around the world to report on how their organizations use and

deal with data for business intelligence. Results included the

following:

■ 60% of executives said their organizations were “overwhelmed”

by data and have diffi culty making it useful for performance

results.

■ Organizations outperforming competitors were three times

better at managing and acting on data.

■ Top performers were two times more likely than low performers

to say they needed to get even better with analytics.

■ Top performers use analytics most often in fi nance, strategy,

operations, and sales and marketing.

■ Most frequent obstacles to adopting better analytics are lack of

understanding, competing management priorities, and lack of

skills.

■ Analytic techniques expected to grow most in importance are

data visualization, use of simulations and scenarios develop-

ment, and use of analytics within business processes.

YOUR THOUGHTS?

What are the implications for your career planning and devel- opment? The consulting fi rm McKinsey & Co. projects that by 2018 the United States will be short 1.5 million managers who have the skills to “use data to shape business decisions.” Are you prepared to compete for jobs and promotions in career situations where analytics count? How could your local schools, small businesses, and even government agencies gain by better harnessing the power of information and analytics?

analysis> MAKE DATA YOUR FRIEND > Analytics-driven managers “know how to get the data to tell them

the things that matter (and not the things that don’t.)”

Intelligent Enterprises Know How to Win with Analytics

151Problem Solving and Managerial Decisions

One of the trends in business intelligence is the use of executive dashboards that visually

display and update key performance metrics in the form of graphs, charts, and scorecards in

real time. Th e Chief Financial Offi cer of the manufacturing fi rm Ceradyne says: “If numbers

are the language of business, then dashboards are the way we drive the business forward.” He

adds that they “take the daily temperature of a business.” 7 Picture a sales manager whose

offi ce wall has a large fl at-panel computer display much like the one you might use for TV

and games at home. But this display calls up one or more dashboards fi lled with a wide range

of real-time information including, for example, sales by product, salesperson, and sales area,

as well as tracking comparisons with past performance and current sales targets. How can a

manager with this kind of information fail to make well-informed decisions?

Executive dashboards visually

display graphs, charts, and scorecards

of key performance indicators and

information on a real-time basis.

Learning Check 1

TAKEAWAYQUESTION 1 What is the role of information in the management process?

BE SURE YOU CAN • defi ne and give examples of technological competency, information competency, and analytical

competency • diff erentiate data and information • list the criteria of useful information • describe the role of information

systems in organizations • explain the importance of analytics and business intelligence • discuss how IT is reducing barriers

within organizations and between organizations and their environments

Problem Solving and Managerial Decisions TAKEAWAY 2 How do managers address problems and make decisions?

Managers as problem solvers • Problem-solving approaches and styles Types of problem-solving decisions • Types of decision environments

Information is the anchor point for eff ective decision making. It helps us sense the need for

a decision, frame an approach to the decision, and discuss the decision with others. 8 An

essential part of a manager’s job, as depicted in Figure 7.2, is to serve as a nerve center for the

fl ow of information. 9 Managers are information processors who continually use relation-

ships and technology to gather, share, and receive information. Managers who fulfi ll this

aspect of their role well are always turned on and always connected.

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PPPrrrooooobbbllleeemmmmm SSSSoolllvvvviinnnnggg aaaaaand MMaaannaageeeriial Deeccciisiooonsss

Decisional Roles Information used for

entrepreneurship, resource allocation, disturbance handling, negotiation

Interpersonal Roles

Information used for ceremonies, motivation, and

networking

Information Roles

Information sought, received, transferred

among insiders and outsiders

Planning, organizing,

leading, controlling

Information Competency

Technological Competency

Analytical Competency

FIGURE 7.2 Th e manager as an information processor and nerve

center for planning, organizing,

leading, and controlling.

152 CHAPTER 7 ■ Information and Decision Making

Managers as Problem Solvers

Sometimes they are big things—how a small local retailer can compete with the big chains.

Other times they’re smaller but still consequential things—how to handle the Fourth of July

holiday staffi ng when everyone on the team wants the day off . Sometimes it’s being able to

recognize and correct an outright mistake—such as when the wrong item has been shipped

to an important customer. What we are talking about in all such situations is a manager’s skill

with problem solving, the process of identifying a discrepancy between an actual and a

desired state of aff airs, and then taking corrective action to resolve the problem.

Success in problem solving comes depends on information to make good decisions—

choices among alternative possible courses of action. Managers, in this sense, make decisions

while facing a continuous stream of daily problems. Th e most obvious situation is a perfor-

mance threat in which something is already wrong or has the potential to go wrong. Th is

happens when actual performance is less than desired or is moving in an unfavorable direc-

tion. Examples are when turnover or absenteeism suddenly increases in the work unit, when

a team member falls behind in work, or when a customer complains about service delays.

Another important situation emerges as a performance opportunity that off ers the chance

for better future performance if the right steps are taken. Th is happens when an actual situa-

tion either turns out better than anticipated or off ers the potential to exceed expectations.

Problem-Solving Approaches and Styles

Problem: Airline aisles are clogged during boarding with frustrated passengers. Airline

executives know that minutes saved in boarding can mean money saved.

Analysis: A study by astrophysicist Jason Steff en shows that boarding alternating rows

back to front and boarding window–middle–aisle for each row beats other methods.

Result: Airline executives may be as stuck in their thinking as their passengers are in the

aisles. Most have no plans to change current boarding systems. 10

Openness to Problem Solving Even when presented with good information, managers often diff er in their openness to prob-

lem solving. Some are more willing than others to accept the responsibilities associated with

solving a problem. Problem avoiders ignore information that would otherwise signal the pres-

ence of a performance opportunity or threat. Th ey only passively gather information, not want-

ing to make decisions or deal with problems. Problem solvers are willing to make decisions and

try to solve problems, but only when forced into it by the situation. Th ey are reactive in gathering

information to solve problems after, but not before, they occur. Th ey may deal reasonably well

with performance threats, but they also are likely to miss many performance opportunities.

Th ere is quite a contrast between the last two styles and problem seekers who con-

stantly process information and proactively look for problems to solve, even before they

occur. True problem seekers are forward thinking. Th ey anticipate performance threats and

opportunities, and they take preemptive action to generate an advantage.

Systematic and Intuitive Thinking Managers diff er in their use of “systematic” and “intuitive” thinking when trying to solve

problems and make decisions. In systematic thinking, individuals approach problems

using a rational, step-by-step, analytical process. Th e process is slow and

methodical. Systematic thinking breaks a complex problem into smaller

components and then addresses them in a logical and integrated way.

Managers who are systematic will typically make a plan before taking

action and will carefully search for information to facilitate a step-by-step

problem-solving approach.

Someone using intuitive thinking is more fl exible and spontaneous in

problem solving. 11

Th is process involves a quick and broad evaluation of

the situation as well as possible alternative courses of action. Managers

who are intuitive will generally deal with many aspects of a problem at

A performance opportunity is a situ-

ation that off ers the chance for a better

future if the right steps are taken.

Problem avoiders ignore information

indicating a performance opportunity

or threat.

Problem solvers try to solve problems

when they occur.

Problem seekers constantly process

information looking for problems to

solve, even before they occur.

Systematic thinking approaches

problems in a rational and analytical

fashion.

Intuitive thinking approaches problems

in a fl exible and spontaneous fashion.

Systematic thinker approaches problems in a step-by-step and linear fashion

Intuitive thinker approaches problems in flexible and spontaneous fashion

Systematic and Intuitive Thinking

A performance threat is a situation in

which something is obviously wrong or

has the potential to go wrong.

Problem solving involves identifying

and taking action to resolve problems.

A decision is a choice among possible

alternative courses of action.

153Problem Solving and Managerial Decisions

once, jumping from one issue to another, and consider “hunches” based on experience or

spontaneous ideas. Th is approach is often imaginative and tends to work best in situations

where facts are limited and there are few decision precedents. 12

Amazon.com’s Jeff Bezos recognizes that it’s not always possible for the fi rm’s top manag-

ers to make systematic fact-based decisions. Th ere are times, he says, when “you have to rely

on experienced executives who’ve honed their instincts” and are able to make good judg-

ments. 13

Th ere’s clearly a place for both systematic and intuitive decision making in manage-

ment. Intuition balanced by support from good solid analysis, experience, and eff ort can be

a great combination. 14

Multidimensional Thinking Managers often deal with portfolios of problems that encompass multiple and interrelated

issues. Th is requires multidimensional thinking—an ability to view many problems simul-

taneously, in relationship to one another and across both long and short time horizons. 15

Th e best managers are able to “map” multiple problems into a network that can be actively

managed over time as priorities, events, and demands continuously change. Th ey are able to

make decisions and take actions in the short run that benefi t longer-run objectives. And,

they also avoid being sidetracked while sorting through a shifting mix of daily problems.

Harvard scholar Daniel Isenberg calls this skill strategic opportunism—the ability to

remain focused on long-term objectives while being fl exible enough to resolve short-term

problems and opportunities in a timely way. 16

Cognitive Styles When US Airways Flight 1549 was in trouble and pilot Chesley (“Sully”) Sullenberger decided

to land in the Hudson River, he had both a clear head and a clear sense of what he had been

trained to do. Th e landing was successful and all of the 155 passengers and crew aboard the

Airbus A320-214 survived. Called a “hero” for his eff orts, Sullenberger described his thinking

this way: 17

I needed to touch down with the wings exactly level . . . with the nose slightly up. I needed

to touch down at . . . a descent rate that was survivable. And I needed to touch down just

above our minimum fl ying speed but not below it. . . . I needed to make all these things

happen simultaneously.

Th is example highlights cognitive styles, or the way individuals deal with information

while making decisions. If you take the end-of-chapter self-assessment, it will allow you to

examine your cognitive style in problem solving as a contrast of tendencies toward informa-

tion gathering—sensation versus intuition—and information evaluation—feeling versus

thinking. Most likely, Sully Sullenberger would score high in both sensation and thinking, and

that is probably an ideal type for a pilot.

Multidimensional thinking is an ability

to address many problems at once.

Strategic opportunism focuses on

long-term objectives while being fl exible

in dealing with short-term problems.

Cognitive styles are shown by the ways

individuals deal with information while

making decisions.

Video Games May Be Good for Decision Making

Believe it or not, and contrary to public opinion, researchers are starting to talk about

gaming being good for our brains. Consider these data—Starcraft players show faster

thought and movements; players of action video games were 25% faster than

nonplayers in decision making; game players can track six things at once, while

nonplayers track four; surgeons who play games at least three hours a week make

fewer surgical errors. Of course there’s a lot of downside risk, too. Players of violent

video games seem to have more aggressive thoughts and are less caring toward others.

Perhaps your gaming, well considered, can be a decision-making asset—boosting

creativity and multitasking skills.Je rz

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154 CHAPTER 7 ■ Information and Decision Making

People with diff erent cognitive styles are likely to approach problems

and make decisions in very diff erent ways. It is helpful to understand the

four styles shown here along with their characteristics, both for yourself

and as you see them in others. 18

• Sensation Th inkers—STs tend to emphasize the impersonal rather than

the personal and take a realistic approach to problem solving. Th ey like

hard “facts,” clear goals, certainty, and situations characterized by high

levels of control.

• Intuitive Th inkers—ITs are comfortable with abstraction and unstruc-

tured situations. Th ey tend to be idealistic, prone to intellectual and

theoretical positions; they are logical and impersonal but also tend to

avoid details.

• Intuitive Feelers—IFs prefer broad and global issues. Th ey are insightful and also tend

to avoid details, being comfortable with intangibles; they value fl exibility and human

relationships.

• Sensation Feelers—SFs tend to emphasize both analysis and human relations. Th ey

primarily have a realistic approach and prefer facts to speculation; they are open com-

municators and sensitive to feelings and values.

Structured and Unstructured Problems

Managers sometimes face structured problems that are familiar, straightforward, and

clear with respect to information needs. Because these problems are routine and occur over

and over again, they can be dealt with through programmed decisions that use solutions

or decision rules already available from past experience. Although not always predictable,

routine problems can be anticipated. Th is allows for decisions to be programmed in advance

and then executed as needed. In human resource management, for example, problems are

common whenever decisions are made about pay raises and promotions, vacation requests,

committee assignments, etc. Forward-looking managers use this understanding to decide in

advance how to handle complaints and confl icts when and if they arise, essentially stan-

dardizing their approach to these decisions.

Managers also deal with unstructured problems that are new or unusual situations

characterized by ambiguities and information defi ciencies. Th ese problems require

nonprogrammed decisions where novel solutions are specifi cally crafted to meet the

demands of the unique situation at hand. Many, if not most, problems faced by higher-level

managers are unstructured, often involving the choice among diff erent strategies and objec-

tives in uncertain situations.

Crisis Problems

Th ink back to the opening example of shift leader Luis Urzúa and the Chilean mine disaster. Th is

case represents one of the most challenging of all decision situations—a crisis decision. Th is

appears as an unexpected problem that can lead to disaster if not resolved quickly and appropri-

ately. Th e ability to handle a crisis could well be the ultimate test of any manager’s decision-

making capabilities. 19

Urzúa certainly passed this test with fl ying colors. Not everyone does as

well in crisis situations. In fact, we sometimes react to a crisis by doing exactly the wrong things.

Researchers tell us that managers often err in crisis situations by isolating themselves and

trying to solve the problem alone or as part of a small closed group. 20

But, this tendency to

close ranks limits access to crucial information at the very time that it is most needed. And it

not only sets things up for poor decisions—it may create even more problems as the situation

escalates. When Toyota recalled over 5 million vehicles for quality defects—a real disaster for

the brand—one observer said: “Crisis management does not get any more woeful than this.” 21

Th e poor crisis management was blamed on a corporate culture that discouraged transpar-

ency and public disclosure of quality problems. Toyota’s CEO Akio Toyoda’s and the fi rm were

criticized for “initially denying, minimizing and mitigating the problems.” 22

Structured problems are straight-

forward and clear with respect to

information needs.

A programmed decision applies a

solution from past experience to a

routine problem.

Unstructured problems have ambigu-

ities and information defi ciencies.

A nonprogrammed decision applies

a specifi c solution crafted for a unique

problem.

A crisis decision occurs when an

unexpected problem arises that can

lead to disaster if not resolved quickly

and appropriately.

Sensation Thinkers “STs”—like facts,

goals

Intuitive Thinkers “ITs”—idealistic,

theoretical

Sensation Feelers “SFs”—like facts,

feelings

Intuitive Feelers “IFs”—thoughtful,

flexible

Sensing

F ee

lin g

T hi

nk in

In fo

rm at

io n

E va

lu at

io n

Intuition

Information Processing

155Problem Solving and Managerial Decisions

1. Figure out what is going on—Take the time to understand what’s happening

and the conditions under which the crisis must be resolved.

2. Remember that speed matters—Attack the crisis as quickly as possible,

trying to catch it when it is as small as possible.

3. Remember that slow counts, too—Know when to back off and wait for a

better opportunity to make progress with the crisis.

4. Respect the danger of the unfamiliar—Understand the danger of all-new

territory where you and others have never been before.

5. Value the skeptic—Don’t look for and get too comfortable with agreement;

appreciate skeptics and let them help you see things diff erently.

6. Be ready to “fi ght fi re with fi re”—When things are going wrong and no one

seems to care, you may have to start a crisis to get their attention.

Six Rules for Crisis Management Good information systems and active

problem seeking can help managers get

on top of crisis situations. Good prepara-

tion helps as well; there’s no need to wait

for crises to hit before figuring out how to

best deal with them. Managers can be

assigned to crisis management teams

ahead of time, and crisis management

plans can be developed to deal with vari-

ous contingencies. Just as police depart-

ments and community groups plan ahead

and train to handle civil and natural disas-

ters, managers and work teams also can

plan ahead and train to deal with organi-

zational crises. Many organizations offer

crisis management workshops that

address issues like the rules shown in the

nearby box. The intent of these programs is to prepare managers for unexpected

high-impact events that threaten an organization’s health and well-being.

Problem-Solving Environments

Figure 7.3 shows that problems must be solved in three diff erent decision conditions or

environments—certainty, risk, and uncertainty. Although managers have to make decisions

in each of these environments, the conditions of risk and uncertainty are common at higher

levels of management where problems are more complex and unstructured.

Certain Environment Th e most favorable decision situation for a manager or team leader is to face a problem in a

certain environment. Th is is an ideal decision-making situation because full and com-

plete factual information is available about possible alternative courses of action and their

outcomes. Th e decision maker’s task is simple: Study the alternatives and choose the best

solution. Certain environments are nice, neat, and comfortable for decision makers. How-

ever, very few managerial problems are like this.

A certain environment off ers complete

information on possible action alterna-

tives and their consequences.

Certain environment Alternative courses of action and their

outcomes are known to decision maker.

Problem

Alternative 1

Alternative 2

Alternative 3

Outcome A

Outcome B

Outcome C

Risk environment Decision maker views alternatives and their

outcomes in terms of probabilities.

Problem

Alternative 1

Alternative 2

Alternative 3

Outcome A

Outcome B

Outcome C

0.7

0.2

0.5

Uncertain environment Decision maker doesn't know all alternatives

and outcomes, even as probabilities.

Problem

Alternative 1

Alternative 2

Alternative ?

Outcome A

Outcome ?

0.4

Risk of failureLow High

Type of decisionProgrammed Nonprogrammed

FIGURE 7.3 Th ree environments for problem solving and decision making.

156 CHAPTER 7 ■ Information and Decision Making

Risk Environment A basic fact of managerial decision making is that many, if not most, management problems

emerge in risk environments where facts and information on action alternatives and their

consequences are incomplete. Decision making in risk environments requires the use of

probabilities to estimate the likelihood that a particular outcome will occur (e.g., 4 chances

out of 10). Because probabilities are only possibilities, people vary in how they act under risk

conditions. Some of us are risk takers and some are risk avoiders; some of us gain from tak-

ing risks and others lose.

Domino’s Pizza CEO J. Patrick Doyle is a risk taker. When deciding to change the fi rm’s

pizza recipe, he ran a television ad admitting that customers really disliked the old one

because it was “totally devoid of fl avor” and had a crust “like cardboard.” Whereas some

executives might want to hide or downplay such customer reviews, Doyle used them to help

launch the new recipe. He says it was a “calculated risk” and that “we’re proving to our cus-

tomers that we are listening to them by brutally accepting the criticism that’s out there.” 23

General Motors’ former Vice Chairman of Global Product Development, Bob Lutz, wasn’t

a risk taker. He once said: “GM had the technology to do hybrids back when Toyota was

launching the fi rst Prius, but we opted not to ask the board to approve a product program

that’d be destined to lose hundreds of millions of dollars.” 24

He and other GM executives either

miscalculated the probabilities of positive payoff s from hybrid vehicles or didn’t believe the

probabilities were high enough to justify the fi nancial risk. Th eir Japanese competitors, facing

the same risk environment, decided diff erently and gained the early mover advantage.

Uncertain Environment When facts are few and information is so poor that managers are unable to even assign probabil-

ities to the likely outcomes of alternatives, an uncertain environment exists. Th is is the most

diffi cult decision-making condition. Th e high level of uncertainty forces managers to rely heavily

on intuition, judgment, informed guessing, and hunches—all of which leave considerable room

for error. Perhaps there is no better example of the challenges of uncertainty than the situation

faced by government and business leaders as they struggle to deal with global economic turmoil.

Even as they struggle to fi nd the right paths forward, great political, social, and economic uncer-

tainties make their tasks diffi cult and the outcomes of their decisions hard to predict.

A risk environment lacks complete

information but off ers “probabilities” of

the likely outcomes for possible action

alternatives.

An uncertain environment lacks so

much information that it is diffi cult

to assign probabilities to the likely

outcomes of alternatives.

Learning Check 2

TAKEAWAYQUESTION 2 How do managers address problems and make decisions?

BE SURE YOU CAN • describe how IT infl uences the four functions of management • defi ne problem solving and decision

making • explain systematic and intuitive thinking • list four cognitive styles in decision making • diff erentiate programmed

and nonprogrammed decisions • describe the challenges of crisis decision making • explain decision making in certain, risk,

and uncertain environments

Th e Decision-Making Process TAKEAWAY 3 What are the steps in the decision-making process?

Identify and defi ne the problem • Generate and evaluate alternative courses of action Choose a preferred course of action • Implement the decision Evaluate results • At all steps—check ethical reasoning

All of those case studies, experiential exercises, class discussions, and even essay exam questions

in your courses are intended to get students to experience some of the complexities involved in

managerial decision making, the potential problems and pitfalls, and even the pressures of crisis

situations. From the classroom forward, however, it’s all up to you. Only you can determine

whether you step up and make the best out of very diffi cult problems, or collapse under pressure.

Figure 7.4 describes fi ve steps in the decision-making process: (1) Identify and defi ne

the problem, (2) generate and evaluate alternative solutions, (3) choose a preferred course of

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Th e decision-making process begins

with identifi cation of a problem and

ends with evaluation of results.

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157Th e Decision-Making Process

Step 1

Find and define the problem

Step 2

Generate and evaluate

alternative solutions

Step 3

Choose a preferred

course of action

Step 4

Implement the decision

Step 5

Evaluate results

Double check ethical reasoning

FIGURE 7.4 Steps in the decision-making process.

action, (4) implement the decision, and (5) evaluate results. 25

Importantly, ethical reasoning

should be double-checked in all fi ve steps. Th e decision-making process can be understood

within the context of the following short case.

Th e Ajax Case. On December 31, the Ajax Company decided to close down its Murphys-

boro plant. Market conditions were forcing layoff s, and the company could not fi nd

a buyer for the plant. Some of the 172 employees had been with the company as long as

18 years; others as little as 6 months. All were to be terminated. Under company policy,

they would be given severance pay equal to one week’s pay per year of service.

Th is case refl ects how competition, changing times, and the forces of globalization can take

their toll on organizations, the people who work for them, and the communities in which they

operate. Th ink about how you would feel as one of the aff ected employees. Th ink about how

you would feel as the mayor of this small town in Illinois. Th ink about how you would feel as a

corporate executive forced to make the diffi cult business decision to close the plant down.

Step 1—Identify and Defi ne the Problem

Th e fi rst step in decision making is to fi nd and defi ne the problem. Information gathering

and deliberation are critical in this stage. Th e way a problem is defi ned can have a major

impact on how it is resolved, and it is critical here to clarify exactly what a decision should

accomplish. Th e more specifi c the goals, the easier it is to evaluate results after the decision

is actually implemented. But, three common mistakes can occur in this critical fi rst step in

decision making. 26

Mistake number one is defi ning the problem too broadly or too narrowly. To take a classic

example, the problem stated as “build a better mousetrap” might be better defi ned as “get rid

of the mice.” Managers should defi ne problems in ways that give them the best possible

range of problem-solving options.

Mistake number two is focusing on symptoms instead of causes. Symptoms are indicators

that problems may exist, but they shouldn’t be mistaken for the problems themselves.

Although managers should be alert to spot problem symptoms (e.g., a drop in performance),

they must also dig deeper to address root causes (such as discovering that workers need

training in the use of a new IT system).

Mistake number three is choosing the wrong problem to deal with at a particular point in

time. For example, which of these three problems would you address fi rst on a busy work-

day? 1—An e-mail message from your boss requesting a proposal “as soon as possible” on

how to handle employees’ complaints about lack of fl exibility in their work schedules.

2—One of your best team members has just angered another by loudly criticizing her work

performance. 3—Your working spouse has left you a voice mail that your daughter is sick at

school and the nurse would like her to go home for the day. Choices like this are not easy. We

have to set priorities and deal with the most important problems fi rst. Perhaps the boss can

wait while you telephone the school to learn more about your daughter’s illness and then

spend some time with the employee who seems to be having “a bad day.”

158 CHAPTER 7 ■ Information and Decision Making

Back to the Ajax Case. Closing the Ajax plant put a substantial number of people from the

small community of Murphysboro out of work. Th e unemployment will have a signifi cant

negative impact on individuals, their families, and the town as a whole. Th e loss of the Ajax tax

base will further hurt the community. Th e local fi nancial implications of the plant closure will

be great, and potentially devastating. Th e problem for Ajax management is how to minimize

the adverse impact of the plant closing on the employees, their families, and the community.

Step 2—Generate and Evaluate Alternative

Courses of Action

Once a problem is defi ned, it is time to assemble the facts and information that can be used to

solve it. Th is is where we clarify exactly what is known and what needs to be known. Extensive

information gathering should identify alternative courses of action as well as their potential

consequences. Key stakeholders in the problem should be identifi ed, and the eff ects of possi-

ble courses of action on each of these should be considered. Importantly, a course of action can

only be as good as the quality of the alternatives considered. Th e better the pool of alternatives

and the more that is known about them, the more likely it is that a good decision will be made.

It is important at this stage to avoid a very common decision-making error—abandoning

the search for alternatives and evaluation of their consequences too quickly. Th is often happens

due to impatience, time pressure, and plain old lack of commitment. But just because an

Does confi dence put a spring into your step and a smile on your face? It’s a powerful force, something to be nurtured and protected. Managers need the self-confi dence not only to

make decisions but to take the actions required to implement

them. Once decisions are made, managers are expected to rally

people to utilize resources and take eff ective action. Th is is how

problems actually get solved and opportunities get explored.

But lacking in confi dence, procrastination becomes easy. Too

many of us have diffi culty deciding, and we have diffi culty

acting.

How would you proceed with the situation in the box—option

A, or B, or C?

Jeff McCracken was the team leader who actually had to deal

with this situation. He acted deliberately, with confi dence, and

in a collaborative fashion. After extensive consultations with

the team, he decided to salvage the old track. Th e team worked

24 hours a day and fi nished in less than a week. McCracken called

it a “colossal job” and said the satisfaction came from “working

with people from all parts of the company and getting the job

done without anyone getting hurt.”

Self-confidence doesn’t have to mean acting alone, but it

does mean being willing to act. Management consultant Ram

Charan calls self-confidence a willingness to “listen to your

own voice” and “speak your mind and act decisively.” It is, he

says, an “emotional fortitude” that counteracts “emotional in-

securities.”

GET TO KNOW YOURSELF BETTER

Opportunities to improve your self-confi dence are everywhere, but you have to act in order to take advantage of them. What about your involvement in student organizations, recreational groups, intramural sports teams, and community activities? Do a self-check: Make a list of things you are already doing that offer ways to build your self-confi dence. What are you gaining from these experiences? Make another list that describes what you could do to gain more experience and add more self-confi dence to your skills portfolio between now and graduation. Becoming an offi cer in a club where you are a member? Starting a new student organization? Organizing a community service project for you and your friends? Becoming a tutor for a class where you did well? Volunteering at a local food bank or homeless shelter?

insight> LEARN ABOUT YOURSELF > Lacking in confi dence, procrastination becomes easy. Too many of us have diffi culty

deciding, and we have diffi culty acting.

Self-Confi dence Builds Better Decisions

Decision Time

Situation: A massive hurricane has damaged a railroad

bridge over a large lake. Th e bridge is critical for relief eff orts

to aid a devastated city. You are leading a repair team of 100.

Two alternatives are on the table: Rebuild using new tracks, or

rebuild with old track salvaged from the lake.

Question: How do you proceed?

A. Decide to rebuild with new tracks; move quickly to implement.

B. Decide to rebuild with old tracks; move quickly to implement.

C. Consult with team; make decision; move quickly to implement.

159Th e Decision-Making Process

alternative is convenient doesn’t make it the best. It may well have less potential than others

that might be discovered with the right approach and adequate time commitment.

Decisions often have unintended consequences in the form of unanticipated positive

or negative side eff ects. If alternatives are given proper attention, some of these could be

identifi ed ahead of time and their implications used to modify and strengthen a decision.

A growing number of states and localities, for example, are passing minimum wage laws

higher than federal standards. Although the intent is to help low-wage workers fi ght poverty

and cope with living costs, unintended consequences have appeared as aff ected employers

struggle to maintain profi ts in face of higher labor costs. On the positive side, the higher

wages have sometimes driven innovation—for example, a Carl’s Jr. owner in California now

fi lters shortening more frequently to extend its life and save costs. On the negative side, the

higher wages have sometimes caused layoff s and reduced work hours—for example, a White

Castle owner in Illinois eliminated two jobs to protect profi t margins without raising prices. 27

One way to strengthen the search for alternatives is to actively seek consultation and the

involvement of others. Adding more people to the process helps brings new perspectives and

information to bear on a problem, generates more alternatives for consideration, reveals more

about the possible consequences of the alternatives, and can result in a chosen course of

action that is better for everyone involved in—and potentially aff ected by—the decision.

Another way to strengthen the search for alternatives is to put each through a systematic and

rigorous cost-benefi t analysis. Th is compares what an alternative will cost in relation to what

it will return in respect to expected benefi ts. At a minimum, the benefi ts of an alternative

should be greater than its costs to stay in consideration. And, it should also be ethically sound.

Back to the Ajax Case. Th e Ajax plant is going to be closed. Given that, the possible alter-

native approaches that can be considered are (1) close the plant on schedule and be done

with it; (2) delay the plant closing until all eff orts have been made to sell it to another

fi rm; (3) off er to sell the plant to the employees and/or local interests; (4) close the plant

and off er transfers to other Ajax plant locations; or (5) close the plant, off er transfers, and

help the employees fi nd new jobs in and around the town of Murphysboro.

Step 3—Choose a Preferred Course of Action

Th is is the point where an actual decision is made to select a preferred course of action. Just

how this choice occurs and who makes it must be successfully resolved in each problem

situation. Management theory recognizes rather substantial diff erences between the classi-

cal and behavioral models of decision making as shown in Figure 7.5.

Classical Decision Model Th e classical decision model views the manager as acting rationally in a certain world. Th e

assumption is that a rational choice of the preferred course of action will be made by a decision

maker who is fully informed about all possible alternatives. Here, managers face a clearly defi ned

problem and know all possible action alternatives, as well as their consequences. As a result,

managers make an optimizing decision that gives the absolute best solution to the problem.

Unintended consequences are

unanticipated positive or negative side

eff ects that result from a decision.

Cost-benefi t analysis involves com-

paring the costs and benefi ts of each

potential course of action.

Th e classical decision model describes

decision making with complete

information.

An optimizing decision chooses the

alternative giving the absolute best

solution to a problem.

• Structured problem • Clearly defined • Certain environment • Complete information • All alternatives and consequences known

Choose absolute best among alternatives

Choose first “satisfactory” alternative

Classical Model

• Unstructured problem • Not clearly defined • Uncertain environment • Incomplete information • Not all alternatives and consequences known

Behavioral Model

Optimizing Decision Satisficing Decision

Rationality

Acts in perfect world

Bounded rationality

Acts with cognitive limitations

Manager as decision maker

FIGURE 7.5 Diff erences in the classical and behavioral decision-

making models.

160 CHAPTER 7 ■ Information and Decision Making

Behavioral Decision Model Behavioral scientists question the assumptions of perfect information underlying the classi-

cal model of decision making. Perhaps best represented by the work of scholar Herbert

Simon, behavioral decision making instead recognizes that there are cognitive limitations on

our human information-processing capabilities. 28

Th ese limits make it hard for managers to

become fully informed and make optimizing decisions. Th ey create a bounded rationality,

such that managerial decisions are rational only within the boundaries set by the available

information and known alternatives, both of which are incomplete.

Because of cognitive limitations and bounded rationalities, the behavioral decision model

assumes that people act with only partial knowledge about the available action alternatives and

their consequences. As a consequence, the fi rst alternative that appears to off er a satisfactory

resolution to the problem is likely to be chosen. Simon, who won a Nobel Prize for his work, calls

this the tendency to make satisfi cing decisions—choosing the fi rst satisfactory alternative

that comes to your attention. Th e behavioral model is useful in describing how many decisions

get made in the ambiguous and fast-paced problem situations faced by managers today.

Back to the Ajax Case. Ajax executives decided to close the plant, off er transfers to com-

pany plants in another state, and off ered to help displaced employees fi nd new jobs in

and around Murphysboro.

Step 4—Implement the Decision

Once a decision is made, actions must be taken to fully implement it. Nothing new can or

will happen unless action is taken to actually solve the problem. Managers not only need the

Bounded rationality describes making

decisions within the constraints of

limited information and alternatives.

Th e behavioral decision model

describes decision making with limited

information and bounded rationality.

A satisfi cing decision is the choice of

the fi rst satisfactory alternative that

comes to one’s attention.

Some 40 climbers are winding their ways to the top of Mount Everest. About 1,000 feet below the summit sits a British mountain climber in trouble, collapsed in a shallow snow cave.

Most of those on the way up just look while continuing their

climbs. Sherpas from one passing team pause to give him oxygen

before moving on. Within hours David Sharp, 34, is dead of oxygen

defi ciency on the mountain.

A climber who passed by says: “At 28,000 feet it’s hard to stay

alive yourself . . . he was in very poor condition . . . , it was a very

hard decision . . . he wasn’t a member of our team.”

Someone who made the summit in the past says: “If you’re

going to go to Everest . . . I think you have to accept responsibility

that you may end up doing something that’s not ethically nice . . .

you have to realize that you’re in a diff erent world.”

After hearing about this case, the late Sir Edmund Hillary, who

reached the top in 1953, said: “Human life is far more important

than just getting to the top of a mountain.”

WHAT DO YOU THINK?

Who’s right and who’s wrong here? Should the climbers have ignored Sharp and continued on their way to the top of Mount Everest? Does this situation happen in real life—not on moun- tains but in our workplaces? How often do we meet people who are struggling or in trouble, but just pass them by as we pursue our own career interests and personal goals? When we encoun- ter others who are having diffi culties, what are our ethical or moral obligations to them? How do we make choices between what is best for us versus what is best for others?

ethics> KNOW RIGHT FROM WRONG > “Human life is far more important than just getting to the top of a mountain.”

Climber Left to Die on Mount Everest

Bobby Model/Getty Images, Inc.

161Th e Decision-Making Process

determination and creativity to arrive at a decision, they also need the ability and willing-

ness to implement it.

Diffi culties encountered when decisions get implemented may trace to lack-of-

participation error. Th is is a failure to adequately involve in the process individuals whose

support is necessary to put the decision into action. Managers who use participation wisely

get the right people involved in problem solving from the beginning. When they do, imple-

mentation typically follows quickly, smoothly, and to the satisfaction of all stakeholders.

Back to the Ajax Case. Ajax ran ads in the local and regional newspapers. Th e ad called

attention to an “Ajax skill bank” composed of “qualifi ed, dedicated, and well-motivated

employees with a variety of skills and experiences.” Interested employers were urged to

contact Ajax for further information.

Step 5—Evaluate Results

Th e decision-making process is not complete until results are evaluated. If the desired out-

comes are not achieved or if undesired side eff ects result, corrective action should be taken.

Evaluation is a form of managerial control. It involves gathering data to measure perfor-

mance results and compare these results against established goals. If results are less than

what was desired, it is time to reassess and return to earlier steps. In this way, problem

solving becomes a dynamic and ongoing activity within the management process. Evalua-

tion is always easier when clear goals, measurable targets, and timetables are established at

the outset of the process.

Back to the Ajax Case. How eff ective were Ajax’s decisions? We don’t know for sure. But

after the advertisement ran for two weeks, the plant’s industrial relations manager said:

“I’ve been very pleased with the results.” Th at’s all we know, and more information would

certainly be needed for a good evaluation of how well management handled this situa-

tion. Wouldn’t you like to know how many of the displaced employees got new jobs

locally and how the local economy held up? You can look back on the case as it was

described and judge for yourself. Perhaps you would have approached the situation and

the fi ve decision making steps somewhat diff erently.

At All Steps—Check Ethical Reasoning

Each step in the decision-making process can and should be linked with ethical reasoning. 29

Th e choices made often have moral dimensions that might easily be overlooked. For exam-

ple, job eliminations in the prior Ajax case might not be suffi ciently considered for their

implications on all stakeholders, including the aff ected persons, their families, and the local

community. We sometimes have to take special care to stay tuned into virtues—things like

fairness, kindness, compassion, and generosity—and guard against vices—things like greed,

anger, ignorance, and lust. 30

One way to check ethical reasoning in decision making is to ask and answer pointed

questions that bring critical thinking into the process. Gerald Cavanagh and his associates,

for example, suggest that a decision should test positive on these four ethics criteria. 31

1. Utility—Does the decision satisfy all constituents or stakeholders?

2. Rights—Does the decision respect the rights and duties of everyone?

3. Justice—Is the decision consistent with the canons of justice?

4. Caring—Is the decision consistent with my responsibilities to care?

Another way to test ethical reasoning is to consider a decision in the context of full trans-

parency and the prospect of shame. 32

Th ree spotlight questions can be powerful in this

regard. Ask: “How would I feel if my family found out about this decision?” Ask: “How would

I feel if this decision were published in the local newspaper or posted on the Internet?”

Ask: “What would the person you know or know of who has the strongest character and

best ethical judgment do in this situation?”

Th e spotlight questions test the ethics

of a decision by exposing it to scrutiny

through the eyes of family, community

members, and ethical role models.

Lack-of-participation error is failure to

involve in a decision the persons whose

support is needed to implement it.

162 CHAPTER 7 ■ Information and Decision Making

It also is helpful to check decisions against the hazards of undue rationalizations. Cau-

tion is called for when you hear yourself or others saying, “It’s just part of the job” . . . “We’re

fi ghting fi re with fi re” . . . “Everyone is doing it” . . . “I’ve got it coming” . . . “It’s legal and

permissible” . . . “I’m doing it just for you.” Such comments or thoughts are warning signs. If

these signs are heeded, it can prompt a review of the decision and perhaps lead to a more

ethical outcome.

Learning Check 3

TAKEAWAYQUESTION 3 What are the steps in the decision-making process?

BE SURE YOU CAN • list the steps in the decision-making process • apply these steps to a sample decision-making

situation • explain cost-benefi t analysis in decision making • discuss diff erences between the classical and behavioral

decision models • defi ne optimizing and satisfi cing • explain how lack-of-participation error can hurt decision making

• list useful questions for double-checking the ethical reasoning of a decision

Decision-Making Pitfalls and Creativity TAKEAWAY 4 What are current issues in managerial decision making?

Decision errors and traps • Creativity in decision making

Once we accept the fact that we are likely to make imperfect decisions at least some of the

time, it makes sense to try to understand why. Two common mistakes are falling prey to

decision errors and traps, and not taking full advantage of creativity. Both can be easily

avoided.

Decision Errors and Traps

Test: Would you undergo heart surgery if the physician tells you the survival rate is 90%?

Chances are you would. But if the physician tells you the mortality rate is 10%, the

chances of you opting for surgery are likely to be substantially lower!

What is happening here? Well-intentioned people often rely on simplifying strategies

when making decisions with limited information, time pressures, and even insuffi cient

energy. Psychologist Daniel Kahneman describes this as a triumph of System 1 thinking—

automatic, eff ortless, quick, and associative—over System 2 thinking—conscious, slow, delib-

erate, and evaluative. 33

In the above test, the simplifi cation of System 1 thinking is called

“framing” because the decision to have surgery or not varies according to whether the infor-

mation is presented as a survival rate—encouraging, or a mortality rate—threatening. 34

Th is

and other simplifying strategies or rules of thumb are known as heuristics. 35

Although

heuristics can be helpful in dealing with complex and ambiguous situations, they also lead

to common decision-making errors. 36

Framing Error Managers sometimes suffer from framing error that occurs when a problem is evalu-

ated and resolved in the context in which it is perceived—either positively or negatively.

Suppose, for example, data show that a particular product has a 40% market share. A

negative frame views the product as deficient because it is missing 60% of the market.

The likely discussion would focus on: “What are we doing wrong?” Alternatively, the

frame could be a positive one, looking at the 40% share as a strong market foothold. In

this case the discussion is more likely to proceed with “How can we do things better?”

Sometimes people use framing as a tactic for presenting information in a way that gets

other people to think within the desired frame. In politics, this is often referred to as

“spinning” the data.

LEARN MORE

ABOUT

Heuristics are strategies for simplifying

decision making.

Framing error is trying to solve a

problem in the context in which it is

perceived.

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163Decision-Making Pitfalls and Creativity

Availability Bias Th e availability bias occurs when people assess a current event or situation by using infor-

mation that is “readily available” from memory. An example is deciding not to invest in a

new product based on your recollection of a recent product failure. Th e potential bias is that

the readily available information is fallible and irrelevant. For example, the product that

recently failed may have been a good idea that was released to market at the wrong time of

year, or it may have belonged to an entirely diff erent product category.

Representativeness Bias Th e representativeness bias occurs when people assess the likelihood of something hap-

pening based on its similarity to a stereotyped set of occurrences. An example is deciding to

hire someone for a job vacancy simply because he or she graduated from the same school

attended by your last and most successful new hire. Th e potential bias is that the represen-

tative stereotype masks factors important and relevant to the decision. For instance, the

abilities and career expectations of the job candidate may not fi t the job requirements; the

school attended may be beside the point.

Anchoring and Adjustment Bias Anchoring and adjustment bias occurs when decisions are infl uenced by inappropriate

deference to a previous value or starting point. An example is a manager who sets a new

salary level for an employee by simply raising her prior year’s salary by a small percentage.

Th e availability bias bases a decision

on recent information or events.

Th e representativeness bias bases

a decision on similarity to other

situations.

Th e anchoring and adjustment

bias bases a decision on incremental

adjustments from a prior decision point.

Situation All eyes were on Marissa Mayer when she left a suc-cessful stint at Google to become Yahoo!’s CEO. But not every- one liked what they heard when she told employees there would

be no more working from home. “Bye-bye telecommuting” was the

message. Mayer’s stated goal was to bring face-to face collabora-

tion back to the Yahoo! culture and increase innovation in the

process.

Critics of Mayer’s decision claim it flies in the face of

evidence that not only do most employees want the option of

telecommuting—as high as 80 percent in some reports—but

they’re both harder working and more satisfied when they can

spend time working from home. “Telecommuting . . . has al-

lowed me to have a career as well as be a mother,” said a post-

ing by “digital mom” on Babble.com, an online website for

parents.

Th ose who support Mayer’s decision point to other employers—

including Bank of America, Google, and Twitter—that are either

cutting back on or discouraging work-at home choices. When

asked, “How many people telecommute at Google?” the fi rm’s

chief fi nancial offi cer replied: “As few as possible.”

YOUR TAKE?

What is your position on telecommuting? Does experience tell you that it works or that it doesn’t? Is it something that you are looking for in an employer? Does Mayer’s decision show courage in the face of a popular but not necessarily performance-friendly practice? Or, was it a premature rush to blame work-at-home practices for what she perceived as Yahoo!’s failures of collabo- ration and innovation?

choices> THINK BEFORE YOU ACT > “Bye-bye telecommuting” was the message. Mayer’s stated goal was to bring face-to face

collaboration back to the Yahoo! culture and increase innovation in the process.

Yahoo CEO Marissa Mayer Bans Telecommuting

Mango Productions/Corbis Corp

164 CHAPTER 7 ■ Information and Decision Making

Although the increase may appear reasonable to the manager, the decision actually under-

values the employee relative to the job market. Th e small incremental salary adjustment,

refl ecting anchoring and adjustment bias, may end up prompting her to look for another,

higher-paying job.

Confi rmation Error One of our tendencies after making a decision is to try and fi nd ways to justify it. In the case

of unethical acts, for example, we try to “rationalize” them after the fact. Th is is called

confi rmation error. It means that we notice, accept, and even seek out only information

that confi rms or is consistent with a decision we have just made. Contrary information that

suggests what we are doing is incorrect or unethical is downplayed or denied.

Escalating Commitment Another decision-making trap is escalating

commitment. Th is occurs as a decision to

increase eff ort and perhaps apply more

resources to pursue a course of action that is

not working. 37

Managers prone to escalation

let the momentum of a situation and per-

sonal ego overwhelm them. Th ey are unwill-

ing to admit they were wrong and unable to

“call it quits,” even when the facts indicate

that this is the best alternative. Th is is a

common decision error, perhaps one that

you are personally familiar with. It is some-

times called the sunk-cost fallacy. Th e nearby

box off ers advice on how to avoid tendencies toward escalating commitments to previously

chosen courses of action. 38

Creativity in Decision Making

Situation—Elevator riders in a new high-rise building are complaining about long waiting

times.

Building engineers’ advice—Upgrade the entire system at substantial cost. Why? He

assumed that any solutions to a slow elevator problem had to be mechanical ones.

Creativity consultant’s advice—Place fl oor-to-ceiling mirrors by the elevators. Why? Peo-

ple, he assumed, would not notice waiting times because they were distracted by their

and others’ refl ections.

Outcome—the creativity consultant was right. 39

Creativity in decision making shows up as a novel idea or unique approach to solving

problems or exploiting opportunities. 40

Th e potential for creativity is one of our greatest

personal assets, although we often let it go unrecognized. One reason is that we focus too

much on what researchers call Big-C creativity—when extraordinary things are done by

exceptional people. 41

Th ink Big-C creativity when you use or see someone using an iPhone

or iPad—Steve Jobs’ creativity, or browse Facebook—Mark Zuckerberg’s creativity.

Don’t get sidetracked by Big-C creativity alone. Th ere is lots of Little-C creativity around

also. It occurs when average people come up with unique ways to deal with daily events and

situations. Th ink Little-C creativity, for example, the next time you solve relationship prob-

lems at home, build something for the kids, or even fi nd ways to pack too many items into

too small a suitcase.

Just imagine what can be accomplished with all the creative potential—Big-C and

Little-C—present in an organization. How do you turn that potential into creative decisions?

David Kelley, founder of the design fi rm IDEO, believes that a lot, perhaps most, of us start

to lose our creativity skills in primary school. 42

It’s something about being taught to look for

A confi rmation error occurs when

focusing only on information that

confi rms a decision already made.

Creativity is the generation of a novel

idea or unique approach that solves a

problem or crafts an opportunity.

Big-C creativity occurs when extraor-

dinary things are done by exceptional

people.

Little-C creativity occurs when average

people come up with unique ways to

deal with daily events and situations.

• Set advance limits on your involvement and commitment to a particular

course of action; stick with these limits.

• Make your own decisions; don’t follow the leads of others, since they are

also prone to escalation.

• Carefully assess why you are continuing a course of action; if there are no

good reasons to continue, don’t.

• Remind yourself of what a course of action is costing; consider saving these

costs as a reason to discontinue.

• Watch for escalation tendencies in your behaviors and those of others.

How to Avoid the Escalation Trap in Decision Making

Escalating commitment is the contin-

uation of a course of action even though

it is not working.

165Decision-Making Pitfalls and Creativity

answers to assigned problems and fearing failure when taking standardized tests. But, he

also believes our creativity can be reenergized when we stop fearing failure and commit to

design thinking. First comes experiencing—defi ning problems by research and observa-

tion; not simply accepting the parameters of a problem or issue as delivered. Second

comes ideation—visualizing and brainstorming potential solutions in collaboration with

others. Th ird comes prototyping—testing and modifying the potential solution over and over

to achieve the best outcome.

Personal Creativity Drivers Th e small fi gure identifi es task expertise, task motivation, and creativity

skills as personal creativity drivers. 43

Th is three-component model

points us in useful directions for personal creativity development as

well as toward management actions that can boost creativity in teams

or work units.

Creative decisions are more likely to occur when an individual has a

lot of task expertise. Creativity grows from something one is good at or

knows about, while extending it in new directions. And, creative deci-

sions are more likely when someone is highly task-motivated. Creativity tends to occur in

part because people work exceptionally hard to resolve a problem or exploit an opportunity.

Design thinking unlocks creativity in

decision making through a process of

experiencing, ideation, and prototyping.

Tom Szaky is founder of the Company TerraCycle that makes consumer products from waste, and an “eco-capitalist”— someone who turns sustainability into profi ts. While a freshman

at Princeton University, Szaky ordered a million red worms, think-

ing he could use them to recycle campus waste. In conversations

with classmate Jon Beyer, the idea shifted to selling liquid fertilizer

made from worm excrement. But, they couldn’t aff ord the expen-

sive plastic bottles for packaging.

Many conversations led to the creation of TerraCycle with a

mission to “fi nd a meaningful use for waste materials.” Szaky’s

book, Revolution in a Bottle, is all about “upcycling”—the art of

turning waste that isn’t recyclable into reusable packaging.

TerraCycle upcycles waste products like cookie wrappers,

drink containers, and discarded juice packs into usable products

like tote bags and other containers. Szaky says: “First we identify a

waste stream, then we fi gure out what we can make from that

material. Th is is our strength—creatively solving the ‘what the hell

do we make from it’ issue.”

Szaky’s foray into the entrepreneurial world of eco-capitalism

could have ended with the red worms experiment. But he and

his friends didn’t stop there. Learning from experience, they

persevered and made decisions that turned ideas into accom-

plishments.

FIND INSPIRATION

How does Szaky’s focus on sustainability match with your views on the environment, ecological conservation, and the planet in general? In what ways does this focus refl ect a generational shift toward taking responsibility for the environment and ethical manufacturing processes? Are there areas of your own life where you can support sustainability—riding your bike, recycling, reus- able water bottles, eco-friendly products, and so on? Do you see sustainability as an advantage in the marketplace? Would you be more willing to buy a product manufactured completely out of post-consumer waste, because it was an upcycled product? Why or why not?

wisdom> LEARN FROM ROLE MODELS > “This is our strength—creatively solving the ‘what the hell do we make from it’ issue.”

Tom Szaky’s Creative Decisions Fuel Sustainability Gains

Mel Evans/AP/Wide World Photos

Task Expertise

Task Motivation

Creativity Skills

Creativity

166 CHAPTER 7 ■ Information and Decision Making

Creative decisions also emerge when people have strong personal creativity skills.

Creative people tend to work with high energy, hold their ground in the face of criticism,

and respond in a resourceful way in diffi cult situations. Th ey have strong associative skills,

meaning they are good at making connections among seemingly unrelated facts or events.

Creative people also have strong behavioral skills of questioning, observing, networking, and

experimenting. 44

Th ey are good at synthesizing information to fi nd correct answers (conver-

gent thinking), looking at diverse ways to solve problems (lateral thinking), and thinking

“outside of the box” (divergent thinking). 45

Situational Creativity Drivers If you mix creative people and traditional organization and manage-

ment practices, what will you get? You may not get much. It takes more

than individual creativity alone to make innovation a way of life in orga-

nizations. Situational creativity drivers are important too.

Managers should, of course, staff their organizations and teams with

creative members. But they should also realize these team creativity

skills are most likely to blossom when buoyed by management support

and the right organizational culture. Th is means things like having a

team leader with the patience to allow for creative processes to work

themselves through a decision situation. It means having top management that is willing to

accept and even celebrate failure, and to provide the resources—time, technology, and

space—that are helpful to the creative processes. It also means making creativity a top orga-

nizational priority and a core value of the organizational culture.

Th ink creativity gained the next time you see a young child playing with a really neat toy.

It may be from Fisher-Price Toys—part of Mattel, Inc. In the fi rm’s headquarters you’ll fi nd a

special place called the “Cave,” and it’s not your typical offi ce space. Picture bean-bag chairs,

soft lighting, and casual couches. It’s a place for brainstorming, where designers, marketers,

engineers, and others can meet work together without any strings attached to come up with

the next great toy for preschoolers. Consultants recommend that such innovation spaces

be separated from the normal workplace and be large enough for no more than 15 to 20

people. 46

Th ink creativity wasted the next time you watch TV on a beautiful, large, fl at-panel screen.

In 1964, George H. Heilmeier showed his employers at RCA Labs his new discovery—a

liquid-crystal display, or LCD. Th ey played with it until 1968 when RCA executives decided

the fi rm was so heavily invested in color TV tubes that they weren’t really interested. Today

the market is dominated by Japanese, Korean, and Taiwanese producers, with not a single

U.S. maker in the market. Ironically, Heilmeier received the Kyoto Prize, considered the

Nobel Prize of Japan, for his pioneering innovation. 47

Team Creativity Skills

Organizational Culture

Management Support

Creativity

Learning Check 4

TAKEAWAYQUESTION 4 What are current issues in managerial decision making?

BE SURE YOU CAN • explain the availability, representativeness, anchoring, and adjustment heuristics • illustrate framing

error, confi rmation error, and escalating commitment in decision making • identify key personal and situational creativity

drivers

167Management Learning Review

Summary

TAKEAWAYQUESTION 1 What is the role of information in the management process?

• Technological, information, and analytical competencies are all needed to take advantage of information technol- ogy in decision making.

• Data are raw facts and fi gures; information is data made useful for decision making; useful information is timely, high quality, complete, relevant, and understandable. Management information systems collect, organize, store, and distribute data to meet the information needs of managers.

• Analytics is the systematic evaluation and analysis of information for decision making.

• Business intelligence systems organize and display data, often in the form of dashboards, so that patterns and trends are evident to decision makers.

FOR DISCUSSION What are the potential downsides to the ways IT is changing organizations?

TAKEAWAYQUESTION 2 How do managers address problems and make decisions?

• Managers serve as information nerve centers in the process of planning, organizing, leading, and controlling activities in organizations.

• Managers can display problem avoidance, problem solving, and problem seeking in facing problems.

• Managers vary in the use of systematic and intuitive thinking, and in tendencies toward multidimensional thinking.

• Managers must understand the different cognitive styles people use in decision making.

• Programmed decisions are routine solutions to recurring and structured problems; nonprogrammed decisions are unique solutions to novel and unstructured problems.

• Crisis problems occur unexpectedly and can lead to disaster if not handled quickly and properly.

• Managers face problems and make decisions under conditions of certainty, risk, and uncertainty.

FOR DISCUSSION When would a manager be justifi ed in acting as a problem avoider?

TAKEAWAYQUESTION 3 What are the steps in the decision-making process?

• The steps in the decision-making process are (1) fi nd and defi ne the problem, (2) generate and evaluate alternatives, (3) decide on the preferred course of action, (4) implement the decision, and (5) evaluate the results.

• An optimizing decision, following the classical model, chooses the absolute best solution from a known set of alternatives.

• A satisfi cing decision, following the behavioral model, chooses the fi rst satisfactory alternative to come to attention.

• To check the ethical reasoning of a decision at any step in the decision-making process, it is helpful to ask the ethics criteria questions of utility, rights, justice, and caring.

• To check the ethical reasoning of a decision at any step in the decision-making process, it is helpful to ask the spotlight questions that expose the decision to transpar- ency in the eyes of family, community members, and ethical role models.

FOR DISCUSSION Do the steps in the decision-making process have to be followed in order?

TAKEAWAYQUESTION 4 What are current issues in managerial decision making?

• Common decision errors and traps include the availability, representation, and anchoring and adjustment biases, as well as framing error, confi rmation error, and escalating commitment.

• Creativity in decision making can be enhanced by the personal creativity drivers of individual creativity skills, task expertise, and motivation.

• Creativity in decision making can be enhanced by the situational creativity drivers of group creativity skills, management support, and organizational culture.

FOR DISCUSSION Which decision trap seems most evident as an infl uence on bad choices made by business CEOs today?

Management Learning Review Get Prepared for Quizzes and Exams

168 CHAPTER 7 ■ Information and Decision Making

Multiple-ChoiceQuestions 1. Among the ways information technology is changing

organizations today, ___________ is one of its most noteworthy characteristics. (a) eliminating need for top managers (b) reducing information available for decision making (c) breaking down barriers internally and externally (d) decreasing need for environmental awareness

2. Whereas management information systems use the latest technologies to collect, organize, and distribute data, ___________ involves tapping the available data to extract and report it in organized ways that are most useful to decision makers. (a) analytics (b) business intelligence (c) anchoring and adjustment (d) optimizing

3. A manager who is reactive and works hard to address problems after they occur is known as a ___________. (a) problem seeker (b) problem avoider (c) problem solver (d) problem manager

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

5. A person likes to deal with hard facts and clear goals in a decision situation; she also likes to be in control and keep things impersonal. This person’s cognitive style tends toward ___________. (a) sensation thinking (b) intuitive thinking (c) sensation feeling (d) intuitive feeling

6. The assigning of probabilities for action alternatives and their consequences indicates the presence of ___________ in the decision environment. (a) certainty (b) optimizing (c) risk (d) satisfi cing

7. The fi rst step in the decision-making process is to ___________. (a) identify alternatives (b) evaluate results (c) fi nd and defi ne the problem (d) choose a solution

8. Being asked to develop a plan to increase international sales of a product is an example of the types of ___________ problems that managers must be prepared to deal with. (a) routine (b) unstructured (c) crisis (d) structured

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

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

11. The ___________ decision model views managers as making optimizing decisions, whereas the ___________ decision model views them as making satisfi cing decisions. (a) behavioral, human relations (b) classical, behavioral (c) heuristic, humanistic (d) quantitative, behavioral

12. When a manager makes a decision about someone’s annual pay raise only after looking at his or her current salary, the risk is that the decision will be biased because of ___________. (a) a framing error (b) escalating commitment (c) anchoring and adjustment (d) strategic opportunism

13. When a problem is addressed according to the positive or negative context in which it is presented, this is an example of ___________. (a) framing error (b) escalating commitment (c) availability and adjustment (d) strategic opportunism

14. When a manager decides to continue pursuing a course of action that facts otherwise indicate is failing to deliver desired results, this is called ___________. (a) strategic opportunism (b) escalating commitment (c) confi rmation error (d) the risky shift

Self-Test 7

169Management Skills & Competencies

15. Personal creativity drivers include creativity skills, task expertise, and ___________. (a) emotional intelligence (b) management support (c) organizational culture (d) task motivation

Short-ResponseQuestions 16. What is the difference between an optimizing decision

and a satisfi cing decision?

17. How can a manager double-check the ethics of a decision?

18. How would a manager use systematic thinking and intuitive thinking in problem solving?

19. How can the members of an organization be trained in crisis management?

EssayQuestion 20. As a participant in a new mentoring program

between your university and a local high school, you have volunteered to give a presentation to a class of sophomores on the challenges in the new “electronic offi ce.” The goal is to sensitize these high school students to developments in information technology and motivate them to take the best advantage of their high school academics so as to prepare themselves for the workplace of the future. What will you say to them?

Evaluate Career Situations

What Would You Do?

1. Tired of Excuses

Little problems are popping up at the most inconvenient

times. Th ey make your work as team leader sometimes diffi -

cult and even aggravating. Today it’s happened again. Trevor

just called in “sick,” saying his doctor advised him yesterday

that it was better to stay home than to come to work and in-

fect others with the fl u. It makes sense, but it’s also a hardship

for you and the team. What can you do to best manage this

type of situation since it’s sure to happen again?

2. Social Loafi ng Problem

You are under a lot of pressure because your team is having

performance problems. Th ey trace, in part at least, to persis-

tent social loafi ng by one team member in particular. You have

come up with a reason to remove her from the team. But, the

decision you are about to make fails all three of the ethics

spotlight questions. As team leader, what will you do now?

3. Task Force Selection

You have fi nally caught the attention of senior management.

Top executives asked you to chair a task force to develop

a creative new product that can breathe fresh life into an

existing product line. To begin, you need to select the members

of the task force. What criteria will you use to choose members

who are most likely to bring high levels of creativity to this

team?

Refl ect on the

Self-Assessment

Cognitive Style

Instructions Th is assessment is designed to get an impression of your cogni-

tive style based on the work of psychologist Carl Jung For each of

the following 12 pairs, place a “1” next to the statement that best

describes you. Do this for each pair, even though the description

you choose may not be perfect. 48

1. (a) I prefer to learn from experience.

(b) I prefer to fi nd meanings in facts and how they fi t

together.

2. (a) I prefer to use my eyes, ears, and other senses to fi nd

out what is going on.

(b) I prefer to use imagination to come up with new ways

to do things.

3. (a) I prefer to use standard ways to deal with routine problems.

(b) I prefer to use novel ways to deal with new problems.

4. (a) I prefer ideas and imagination.

(b) I prefer methods and techniques.

5. (a) I am patient with details, but get impatient when they

get complicated.

(b) I am impatient and jump to conclusions, but I am also

creative, imaginative, and inventive.

ManagementSkills& Competencies Make yourself valuable!

170 CHAPTER 7 ■ Information and Decision Making

6. (a) I enjoy using skills already mastered more than learning

new ones.

(b) I like learning new skills more than practicing old ones.

7. (a) I prefer to decide things logically.

(b) I prefer to decide things based on feelings and values.

8. (a) I like to be treated with justice and fairness.

(b) I like to be praised and to please other people.

9. (a) I sometimes neglect or hurt other people’s feelings

without realizing it.

(b) I am aware of other people’s feelings.

10. (a) I give more attention to ideas and things than to human

relationships.

(b) I can predict how others will feel.

11. (a) I do not need harmony; arguments and confl icts don’t

bother me.

(b) I value harmony and get upset by arguments and confl icts.

12. (a) I am often described as analytical, impersonal,

unemotional, objective, critical, hardnosed, rational.

(b) I am often described as sympathetic, people-oriented,

unorganized, uncritical, understanding, ethical.

Self-Assessment Scoring Sum your scores as follows, and record them in the parentheses.

(Note that the Sensing and Feeling scores will be recorded as

negatives.)

(– ) Sensing (S Type) 5 1a 1 2a 1 3a 1 4a 1 5a 1 6a

( ) Intuitive (N Type) 5 1b 1 2b 1 3b 1 4b 1 5b 1 6b

( ) Th inking (T Type) 5 7a 1 8a 1 9a 1 10a 1 11a 1 12a

(– ) Feeling (F Type) 5 7b 1 8b 1 9b 1 10b 1 11b 1 12b

Interpretation Th is assessment contrasts personal tendencies toward informa-

tion gathering (sensation vs. intuition) and information evalua-

tion ( feeling vs. thinking) in one’s approach to problem solving.

Th e result is a classifi cation of four cognitive styles and their

characteristics. Read the descriptions provided in the chapter

text and consider the implications of your suggested style, in-

cluding how well you might work with people whose styles are

very diff erent.

Contribute to the

Team Exercise

Lost at Sea

Situation You are sailing on a private yacht in the South Pacifi c when a fi re

of unknown origin destroys the yacht and most of its contents.

You and a small group of survivors are now in a large raft with

oars. Your location is unclear, but you estimate that you are

about 1,000 miles south-southwest of the nearest land. One

person has just found in her pockets fi ve $1 bills and a packet of

matches. Everyone else’s pockets are empty. Th e items below are

available to you on the raft. 49

Individual

ranking

Team

ranking

Expert

ranking

Sextant

Shaving mirror

5 gallons water

Mosquito netting

1 survival meal

Maps of Pacifi c

Ocean

Floatable seat

cushion

2 gallons oil-gas

mix

Small transistor

radio

Shark repellent

20 square feet

black plastic

1 quart 20-proof

rum

15 feet nylon rope

24 chocolate bars

Fishing kit

Instructions 1. Working alone, rank the 15 items in order of their importance to

your survival (“1” is most important and “15” is least important).

2. Working in an assigned group, arrive at a “team” ranking of

the 15 items. Appoint one person as team spokesperson to

report your team ranking to the class.

3. Do not write in Column C until your instructor provides the

“expert” ranking.

Manage a Critical Incident

Asking for a Raise

Situation: You want a raise. 50

Problem: Th e question is: How do you get your boss to decide

that you deserve one?

Insight: Researchers tell us that when negotiating a raise it’s bet-

ter to not use a round number as a target—such as “about

$65,000,” and better to use a precise number—such as “$63,750.”

Th e round number suggests a person has only a general idea of

the market for their skills, whereas the precise number gives the

impression that they’ve done the research and know their facts.

Task: Describe what you will say and do to get your boss to

agree that you deserve a raise. Prepare a narrative that pre-

sents the exact words, justifications, and dollar target you

would use to ask for a raise in your current job. Alternatively,

assume you have been working in your chosen career field for

171Analyze the Case Study

five years, have developed lots of expertise and earned high

performance reports, and now want a raise.

Collaborate on the

Team Project

Crisis Management Realities

Questions: What types of crises do business leaders face, and

how do they deal with them?

Instructions • Identify three crisis events from the recent local, national, and

international business news.

• Read at least three diff erent news reports on each crisis, trying

to learn as much as possible about its specifi cs, how it was dealt

with, what the results were, and the aftermath of the crisis.

• For each crisis, use a balance sheet approach to list sources

or causes of the confl ict and management responses to it.

Analyze the lists to see if there are any diff erences based on the

nature of the crisis faced in each situation. Also look for any

patterns in the responses to them by the business executives.

• Score each crisis ( from 1 5 low to 5 5 high) in terms of how successfully it was handled. Be sure to identify the criteria that

you use to describe “success” in handling a crisis situation. Make

a list of “Done Rights” and “Done Wrongs” in crisis management.

• Summarize the results of your study into a report on “Realities

of Crisis Management.”

AnalyzeTHE CaseStudy

AMAZON.COM

One E-Store to Rule Them All Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

“Considering the future of our children and young people . . . we have no choice but to go ahead with the village-wide evacuation.”

Mayor Noro Kanno of Kawamata-cho town, after a 9.0 earthquake and monster tsunami destroyed nuclear power facilities

in Fukushima, Japan.

AFP/Getty Images

Planning

Processes and

Techniques Get there faster with objectives

8 C H A P T E R Q U I C K STA RT

Most of our days are chock full of time pressure and multiple activities—expected

and unexpected. A good plan can help us to stay on course and get a reasonable

number of things accomplished. Managers need plans, too, but the planning envi-

ronment within organizations can be complicated. Now is a good time to study

the essential planning processes and techniques.

Key Takeaways

■ Identify the importance of

planning and steps in the

planning process.

■ List and give examples of

the types of plans used by

managers.

■ Discuss useful planning

tools and techniques.

■ Explain how goals and

participation infl uence

planning success.

MANAGEMENT IS REAL

MAKE DATA YOUR FRIEND Policies on Offi ce Romances Vary Widely

THINK BEFORE YOU ACT

Keep Your Career Plan Tight and Focused . . . or Loosen Up?

KNOW RIGHT FROM WRONG

What Really Works When Fighting World Poverty?

LEARN ABOUT YOURSELF

Time Management Unlocks Performance Capacity

LEARN FROM ROLE MODELS

Oprah Thinks Now and Embraces the Future

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Time Management Profi le

■ CONTRIBUTE To the Team Exercise: Personal Career Planning

■ MANAGE A Critical Incident: Policy on Paternity Leave for New Dads

■ COLLABORATE On a Team Activity: The Future Workplace

■ ANALYZE Th e Case Study: Walgreens: Staying One Step Ahead

what to look for inside >

173

174 CHAPTER 8 ■ Planning Processes and Techniques

N o one can know for sure what the future holds, but no one doubts its

likely complications. A meeting of the World Economic Forum in Davos,

Switzerland, for example, identifi ed fi ve key risks for the world at large—

extreme weather events, climate change, cyber-attacks, rising unemploy-

ment and underemployment, and growing income disparities. 1 What are the

implications for companies like Amazon or Nike, or for our schools and local

governments? What might they mean to you?

Like all of us, managers need the ability to look ahead, make good plans,

and help themselves and others meet future challenges. But it can be easy to

get so engrossed in the details of the present moment that we forget about

what happens next. Other times an accelerated rush to the future can go off

track because of a wide range of uncertainties and few or no familiar reference

points. Th e likelihood is that even the best of plans—organizational and

personal—will have to be adjusted or modifi ed to fi t unforeseen new circum-

stances. Th is requires the insight and courage to be fl exible, and the discipline

to stay focused on goals even as events change and problems arise.

Why and How Managers Plan TAKEAWAY 1 Why and how do managers plan?

Importance of planning • Th e planning process • Benefi ts of planning Planning and time management

Th e management process involves planning, organizing, leading, and controlling the use of

resources to achieve performance objectives. Th e fi rst of these functions, planning, sets the

stage for the others by providing a sense of direction. It is a process of setting objectives and

determining how best to accomplish them. At its core, planning involves deciding exactly

what needs to be accomplished and how best to go about it.

Importance of Planning

When planning is done well it creates a solid platform for the other management functions.

It helps with organizing—allocating and arranging resources to accomplish tasks, leading—

guiding and inspiring others to achieve high levels of task accomplishment, and controlling—

monitoring task accomplishments and taking corrective action when needed.

Th e centrality of planning in management is shown in Figure 8.1. Good planning helps us

become better at what we are doing and to stay action-oriented. An Eaton Corporation

Planning is the process of setting

objectives and determining how to

accomplish them.

LEARN MORE

ABOUT

WWWhhy aaannd HHHoooww Maaannaggerrss PPlaanW

Organizing—

Planning—to set the direction

to create structures Leading—

to inspire effort

• Decide where you want to go • Decide how best to go about it

Controlling— to ensure results

• Measure performance • Take corrective action

FIGURE 8.1 Th e roles of planning and controlling in the management

process.

175Why and How Managers Plan

annual report, for example, once stated: “Planning at Eaton means making the hard deci-

sions before events force them upon you, and anticipating the future needs of the market

before the demand asserts itself.” 2

Th e Planning Process

Th e fi ve basic steps in the planning process are:

1. Defi ne your objectives—Identify desired outcomes or results in very specifi c ways. Know

where you want to go; be specifi c enough that you will know you have arrived when

you get there, or know how far off the mark you are at various points along the way.

2. Determine where you stand vis-à-vis objectives—Evaluate current accomplishments

relative to the desired results. Know where you stand in reaching the objectives; know

what strengths work in your favor and what weaknesses may hold you back.

3. Develop premises regarding future conditions—Anticipate future events. Generate

alternative “scenarios” for what may happen; identify for each scenario things that

may help or hinder progress toward your objectives.

4. Analyze alternatives and make a plan—List and evaluate possible actions. Choose the

alternative most likely to accomplish your objectives; describe what must be done to

follow the best course of action.

5. Implement the plan and evaluate results—Take action and carefully measure your

progress toward objectives. Follow through by doing what the plan requires; evaluate

results, take corrective action, and revise plans as needed.

Planning should focus attention on objectives and goals that are specifi c results or

desired outcomes. But the objectives and goals have to be good ones; they should push you

to achieve substantial and not trivial accomplishments. Jack Welch, former CEO of GE,

believed in what he called stretch goals—performance targets that we have to work extra

hard and really stretch to reach. 3 Do you agree that Welch’s concept of stretch goals adds real

strength to the planning process for both organizations and individuals?

It’s important not to forget the action side of planning. Th e process should always create

a realistic and concrete plan, a statement of action steps to be taken in order to accomplish

objectives and goals. Th ese steps must be clear and compelling, so that the all-important

follow-through takes place. Plans alone don’t deliver results; implemented plans do. Like

other decision making in organizations, the best planning includes the active participation

of those whose work eff orts will eventually determine whether or not the plans get put

successfully into action.

Objectives and goals are specifi c

results that one wishes to achieve.

Stretch goals are performance targets

that one must work extra hard and

stretch to reach.

A plan is a statement of intended

means for accomplishing objectives.

Should College Students Pick Majors Based on Possible Future Salaries?

One of the most important plans a college student ever makes is the choice of major. It

may not be the absolute key to career and life success, but it’s certainly an important

part of a college experience that should build personal skills and knowledge for

long-term accomplishments. Many students take out large loans to pay for their studies,

but diff erent majors command diff erent starting salaries. How many students have a

good plan for turning their choice of major into future career opportunities . . . and

quickly paying off their loans? One expert advises students to carefully consider these

planning questions: “Will your major and career choice allow you to meet your family

obligations? Will the ratio of your earnings to debt be something you can manage? Will

your major selection make you competitive in your career?”Sy d

a Pr

o d

uc tio

ns /S

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Issues&Trends

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176 CHAPTER 8 ■ Planning Processes and Techniques

It’s also important to remember that planning is not something managers do only on

occasion or while working alone in quiet rooms, free from distractions, and at scheduled

times. It is an ongoing process, enacted continuously while dealing with a busy work

setting fi lled with distractions, interpersonal dynamics, and ever-constant performance

pressures.

Benefi ts of Planning

Th e pressures organizations face come from many sources. Externally, these include chang-

ing social norms and ethical expectations, government regulations, uncertainties of a global

economy, new technologies, and the sheer cost of investments in labor, capital, and other

supporting resources. Internally, they include the quest for operating effi ciencies, new struc-

tures and technologies, alternative work arrangements, greater workplace diversity, and

concerns for work–life balance. As you would expect, planning under such conditions has a

number of benefi ts for both organizations and individuals.

Planning Improves Focus and Flexibility Good planning improves focus and fl exibility, both of which are important for performance

success. An organization with focus recognizes what it does best, understands the needs of

its customers, and knows how to serve customers well. An individual with focus knows

where he or she wants to go in a situation, career, and life in general. An organization

with fl exibility is willing and able to change and adapt to shifting circumstances without

losing focus, and operates with an orientation toward the future rather than the past.

An individual with fl exibility adjusts career plans to fi t new opportunities and constraints

as they arise.

Planning Improves Action Orientation Planning focuses attention on priorities and helps avoid the complacency trap—simply

being carried along by the fl ow of events. It is a way for people and organizations to stay

ahead of the competition and become better at what they are doing. Planning keeps the

future visible as a performance target and reminds us that the best decisions are often those

made before events force problems upon us.

Management consultant Stephen R. Covey points out that the most successful execu-

tives “zero in on what they do that ‘adds value’ to an organization.” 4 Instead of working on

too many things, they work on the things that really count. Covey says that good planning

makes managers more (1) results oriented—creating a performance-oriented sense of

direction; (2) priority oriented—making sure the most important things get fi rst atten-

tion; (3) advantage oriented—ensuring that all resources are used to best advantage; and

(4) change oriented—anticipating problems and opportunities so they can be dealt with

most eff ectively.

Planning Improves Coordination and Control Planning improves coordination.

5 Individuals, groups, and subsystems in organizations are

all engaged in multiple tasks and activities simultaneously. But their eff orts must also be

combined into meaningful contributions to the organization as a whole. Good plans pro-

mote coordination of the activities of employees and organizational subsystems so that

their accomplishments advance critical performance initiatives.

Planning that is done well facilitates control. Th e link between planning and controlling

begins when objectives and standards are set. Th ey make it easier to measure results and

take action to improve things as necessary. After launching a costly information technology

upgrade, for example, executives at McDonald’s realized that the system couldn’t deliver on

its promises. Th ey stopped the project, took a loss of $170 million, and refocused the fi rm’s

plans and resources on projects with more direct impact on customers. 6

Th e complacency trap is being carried

along by the fl ow of events.

177Why and How Managers Plan

Th is is how planning and controlling work closely together in the management process.

Without planning, control lacks objectives and standards for measuring how things are

going and identifying what could be done to make them go better. Without control, plan-

ning lacks the follow-through necessary to ensure that things work out as planned. With

both good planning and good control, it’s a lot easier to spot when things aren’t going well

and make the necessary adjustments.

Planning and Time Management

When Daniel Vasella was CEO of Novartis AG and responsible for operations spread

across 140 countries, he admitted to being calendar-bound and said: “I’m locked in by

meetings, travel and other constraints. . . . I have to put down in priority things I like to

do.” Kathleen Murphy is president of Fidelity Personal Investing. She’s also calen-

dar-bound, with conferences and travel booked well ahead. Meetings can be scheduled

When it comes to planning, one of the first things that often pops into mind is time. It is one of our most precious resources, and time management is an essential

career skill.

Some 77% of managers in one survey said that the digital age

has increased the number of decisions they have to make.

Forty-three percent said there was less time available to make

these decisions. Who hasn’t complained or heard others com-

plain, “Th ere are just not enough hours in the day to get every-

thing done”?

Don’t you wonder about the time you waste every day?—

instant messages, voice and text messages, drop-in visitors, surf-

ing the Web, and more? Of course, you have to be careful defi ning

what “waste” means to you. It isn’t a waste of time to occasionally

relax, take a break from work or school or just day-to-day activi-

ties, and fi nd pleasure in socializing. Breaks help us gather and

replenish our energy. But it is a waste to let friends dominate your

time so you don’t work on a class paper until it’s too late to write a

really good one, or delay a decision to apply for an internship until

the deadline has passed.

Time management is a form of planning that is consistently

rated one of the top “must-have” skills for new graduates entering

fast-paced and complicated careers in business and management.

Many of us, perhaps most of us, keep to-do lists. But it’s the rare

person who is consistently successful in living up to their list.

Planning can easily suff er the same fate as the to-do lists—it starts

with the best of intentions, but may end up with little or nothing

to show as to real results.

Can the “Checkup” shown here help you keep time manage-

ment on your side?

GET TO KNOW YOURSELF BETTER

Now is a good time to improve your planning capabilities. It’s a key management function and a critical life skill. Start by getting in touch with how you manage and use your time. Task 1—Keep a daily time log for at least two days, listing what you do and how long it takes. Then write up an analysis of where you seem to be wasting time and where you are using it well. Task 2—Complete the lists requested in the Time Management Checkup. Double-check List 1 “B” items and reclassify any that are really “As” or “Cs.” Look at your “As” and reclassify any that are really “Bs” or “Cs.” Write a priority to-do list for your day tomorrow. Also check your time wasters in List 2. Write down a plan to take charge of things that are controllable.

insight> LEARN ABOUT YOURSELF > It isn’t a waste of time to occasionally relax . . . it is a waste to let friends

dominate your time.

Time Management Unlocks Performance Capacity

Time Management Checkup

List 1—What I have to do tomorrow

(A) Most important, top priority—these are things

you must do.

(B) Important, not top priority—these are things you

should do.

you might do.

(D) Not important, no priority—these are things you

should not do.

Ask: Do my actions match the priorities?

List 2—Time wasters

(A) Th ings I can control—they won’t happen if I don’t

let them.

(B) Th ings I can’t control—they happen and I can’t do

anything about it.

Ask: Are you taking control where you can?

178 CHAPTER 8 ■ Planning Processes and Techniques

at half-hour intervals and workdays can

last 12 hours. She spends lots of time

traveling, but tries to make good use of

her time on planes. “No one can reach me

by phone,” she says, “and I can get reading

and thinking done.” 7

Th ese are common executive stories—

tight schedules, little time alone, lots of

meetings and phone calls, and not much

room for spontaneity. Th e keys to success in

such classic management scenarios rest, in

part at least, with another benefi t of good

planning—time management.

Check out the box with useful tips on developing time management skills. A lot of this

skill comes down to discipline and priorities. Lewis Platt, former chairman of Hewlett-

Packard, once said: “Basically, the whole day is a series of choices.” Th ese choices have to be

made in ways that allocate your time to the most important priorities. Platt says that he was

“ruthless about priorities” and that you “have to continually work to optimize your time.” 8

Most of us have experienced the diffi culties of balancing available time with our many

commitments and opportunities. As suggested in the chapter opener, it is easy to lose track

of time and fall prey to what consultants identify as “time wasters.” All too often we allow our

time to be dominated by other people or to be misspent on nonessential activities. 9 To-do

lists can help, but they have to contain the right things. In daily living and in management

situations, it is important to distinguish between things that you must do (top priority),

should do (high priority), would be nice to do (low priority), and really don’t need to do (no

priority).

1. Do say “No” to requests that divert you from what you really should be doing.

2. Don’t get bogged down in details that you can address later or leave for others.

3. Do have a system for screening telephone calls, e-mails, and requests for

meetings.

4. Don’t let drop-in visitors or instant messages use too much of your time.

5. Do prioritize what you will work on in terms of importance and urgency.

6. Don’t become calendar-bound by letting others control your schedule.

7. Do follow priorities and work on the most important and urgent tasks fi rst.

Personal Time Management Tips

Learning Check 1

TAKEAWAYQUESTION 1 Why and how do managers plan?

BE SURE YOU CAN • explain the importance of planning as the fi rst of four management functions • list the steps in the

formal planning process • illustrate the benefi ts of planning for an organization familiar to you • illustrate the benefi ts of

planning for your personal career development • list at least three things you can do now to improve your time management

Types of Plans Used by Managers TAKEAWAY 2 What types of plans do managers use?

Long-range and short range plans • Strategic and tactical plans Operational plans

“I am the master of my fate: I am the captain of my soul.” How often have you heard this

phrase? Th e lines are from “Invictus,” written by British poet William Earnest Henley in 1875.

He was sending a message, one of confi dence and control, as he moved forward into the

future. Th at notion, however, worries a scholar by the name of Richard Levin. His response

to Henley is: “Not without a plan you’re not.” 10

Managers use a variety of plans as they face diff erent kinds of challenges in organizations.

In some cases the planning environment is stable and predictable; in others, it is more

dynamic and uncertain. Diff erent situations call for diff erent types of plans.

Long-Range and Short-Range Plans

In the not-too-distant past long-term plans looked three or more years into the future,

while short-term plans covered one year or less. But, the increasing environmental

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Long-term plans typically look three

or more years into the future.

Short-term plans typically cover one

year or less.

TTTyyppeess of PPPlaaanns Ussseedd bby MMMMaanaaggeerssssT

179Types of Plans Used by Managers

complexity and dynamism of recent years has severely tested the concept of

“long-term” planning. Most executives would likely agree that these complexities

and uncertainties challenge how we actually go about planning and how far

ahead we can really plan. At the very least we can conclude that there is a lot less

permanency to long-term plans today and that they are subject to frequent

revisions.

Even though the time frames of planning may be shrinking, top management is

still responsible for setting longer-term plans and directions for the organization as a

whole. Th ey set the context for lower-level management to work on useful short-

terms plans. Unless everyone understands an organization’s long-term plans and

objectives, there is always risk that the pressures of daily challenges will divert atten-

tion from “important tasks.” Without a sense of long-term direction, employees can

end up working hard and still not achieve signifi cant—or mission-critical—results.

Management researcher Elliot Jaques believes that people vary in their capability

to think with diff erent time horizons. 11

In fact, he suggests that most people work

comfortably with only 3-month time spans; a smaller group works well with a 1-year

span; and only the very rare person can handle a 20-year time frame. Th ese are provocative

and personally challenging ideas. Although a team leader’s planning may fall primarily in the

weekly or monthly range, a chief executive is expected to have a vision extending years into

the future. Career progress to higher levels of management requires the conceptual skills to

work well with longer-range time frames.

Strategic and Tactical Plans

When a sports team enters a game, it typically does so with a “strategy” in hand. Most often

this strategy is set by the head coach in conjunction with assistant and position coaches.

Th e goal is clear: Win the game. As the game unfolds, however, situations arise that require

actions to solve problems or exploit opportunities. Th ey call for “tactics” that deal with a

current situation in ways that advance the overall strategy for winning. Th e same logic holds

true for organizations. Plans at the top of the traditional organizational pyramid tend to

have a strategic focus. Th ose at the middle and lower levels of the organization are more

tactical.

Strategic plans are focused on the organization as a whole or a major component. Th ey

are longer-term plans that set broad action directions and create a frame of reference for

allocating resources for maximum performance impact. Strategic plans ideally set forth the

goals and objectives needed to accomplish the organization’s vision in terms of mission or

purpose and what it hopes to be in the future.

Tactical plans are developed and used to implement strategic plans. Th ey specify how the

organization’s resources can be used to put strategies into action. In the sports context you

might think of tactical plans as having “special teams” or as “special plays” ready to meet a

particular threat or opportunity. Tactical plans in business often take the form of functional

plans that indicate how diff erent components of the enterprise will contribute to the over-

all strategy. Such functional plans might include:

• Production plans—dealing with work methods and technologies.

• Financial plans—dealing with money and capital investments.

• Facilities plans—dealing with physical space and work layouts.

• Logistics plans—dealing with suppliers and acquiring resource inputs.

• Marketing plans—dealing with selling and distributing goods or services.

• Human resource plans—dealing with and building a talented workforce.

Operational Plans

Operational plans guide behavior and describe what needs to be done in the short term to

support strategic and tactical plans. Th ey include both standing plans like policies and

A strategic plan identifi es long-term

directions for the organization.

A tactical plan helps to implement all

or parts of a strategic plan.

Functional plans indicate how diff er-

ent operations within the organization

will help advance the overall strategy.

An operational plan identifi es short-

term activities to implement strategic

plans.

3-month time frame

1-year time frame

20-year time frame

Very few

of us

Most of us

A few of us

Jaques’s Findings on Planning Horizons

A vision clarifi es the purpose of the or-

ganization and expresses what it hopes

to be in the future.

180 CHAPTER 8 ■ Planning Processes and Techniques

procedures that are used over and over again, and single-use plans like budgets that apply to

one specifi c task or time period.

Policies and Procedures A policy communicates broad guidelines for making decisions and taking action in spe-

cifi c circumstances. Organizations operate with lots of policies that set expectations for

many aspects of employee behavior. Typical human resource policies cover things like

employee hiring, termination, performance appraisals, pay increases, promotions, and dis-

cipline. For example, Judith Nitsch made sexual harassment a top priority when starting

her engineering-consulting business. 12

Nitsch defi ned a sexual harassment policy, took a

hard line on its enforcement, and appointed both a male and a female employee for others

to talk with about sexual harassment concerns.

Procedures describe specifi c rules for what actions are to be taken in various situations.

Th ey are stated in employee handbooks and often called SOPs—standard operating proce-

dures. Whereas a policy sets a broad guideline, procedures defi ne precise actions to be taken.

In the prior example, Judith Nitsch was right to establish a sexual harassment policy for her

fi rm. But, she should also put into place procedures that ensure everyone receives fair, equal,

and nondiscriminatory treatment under the policy. Everyone in her fi rm should know both

how to fi le a sexual harassment complaint and just how that complaint will be handled.

A policy is a standing plan that commu-

nicates broad guidelines for decisions

and action.

A procedure is a rule describing

actions that are to be taken in specifi c

situations.

Executive 1. “Career planning is more art than science. . . . None-theless, some form of plan can greatly enhance the evaluation of various opportunities and enable you to make better career de-

cisions. A career plan allows you to identify how to use your basic

strengths to maximum advantage, set major career objectives,

and establish immediate milestones to measure personal develop-

ment and advancement.”

Executive 2. “A career . . . is a series of accidental changes of job

and shifts of scenery on which you look back later, weaving

through the story retroactively some thread of logic that was

not visible at the time. If you try to carefully plan your life, the

danger is that you will succeed—succeed in narrowing your op-

tions and closing off avenues of adventure that cannot now be

imagined.”

Th ose in favor of tight career planning are likely to say: “You need

a plan to give yourself a sense of direction.” . . . “Having a career

objective is highly motivating.” . . . “Without a plan you’ll wander

and not accomplish much of anything.” Th ose against tight career

planning are likely to say: “How can you know today what the

future might off er?” . . . “If you are too tightly focused you won’t

spot unique opportunities.” . . . “We grow and change over time,

our career plans should too.”

YOUR TAKE?

Both executives are talking from experience and personal success. Is executive 1’s advice right for most people—careers should be carefully planned and then implemented step-by-step to achieve a long-term goal? Or is executive 2’s advice right for most people—careers are best built with fl exibility and sponta- neity to take advantage of opportunities that pop up along the way? How do these perspectives fi t with what we know about job markets and career directions today? Which position do you favor? Would you prefer to blend both perspectives to carve out your career pathway?

choices> THINK BEFORE YOU ACT > “If you try to carefully plan your life, the danger is that you will succeed—succeed in narrowing your

options and closing off avenues of adventure that cannot now be imagined.”

Keep Your Career Plan Tight and Focused . . . or Loosen Up?

181Types of Plans Used by Managers

Budgets Budgets are single-use plans that commit resources for specific time periods to activi-

ties, projects, or programs. Managers typically spend a fair amount of time bargaining

with higher levels to get adequate budgets to support the needs of their work units or

teams. They are also expected to achieve work objectives while keeping within allo-

cated budgets. Being “over budget” is generally bad, while coming in “under budget” is

generally good.

Managers deal with and use a variety of budgets. Financial budgets project cash fl ows and

expenditures; operating budgets plot anticipated sales or revenues against expenses;

nonmonetary budgets allocate resources like labor, equipment, and space. A fi xed budget

allocates an established amount of resources for a specifi c purpose, such as $50,000 for

equipment purchases in a given year. A fl exible budget allows resources to vary in proportion

with emergent levels of activity, such as having extra money available to hire temporary

workers when workloads exceed certain levels.

Because budgets link planned activities with the resources needed to accomplish them,

they are useful for activating and tracking performance. But budgets can get out of control,

creeping higher and higher without getting suffi cient critical reviews. In fact, one of the most

common budgeting problems is that resource allocations get “rolled over” from one time

period to the next without rigorous scrutiny; the new budget is simply an incremental

adjustment over the previous one. In a major division of Campbell Soups, for example, man-

agers once discovered that 10% of the marketing budget was going to sales promotions no

longer relevant to current product lines.

A zero-based budget deals with this rollover budget problem by approaching each

new budget period as it if were brand new. In zero-based budgeting there is no guarantee

that any past funding will be renewed; all proposals, old and new, must compete for

A budget is a plan that commits

resources to projects or activities.

A zero-based budget allocates

resources as if each budget were

brand new.

The press is quick to report when a top executive or public fi g-ure runs into trouble over an offi ce aff air. But the fact is that employer policies on offi ce relationships vary. One survey fi nds

the following.

■ 24%—prohibit relationships among employees in the same

department.

■ 13%—prohibit relationships among employees who have the

same supervisor.

■ 80%—prohibit relationships between supervisors and subordinates.

■ 5%—have no restrictions on offi ce romances.

■ New trend—“love contracts,” where employees pledge that their

romantic relationships in the offi ce won’t interfere with their work.

■ Small business caveat—it’s hard to separate dating and married

couples in small business settings. Th e CEO of a 30-person

e-commerce fi rm says, “At one point, exactly one third of the

whole workforce was married to or dating a co-worker.”

YOUR TAKE?

Do you know anyone who has been involved in an offi ce relation- ship? What is your thinking on this issue? Is this an area that employers should be regulating? Or should offi ce romances be left to the best judgments of those involved? After all, it’s their private business—isn’t it?

analysis> MAKE DATA YOUR FRIEND > Some employees sign “love contracts” saying offi ce relationships won’t interfere with their work.

Policies on Offi ce Romances Vary Widely

Allison Michael Orenstein/Getty Images

182 CHAPTER 8 ■ Planning Processes and Techniques

available funds at the start of each new budget cycle. What do you think? Does zero-

based budgeting make sense in government and other organizations that struggle to bal-

ance goals and available resources?

Learning Check 2

TAKEAWAYQUESTION 2 What types of plans do managers use?

BE SURE YOU CAN • diff erentiate between short-range and long-range plans • diff erentiate between strategic and operational

plans and explain how they relate to one another • defi ne policy and procedure and give examples of each in a university

setting • defi ne budget and explain how zero-based budgeting works

Planning Tools and Techniques TAKEAWAY 3 What are some useful planning tools and techniques?

Forecasting • Contingency planning • Scenario planning Benchmarking • Staff planning

Planning delivers the most benefi ts when its foundations are strong. Useful planning tools

and techniques include forecasting, contingency planning, scenario planning, benchmark-

ing, and staff planning.

Forecasting

What are top executives around the world thinking about as they make plans for the future?

Are they on top of the right trends? Planning in business and our personal lives often involves

forecasting, the process of predicting what will happen in the future. 13

Periodicals such as

Business Week, Fortune, and Th e Economist regularly report forecasts of industry conditions,

interest rates, unemployment trends, and national economies, among other issues. Some

are based on qualitative forecasting, which uses expert opinions to predict the future. Others

involve quantitative forecasting, which uses mathematical models and statistical analyses of

historical data and surveys to predict future events.

Although useful, all forecasts should be treated cautiously. Th ey are planning aids, not

substitutes. Forecasts rely on human judgment—and they can be wrong. It is said that a

music agent once told Elvis Presley: “You ought to go back to driving a truck, because you

ain’t going nowhere.” And when it came time to make the second pick in the 1984 NBA draft,

the Portland Trail Blazers chose Sam Bowie. Th e next-in-line Chicago Bulls used their third

pick to choose Michael Jordan.

Contingency Planning

Picture the scene: A professional golfer is striding down the golf course with an iron in each

hand. Th e one in her right hand is “the plan”; the one in her left is the “backup plan.” Which

club she uses will depend on how the ball lies on the fairway. One of her greatest strengths

is being able to adjust to the situation by putting the right club to work in the circumstances

she encounters.

Planning is often like that. By defi nition it involves thinking ahead. Th e more uncertain

the planning environment, the more likely it is that an original forecast or intention will turn

out to be inadequate or wrong. Th e golfer deals with this uncertainty by having backup clubs

available. Th is amounts to contingency planning—identifying alternative courses of action

that can be implemented if circumstances change. A really good contingency plan will even

contain “trigger points” to indicate when to activate preselected alternatives. In the face of

uncertainties, this can be an indispensable tool for managerial and personal planning.

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Forecasting attempts to predict the

future.

Contingency planning identifi es

alternative courses of action to take

when things go wrong.

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183Planning Tools and Techniques

Poor contingency planning was center stage when debates raged over how BP managed

the disastrous Deepwater Horizon oil spill in the Gulf of Mexico. Everyone from the public

at large to U.S. lawmakers to oil industry experts criticized BP not only for failing to contain

the spill quickly, but also for failing to anticipate and have contingency plans in place to

handle such an ecological crisis. 14

A BP spokesperson initially said—“You have here an unprecedented event . . . the unthink-

able has become thinkable and the whole industry will be asking questions of itself.”

An oil industry expert responded—“Th ere should be a technology that is preexisting and

ready to deploy at the drop of a hat. . . . It shouldn’t have to be designed and fabricated

now, from scratch.”

Former BP CEO Tony Hayward fi nally admitted—“Th ere are some capabilities that we

could have available to deploy instantly, rather than creating as we go.”

Th e lesson here is hard-earned but very clear. Contingency planning can’t prevent crises

from occurring. But when things do go wrong, there’s nothing better to have in place than

good contingency plans.

Scenario Planning

Scenario planning is a long-term version of contingency planning. It involves identifying

several possible future scenarios or states of aff airs and then making plans to deal with each

scenario should it actually occur. 15

In this sense, scenario planning forces us to think really

far ahead and to be open to a wide range of possibilities.

Th e scenario planning approach was developed years ago at Royal Dutch/Shell when top

managers asked themselves a perplexing question: “What would Shell do after its oil sup-

plies ran out?” Although recognizing that scenario planning can never be inclusive of all

future possibilities, a Shell executive once said that it helps “condition the organization to

think” and better prepare for “future shocks.”

Shell uses scenario planning to tackle such issues as climate change, sustainable develop-

ment, fossil-fuel alternatives, human rights, and biodiversity. Most typically it involves

descriptions of “worst cases” and “best cases.” With regard to diminishing oil supplies, for

example, a worst-case scenario might be that global confl ict and devastating eff ects on the

natural environment occur as nations jockey with one another to secure increasingly scarce

Scenario planning identifi es alternative

future scenarios and makes plans to

deal with each.

The Shift: The Future of Work Is Already Here (HarperBusiness UK, 2011)

by Lynda Gratton As a professor of management at the London Business School, Lynda Gratton is concerned

that students fail to understand the nature, pace, and complexity of forces that will shape the

future of work. Her book Th e Shift describes fi ve key forces. Th ese are technology (helpful but

time consuming), globalization (workers from everywhere compete for the same jobs),

demography (more people, less space), society (traditional communities under threat), and

energy resources (too few and shrinking). In the face of these forces, “What’s the worker to

do?” she asks. Th e answer is we can enter a bleak and default future or a bright and crafted

one. In order to work on the bright side in the future, she says, we must shift from “shallow

generalist to serial master” of things; shift from “isolated competitor to innovative connector”

in vast networks; and shift from “voracious consumer to impassioned producer” who worries

more about creating things than buying them. Are you ready for the shift?

RecommendedReading

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184 CHAPTER 8 ■ Planning Processes and Techniques

supplies of oil and other natural resources. A best-case scenario might be that governments

work together to fi nd pathways that take care of our resource needs while supporting the

search for sustainability of global resources. It’s anyone’s guess which scenario will material-

ize or if something else altogether will happen. But these words of former Shell CEO Jeroen

van der Veer highlight the value of the scenario planning process: “Th is will require hard

work and time is short.” 16

Benchmarking

Planners sometimes become too comfortable with the ways things are going and become

overconfi dent that the past is a good indicator of the future. It is often better to keep

Developing countries send $1001 billion in aid to poor coun-tries; private foundations and charities spend $701 billion more fi ghting poverty and its eff ects around the world. Th eir plans

and goals are praiseworthy, but is all of that money being well

spent, and to the greatest eff ect?

Not all of it is being well spent, that’s for sure. Th at’s one of the

problems being tackled by the Poverty Action Lab at the Massa-

chusetts Institute of Technology. Th e director, Abhijit Banerjee, a

development economist, says: “We aren’t really interested in the

more-aid-less-aid debate. We’re interested in seeing what works

and what doesn’t.” Th e lab criticizes “feel-good” approaches and

pushes for rigorous evaluations of poverty-fi ghting programs

using scientifi c methods. Here’s an example.

Th e Indian antipoverty group Seva Mandir was concerned

about teacher absenteeism and low performance by rural school

children. Its original plan was to pay extra tutors to assist teachers

in 120 rural schools. Th e Poverty Lab Plan suggested paying extra

tutors in 60 schools, making no changes in the other 60, and then

comparing outcomes to see if the plan worked. An evaluation of

results showed no diff erence in children’s performance, even with

the higher costs of extra tutors.

A new plan was made to buy cameras for 60 teachers, have

them take time/date-stamped photos with children at the start

and end of each school day, and have the photos analyzed each

month. Teachers would receive bonuses or fi nes based on their

absenteeism and student performance. Again, no changes were

made in the other 60 schools. Evaluation revealed that teacher

absenteeism was 20% lower and student performance was signifi -

cantly higher in the camera schools. With the Poverty Lab’s help,

Seva Mandir concluded that investing in closely monitored pay

incentives could improve teacher attendance in rural schools.

WHAT DO YOU THINK?

Look around your organization and at cases reported in the news. How often do we draw conclusions that “plans are work- ing” based on feel-good evaluations or anecdotal reports rather than solid scientifi c evaluations? What are the consequences at work and in society when plans are implemented at great cost, but without systematic, defensible systems for evaluation? Even if the objectives of a project are honorable, what ethical issues arise in situations where it isn’t clear that the project is having the intended benefi t?

ethics> KNOW RIGHT FROM WRONG > “We aren’t really interested in the more-aid-less-aid debate. We’re interested

in seeing what works and what doesn’t.”

What Really Works When Fighting World Poverty?

DIPTENDU DUTTA/AFP/Getty Images/NewsCom

185Implementing Plans to Achieve Results

challenging the status quo and not simply to accept things as they are. One way to do this is

through benchmarking—which is the use of external and internal comparisons to better

evaluate current performance and identify possible ways to improve for the future. 17

Th e purpose of benchmarking is to determine what other people and organizations are

doing very well, and then plan how to incorporate these ideas into one’s own operations. It

is basically a way of learning from the successes of others. One benchmarking technique is

to search for best practices—things people and organizations do that help them to achieve

superior performance.

Well-run organizations emphasize internal benchmarking that encourages members and

work units to learn and improve by sharing one another’s best practices. Th ey also use exter-

nal benchmarking to learn from competitors and non-competitors alike. Xerox, for example,

has benchmarked L.L. Bean’s warehousing and distribution methods, Ford’s plant layouts,

and American Express’s billing and collections. Ford benchmarked BMW’s 3 series. 18

And in

the apparel industry, the Spanish retailer Zara has become a benchmark for excellence in

“fast fashion.” 19

Staff Planning

As organizations grow, so do their planning challenges and so does the use of staff planners.

Th ese specialists are experts in all steps of the planning process, as well as in the use of plan-

ning tools and techniques. Th ey can help bring focus and expertise to a wide variety of plan-

ning tasks. But one risk is a tendency for a communication gap to develop between the staff

planners and line managers. Unless everyone works closely together, the resulting plans may

be based on poor information. Also, an organization’s employees may end up with little com-

mitment to implement the plans made by the staff , no matter how good they are.

Benchmarking uses external and

internal comparisons to plan for future

improvements.

Best practices are things people and

organizations do that lead to superior

performance.

Learning Check 3

TAKEAWAYQUESTION 3 What are some useful planning tools and techniques?

BE SURE YOU CAN • defi ne forecasting, contingency planning, scenario planning, and benchmarking • explain the benefi ts of

contingency planning and scenario planning • describe pros and cons of using staff planners

Implementing Plans to Achieve Results TAKEAWAY 4 How can plans be well implemented?

Goal setting • Goal alignment • Goal management • Participation and involvement

In a book entitled Doing What Matters, Jim Kilts, the former CEO of Gillette, quotes an old

management adage: “In business, words are words, promises are promises, but only perfor-

mance is reality.” 20

Th e same applies to plans. Th ey are, we might say, words with promises

attached. Th ese promises are only fulfi lled when plans are implemented so that their pur-

poses are achieved. And, the foundations for successful implementation are set with the

planning processes of goal setting, goal alignment, and participation and involvement.

Goal Setting

Although most of us are aware of the importance of goal setting in management, we may

mistakenly think that goal setting is an easy thing to accomplish. Th e reality is that how

goals are set can have a big impact on how well they function as performance targets and

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IImmmmmmpppllleeemmmmmmeeennnnttiiinnnngg PPPPllaaannss ttoo AAAAchhieeevee RRResuuuulttsn

186 CHAPTER 8 ■ Planning Processes and Techniques

motivators. Th ere’s a signifi cant diff erence between having “no

goals” or even just everyday run-of-the-mill “average goals,” and

having really “great goals” that inspire eff ort and result in plans

being successfully implemented.

Great goals—think SMART goals—tend to have the fi ve charac-

teristics shown in the small fi gure. Th ey are specifi c—clearly

targeted key results and outcomes to be accomplished. Th ey are

measurable—described so results can be measured without ambi-

guity. Th ey are attainable—include a challenging stretch factor

while still being realistic and possible to achieve. Th ey are relevant—

focused on important results, not just on activities or eff ort

expended. And they are timely—linked to specifi c timetables and

“due dates.”

One of the more diffi cult aspects of goal setting is making per-

formance objectives as measurable as possible. It’s best to achieve agreement on a measur-

able end product—for example, “to reduce travel expenses by 5% by the end of the fi scal year.”

But performance in some jobs, particularly managerial positions, can be hard to quantify.

Rather than abandon the quest for a good objective in such cases, it is often possible to agree

on verifi able work activities. Th eir accomplishment serves as an indicator of performance

progress. An example is “to improve communications with my team in the next three

Having grown up poor, Oprah Winfrey says she is grateful for getting a good education, calling it “the most vital aspect of my life.” She’s now sharing that lesson through the Oprah Winfrey

Leadership Academy for young women in South Africa.

When the academy opened Winfrey said: “I wanted to give this

opportunity to girls who had a light so bright that not even poverty

could dim that light.” Her goal was for the new academy to “be the

best school in the world.”

Nelson Mandela, fi rst president of non-apartheid South Africa,

spoke at the opening ceremony and praised her vision. “Th e key to

any country’s future is in educating its youth,” said Mandela.

“Oprah is therefore not only investing in a few young individuals,

but in the future of our country.” One of the fi rst students said: “I

would have had a completely diff erent life if this hadn’t happened

to me.”

Even the best intentions couldn’t guarantee that every-

thing would go according to Winfrey’s plan. Not long after the

academy launched, it was hit by scandal over alleged abuse of

students by a dorm matron. Oprah quickly apologized to the

students and their families, and rededicated herself to the

school.

“I think that crisis is there to teach you about life,” she said.

“Th e school is going to be even better because that happened.”

FIND THE INSPIRATION

In what ways do Oprah’s objectives for the leadership academy refl ect her life and past experiences? Can you make plans that will include social contributions in the future? Are you adaptable in your plans as Oprah appears to be, or more fi xed? What are the implications of your approach for your professional and per- sonal goals, and what you accomplish?

wisdom> LEARN FROM ROLE MODELS > “I wanted to give this opportunity to girls who had a light so bright that not even

poverty could dim that light.”

Oprah Thinks Now and Embraces the Future

HO/REUTERS/Newscom

Specific Desired outcomes

clear to anyone

Attainable Challenging,

but realistic to accomplish

Timely Linked to due

dates and timetable

Measurable No doubt when accomplished,

or missed

Relevant Focused on

important results

Great Goals

187Implementing Plans to Achieve Results

months by holding weekly team meetings.” Whereas it can be diffi cult to measure “improved

communications,” it is much easier to document whether the “weekly team meetings” have

been held.

Goal Management

Scandal—Th e Ohio state auditor charged that teachers and principals in the Columbus

school district were pressured to change student test scores and attendance rosters in

order to improve the district’s performance scorecard on goals that aff ected state fund-

ing. Failing grades were changed to passing for at least 7,000 students. 21

Scandal—An internal audit of the U.S. Department of Veterans Aff airs system charged

that managers covered up long appointment waiting times and used bogus lists in order

meet tight scheduling goals and receive personal bonuses. More than 120,000 veterans

failed to get care, and at least 23 died awaiting treatment. 22

It isn’t enough to set smart goals with and for others, and for yourself—the goals and the

quest for their accomplishment must also be well managed. Th e fact is that goals can have

a “dark” as well as positive side. 23

Look again at the scandals just reported. Th e ethics and

performance failures in both cases were linked in part to unrealistic goals tied to perfor-

mance rewards. In the Ohio school district, the teachers and principals—not the students—

became the cheaters. In the VA scandal, the audit report described the negative eff ects of

unrealistic goals set for patient waiting times this way: “Imposing this expectation on the

fi eld before ascertaining the resources required and its ensuing broad promulgation repre-

sent an organizational leadership failure . . . pressures were placed on schedulers to utilize

unoffi cial lists or engage in inappropriate practices in order to make waiting times appear

more favorable.” 24

Researchers point out that goals can have negative consequences when they are set

unrealistically high, when individuals are expected to meet high goals over and over

again, and when people striving to meet high goals aren’t given the support they need to

build abilities and learn what is needed to accomplish them. 25

The downsides of poorly

managed stretch goals include high stress for the goal seeker, poor performance results,

and possible unethical or illegal behavior. Good management of goal setting helps to

avoid such problems. Scholars Gary Latham and Gerard Seijts point out that it is

important to distinguish between learning goals that create the knowledge and skills

required for performance and outcome goals that set targets for actual performance

results. If outcome goals are emphasized at the expense of learning goals that are pre-

requisite to them, undesirable effects are likely. Latham and Seijts say: “It is foolish and

even immoral for organizations to assign employees stretch goals without equipping

them with the resources to succeed—and still punish them when they fail to reach

those goals. This lack of guidance often leads to stress, burnout, and in some instances,

unethical behavior.” 26

Goal Alignment

It is one thing to set great goals, make them part of a plan, and then manage and support

them well. It is an entirely diff erent thing to make sure goals and plans are well integrated

across many people, work units, and levels of an organization as a whole. Goals set every-

where in the organization should ideally help advance its overall mission or purpose. Yet, we

sometimes work very hard to accomplish things that simply don’t make much of a diff erence

in organizational performance. Th is is why goal alignment is an important part of manage-

rial planning.

Figure 8.2 shows how a hierarchy of goals or hierarchy of objectives helps with goal

alignment. When such a hierarchy is well defi ned, the accomplishment of lower-level goals

and objectives provides the foundation for the accomplishment of higher-level goals and

objectives. Th e example in the fi gure is built around quality goals in a manufacturing setting.

Strategic goals set by top management cascade down the organization step by step to

Learning goals set targets to create

the knowledge and skills required for

performance.

Outcome goals set targets for actual

performance results.

In a hierarchy of goals or hierarchy

of objectives, lower-level goals and

objectives support accomplishment of

higher-level goals and objectives.

188 CHAPTER 8 ■ Planning Processes and Techniques

become quality management objectives for lower levels. Everything ideally works together in

a consistent “means–end” fashion so that the organization consistently performs as “the

world’s number one supplier of recyclable food containers.”

Conversations between team leaders and team members or between supervisors and

subordinates at each step in the hierarchy are essential to achieving goal alignment. Th e

conversations should result in agreement on: (1) performance objectives for a given time

period, (2) plans through which objectives will be accomplished, (3) standards for measuring

whether objectives have been accomplished, and (4) procedures for reviewing perfor-

mance results. Th is process is sometimes called management by objectives (MBO), but in

reality it is just old-fashioned good management. 27

Serve the world as the number one supplier of recyclable food containers.

Firm Deliver error-free products meeting customer requirements 100% of the time.

Manufacturing Division 100% on-time production of error-free products.

Plant Increase error-free product acceptance rate by 16%.

Shift Supervisor Assess machine operator skills and train for error-free production.

Mission and Purpose

Lower Management Objective

Middle Management Objective

Senior Management Objective

Top Management Objective

FIGURE 8.2 Goal alignment in a sample hierarchy of objectives.

Set objectives Set standards Choose actions

Jointly plan

Perform tasks (member) Provide support (leader)

Individually act

Review results Discuss implications Renew cycle

Jointly control

Goal Alignment Between Team Leader and Team Member

Participation and Involvement

Planning is a process and not an event. And “participation” and “involvement” are two of its

core components. Participatory planning includes in all planning steps the people who

will be aff ected by the plans and asked to help implement them. One of the things that

research is most clear about is that when people participate in setting goals, they gain moti-

vation to work hard to accomplish them. 28

Th is power of participation is unlocked in plan-

ning when people who are involved in the process gain commitment to work hard and

support the implementation of plans.

Figure 8.3 shows the role of participation and involvement in the planning process.

Notice that participation can and should be engaged in all planning steps. Th ink of it

using the metaphor of a big kitchen table. Everyone from family members to guests sits

Participatory planning includes the

persons who will be aff ected by plans

and/or those who will implement them.

189Implementing Plans to Achieve Results

around the table and enjoys the meal while joining in the conversation. Th e same can

happen with planning, if the manager invites others to the table. When he or she does,

the conversation focuses on defi ning objectives, assessing the present and potential

future state of aff airs, identifying action alternatives, and discussing implementation

successes and failures.

Th ere are many benefi ts when and if this participatory planning approach is followed in

practice. Participation can increase the creativity and information available for planning. It

can also increase the understanding and acceptance of plans, as well as commitment to

their success. Even though participatory planning takes more time, it can improve perfor-

mance results by improving both the quality of the plans that are made and the eff ectiveness

of their implementation.

FIGURE 8.3 How participation and involvement help build commitment to plans.

Build commitments to plans by

allowing others to participate and

be involved at all steps in the

planning process

Identify action alternatives

and make plans

Define planning

objectives

Develop premises regarding

future conditions

Implement plans and

evaluate results

Determine where things stand

vis-à-vis objectives

Learning Check 4

TAKEAWAYQUESTION 4 How can plans be well implemented?

BE SURE YOU CAN • list the criteria of great goals • describe the value of a hierarchy of objectives • give examples of

improvement and personal development objectives • explain how goal alignment can take place between a team leader and

team members

190 CHAPTER 8 ■ Planning Processes and Techniques

Summary

TAKEAWAYQUESTION 1 Why and how do managers plan?

• Planning is the process of setting performance objectives and determining what should be done to accomplish them.

• A plan is a set of intended actions for accomplishing important goals and objectives.

• Five steps in the planning process are: (1) Defi ne your objectives, (2) determine where you stand vis-à-vis your objectives, (3) develop your premises regarding future conditions, (4) identify and choose among alternative ways of accomplishing objectives, and (5) implement action plans and evaluate results.

• The benefi ts of planning include better focus and fl exibility, action orientation, coordination, control, and time management.

FOR DISCUSSION Which step in the planning process is likely to cause the most difficulties for managers?

TAKEWAYQUESTION 2 What types of plans do managers use?

• Short-range plans tend to cover a year or less; long-range plans extend up to three years or more.

• Strategic plans set critical long-range directions; operational plans are designed to implement strategic plans.

• Policies, such as a sexual harassment policy, are plans that set guidelines for the behavior of organizational members.

• Procedures and rules are plans that describe actions to be taken in specifi c situations, such as the steps to be taken when persons believe they have been subjected to sexual harassment.

• Budgets are plans that allocate resources to activities or projects.

FOR DISCUSSION Is there any real value to long-term planning in today’s rapidly changing environment?

TAKEWAYQUESTION 3 What are some useful planning tools and techniques?

• Forecasting, which attempts to predict what might happen in the future, is a planning aid but not a planning substitute.

• Contingency planning identifi es alternative courses of action that can be implemented if and when circumstances change.

• Scenario planning analyzes the implications of alternative versions of the future.

• Planning through benchmarking utilizes external and internal comparisons to identify best practices for possible adoption.

• Staff planners with special expertise are often used to assist in the planning process, but the risk is a lack of involvement by managers and others who must implement the plans.

FOR DISCUSSION Shouldn’t all plans be supported by contingency plans?

TAKEWAYQUESTION 4 How can plans be well implemented?

• Great or SMART goals are specifi c, measurable, attainable, relevant, and timely.

• Goals can have negative consequences, including unethical or illegal behavior, when they are poorly managed and set unrealistically high.

• A hierarchy of objectives helps to align goals from top to bottom in organizations.

• Goal alignment is facilitated by a participative process that clarifi es performance objectives for individuals and teams and identifi es support that can and should be provided by managers.

• Participation and involvement open the planning process to valuable inputs from people whose efforts are essential to the effective implementation of plans.

FOR DISCUSSION Given its potential advantages, why isn’t goal alignment a characteristic of all organizations?

Management Learning Review Get Prepared for Quizzes and Exams

191Self-Test 8

Multiple-ChoiceQuestions 1. Planning is the process of _____________ and

_____________. (a) developing premises about the future, evaluating them (b) measuring results, taking corrective action (c) measuring past performance, targeting future

performance (d) setting objectives, deciding how to accomplish them

2. The benefi ts of planning include _____________. (a) improved focus (c) more accurate forecasts (b) lower labor costs (d) higher profi ts

3. In order to help implement its corporate strategy, a business fi rm would likely develop a _____________ plan for the marketing department. (a) functional (c) production (b) single-use (d) zero-based

4. _____________ planning identifi es alternative courses of action that can be taken if and when certain situations arise. (a) Zero-based (c) Strategic (b) Participative (d) Contingency

5. The fi rst step in the control process is to _____________. (a) measure actual performance (b) establish objectives and standards (c) compare results with objectives (d) take corrective action

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

7. When a manager is asked to justify a new budget proposal on the basis of projected activities rather than past practices, this is an example of _____________ budgeting. (a) zero-based (c) fi xed (b) variable (d) contingency

8. One of the benefi ts of participatory planning is _____________. (a) reduced time for planning (b) less need for forecasting (c) greater attention to contingencies (d) more commitment to implementation

9. The ideal situation in a hierarchy of objectives is that lower-level plans become the _____________ for accomplishing higher-level plans. (a) means (c) scenarios (b) ends (d) benchmarks

10. When managers use the benchmarking approach to planning, they _____________. (a) use fl exible budgets (b) identify best practices used by others (c) are seeking the most accurate forecasts that are

available (d) focus more on the short term than the long term

11. One of the problems in relying too much on staff planners is _____________. (a) a communication gap between planners and

implementers (b) lack of expertise in the planning process (c) short-term rather than long-term focus (d) neglect of budgets as links between resources and

activities

12. The planning process isn’t complete until _____________. (a) future conditions have been identifi ed (b) stretch goals have been set (c) plans are implemented and results evaluated (d) budgets commit resources to plans

13. When a team leader is trying to follow an approach known as management by objectives, who should set a team member’s performance objectives? (a) the team member (b) the team leader (c) the team leader and team member (d) the team member, the team leader, and a lawyer

14. A good performance objective is written in such a way that it _____________. (a) has no precise timetable (b) is general and not too specifi c (c) is almost impossible to accomplish (d) can be easily measured

15. Which type of plan is used to guide resource allocations for long-term advancement of the organization’s mission or purpose? (a) tactical (b) operational (c) strategic (d) functional

Short-ResponseQuestions 16. List fi ve steps in the planning process and give examples

of each. 17. How might planning through benchmarking be used by

the owner of a local bookstore? 18. How does planning help to improve focus? 19. Why does participatory planning facilitate

implementation?

EssayQuestion 20. Put yourself in the position of a management trainer.

You have been asked to make a short presentation to the local Small Business Enterprise Association at its biweekly luncheon. The topic you are to speak on is “How Each of You Can Use Objectives to Achieve Better Planning and Control.” What will you tell them and why?

Self-Test 8

192 CHAPTER 8 ■ Planning Processes and Techniques

Evaluate Career Situations

What Would You Do?

1. Th e Planning Retreat

It’s been a bit over two years since your promotion to division

manager. You’re now accountable for delivering about 10%

of your fi rm’s total revenues, and oversee more than 100

people working in fi ve diff erent departments. Th is year you’d

like to make the annual planning retreat really valuable to

everyone. All managers from team leaders to functional

heads will be present. You will have them off site for a full

day. What goals will you state for the retreat in the e-mail

you send out with the retreat agenda? Knowing the steps in

the planning process, what will the retreat agenda look like,

and why?

2. Sexual Harassment

One of the persons under your supervision has a “possible”

sexual harassment complaint about the behavior of a co-

worker. She says that she understands the organization’s sex-

ual harassment policy, but the procedures are not clear. You’re

not clear, either, and take the matter to your boss. She tells

you to draft a set of procedures that can be taken to top man-

agement for approval. What procedures will you recommend

so that sexual harassment complaints like this one can be

dealt with in a fair way?

3. Getting “Buy In”

A consulting fi rm has been hired to help write a strategic plan

for your organization. Th e plan would be helpful, but you are

worried about getting buy-in from all members, not just those

at the top. What conditions can you set for the consultants so

that they not only provide a solid strategic plan, but also cre-

ate strong commitments to implementing it from members

of your organization?

Refl ect on the

Self-Assessment

Time Management Profi le

Instructions Complete the following questionnaire by indicating “Y” (yes)

or “N” (no) for each item. Be frank and allow your responses to

create an accurate picture of how you tend to respond to these

kinds of situations.

1. When confronted with several items of urgency and

importance, I tend to do the easiest fi rst.

2. I do the most important things during that part of the day

when I know I perform best.

3. Most of the time I don’t do things someone else can do;

I delegate this type of work to others.

4. Even though meetings without a clear and useful purpose

upset me, I put up with them.

5. I skim documents before reading and don’t fi nish any that

off er little value for my time.

6. I don’t worry much if I don’t accomplish at least one

signifi cant task each day.

7. I save the most trivial tasks for that time of day when my

creative energy is lowest.

8. My workspace is neat and organized.

9. My offi ce door is always “open”; I never work in complete privacy.

10. I schedule my time completely from start to fi nish every

workday.

11. I don’t like to-do lists, preferring to respond to daily events

as they occur.

12. I block out a certain amount of time each day or week that

is dedicated to high-priority activities.

Scoring Count the number of “Y” responses to items 2, 3, 5, 7, 8, 12. Enter

that score here [ ]. Count the number of “N” responses to items

1, 4, 6, 9, 10, 11. Enter that score here [ ]. Add the two scores

together here [ ].

Self-Assessment Interpretation Th e higher the total score, the more closely your behavior

matches recommended time management guidelines. Reread

those items where your response did not match the desired

response. Why don’t they match? Do you have reasons why

your behavior in this instance should be diff erent from the

recommended time management guideline? Th ink about what

you can do to adjust your behavior to be more consistent with

these guidelines.

Contribute to the

Team Exercise

Personal Career Planning

Instructions Part 1—Complete the following activities as an individual

assignment. Part 2—Share your results with your team. Part 3—

Prepare a team summary of member’s career plans and present

it for discussion with the class and instructor.

ManagementSkills& Competencies Make yourself valuable!

193Analyze the Case Study

Activity 1 Strengths and Weaknesses Inventory Diff erent

occupations require special talents, abilities, and skills. Each

of us, you included, has a repertoire of existing strengths and

weaknesses that are “raw materials” we presently off er a po-

tential employer. Actions can (and should!) be taken over

time to further develop current strengths and to turn weak-

nesses into strengths. Make a list identifying your most im-

portant strengths and weaknesses in relation to the career

direction you are likely to pursue after graduation. Place a *

next to each item you consider most important to focus on

for continued personal development.

Activity 2 Five-Year Career Objectives Make a list of three

career objectives that you hope to accomplish within fi ve

years of graduation. Be sure they are appropriate given your

list of personal strengths and weaknesses.

Activity 3 Five-Year Career Action Plans Write a specifi c ac-

tion plan for accomplishing each objective. State exactly

what you will do, and by when, in order to meet these objec-

tives. If you will need special support or assistance, identify it

and state how you will obtain it. An outside observer should

be able to read your action plan for each objective and end up

feeling confi dent that he or she knows exactly what you are

going to do and why.

Manage a Critical Incident

Policy on Paternity Leave

for New Dads

As the Human Resource Director for a medium-sized business

with 800 employees, you’ve been asked by the CEO to draft a

paternity leave policy. At present new moms get up to 8 weeks

off with pay and an option for another 4 without pay. New

dads are informally allowed to take up to a week off . After

doing some research, you fi nd that about 85% of new dads

take one or two weeks off with the birth of a new child. But few

new dads take more than that, even when it’s available,

because of a variety of worries about their careers and job

security. 29

Questions What is your plan for drafting this new paternity leave policy?

How will you go about getting good information and making

sure the new policy is a good fi t with your organization and its

employees? What is your plan for making sure that new dads

take full advantage of the new policy and aren’t afraid to use it

because of job and career concerns? In short, you need to not

only develop the new policy but make sure it is accepted by all of

the stakeholders aff ected by the policy.

Collaborate on a

Team Activity

Th e Future Workplace

Instructions Form groups as assigned by the instructor. Brainstorm to de-

velop a master list of the major characteristics you expect to fi nd

in the workplace in the year 2020. Use this list as background for

completing the following tasks:

1. Write a one-paragraph description of what the typical

“Workplace 2020” manager’s workday will be like.

2. Draw a “picture” representing what the “Workplace 2020”

organization will look like.

3. Summarize in list form what you consider to be the major

planning implications of your future workplace scenario for

management students today. Th at is, explain what this means

in terms of using academic and extracurricular activities to

best prepare for success in this future scenario.

4. Choose a spokesperson to share your results with the class as

a whole and explain their implications for the decisions most

likely to lead to professional success for the members of the

class.

AnalyzeTHE CaseStudy

WALGREENS

Staying One Step Ahead Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

“We are sorry.”

Post on Target website after up to 110 million credit cards and their personal data were stolen by hackers in a major data breach.

Control

Processes

and Systems What gets measured happens

9 C H A P T E R Q U I C K STA RT

Facts are informative and measurement helps keep us on target. Why, then, are we

so often late to the party when it comes to exercising good control in our jobs and

personal lives? We miss deadlines, we default on commitments, and we disappoint

ourselves and others. Th ere is a lot to learn about making control a personal asset,

something that helps improve our performance as well as the performance of our

teams and organizations.

Key Takeaways

■ Identify the types of

controls used by managers

and the reasons for them.

■ List and describe the steps

in the control process.

■ Explain the use of

common control tools and

techniques.

195

MANAGEMENT IS REAL MAKE DATA YOUR FRIEND

Those Small Distractions Can Be Goal Killers

THINK BEFORE YOU ACT

Some Parents Pay Their Kids for Good Grades

KNOW RIGHT FROM WRONG

Global Censorship of Search and Social Media

LEARN ABOUT YOURSELF

Resiliency Offers Strength from Within

LEARN FROM ROLE MODELS

Bill Gates Calls for Better Measurement to Solve Social Problems

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Internal/External Control

■ CONTRIBUTE To the Class Exercise: After Meeting/Project Remorse

■ MANAGE A Critical Incident: High Performer but Late for Work

■ COLLABORATE On the Team Project: Building a Balanced Scorecard

■ ANALYZE Th e Case Study: Electronic Arts: Inside Fantasy Sports

what to look for inside >

196 CHAPTER 9 ■ Control Processes and Systems

K eeping in touch . . . staying informed . . . being in control: Th ese are

important responsibilities for every manager. But “control” is a word

like “power.” If you aren’t careful when and how it’s used, just the thought of

it carries a negative connotation. Yet, control plays a positive and necessary

role in everyday living and in the management process. Having things “under

control” helps to get things done; when things are “out of control” it is gener-

ally more diffi cult.

Nike and Target are high-profi le companies with diff erent control stories.

At Nike the story is positive. Th e fi rm’s stylish shoes are made by innovative

micro-level precision engineering that is great for controlling costs of mate-

rials, time, and labor. 1 At Target the story is negative. Th e fi rm experienced a

massive data security breach that resulted in loss of some 110 million credit

card registries with personal data to cyber hackers, and cost the CEO his

job. 2 What lies behind these diff erent control stories? Are management prac-

tices just better and more sophisticated at Nike? Did Target executives lack

suffi cient technology expertise to put the right control systems into place?

Why and How Managers Control TAKEAWAY 1 Why and how do managers exercise control?

Th e importance of controlling • Types of controls • Internal and external control

Control is important for the success of any organization, and we practice a lot of control

quite naturally. Th ink of the things you do for fun—playing golf or tennis or Frisbee, reading,

dancing, driving a car, or riding a bike. Th rough activities such as these you’ve already

become quite expert in the control process. How? Most probably by having an objective in

mind, always checking to see how well you are doing, and making continuous adjustments

to get it right.

Importance of Controlling

Th e management function of planning involves setting goals and making plans. It is closely

linked with controlling, the process of measuring performance and making sure that plans

turn out as intended. And, information is the foundation of control. Henry Schacht, former

CEO of Cummins Engine Company and also of Lucent Technologies, linked control to what

he called “friendly facts.” He stated: “Facts that reinforce

what you are doing are nice, because they help in terms of

psychic reward. Facts that raise alarms are equally friendly,

because they give you clues about how to respond, how to

change, where to spend the resources.” 3

Figure 9.1 shows how controlling fi ts in with the other

management functions. Planning sets the direction and

the parameters for resource allocation. Organizing brings

people and material resources together in working combi-

nations. Leading inspires people to best utilize these

resources. Controlling makes sure that the right things

happen, in the right way, and at the right time. It’s a way of

ensuring that performance is consistent with plans and

that accomplishments throughout a team or organization

are coordinated in a means–ends fashion.

LEARN MORE

ABOUT

Controlling is the process of measuring

performance and taking action to ensure

desired results.

Organizing—

Planning—to set the direction

to create structures Leading—

to inspire effort

• Decide where you want to go • Decide how to best go about it

Controlling— to ensure results

• Measure performance • Take corrective action

FIGURE 9.1 Th e role of controlling in the management process.

WWWhhy aaannd HHHoooww Maaannaggerrss CConntrrrollllW

197Why and How Managers Control

One of the great benefi ts of eff ective control is organizational learning. Consider, for

example, the program of after-action review pioneered by the U.S. Army and now used in

many corporate settings. It is a process for a structured review of lessons learned and results

accomplished in a completed project, task force assignment, or special operation. Partici-

pants answer questions such as: “What was the intent?” “What actually happened?” “What

did we learn?” 4 Th e after-action review helps make continuous improvement a shared norm.

It encourages those involved to take responsibility for how they acted, what they achieved,

and how they can be more eff ective in the future. Th e end-of-chapter team exercise is

modeled on this approach.

Types of Controls

Th e open-systems perspective shown in Figure 9.2 is one of the best ways to understand

control. It shows how feedforward, concurrent, and feedback controls are linked with diff er-

ent phases of the input–throughput–output cycle. 5 Th e use of each of these control types

increases the likelihood of high performance.

Feedforward Controls Feedforward controls, also called preliminary controls, take place before a work activity

begins. Th ey ensure that objectives are clear, that proper directions are established, and that

the right resources are available to accomplish the objectives. Th e goal is to solve problems

before they occur by asking an important but often neglected question: “What needs to be

done before we begin?”

Feedforward controls are preventive in nature. Managers using them take a forward-

thinking and proactive approach to control. At McDonald’s, for example, preliminary control

of food ingredients plays an important role in the fi rm’s quality program. Th e company

requires that suppliers of its hamburger buns produce them to exact specifi cations, covering

everything from texture to uniformity of color. Even in overseas markets, the fi rm works hard

to develop local suppliers that can off er dependable quality. 6

Concurrent Controls Concurrent controls focus on what happens during the work process. Sometimes called

steering controls, they make sure objective-focused actions are executed according to plan.

You can also think of this as control through direct supervision. In today’s increasingly com-

plex virtual world, that supervision is as likely to be computer driven as face-to-face. Picture

this scene at the Hyundai Motors headquarters in Seoul, South Korea, in what the fi rm calls

its Global Command and Control Center. 7

With dozens of computer screens relaying video and data, it [the Global Command and

Control Center] keeps watch on Hyundai operations around the world. Parts shipments

are traced from the time they leave the supplier until they reach a plant. Cameras peer

into assembly lines from Beijing to Montgomery and keep a close watch on Hyundai’s

giant Ulsan, Korea, plant, the world’s largest integrated auto factory.

An after-action review is a systematic

assessment of lessons learned and

results accomplished in a completed

project.

Feedforward control ensures that

directions and resources are right

before the work begins.

Concurrent control focuses on what

happens during the work process.

Feedforward Controls

Ensure the right directions are set and the right resource

inputs are available

Concurrent Controls

Ensure the right things are being done as part of workflow operations

Feedback Controls

Ensure that final results are up to desired standards

Work Inputs Work OutputsWork Throughputs

Solve problems before they occur

Solve problems while they are occurring

Solve problems after they occur

FIGURE 9.2 Feedforward, concurrent, and feedback

controls.

198 CHAPTER 9 ■ Control Processes and Systems

Th e goal of concurrent controls is to solve problems as they emerge. Th e key question is,

“What can we do to improve things right now?” In the Hyundai example, operations are

monitored and business intelligence is gathered in real time using sophisticated informa-

tion systems that help managers to quickly spot and correct any problems in the manufac-

turing cycle. Th e same kind of process intervention also happens at McDonald’s, but there,

concurrent control takes place face to face. Ever-present shift leaders constantly observe

what is taking place in the unit as a whole, while helping out with the work necessary to

keep the unit running. Th ey are trained to intervene immediately when something is done

improperly and to correct things on the spot.

Feedback Controls Feedback controls, also called post-action controls, take place after work is completed. Th ey

focus on the quality of end results rather than on inputs and activities. Feedback controls are

largely reactive; the goals are to solve problems after they occur and to prevent future prob-

lems from occurring. Th ey ask the question: “Now that we are fi nished, how well did we do?”

We are all familiar with feedback controls and probably recognize their weak points from

a customer service perspective. Restaurants often ask how you liked a meal after it is eaten;

course evaluations tell instructors how well they performed after the course is over; a bud-

get summary identifi es cost overruns after a project is completed. Such feedback about mis-

takes that have already been made may not enable their immediate correction, but it can

help to improve performance in the future.

Internal and External Control

Managers have two broad options with respect to control systems. First, they can trust

and expect people to control their own behavior. Th is puts priority on internal or self-control.

Feedback control takes place after an

action is completed.

Managing is a lot like parenting, and allocating rewards isn’t easy in either situation. What about children and their school grades? How often have you heard someone say: “We pay

for ‘A’s’?” Perhaps you’ve heard or said it yourself, or plan to do it

when you’ve got kids in school. But is this the correct thing to do?

Can paying for grades improve parental control over children’s

study habits and academic performance?

Th ose in favor of paying for grades are likely to say: “It gets the

kid’s attention” . . . “It motivates them to study more” . . . “It gets

them ready for work where pay and performance go together.”

Th ose against the practice are likely to say: “Once they get paid for

A’s, they’ll be studying for fi nancial gain, not real learning” . . . “It

hurts those who work hard but still can’t get the high grades” . . . “If

there’s more than one child in the family, it’s unfair if they don’t all

get rewards.”

YOUR TAKE?

Is paying for grades a good way to control kids’ school perfor- mance? As a parent, will you pay for grades or not? How can you justify your position? The pros and cons of this approach as you see them? Were you, or are you, paid for good grades? What is your experience? By the way, what can parenting teach us about managing people at work?

choices> THINK BEFORE YOU ACT > “If there’s more than one child in the family, it’s unfair if they don’t all get rewards.”

Some Parents Pay Their Kids for Good Grades

199Why and How Managers Control

Second, they can exercise external control by structuring situations to increase the

likelihood that things will happen as planned. 8 Th e alternatives here include bureaucratic

or administrative control, clan or normative control, and market or regulatory control.

Th e most eff ective control typically involves a mix of these internal and external options.

Self-Control We all exercise internal control in our daily lives. We do so with regard to managing our

money, our relationships, our eating and drinking, our health behaviors, our study habits,

and more. Managers can take advantage of this human capacity for self-control by

unlocking, allowing, and supporting it. Th is means helping people to be good at self-

management, giving them freedom, and encouraging them to exercise self-discipline in

performing their jobs. Any workplace that emphasizes participation, empowerment, and

involvement will rely heavily on self-control.

Managers can gain a lot by assuming that people are ready and willing to exercise

self-control in their work. 9 But, an internal control strategy requires a great deal of trust.

When people are willing to work on their own and exercise self-control, managers have to

have the confi dence to give them the freedom to do so. Self-control is most likely when the

process used to set objectives and standards is participative. Th e potential for self-control

also increases when capable people have a clear sense of the organization’s mission and have

the resources necessary to do their jobs well. Th e potential for self-control is also greater in

inclusive organizational cultures in which everyone treats everyone else with respect and

consideration.

Self-control is internal control that

occurs through self-management and

self-discipline in fulfi lling work and

personal responsibilities.

Managerial control is all about how to increase the proba-bility that things go right for organizations even as they deal with an increasing number of operational complexities. It’s

the same for us—every day, in our work and personal lives. We

need to spot and understand where things are going according to

plan or going off course. We need to have the courage and confi -

dence to change approaches that aren’t working well. Our success,

simply put, depends a lot on resiliency—the ability to call on inner

strength and keep moving forward even when things are tough.

Th ink of resiliency in personal terms—caring for an aging

parent with a terrible disease or single parenthood with small chil-

dren. Th ink of it in career terms—juggling personal and work

responsibilities, continuously attending to e-mails, voice mails,

instant messages, and rushing to many scheduled and unsched-

uled meetings. We need to be managed, we need to exercise con-

trol, and we need staying power to perform over the long term.

Resiliency helps us hold on and keep things moving forward even

in the face of personal and professional adversity.

Resilient people face up to challenges; they don’t hide or back

away from them. Th ey develop strategies, make plans, and fi nd op-

portunity even in challenging situations. Dr. Steven M. Southwick,

professor of psychiatry at Yale University, says “Resilient people

are like trees bending in the wind. . . . Th ey bounce back.” Does this

description fi t you . . . or not? Why?

GET TO KNOW YOURSELF BETTER

Take the Resiliency Quick Test. A score of 35 or better suggests you are highly resilient; with any lower score you should question how well you hold up under pressure. Double-check the test re- sults by looking at your behavior. Write notes on how you handle situations like a poor grade at school, a put-down from a friend, a denial letter from a job application, or criticism from a super- visor or co-worker on your job. Summarize what you’ve learned in a memo to yourself about how you might benefi t from show- ing more resiliency in diffi cult situations.

insight> LEARN ABOUT YOURSELF > “Resilient people are like trees bending in the wind. . . . They bounce back.”

Resiliency Offers Strength from Within

Resiliency Quick Test

Score yourself from 1 5 don’t at all agree, to 5 5 totally agree, on the following items:

• I am an upbeat person for the most part.

• Uncertainty and ambiguity don’t much bother me.

• I tend to adapt quickly as things change.

• I can see positives even when things go wrong.

• I am good at learning from experience.

• I am good at problem solving.

• I am strong and hold up well when times are tough.

• I have been able to turn bad situations into positive gains.

200 CHAPTER 9 ■ Control Processes and Systems

It’s important to think about self-control as a personal capacity, even a life skill. How good

are you at taking control of your time and maintaining a healthy work–life balance? Do you ever

wonder who’s in control, you or your phone? It used to be that we sometimes took work home

in a briefcase, did a bit, closed the case up, and took it back to work the next day. Now work is

always there, on the computer, in our e-mails, and streamed as text messages. All this is habit

forming, and some of us handle this intrusion into our non-work lives better than others. 10

Bureaucratic Control One form of external control uses authority, policies, procedures, job descriptions, budgets,

and day-to-day supervision to make sure that people act in harmony with organizational

interests. It’s called bureaucratic control, and you can think of it as control that fl ows

through the organization’s hierarchy of authority. Organizations typically have policies and

procedures regarding sexual harassment, for example. Th eir goal is to make sure members

behave toward one another respectfully and with no suggestion of sexual pressure or impro-

priety. Organizations also use budgets for personnel, equipment, travel expenses, and the

like to keep behavior targeted within set limits.

Another level of bureaucratic control comes from laws and regulations in the organization’s

external environment. An example is the Sarbanes-Oxley Act of 2002 (SOX), which establishes

procedures to regulate fi nancial reporting and governance in publicly traded corporations. 11

SOX was passed in response to major corporate scandals over the accuracy of fi nancial

reports provided by some fi rms. Under SOX, chief executives and chief fi nancial offi cers

must personally sign off on fi nancial reports and certify their accuracy. Th ose who misstate

Bureaucratic control infl uences

behavior through authority, policies,

procedures, job descriptions, budgets,

and day-to-day supervision.

Most of us work with good intentions. But when distractions hit, focus gets lost, plans fall by the wayside, and progress suff ers. Whether it’s chatting with co-workers, following social

media, or tackling electronic in-boxes, interruptions are more

plentiful than we might admit.

■ Offi ce workers get distracted as often as once every 3 minutes

and it takes an average of 23 minutes to refocus after a major

interruption.

■ Handling up to 100 electronic messages can kill up to one-half of

a workday.

■ Facilitators of disruptions include open-plan offi ce spaces, use of

multiple electronic devices, and constant checking of social

media and messaging windows.

Lacy Roberson, eBay’s director of learning and organization

development, calls the situation “an epidemic” and says it’s hard

for people to get their work done with all the interruptions and

the strain that they cause. Th e fi ght against disruptions causes some

employees to start their day very early or to stay late to get their

jobs done. Employers are starting to fi ght back and to try to protect

“real work” time.

“No devices” is a rule at some eBay meetings. Intel is experi-

menting with allowing workers blocks of “think time” where they

don’t answer messages or attend meetings. Abbot Laboratories is

retraining workers to use the telephone rather than e-mail for

many internal offi ce communications.

YOUR THOUGHTS?

How prone are you to letting distractions consume your time? Does this problem apply to your personal affairs and relationships, not just work? It’s interesting that some employers are trying to step in and set policies that might minimize the negative impact of distractions, particularly electronic ones. Where’s the self-control? Aren’t there things we can all do to protect our time and keep our work and goals on track?

analysis> MAKE DATA YOUR FRIEND > Offi ce workers get distracted as often as once every 3 minutes; it can take

23 minutes to refocus after a major interruption.

Those Small Distractions Can Be Goal Killers

Hiya Images/Corbis Corp.

201Th e Control Process

Learning Check 1

TAKEAWAYQUESTION 1 Why and how do managers exercise control?

BE SURE YOU CAN • defi ne controlling as a management function • explain benefi ts of after-action reviews • illustrate how

a fast-food restaurant uses feedforward, concurrent, and feedback controls • discuss internal control and external control

systems • give examples of bureaucratic, clan, and market controls

Th e Control Process TAKEAWAY 2 What are the steps in the control process?

Establishing objectives and standards • Measuring actual results Comparing results with objectives and standards • Taking corrective action

Th e control process involves the four steps shown in Figure 9.3: (1) establish performance

objectives and standards; (2) measure actual performance; (3) compare actual performance

with objectives and standards; and (4) take corrective action as needed. Although essential to

management, these steps apply equally well to personal and career decisions as well. Consider

this—without career objectives, how do you know where you really want to go? How can you

allocate your time and other resources to take best advantage of available opportunities?

Without measurement, how can you assess whether any progress has been made? How can

you adjust your current behavior to improve the prospects for positive future results?

LEARN MORE

ABOUT

their fi rm’s fi nancial records can go to jail and pay substantial personal fi nes. Th e complexity

and pressures of increased government regulations have led many fi rms to appoint chief

compliance offi cers, CCOs, and set up compliance departments. Th ey are most eff ective

when the CCO reports directly to the chief executive or to the board of directors. 12

Actions

are also being taken to strengthen governance by boards. Stricter management oversight

is evident in moves for directors to become more actively involved in leadership and to

separate the CEO and board chairman roles. 13

Clan Control Whereas bureaucratic control emphasizes hierarchy and authority, clan control infl uences

behavior through norms and expectations set by the organizational culture. Sometimes

called normative control, it harnesses the power of group cohesiveness and collective iden-

tity to infl uence behavior in teams and organizations.

Clan control happens as people who share values and identify strongly with one another

behave in consistent ways. Just look around the typical college classroom and campus. You’ll

see clan control refl ected in how students dress, use language, and act in class and during

leisure time. Th ey often behave according to the expectations of peers and the groups with

whom they identify. Th e same holds true in organizations, where clan control infl uences the

members of teams and work groups to display common behavior patterns.

Market Control Market control is essentially the infl uence of customers and competition on the behavior

of organizations and their members. Business fi rms show the infl uence of market control in

the way that they adjust products, pricing, promotions, and other practices in response to

consumer feedback and what competitors are doing. A good example is the growing emphasis

on green products and sustainability practices. When a fi rm like Walmart starts to get positive

publicity from its expressed goals of powering all of its stores with renewable energy, for

example, the eff ect is felt by its competitors. 14

Th ey have to adjust their practices in order to

avoid losing the public relations advantage to Walmart. “For American companies there’s a

lot of peer pressure,” said the director of the Governance & Accountability Institute when

reporting that voluntary fi lings by S&P 500 fi rms of sustainability reports had risen from

53% to 72% in just one year. 15

In this sense the time-worn phrase “keeping up with the

competition” is really another way of expressing the dynamics of market controls in action.

Clan control infl uences behavior

through norms and expectations set

by the organizational culture.

Market control is essentially the

infl uence of market competition on

the behavior of organizations and their

members.

ThThThThThTheee CCCCCooonnnnttrroooll PPPPrrooocceeeeesss

202 CHAPTER 9 ■ Control Processes and Systems

Step 1:

Establish performance objectives and

standards

Step 4:

Take necessary

action

Step 2:

Measure actual

performance

Step 3:

Compare actual performance with

objectives and standards

The Control Process

FIGURE 9.3 Four steps in the control process.

Step 1—Establish Objectives

and Standards

Th e control process begins with planning, when performance

objectives and standards for measuring them are set. Th e objec-

tives and standards that defi ne what one wants to accomplish in

terms of key results. However, the word key in the prior sentence

deserves special emphasis. Th e focus when setting objectives and

standards should be on “critical” or “essential” results that will

make a real performance diff erence. Unfortunately we often

expend too much time and eff ort on things that just aren’t all that

important, and we let the big or really consequential things get

away from us in the process. To stay on focus, productivity experts

suggest remembering the Pareto Principle that 80% of conse-

quences (think—real impact) come from 20% of causes (think—

work accomplished). 16

Output Standards Th e control process uses output standards that measure actual

outcomes or work results. Businesses use many output stan-

dards, such as earnings per share, return on investment, sales growth, and market share.

Others include quantity and quality of production, costs incurred, service or delivery time,

and error rates. Based on your experience at work and as a consumer, you can probably

come up with even more examples of relevant output standards.

When Allstate Corporation launched a new diversity initiative, it created a “diversity

index” to quantify performance across a range of diversity issues. Th e standards included how

well employees met the goals of bias-free customer service and how well managers met the

fi rm’s diversity expectations. 17

When General Electric became concerned about managing

ethics in its 320,000-member global workforce, it created measurement standards to track

compliance. Each business unit was required to report quarterly on how many of its members

attended ethics training sessions and signed the fi rm’s “Spirit and Letter” ethics guide. 18

How about output standards for other types of organizations, such as a symphony

orchestra? When the Cleveland Orchestra wrestled with performance standards, the mem-

bers weren’t willing to rely on vague generalities like “we played well” or “the audience

seemed happy” or “not too many mistakes were made.” Rather, they decided to track stand-

ing ovations, invitations to perform in other countries, and how often other orchestras

copied their performance style. 19

Input Standards Th e control process also uses input standards that measure work eff orts. Th ese are com-

mon in situations where outputs are diffi cult or expensive to measure. Examples of input

standards for a college professor might be an orderly course syllabus, meeting all class ses-

sions, and returning exams and assignments in a timely fashion. Of course, as this example

might suggest, measuring inputs doesn’t mean that outputs such as high-quality teaching

and learning are necessarily achieved. Other examples of input standards at work include

conformance with rules, effi cient use of resources, and work attendance.

Step 2—Measure Actual Performance

Th e second step in the control process is to measure actual performance. It is the point

where output standards and input standards are used to carefully document results. Linda

Sanford, currently a senior vice president at IBM, has had a high-performance career with

the company. She grew up on a family farm where measuring results was a way of life.

Sanford says: “At the end of the day, you saw what you did, knew how many rows of

Th e Pareto Principle states that 80% of

consequences come from 20% of causes.

An output standard measures

performance results in terms of

quantity, quality, cost, or time.

An input standard measures work

eff orts that go into a performance task.

203Th e Control Process

London—Reporters Without Borders criticized Twitter’s cen-sorship policy after the company said it will remove tweets in response to government requests in specifi c countries. Th ese

tweets will remain available elsewhere in the world, and deleted

tweets will be replaced with the message “Deleted at government

request.” CEO Dick Costolo says: “You can’t reside in countries and

not operate within the law.” Lucie Morillon of Reporters Without

Borders counters that “if Twitter is ready to abide by repressive

countries then there are real consequences for journalists, blog-

gers . . . the chain of information is broken.”

Beijing—Skype is told by the Chinese government that its software

must fi lter words that the Chinese leadership considers off ensive

from text messages. If the company doesn’t, it can’t do business

in the country. After refusing at fi rst, company executives fi nally

agreed. Phrases such as “Falun Gong” and “Dalai Lama” are de-

leted from text messages delivered through Skype’s Chinese joint

venture partner, Tom Online. Skype co-founder Niklas Zennstrom,

says: “I may like or not like the laws and regulations to operate

businesses in the UK or Germany or the U.S., but if I do business

there I choose to comply.”

New Delhi—An Indian citizen sues Google in local court claim-

ing that some of its content is off ensive to certain religious com-

munities. Th e New Delhi district court issued an order for Google

to remove the content. Google complies on its India site but keeps

the content available outside of the country. A Google spokesper-

son says: “Th is step is in accordance with Google’s longstanding

policy of responding to court orders.” But, free speech advocates in

India claim it is censorship.

WHAT DO YOU THINK?

Is it ethical for companies who want to do business in China or elsewhere to go along with policies that would clearly be consid- ered to be a violation of human rights in other places? What determines whether companies should comply with local cen- sorship requests? Should they follow local rules, challenge the status quo, or simply decline to operate in those markets? When should business executives stand up and challenge laws and reg- ulations that are used to deny customers the rights or privacy that they expect?

ethics> KNOW RIGHT FROM WRONG > Twitter removes tweets in response to government requests in specifi c countries.

Global Censorship of Search and Social Media

Lv Jianshe/Imaginechina/Zuma Press

strawberries you picked.” At IBM she is known for walking around the factory, just to see

“at the end of the day how many machines were going out of the back dock.” 20

Performance measurement in the control process must be accurate enough to identify

signifi cant diff erences between what is really taking place and what was originally planned.

Without measurement, eff ective control is impossible. With measurement tied to key

results, however, an old adage often holds true: “What gets measured happens.”

Step 3—Compare Results with Objectives

and Standards

Step 3 in the control process is to compare objectives with results. You can remember its

implications by this control equation:

Need for Action 5 Desired Performance 2 Actual Performance

Th e question of what constitutes “desired” performance plays an important role in the con-

trol equation. Some organizations use engineering comparisons. United Parcel Service (UPS),

for example, carefully measures the routes and routines of its drivers to establish the

times expected for each delivery. When a delivery manifest is scanned as completed, the

driver’s time is registered in a performance log that is closely monitored by supervisors.

Organizations also use historical comparisons, where past experience becomes the baseline

Th e control equation states: Need

for Action 5 Desired Performance 2 Actual Performance.

204 CHAPTER 9 ■ Control Processes and Systems

for evaluating current performance. Th ey also use relative comparisons that benchmark

performance against that being achieved by other people, work units, or organizations.

Step 4—Take Corrective Action

Th e fi nal step in the control process is to take actions needed to correct problems or make

improvements. Management by exception is the practice of giving attention to situations

that show the greatest need for action. It saves time, energy, and other resources by helping

managers focus their attention on high-priority areas.

Managers should be alert to two types of exceptions. Th e fi rst is where actual perfor-

mance is less than desired. Th is problem situation must be understood so that corrective

action can restore performance to the desired level. Th e second is where actual performance

turns out higher than what was desired. Th is opportunity situation must be understood with

the goal of continuing or increasing the high level of accomplishment in the future.

Management by exception focuses

attention on substantial diff erences

between actual and desired

performance.

“Measure them!” advises Bill Gates. Th e world’s social prob-lems will remain unsolved unless we do it and do it well. “I have been struck by how important measurement is to improving

the human condition. You can achieve incredible progress if you set

a clear goal and fi nd a measure that will drive progress toward that

goal,” he says. “We can do better. We have the tools at hand.”

Gates describes the challenge this way. “In the U.S. we should

be measuring the value added by colleges. . . . In agriculture, creating

a global productivity target would help countries focus on a key

but neglected area: the effi ciency and output of hundreds of mil-

lions of small farmers who live in poverty. . . . In poor countries we

still need better ways to measure the eff ectiveness of the many

government workers providing health services. . . . I’d love to have a

way to measure how exposure to risks like disease, infection,

malnutrition and problem pregnancies impact children’s potential.”

In making his case for “extraordinary measures,” Bill Gates

describes a pathway to progress through big goals and big accom-

plishments. His message is basic management, a lesson on control

learned from success in building Microsoft into a global corpora-

tion. Progress begins with the right goals and plans. Progress is

achieved when results are measured and adjustments are made so

that things can keep getting better in the future.

FIND THE INSPIRATION

It may be tempting to dismiss Gates’s call to action as the mus- ings of a rich man. It would be a lot smarter to listen and to learn. How can this call for better measurement and greater willing- ness to pay attention to data be applied to the organizations that you work for or are familiar with? Can this advice help ad- vance your own life and career goals? Do you have an aversion to measurement? If so, how can you turn measurement into a friend rather than an enemy?

wisdom> LEARN FROM ROLE MODELS > “You can achieve incredible progress if you set a clear goal and fi nd a measure that

will drive progress toward that goal.”

Bill Gates Calls for Better Measurement to Solve Social Problems

AFP/Getty Images

Learning Check 2

TAKEAWAYQUESTION 2 What are the steps in the control process?

BE SURE YOU CAN • list the steps in the control process • explain why planning is important to controlling • diff erentiate

between output and input standards • state the control equation • defi ne management by exception

205Control Tools and Techniques

Control Tools and Techniques TAKEAWAY 3 What are the common control tools and techniques?

Project management and control • Inventory control • Breakeven analysis Financial controls • Balanced scorecards

Managers in most organizations use a variety of diff erent control systems and techniques.

Some of the most common ones include special techniques of project management, inventory

control, breakeven analysis, and fi nancial controls, as well as the use of balanced scorecards.

Project Management and Control

It might be something personal, like an anniversary party for your parents or grandparents;

a fundraiser for a local homeless shelter; or the launch of a new product or service at your

place of work. It might be the completion of a new student activities building on campus, or

the implementation of a new advertising campaign for a sports team. What these examples

and others like them share in common is that they encompass relatively complicated sets

of interrelated tasks with multiple components that have to happen in a certain sequence,

and that must be completed by a specifi ed date. We call them projects, complex one-time

events with unique components and an objective that must be met within a set time frame.

Project management takes responsibility for overall planning, supervision, and con-

trol of projects. A project manager’s job is to ensure that a project is well planned and

then completed according to plan—on time, within budget, and consistent with

objectives. Two useful techniques for project management and

control are Gantt charts and CPM/PERT.

A Gantt chart graphically displays the scheduling of tasks that

go into completing a project. As developed in the early 20th century

by Henry Gantt, an industrial engineer, this tool has become a core

element of project management. Th e visual overview of what needs

to be done on a project allows for easy progress checks to be

made at different time intervals. It also helps with event or

activity sequencing to make sure key aspects of a project get

accomplished in time for later work to build on them. One of the

biggest problems with projects, for example, is when delays in early

activities create problems for later activities.

A more advanced use of the Gantt chart is a technique known as CPM/PERT—a com-

bination of the critical path method and the program evaluation and review technique.

Project planning based on CPM/PERT uses a network chart like the one shown here. Such

charts break a project into a series of smaller sub-activities that have clear beginning and end

points. Th ese points become “nodes” in the chart, and the arrows between nodes show in

what order the sub-activities must be completed. Th e full dia-

gram shows all the interrelationships that must be coordinated

for the entire project to be successfully completed.

Use of CPM/PERT techniques helps project managers track

activities to make sure they happen in the right sequence and on

time. If you look at the network in the nearby fi gure, you should

notice that the time required for each activity can be easily com-

puted and tracked. Th e longest pathway from start to conclusion in

a CPM/PERT network is called the critical path. It represents the

quickest time in which the entire project can be fi nished, assuming

everything goes according to schedule and established project

plans. In the example, the critical path is 38 days.

Inventory Control

Cost control is always an important performance concern. And a very good place to start is

with inventory. Th e goal of inventory control is to make sure that any inventory is only big

enough to meet immediate needs, so that carrying costs are minimized.

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CPM/PERT is a combination of the

critical path method and the program

evaluation and review technique.

Th e critical path is the longest pathway

in a CPM/PERT network.

Inventory control ensures that

inventory is only big enough to meet

immediate needs.

CCCoooonnntttrrrooolll TTTToooooooolllsss aaaannnndddddd TTeccc nnniiqqueees

Architect

Foundation

Framing

Finishing

3 6

Time in months 9 12 18

Events Activities (days)

4 6

8 1

Critical path

4 7

9 10

A Gantt chart graphically displays

the scheduling of tasks required to

complete a project.

Projects are one-time activities with

many component tasks that must be

completed in proper order and

according to budget.

Project management is the

responsibility for overall planning,

supervision, and control of projects.

206 CHAPTER 9 ■ Control Processes and Systems

Th e economic order quantity form of inventory control,

shown in the fi gure, automatically orders a fi xed number of

items every time an inventory level falls to a predetermined

point. Th e order sizes are mathematically calculated to mini-

mize inventory costs. A good example is your local supermarket.

It routinely makes hundreds of daily orders on an economic

order quantity basis.

Another popular approach to inventory control is just-

in-time scheduling ( JIT). Th ese systems reduce costs and

improve workfl ow by scheduling materials to arrive at a work-

station or facility just in time for use. Because JIT nearly elimi-

nates the carrying costs of inventories, it is an important

business productivity tool.

Breakeven Analysis

A frequent control question asked by business executives is: “What

is the breakeven point?” In Figure 9.4 you’ll see that breakeven

occurs at the point where revenues are just equal to costs. You can

also think of the breakeven point as where losses end and profi t

begins. A breakeven point is computed using this formula:

Breakeven Point 5 Fixed Costs 4 (Price 2 Variable Costs)

Managers using breakeven analysis perform what-if calcu-

lations under diff erent projected cost and revenue conditions.

Question—Suppose the proposed target price for a new product is

$8 per unit, fi xed costs are $10,000, and variable costs are $4 per

unit. What sales volume is required to break even? (Answer:

breakeven at 2,500 units.) Question—What happens if you can

keep variable costs to $3 per unit? (Answer: breakeven at 2,000

units.) Question—If you can produce only 1,000 units in the begin-

ning and at the original costs, at what price must you sell them to

break even? (Answer: $14.) Business executives perform these

types of cost control analyses every day.

Financial Controls

Th e pressure is ever present for all organizations to use their fi nancial resources well. And,

the global economic recession has left no doubt that an important part of managerial con-

trol involves the analysis of fi nancial performance. Control depends on measurement, and

there are a number of ways that fi nancial performance can be measured and tracked for

control purposes.

Th e foundation for analysis using fi nancial controls rests with the fi rm’s balance sheet

and income statement. Each looks at fi nances in slightly diff erent ways, and together they

provide a good picture of the fi nancial health of an organization. Th e balance sheet shows

assets and liabilities at a point in time. It will be displayed in an Assets 5 Liabilities format. Th e income statement shows profi ts or losses at a point in time. It will be displayed in a

Sales 2 Expenses 5 Net Income format. You are likely to remember both from an account- ing course or as summarized in Figure 9.5.

Special measures of fi nancial performance help managers use information from bal-

ance sheets and income statements for control purposes. Th ey include fi nancial ratios

that indicate liquidity—the ability to generate cash to pay bills; leverage—the ability to

earn more in returns than the cost of debt; asset management—the ability to use resources

effi ciently and operate at minimum cost; and profi tability—the ability to earn revenues

greater than costs. Th e following list highlights some widely used fi nancial ratios.

D o

lla r

C o

st s

an d

R ev

en u

Fixed Costs

Variable Costs

Unit Sales

Breakeven Point Revenues � Costs

Lo ss

Pro fit

Total Sales Revenue

Total Costs � Fixed � Variable

FIGURE 9.4 Use of breakeven analysis to make informed “what-if ”

decisions.

Just-in-time scheduling (JIT) routes

materials to workstations just in time

for use.

Th e breakeven point occurs where

revenues just equal costs.

Breakeven analysis performs what-if

calculations under diff erent revenue

and cost conditions.

A balance sheet shows assets and

liabilities at one point in time.

An income statement shows profi ts or

losses at one point in time.

Th e economic order quantity method

places new orders when inventory levels

fall to predetermined points.

207Control Tools and Techniques

Profi tability—measures ability to earn revenues greater than costs

• Net Margin 5 Net Income/Sales

• Return on Assets (ROA) 5 Net Income/Total Assets

• Return on Equity (ROE) 5 Net Income/Owner’s Equity

Higher is better: You want higher net income relative to sales, assets, and equity.

Liquidity—measures ability to meet short-term obligations

• Current Ratio 5 Current Assets/Current Liabilities

• Quick Ratio or Acid Test 5 Current Assets 2 Inventories/Current Liabilities

Higher is better: You want more assets and fewer liabilities.

Leverage—measures use of debt

• Debt Ratio 5 Total Debts/Total Assets

Lower is better: You want fewer debts and more assets.

Asset Management—measures asset and inventory effi ciency

• Asset Turnover 5 Sales/Total Assets

• Inventory Turnover 5 Sales/Average Inventory

Higher is better: You want more sales relative to assets and inventory.

Financial ratios are very common in executive dashboards that organize business intelli-

gence information for decision making. Th e ratios lend themselves in a straightforward way

to visual displays that provide neat historical comparisons within the fi rm and for industry

benchmarking. Th ey can also be used to set fi nancial targets or goals to share with employ-

ees and tracked to indicate performance success or failure. Civco Medical Instruments, for

example, distributes a monthly fi nancial report to all employees. Th ese reports always have

the facts about how well the fi rm is doing. Th is helps employees focus on what they can do

better to improve the fi rm’s bottom line. 21

Balanced Scorecards

If an instructor takes class attendance and assigns grades based on it, students tend to come

to class. If an employer tracks the number of customers employees serve per day, employees

tend to serve more customers. So if “what gets measured happens,” shouldn’t managers take

advantage of “scorecards” to record and track performance results?

Strategic management consultants Robert S. Kaplan and David P. Norton advocate using

the balanced scorecard for management control. 22

Th ey say it gives top managers “a fast,

but comprehensive view of the business.” Th e basic principle is that to do well and to win,

you have to keep score. Like sports teams, organizations tend to perform better when their

members always know the score.

A balanced scorecard tallies

organizational performance in fi nancial,

customer service, internal process, and

innovation and learning areas.

FIGURE 9.5 Basic foundations of a balance sheet and income statement.

Balance Sheet Assets Liabilities Current Assets Current Liabilities • Cash • Accounts payable • Receivables • Accrued expenses • Inventories • Taxes payable Fixed Assets Long-term Liabilities • Land • Mortgages • Buildings • Bonds Less Depreciation Owner’s Equity • Outstanding stock • Retained earnings Total Assets = Total Liabilities

Income Statement

Gross Sales less Returns

Net Sales less Expenses and Cost of Goods Sold

Operating Profi ts plus Other Income

Gross Income less Interest Expense

Income Before Taxes less Taxes

Net Income

208 CHAPTER 9 ■ Control Processes and Systems

Developing a balanced scorecard for any organization begins with a clarifi cation of the

organization’s mission and vision—what it wants to be and how it wants to be perceived by

its key stakeholders. Next, the following questions are used to develop specifi c scorecard

goals and measures:

• Financial Performance—“How well do our actions directly contribute to improved

fi nancial performance? To improve fi nancially, how should we appear to our shareholders?”

Sample goals: survive, succeed, and prosper. Sample measures: cash fl ow, sales growth

and operating income, increased market share, and return on equity.

• Customer Satisfaction—“How well do we serve our customers and clients? To achieve our

vision, how should we appear to our customers?” Sample goals: new products, responsive

supply. Sample measures: percentage sales from new products, percentage on-time deliveries.

• Internal Process Improvement—“How well do our activities and processes directly

increase the value we provide our customers and clients? To satisfy our customers and

shareholders, at what internal business processes should we excel?” Sample goals: man-

ufacturing excellence, design productivity, new product introduction. Sample measures:

cycle times, engineering effi ciency, new product time.

• Innovation and Learning—“How well are we learning, changing, and improving things

over time? To achieve our vision, how will we sustain our ability to change and improve?”

Sample goals: technology leadership, time to market. Sample measures: time to develop

new technologies, new product introduction time versus competition.

When balanced scorecard measures are taken and routinely recorded for critical mana-

gerial review, Kaplan and Norton expect managers to make better decisions and organiza-

tions to perform better in these four performance areas. Like the fi nancial ratios discussed

earlier, the balanced scorecard is a good fi t for executive dashboards and visual displays of

business intelligence. Again, what gets measured happens.

Th ink about the possibilities of using balanced scorecards in all types of organizations.

How can this approach be used, for example, by an elementary school, a hospital, a commu-

nity library, a mayor’s offi ce, or a fast-food restaurant? How might the performance dimen-

sions and indicators vary among these diff erent organizations? And if balanced scorecards

make sense, why is it that more organizations don’t use them?

iPhone’s Birth Not Always a Smooth Delivery

Do you like iPhone’s slide-to-unlock feature? Most users do, as does Apple’s arch-rival

Samsung. Apple sued Samsung for patent infringement on this feature which it claims was

invented by an Apple team led by senior engineer Greg Christie. When giving testimony

in the suit, Christie pointed out that the birth of iPhone’s special features wasn’t always

smooth. CEO Steve Jobs kept a close eye on his team’s innovations and kept telling them

he “wanted bigger ideas and bigger concepts.” At one point Jobs was so unhappy with

what they were creating that he told Christie he had just two weeks to demonstrate

results or he’d give development of the iPhone’s software vision to another team. Christie’s

team met the challenge and kept their jobs. We got slide-to-unlock and lots more.© T

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Learning Check 3

TAKEAWAYQUESTION 3 What are the common control tools and techniques?

BE SURE YOU CAN • defi ne project management • explain how Gantt charts and CPM/PERT analysis can assist in project

management • explain how inventory controls and breakeven analysis can assist in cost control • list and explain common

ratios used in fi nancial control • identify the four main balanced scorecard components and give examples of how they might

be used in organizations of various types

209Management Learning Review

Summary

TAKEAWAYQUESTION 1 Why and how do managers exercise control?

• Controlling is the process of measuring performance and taking corrective action as needed.

• Feedforward controls are accomplished before a work activity begins; they ensure that directions are clear and that the right resources are available to accomplish them.

• Concurrent controls make sure that things are being done correctly; they allow corrective actions to be taken while the work is being done.

• Feedback controls take place after an action is completed; they address the question “Now that we are fi nished, how well did we do, and what did we learn for the future?”

• Internal control is self-control and occurs as people take personal responsibility for their work.

• External control is based on the use of bureaucratic, clan, and market control systems.

FOR DISCUSSION Can strong input and output controls make up for poor concurrent controls?

TAKEAWAYQUESTION 2 What are the steps in the control process?

• The fi rst step in the control process is to establish performance objectives and standards that create targets against which later performance can be evaluated.

• The second step in the control process is to measure actual performance and specifi cally identify what results are being achieved.

• The third step in the control process is to compare performance results with objectives to determine if things are going according to plans.

• The fourth step in the control process is to take action to resolve problems or explore opportunities that are identifi ed when results are compared with objectives.

FOR DISCUSSION What are the potential downsides to management by exception?

TAKEAWAYQUESTION 3 What are the common control tools and techniques?

• A project is a unique event that must be completed by a specifi ed date; project management is the process of ensuring that projects are completed on time, on budget, and according to objectives.

• Gantt charts assist in project management and control by displaying how various tasks must be scheduled in order to complete a project on time.

• CPM/PERT analysis assists in project management and control by describing the complex networks of activities that must be completed in sequence for a project to be completed successfully.

• Economic order quantities and just-in-time deliveries are common approaches to inventory cost control.

• The breakeven equation is: Breakeven Point 5 Fixed Costs 2 (Price 2 Variable Costs).

• Breakeven analysis identifi es the points where revenues will equal costs under different pricing and cost conditions.

• Financial control of business performance is facilitated by a variety of fi nancial ratios, such as those dealing with liquidity, leverage, assets, and profi tability.

• The balanced scorecard measures overall organizational performance in four areas: fi nancial, customers, internal processes, and innovation.

FOR DISCUSSION Should all employees of a business be regularly informed of the fi rm’s overall fi nancial performance?

Management Learning Review Get Prepared for Quizzes and Exams

210 CHAPTER 9 ■ Control Processes and Systems

Multiple-ChoiceQuestions 1. After objectives and standards are set, what step comes

next in the control process? (a) Measure results. (b) Take corrective action. (c) Compare results with objectives. (d) Modify standards to fi t circumstances.

2. When a soccer coach tells her players at the end of a game, “I’m pleased you stayed with the game plan,” she is using a/an _____________ to a measure performance, even though in terms of outcomes her team lost. (a) input standard (b) output standard (c) historical comparison (d) relative comparison

3. When an automobile manufacturer is careful to purchase only the highest-quality components for use in production, this is an example of an attempt to ensure high performance through _____________ control. (a) concurrent (b) statistical (c) inventory (d) feedforward

4. Management by exception means _____________. (a) managing only when necessary (b) focusing attention where the need for action is

greatest (c) the same thing as concurrent control (d) the same thing as just-in-time delivery

5. When a supervisor working alongside an employee corrects him or her when a mistake is made, this is an example of _____________ control. (a) feedforward (b) concurrent (c) internal (d) clan

6. If an organization’s top management visits a fi rm in another industry to learn more about its excellent record in hiring and promoting minority and female candidates, this is an example of using _____________ for control purposes. (a) a balanced scorecard (b) relative comparison (c) management by exception (d) progressive discipline

7. The control equation states: _____________ 5 Desired Performance 2 Actual Performance. (a) Problem Magnitude (b) Management Opportunity (c) Planning Objective (d) Need for Action

8. When a UPS manager compares the amount of time a driver takes to make certain deliveries against standards set through a quantitative analysis of her delivery route, this is known as _____________. (a) a historical comparison (b) an engineering comparison (c) relative benchmarking (d) concurrent control

9. Projects are unique one-time events that _____________. (a) have unclear objectives (b) must be completed by a specifi c time (c) have unlimited budgets (d) are largely self-managing

10. The _____________ chart graphically displays the scheduling of tasks required to complete a project. (a) exception (b) Taylor (c) Gantt (d) after-action

11. When one team member advises another team member that “your behavior is crossing the line in terms of our expectations for workplace civility,” she is exercising a form of _____________ control over the other’s inappropriate behaviors. (a) clan (b) market (c) internal (d) preliminary

12. In a CPM/PERT analysis the focus is on _____________ and the event that link them together with the fi nished project. (a) costs, budgets (b) activities, sequences (c) timetables, budgets (d) goals, costs

13. If fi xed costs are $10,000, variable costs are $4 per unit, and the target selling price per unit is $8, what is the breakeven point? (a) 2 (c) 2,500 (b) 500 (d) 4,800

14. Among the fi nancial ratios used for control, Current Assets/Current Liabilities is known as the _____________. (a) debt ratio (c) current ratio (b) net margin (d) inventory turnover ratio

15. With respect to return on assets (ROA) and the debt ratio, the preferred directions when analyzing them from a control standpoint are _____________. (a) decrease ROA, increase debt (b) increase ROA, increase debt (c) increase ROA, decrease debt (d) decrease ROA, decrease debt

Self-Test 9

211Management Skills & Competencies

Evaluate Career Situations

What Would You Do?

1. Adrift in Career

A work colleague comes to you and confi des that she feels

“adrift in her career” and “just can’t get enthused about what

she’s doing anymore.” You think this might be a problem of

self-management and personal control. How can you respond

most helpfully? How might she use the steps in the manage-

ment control process to better understand and improve her

situation?

2. Too Much Socializing

You have a highly talented work team whose past perfor-

mance has been outstanding. You’ve recently noticed

team members starting to act like the workday is mainly a

social occasion. Getting the work done too often seems less

important than having a good time. Recent data show that

performance is on the decline. How can you use controls in

a positive way to restore performance to high levels in this

team?

3. Yes or No to Graduate School

You’ve had three years of solid work experience after earning

your undergraduate degree. A lot of your friends are talking

about going to graduate school, and the likely target for you

would be an MBA degree. Given all the potential costs and

benefi ts of getting an MBA, how can breakeven analysis help

you make the decision: (a) to go or not go, (b) to go full time or

part time, and (c) even where to go?

Refl ect on the Self-Assessment

Internal/External Control

Instructions Circle either “a” or “b” to indicate the item you most agree with in

each pair of the following statements. 23

1. (a) Promotions are earned through hard work and persistence.

(b) Making a lot of money is largely a matter of breaks.

2. (a) Many times the reactions of teachers seem haphazard

to me.

(b) In my experience I have noticed that there is usually a

direct connection between how hard I study and the

grades I get.

3. (a) Th e number of divorces indicates that more and more

people are not trying to make their marriages work.

(b) Marriage is largely a gamble.

4. (a) It is silly to think that one can really change another

person’s basic attitudes.

(b) When I am right, I can convince others.

5. (a) Getting promoted is really a matter of being a little luck-

ier than the next guy.

(b) In our society, an individual’s future earning power is

dependent on his or her ability.

6. (a) If one knows how to deal with people, they are really

quite easily led.

(b) I have little infl uence over the way other people behave.

ManagementSkills& Competencies Make yourself valuable!

Short-ResponseQuestions 16. List the four steps in the controlling process and give

examples of each.

17. How might feedforward control be used by the owner/ manager of a local bookstore?

18. How does Douglas McGregor’s Theory Y relate to the concept of internal control?

19. What four questions could be used to organize the presentation of a real-time balanced scorecard in the executive dashboard for a small business?

EssayQuestion 20. Assume that you are given the job of project manager

for building a new student center on your campus. List just fi ve of the major activities that would need to be accomplished to complete the new building in two years. Draw a CPM/PERT network diagram that links the activities together in required event scheduling and sequencing. Make an estimate for the time required for each sequence to be completed and identify the critical path.

212 CHAPTER 9 ■ Control Processes and Systems

7. (a) In my case, the grades I make are the results of my own

eff orts; luck has little or nothing to do with it.

(b) Sometimes I feel that I have little to do with the grades I

get.

8. (a) People such as I can change the course of world aff airs if

we make ourselves heard.

(b) It is only wishful thinking to believe that one can really

infl uence what happens in society at large.

9. (a) Much of what happens to me is probably a matter of

chance.

(b) I am the master of my fate.

10. (a) Getting along with people is a skill that must be

practiced.

(b) It is almost impossible to fi gure out how to please some

people.

Scoring Give yourself 1 point for 1a, 2b, 3a, 4b, 5b, 6a, 7a, 8a, 9b, 10a.

Total scores of: 8–10 5 high internal locus of control, 6–7 5 moderate internal locus of control, 5 5 mixed locus of control, 3–4 5 moderate external locus of control, 0–2 5 high external locus of control.

Interpretation Th is instrument off ers an impression of your tendency toward

an internal locus of control or external locus of control. Persons

with a high internal locus of control tend to believe they have

control over their own destinies. Th ey may be most responsive

to opportunities for greater self-control in the workplace.

Persons with a high external locus of control tend to believe

that what happens to them is largely in the hands of external

forces or other people. Th ey may be less comfortable with

self-control and more responsive to external controls in the

workplace.

Contribute to the

Class Exercise

After-Meeting/Project Remorse

Instructions A. Everyone on the team should complete the following

assessment after participating in a meeting or a group project. 24

1. How satisfi ed are you with the outcome of the meeting

project?

Not at all satisfi ed 1 2 3 4 5 6 7 Totally satisfi ed

2. How would the other members of the meeting/project

group rate your infl uence on what took place?

No infl uence 1 2 3 4 5 6 7 Very high infl uence

3. In your opinion, how ethical was any decision that was

reached?

Highly unethical 1 2 3 4 5 6 7 Highly ethical

4. To what extent did you feel pushed into going along with the

decision?

Not pushed into 1 2 3 4 5 6 7 Very pushed

it at all into it

5. How committed are you to the agreements reached?

Not at all 1 2 3 4 5 6 7 Highly

committed committed

6. Did you understand what was expected of you as a member

of the meeting or project group?

Not at all clear 1 2 3 4 5 6 7 Perfectly clear

7. Were participants in the meeting/project group discussions

listening to each other?

Never 1 2 3 4 5 6 7 Always

8. Were participants in the meeting/project group discussions

honest and open in communicating with one another?

Never 1 2 3 4 5 6 7 Always’

9. Was the meeting/project completed effi ciently?

Not at all 1 2 3 4 5 6 7 Very much

10. Was the outcome of the meeting/project something that

you felt proud to be a part of ?

Not at all 1 2 3 4 5 6 7 Very much

B. Share results with all team members and discuss their

meaning.

C. Summarize and share with the instructor and class the

implications of this exercise for: (a) the future success of this

team if it was to work on another project, and (b) each individual

team member as he or she goes forward to work in other teams

and on other group projects in the future.

Manage a Critical Incident

High Performer but Late for Work

You are an elementary school principal. One of your best

teachers—perhaps the best—is causing a bit of an uproar. She is

in her second year on staff after graduating from college and is do-

ing a wonderful job with the second graders. Th ey’re happy, the

parents are happy, and you’re happy. Th e other teachers aren’t

happy, at least some of them aren’t. Two of the more outspoken

and senior teachers came to you today with a request. “Do some-

thing about her,” they said. “She is consistently late in the morn-

ings. You know our policy is for the teacher to be in the classroom

at least 30 minutes before school starts.” You are aware of her tardi-

ness, but you also know that she consistently stays late and is most

often the last teacher out of the building at the end of the day. She

isn’t aware that her co-workers have complained about her. You

can’t put this off because the grumbling is starting to spread.

Questions What do you do, and why? How can you turn this into an oppor-

tunity to develop an approach that accommodates a range of

personal work styles and different classroom approaches,

all while holding up high performance standards?

213Analyze the Case Study

AnalyzeTHE CaseStudy

ELECTRONIC ARTS

Inside Fantasy Sports Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

Collaborate on the

Team Activity

Building a Balanced Scorecard

Instructions In your assigned teams do the following.

1. Choose a local organization of interest to team members and

about which you collectively have some information and

insights.

2. Build a Balanced Scorecard that can be used for control pur-

poses by this organization’s top management. Make sure your

scorecard covers these four areas—fi nancial performance,

customer satisfaction, internal process improvement, and in-

novation and learning.

3. For each of the four scorecard performance areas, be very

specifi c in identifying what you recommend as possible

performance goals and areas of performance measurement.

4. Design a scorecard format that makes analysis easy and

informative. If possible demonstrate how your proposed

scorecard might fi t into an Executive Dashboard.

5. Present your proposed Balanced Scorecard to the entire class,

along with justifi cation for all suggested goals and measures.

Explain in your presentation why you believe this scorecard

could help the organization perform better in the future.

“Th ere is a fundamental disconnect between the providers of education and the consumers of education. . . . At Khan Academy we’re 100% focused on the learning side.”

Salman Khan, founder of the Khan Academy

Strategy and

Strategic

Management Insight and hard work deliver results

10 C H A P T E R Q U I C K STA RT

Strategic management is one of the most signifi cant planning challenges faced by

managers. All organizations face a complex array of forces. Uncertainties of many

types—market, economic, political, social, and more—must be understood and

analyzed in order to craft strategies for competitive success. As with organiza-

tions, each of us faces personal life and career challenges that test our abilities

with strategic management. We, too, need to make and implement strategies to

achieve our goals.

Key Takeaways

■ Discuss the process and

importance of strategic

management.

■ Identify the essential

elements in strategic

analysis.

■ Explain alternative

corporate strategies.

■ Explain alternative

business-level strategies.

■ Describe the

foundations for strategy

implementation.

215

MANAGEMENT IS REAL

MAKE DATA YOUR FRIEND Disposable Workers Becoming Indispensable to Business Profi ts

THINK BEFORE YOU ACT

Double Irish with a Dutch Sandwich

KNOW RIGHT FROM WRONG

Life and Death at an Outsourcing Factory

LEARN ABOUT YOURSELF

Get And Stay Ahead With Critical Thinking

LEARN FROM ROLE MODELS

Wendy Kopp Tackles Culture of Low Achievement

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Intuitive Ability

■ CONTRIBUTE To the Class Exercise: Strategic Scenarios

■ MANAGE A Critical Incident: Kickstarting a Friend’s Business Idea

■ COLLABORATE On the Team Activity: Contrasting Strategies

■ ANALYZE Th e Case Study: Dunkin’ Donuts: Betting Dollars on Donuts

what to look for inside >

216 CHAPTER 10 ■ Strategy and Strategic Management

D on’t take the opening photo of Sal Khan too lightly. His innovative online

Khan academy has the goal of “changing education for the better by

providing a free world-class education for anyone anywhere.” Th e success

of Kahn helped spur the development of MOOCs—massive open online

courses—as “disrupters” of the traditional university model of face-to-face

delivery of pay-per-credit courses. Some MOOCs are free. Th ey’re being

launched in increasing numbers from top universities, and start-ups like

Coursera and Udacity are marketing them on a global scale. What’s the future

of these online alternatives? Will MOOCs make higher education more

accessible and aff ordable? Will they change the traditional college experi-

ence for better or worse? Or, will they soon fade away and be remembered as

just another passing trend? 1

Our institutions of higher education are taking center stage among indus-

tries facing strategic challenges—MOOCs are on the move, politicians are

attacking college costs, graduates worry about paying off student loans. Uni-

versity, government, and business leadership is being tested by changing

times, tastes, and technologies. And Fast Company magazine says, “If you

want to make a diff erence as a leader, you’ve got to make time for strategy.” 2

Leaders struggling with strategy need to remember lessons from the past.

Th ere was a time when Henry Ford could say: “Th e customer can have any

color he wants as long as it’s black.” Th ose days are long gone for businesses

large and small, they’re gone for hospitals and local governments, and they’re

gone for universities as well. A senior IBM executive described this shift in

strategic landscape as the “diff erence between a bus which follows a set

route, and a taxi which goes where customers tell it to go.” 3

Th ere are a lot of strategy and strategic management ideas and insights in

this chapter. As you read and think about them, remember that everything

applies equally well to your own career. What’s your personal strategy for

career and life success? Are you acting like a bus following a set route, a taxi

following opportunities, or some combination of both?

Strategic Management TAKEAWAY 1 What is strategic management?

Competitive advantage • Strategy and strategic intent • Levels of strategy Strategic management process

Forces and challenges like those just described confront managers in all organizations and

industries. Today’s environment places a great premium on “competitive advantage” and how

it is achieved—or not—through “strategy” and “strategic management.” 4

Competitive Advantage

Th e term competitive advantage describes an organization’s ability to use resources so well

that it performs better than the competition. Typical sources of competitive advantage are: 5

• Technology—using technology to gain operating effi ciencies, market exposure, and cus-

tomer loyalty.

Competitive advantage is the ability

to do something so well that one

outperforms competitors.

LEARN MORE

ABOUT

SSStrraatteegiic MMMaannaageeemmenntS

217Strategic Management

• Cost and quality—operating with greater effi ciency and product or service quality.

• Knowledge and speed—doing better at innovation and speed of delivery to market for

new ideas.

• Barriers to entry—creating a market stronghold that is protected from entry by others.

• Financial resources—having better investments or loss absorption potential than

competitors.

Achieving and retaining competitive advantage is an increasingly diffi cult challenge to

master. Whenever organizations do things very well, rivals try to duplicate and copy their

approach. Th e ultimate goal is creating sustainable competitive advantage—competitive

advantage that is durable and diffi cult or costly for others to copy or imitate. When you think

sustainable competitive advantage, think about Apple’s iPad. One analyst observes: “Apple

moved the goal posts before most of their competitors even took the fi eld.” 6 Th e iPad was

fi rst to market as an innovative product linking design, technology, and customer appeal.

It was also backed by Apple’s super-effi cient supply chain, which made it a high-margin

product. Th e iPad is still a top seller, but tablet consumers can now choose competing

products off ering many similar features. Lawsuits between Apple and Samsung over

copyrights, such as the “slide to unlock” feature, illustrate what is at stake in the battles for

competitive advantage. 7

Strategy and Strategic Intent

If sustainable competitive advantage is the goal, “strategy” is the means to achieve it. 8 A

strategy is a comprehensive action plan that identifi es the long-term direction for an orga-

nization and that guides resource utilization to achieve sustainable competitive advantage.

It is a “best guess” about what must be done for future success in the face of competition and

changing market conditions. And, it usually involves risk taking. At Facebook, for example,

the fi rm’s mission is “to give people the power to share and make the world more open and

connected.” 9 Given this mission, CEO Mark Zuckerberg struggled to match a web-based and

computer-focused legacy strategy with new trends in mobile. He made an important deci-

sion to commit the company to a “mobile fi rst” strategy that shifted the direction for inno-

vation and app development away from computers and toward smartphones. Th e new

strategy quickly paid off with increased mobile ad revenues and a higher share price. 10

Just as with our personal assets, organizational resources like time, money, and people

get wasted when they are spent on things that don’t result in real accomplishments. Th e

presence of a strategy helps ensure that resources are used with consistent strategic intent—

that is, with all energies directed toward accomplishing a long-term target or goal. 11

In the

Facebook case just described, CEO Mark Zuckerberg backed his mobile first strategy

Sustainable competitive advantage is

the ability to outperform rivals in ways

that are diffi cult or costly to imitate.

A strategy is a comprehensive plan

guiding resource allocation to achieve

long-term organization goals.

Strategic intent focuses and applies

organizational energies on a unifying

and compelling goal.

Strategy Shift to Free-to-Play Changes the Game

World of Warcraft . . . Marvel Heroes . . . Angry Birds . . . who wants to pay to play? As

it turns out, fewer and fewer people want to pay. Gone are the days when World of

Warcraft subscriptions were surging and Angry Birds downloads reached 2 billion.

When Warcraft subscribers fell 40% and Birds profi ts dropped 50%, game makers

realized it was time for change. Th ey are quickly shifting strategy toward mobile and

“freemium”—use your smartphone and play for free, but purchase extras such as short

cuts, unique powers, or new content. A venture investor in Gazillion Entertainment,

maker of Marvel Heroes, says: “Th ere are lots of companies that go through twists and

turns. We believe a lot of risk in this company is behind it.”G A

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218 CHAPTER 10 ■ Strategy and Strategic Management

by halting any company meeting he was attending where someone began by talking about

computers instead of smartphones. 12

Patagonia backs its commitment to sustainability in

the apparel industry by programs like Common Th read, which reduces use of new materials

by allowing customers to return purchased items for repair, reuse, and recycling. 13

Levels of Strategy

Google buys Nest Labs for $3.2 billion . . . Rovio Lets Angry Birds Roam Free . . . Chip maker

thrives on virtual manufacturing.

Th ese headlines display the three levels of strategy in organizations shown in Figure 10.1. At

the corporate level of strategy, Google adds to its business lines by purchasing the smart-

home company Nest Labs. At the business level of strategy, Rovio Entertainment shifts from

selling Angry Birds to off ering it free but selling add-on features. At the functional level of

strategy, a semiconductor chip maker operates with a virtual factory. 14

In order to really

understand the stories behind these headlines, you need to understand the strategy and

how it fi ts with both the business purpose and the current competitive conditions.

Corporate-Level Strategy At the highest level, corporate strategy directs the organization as a whole toward sustain-

able competitive advantage. It describes the scope of operations by answering this corporate-level

strategic question: “In what industries and markets should we compete?” Th e purpose of cor-

porate strategy is to set direction and guide resource allocations for the entire enterprise. It

identifi es how large and complex organizations can compete across multiple industries and

markets. General Electric, for example, owns more than 100 businesses in a wide variety of

areas, including aircraft engines, appliances, capital services, medical systems, and power

systems. Typical corporate-level strategic decisions for GE relate to initiatives such as new

business acquisitions and existing business expansions and cutbacks.

Business-Level Strategy Business strategy sets the direction for a single business unit or product line. It involves

asking and answering this business-level strategic question: “How are we going to compete for

customers in this industry and market?” Typical business strategy decisions include choices

about product and service mix, facilities locations, and new technologies. Business strategy

is the corporate strategy in single-product enterprises. Th e term strategic business unit (SBU)

is often used to describe a business that operates as part of a larger enterprise, such as

online retailer Zappos within the Amazon umbrella and smart home fi rm Nest Labs within

Google’s suite of businesses.

Whereas the enterprise on a whole

will have a corporate strategy, each

SBU will have its own focused busi-

ness strategy. Porsche Automobile

Holding SE, for example, is owned by

Volkswagen Group. Historically a two-

door sports car company, Porsche

adjusted its business strategy and

successfully marketed a sport utility

vehicle, the Cayenne, that became the

brand’s volume sales leader. It was

followed by another success—a four-

door sedan, the Panamera. 15

Th ese

shifts in business-level strategy, which

are core to Porsche operations, don’t

bear directly on the corporate-level

strategy of Volkswagen as a whole.

A corporate strategy sets long-term

direction for the total enterprise.

A business strategy identifi es how

a division or strategic business unit

will compete in its product or service

domain.

Corporation

Finance Human resources

Manufacturing Marketing

Strategic Business

Unit A

Strategic Business

Unit B

Strategic Business

Unit C

Corporate strategy What businesses are we in?

Business strategy How do we compete in each of our major businesses?

Functional strategy How do we best support each of our business strategies?

FIGURE 10.1 Corporate-level strategy, business-level strategy,

and functional strategy.

219Strategic Management

Functional Strategy Functional strategy guides the use of organizational resources to implement business

strategy. Th e functional-level strategic question is: “How can we best utilize resources within

a function to implement our business strategy?” Answers to this question might focus on

ways to improve products, gain effi ciencies, and enhance customer service. Th e attention in

functional strategy focuses on activities within a specifi c functional area such as marketing,

manufacturing, fi nance, or human resources. Picochip, for example, produces specialized

microchips using a “virtual” model where all chip production is outsourced. CEO Nigel Toon

says what the fi rm saves from not having expensive factories it invests in research and devel-

opment on state-of-the-art chip designs. 16

Strategic Management Process

Developing strategy for an organization may seem like a deceptively simple task: Find out

what products and services customers want, provide these at the best possible price, and

make sure competitors can’t easily copy what you are doing. In practice, this can get very

complicated. 17

Th e reality is that strategies don’t just happen; they must be developed and

then implemented eff ectively. At the same time that managers in one organization are doing

all of this, their competitors are trying to do the exact same thing—only better. Succeeding

in this mix of competitive pressures depends on strategic management, the process of

formulating and implementing strategies to accomplish long-term goals and sustain

competitive advantage.

A functional strategy guides activities

within one specifi c area of operations.

Strategic management is the process

of formulating and implementing

strategies.

Wendy Kopp, founder and CEO of Teach for America, proposed the creation of her nonprofi t organization in an undergradu- ate thesis at Princeton University. Two short decades later, her

strategic leadership had inspired more than 38,000 teacher partici-

pants and reached more than 3 million children nationwide. Kopp’s

vision as a college student was to “eliminate educational inequities,”

regardless of a child’s family income. Th at vision still guides Teach

for America’s strategy.

Kopp’s ability to engage in continuous change and perfor-

mance enhancement is part of her organization’s success story.

“Change is Possible,” states the organization’s website: “We can

provide an excellent education for kids in low-income communi-

ties . . . they can achieve at the highest levels.” Part of Kopp’s strat-

egy was to identify target “priority regions” like Detroit and

Memphis. Well over half of the regions in need have requested

math and science teachers. Th e demand for subject areas such

as early childhood education, special education, and Spanish/

bilingual education remains strong.

Teach for America’s goal is to help children growing up in

poverty beat what Kopp calls “the culture of low achievement.”

Her strategy is to enlist high-achieving, recent college graduates

and professionals to make a diff erence by serving two-year teaching

stints in low-income urban and rural communities. Th at’s a teach-

able moment!

FIND THE INSPIRATION

How much of Teach for America’s success is due to Kopp’s clear and compelling vision for social change? What lessons on the link between vision and strategy does this example offer organiza- tions across all industries? Is it easier to inspire people to imple- ment strategy in a nonprofi t context with a social mission than it is in a business that is profi t driven? How can the leader of a for-profi t business generate strong employee commitment to the fi rm’s strategy and vision?

wisdom> LEARN FROM ROLE MODELS > “We can provide an excellent education for kids in low-income communities . . . they can

achieve at the highest levels.”

Wendy Kopp Tackles Culture of Low Achievement

Press-Telegram, Stephen Carr/© AP/Wide World Photos

220 CHAPTER 10 ■ Strategy and Strategic Management

As shown in Figure 10.2, the strategic management process begins with strategic analysis

to assess the organization, its environment, its competitive positioning, and its current

strategies. Next in the process is strategy formulation, developing a new or revised

strategy. Th e fi nal phase is strategy implementation, using resources to put strategies

into action, and then evaluating results so that the implementation can be improved or the

strategy changed. As the late management consultant and guru Peter Drucker once said:

“Th e future will not just happen if one wishes hard enough. It requires decision—now. It

imposes risk—now. It requires action—now. It demands allocation of resources, and above

all, it requires work—now.” 18

Strategic analysis is the process of

analyzing the organization, the

environment, and the organization’s

competitive position and current

strategies.

Strategy formulation is the process of

crafting strategies to guide the allocation

of resources.

Strategy implementation is the process

of putting strategies into action.

Strategy Formulation– Creating strategies

Strategic Analysis– Assessing competitive position

Strategy Implementation– Putting strategies into action

Revise objectives and select new strategies: • Corporate strategies • Business strategies • Functional strategies

Implement strategies: • Management systems and practices • Strategic leadership

Evaluate results and make adjustments: • Strategic control • Corporate governance • Renew strategic management process

Analyze organization and environment: • Organizational strengths and weaknesses • Environmental opportunities and threats • Rivalry and Industry attractiveness

Identify and analyze: • Mission • Stakeholders • Core values and culture • Objectives

FIGURE 10.2 Major elements in the strategic management process.

Learning Check 1

TAKEAWAYQUESTION 1 What is strategic management?

BE SURE YOU CAN • defi ne competitive advantage, strategy, and strategic intent • explain the concept of sustainable

competitive advantage • diff erentiate corporate, business, and functional strategies • diff erentiate strategy formulation from

strategy implementation • list the major phases in the strategic management process

Essentials of Strategic Analysis TAKEAWAY 2 What are the essentials of strategic analysis?

Analysis of mission, values, objectives

SWOT analysis of organization and environment

Five forces analysis of industry attractiveness

When it comes to the essentials of strategic analysis, there is a core set of strategic questions

that any top manager should be prepared to answer. (1) What is our business mission?

(2) Who are our customers? (3) What do our customers value? (4) What have been our

results? (5) What is our plan? 19

Analysis of Mission, Values, and Objectives

Th e strategic management process begins with an analysis of mission, values, and objectives.

Th is sets the stage for assessing the organization’s resources and capabilities, as well as

opportunities and threats in its external environment.

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221Essentials of Strategic Analysis

Mission and Stakeholders Th e mission or purpose of an organization describes its reason for existence in society.

Strategy consultant Michael Hammer believes that a mission should represent what the

strategy or underlying business model is trying to accomplish. In order to clarify mission he

suggests asking: “What are we moving to?” “What is our dream?” “What kind of a diff erence

do we want to make in the world?” “What do we want to be known for?” 21

Patagonia’s mission is to “Build the best product, cause no unnecessary harm, use

business to inspire and implement solutions to the environmental crisis.” 22

Th is mission

statement identifi es not only a business direction but also a distinctive value commit-

ment that gives Patagonia a unique

identity as it competes with much

larger rivals in its industry.

A clear sense of mission helps

inspire the support and respect of

an organization’s stakeholders.

Th ese are individuals and groups—

including customers, shareholders,

employees, suppliers, creditors,

community groups, future genera-

tions, and others—who are directly

aff ected by the organization and its

accomplishments. Figure 10.3 gives

an example of how stakeholder

interests can be linked with an

organization’s mission.

Core Values and Culture Organizational values and culture should be analyzed in the strategic management process

to determine how well they align with the mission. 23

Core values are broad beliefs about

what is or is not appropriate behavior. Patagonia founder and chairman Yvon Chouinard

says: “Most people want to do good things, but don’t. At Patagonia it’s an essential part of

your life.” 24

He leads Patagonia with a personal commitment to sustainability and expects

the fi rm to live up to it as a core value. Among other things, Patagonia donates employee

time and 11% of sales to support environmental groups, uses recycled polyester and organic cotton, and emphasizes “simplicity and utility” in product designs.

Th e presence of core values helps build a clear organizational identity. It gives the orga-

nization a sense of character as seen through the eyes of employees and external stake-

holders. Th is character is part of what is called organizational culture or the predominant

value system of the organization as a whole. 26

A clear and strong organizational culture

helps guide the behavior of members in ways that are consistent with the organization’s

mission and core values. When browsing Patagonia’s website for job openings, for exam-

ple, the message about the corporate culture is clear: “We’re especially interested in peo-

ple who share our love of the outdoors, our passion for quality, and our desire to make a

diff erence.” 27

Objectives Whereas a mission statement lays out an organization’s purpose and core values set stan-

dards for accomplishing it, operating objectives direct activities toward key performance

areas. Typical operating objectives for a business include the following: 28

• Profi tability—operating with a net profi t.

• Sustainability—helping to preserve, not exploit, the environment.

• Social responsibility—acting as a good community citizen.

A mission statement expresses the

organization’s reason for existence in

society.

Stakeholders are individuals and

groups directly aff ected by the

organization and its strategic

accomplishments.

Core values are broad beliefs about

what is or is not appropriate behavior.

Organizational culture is the

predominant value system for the

organization as a whole.

Operating objectives are specifi c

results that organizations try to

accomplish.

Employees

We respect the individuality of each employee . . . creativity and productivity are encouraged, valued, and rewarded.

Shareholders

We are dedicated to . . . performing in a manner that will enhance returns

on investments.

Customers

We are committed to providing superior value

in our products and services.

Suppliers

We think of our suppliers as partners who share our goal of . . . highest quality.

Communities

We are committed to being caring and supportive corporate citizens within the

worldwide communities in which we operate.

Mission

FIGURE 10.3 External stakeholders as strategic constituencies in an

organization’s mission statement.

222 CHAPTER 10 ■ Strategy and Strategic Management

• Financial health—acquiring capital; earning positive returns.

• Cost effi ciency—using resources well to operate at low cost.

• Customer service—meeting customer needs and maintaining loyalty.

• Product quality—producing high-quality goods or services.

• Market share—gaining a specifi c share of possible customers.

• Human talent—recruiting and maintaining a high-quality workforce.

• Innovation—developing new products and processes.

Well-chosen operating objectives can turn a broad sense of mission into specifi c perfor-

mance targets. In the case of Patagonia, mission, values, and operating objectives fi t together

as a coherent whole. Chouinard says that he wants to run Patagonia “so that it’s here 100

years from now and always makes the best-quality stuff .” Although one of the fi rm’s objec-

tives is revenue growth, this doesn’t mean growth at any cost. Chouinard’s objective is

modest growth, not extreme or uncontrolled growth. 29

SWOT Analysis of Organization and Environment

A technique known as SWOT analysis is a useful fi rst step in analyzing the organization

and its environment. As Figure 10.4 describes, it is an internal analysis of organizational

strengths and weaknesses as well as an external analysis of environmental opportunities and

threats. Although the following examples and discussion apply SWOT to organizations, you

can also apply it in your own career and life planning.

A SWOT analysis begins with a systematic evaluation of the organization’s resources

and capabilities—its basic strengths and weaknesses. You can think of this as an

analysis of organizational capacity to achieve its objectives. A major goal is to identify core

competencies—things that the organization does exceptionally well in comparison with

competitors. Th ey are capabilities that—by virtue of being rare, costly to imitate, and not

substitutable—become potential sources of competitive advantage. 30

An organization’s core

competencies may be found in special knowledge or expertise, superior technologies,

effi cient supply chains, or unique distribution systems, among many other possibilities. As

an individual, core competencies may include your unique combination of intelligence,

knowledge, experience, personality, and enthusiasm.

Organizational weaknesses represent the other end of the competency spectrum. Th e goal

here is to identify things that inhibit performance and hold the organization back from fully

accomplishing its objectives. Exam-

ples might be outdated products,

lack of fi nancial capital, shortage of

talented workers, and poor or poorly

used technology. At the individual

level, weaknesses may include lim-

ited work experience, underdevel-

oped computing skills, knowing only

one language, or no industry-specifi c

certifi cations.

Once weaknesses are identifi ed,

plans can be set to eliminate or

reduce them, or possibly to turn

them into strengths. Even if some

weaknesses cannot be corrected, it

is critical that they be understood.

Strategies should ideally build on

strengths and minimize the negative

impact of weaknesses.

No SWOT analysis is complete

until opportunities and threats in

A SWOT analysis examines

organizational strengths and

weaknesses and environmental

opportunities and threats.

A core competency is a special

strength that gives an organization a

competitive advantage.

What are our weaknesses? Outdated facilities? Inadequate R & D? Obsolete technologies? Weak management? Past planning failures?

What are our threats? New competitors? Shortage of resources? Changing market tastes? New regulations? Substitute products?

What are our strengths? Manufacturing efficiency? Skilled workforce? Good market share? Strong financing? Superior reputation?

What are our opportunities? Possible new markets? Strong economy? Weak market rivals? Emerging technologies? Growth of existing market?

External Assessment of the Environment

SWOT Analysis

Internal Assessment of the Organization

FIGURE 10.4 SWOT analysis of strengths, weaknesses, opportunities,

and threats.

223Essentials of Strategic Analysis

the external environment also are assessed. As shown

in Figure 10.4, opportunities may be present as possible

new markets, a strong economy, weaknesses in com-

petitors, and emerging technologies. Environmental

threats may include such things as the emergence of

new competitors, resource scarcities, changing cus-

tomer tastes, new government regulations, and a weak

economy.

It’s important here to not forget the career implica-

tions of this discussion. If you were to analyze your stra-

tegic readiness for career entry or advancement, what would your personal SWOT look like?

What actions does this SWOT analysis point you toward to better prepare for the future you

want? What classes should you take? What internships should you apply for?

Five Forces Analysis of Industry Attractiveness

Th e ideal strategic setting for any fi rm is to operate in monopoly conditions as the only player

in an industry—that is, to have no rivals to compete with for resources or customers. But, a

monopoly position is rare except in highly regulated settings. Th e reality for most businesses

is intense rivalry and competition that unfolds either under conditions of oligopoly—facing

just a few competitors, such as in consolidated airline or wireless communications indus-

tries, or hypercompetition—facing

several direct competitors, such as

in the fast-food industry. 31

Both oli-

gopoly and hypercompetition are

strategically challenging. Hypercom-

petition is especially challenging

because any competitive advantage

gained by an organization tends to

be short-lived.

Harvard scholar and consultant

Michael Porter describes the fi ve

forces shown in Figure 10.5 as a tool

for strategic analysis in competitive

industries. 32

He calls these fi ve forces

the “industry structure”:

1. Industry competition—the intensity of rivalry among fi rms in the industry and the

ways they behave competitively toward one another.

2. New entrants—the threat of new competitors entering the market, based on the presence

or absence of barriers to entry.

3. Substitute products or services—the threat of substitute products or services, or ability

of customers to get what they want from other sellers.

4. Bargaining power of suppliers—the ability of resource suppliers to infl uence the price

that a fi rm has to pay for their products or services.

5. Bargaining power of customers—the ability of customers

to infl uence the price that they will pay for the fi rm’s

products or services.

Th e status of these fi ve forces determines an industry’s

attractiveness or potential to generate long-term business

returns. Th e less attractive the industry structure, the harder

it is to make good strategic choices and realize sustained

competitive advantage. According to a fi ve forces analysis,

an unattractive industry has intense rivalry among competi-

tors, substantial threats in the form of possible new entrants

• Build on and use strengths to create core competencies.

• Avoid relying on weaknesses that can’t be turned into strengths.

• Move toward opportunities to capture advantage.

• Avoid threats or act in ways that minimize their impact.

Take Advantage of Insights from SWOT Analysis

Bargaining power of

customers

Threat of new entrants to industry

Bargaining power of suppliers

Threat of substitute products

Level of competition or rivalry among firms in industry

FIGURE 10.5 Porter’s model of fi ve strategic forces aff ecting industry

competition.

Attractive Industry Unattractive Industry

• Few competitors • Many competitors

• High barriers to entry • Low barriers to entry

• Few substitute products • Many substitute products

• Low power of suppliers • High power of suppliers

• Low power of customers • High power of customers

Five Forces Analysis

224 CHAPTER 10 ■ Strategy and Strategic Management

and substitute products, and suppliers and buyers with bargaining power over price and

quality. An attractive industry, by contrast, has less competition, fewer threats from new

entrants or substitutes, and lower supplier and buyer bargaining power.

Learning Check 2

TAKEAWAYQUESTION 2 What are the essentials of strategic analysis?

BE SURE YOU CAN • explain how a good mission statement helps organizations relate to stakeholders • defi ne core values

and organizational culture • List several operating objectives for organizations • defi ne core competency • explain SWOT

analysis • use Porter’s fi ve forces model to assess the attractiveness of an industry

Corporate-Level Strategy Formulation TAKEAWAY 3 What are corporate-level strategies and how are they formulated?

Portfolio planning model • Growth and diversifi cation strategies Retrenchment and restructuring strategies

Global strategies • Cooperative strategies

Th e CEO and the top management team are responsible for plotting the strategic direc-

tion of an organization within its industry. Th is is often easier said than done. It’s easy to

fi nd examples of organizations choosing and changing courses of action in search of the

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Managers face signifi cant challenges as they try to move their organizations forward with success in increasingly complex and ever-changing environments. When the environ-

ment is complex and uncertain, critical thinking skills are

especially important. Th ey help us to gather, organize, analyze,

and interpret information to make good decisions in situations

that range from diffi cult to totally perplexing.

Th e case studies and problem-solving projects in your courses

help to develop your critical thinking skills. But beware—a lot of

information in circulation on and off the Internet is anecdotal,

superfi cial, irrelevant, and often just plain inaccurate. You have to

be disciplined, cautious, and discerning when interpreting the

credibility and usefulness of available information. In other words,

you must be good at critical thinking.

The same critical thinking that is part of a rigorous class

discussion or case study in your course is what helps managers

create strategies that result in competitive advantage. But

managers rarely have the luxury of full information boxed up for

analysis in a nice, neat case format. Many life and career events

are a lot like puzzles—everything looks pretty easy until you sit

down and try to put all the pieces together. Are your critical

thinking skills up to the challenges of the constantly changing

competitive landscape? How good are you at making critical

connections in unusual situations? For starters, take a stab at

the two puzzles shown here.

GET TO KNOW YOURSELF BETTER

Is your personal career strategy well attuned to the future job mar- ket, and not just the present one? Are you showing strong critical thinking skills as you make academic choices and prepare for your career? Make a list of information you need to make solid career choices. Identify where you can obtain this information and how credible these information sources are. Write a short plan that out- lines how you’ll use this information and commits you to activities in this academic year that can improve your career readiness.

insight> LEARN ABOUT YOURSELF > Many life and career events are a lot like puzzles; everything looks pretty easy until you sit

down and try to put all the pieces together.

Get and Stay Ahead with Critical Thinking

Puzzle 2 Draw no more than four lines that cross all nine dots; don’t lift your pencil while drawing.

Puzzle 1 Divide this shape into four shapes that are exactly the same size as one another.

225Corporate-Level Strategy Formulation

best strategy—one that keeps them moving forward in a complex and ever-changing com-

petitive environment. Th ink of this the next time you want to watch a movie or TV show at

home. Th is is a fast-moving and highly competitive landscape where Netfl ix, Apple, Amazon,

and the cable and telephone companies are constantly trying to fi gure out how to capture

and retain your attention. Th ey have to constantly worry about and deal with one another,

and any number of startups seeking to off er alternatives to their products.

Portfolio Planning Model

Google’s CEO Larry Page faces a diffi cult strategic question all the time: How should he

allocate Google’s resources across a diverse mix of opportunities? Growth by acquisition has

added great diversity to what started out as a search engine and software company. Page

now has to manage everything from search to YouTube to robotics to smart homes to wind

farms to self-driving cars, and more. 33

If you think about it, Page’s strategic management

questions are similar to those we all face in managing personal assets. How, for example, do

you create a good mix of cash, stocks, bonds, and real estate investments? What do you buy

more of, what do you sell, and what do you hold? Th ese are the same questions that execu-

tives ask all the time. Th ey are portfolio-planning questions, and they have major strategic

implications. Shouldn’t they be made systematically rather than randomly? 34

The Boston Consulting Group offers a portfolio planning approach known as the

BCG Matrix. Although more complicated models of strategic portfolio planning are

available, the BCG Matrix is a widely accepted and well-understood foundation for

understanding the portfolio planning approach to strategic resource allocation decisions.

Th e BCG Matrix shown in Figure 10.6 asks managers to analyze business and product

strategies based on two major factors: (1) market growth rate for the industry, and (2) mar-

ket share held by the fi rm. 35

Th e analysis shown in the fi gure sorts businesses or products

into four strategic types: Dogs, Stars, Question Marks, and Cash Cows. Each type comes with

a recommended core or master strategy—growth, stability, or retrenchment. 36

Th ese strate-

gies become the guidelines for making resource allocation decisions.

• Grow the Stars. Businesses or products with high market shares in high-growth markets

are “Stars” in the BCG Matrix. Th ey produce large profi ts through substantial pene-

tration of expanding markets. Th e preferred strategy for Stars is growth, and the BCG

Matrix recommends making further resource investments in them. Not only are Stars

high performers in the present—they off er similar potential for the future. If we look at

Apple today, the iPad would be a Star.

BCG Matrix analyzes business opportu-

nities according to market growth rate

and market share.

Question Marks poor position; growing industry

Dogs poor position; low-growth industry

Stars dominant position; growing industry

Cash Cows dominant position; low-growth industry

Market Share of Products/Services Low High

Low

High

Market Growth Rate for Products/Services

Growth or retrenchment

strategy

Retrenchment strategy

Growth strategy

Stability or modest growth strategy

FIGURE 10.6 Th e BCG matrix approach for portfolio planning in corporate-level strategy formulation.

226 CHAPTER 10 ■ Strategy and Strategic Management

• Milk the Cash Cows. Businesses or products with high-market shares in low-growth

markets are “Cash Cows” in the BCG Matrix. Th ey produce good profi ts and a strong

cash fl ow, but with little upside potential. Because the markets off er limited growth

opportunity, the preferred strategy for Cash Cows is stability or modest growth. Like

real dairy cows, the BCG Matrix advises fi rms to “milk” these businesses. Th ey should

invest just enough to keep them stable or growing just a bit. Th is keeps them generating

cash that can be reinvested in other more promising areas. For Apple, we might wonder:

Is yesterday’s Star—the iPhone—becoming (or already) a Cash Cow?

• Grow or Retrench the Question Marks. Businesses or products with low-market shares in

high-growth markets are “Question Marks” in the BCG Matrix. Although they may not

generate much profi t at the moment, the upside potential is there because of the grow-

ing markets. But nothing is guaranteed. Question Marks make for diffi cult strategic

decision making. Th e BCG Matrix recommends targeting only the most promising

Question Marks for growth, while retrenching those that are less promising. What’s the

most promising Question Mark at Apple today? Th at’s a good question, and perhaps the

answer is Apple TV. Will it be the Star of the future, or a Dog?

• Retrench the Dogs. Businesses or products with low-market shares in low-growth mar-

kets are “Dogs” in the BCG Matrix. Th ey produce little if any profi t, and they have low

potential for future improvement. Th e preferred strategy for Dogs in the BCG Matrix is

retrenchment. Not too long ago Apple’s iPhone was a Star; then it became a Cash Cow.

Is it now well on the road to being tomorrow’s Dog?

Growth and Diversifi cation Strategies

Among the core or master strategies just illustrated in the BCG matrix, growth strategies

seek to expand the size and scope of operations. Th e goal is to increase total revenue, product

or service lines, and operating locations. When you hear terms like “acquisition,” “merger,”

and “global expansion,” for example, they indicate a growth strategy.

Growth is a common and popular business strategy. And although there is a tendency to

equate growth with eff ectiveness, it is possible to get caught in an “expansion trap” where growth

outruns an organization’s capacity to manage it. Mark Zuckerberg faced this problem at Face-

book. Th e fi rm grew incredibly fast and spending outran revenues. Th e Wall Street Journal claimed

it had “growing pains,” and Zuckerberg even asked: “Is being a CEO always this hard?” His response

was to hire an experienced Google vice president, Sheryl Sandberg, to become chief operating

offi cer and lead Facebook’s continued expansion. 37

Th is decision took some humility on Zucker-

berg’s part, and it’s also one that history has shown to be a great move for Facebook.

Organizations pursue growth strategies in a variety of ways. One approach is to grow

through concentration—expanding within in the same business area. McDonald’s, Dollar

General, Auto Zone, and others pursue growth strategies by adding locations while still

concentrating on their primary businesses. And some, as their domestic markets become

saturated, aggressively expand around the world to fi nd new customers and push further

sales growth. McDonald’s growth plans for Asia, the Middle East, Africa, Europe, and Latin

America outnumber the U.S. by some six stores to one. 38

Another way to grow is through strategic diversifi cation—expanding into diff erent

business areas. A strategy of related diversifi cation pursues growth by acquiring new busi-

nesses or entering business areas similar to what one already does. An example is Starbucks’

purchase of the Tazo Tea and Evolution Fresh. Th ese acquisitions helped Starbucks grow by

expanding product lines and also adding new Tazo and Evolution Fresh stores.

A strategy of unrelated diversifi cation pursues growth by acquiring businesses or entering

business areas that are diff erent from what one already does. India’s Tata Group, for example,

owns 98 companies in diverse industries such as steel, information and communications,

hotels, energy, and consumer products. Its brands include Eight O’Clock Coff ee and Tetley

Tea as well as Jaguar and Land Rover. About Tata’s growth by unrelated diversifi cation,

Chairman Ratan N. Tata says: “We have been thinking bigger . . . we have been bolder . . . we

have been more aggressive in the marketplace.” 39

A growth strategy involves expansion

of the organization’s current operations.

Growth through concentration is

within the same business area.

Growth through diversifi cation is by

acquisition of or investment in new and

diff erent business areas.

227Corporate-Level Strategy Formulation

Growth by diversifi cation is sometimes done by vertical integration where a business

moves upstream ( farther from customers) to acquire its suppliers—backward vertical inte-

gration, or moves downstream (closer to customers) to acquire its distributors—forward ver-

tical integration. Examples of backward vertical integration include Apple Computer—buying

chip manufacturers to give it more privacy and sophistication in developing microprocessors

for its products; Rolex—buying a foundry for the precious metals it uses in its luxury watches;

and, Delta Airlines—buying an oil refi nery to supply part of its aviation fuel needs. Th e bever-

age industry provides a good example of forward vertical integration. Both Coca-Cola and

PepsiCo own some major bottlers that make drinks from their concentrates and distribute

their products regionally. 40

Even a trip to the local farmer’s market shows forward vertical

integration in practice. All those stands of vegetables and fruits are run by farmers moving

downstream from production to distribution of their produce directly to customers.

Retrenchment and Restructuring Strategies

When organizations are in trouble, perhaps experiencing problems brought about by a bad

economy or too much growth and diversifi cation, the focus shifts toward retrenchment,

restructuring, and turnaround strategies that pursue radical changes to solve problems.

At one end of the extreme a fi rm may be insolvent and unable to pay its bills. In some cases

retrenchment may take the form of Chapter 11 bankruptcy, which under U.S. law gives

fi rms protection while they reorganize to restore solvency. Both Chrysler and General Motors

used this strategy during the recent economic crisis. In other cases an insolvent fi rm goes

into outright liquidation, where business ceases and assets are sold off to pay creditors.

Short of bankruptcy and liquidation, distressed organizations can try other retrenchment

strategies to get back on a path toward competitiveness. Restructuring by downsizing

decreases the size of operations, often by drastically reducing the workforce. 41

Facing revenue

declines, for example, H-P’s CEO Meg Whitman decided to lay off 14% of the firm’s

workforce—some 50,000 workers. By making the cuts and saving over $1.6 billion in costs,

she hoped to restore growth by making new investments in technology and workforce

skills. 42

When you learn of organizations downsizing, however, you should be skeptical of

those making “across-the-board” cuts. Research shows that downsizing is most successful

when cutbacks are done selectively and with specifi c performance objectives. Th e term

rightsizing is sometimes used to describe downsizing with a clear strategic focus. 43

Restructuring by divestiture involves selling off parts of the organization to refocus what

remains on core competencies, cutting costs, and improving operating effi ciency. You’ll see

this strategy followed by organizations that become overdiversifi ed and whose executives

have problems managing so much complexity. For example, eBay bought Skype with high

expectations and later sold it to private investors at a loss. At the time of sale eBay’s CEO said,

Growth through vertical integration

occurs by acquiring upstream suppliers

or downstream distributors.

Retrenchment, restructuring, and

turnaround strategies pursue radical

changes to solve problems.

Chapter 11 bankruptcy under U.S. law

protects a fi rm from creditors while

management reorganizes to restore

solvency.

Liquidation is where a business closes

and sells its assets to pay creditors.

A downsizing strategy decreases the

size of operations.

Divestiture sells off parts of the

organization to refocus attention on

core business areas.

Growth by Concentration Rules in Bundled Voice, Video, and Broadband

Companies are putting voice, video, and broadband together in the quest for growth

and competitive advantage. Comcast paid $45 billion for Time Warner to reach more

than 30 million subscribers; AT&T bid $48.5 billion for DirecTV to reach 26 million

subscribers. But who wins in this strategic game of growth by concentration—

shareholders, customers, or both? Th e U.S. government, for one, is worried about anti-

trust concerns. Senator Al Franken says: “Th e result, I believe, will be less innovation,

less choice for consumers, higher costs for consumers and worse service.” AT&T argues

that combining its broadband strengths with DirecTV’s video strengths is necessary

in order to create healthy competition for the now-giant Comcast/Time Warner.© T

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228 CHAPTER 10 ■ Strategy and Strategic Management

“Skype is a strong standalone business, but it does not have synergies with our e-commerce

and online payments business.” 44

In other words, the original purchase was a costly and bad

idea. Skype is now owned by Microsoft, where the strategic question is: Will the expected

synergies pay off , or will there be yet another divestiture in Skype’s future?

Restructuring by turnaround is an attempt to fi x an organization’s specifi c performance

problems. It often occurs along with a change in top management. Check the latest on Yahoo!,

a company that has struggled for traction even though its brand is well established. Founder

Jerry Yang stepped down as CEO after investors complained he made a mistake by refusing a

buyout off er from Microsoft. Carol Bartz was then hired in a turnaround attempt. She was

fi red after 30 months on the job and replaced by Scott Th ompson. His fi rst major move was

to sue Facebook, a strategic partner, over patent infringements. He lasted less than a year. Th e

next to step in as CEO was Marissa Mayer, a Google star. She has made many changes in the

fi rm’s structure, culture, operations, and strategies, and earned respect from the fi nancial

markets. Yet, Yahoo’s future remains a question mark to many investors and analysts. 45

Global Strategies

A key issue in corporate strategy today is how to embrace the global economy and its mix

of business risks and opportunities. 46

An easy way to spot diff erences in global strategies is

to notice how products are developed and advertised around the world. A fi rm pursuing a

globalization strategy tends to view the world as one large integrated market. It makes

A turnaround strategy tries to fi x

specifi c performance problems.

A globalization strategy adopts

standardized products and advertising

for use worldwide.

corporations that put offi ces and plants there. Th at compares

with the standard 35% rate due at home. If you set up two Irish

companies and arrange to funnel foreign earnings through them—

the double Irish move—you pay the lesser tax bill. If those same

earnings are then routed out from and back to Ireland passing

through the Netherlands and Bermuda, the tax bill goes down

further—the Dutch sandwich.

Who does all this? Apple, Google, and Microsoft are among the

players taking a bite out of their U.S. tax bills. But the strategy isn’t

without controversy. Th ose in favor of the practice are likely to say:

“It’s perfectly legal” . . . “It boosts corporate earnings” . . . “You’d be a

fool not to take advantage of the situation.” Th ose against the practice

are likely to say: “Wait a minute—I pay my full taxes; why shouldn’t

they?” . . . “Something isn’t right here—isn’t it just a blatant tax

avoidance scheme?” . . . “We all lose when global corporations

don’t pay their taxes here at home.”

YOUR TAKE?

Global business is a complicated world, and tax laws vary widely from one country to the next. International business executives have to be sophisticated and informed when it comes to manag- ing fi nancial transactions across borders. Are you among those who applaud executives who fi nd and execute strategies like the double Irish with a Dutch sandwich? Or, are you among those who want to put a stop to these practices? Why?

choices> THINK BEFORE YOU ACT > Ireland offers a 12.5% corporate tax rate to corporations that put offi ces and plants there.

That compares with the standard 40% rate due at home.

Double Irish with a Dutch Sandwich

No, it’s not a drink and a sandwich we’re talking about. It’s a global business strategy used to reduce corporate income taxes paid in America. Ireland off ers a 12.5% corporate tax rate to

229Business-Level Strategy Formulation

most decisions from the corporate headquarters and tries as much as possible to standard-

ize products and advertising for use everywhere. Th e latest Gillette razors from Procter &

Gamble, for example, are likely to be sold and advertised similarly around the world.

Firms using a multidomestic strategy try to customize products and advertising as much

as possible in order to fi t local preferences in diff erent countries or regions. McDonald’s is a

good example. Although you can get your standard fries and Big Mac in most locations, you

can have a McVeggie in India, a McArabia Kofta in Saudi Arabia, and a Croque McDo in France.

A third approach is the transnational strategy where a fi rm tries to operate without a

strong national identity and blend seamlessly with the global economy. Resources and

management talents are acquired worldwide, while manufacturing and other business

functions are located wherever in the world they can be accomplished at the lowest cost.

Ford is an example. Its global strategy uses design, manufacturing, and distribution expertise

all over the world to build core car platforms that build vehicles using common parts and

components. Th ese platforms produce cars like the Focus and Fiesta that are then sold

around the world with slight modifi cations to meet regional tastes.

Cooperative Strategies

It’s quite common today to hear about strategic alliances where two or more organizations

join in a targeted partnership to pursue an area of mutual interest. Th is is basically a strategy

of cooperating for common gains. In an outsourcing alliance, one organization contracts to

purchase important services, perhaps IT or human resources, from another. In a supplier

alliance, preferred supplier relationships guarantee a smooth and timely fl ow of quality sup-

plies among partners. In a distribution alliance, fi rms join together as partners to sell and

distribute products or services.

One interesting strategic direction is called co-opetition, or strategic alliances among

competitors. 47

Th e idea behind co-opetition is that organizations can still cooperate even as

they compete with one another. Th e airline industry is a great example. United Airlines and

Lufthansa are major international competitors, but they also cooperate as “Star Alliance”

partners. The alliance provides their customers code-sharing on flights and shared

frequent-fl yer programs. Th ere’s also co-opetition in the auto industry where the cost of

developing new technologies provides the stimulus to cooperate. Daimler cooperates with

BMW to co-develop new motors and components for hybrid cars; it cooperates with Nissan

to co-develop electric car batteries. 48

A multidomestic strategy customizes

products and advertising to best fi t local

needs.

A transnational strategy seeks

effi ciencies of global operations with

attention to local markets.

In a strategic alliance, organizations

join in partnership to pursue an area of

mutual interest.

Co-opetition is the strategy of working

with rivals on projects of mutual benefi t.

Learning Check 3

TAKEAWAYQUESTION 3 What are corporate-level strategies and how are they formulated?

BE SURE YOU CAN • describe the BCG matrix as a strategic portfolio planning tool • list and explain the major types of

growth and diversifi cation strategies • list and explain the major types of retrenchment and restructuring strategies • list and

give examples of global strategies • defi ne strategic alliance and explain cooperation as a business strategy

Business-Level Strategy Formulation TAKEAWAY 4 What are business-level strategies and how are they formulated?

Competitive strategies model • Diff erentiation strategy Cost leadership strategy • Focus strategy

Harvard’s Michael Porter says that “the company without a strategy is willing to try

anything.” 49

But with a good strategy in place, he believes a business can achieve superior

profi tability or above-average returns within its industry. Th e key question in formulating

business-level strategy is: “How can we best compete for customers in our market and with

our products or services?”

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230 CHAPTER 10 ■ Strategy and Strategic Management

Competitive Strategies

Model

Figure 10.7 shows Porter’s model for

choosing competitive strategies based

on the market scope of products or

services, and the source of competitive

advantage for the product or service.

With respect to market scope, the strate-

gic planner asks: “How broad or narrow

is the market or target market?” With

respect to source of competitive advan-

tage, the question is: “Do we seek com-

petitive advantage primarily through

low price or product uniqueness?”

Answers to these questions create a matrix like the one shown in the figure. Three

business-level strategies are possible—cost leadership, diff erentiation, and focus. Th ere are

two combinations of the focus strategy—focused cost leadership and focused diff erentiation.

Diff erentiation Strategy

A diff erentiation strategy seeks competitive advantage through uniqueness. Th is means

developing goods and services that are clearly diff erent from the competition. Th e strategic

objective is to attract customers who stay loyal to the fi rm’s products and lose interest in

those of its competitors.

Success with a diff erentiation strategy requires organizational strengths in marketing,

research and development, and creativity. An example in the apparel industry is Polo Ralph

Lauren, retailer of upscale classic fashions and accessories. In Ralph Lauren’s words, “Polo

redefi ned how American style and quality is perceived. Polo has always been about selling

quality products by creating worlds and inviting our customers to be part of our dream.” 50

Th e diff erentiation strategy examples in Figure 10.7 are Coke and Pepsi from the soft

drinks industry. Th ese fi rms continually battle for customer attention and loyalty. Although

part of their diff erentiation may be actual taste, another part is pure perception. Coke and

Pepsi spend enormous amounts on advertising to create beliefs that their products are

somehow distinctly diff erent from one another.

Cost Leadership Strategy

A cost leadership strategy seeks competitive advantage by operating with lower costs than

competitors. Th is allows organizations to make profi ts selling products or services at low prices

their competitors can’t profi tably match. Th e objective is to continuously improve operating

effi ciencies in purchasing, production, distribution, and other organizational systems.

Success with the cost leadership strategy requires tight cost and managerial controls, as

well as products or services that are easy to create and distribute. Th is is what might be

called the “Walmart” strategy—a fi rm takes every possible step to keep costs so low that

they can off er customers the lowest prices

and still make a reasonable profi t. Th e exam-

ple in Figure 10.7 is Sam’s Choice Colas,

where because of economies of scale and

branding these beverages can be off ered at a

fraction of the cost of “name brand” alterna-

tives. An example from the fi nancial services

industry is the Vanguard Group. It keeps

operating costs low to attract customers

who want buy mutual funds with low

expense ratios and minimum fees.

A diff erentiation strategy off ers

products that are unique and diff erent

from the competition.

A cost leadership strategy seeks to

operate with low cost so that products

can be sold at low prices.

Broad

Cost leadership strategy

Sam’s Choice Cola

Differentiation strategy

Coke, Pepsi

Focused cost leadership strategy

Publix Cherry Cola

Focused differentiation strategy

A & W Root Beer

Narrow

Low Price Source of Competitive Advantage

Unique Product

Market Scope

FIGURE 10.7 Porter’s competitive strategies framework with soft-drink

industry examples.

• Diff erentiation—Make products that are unique and diff erent.

• Cost leadership—Produce at lower cost and sell at lower price.

• Focused diff erentiation—Use diff erentiation and target needs of a special

market.

• Focused cost leadership—Use cost leadership and target needs of a special

market.

Porter’s Competitive Strategies

231Business-Level Strategy Formulation

We’re now in the era of the disposable worker, says North-western University economist Robert Gordon. Th e facts certainly support his claim. Businesses are now hiring fewer

full-timers and more part-time or temporary workers who can be

added and let go according to demand. Professor Susan J. Lambert

of the University of Chicago blames some of the switch to dispos-

able workers on the decline of labor union infl uence in the U.S.

Others simply point out the cost advantages to employers who

only have to pay for workers as needed.

■ A McKinsey survey of 2,000 employers found 58% planning to

hire more workers on a part-time, temporary, and contract basis.

■ Th e U.S. Bureau of Labor Statistics reports that 1 million full-

time jobs have been cut and 500,000 part-time positions added

by retail and wholesale employers in the past six years.

■ Almost 3 of every 10 retail/wholesale jobs are fi lled part-time.

Among those part-timers, 30.6% want full-time work.

■ Compensation for part-timers in retail/wholesale averaged

$10.92 per hour ($8.90 wages and $2.02 benefi ts) versus $17.18

for full-timers ($12.25 wages and $4.93 benefi ts).

■ A survey of retailers in New York City found half of all jobs fi lled

by part-timers. Only 1 in 10 of them had set work schedules.

YOUR THOUGHTS?

Is this switch to employing more disposable workers a good long-term strategy for businesses? How about public sector organizations like governments, schools, and local services? What are the possible downsides to the employer and the remaining full-time employees? How might this trend affect you? Is this something that you have already factored into your career plan?

analysis> MAKE DATA YOUR FRIEND > Businesses seem enamored with the idea of hiring fewer full-timers and more part-time

or temporary workers who can be added and let go according to demand.

Disposable Workers Becoming Indispensible to Business Profi ts

Stuart Rayner/iStockphoto

You might be wondering if it’s possible to combine cost leadership with diff erentiation.

Porter says, “No.” He refers to this combination as a stuck-in-the-middle strategy and believes it

is rarely successful because diff erentiation increases costs. “You can compete on price or you can

compete on product, but you can’t compete on both,” marketers tend to say. Porter agrees.

Focus Strategy

A focus strategy concentrates attention on a special market segment in the form of a niche

customer group, geographical region, or product/service line. Th e objective is to serve the

needs of the segment better than anyone else. Competitive advantage is achieved by com-

bining focus with either diff erentiation or cost leadership. 51

NetJets off ers private, secure, and luxury air travel for those who can pay a high fee, such

as wealthy media stars and executives. Th is is a focused diff erentiation strategy because

the fi rm sells a unique product to a special niche market. Also in airlines, carriers such as

Ryan Air and Easy Jet in Europe off er heavily discounted fares and “no-frills” fl ying. Th is is a

focused cost leadership strategy because it off ers low prices to attract budget travelers.

Th e airlines still make profi ts by keeping costs low. Th ey fl y to regional airports and cut out

free services such as bag checks and in-fl ight snacks. 52

A focus strategy concentrates on

serving a unique market segment better

than anyone else.

A focused diff erentiation strategy

off ers a unique product to a special

market segment.

A focused cost leadership strategy

seeks the lowest costs of operations

within a special market segment.

232 CHAPTER 10 ■ Strategy and Strategic Management

Figure 10.7 shows both types of focus strategies in the soft drink industry. Specialty drinks

such as A&W Root Beer, Dr. Pepper, and Mountain Dew represent the focused diff erentia-

tion strategy. Each focuses on a special market segment and tries to compete on the basis of

product uniqueness. Drinks like Sam’s Diet Cola, Publix Cherry Cola, and Big K Cola with

Lime represent the focused cost leadership strategy. Th ey also focus on special market

segments, but try to compete by keeping operating costs low so that their soda brands can

be profi tably sold to consumers at low prices.

Learning Check 4

TAKEAWAYQUESTION 4 What are business-level strategies and how are they formulated?

BE SURE YOU CAN • list and explain the four competitive strategies in Porter’s model • explain the diff erences between

focused diff erentiation and focused cost leadership strategies • clarify the roles of both price and cost in a cost leadership

strategy • illustrate how Porter’s competitive strategies apply to products in a market familiar to you

Strategy Implementation TAKEAWAY 5 What are the foundations for strategy implementation?

Management practices and systems • Strategic control and corporate governance Strategic leadership

A discussion of the corporate history on Patagonia, Inc.’s website includes this statement:

“During the past thirty years, we’ve made many mistakes but we’ve never lost our way for

very long.” 53

Not only is the fi rm being honest in the information it shares with the public, it

also is communicating an important point about strategic management—mistakes will be

made. Sometimes those mistakes will be in poor strategy selection. Other times they will be

failures of implementation.

Management Practices and Systems

In order to successfully put strategy into action, the entire organization and all of its

resources must be mobilized in support. Th is involves the complete management process—

from planning and controlling through organizing and leading. No matter how well or

elegantly conceived, a strategy requires supporting structures and workfl ows staff ed by

talented people. Th e strategy needs leaders who can motivate employees so that individuals

and teams do their best work. The strategy also needs to be properly monitored and

controlled to ensure that the desired results are achieved.

Failures of substance in strategic management show up in poor analysis and bad strategy

selection. Failures of process refl ect poor handling of the ways in which strategic manage-

ment is accomplished. A common process failure is the lack of participation error. It

shows up as a lack of commitment to action and follow-through by individuals excluded

from the strategic planning process. 54

Another process failure is goal displacement. Th is is

the tendency to get so bogged down in details that the planning process becomes an end in

itself, rather than a means to an end.

Strategic Control and Corporate Governance

Top managers exercise strategic control by making sure strategies are well implemented

and that poor strategies are scrapped or modifi ed quickly to meet performance demands of

changing conditions. We expect them to always be “in control”—measuring results, evaluat-

ing the success of existing strategies, and taking action to improve things in the future. Yet

the fi nancial crisis and recent economic recession showed that strategic control was inade-

quate at many fi rms, including the automakers and big banks.

Lack of participation error is a failure

to include key persons in strategic

planning.

Strategic control makes sure strategies

are well implemented and that poor

strategies are scrapped or modifi ed.

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233Strategy Implementation

When strategic control fails at the level of top management, it is supposed to kick in at

the level of corporate governance. Th is is the system of control and monitoring of top

management performance exercised by boards of directors in business fi rms and boards of

trustees in nonprofi ts. Corporate governance is intended to ensure that the strategic

management of the organization is successful. 55

But, boards are sometimes too compliant

and uncritical in endorsing or confi rming what top management is doing. Instead of ques-

tioning, criticizing, and requiring change, they condone the status quo. Weak corporate

governance doesn’t subject top management to rigorous oversight and accountability.

Th e result is organizations that end up doing the wrong things, doing bad things, or just

performing poorly.

When governance fails, blame sometimes can be traced back to the composition of the

board and expectations for how it operates. Most boards consist of inside directors chosen

from the ranks of senior management and outside directors chosen from other organizations

and positions external to the organization. In some boards insiders are too powerful, and

the CEO may even be the board chairperson. In others the board lacks outside members

whose skills match with the organization’s strategic challenges. In still others board

members may be insuffi ciently observant or critical because they are friends of top man-

agement or at least sympathetic to them. Current directions to strengthen board oversight

and control of management include separating the roles of CEO and board chair, appointing

Corporate governance is the system of

control and performance monitoring of

top management.

Foxconn is a major outsourcing fi rm owned by Hon Hai Preci-sion Industry of Taiwan and has extensive operations in China. It makes products for Apple, Dell, and Hewlett-Packard, among

others. Foxconn has over a million workers in China, with some

250,000 working in one huge complex stretching over 1 square

mile in Shenzen. Th e site includes dormitories, restaurants, recre-

ational facilities, and a hospital in addition to the factory spaces.

Because of a number of employee suicides, netting has been

draped from the dormitories to prevent employees from jumping

to their death from roofs of the buildings.

One worker complains that the work is meaningless, no con-

versation is allowed on the production lines, and bathroom breaks

are limited. Another says: “I do the same thing every day. I have no

future.” A supervisor points out that the fi rm provides counseling

services since most workers are young and this is the fi rst time

they have been away from their homes. “Without their families,”

says the supervisor, “they’re left without direction. We try to

provide them with direction and help.”

Recent moves by Hon Hai involve shifting more production

to sites in rural China that are closer to many workers’ homes

and expanding automation through the use of more assembly-

line robots. Wages have been increased and employees get

counseling. This goes along with a broader commitment

to the “highest possible safety practices,” says a company

spokesperson.

WHAT DO YOU THINK?

What ethical responsibilities do fi rms have when they contract for outsourcing in foreign plants? Whose responsibility is it to make sure workers are well treated—the global fi rm or the local supplier? What are our responsibilities as consumers? Should we support bad practices by buying products from fi rms with out- sourcing partners are known to treat workers poorly? What role can and should the market play in improving conditions for work- ers worldwide?

ethics> KNOW RIGHT FROM WRONG > The work is meaningless, no conversation is allowed on the production lines,

and bathroom breaks are limited.

Life and Death at an Outsourcing Factory

JASON LEE/REUTERS/Newscom

234 CHAPTER 10 ■ Strategy and Strategic Management

outside directors with relevant expertise, and having board members take on more active

leadership roles. 56

Strategic Leadership

Ford’s former CEO Alan Mulally led the company out of recession and back onto a path

toward growth. Paul Ingrassia, an auto analyst, called his success “one of the great turn-

arounds in corporate history” and praised Mulally’s eff orts “to simplify, relentlessly and sys-

tematically, a business that had grown way too complicated and costly to be managed

eff ectively.” 57

What Mulally showed at Ford is strategic leadership—the capability to inspire

people to successfully engage in a process of continuous change, performance enhance-

ment, and implementation of organization strategies. 58

One of the big lessons learned in studying how businesses perform during economic

crisis is that a strategic leader has to maintain strategic control. Th is means that the CEO and

other members of top management should always be in touch with the strategy. Th ey must

know how well it is being implemented, whether the strategy is generating performance

success or failure, and if the strategy needs to be modifi ed or changed. Th e following list

identifi es other key responsibilities of strategic leadership. 59

• A strategic leader has to be the guardian of trade-off s. It is the leader’s job to ensure that

the organization’s resources are allocated in ways that are consistent with the strategy.

Th is requires the discipline to sort through many competing ideas and alternatives, to

stay on course, and not to get sidetracked.

• A strategic leader needs to create a sense of urgency. Th e leader can’t allow the organiza-

tion and its members to grow slow and complacent. Even when doing well, the leader

retains focus on getting better and being alert to conditions that require adjustments to

the strategy.

• A strategic leader needs to make sure that everyone understands the strategy. Unless

strategies are understood, the daily tasks and contributions of individuals and teams

lose context and purpose. Everyone might work very hard, but without alignment to

strategy the impact is dispersed and fails to advance common goals.

• A strategic leader needs to be a teacher. It is the leader’s job to teach the strategy and

make it a “cause.” In order for strategy to work, it must become an ever-present commit-

ment throughout the organization. Th is means that a strategic leader must be a great

communicator. Everyone must understand the strategy and how it makes their organi-

zation diff erent from others.

Strategic leadership inspires people

to continuously change, refi ne, and

improve strategies and their

implementation.

Learning Check 5

TAKEAWAYQUESTION 5 What are the foundations for strategy implementation?

BE SURE YOU CAN • explain how the management process supports strategy implementation • defi ne corporate governance

• explain why boards of directors sometimes fail in their governance responsibilities • defi ne strategic control and strategic

leadership • list the responsibilities of a strategic leader in today’s organizations

235Management Learning Review

Summary

TAKEAWAYQUESTION 1 What is strategic management?

• Competitive advantage is achieved by operating in ways that allow an organization to outperform its rivals; a competitive advantage is sustainable when it is diffi cult for competitors to imitate.

• A strategy is a comprehensive plan that sets long-term direction and guides resource allocation for sustainable competitive advantage.

• Corporate strategy sets direction for an entire organization; business strategy sets direction for a business division or product/service line; functional strategy sets direction for the operational support of business and corporate strategies.

• Strategic management is the process of formulating and implementing strategies that achieve goals in a competi- tive environment.

FOR DISCUSSION Can an organization have a good strategy and still fail to achieve competitive advantage?

TAKEAWAYQUESTION 2 What are the essentials of strategic analysis?

• The strategic management process begins with analysis of mission, clarifi cation of core values, and identifi cation of objectives.

• A SWOT analysis systematically assesses organizational strengths and weaknesses, and environmental opportuni- ties and threats.

• Porter’s fi ve forces model analyzes industry attractiveness in terms of competitive rivalry, new entrants, substitute products, and the bargaining powers of suppliers and buyers.

FOR DISCUSSION Would a monopoly get a perfect score for industry attractiveness in Porter’s fi ve forces model?

TAKEAWAYQUESTION 3 What are corporate-level strategies and how are they formulated?

• Growth strategies pursue greater sales and broader markets by concentration that expands in related product or business areas, and diversifi cation that expands in new and different product and business areas.

• Restructuring strategies pursue ways to correct perfor- mance problems by such means as liquidation, bank- ruptcy, downsizing, divestiture, and turnaround.

• Global fi rms take advantage of international business opportunities through globalization, multidomestic, and transnational strategies.

• Cooperative strategies create strategic alliances with other organizations to achieve mutual gains, including such things as outsourcing alliances, supplier alliances, and even co-opetition among competitors.

• The BCG matrix is a portfolio planning approach that classifi es businesses or product lines as “Stars,” “Cash Cows,” “Question Marks,” or “Dogs” for purposes of strategy formulation.

FOR DISCUSSION Is it good news or bad news for investors when a fi rm announces that it is restructuring? Why?

TAKEAWAYQUESTION 4 What are business-level strategies and how are they formulated?

• Potential sources of competitive advantage in business- level strategy formulation are found in things like lower costs, better quality, more knowledge, greater speed, and strong fi nancial resources.

• Porter’s model of competitive strategy bases the choice of business-level strategies on two major considerations— market scope of product or service, and source of competitive advantage for the product or service.

• A differentiation strategy seeks competitive advantage by offering unique products and services that are clearly different from those of competitors.

• A cost leadership strategy seeks competitive advantage by operating at low costs that allow products and services to be sold to customers at low prices.

• A focus strategy seeks competitive advantage by serving the needs of a special market segment or niche better than anyone else; it can be done as focused differentiation or focused cost leadership.

FOR DISCUSSION Can a business ever be successful with a combined cost leadership and differentiation strategy?

TAKEAWAYQUESTION 5 What are the foundations for strategy implementation?

• Management practices and systems—including the functions of planning, organizing, leading, and controlling— must be mobilized to support strategy implementation.

• Pitfalls that inhibit strategy implementation include failures of substance—such as poor analysis of the environment; and failures of process—such as lack of participation by key players in the planning process.

• Boards of directors play important roles in control through corporate governance, including monitoring how well top management fulfi lls strategic management responsibilities.

• Top managers exercise strategic control by making sure stra- tegies are well implemented and are changed if not working.

• Strategic leadership inspires the process of continuous evaluation and improvement of strategies and their implementation.

FOR DISCUSSION Can strategic leadership by top managers make up for poor corporate governance by board members? Why or why not?

LManagement Learning Review Get Prepared for Quizzes and Exams

236 CHAPTER 10 ■ Strategy and Strategic Management

Multiple-ChoiceQuestions 1. The most appropriate fi rst question to ask in strategic

planning is ____________. (a) “Where do we want to be in the future?” (b) “How well are we currently doing?” (c) “How can we get where we want to be?” (d) “Why aren’t we doing better?”

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

3. In a complex conglomerate such as General Electric that owns a large number of different businesses, a(n) ____________ level strategy sets strategic direction for a strategic business unit. (a) institutional (c) business (b) corporate (d) functional

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

5. Cost effi ciency and product quality are two examples of ____________ objectives of organizations. (a) offi cial (c) informal (b) operating (d) institutional

6. An organization that is downsizing by laying off workers to reduce costs is implementing a ______ strategy. (a) growth (b) cost differentiation (c) restructuring (d) vertical integration

7. When PepsiCo acquired Tropicana, a maker of orange juice, the fi rm’s strategy was growth by ____________. (a) related diversifi cation (b) concentration (c) vertical integration (d) cooperation

8. In Porter’s fi ve forces framework, having ____________ increases industry attractiveness. (a) many rivals (b) many substitute products (c) low bargaining power of suppliers (d) few barriers to entry

9. A ____________ in the BCG matrix would have a high market share in a low-growth market, and the correct grand or master strategy is ____________. (a) Dog, growth (b) Cash Cow, stability (c) Question Mark, stability (d) Star, retrenchment

10. Strategic alliances that link together airlines in code sharing and joint marketing agreements are examples of how businesses can use ____________ strategies. (a) divestiture (b) growth (c) cooperation (d) backward integration

11. The two questions asked by Porter to identify competitive strategies for a business or product line are: 1—What is the market scope? 2—What is the ____________? (a) market share (b) source of competitive advantage (c) core competency (d) industry attractiveness

12. According to Porter’s model of competitive strategies, a fi rm that wants to compete with its rivals in a broad market by selling a very low-priced product would need to successfully implement a ____________ strategy. (a) retrenchment (b) differentiation (c) cost leadership (d) diversifi cation

13. When Coke and Pepsi spend millions on ads trying to convince customers that their products are unique, they are pursuing a ____________ strategy. (a) transnational (b) concentration (c) diversifi cation (d) differentiation

14. The role of the board of directors as an oversight body that holds top executives accountable for the success of business strategies is called ____________. (a) strategic leadership (b) corporate governance (c) logical incrementalism (d) strategic opportunism

15. An example of a process failure in strategic planning is ____________. (a) lack of participation (b) weak mission statement (c) bad core values (d) insuffi cient fi nancial resources

Self-Test 10

237Management Skills & Competencies

Short-ResponseQuestions 16. What is the difference between corporate strategy and

functional strategy? 17. What would a manager look at in a SWOT analysis? 18. What is the difference between focus and differentiation

as competitive strategies?

19. What is strategic leadership?

EssayQuestion 20. Kim Harris owns and operates a small retail store

selling the outdoor clothing of an American

manufacturer to a predominately college-student market. Lately, a large department store outside of town has started selling similar but lower-priced clothing manufactured in China, Thailand, and Bangladesh. Kim believes she is starting to lose business to this store. Assume you are part of a student team assigned to do a management class project for Kim. Her question for the team is: “How can I best deal with my strategic management challenges in this situation?” How will you reply?

Evaluate Career Situations

What Would You Do?

1. Th e Mission Statement

You’ve just been given a great assignment to serve as personal

assistant to the company president of a mid-sized fi rm oper-

ating just outside in a major city in the U.S. It will last for six

months and then, if you’ve done a good job, the expectation is

you’ll be moved into a fast-track management position. Th e

president comes to you and says: “It’s time to revisit the mis-

sion statement and our corporate values. Set things up for us.”

Th ere are about a dozen people on the top management team

and the company as a whole employs 7001, all in one loca- tion. How will you proceed to get the mission and values of

this company updated?

2. Cooperate or Compete, or Both?

A neighborhood business association has this set of mem-

bers: coff ee shop, bookstore, drugstore, dress shop, hardware

store, and bicycle shop. Th e owners of these businesses are

interested in how they might cooperate for better success.

As a business consultant to the association, what strategic

alliances would you propose as ways to join sets of these

businesses together for mutual gain?

3. Saving a Bookstore

For some years you’ve owned a small specialty bookshop in a

college town. You sell some textbooks but mainly cater to a

broader customer base. Th e store always has the latest fi c-

tion, nonfi ction, and children’s books in stock. You’ve recently

experienced a steep decline in overall sales, even for those

books that would normally be considered bestsellers. You

suspect this is because of the growing popularity of e-books

and e-readers such as the Amazon Kindle and Barnes & No-

ble Nook. Some of your friends say it’s time to close the store

and call it quits because your market is dying. Is it hopeless?

Or, can a new business strategy save you?

Refl ect on the

Self-Assessment

Intuitive Ability

Instructions Complete this survey as quickly as you can. Be honest with yourself.

For each question, select the response that most appeals to you. 60

1. When working on a project, do you prefer to

(a) be told what the problem is but be left free to decide

how to solve it?

(b) get very clear instructions for how to go about solving

the problem before you start?

2. When working on a project, do you prefer to work with

colleagues who are

(a) realistic?

(b) imaginative?

3. Do you most admire people who are

(a) creative?

(b) careful?

4. Do the friends you choose tend to be

(a) serious and hard working?

(b) exciting and often emotional?

ManagementSkills& Competencies Make yourself valuable!

238 CHAPTER 10 ■ Strategy and Strategic Management

5. When you ask a colleague for advice on a problem you have,

do you

(a) seldom or never get upset if he or she questions your

basic assumptions?

(b) often get upset if he or she questions your basic

assumptions?

6. When you start your day, do you

(a) seldom make or follow a specifi c plan?

(b) usually fi rst make a plan to follow?

7. When working with numbers, do you fi nd that you

(a) seldom or never make factual errors?

(b) often make factual errors?

8. Do you fi nd that you

(a) seldom daydream during the day and really don’t enjoy

doing so when you do it?

(b) frequently daydream during the day and enjoy doing so?

9. When working on a problem, do you

(a) prefer to follow the instructions or rules that are given to

you?

(b) often enjoy circumventing the instructions or rules that

are given to you?

10. When you are trying to put something together, do you

prefer to have

(a) step-by-step written instructions on how to assemble

the item?

(b) a picture of how the item is supposed to look once

assembled?

11. Do you fi nd that the person who irritates you the most is the

one who appears to be

(a) disorganized?

(b) organized?

12. When an unexpected crisis comes up that you have to deal

with, do you

(a) feel anxious about the situation?

(b) feel excited by the challenge of the situation?

Scoring Total the number of “a” responses selected for questions 1, 3, 5, 6,

11; enter the score here [a 5 ____]. Total the number of “b” responses for questions 2, 4, 7, 8, 9, 10, 12; enter the score here

[b 5 ____]. Add your “a” and “b” scores and enter the sum here [a 1 b 5 ____]. Th is is your intuitive score. Th e highest possible intuitive score is 12; the lowest is 0.

Interpretation In his book Intuition in Organizations (Newbury Park, CA: Sage,

1989), pp. 10–11, Weston H. Agor states, “Traditional analytical

techniques . . . are not as useful as they once were for guiding

major decisions. . . . If you hope to be better prepared for tomor-

row, then it only seems logical to pay some attention to the use

and development of intuitive skills for decision making.” Agor

developed the preceding survey to help people assess their ten-

dencies to use intuition in decision making. Your score off ers a

general indication of your strength in this area. It may also sug-

gest a need to further develop your skill and comfort with more

intuitive decision-making approaches.

Contribute to the

Class Exercise

Strategic Scenarios

Preparation In today’s turbulent economic environment, it is no longer safe

to assume that an organization that was highly successful in the

past will continue to be so in the near future—or that it will even

be in existence. Changing times exact the best from strategic

planners. Th ink about the situations currently facing the follow-

ing well-known organizations. Th ink, too, about the futures they

may face in competitive markets.

Chipotle Domino’s Pizza Sony

Apple Computer Nordstrom Zynga

Netfl ix National Public Radio AT&T

Ann Taylor New York Times Federal Express

Instructions Form into groups. Choose one or more organizations from the

list (or as assigned by your instructor) and answer for this organ-

ization the following questions:

1. What in the future might seriously threaten the success,

perhaps the very existence, of this organization? As a group,

develop at least three such future scenarios.

2. Estimate the probability (0% to 100%) of each future scenario

occurring.

3. Develop a strategy for each scenario that will enable the

organization to deal with it successfully.

Th oroughly discuss these questions within the group and arrive

at your best possible consensus answers. Be prepared to share

and defend your answers in general class discussion.

Manage a Critical Incident

Kickstarting a Friend’s Business Idea

You’ve worked hard, made a fair amount of money, and have a

nice stock portfolio. You’re also known among your friends as “the

guy with the money.” As with lottery winners, you’ve become a bit of

a target—some want handouts, some loans, and others just do

their share of freeloading. But now one of your friends has come

with a business proposal. She’s just back from a trip to Southeast

Asia and is raving about all the neat fabrics available in local

markets in places like Cambodia, Th ailand, and Vietnam. She’s

also a great fan of the TV show Project Runway. So, she wants to

import fabrics, buy some sewing machines and materials, rent a

239Analyze the Case Study

small storefront, and set up a shop called Th e Design Place. Th e

basic idea is that a customer can come in, fi nd fabrics, use work-

space, and then design and sew their own fashions. She thinks

the idea will be a winner, but has come to your for advice and—

she hopes—some startup fi nancing.

Questions What questions will you ask and what will you say to help your

friend do a good strategic analysis of her business idea? Without

knowing any more than you do now, what do you believe is the

real strategic potential of Th e Design Place? Are there examples

of do-it-yourself stores within other product spaces that could

serve as guides for your evaluation and help in developing her

business proposal?

Collaborate on the

Team Activity

Contrasting Strategies

Question How do organizations in the same industry fare when they

pursue similar or very diff erent strategies? 61

Instructions 1. Research recent news reports and analyst summaries for

each of the following organizations:

• Coach and Kate Spade

• Southwest Airlines and Delta Airlines

• New York Times and USA Today

• Under Armour and Lululemon

• National Public Radio and Sirius Satellite Radio

• Tesla and General Motors

• Amazon and Alibaba

2. Use this information to write a short description of the

strategies that each seems to be following in the quest for

success.

3. Compare the strategies for each organizational pair. Identify

whether or not, and why, one organization has a strategic

advantage in the industry.

4. Choose other pairs of organizations and do similar strategic

comparisons for them.

5. Prepare a summary report highlighting (a) the strategy

comparisons and (b) suggestions on how organizations in the

same industry can choose strategies to best compete with

one another.

AnalyzeTHE CaseStudy

DUNKIN’ DONUTS

Betting Dollars on Donuts Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

Organization

Structures

and Design Get there faster with objectives

11 C H A P T E R Q U I C K STA RT

Organizing puts people together with resources in ways designed to help them

achieve performance goals. Although organizations still make use of traditional

structures, new approaches are being crafted around horizontal relationships,

teams, and collaboration. Key trends in organizational design are reshaping struc-

tures for better alignment with the people, tasks, and demands of the new

workplace.

Key Takeaways

■ Describe organizing as a

management function

and the diff erence between

formal and informal

organization structures.

■ Identify the traditional

organizational structures,

and the strengths and

weaknesses of each.

■ Identify newer horizontal

organizational structures,

and the strengths and

weaknesses of each.

■ Explain how organizational

designs are changing in the

modern workplace.

241

MANAGEMENT IS REAL

MAKE DATA YOUR FRIEND Managers May Overestimate Their Managing Skills

THINK BEFORE YOU ACT

Playing Musical Chairs to Increase Collaboration

KNOW RIGHT FROM WRONG

Help! I’ve Been Flattened into Exhaustion

LEARN ABOUT YOURSELF

Empowerment Gets More Things Done

LEARN FROM ROLE MODELS

Build-a-Bear Lets Kids Put the Pieces Together

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Empowering Others

■ CONTRIBUTE To the Class Exercise: Organizational Metaphors

■ MANAGE A Critical Incident: Crowdsourcing Evaluations to Cut Management Levels

■ COLLABORATE On the Team Activity: Designing a Network University

■ ANALYZE Th e Case Study: Nike: Spreading Out to Win the Race

what to look for inside >

242 CHAPTER 11 ■ Organization Structures and Design

I t is much easier to talk about high-performing organizations than to cre-

ate them. And in true contingency fashion there is no one best way to do

things; no one organizational form can meet the needs of all circumstances.

What works well at one moment in time can quickly become outdated or

even dysfunctional in the next. Th is is why you often read and hear about

organizations making changes to their structures and personnel and reorga-

nizing operations to improve their performance.

Management scholar and consultant Henry Mintzberg says that people

need to understand how their organizations work if they are to work well

within them. 1 Whenever job assignments and reporting relationships

change, whenever an organization grows or shrinks, whenever old ways of

doing things are reconfi gured, people naturally struggle to understand the

new ways of working. Th ey ask questions such as: “Who’s in charge?” “How

do the parts connect to one another?” “How should processes and people

come together?” “Whose ideas have to fl ow where?” Th ey also worry about

the implications of the new arrangements for their jobs and careers.

Organizing as a Management Function TAKEAWAY 1 What is organizing as a management function?

What is organization structure? • Formal structures • Informal structures

Organizing is the process of arranging, connecting, and integrating people and other

resources to accomplish a goal. Its purpose as one of the basic functions of management is

to create a division of labor and then coordinate processes and results to achieve a common

purpose.

Figure 11.1 shows the central role that organizing plays

in the management process. Once plans are created, the

manager’s task is to ensure that they are carried out. Once

strategy is set and plans are made, organizing launches

the processes of implementation and accomplishment by

clarifying jobs and working relationships. It identifi es who

does what, who is in charge of whom, and how diff erent

people and parts of the organization relate to and work

with one another. All of this, of course, can be done in many

diff erent ways. Th e challenge for managers is to choose the

best organizational form to fi t the fi rm’s strategy and other

situational/market demands.

What Is Organization Structure?

Th e way in which the various parts of an organization are arranged is usually referred to as

the organization structure. It is the system of tasks, workfl ows, reporting relationships,

and communication channels that connect the work and activities of diverse individuals

and groups within a fi rm. An organization’s structure should both eff ectively allocate tasks

through a division of labor and coordinate performance results. A structure that accom-

plishes both well helps to implement an organization’s strategy. 2 But as stated earlier, the

problem for managers is that it is much easier to describe what a good structure does than

it is to create one.

Organizing arranges, connects, and

integrates people and resources to

accomplish a common purpose.

Organization structure is a system

of tasks, reporting relationships, and

communication linkages.

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OOOrrggaannnizzinnng aass a MMMMaanaageeemmmennnt FFFuuunncctiiooonO

Planning—

Organizing— to create structures

to set the direction Controlling—

to ensure results

• Divide up the work • Arrange resources • Coordinate activities

Leading— to inspire effort

FIGURE 11.1 Organizing viewed in relationship with the other

management functions.

243Organizing as a Management Function

Formal Structures

You may know the concept of structure best in the form of an organization chart. It

diagrams reporting relationships and the arrangement of work positions within an organi-

zation. 3 A typical organization chart identifi es positions and job titles as well as the lines of

authority and communication between them. It shows the formal structure, or how the

organization is intended to function.

Reading an organization chart should help you learn the basics of an organization’s for-

mal structure. But caution is in order, charts can be useful... or confusing and out of date. At

their best, they provide a snapshot of how an organization is supposed to work in respect to:

• Division of work—Positions and titles show work responsibilities.

• Supervisory relationships—Lines show who reports to whom.

• Communication channels—Lines show formal communication fl ows.

• Major subunits—Positions reporting to a common manager are shown.

• Levels of management—Vertical layers of management are shown.

Informal Structures and Social Networks

Underneath an organization’s formal structure lies an informal structure. Th is is a “shadow”

organization made up of social networks comprising the unoffi cial, but often critical, work-

ing relationships that connect organizational members.

No organization can be fully understood without gaining insight into its spiderweb of

informal networks as well as the formal organizational structure. 4

If the informal structure

could be drawn, it would show who talks and interacts with whom, regardless of their for-

mal titles and relationships. Th e lines of the informal structure would cut across levels and

move from side to side. Th ey would show people interacting through social media, meeting

for coff ee, joining in exercise groups, and participating in leisure activities—all driven by

friendship and enjoyment rather than formal requirements.

A tool known as social network analysis, or sociometrics, is one way of identifying

patterns in informal structures and their embedded social relationships. 5 Such an analysis

can be done by surveys that ask people to identify others to whom they turn for help most

often, with whom they communicate regularly, and who give them energy and motivation. 6

It can also be done by analysis of data mined from an organization’s internal social media

sites, and even by data gathered from special electronic badges worn by employees and

that record their interactions during daily work. 7 Lines are then drawn to create a social

network map or informal structure that shows how a lot of work really gets done and who

the “infl uencers” really are, in contrast to the formal descriptions in the organization chart.

Th is information can be used to update the organization chart to better refl ect the way

things actually work. It also recognizes the legitimacy of the informal networks peo-

ple use in their daily work and identifi es talented people whose value as connec-

tors and networkers may otherwise go unnoticed by management. 8

Informal structures and social networks are in many ways essential to organi-

zational success. Th ey allow people to make contacts with others who can help

them get things done. Th ey stimulate informal learning as people work and inter-

act together throughout the workday. And, they are also sources of emotional

support and friendship that satisfy members’ social needs.

Of course, informal structures also have potential disadvantages. Th ey can be

susceptible to rumor, carry inaccurate information, breed resistance to change,

and even divert work eff orts from important objectives. Th e Society for Human

Resource Management (SHRM), for example, reported that when the bad economy

caused massive job losses, fi rms experienced an increase in workplace eavesdrop-

ping and in “gossip and rumors about downsizings and layoff s.” 9 Another problem

sometimes found in informal structures is the presence of “in” and “out” groups.

Th ose who perceive themselves as “outsiders” may become less engaged in their

An organization chart describes the

arrangement of work positions within

an organization.

Formal structure is the offi cial

structure of the organization.

Informal structure is the set of social

networks found in unoffi cial

relationships among the members

of an organization.

Social network analysis or

sociometrics identifi es the informal

structures and their embedded social

relationships that are active in an

organization.

Informal Structures and the Shadow Organization

244 CHAPTER 11 ■ Organization Structures and Design

work and more dissatisfi ed. Some American managers of Japanese fi rms, for example, have

complained about being excluded from what they call the “shadow cabinet” composed of

Japanese executives who hold the real power and sometimes interact with one another

while excluding others. 10

The next time you’re in the mall, check out what’s happening in the Build-A-Bear store. You’ll see lots of activity, excitement, and fun as kids and parents work together building memories.

Th e Build-A-Bear concept is simple but elegant: Pick out a bear

or bunny or turtle shell that you like, add stuffi ng, and then outfi t

your pet with clothing, shoes, and accessories. Each pet is

unique—soccer player, Girl Scout . . . you name it; it leaves the

store personalized to the new owner’s tastes and interests.

Every Build-A-Bear store is carefully organized. Guest Bear

Builders move along the Bear Pathway from the Choose Me com-

puter workstation on to Stuff Me and fi nally to Name Me as their

personal creation takes shape. Sounds a lot like organizations,

doesn’t it? Until you get to the “making it personal” part. Th at’s where

organizations often struggle—how to bring together hundreds, thou-

sands, even hundreds of thousands of people in arrangements that

make sense and still allow for personal talents to shine through.

Build-A-Bear was started by Maxine Clark based on her retail-

ing experience. She obviously had the talent, creativity, and drive

required to build a successful business. Her founding story is

classic entrepreneurship. But Build-A-Bear’s success is driven by

classic management.

FIND THE INSPIRATION

Clark crafted Build-A-Bear from its beginnings in St. Louis to an operation with 425 stores worldwide. But the organization struc- ture Build-A-Bear needs today isn’t the same one that was successful a few years back. It’s time to “build a new bear,” so to speak. When you think about it, isn’t this the situation most organization structures face at different points in time? How about you—will you be ahead of the curve in tweaking your team and organization structures to meet new challenges as circum- stances, markets, and environments change?

wisdom> LEARN FROM ROLE MODELS > Sounds a lot like organizations, doesn’t it? Until you get to the “making it personal” part.

Build-A-Bear Lets Kids Put the Pieces Together

Learning Check 1

TAKEAWAYQUESTION 1 What is organizing as a management function?

BE SURE YOU CAN • defi ne organizing as a management function • explain the diff erence between formal and informal

structures • discuss the potential advantages and disadvantages of informal structures in organizations

Traditional Organization Structures TAKEAWAY 2 What are the traditional organization structures?

Functional structures • Divisional structures • Matrix structures

A guiding principle of organizing is that performance should improve when tasks are divided

up and people are allowed to become experts in specifi c jobs. But there are diff erent ways to

accomplish this division of labor, and each has potential advantages and disadvantages. Th e

traditional alternatives are the functional, divisional, and matrix structures. 11

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TTTraaadiittioonaaal OOrgannnizzatttioonnn SStrrruccctuuureesT

245Traditional Organization Structures

Functional Structures

In functional structures, people with similar skills and who perform similar tasks are

grouped together into formal work units. Members of functional departments share techni-

cal expertise, interests, and responsibilities. Th e fi rst example in Figure 11.2 shows a func-

tional structure you might fi nd in medium-sized business, with top management arranged

by the functions of marketing, fi nance, information systems, and human resources. Under

this structure, sales tasks are the responsibility of the Chief Sales Offi cer, information sys-

tems tasks are the responsibility of the Chief Information Offi cer, and so on. Figure 11.2 also

shows how functional structures are used in other types of organizations such as banks

and hospitals.

Advantages of Functional Structures Th e key point of the functional structure is to put together people with the same expertise

and help them work well together. If each function does its work properly, the expectation is

that the organization as a whole will be successful. Th ese structures work well for organiza-

tions with only a few products or services. Th ey also tend to work best in relatively stable

environments where problems are predictable and the demands for change and innovation

are limited. Th e major advantages of functional structures include the following:

• Economies of scale with effi cient use of resources.

• Task assignments consistent with expertise and training.

• High-quality technical problem solving.

• In-depth training and skill development within functions.

• Clear career paths within functions.

A functional structure groups together

people with similar skills who perform

similar tasks.

President

Chief Sales

Officer

Chief Finance

Officer

Chief Information

Officer

Chief Talent

Officer

Business Firm

Branch Manager

Manager

Loans

Manager

Investments

Manager

Operations

Manager

Trusts

Branch Bank

Executive Director

Director

Medical Staff

Director

Nursing

Director

Clinics

Director

Patient Services

Community Hospital

FIGURE 11.2 Functional structures in a business, branch bank, and community hospital.

246 CHAPTER 11 ■ Organization Structures and Design

Disadvantages of Functional Structures One of the major problems with functional structures is the tendency for each department

or function to focus primarily on its own concerns, avoid communications with other func-

tions, and neglect “big picture” issues. Th ere is too little cross-functional collaboration as a

sense of common purpose gets lost and self-centered and narrow viewpoints become

emphasized. 12

Th is is often called the functional chimneys or func-

tional silos problem—a lack of communication, coordination, and

problem solving across functions. It happens because the functions

become formalized not only on the organization chart, but also in

people’s mind-sets; they end up viewing the function as the center of

the organizational world rather than one among many key compo-

nents. Th e functional chimney or silos problem tends to get more

common as organizations grow larger and more rigid. When GM CEO

Mary Barra was asked what she would do to prevent future failures

like the ignition switch debacle that scandalized the company and

caused several deaths, for example, she said one of her priorities was

to reorganize so that safety information didn’t get lost in “silos” within

the fi rm. 13

Divisional Structures

A second organizing alternative is the divisional structure. As illustrated in Figure 11.3, this

structure puts together people who work on the same product or process, serve similar cus-

tomers, or are located in the same area or geographical region.

Divisional structures are common in complex organizations with diverse operations that

extend across many products, territories, customer segments, and work processes. 14

Th e

idea is to overcome some of the disadvantages of a functional structure, such as the func-

tional chimneys problem. For example, Toyota changed to a divisional structure in its North

American operations. Th e new design brought together the engineering, manufacturing,

Th e functional chimneys or

functional silos problem is a lack of

communication, coordination, and

problem solving across functions.

A divisional structure groups together

people working on the same product, in

the same area, with similar customers,

or on the same processes.

Type Focus Example

Product

Geographical

Customer

Good or service produced

Location of activity

Customer or client serviced

President

Asian division European division

General Manager

Grocery products Drugs and toiletries

Agency Administrator

Problem youth Senior citizens

Process Activities part of same process

Online Sales Manager

Product purchasing Order fulfillment

FIGURE 11.3 Divisional structures based on product, geography, customer and process.

• Too little communication across functions • Too many problems referred upward for solution

Functional Chimneys Problem

247Traditional Organization Structures

and sales functions under common leadership rather than having each function reporting

to its own top executive. As one industry analyst said: “Th e problem is every silo reported

back to someone diff erent, but now they need someone in charge of the whole choir.” 15

Product Structures Product structures group together jobs and activities focused on a single product or ser-

vice. Th ey clearly link costs, profi ts, problems, and successes in a market area with a central

point of accountability. Th is prompts managers to be responsive to changing market

demands and customer tastes.

Product structures in large organizations can even extend into global operations. When

Fiat took over Chrysler, for example, CEO Sergio Marchionne said he wanted a “leaner, fl at-

ter structure” to improve decision making and communication fl ow. His choice was to use

product divisions. Each of the fi rm’s three brands—Chrysler, Jeep, and Dodge—was given its

own chief executive and assigned responsibility for its own profi ts and losses. 16

Th is same

approach has been applied at Procter & Gamble, which is now organized around four prod-

uct divisions—Global baby, feminine and family care; Global health and grooming; Global

fabric and home care; and Global beauty. 17

Geographical Structures Geographical structures, sometimes called area structures, group jobs and activities being

performed in the same location. Th ey are typically used to diff erentiate products or services

in various locations, such as in diff erent parts of a country. Th ey also help global companies

focus attention on the unique cultures and requirements of particular regions. As United

Parcel Service (UPS) operations expanded worldwide, for example, the company announced

a shift from a product structure to a geographical structure. Two geographical divisions were

created—the Americas and Europe/Asia. Each area was given responsibility for its own

logistics, sales, and other business functions.

Customer Structures Customer structures group together jobs and activities serving the same customers or

clients. Th e goal is to best serve the diverse needs of diff erent customer groups. Th is is a

common structure in the consumer products industry. 3M Corporation structures itself to

focus attention on such diverse markets as consumer and offi ce, specialty materials,

industrial, health care, electronics and communications, and safety. Customer structures

also are useful in services. Banks, for example, use them to give separate attention to

consumer and commercial loan customers. If you look again at Figure 11.3, you’ll see

that it also shows a government agency using the customer structure to serve diff erent

client populations.

A product structure groups together

people and jobs focused on a single

product or service.

A geographical structure groups

together people and jobs performed in

the same location.

A customer structure groups together

people and jobs that serve the same

customers or clients.

New CEO Pushes Collaboration in a Reorganized Microsoft

Th e “old” Microsoft used to be known for bureaucracy, ineffi ciency, and slow innovation.

Product divisions were entrenched in their silos and more prone to compete than

cooperate. Th ings are changing under CEO Satya Nandella and a corporate reorganiza-

tion that is aligning structures with the “One Microsoft” vision. In a new Operating

Systems Group that brings together Windows Phone—led by Joe Belfi ore, and xBox—

led by David Treadwell, “collaboration” is the driving theme. At Microsoft’s Build

developers conference, Treadwell said: “We are now on the same logistical schedules. . . .

We’re doing common planning now, common priority, common release schedules.”

Issues&Trends

Andrew Harrer/Bloomberg/Getty Images

248 CHAPTER 11 ■ Organization Structures and Design

Process Structures A work process is a group of related tasks that collectively creates something of value for

customers. 18

An example is order fulfi llment by an online retailer, a process that takes an

order from point of customer initiation all the way through product delivery. A process

structure groups together jobs and activities that are part of the same processes. Figure 11.3

shows how a product structure might emerge in product-purchasing teams and order-

fulfi llment teams for a mail-order catalog business.

Advantages and Disadvantages of Divisional Structures Organizations use divisional structures for a variety of reasons, including the desire to avoid the

functional chimneys problem and other limitations of functional structures. Th e potential

advantages of divisional structures include:

• More fl exibility in responding to environmental changes.

• Improved coordination across functional departments.

• Clear points of responsibility for product or service delivery.

• Expertise focused on specifi c customers, products, and regions.

• Greater ease in changing size by adding or deleting divisions.

A work process is a group of related

tasks that collectively creates a valuable

work product.

A process structure groups jobs and

activities that are part of the same

processes.

Goodbye, private offi ce . . . goodbye, permanent work space . . . and, “hello, stranger!” Th e childhood game of musical chairs is very likely coming to your workplace!

One of the latest trends in offi ce design is to move employees

into new workspaces every few months, as a way to increase com-

munication and collaboration. Th e regular moves end up putting

employees from diff erent departments and work functions into

contact with one another. Seating assignments may be planned

based on tasks or employees’ personalities, or even done ran-

domly. But regardless of the method used, the goal is the same:

break down functional silos and habits that limit communication

across internal boundaries, and put people side-by-side to talk,

learn, and be creative together.

Research indicates that workers spend roughly 40% to 60%

of their interaction time every workday talking with their direct

neighbors. Th ey have only a 5% to 10% chance of interacting with

someone even just a few steps away. Th e CEO of Sociometric

Solutions, a consulting fi rm that works on such issues, says: “If I

change the organizational chart and you stay in the same seat, it

doesn’t have much of an eff ect. If I keep the organization chart the

same but change where you sit, it is going to massively change

everything.”

YOUR TAKE?

Is musical chairs in the offi ce going a step too far? What’s your reaction to this approach? Would you enjoy changing desks every month or so or hate it, and why? Can this idea be used in larger organizations, or is the usefulness of the approach really likely to be limited to smaller fi rms and startups employing a lot of new college graduates? Overall, is this a useful way to break down “functional silos,” or is it just a passing fad that will soon lose its appeal? What do you think?

choices> THINK BEFORE YOU ACT > Workers within organizations spend roughly 40% to 60% of their interaction time

every workday talking with their direct neighbors.

Playing Musical Chairs to Increase Collaboration

Monkey Business Images/Shutterstock

249Traditional Organization Structures

As with other structural alternatives, however, divisional structures have potential disad-

vantages as well. Th ey can reduce economies of scale and increase costs through the dupli-

cation of resources and eff orts across divisions. Th ey can also create unhealthy rivalries as

divisions compete for resources and top management attention, emphasizing division

needs over broader organizational goals.

Matrix Structures

Th e matrix structure, often called the matrix organization, combines functional and divi-

sional structures. It is an attempt to gain the advantages and avoid the disadvantages of

each. Th is is accomplished by creating permanent teams in a matrix that cuts across func-

tions to support specifi c products, projects, or programs. 19

As shown in Figure 11.4, workers

in a matrix structure simultaneously belong to at least two formal groups—a functional

group and a product, program, or project team. Th ey also report to two supervisors—one

within the function and the other within the team.

Th e matrix organization has gained a strong foothold in the workplace, with applications

in such diverse settings as manufacturing (e.g., aerospace, electronics, pharmaceuticals),

service industries (e.g., banking, brokerage, retailing), professional fi elds (e.g., accounting,

advertising, law), and the nonprofi t sector (e.g., city, state, and federal agencies, hospitals,

universities). Matrix structures also are found in multinational corporations, where they

off er the fl exibility to deal with regional diff erences while still supporting multiple product,

program, or project needs.

Advantages and Disadvantages of Matrix Structures Th e primary benefi ts of matrix structures derive from team members working closely

together across functional lines and sharing expertise and information in a timely way. Th is

structure goes a long way toward eliminating functional chimneys problems and poor

cross-functional communication. Th e potential advantages of matrix structures include:

• Better communication and cooperation across functions.

• Improved decision making; problem solving takes place at the team level where the

best information is available.

A matrix structure combines the

functional and divisional approaches

to create permanent cross-functional

project teams.

Project A Manager

Manager of Projects

Manufacturing Manager

Engineering Manager

Sales Manager

Project B Manager

Project C Manager

Persons assigned to both projects and functional departments

General Manager

FIGURE 11.4 Matrix structure in a small, multiproject business fi rm.

250 CHAPTER 11 ■ Organization Structures and Design

• Increased fl exibility in adding, removing, or changing operations to meet changing

demands.

• Better customer service; there is always a program, product, or project manager

informed and available to answer questions.

• Better performance accountability through the program, product, or project managers.

• Improved strategic management; top managers are freed from lower-level problem

solving to focus time on more strategic issues.

As you might expect, matrix structures also have potential disadvantages. Th e additional

team leaders needed to staff a matrix structure result in higher costs. Th e two-supervisor

system is susceptible to power struggles. Problems and frustrations occur when functional

supervisors and team leaders don’t coordinate well and end up sending confl icting mes-

sages and priorities, or even competing with one another for authority. Matrix teams may

develop something called “groupitis,” where strong team loyalties cause a loss of focus on

larger organizational goals. And, team meetings in the matrix can take lots of time.

Learning Check 2

TAKEAWAYQUESTION 2 What are the traditional organization structures?

BE SURE YOU CAN • explain the diff erences between functional, divisional, and matrix structures • list advantages and

disadvantages of a functional structure, divisional structure, and matrix structure • draw charts to show how each type of

traditional structure could be used in organizations familiar to you

Horizontal Organization Structures TAKEAWAY 2 What are the types of horizontal organization structures?

Team structures • Network structures • Boundaryless structures

Th e matrix structure is a step toward better cross-functional integration within organiza-

tions. But it is just one part of a broader movement to increase collaboration in organiza-

tions by building horizontal structures that harness the power of teams, technology, and

connections. Th e goal is to increase communication, teamwork, and fl exibility, but reduce

hierarchy and functional silos, and empower human talent. 20

Consultant and scholar Gary

Hamel says that one of the driving forces toward horizontal structures comes from “younger

workers” who are “impatient with old hierarchies and value systems.” 21

Team Structures

Organizations with team structures make extensive use of both permanent and temporary

teams to solve problems, complete special projects, and accomplish day-to-day tasks. 22

illustrated in Figure 11.5, these are often cross-functional teams composed of members

drawn from diff erent areas of work responsibility. 23

Like the matrix structure, the intention

of team structures is to break down functional silos, foster horizontal connections, and

create faster decision making at the levels where work gets done.

Team structures use many project teams that are convened to complete a specifi c task

or “project.” An example is a team tasked with guiding the changeover to a new IT system.

Such project teams are temporary and disband once the task is completed. Th e intention is

to convene a team of people who have the needed talents, focus their eff orts intensely to

solve a problem or take advantage of a special opportunity, and then release them once the

project is fi nished.

Advantages and Disadvantages of Team Structures Th e advantage of a team structure is that it helps to break down interpersonal barriers

and mobilize diverse talents. Because teams focus shared knowledge and expertise on

A team structure uses permanent and

temporary cross-functional teams to

improve lateral relations.

A cross-functional team brings

together members from diff erent

functional departments.

Project teams are convened for a

particular task or project and disband

once it is completed.

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251Horizontal Organization Structures

Sales Manager

Division Manager

Manufacturing Manager

Engineering Manager

Human Resource Manager

New product

development team

Valuing diversity

task force Team assignments

FIGURE 11.5 How a team structure uses cross-functional teams for improved lateral relations.

specifi c problems, they can improve performance by increasing the speed and quality of

decisions. Th ey can also boost morale. People working in teams often experience a

greater sense of task involvement and identifi cation, as well as increased enthusiasm for

the job.

Th e complexities of teams and teamwork contribute to the potential disadvantages of

team structures. Th ese include confl icting loyalties for members with both team and func-

tional assignments. Th ey also include issues of time management and group process. By

their very nature, teams spend a lot of time in meetings. Whether meetings are face-to-face

or virtual, not all meeting time is productive. Th e quality of outcomes depends on how well

tasks, relationships, and team dynamics are managed. But, all of these challenges can be

mastered with the right team talents, good technology, and leadership.

Network Structures

Organizations using a network structure, like the one in Figure 11.6, have a central core of

full-time employees surrounded by “networks” of outside contractors and partners supplying

essential services. 24

Because the central core is relatively small and surrounding networks

A network structure uses information

technologies to link with networks

of outside suppliers and service

contractors.

FIGURE 11.6 A network structure for a Web-based retail business.

Other home furnishing firms share

mail-order catalog and website

Offshore manufacturing and

packaging firm

Port-of-entry warehouse and

distribution company

Furniture design studio

National accounting and financial

management firm

Mail-order lawn and deck furniture

Business Core

Information Technology

252 CHAPTER 11 ■ Organization Structures and Design

can be expanded or contracted as needed, the network structure helps lower costs and

improve fl exibility in dealing with changing environments. 25

Instead of doing everything for itself with full-time employees, the network organiza-

tion employs a minimum staff and contracts out as much work as possible. Th is is done

through strategic alliances, which are cooperative agreements with partner fi rms to

pursue mutual business interests. Some are outsourcing strategic alliances in which fi rms

contract to purchase services such as accounting or document processing from another

organization. Others may be supplier strategic alliances that link businesses in preferred

relationships that guarantee a smooth and timely fl ow of quality supplies. An example of

a step toward the network organization is found in residential colleges and universities

that traditionally owned their own dormitories. Some have reduced their campus housing

business by entering public–private partnerships that turn dormitories over to private

fi rms to operate. 26

Th e example in Figure 11.6 shows how a network structure might work for a mail-order

company selling lawn and deck furniture online and through a catalog. Th e fi rm is very

small, consisting of few full-time “core” employees. Beyond that, it is structured as a network

of outsourcing and partner relationships linked together by information technology.

A strategic alliance is a cooperation

agreement with another organization

to jointly pursue activities of mutual

interest.

It takes a lot of trust to be comfortable with empowerment—letting others make decisions and exercise discretion in their work. But if you aren’t willing and able to empower others, you

may try to do too much on your own and end up accomplishing

too little.

Th e fundamental, underlying reason for organizations is

synergy—bringing together the contributions of many people to

achieve something that is much greater than any individual could

accomplish alone. Empowerment enables synergy to fl ourish. It

means collaborating with others to accomplish fi rm objectives—

allowing others to do things that you might be good at doing your-

self. Many managers fail to empower others, and the result is their

organizations often underperform.

How often do you get stressed out by group projects in your

classes, feeling like you’re doing all the work? Do you have a prob-

lem “letting go,” or letting others do their share of group assign-

ments? Th e reason may be the fear of losing control. People with

control anxiety often end up trying to do too much. Th is unfortu-

nately raises the risks of missed deadlines and poor performance.

If the prior description fi ts you, your assumptions probably

align with those in the upper left box in the Empowerment Quick

Test. Alternatively, you could be in the lower right box and per-

haps fi nd that you work smarter and better while also making

others happier.

GET TO KNOW YOURSELF BETTER

Are you someone who easily and comfortably empowers oth- ers? Or, do you suffer from control anxiety, with little or no

willingness to delegate? The next time you are in a study or work group, be a self-observer. The question is: How well do you handle empowerment? Write a short narrative that accu- rately describes your behavior to someone who wasn’t present. Focus on both your tendencies to empower others and how you respond when others empower you. Compare that narra- tive with the results from the Self-Assessment—Empowering Others. Is there a match?

insight> LEARN ABOUT YOURSELF > Do you have a problem “letting go,” or letting others do their share?

Empowerment Gets More Things Done

It’s faster to do things myself than explain how to do them to others

Some things are just too important not to do yourself People make

mistakes, but they also learn from them

Many people are ready to take on more work, but are too shy to volunteer

EMPOWERMENT QUICK TEST In a team situation, which square best describes your beliefs and behaviors?

253Horizontal Organization Structures

Merchandise is designed on contract with a furniture designer—which responds quickly as

designs are shared. Th e furniture is manufactured and packaged by subcontractors located

around the world—wherever materials are found at the lowest cost and best quality. Stock

is maintained and shipped from a contract warehouse—ensuring quality storage and

on-time expert shipping. Accounting and fi nancial matters are contracted with an outside

fi rm that provides better technical expertise than the merchandiser could aff ord to employ

on a full-time basis. Th e website is managed by an independent contractor and hosted on

rented server space. Th e quarterly catalog is produced in cooperation with two other fi rms

that sell diff erent home furnishings with a related price appeal.

Advantages and Disadvantages of Network Structures Network structures are lean and streamlined. Th ey help organizations stay cost-competitive

by reducing overhead and increasing operating effi ciency. Network concepts allow organiza-

tions to employ outsourcing strategies and contract out specialized business functions.

Within the operating core of a network structure, interesting jobs are created for employees

who coordinate the entire system of relationships.

Network structures have potential disadvantages as well. Th e more complex the organi-

zation’s mission, the more complicated it is to control and coordinate the network of

contracts and alliances. If one part of the network breaks down, the entire system can fail.

Th e organization may lose control over contracted activities. Firms also may experience a

lack of loyalty among contractors who are used infrequently rather than on a long-term

basis. Outsourcing also can become so aggressive as to be dangerous to the fi rm, especially

when critical activities such as fi nance, logistics, and human resources management are

outsourced. 27

Boundaryless Structures

It is popular today to talk about creating a boundaryless organization that eliminates

many internal subsystem boundaries as well as boundaries with the external environ-

ment. 28

Th e boundaryless structure, as shown in Figure 11.7, can be viewed as a combina-

tion of the team and network structures, with the added feature of “temporariness.” A

photograph that documents this organization’s confi guration today will look diff erent from

one taken tomorrow, as the form naturally adjusts to new environmental pressures and

circumstances.

A boundaryless organization elim-

inates internal boundaries among

subsystems and external boundaries

with the external environment.

Purchasing

Research and Development

Internal boundaries are eliminated as people work together as needed

External boundaries vary as alliances change with shifting needs/opportunities

Production

Distribution

Sales

A C

Time 1

Time 2

A C

ETime 3B

FIGURE 11.7 Th e boundaryless organization eliminates internal and external barriers.

254 CHAPTER 11 ■ Organization Structures and Design

Spontaneous teamwork and communication replace formal lines of authority within the

boundaryless organization. Meetings and information sharing are continuous. People work

together in teams that form and disband as needed. Th ere is little hierarchy but lots of

empowerment and use of technology. Impermanence is accepted. Knowledge sharing is

both a goal and an essential component of the structure. At consulting giant Pricewater-

houseCoopers, for example, knowledge sharing brings together 160,000 employees spread

across 150 countries in a virtual-learning and problem-solving network. Individuals collab-

orate electronically through online databases where information is stored, problems are

posted, and questions are asked and answered in real time by those with experience and

expertise relevant to current problems. 29

Th e virtual organization takes the boundaryless concept to the extreme. 30

It operates

as a shifting network of alliances that are engaged as needed using mobile IT solutions. Th e

virtual organization calls an alliance into action to meet specifi c operating needs and objec-

tives. When the work is complete, the alliance rests until it is next called into action. Th is

mix of mobilized alliances shifts continuously. Do you see similarities with the Twitter or

LinkedIn communities? Th e virtual organization concept is similar to how we manage rela-

tionships online—logging in, logging off , accomplishing tasks with diff erent individuals and

groups as needed, and all taking place instantaneously, temporarily, and without the need

for face-to-face contact.

A virtual organization uses mobile IT

to engage a shifting network of strategic

alliances.

Entrepreneurs Ride the Cutting Edge with “Virtual Biotech”

It used to be that it took a corporate giant to create a new drug—big investments, big

staff , big organization. But we live in a new connected economy where technology

makes new things possible. Leonide Saad and Ilyas Washington, co-founders of the

biotech fi rm Akeus Pharmaceuticals, want to cure childhood blindness. But if you want

to see their operation, you’ll be surprised at what you fi nd: zero full-time employees,

zero fi xed offi ce and lab space, and zero salaries. Akeus works in virtual space; every-

thing moves fast at minimum cost. Saad and Washington hire consultants, outsource to

labs, and hold meetings in temporary meeting spaces like a nearby Au Bon Pain. Saad

says: “Th e cost savings and fl exibility advantages are enormous.”

Issues&Trends

samsonovs/Shutterstock

Learning Check 3

TAKEAWAYQUESTION 3 What are the types of horizontal organization structures?

BE SURE YOU CAN • describe how organizations can be structured to use cross-functional teams and project teams • defi ne

network structure • illustrate how a new retail venture might use a network structure to organize its various operations • discuss

the potential advantages and disadvantages of a network structure • explain the concept of the boundaryless organization

Organizational Designs TAKEAWAY 4 How are organizational designs changing the workplace?

Contingency in organizational design

Mechanistic and organic organization designs • Trends in organizational designs

Organizational design is the process of choosing and implementing structures to

accomplish an organization’s mission and objectives. 31

Because every organization faces

its own set of unique challenges and opportunities, no one design can be applied in all

circumstances. Th e best design at any given moment achieves a good match between

Organizational design is the process

of creating structures that accomplish

mission and objectives.

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255Organizational Designs

structure and situational contingencies—including task, technology, environment, and

people. 32

Th e choices among design alternatives are broadly framed in the distinction

between mechanistic or bureaucratic designs at one extreme, and organic or adaptive

designs at the other end.

Contingency in Organizational Design

A classic bureaucracy is a form of organization based on logic, order, and the legitimate use

of formal authority. 33

It is a vertical structure, and its distinguishing features include a clear-

cut division of labor, strict hierarchy of authority, formal rules and procedures, and promo-

tion based on competency.

According to sociologist Max Weber, bureaucracies should be orderly, fair, and highly

effi cient. 34

But the bureaucracies we know often are associated with “red tape.” Instead of

being orderly and fair, they often are seen as cumbersome and impersonal, to customers’

and clients’ needs. 35

Rather than view all bureaucratic structures as inevitably fl awed, how-

ever, management theory asks two contingency questions. When is bureaucracy a good

choice for an organization? When it isn’t, what alternatives are available?

Pioneering research conducted in England during the early 1960s by Tom Burns and

George Stalker helps answer these questions. 36

After investigating 20 manufacturing fi rms

they concluded that two quite diff erent organizational forms could be successful, depending

on the fi rm’s external environment. A more bureaucratic form, which Burns and Stalker

called “mechanistic,” thrives in stable environments. But, bureaucratic organizations

have diffi culty in environments that are rapidly changing and uncertain,. In these dynamic

environments a much less bureaucratic form, called “organic,” performs best. Figure 11.8

portrays these two approaches as opposite extremes on a continuum of organizational

design alternatives.

A bureaucracy emphasizes formal

authority, order, fairness, and

effi ciency.

A survey by Development Dimensions International, Inc., fi nds that managers may be overestimating their manage- ment skills. “It doesn’t matter what industry you’re in. People

have blind spots about where they are weak,” says DDI vice

president Scott Erker. Th ese results are from a sample of 1,100

fi rst-year managers:

■ 72% never question their ability to lead others.

■ 58% claim planning and organizing skills as strengths.

■ 53% say they are strong in decision making.

■ 50% say they are strong in communication.

■ 32% claim profi ciency in delegating.

■ Skills rated as needing most development were delegating,

gaining commitment, and coaching.

YOUR THOUGHTS?

Would you, like the managers in this survey, overestimate your strengths in management skills? What might explain managers’ tendencies toward overconfi dence? What would you identify as being among the skills on which you most need improvement? What might account for the fact that 72% of managers never question their ability to lead others?

analysis> MAKE DATA YOUR FRIEND > “It doesn’t matter what industry you’re in. People have blind spots

about where they are weak.”

Managers May Overestimate Their Managing Skills

Karen Moskowitz/Getty Images

256 CHAPTER 11 ■ Organization Structures and Design

Mechanistic and Organic Designs

Organizations with more mechanistic designs are highly bureaucratic. As shown in the

fi gure, they are vertical structures that typically operate with centralized authority, many

rules and procedures, a precise division of labor, narrow spans of control, and formal

coordination. Th ey can be described as “tight” structures of the traditional pyramid

form. 37

Mechanistic designs work best for organizations doing routine tasks in stable environ-

ments. A local fast-food restaurant is a good example. Each store is a relatively small oper-

ation that operates much like others in the franchise chain and according to rules

established by the corporate management. Service personnel work in orderly and disci-

plined ways, guided by training, rules, and procedures, and by close supervision of crew

leaders who work alongside them. Even personal appearance is carefully regulated, with

everyone working in uniform. Th is mechanistic design performs well as it repetitively deliv-

ers items that are part of a standard menu. You quickly discover the design limits, however,

if you try to order something not on the menu. Th e chains also are slow to adjust when

consumer tastes change.

When organizations are in dynamic and uncertain environments, their effectiveness

depends on being able to adapt quickly to changing customer tastes and preferences.

This requires the more organic designs described in Figure 11.8. 38

These are horizon-

tal structures that operate with decentralized authority, fewer rules and procedures,

less precise division of labor, wider spans of control, and more personal means of

coordination.

Organic designs create adaptive organizations that can perform well in environments

that demand fl exibility in dealing with changing conditions. Th ey are relatively “loose” sys-

tems where a lot of work gets done through informal structures and networking. 39

Th ey are

built on a foundation of trust that gives employees the freedom to use their own ideas and

expertise to do things on their own initiative, and without waiting for orders from a “boss.”

Th is means giving workers freedom to get the job done.

A mechanistic design is centralized,

with many rules and procedures, a

clear-cut division of labor, narrow spans

of control, and formal coordination.

An organic design is decentralized,

with fewer rules and procedures, open

divisions of labor, wide spans of control,

and more personal coordination.

An adaptive organization operates

with a minimum of bureaucratic features

and encourages worker empowerment

and teamwork.

FIGURE 11.8 Organizational design alternatives: From bureaucratic to adaptive organizations.

Authority

Rules and procedures

Tasks

Spans of control

Coordination

Goal

Bureaucratic organizations use

mechanistic designs

Centralized

Many

Specialized

Narrow

Formal and impersonal

Adaptive organizations use organic designs

Decentralized

Predictability Adaptability

Few

Shared

Wide

Informal and personal

Teams and task forcesFew Many

257Organizational Designs

Trends in Organizational Designs

Th e complexity, uncertainty, and change inherent in today’s environment are prompting

more organizations to shift toward horizontal and organic structures. A number of

trends in organization design are evident as structures and practices are adjusted to gain

performance effi ciency and eff ectiveness in challenging conditions. Th e growth of new

technologies, particularly in information systems and social media, is helping to drive

these trends by improving information availability and ease of communication within

organizations.

Fewer Levels of Management A typical organization chart shows the chain of command, or the line of authority that

vertically links each position with successively higher levels of management. When organi-

zations get bigger they also tend to get taller as levels of management are added to the

chain of command. But Nucor, a North Carolina-based steel producer, shows that this

needn’t be the case. Nucor’s management hierarchy is fl at and compact. Its structure is

described as “simple” and “streamlined” in order to “allow employees to innovate and make

quick decisions.” 40

One of the influences on management levels is span of control—the number of per-

sons directly reporting to a manager. Narrow spans of control are characteristic of tall

structures with many levels of management. Because tall organizations have more

managers, they are more costly. They also tend to be less efficient, less flexible, and less

customer-sensitive. Wider spans of control run with flat structures that have fewer

levels of management. This not only reduces overhead costs and improves agility; it can

also be good for workers who gain empowerment and independence because of reduced

supervision. 41

Trend: Organizations are cutting unnecessary levels of management and shifting to wider

spans of control. Managers are taking responsibility for larger teams whose members

operate with less supervision.

More Delegation and Empowerment All managers must decide what work they should do themselves and what should be left

for others. At issue here is delegation—the process of entrusting work to others by giving

them the right to make decisions and take action. Unfortunately, many managers and team

leaders don’t do enough delegation, and one of the reasons is self-enhancement bias. Th is

is the tendency to view oneself as more capable, intelligent, and ethical than others. Self-

enhancement bias makes it hard to “let go” and give others a chance to work independently

without close supervision. 42

When it comes to delegating, a classical principle of organization warns managers to

make sure the person being delegated to has suffi cient authority to perform. Th e authority-

and-responsibility principle states that authority should equal responsibility when work

is delegated by a supervisor to a subordinate. When done well, the process of delegation

involves these three action steps:

• Step 1—Th e manager assigns responsibility by carefully explaining the work or du-

ties someone else is expected to do. Th is responsibility is an expectation for the other

person to perform assigned tasks.

• Step 2—Th e manager grants authority to act. Along with the assigned task, the right to

take necessary actions ( for example, to spend money, direct the work of others, or use

resources) is given to the other person.

• Step 3—Th e manager creates accountability. By accepting an assignment, the person

takes on a direct obligation to the manager to complete the job as agreed.

On those days when you complain that “I just can’t get everything done,” the real problem

may be that you are trying to do everything yourself. Unwillingness to delegate is a

Th e chain of command links all

employees with successively higher

levels of authority.

Span of control is the number of

subordinates directly reporting to a

manager.

Tall structures have narrow spans of

control and many hierarchical levels.

Flat structures have wide spans of

control and few hierarchical levels.

Delegation is the process of distributing

and entrusting work to others.

Self-enhancement bias is the tendency

to view oneself as more capable,

intelligent, and ethical than others.

Th e authority-and-responsibility

principle is that authority should equal

responsibility when work is delegated.

Tall Structure (narrow span of control)

Flat Structure (wide span of control)

258 CHAPTER 11 ■ Organization Structures and Design

common management failure. Whether this comes from a lack of trust in others or from

personal inflexibility, it can be dangerous. Too little delegation overloads managers with

work that could be done by others and leaves them with too little time to do their own

work.

Delegation that is done well leads to empowerment. Th is concept was defi ned in the

chapter opener as letting others make decisions and exercise discretion in their work.

Empowerment occurs when delegation provides decision-making authority to individuals

most capable of doing the work. It builds performance potential by allowing individuals

freedom to use their talents, contribute ideas, and do their jobs in the best possible ways.

And because empowerment creates a sense of ownership, it also increases commitment to

follow through on decisions and work hard to accomplish goals.

Trend: Managers are delegating more. They are finding ways to empower people at

all organizational levels to make more decisions that affect themselves and their

work.

Decentralization with Centralization Should most decisions be made at the top levels of an organization, or should they be

dispersed by extensive delegation across all levels? Th e former approach is referred to as

centralization; the latter is called decentralization. And the decision to operate one way

Empowerment allows others to make

decisions and exercise discretion in

their work.

Centralization is the concentration of

authority for most decisions at the top

level of an organization.

Decentralization is the dispersion of

authority to make decisions throughout

all organization levels.

Dear Stress Doctor:

My boss came up with the great idea of laying off some manag-

ers, assigning more workers to those of us who haven’t been laid

off , and calling us “coaches” instead of supervisors. She says this is

all part of a new management approach to operate with a fl atter

structure and more empowerment.

For me this means a lot more work coordinating the activities

of 17 operators instead of the 6 that I previously supervised. I can’t

get everything cleaned up on my desk most days, and I end up

taking a lot of work home.

As my organization “restructures” and cuts back staff , it puts a

greater burden on the rest of us. We get exhausted, and our fami-

lies get short-changed and angry. I even feel guilty now taking time

to watch my daughter play soccer on Saturday mornings. Sure,

there’s some decent pay involved, but that doesn’t make up for the

heavy price in terms of lost family time.

But you know what? My boss doesn’t get it. I never hear her ask:

“Camille, are you working too much? Don’t you think it’s time to

get back on a reasonable schedule?” No! What I often hear instead

is “Look at Andy; he handles our new management model really

well, and he’s a real go-getter. I don’t think he’s been out of here one

night this week before 8 pm.”

What am I going to do, just keep it up until everything falls

apart one day? Is a fl atter structure with fewer managers always best?

Am I missing something here with the whole “new management”?

Sincerely,

Overworked in Cincinnati

WHAT DO YOU THINK?

Is it ethical to restructure, cut management levels, and expect remaining managers to do more work? Or is it simply the case that managers used to the “old” ways of doing things need extra training and care while learning “new” management approaches? What about this person’s boss—is she on track with her manage- ment skills? Aren’t managers supposed to help people understand their jobs, set priorities, and fulfi ll them, while still maintaining a reasonable work–life balance?

ethics> KNOW RIGHT FROM WRONG > “I even feel guilty now taking time to watch my daughter play soccer on Saturday mornings.”

Help! I’ve Been Flattened into Exhaustion

Tom Gril/Getty Images

259Organizational Designs

or another is a strategic choice. At Rovio, the Finnish company making Angry Birds, for

example, one person used to be in charge of game development—centralization. But as the

fi rm grew CEO Mikael Hed realized this centralization wasn’t working anymore. His response

was to divide the unit up into smaller “tribes” and give each “their own profi t and loss sheet,

their own management, their own targets”—decentralization. 43

A closer look at the Rovio story would likely show that centralization/decentralization

isn’t necessarily an either/or choice. A game maker is already a high-tech setting, and CEO

Hed should be able to operate with greater decentralization without giving up centralized

control. 44

High-speed, advanced IT systems allow top managers to easily stay informed

about a wide range of day-to-day performance matters throughout an organization. Because

they have information so readily available, they can allow more decentralized decision

making. If something goes wrong, say in one of Rovio’s tribes, the information systems sound

an alarm, enabling almost immediate corrective actions to be taken.

Trend: Delegation, empowerment, and horizontal structures are contributing to more

decentralization in organizations; at the same time, advances in information technology

help top managers maintain centralized control.

Reduced Use of Staff When it comes to coordination and control in organizations, the issue of line–staff

relationships is critical. People in staff positions provide expert advice and guidance to

line personnel. In a large retail chain, for example, line managers in each store typically

make daily operating decisions regarding direct merchandise sales. But, staff specialists

at the corporate or regional levels often provide direction and support so that all the

stores operate with the same credit, purchasing, employment, marketing, and advertis-

ing procedures.

Problems in line–staff distinctions can and do arise, and organizations sometimes

find that staff size grows to the point where its costs outweigh its benefits. This is why

cutbacks in staff positions are common during downsizing and other turnaround

efforts. There is no one best solution to the problem of how to divide work between line

and staff responsibilities. What is best for any organization is a cost-effective staff

component that satisfi es, but doesn’t overreact to, needs for specialized technical assistance

to line operations. But overall, the trend toward reduced use of staff across all industries

is increasing.

Trend: Organizations are lowering costs and increasing effi ciency by employing fewer

staff personnel and using smaller staff units.

Staff positions provide technical

expertise for other parts of the

organization.

Learning Check 4

TAKEAWAYQUESTION 4 How are organizational designs changing the workplace?

BE SURE YOU CAN • defi ne organizational design • describe the characteristics of mechanistic and organic designs • explain

when the mechanistic design and the organic design work best • describe trends in levels of management, delegation and

empowerment, decentralization and centralization, and use of staff

260 CHAPTER 11 ■ Organization Structures and Design

Summary

TAKEAWAYQUESTION 1 What is organizing as a management function?

• Organizing is the process of arranging people and resources to work toward a common goal.

• Organizing decisions divide up the work that needs to be done, allocate people and resources to do it, and coordi- nate results to achieve productivity.

• Structure is the system of tasks, reporting relationships, and communication that links people and positions within an organization.

• The formal structure, such as that in an organization chart, describes how an organization is supposed to work.

• The informal structure of an organization consists of the informal relationships that develop among members.

FOR DISCUSSION If organization charts are imperfect, why bother with them?

TAKEAWAYQUESTION 2 What are the traditional organization structures?

• In functional structures, people with similar skills who perform similar activities are grouped together under a common manager.

• In divisional structures, people who work on a similar product, work in the same geographical region, serve the same customers, or participate in the same work process are grouped together under common managers.

• A matrix structure combines the functional and divisional approaches to create permanent cross-functional project teams.

FOR DISCUSSION Why use functional structures if they are prone to functional chimneys problems?

TAKEAWAYQUESTION 3 What are the types of horizontal organization structures?

• Team structures use cross-functional teams and task forces to improve lateral relations and problem solving at all levels.

• Network structures use contracted services and strategic alliances to support a core organizational center.

• Boundaryless structures or boundaryless organizations combine team and network structures with the advantages of technology to accomplish tasks and projects.

• Virtual organizations use information technology to mobilize a shifting mix of strategic alliances to accomplish tasks and projects.

FOR DISCUSSION What problems could reduce the effectiveness of team-oriented organization structures?

TAKEAWAYQUESTION 4 How are organizational designs changing the workplace?

• Contingency in organizational design basically involves fi nding designs that best fi t situational features.

• Mechanistic designs are bureaucratic and vertical, performing best for routine and predictable tasks.

• Organic designs are adaptive and horizontal, performing best in conditions requiring change and fl exibility.

• Key organizing trends include fewer levels of management, more delegation and empowerment, decentralization with centralization, and fewer staff positions.

FOR DISCUSSION Which of the organizing trends is most likely to change in the future, and why?

Management Learning Review Get Prepared for Quizzes and Exams

261Self-Test 11

Multiple-ChoiceQuestions 1. The main purpose of organizing as a management

function is to ____________. (a) make sure that results match plans (b) arrange people and resources to accomplish work (c) create enthusiasm for the work to be done (d) match strategies with operational plans

2. ____________ is the system of tasks, reporting relationships, and communication that links together the various parts of an organization. (a) Structure (b) Staff (c) Decentralization (d) Differentiation

3. Rumors and resistance to change are potential disadvantages often associated with ____________. (a) virtual organizations (c) delegation (b) informal structures (d) specialized staff

4. An organization chart showing vice presidents of marketing, fi nance, manufacturing, and purchasing all reporting to the president is depicting a ____________ structure. (a) functional (c) network (b) matrix (d) product

5. The functional chimneys problem occurs when people in different functions ____________. (a) fail to communicate with one another (b) try to help each other work with customers (c) spend too much time coordinating decisions (d) focus on products rather than functions

6. A manufacturing business with a functional structure has recently developed three new product lines. The president of the company might consider shifting to a(n) ____________ structure to gain a stronger focus on each product. (a) virtual (c) divisional (b) informal (d) network

7. ____________ structure tries to combine the best elements of the functional and divisional forms. (a) Virtual (c) Team (b) Boundaryless (d) Matrix

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

9. Better lower-level teamwork and more top-level strategic management are among the expected advantages of a ____________ structure. (a) divisional (c) geographical (b) matrix (d) product

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

11. A student volunteers to gather information on a company for a group case analysis project. The other members of the group agree and tell her to go ahead and choose the information sources. In terms of delegation, this group is giving the student ____________ to fulfi ll the agreed-upon task. (a) responsibility (c) authority (b) accountability (d) decentralization

12. The current trend in the use of staff in organizations is to ____________. (a) give staff personnel more authority over operations (b) reduce the number of staff personnel (c) remove all staff from the organization (d) combine all staff functions in one department

13. The bureaucratic organization described by Max Weber is similar to the ____________ organization described by Burns and Stalker. (a) adaptive (c) organic (b) mechanistic (d) adhocracy

14. Which type of organization design best fi ts an uncertain and changing environment? (a) mechanistic (c) organic (b) bureaucratic (d) traditional

15. An organization that employs just a few “core” or essential full-time employees and outsources a lot of the remaining work show signs of using a ____________ structure. (a) functional (c) matrix (b) network (d) mechanistic

Short-ResponseQuestions 16. What symptoms might indicate that a functional

structure is causing problems for the organization?

17. Explain by example the concept of a network organization structure.

18. Explain the practical signifi cance of this statement: “Organizational design should be done in contingency fashion.”

19. Describe two trends in organizational design and explain their importance to managers.

EssayQuestion 20. Faisal Sham supervises a group of seven project

engineers. His unit is experiencing a heavy workload, as the demand for different versions of one of his fi rm’s computer components is growing. Faisal fi nds that he doesn’t have time to follow up on all design details for each version of the product. Until now he has tried to do this all by himself. Two of the engineers have shown an interest in helping him coordinate work on the various designs. As a consultant, how would you advise Faisal in terms of delegating work to them?

Self-Test 11

262 CHAPTER 11 ■ Organization Structures and Design

Evaluate Career Situations

What Would You Do?

1. Th e New Branch Manager

As the newly promoted manager of a branch bank, you will

be leading a team of 22 people. Most members have worked

together for a number of years. How can you discover the in-

formal structure or “shadow organization” of the branch and

your team? Once you understand them, how will you try to

use informal structures to advantage while establishing

yourself as an eff ective manager in this situation?

2. Advisor to the Business School

Th e typical university business school is organized on a

functional basis, with department heads in accounting,

finance, information systems, management, and marketing

all reporting to a dean. You are on your alma mater’s advisory

board, and the dean is asking for advice. What suggestions

might you give for redesigning this structure to increase

communication and collaboration across departments, as

well as improve curriculum integration for students in all areas

of study?

3. Entrepreneur’s Dilemma

As the owner of a small computer repair and services busi-

ness, you would like to allow employees more fl exibility in

their work schedules. But you also need consistent coverage

to handle drop-in customers as well as at-home service calls.

Th ere are also times when customers need what they con-

sider to be “emergency” help outside of normal 8 a.m. to

5 p.m. offi ce times. You’ve got a meeting with employees

scheduled for next week. Your goal is to come out of the meet-

ing with a good plan to deal with this staffi ng dilemma. How

can you achieve this goal?

Refl ect on the

Self-Assessment

Empowering Others

Instructions Th ink of times when you have been in charge of a group in a

work or student situation. Complete the following questionnaire

by recording how you feel about each statement according to

this scale: 45

1 2 3 4 5

Strongly Disagree Neutral Agree Strongly

disagree agree

ManagementSkills& Competencies Make yourself valuable!

When in charge of a team, I fi nd that:

1. Most of the time other people are too inexperienced to do

things, so I prefer to do them myself.

2. It often takes more time to explain things to others than to

just do them myself.

3. Mistakes made by others are costly, so I don’t assign much

work to them.

4. Some things simply should not be delegated to others.

5. I often get quicker action by doing a job myself.

6. Many people are good only at very specifi c tasks, so they can’t

be assigned additional responsibilities.

7. Many people are too busy to take on additional work.

8. Most people just aren’t ready to handle additional responsi-

bilities.

9. In my position, I should be entitled to make my own decisions.

Scoring Total your responses to get an overall score. Possible scores

range from 9 to 45.

Interpretation Th e lower your score, the more willing you appear to be to dele-

gate to others. Willingness to delegate is an important manage-

rial characteristic. It is how you, as a manager, can empower

others and give them opportunities to assume responsibility and

exercise self-control in their work. With the growing importance

of horizontal organizations and empowerment, your willingness

to delegate is worth thinking about seriously.

Contribute to the Class Exercise

Organizational Metaphors

Instructions Form into groups as assigned by the instructor and do the

following:

1. Th ink about organizations and how they work.

2. Select one of the following sets of organizational metaphors.

(a) human brain—spiderweb

(b) rock band—chamber music ensemble

(d) cement mixer—star galaxy

(e) about the fi fth date in an increasingly serious relationship—

a couple celebrating their 25th wedding anniversary

263Analyze the Case Study

3. Brainstorm how each metaphor in your set can be used to

explain how organizations work.

4. Brainstorm how each metaphor is similar to and diff erent

from the other in this explanation.

5. Draw pictures or create a short skit to illustrate the contrasts

between your two metaphors of an organization.

6. Present your metaphorical views of organizations to the class.

7. Be prepared to explain what can be learned from your

metaphors and engage in class discussion.

Manage a Critical Incident

Crowdsourcing Evaluations to Cut

Management Levels

Performance reviews in your fi rm have always been completed

by managers and then discussed with workers. But you’ve been

reading about 3608 reviews that include feedback from peers and others working with or for the person being evaluated.

You’re also aware that new technology makes it easy to conduct

evaluations online and even to make them happen in almost

real time, on a project-by-project basis, without a manager

leading the process. As soon as a task is completed by an indi-

vidual or team, a 3608 review can be done online and the feed- back immediately used for future performance improvement.

You’d like to start crowdsourcing evaluations at your fi rm in

order to save costs by cutting management levels, and also to

improve the fl ow and timeliness of performance feedback.

Before going further, you sit down to make a list of the pros and

cons of the idea.

Questions What’s on your list of pros and cons, and why? You next decide

to make another list of resources and support from key persons

that would be needed to implement the practice. What’s on this

second list and why?

Collaborate on the

Team Activity

Designing a Network University

Instructions In your assigned team, do the following.

1. Discuss the concept of the network organization structure as

described in the textbook.

2. Create a network organization structure for your college

or university. Identify the “core staffi ng” and what will be

outsourced. Identify how outsourcing will be managed.

3. Draw a diagram depicting the various elements in your

“Network U.”

4. Identify why “Network U” will be able to meet two major goals:

(a) create high levels of student learning and (b) operate with

cost effi ciency.

5. Present and justify your design for “Network U” to the class.

AnalyzeTHE CaseStudy

NIKE

Spreading Out to Win the Race Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

“We’re very clear not everyone fi ts in this quirky company. We put potential hires through seven to eight interviews. Sometimes people look at us like we’re crazy and run away. When employees don’t understand the team atmosphere, we let them go.”

Kip Tindell, CEO of Container Store

courtesy Th e Container Store

Organization

Culture and

Change Get there faster with objectives

12 C H A P T E R Q U I C K STA RT

Any organization has a “culture” that acts a personality and sets a tone for every-

day operations. Some organizational cultures have a more positive infl uence than

others on members’ attitudes, behaviors, commitments and performance accom-

plishments, as well as customer loyalty. One of the most important career deci-

sions we make is to choose an employer that off ers a good “fi t” between personal

preferences and its work culture. Part of that fi t relates to how the culture handles

change and the ways managers act, or not, as change leaders.

Key Takeaways

■ Explain the concept of

organizational culture

and discuss how it aff ects

organizational behavior

and performance.

■ Describe how a

multicultural organization

handles subcultures and

diversity issues.

■ Identify alternative

approaches to

organizational change

and the types of change

strategies and resistance

to change found in

organizations.

265

MANAGEMENT IS REAL MAKE DATA YOUR FRIEND

Organization Cultures Must Face Up to Emerging Work–Life Trends

THINK BEFORE YOU ACT

Saying “OK” to Chest Bumps

KNOW RIGHT FROM WRONG

Hidden Agendas in Organizational Change

LEARN ABOUT YOURSELF

Get Comfortable with Tolerance for Ambiguity

LEARN FROM ROLE MODELS

Healthy Living Sets the Tone at Clif Bar

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Change Leadership IQ

■ CONTRIBUTE To the Class Exercise: Force-Field Analysis

■ MANAGE A Critical Incident: Proposal for Open Offi ce Design and Hotdesking

■ COLLABORATE On the Team Activity: Organizational Culture Walk

■ ANALYZE Th e Case Study: Gamifi cation: Finding Legitimacy in the New Corporate Culture

what to look for inside >

266 CHAPTER 12 ■ Organization Culture and Change

“C ulture” is a word we hear a lot these days as we become more aware

of diversity in everyday living. And when it comes to the world at

large, cultural diff erences between people and nations are often in the news.

However, there’s another type of culture that can be just as important: the

cultures of organizations. Just as nations, ethnic and religious groups,

nations, and families have cultures, organizations do, too. Th ese cultures

help distinguish organizations from one another and give members a sense

of collective identity. Th e “fi t” between the individual and an organization’s

culture is very important. Th e right fi t is good for both employers and job

seekers, and fi nding the right fi t in your work and membership organiza-

tions is a real career issue.

“Change” is another hot-button word we also face in our lives and at work.

Just as people are being asked to adapt and be ever more fl exible, organiza-

tions are, too. Managers are expected to support change initiatives launched

from the C-suite; they also are expected to be change leaders in their own

teams and work units. Some organizational cultures push change, while others

resist it. Th is is a good time to check your readiness to master career chal-

lenges and change processes in today’s organizations.

Organizational Cultures TAKEAWAY 1 What is organizational culture?

Understanding organizational cultures • Observable culture Values and the core culture

Th ink of the stores where you shop; the restaurants that you patronize; the place where you

work. What is the “vibe” like? Do you notice, for example, that atmospheres in the stores of

major retailers like Anthropologie, Gap, Hollister, and Banana Republic seem to fi t their

brands and customer identities? 1 Are you envious when someone says about their workplace:

“It’s just like a family” or “We have fun while we’re working” or “Th e whole place just pulls

together to get the job done”? Such aspects of the internal environments of organizations

are important in management, and the term used to describe them is organizational

culture. Sometimes called the corporate culture, this is the system of shared beliefs and

values that shapes and guides the behavior of an organization’s members. 2 Organizational

culture can be thought of as the personality of the organization or the atmosphere within

which people work.

Th e organizational culture is what you see and hear when walking around an organiza-

tion as a visitor, a customer, or an employee. Look carefully, check the atmosphere, and

listen to the conversations. Whenever someone speaks of “the way we do things here,” for

example, that person is providing insight into the organization’s culture. Just as nations,

ethnic groups, and families have cultures, organizations also have cultures that create

unique identities and help to distinguish them from one another. Th ese cultures have a

strong impact on an organization’s performance and the quality of work experiences of its

members. 3

Understanding Organizational Cultures

At Zappos.com, a popular shoe e-tailer, CEO Tony Hsieh has built a fun, creative, and

customer-centered culture. He says: “Th e original idea was to add a little fun,” and then

LEARN MORE

ABOUT

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Organizational culture is the system

of shared beliefs and values that guides

behavior in organizations.

267Organizational Cultures

everyone joined in the idea that “We can do it better.” Now the notion of an unhappy Zappos

customer is almost unthinkable. “Th ey may only call once in their life,” says Hsieh, “but that

is our chance to wow them.” 4 Hsieh’s advice is that if you “get the culture right, most of the

other stuff , like brand and the customer service, will just happen.” 5 Amazon.com CEO Jeff

Bezos liked Zappos so much he bought the company. Th e Girl Scouts are among a number

of organizations that send executives to study Zappos’ culture and bring back ideas for

improving their own.

It takes a keen eye to be able to identify and understand an organization’s culture. But

such understanding can be a real asset to employees and job seekers alike. No one wants

to end up in a situation with a bad person–culture fi t. Management scholars off er ideas for

reading an organization’s culture by asking and answering questions like the following. 6

How tight or loose is the structure? • Do most decisions refl ect change or the status quo?

• What outcomes or results are most highly valued? • How widespread are empowerment

and worker involvement? • What is the competitive style, internal and external? • What

value is placed on people, as customers and employees? • Is teamwork a way of life in this

organization?

Types of Organization Cultures One of the popular descriptions of organizational cultures

is shown in the small fi gure. Based on a model called the

competing values framework, it identifi es four diff erent

culture types. 7

Hierarchical cultures emphasize tradition

and clear roles; dependable cultures emphasize process and

slow change; enterprising cultures emphasize creativity and

competition; and, social cultures emphasize collaboration

and trust. According to LeadershipIQ, employees give

enterprising cultures the highest marks for engagement

and motivation, and as good places to work. 8 How do these

organization culture options sound to you? Are you prepared

to identify the cultures in organizations you interview with

and, perhaps, even rule out those with a potentially poor

person–culture fi t?

Holacracy Says “Hello” to Self Organizing and “Goodbye” to CEO Power

Welcome to a fashion-forward Holacracy. Th e concept is trademarked and described

by HolacracyOne as a “new ‘operating system’ ” that “replaces today’s top-down predict-

and-control paradigm with a new way of achieving control by distributing power.”

Employees become partners and power is distributed by the Holacracy Constitution,

which replaces managers. Partners constitutionally agree to things like creating and

acting on projects to fulfi ll roles, tracking progress, helping one another, and spotting

tensions indicating things could be better. When Zappos adopted Holacracy, CEO Tony

Hsieh justifi ed the shift this way: “Th ere’s the org chart on paper, and then the one that

is exactly how the company operates for real, and then there’s the org chart that it

would like to have in order to operate more effi ciently. . . . [With Holacracy] the idea is

to process tensions so that the three org charts are pretty close together.”© M

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Issues&Trends

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Alternative Organizational Cultures

Team Culture • Authority shared, distributed • Teams and teamwork rule • Collaboration, trust valued • Emphasis on mutual support

• Authority runs the system • Traditions, roles clear • Rules, hierarchy valued • Emphasis on predictability

• Authority goes with ideas • Flexibility and creativity rule • Change and growth valued • Emphasis on entrepreneurship

• Authority serves the goals • Efficiency, productivity rule • Planning, process valued • Emphasis on modest change

Heirarchial Culture

Entrepreneurial Culture Rational Culture

268 CHAPTER 12 ■ Organization Culture and Change

Strong Organizational Cultures Zappos’s Tony Hsieh was quoted earlier as saying: “If we get the culture right, most of the

other stuff , like brand and the customer service, will just happen.” 9 And he’s mostly right.

Although culture isn’t the only determinant of what happens in organizations, it does help

to set values, shape attitudes, reinforce beliefs, direct behavior, and establish performance

expectationsm. 10

It is in these ways that an organization’s culture infl uences its moral

character and performance tone.

In strong organizational cultures, the culture is clear, well defi ned, and widely shared

by members. When the strong culture is positive, it acts as a performance asset by helping

fi t together the nature of the business and the talents of the employees. It discourages dys-

functional behaviors and encourages helpful ones, while keeping the vision clear and goals

compelling for all to rally around. 11

But when the strong culture is negative, its power is

equally strong in the other direction. In responding to a devastating product recall scandal,

for example, General Motor’s CEO Mary Barra pledged to change a strong and negative orga-

nizational culture for the better. She claimed GM’s historical culture of cost containment

and avoidance of responsibility encouraged covering up rather than addressing problems.

She criticized the “GM Nod” where meeting participants would nod in agreement but take

no action, and the “GM Salute” symbolized by crossed arms indicating “responsibility

belongs to someone else, not me.” 12

Strong and positive organizational cultures don’t happen by chance. Th ey are created by

leaders who set and model the right tone, and they are reinforced through socialization.

Th is is the process of onboarding new members so that they learn the culture and the values

of the organization. 13

Socialization often begins in an anticipatory way with education, such

as when business students learn the importance of professional appearance, integrity, and

interpersonal skills. It continues with an employer’s onboarding orientation and training

programs. Disney’s highly regarded strong culture, for example, is supported by major invest-

ments in socializing and training new hires. Founder Walt Disney is quoted as saying: “You

can dream, create, design and build the most wonderful place in the world, but it requires

people to make the dream a reality.” 14

Observable Culture of Organizations

Organizational culture is usually described from the perspective of the two levels shown

in Figure 12.1. Th e outer level is the “observable” culture, and the inner level is the “core”

culture. 15

As suggested by the fi gure, it is useful to think of organizational culture as an

iceberg with an observable component—the part that stands out above the surface and is

visible to the discerning eye, and a core component—the foundation that lies below the

surface and is hard to see.

Strong organizational cultures are

clear, well defi ned, and widely shared

among members.

Socialization is the onboarding process

through which new members learn the

culture of an organization.

Culture of “Go Along to Get Along” Is a Danger Signal

Any CEO, manager, or team leader should worry about the accuracy of information they

are using to make decisions. And there’s no shortage of executive mistakes due to an

unwillingness of people at lower levels to communicate bad news to people at the top.

Deborah J. Cornwall advises chief executives of major corporations. She says: “Th ere’s a

tendency for people in large, hierarchical organizations to tell the boss what he wants to

hear.” Th e Wall Street Journal calls this the tendency to please the boss in a culture of “go

along to get along.” And a former Ford vice president, Martin Zimmerman, says: “You

get blindsided when things deteriorate. You want to know about mistakes. You want to

get them connected.”Li un

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Issues&Trends

Li un

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269Organizational Cultures

OBSERVABLE CULTURE

CORE CULTURE Core Values • Beliefs about the right ways to behave

Celebration of heroes and events displaying

core values

Rites and Rituals Heroes

People (past and present) who display

core values

Symbols

Language and other symbols conveying

core values

Stories

Tales about events conveying core

values

FIGURE 12.1 Levels of organizational culture—observable culture and core culture in the organizational “iceberg.”

Th e observable culture is visible and is readily apparent at the surface of every organi-

zation. It is expressed in the way that people dress at work, how they arrange their offi ces,

how they speak to and behave toward one another, the nature of their conversations, and

how they talk about and treat customers and clients. Test this out the next time you go to a

store, restaurant, or service establishment. How do people look, act, and behave? How do

they treat one another? How do they treat customers? What’s in their conversations? Are

they enjoying themselves? When you answer these questions, you are starting to identify

the organization’s observable culture.

Th e observable culture also is found in the stories, heroes, rituals, and symbols that are

part of daily organizational life. It can be something simple like joining in spontaneous

celebrations of work accomplishments or personal milestones such as a co-worker’s

birthday. In workplaces like Apple, Zappos, and Amazon, it’s in the stories told about the

founders and the fi rm’s startup history.

At colleges and universities it includes the pageantry of graduation and honors ceremo-

nies, and in sports teams it’s evident in the pregame rally, sideline pep talk, and all the

“thumping and bumping” that takes place after a good play. When you are trying to under-

stand the observable culture of an organization, look for the following: 16

• Heroes—the people singled out for special attention and whose accomplishments are

recognized with praise and admiration; they include founders and role models.

• Ceremonies, rites, and rituals—the ceremonies and meetings, planned and spontaneous,

that celebrate important events and accomplishments.

• Legends and stories—oral histories and tales, told and retold among members, about

dramatic incidents in the life of the organization.

• Metaphors and symbols—the special use of language and other nonverbal expressions

that communicate important themes and values of the organization.

Values and the Core Culture of Organizations

A second and deeper level of organizational culture, the core culture, consists of the core

values or underlying assumptions and beliefs that shape and guide people’s behaviors. You

know core values, so to speak, when you experience them. Th is may be when you are trying

Th e observable culture is visible in the

way members behave, and in the stories,

heroes, rituals, and symbols that are

part of daily organizational life.

The observable culture of organizations

Th e core culture consists of the core

values, or underlying assumptions and

beliefs that shape and guide people’s

behaviors in an organization.

Core values are beliefs and values

shared by organization members.

270 CHAPTER 12 ■ Organization Culture and Change

to claim lost luggage at an airline counter and are treated really well, or are returning a prod-

uct to a retail store and are greeted with a smile and “no questions asked.” Values set in the

core culture are a strong infl uence on how such transactions play out. And when customer

experiences aren’t positive, the culprit may well be weak or just plain bad core values.

Values in some of the best companies have been found to emphasize performance excel-

lence, innovation, social responsibility, integrity, worker involvement, customer service, and

teamwork. 17

Examples of values at strong-culture fi rms include “service above all else” at

Nordstrom; “Creating ongoing win–win partnerships with our suppliers” at Whole Foods;

“Innovation, Inspiration, Reliability and Integrity” at Under Armour; “the best electric car

and electric power trains in the world” at Tesla; and, “We strive to live up to our name in the

way we conduct our business” at Honest Tea. 18

Value-Based Management How would you react if you found out senior executives in your organization talked up

values such as honesty and ethical behavior, but then acted very diff erently—altering fi nan-

cial reports or spending company funds on expensive private parties, personal travel, or

luxury products? Most likely you’d be upset, and justifi ably so. It’s important not to be fooled

by values statements alone when trying to understand an organization’s core culture. It’s

Bring a bit of ritual to the office culture and increase per-formance. At least that’s the wisdom being followed by some forward-thinking organizations. When was the last time you

shared a chest bump with a co-worker? In many workplaces

people are afraid to even try, given the concerns about sexual

harassment and unwanted physical contact. But at others, the

organization culture welcomes such practices.

Rituals are in at Salo LLC, a Minneapolis human resource

management company. A ringing gong signals a deal that has

been closed. You might even see a couple of employees doing a

chest bump to celebrate a success. What’s it all about? Answer:

harnessing the power of organizational culture as a performance

booster.

Researchers note that many of us follow rituals before doing

things—like the major league baseball player who tightens and

re-retightens his batting gloves before each pitch. Some consider

rituals confi dence boosters. When rituals move into the offi ce,

they are linked with increased employee involvement and a higher

sense of connection among team members. Of course, newcom-

ers may have to be treated with extra care. At Salo, for example,

new marketing manager Maureen Sullivan was surprised to see

the chest bumping. But she learned to accept it, saying: “Alrighty,

that’s what we do here. We just really get into it.”

YOUR TAKE?

Is this taking organizational culture a step too far? Would you be comfortable in an offi ce environment where things like chest bumps were part of the daily ritual? Do you fi nd such activities a source of potential confi dence, camaraderie, and engagement? Or, are they a real turnoff? If you were a team leader, would you try to take advantage of rituals to boost morale and perfor- mance? Are practices like these good for only certain types of work settings and personalities?

choices> THINK BEFORE YOU ACT > Researchers link rituals with increased employee involvement and a higher sense

of connection among team members.

Saying “OK” to Chest Bumps

271Organizational Cultures

easy to write a set of values, post them on the Web, and talk about them. It’s a lot harder to

live up to them every day.

If core values are to have any positive eff ect, everyone in the organization—from top

to bottom—must refl ect these values in their day-to-day actions. It’s in this context that

managers and team leaders have a special responsibility to “walk the talk” in order to make

the expressed values real. Th e term value-based management describes managers who

actively help to develop, communicate, and enact core values every day. Although you

might tend to associate value-based management with top executives, the responsibility

extends to all managers and team leaders. Like the organization as a whole, every work

team or group has its own a culture. Th e nature of this culture and its infl uence on team

outcomes has a lot to do with how the team leader behaves as a values champion and

role model.

An incident at Tom’s of Maine provides an example of value-based management in

action. 19

After making a substantial investment in a new deodorant, founder Tom Chappell

learned that customers were very dissatisfi ed with the product. He made the decision to

reimburse customers and pull the product from the market, even though it would cost the

company more than $400,000. Tom had founded the company on values of fairness and

honesty in all matters. Rather than trying to save costs by avoiding or denying the customer

dissatisfaction, he did what he believed was the right thing. He listened, accepted responsi-

bility for a poor product, and made the customers right. By so doing he lived up to the

company’s stated values and set a positive example for others to follow in the future. When

faced with similar dilemmas their responses could be checked by asking: What would Tom

do? Th is incident also shows Tom Chappell’s strengths as a symbolic leader, someone

whose words and actions consistently communicate core values. 20

Value-based management actively

develops, communicates, and enacts

shared values.

A symbolic leader is someone whose

words and actions consistently commu-

nicate core values.

Have you had your Clif Bar today? Lots of people have, thanks to a long bike ride during which Gary Erickson decided he just couldn’t eat another of the available energy bars. He went

back to experiment in his mother’s kitchen and produced the fi rst

Clif Bar two years later.

Despite its growth from a one-man operation to one employing

2701 people, Clif ’s still runs with a commitment to what it calls

the “5 aspirations”—“sustaining our planet . . . community . . .

people . . . business . . . brands.”

Clif ’s core values are evident not only in the firm’s healthy

organic foods and philanthropy, but also in the quality of

working life offered to employees. Picture “Clifies,” working

this way:

■ Every employee is an owner.

■ Paid sabbatical leaves of 6 to 8 weeks after seven years.

■ If you want, work a fl exible schedule to get every other Friday

free.

■ Get paid for 2.5 hours of workout time each week.

■ Bring your pet to work and wear casual clothes.

■ Use the in-house concierge service for car washes, laundry, dry

cleaning, haircuts, and more.

■ Get $6,500 toward a hybrid or bio-diesel automobile.

FIND THE INSPIRATION

Clif’s core values are evident not only in the fi rm’s healthy or- ganic foods and philanthropy, but also in the quality of working life offered to employees. The culture is unique. Why can’t more of us fi nd jobs in places like this?

wisdom> LEARN FROM ROLE MODELS > “Clifi es” get paid sabbaticals after seven years and $6,500 toward a hybrid or bio-diesel car.

Healthy Living Sets the Tone at Clif Bar

Bill Hogan/Chicago Tribune/MCT/NewsComBill H /Chi T ib /MCT/N C

272 CHAPTER 12 ■ Organization Culture and Change

Workplace Spirituality Th e notion of workplace spirituality is sometimes discussed along with value-based

management. Although the fi rst tendency might be to associate “spirituality” with religion,

the term is used more broadly in management. It describes an organizational culture that

helps people fi nd meaning and a sense of shared community in their work. Th e core value

underlying workplace spirituality is respect for human beings. Th e guiding principle is that

people are inwardly enriched when they are engaged in meaningful work and feel personally

connected with others inside and outside of the organization. 21

A culture of workplace spirituality will have a strong ethical foundation, value human

dignity, respect diversity, and focus on linking jobs with real contributions to society. Anyone

who works in a culture of workplace spirituality should derive pleasure from knowing that

what is being accomplished is personally meaningful, created through community, and

valued by others. Anyone who leads a culture of workplace spirituality values people by

emphasizing meaningful purpose, trust and respect, honesty and openness, personal growth

and developments, worker-friendly practices, and ethics and social responsibility. 22

Workplace spirituality creates

meaning and shared community among

organizational members.

Learning Check 1

TAKEAWAYQUESTION 1 What is organizational culture?

BE SURE YOU CAN • defi ne organizational culture and explain the importance of strong cultures to organizations • defi ne

and explain the onboarding process of socialization • distinguish between the observable and core cultures • explain how

value-based management helps build strong culture organizations • describe how workplace spirituality is refl ected in an

organization’s culture

Multicultural Organizations and Diversity TAKEAWAY 2 What is a multicultural organization?

Multicultural organizations • Organizational subcultures Power, diversity, and organizational subcultures

U.S. laws make it illegal to discriminate in hiring and employment decisions based on race,

religion, national origin, ethnicity, able-bodiedness, or sex. Th ose who believe they have been

a victim of discrimination can appeal to the U.S. Equal Employment Opportunity Commis-

sion. But, did you know that workers who are gay, lesbian, transgender, or bisexual aren’t

covered by current laws? Th e proposed Employment Non-Discrimination Act (ENDA) is

intended to add gender identity and sexual orientation to the list of anti-discrimination pro-

tections. As of this writing, ENDA has passed the Senate but still needs House of Represen-

tatives approval. Its supporters at recent count included 59 of the Fortune 500 companies. 23

Don’t you wonder why it doesn’t include all 500 of these major fi rms?

Multicultural Organizations

In the book Beyond Race and Gender, consultant R. Roosevelt Th omas, Jr., points out that

the way people are treated at work—with respect and inclusion, or with disrespect and

exclusion—is a direct refl ection of the organization’s culture and leadership. 24

We use the

term multiculturalism to describe inclusiveness, pluralism, and respect for diversity in the

workplace. Th e core values of a truly multicultural organization communicate support

for multiculturalism and empower the full diversity of all members. Common characteris-

tics of multicultural organizations include: 25

• Pluralism—Members of both minority cultures and majority cultures are infl uential in

setting key values and policies.

• Structural integration—Minority-culture members are well represented in jobs at all

levels and in all functional responsibilities.

• Informal network integration—Various forms of mentoring and support groups assist in

the career development of minority-culture members.

Multiculturalism in organizations

involves inclusiveness, pluralism, and

respect for diversity.

A multicultural organization has

core values that respect diversity and

support multiculturalism.

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MMMuuultiiccuultuuurraal OOrggggannizzzattiiooonss annndd DivveeerssiityyM

Characteristics of multicultural organizations

273Multicultural Organizations and Diversity

• Absence of prejudice and discrimination—A variety of training and task-force activities

address the need to eliminate culture-group biases.

• Minimum intergroup confl ict—Diversity does not lead to destructive confl icts between

members of majority and minority cultures.

A key argument in support of multiculturalism is that organizations with inclusive cul-

tures will gain performance advantages because their workforces off er a wide mix of talents

and perspectives. 26

In other words, multiculturalism in organizations is a performance asset.

Th e Gallup Management Journal, for example, reports that a racially and ethnically inclusive

workplace is good for morale. In a study of 2,014 American workers, those who felt included

were more likely to stay with their employers and recommend them to others. 27

And, a Cat-

alyst study of gender diversity found that fi rms with at least three female board members

achieved a higher return on equity than did fi rms with no female board representation. 28

But

Th omas Kochan and colleagues at MIT advise caution. Th ey warn that the presence of diver-

sity alone does not guarantee these types of positive outcomes. Th e performance advan-

tages of multiculturalism emerge only when respect for diversity is fi rmly embedded in the

organizational culture. 29

Organizational Subcultures

Organizations—like societies at large—contain a mixture of organizational subcultures or

co-cultures. Th ey exist within the larger organizational culture and consist of members

who share similar values and beliefs based on their work responsibilities, personal charac-

teristics, and social identities. Subcultures formed around in-group similarities and out-group

diff erences often make it hard to tap the full potential of a diverse workforce and create a

truly multicultural organization. As it does in everyday life, ethnocentrism—the belief that

one’s subculture or co-culture is superior to all others, can creep into organizations and

negatively aff ect the way people relate to one another.

Organizational subcultures or

co-cultures consist of members who

share similar beliefs and values based

on their work, personal characteristics,

or social identities.

Ethnocentrism is the belief that one’s

membership group and subculture or

co-culture is superior to all others.

If you have any doubts regarding the importance of work–life issues and their implications for organizational cultures and management practices, consider these facts:

■ 78% of American couples are dual-wage earners.

■ 63% believe they don’t have enough time for their spouses or

partners.

■ 74% believe they don’t have enough time for their children.

■ 35% are spending time caring for elderly relatives.

■ Both baby boomers (87%) and millennials (89%) rate fl exible

work as important.

■ Both baby boomers (63%) and millennials (69%) want opportu-

nities to work remotely at least part of the time.

YOUR THOUGHTS?

What organizational culture issues are raised by these facts? What should employers do to best respond to the situation described here? What about you? Are you prepared to succeed in a work culture that doesn’t respect these facts? Or, are you preparing right now to always fi nd and be attractive to employers who do?

analysis> MAKE DATA YOUR FRIEND > 74% of working adults say they don’t have enough time for their children.

Organization Cultures Must Face Up to Emerging Work–Life Trends

Ariel Skelley/Getty Images

274 CHAPTER 12 ■ Organization Culture and Change

Age diff erences create generational subcultures in organizations. 30

It’s common today

for the mix of generations in an organization’s workforce to span from post–World War II

baby boomers to the latest Internet generation. 31

Harris and Conference Board polls report

that younger workers tend to be more dissatisfi ed than older workers. 32

Studies also describe

younger workers as having a much shorter time orientation, giving greater priority to

work–life balance, and expecting to hold several jobs during the course of their career. 33

Just

imagine the possible confl icts when recent college graduates end up working for older man-

agers who grew up with quite diff erent life experiences and values. And how about the

reverse, when older workers end up on teams with much younger leaders?

Gender subcultures form in organizations among persons with shared gender identi-

ties and displaying common patterns of behavior. When men work together, for example,

an “alpha male” subgroup culture may emphasize a competitive behavior set of sports

metaphors, games, and stories that focus on winning and losing. 34

When women work

together, the interactions and patterns of the subgroup culture may emphasize a support-

ive behavior set of personal relationships and collaboration. 35

And, female leaders can

suff er a double-bind dilemma due to subculture expectations. Th is occurs when they get

criticized as being “too soft” when they act consistent with female subculture stereotypes,

but also get criticized as being “too hard” when acting consistent with male subculture

stereotypes. In other words, female leaders may be “damned if they do, and damned if they

don’t,” and fi nd it hard to get credit for eff ective leadership. 36

The many possible subcultures in organizations also include occupational and

functional subcultures that form around shared professions and skills. 37

People from

diff erent occupations and functions can have diffi culty understanding and working well

with one another. Employees in a business fi rm, for example, may consider themselves

“systems people” or “marketing people” or “fi nance people.” When such identities are

overemphasized, members of functional groups spend most of their time with each other,

develop a shared “jargon” or common technical language, and view their roles in the

organization as more important than those of the other functions. It’s easy under such

conditions for teamwork across the occupational or functional boundaries to suff er.

Ethnic subcultures and national subcultures form in the workplace among people

sharing the same background in terms of ethnicity or nationality. Although our world of

work is one of diverse cultural communities, it’s often more complicated than appears at

fi rst glance. We’re growing more interested in foreign languages, but what happens when

co-workers hear a group of software engineers that share a language—say Mandarin or

Hindi, speaking it together? We love fashion and are used to all diff erent manners of dress,

but how do we react when three women in head scarves and ankle-length skirts walk into

the offi ce coff ee room while chatting back and forth? We are happy when foreign employers

create domestic jobs, but how do local managers for a multinational like Honda or Toyota

feel when their Japanese colleagues play rounds of golf together? We emphasize the impor-

tance of understanding and respecting cross-cultural diff erences when traveling interna-

tionally. Can’t the same attention help us better deal with diversity among ethnic and

national subcultures in the workplace?

Power, Diversity, and Organizational Subcultures

The term “diversity” basically means the presence of interpersonal differences. Those

differences may or may not be distributed equally among organizational subcultures and

power structures. What happens when one subculture is in the “majority” while others are

“minorities”?

Glass Ceilings and the Leaking Pipeline Even though demographics and hiring practices are changing, there is still likely to be more

workforce diversity at lower and middle levels than at the top. Look at Figure 12.2. It depicts

the glass ceiling as an invisible barrier that limits the professional advancement of women

and minorities in some organizations. What are the implications for women and minority

Generational subcultures form among

persons who work together and share

similar ages, such as millennials and

baby boomers.

Gender subcultures form among

persons who share gender identities and

display common patterns of behavior.

Th e double-bind dilemma is where

female leaders get criticized when

they act consistent with female

subculture stereotypes and when they

act consistent with male subculture

stereotypes.

Occupational and functional

subcultures form among persons

who share the same skills and work

responsibilities.

Ethnic subcultures or national

subcultures form among people who

work together and have roots in the

same ethnic community or nationality.

Th e glass ceiling is an invisible barrier

to advancement by women and

minorities in organizations.

275Multicultural Organizations and Diversity

members seeking to advance and prosper in an organization where the majority culture

consists almost exclusively of white males? How easy is it for women and people of color to

move up when promotions are controlled by decision makers who are part of an alternative

and dominant culture?

If women now hold over 50% of management jobs, why do they hold only about 5% of

CEO positions and 17% of board seats at Fortune 500 fi rms? 38

One reason why more

women haven’t gotten to the top is that they often hit plateaus or “fall off the cliff ” at earlier

career stages. The leaking pipeline problem describes situations where qualified and

high-performing females with top management potential drop out of upward-tracking

career paths. Th eir decisions aren’t always due to personal goals on the one hand or out-

right gender prejudice or discrimination at the other. Subtle forces in male-dominant orga-

nizational cultures may make it hard for women to advance. 39

They may lack female role

models and have diffi culty fi nding top managers to advocate and sponsor their career

progress. Executive mind-sets may have a hard time tolerating women who want both a

family and a career. Even in organizations with family-friendly human resource policies,

women may still feel forced to choose between job advancement and family—a choice that

often puts family fi rst and sacrifi ces career opportunities like promotions and assignments

in new locations. 40

Harassment and Discrimination Subculture challenges faced by minority and female employees can range from misunder-

standing and a lack of sensitivity on the one hand to overt sexual harassment and discrimi-

nation on the other. Data from the U.S. Equal Employment Opportunity Commission

(EEOC) show that sex discrimination is a factor in approximately 30% of bias suits fi led by

workers. 41

Th e EEOC also reports an increase in pregnancy-related discrimination com-

plaints. 42

And, researchers identify risks of discrimination in hiring. In a study that distrib-

uted to recruiters fake résumés showing equal credentials but diff erent family details, men

with children were the most hirable—viewed as responsible, and women with children were

the least hirable—viewed as likely to sacrifi ce work for family responsibilities. 43

Pay discrimination is another issue. A senior executive in the computer industry reported

her surprise at fi nding out that the top performer in her work group, an African American

male, was paid 25% less than anyone else. Th is wasn’t because his pay had been cut to that

level, she said. It was because his pay increases had always trailed those given to his white

co-workers. Th e diff erences added up signifi cantly over time, but no one noticed or stepped

forward to make the appropriate adjustment. 44

Th e leaking pipeline problem is where

glass ceilings and other obstacles cause

qualifi ed and high-performing women

to drop out of upward career paths.

Dominant Culture:

White males

Minority Cultures: Women, people of color,

other minorities

• Hold most top positions

• Present at all levels

• Included in entry-level hiring

• Hold few top positions

• Largely distributed in lower-middle levels

• Included in entry-level hiring

Glass ceiling limiting advancement of women and minorities

FIGURE 12.2 Glass ceilings as barriers to women and

minority cultures in traditional

organizations.

276 CHAPTER 12 ■ Organization Culture and Change

Members of minority cultures may resort to biculturalism in attempts to adapt to

uncomfortable situations and avoid harassment or discrimination by majorities. Th is means

they try to display majority culture characteristics that seem necessary to succeed in the

work environment. For example, gay and lesbian employees may hide their sexual orienta-

tion from co-workers out of fear of prejudice or discrimination. Similarly, an African American

employee may train herself to not use words or phrases that might be considered to be

subculture “slang” when communicating with white co-workers.

Multicultural and Diversity Leadership Th ere should be no doubt that all workers want the same things everyone wants—respect

for their talents and a work setting that allows them to achieve their full potential. It takes

an inclusive organizational culture and

the best in multicultural and diversity

leadership to meet these expectations.

R. Roosevelt Th omas describes the

continuum of leadership approaches to

diversity shown here. Th e fi rst is affi rma-

tive action, in which leadership commits

the organization to hiring and advanc-

ing minority and female employees. Th e

second is valuing diversity, in which

leadership commits the organization to

education and training programs designed to help employees to better understand

and respect individual diff erences. Th e third and most comprehensive is managing

diversity, in which leadership creates an organizational culture that allows all members,

including minorities and women, to reach their full potential. 45

Leaders committed to

managing diversity build organization cultures that are what Th omas calls “diversity

mature.” 46

Th ey have a strong diversity mission that is integrated into the organizational

mission as a strategic imperative.

Biculturalism is when minority

members display characteristics of

majority cultures in order to succeed.

Managing diversity is a leadership

approach that creates an organizational

culture that respects diversity and

supports multiculturalism.

Managing Diversity Achieve full

utilization of diverse human resources

Valuing Differences Build quality

relationships with respect for diversity

Affirmative Action Create upward mobility

for minorities and women

Learning Check 2

TAKEAWAYQUESTION 2 What is a multicultural organization?

BE SURE YOU CAN • defi ne multiculturalism and explain the concept of a multicultural organization • identify common

organizational subcultures • discuss glass ceilings and employment problems faced by minorities and women • describe the

leaking pipeline problem • explain Th omas’s concept of managing diversity

Organizational Change TAKEAWAY 3 What is the nature of organizational change?

Models of change leadership • Transformational and incremental change Phases of planned change • Change strategies • Resistance to change

What if an organization’s culture is fl awed, doesn’t drive high performance, and needs to be

changed? What if organizational subcultures clash and adjustments must be made? What

can leaders do if diversity isn’t valued on a team or in an organization? We use the word

change so much that culture changes like these may seem easy, almost routine. But that’s not

always the case. 47

Former British Airways CEO Sir Rod Eddington once said that “Altering an

airline’s culture is like trying to perform an engine change in fl ight.” 48

Executive coach Ben

Dattner says: “Organizations can go on autopilot just as individuals do.” 49

Models of Change Leadership

A change leader is someone who takes initiative to change existing patterns of behavior by

a person or within a social system. Th ese are managers who act as change agents and make

A change leader takes initiative in

trying to change the behavior of another

person or within a social system.

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277Organizational Change

things happen, even when inertia has made systems and people reluctant to embrace new

ways of doing things. Managers who are strong change leaders are alert to cultures, situations,

and people needing change, open to good ideas and opportunities, and ready and able to

support the implementation of new ideas in actual practice.

Every manager and team leader should ideally act as a change leader. But the reality is

that most of us have tendencies to stay with the status quo, accepting things as they are and

not wanting to change. Figure 12.3 contrasts a true “change leader” with a “status quo man-

ager.” Whereas the status quo manager is backward-looking, reactive, and comfortable with

habit, the change leader is forward-looking, proactive, supportive of new ideas, and comfort-

able with criticism.

Top-Down Change Top-down change is where senior managers initiate changes with the goal of improving

organizational performance. Although it sounds straightforward that “what the boss wants

the boss will get,” research indicates that as many as 70% of large-scale change eff orts in

American fi rms actually fail; only 20% of European fi rms report “substantial success” with

large-scale change, while 63% report “occasional” success. 50

Th e most common reason for the failure of top-down change is poor implementation.

And without doubt, people are more likely to be committed to implement plans that they

have played a part in creating. Change programs have little chance of success without the

support of those who must implement them. When change is driven from the top without

lower-level inputs and participation, it can easily fail.

Bottom-Up Change Bottom-up change taps into ideas initiated from lower organizational

levels and lets them percolate upward. A major risk as organizations grow

in size is that good ideas get lost in the labyrinth. One way managers can

unlock the potential for bottom-up change is by holding “diagonal slice

meetings” that bring together employees from across functions and levels.

Th ey are asked for ideas about what might be wrong and what changes

might be made to improve things. Another way is to build an organiza-

tional culture that values empowerment and encourages everyone regard-

less of rank or position to use their job knowledge and common sense to

improve things.

Bottom-up change was harnessed at General Electric under former CEO

Jack Welch, when he started a widely benchmarked program called Work-

Out. In Work-Out sessions, employees confront their managers in a “town

meeting” format with the manager in front listening to suggestions. Th e

managers are expected to respond immediately and support positive change

In top-down change, the change

initiatives come from senior

management.

In bottom-up change, change

initiatives come from all levels in the

organization.

Change leaders

Confident of ability Willing to take risks Seize opportunity Expect surprises Make things happen

Status quo managers

Threatened by change Bothered by uncertainty Prefer predictability Support the status quo Wait for things to happen

promote and

actively support

avoid and even

discourage

Change, creativity,

and innovation

FIGURE 12.3 Change leaders versus status quo managers.

Few strategic,

large-scale changes to

reposition organization

Major changes to improve performance through new

structures, systems, technologies, products, and people

Frequent, smaller-scale changes to fine tune performance, enable short-

term gains, and provide continuous improvements in operations

Organizational Change Pyramid

278 CHAPTER 12 ■ Organization Culture and Change

initiatives raised during the session. Welch felt that approaches like this facilitate change

because they “bring an innovation debate to the people closest to the products, services,

and processes.” 51

Transformational and Incremental Change

Planned changes at the top levels of an organization are likely to be large-scale and strate-

gic repositioning changes focused on big issues that aff ect the organization as a whole.

Lower-level changes often deal with adjustments in structures, systems, technologies,

products, and people to support strategic positioning. Both types of changes—high-level

transformational and on-the-ground incremental—are important in the organizational

change pyramid shown here. 52

Transformational change is radical or frame-breaking change that results in a major

and comprehensive redirection of the organization. 53

It is led from the top and creates

fundamental shifts in strategy, culture, structures, and even the organization’s underlying

sense of purpose or mission. As you might expect, transformational change is intense,

highly stressful, complex, and diffi cult to achieve. Popular advice to would-be leaders of

transformational changes includes these guidelines: 54

• Establish a sense of urgency for change.

• Form a powerful coalition to lead the change.

• Create and communicate a change vision.

• Empower others to move change forward.

• Celebrate short-term wins, and recognize those who help.

• Build on success; align people and systems with new ways.

• Stay with it; keep the message consistent; champion the vision.

Incremental change is modest, frame-bending change. It basically bends or nudges current

systems and practices to better align them with emerging problems and opportunities.

Th e intent isn’t to break and remake the system, but rather to move it forward through

continuous improvements. Common incremental changes in organizations involve the

evolution of products, processes, technologies, and work systems.

One shouldn’t get the idea, by the way, that incremental change is inferior to transfor-

mational change. Both are critical in the organizational change pyramid just shown.

Incremental changes keep organizational processes and structures tuned up—like the

engine in an automobile—in between transformations—when the old vehicle is replaced

with a new one.

Phases of Planned Change

Managers seeking to lead organizational change can benefi t from a simple but helpful model

developed many years ago by the psychologist Kurt Lewin. He recommends that any

planned change be viewed as a process with the three phases. Phase 1 is unfreezing—preparing

a system for change; phase 2 is changing—making actual changes in the system; and phase

3 is refreezing—stabilizing the system after change. 55

In today’s fast-paced organizational

environments, we can also talk about another phase called improvising—making adjust-

ments as needed while change is taking place. 56

Unfreezing Planned change has a better chance for success when people are ready for it and open to

doing things diff erently. Unfreezing is the phase in which the change agent prepares a

situation for change by developing felt needs for change among those aff ected by a change

initiative. Th e goal is to get people to view change as a way to solve a real problem or

pursue a meaningful opportunity. Common errors at the unfreezing stage are not creating

Transformational change results in a

major and comprehensive redirection

of the organization.

How to lead transformational change

Incremental change bends and adjusts

existing ways to improve performance.

Unfreezing is the phase during which

a situation is prepared for change.

279Organizational Change

a sense of urgency for change and neglecting to build a coalition of infl uential persons

who support it.

Some call unfreezing the “burning bridge” phase of change, arguing that in order to get

people to jump off a bridge, you might just have to set it on fi re! Managers can simulate the

burning bridge by engaging people with facts and information that communicate the need

for change—environmental pressures, declining performance, and examples of benchmarks

or alternative approaches. As you have probably experienced, confl ict can help people to

break old habits and recognize new ways of thinking about or doing things.

Changing Figure 12.4 shows that unfreezing is followed by the changing phase, where actual changes

are made in such organizational targets as tasks, people, culture, technology, and structures.

Lewin believes that many change agents commit the error of entering the changing phase

prematurely. Th ey are too quick to change things and end up creating harmful resistance. In

this sense the change process is like building a house; you need to put a good foundation in

place before you begin framing the rooms. With a poor foundation, the house will likely fall

at some point. Similarly, if you try to implement change before people are prepared and feel

a need for it, your attempt is more likely to fail.

Refreezing The final phase in Lewin’s planned change process is refreezing. Here, managers are

concerned with stabilizing the change. Refreezing is accomplished by linking change

Changing is the phase where a planned

change actually takes place.

Refreezing is the phase at which

change is stabilized.

Some managers are afraid of losing infl uence while sharing

power during organizational change. So, they resort to hidden

agendas. Th ey handpick key members to be on their change teams.

Th ey also ask them to take prominent roles in discussions and

support only the “right” ideas. Th e goal is to make sure that change

heads in the predetermined “preferred” direction while still giving

everyone involved a sense of being included and empowered. It’s a

very political way of appearing to share power—enjoying the image-

related benefi ts of inclusiveness, but still getting your way.

WHAT DO YOU THINK?

Although this situation happens frequently in organizations, does that make it right? What are the ethical issues involved? When is such an approach more or less likely to be ethical? As a manager, would you handpick the leaders of a change effort in order to get your way—even if that meant that alternative points of view were likely to be excluded from the process? What if your boss selected you to represent your department on a task force just because you agreed with his or her favored approach? If you knew that most of your co-workers disagreed, would you do what your boss wanted you to do or would you try to repre- sent the wishes of the majority of your co-workers? What are the potential risks associated with your choice?

ethics> KNOW RIGHT FROM WRONG > Some managers use deception to avoid losing power while giving

the appearance of sharing power.

Hidden Agendas in Organizational Change

Image Source/Alamy

Sharing power is a popular choice when implementing a change strategy. It means allowing others to have a decision-making role and to be involved throughout the change process. Th is approach

can generate a lot of good ideas and helps establish all-important

“buy-in” to support the proposed change. But, suppose the ideas

off ered and the ensuing conversations move in a direction that top

management thinks is wrong? What happens then?

280 CHAPTER 12 ■ Organization Culture and Change

with appropriate rewards, positive reinforcement, and resource support. It is important

in this phase to evaluate results, provide feedback to those involved, and make any

required modifications to the original change that either undershot or overshot evolving

contingencies.

When refreezing is done poorly, changes are too easily forgotten or abandoned with the

passage of time. Th e most common error at the refreezing stage is declaring victory too soon

and withdrawing support before the change has really become a fi xed aspect of normal

routines. In today’s dynamic environment there may also not be a lot of time for refreezing

before change becomes necessary again. We end up preparing for more change even before

the present one is fully implemented.

Improvising Although Lewin’s model depicts change as a linear, step-by-step process, the reality is

that change is dynamic and complex. Managers must not only understand each phase

of a planned change, they must be prepared to deal with them simultaneously. They

should also be willing and able to engage in the process of improvisational change

where adjustments are continually made as aspects of the change initiative are

implemented. 57

Consider the case of bringing new technology into an organization or work unit. A tech-

nology that is attractive in theory may appear complicated in practice to new potential

users. Th e full extent of its benefi ts or inadequacies may not become known until it is actu-

ally tried out. A change leader can succeed in such situations by continually gathering feed-

back on how the change is progressing, and then improvising the process to revise and

customize the new technology to best meet users’ needs and address their concerns about

the complexity of the new system.

Improvisational change makes

continual adjustments as changes

are being implemented.

Change leader’s task: create a felt need for change

This is done by:

Establishing a good relationship with the people involved. Helping others realize that present behaviors are not effective. Minimizing expressed resistance to change.

Change leader’s task: implement change

This is done by:

Identifying new, more effective ways of behaving. Choosing changes in tasks, people, culture, technology, structures. Taking action to put these changes into place.

Change leader’s task: stabilize change

This is done by:

Creating acceptance and continuity for the new behaviors. Providing any necessary resource support. Using performance-contingent rewards and positive reinforcement.

Phase 1 Unfreezing

Phase 2 Changing

Phase 3 Refreezing

FIGURE 12.4 Lewin’s three phases of planned organizational change.

281Organizational Change

Change Strategies

Strategy is a major issue when managers actually try to move people and systems toward a

planned change. Figure 12.5 summarizes three common strategies used to make things hap-

pen during the planned change process—force-coercion, rational persuasion, and shared

power. 58

Managers, as change agents and leaders, should understand each strategy and its

likely results.

Force-Coercion Strategies A force-coercion strategy uses formal authority as well as rewards and punishments as the

primary inducements to get behind change. A change agent that seeks to create change

through force-coercion believes that people are motivated by self-interest and by what the

situation off ers in terms of potential personal gains or losses. 59

In direct forcing, change

agents take unilateral action to “command” that change take place. In political maneuvering,

change agents work indirectly to gain special advantage over other persons and thereby

make them change. Th is involves bargaining, obtaining control of important resources,

forming alliances, or granting small favors.

A force-coercion strategy pursues

change through formal authority and/or

the use of rewards or punishments.

Force–Coercion

Using formal authority to create change by decree and position power

Rational Persuasion

Creating change through rational persuasion and empirical argument

Shared power

Developing support for change through personal values and commitments

Change Strategy Power Bases Managerial Behavior Likely Results

Faster, but low commitment and only temporary compliance

Slower, but high commitment and longer-

term internalization

Legitimacy

Rewards

Punishments

Expertise

Reference

Direct forcing and unilateral action

Political maneuvering and indirect action

Informational efforts using credible knowledge, demonstrated facts, and logical argument

Participative efforts to share power and involve others in planning and implementing change

FIGURE 12.5 Alternative change strategies and their leadership implications.

Startup Founders Find That “Anything Goes” Has to Change

Startups are usually small, rules are few, and relationships among founders and

co-workers loose and easy. And that keeps morale, creativity, and accomplishment

generally high. Picture College Hunks Hauling Junk where co-founder Nick Friedman

wanted to create “a real-life Never Never Land where work is always fun and the culture

is always stress-free.” But what’s a founder to do when growth sets in and old ways of

anything goes create problems? When Friedman’s company grew to 501 franchises, he found that loose operations were causing declines in customer satisfaction, employee

morale, and profi ts. It wasn’t easy and it did put a “strain on the company culture,” he

says, but things improved after Friedman put new structures, processes, and systems

into place.© C

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282 CHAPTER 12 ■ Organization Culture and Change

Th e force-coercion strategy of change usually produces only limited, unsatisfactory

results. Although it can be quickly tried, most people respond to this strategy out of fear of

punishment or hope for reward. Th e likely outcome of this approach is temporary compli-

ance; the new behavior continues only as long as the rewards and punishments persist. For

this reason, force-coercion may be most useful as an unfreezing strategy that helps people

break old patterns and encourages willingness to try new approaches.

Rational Persuasion Strategies Change agents using a rational persuasion strategy attempt to bring about change

through persuasion supported by special knowledge, empirical data, and rational arguments.

Change agents following this strategy believe that people are inherently rational and guided

by reason. Once the value of a specifi c course of action is demonstrated by information and

relevant facts, it is assumed that reason and rationality will cause the person to adopt it.

A good rational persuasion strategy helps both unfreeze and refreeze a change situation.

Although slower than force-coercion, it is likely to result in longer-lasting and more internal-

ized change.

To succeed with the rational persuasion strategy, a manager must convince others

that making a change will leave them better off than they were before the change. Th is

A rational persuasion strategy

pursues change through empirical data

and rational argument.

The next time you are driving somewhere and following a familiar route only to encounter a “detour” sign, test your tolerance for ambiguity. Is the detour just a minor inconve-

nience? Do you go forward without any further thought? Or is it a

big deal, perhaps causing you anxiety and anger? Do you show a

tendency to resist change in your normal routines? Change cre-

ates anxiety and breaks us from past habits and conditions.

Uncertainty puts many things out of our immediate control. De-

pending on your tolerance for ambiguity, you may be more or less

comfortable dealing with these realities.

Which alternatives in the Tolerance for Ambiguity Double

Check best describe you? What are the insights for your tolerance

for ambiguity? It takes personal fl exibility and a lot of confi dence to

cope well with unpredictability, whether it’s in a college course or

in a work situation. Some people struggle with the unfamiliar. Th ey

prefer structure, security, and clear directions. Th ey get comfort-

able with fi xed patterns in life and can be afraid of anything “new.”

Have we been talking about you? Or are you willing and able to

work with less structure? Do you enjoy fl exibility, setting your own

goals, and making decisions? Are you excited by the prospect of

change and new—as yet undefi ned—opportunities? It’s important

to fi nd a good fi t between your personal preferences for ambiguity

and the pace and nature of change in the career fi eld and organi-

zations where you ultimately choose to work. To achieve this fi t,

you have to understand your own tolerance for ambiguity and

how you are likely to react in change situations.

GET TO KNOW YOURSELF BETTER

Write a short narrative describing your “ideal” employer in terms of organization culture, management styles, and frequency of major changes. Add a comment that explains how this ideal organization fi ts your personality, including insights from self- assessments completed in other chapters. What does this say about how you may have to change and adapt in order to fulfi ll your career aspirations?

insight> LEARN ABOUT YOURSELF > Some people struggle with the unfamiliar. They prefer structure, security,

and clear directions.

Get Comfortable with Tolerance for Ambiguity

An instructor who keeps modifying the course syllabus using student feedback or one who gives out a detailed syllabus and sticks to it?

In a typical course, do you prefer...

An instructor who gives precise assignments and accepts no deviations or one who gives open-ended assignments and lets students suggest alternatives?

Tolerance for Ambiguity Double Check

283Organizational Change

persuasive power can come directly from the change agent if she has personal credibility

as an “expert.” It can also be borrowed in the form of advice from consultants and other

outside experts, or gained from credible demonstration projects and identified bench-

marks. Many firms, for example, benchmark Disney to demonstrate to their own

employees the benefits of a customer-oriented culture. A Ford vice president says: “Dis-

ney’s track record is one of the best in the country as far as dealing with customers.” 60

this sense, the power of rational persuasion is straightforward: if the culture works for

Disney, it can also work for us.

Shared Power Strategies A shared power strategy uses collaboration to identify values, assumptions, and goals from

which support for change naturally emerges. Sometimes called a normative–reeducative

strategy, this approach is empowerment based and also is highly participative. It involves

others in examining personal needs and values, group norms, and operating goals as they

relate to the issue in focus. Power is shared as the change agent and others work together to

develop consensus to support needed change. Because it entails a high level of involvement,

this strategy is often slow and time consuming. But power sharing is likely to result in

longer-lasting, internalized change.

A change agent shares power by recognizing that people have varied needs and complex

motivations. Th e agent understands that organizational change requires a shift in attitudes,

values, skills, and signifi cant relationships, not just changes in knowledge, information, or

practices. Th us, change agents need to be sensitive to the way group pressures can support

or inhibit change. Every attempt is made to gather opinions, identify feelings and expecta-

tions, and incorporate them fully into the change process.

Th e great “power” of sharing power in the change process lies with unlocking the cre-

ativity, experience, and energies of people within the system. Some managers hesitate to

engage this strategy for fear of losing control or of having to compromise on important

organizational goals. But Harvard scholar Teresa M. Amabile points out that they should

have the confi dence to share power regarding means and processes, if not overall goals.

“People will be more creative,” she says, “if you give them freedom to decide how to climb

particular mountains. You needn’t let them choose which mountains to climb.” 61

Resistance to Change

When people resist change, they are most

often defending something important to

them that now appears to be threatened by

the impending change. A change leader

can achieve a lot by listening to the reasons

employees voice for their resistance, and then

using this information as a resource for

improving the change and change process. 62

Check the common sources of resistance as

shown in the box. You’ve most likely seen (or

even experienced!) some if not all of these.

Instead of viewing resistance to change as

something that has to be “overcome,” it is

often more appropriately viewed as feedback.

Th e presence of resistance usually means

that something can be done to achieve a bet-

ter “fi t” among the planned change, the situa-

tion, and the people involved. Feedback in

the form of resistance—if listened to—can

provide lots of clues on what’s causing prob-

lems with a planned change eff ort and what

might be done to improve things. In fact, one

A shared power strategy pursues

change by participation in assessing

change needs, values, and goals.

• Fear of the unknown—not understanding what is happening or what comes

next.

• Disrupted habits—feeling upset to see the end of the old ways of doing

things.

• Loss of confi dence—feeling incapable of performing well under the new

ways of doing things.

• Loss of control—feeling that things are being done “to” you rather than “by”

or “with” you.

• Poor timing—feeling overwhelmed by the situation or that things are

moving too fast.

• Work overload—not having the physical or emotional energy to commit to

the change.

• Loss of face—feeling inadequate or humiliated because the “old” ways

weren’t “good” ways.

• Lack of purpose—not seeing a reason for the change and/or not

understanding its benefi ts.

Why People May Resist Change

284 CHAPTER 12 ■ Organization Culture and Change

of the easiest ways to add discipline to your change leadership is to track progress by always

monitoring these resistance to change checkpoints. 63

1. Check benefi ts—Do the people involved see a clear advantage in making the change?

Everyone should know “what is in it for me” or “what is in it for our group or the orga-

nization as a whole.”

2. Check compatibility—Is the change perceived as breaking comfort levels? It’s best to

keep the change as close as possible to the existing values and ways of doing things.

Minimizing the scope of change helps to keep it more acceptable and less threatening.

3. Check simplicity—How complex is the change? It’s best to keep the change as easy as

possible to understand and to use. People should have access to training and assis-

tance to make the transition to new ways as easy as possible.

4. Check triability—Are things moving too fast? People tend to do better when they can

try the change little by little, making adjustments as they go. Don’t rush the change,

and be sure to adjust the timing to best coincide with work schedules and cycles of

high/low workloads.

In addition to these checkpoints, there are other positive ways to deal with resistance

to change. 64

Education and communication uses discussions, presentations, and demonstra-

tions to educate everyone beforehand about a change. Participation and involvement allows

others to contribute ideas and help design and implement the change. Facilitation and

support provides encouragement and training, engages active listening to problems and

complaints, and seeks ways to reduce performance pressures. Negotiation and agreement

provides incentives to gain support from those who are actively resisting or ready to resist

change initiatives.

Two other approaches for managing resistance are common, but they are also risky in

terms of negative side eff ects. Manipulation and co-optation seeks to covertly infl uence

others by selectively providing information and structuring events in favor of the desired

change. Explicit and implicit coercion forces people to accept change by threatening undesir-

able consequences for noncompliance with what is being asked in the change process.

Learning Check 3

TAKEAWAYQUESTION 3 What is the nature of organizational change?

BE SURE YOU CAN • defi ne change leader and change agent • discuss pros and cons of top-down change and bottom-up

change • diff erentiate incremental and transformational change • describe Lewin’s three phases of planned change • discuss

improvising as an approach to planned change • discuss pros and cons of the force-coercion, rational persuasion, and shared

power change strategies • list several reasons why people resist change • describe strategies for dealing with resistance to change

Four resistance to change checkpoints

285Management Learning Review

Summary

TAKEAWAYQUESTION 1 What is organizational culture?

• Organizational culture is an internal environment that establishes a personality for the organization and infl u- ences the behavior of members.

• The observable culture is found in the rites, rituals, stories, heroes, and symbols of the organization; the core culture consists of the core values and fundamental beliefs on which the organization is based.

• In organizations with strong cultures, members behave with shared understandings and act with commitment to core values.

• Key dimensions of organizational culture include hierarchi- cal culture, dependable culture, enterprising culture, and social culture.

• Among trends in managing organizational cultures, value-based management and workplace spirituality are popular directions and considerations.

FOR DISCUSSION Which of the various dimensions of organizational culture are most important to you as an employee?

TAKEAWAYQUESTION 2 What is a multicultural organization?

• Multicultural organizations operate with internal cultures that value pluralism, respect diversity, and build strength from an environment of inclusion.

• Organizations have many subcultures, including those based on occupational, functional, ethnic, age, and gender differences.

• Challenges faced by members of minority subcultures in organizations include sexual harassment, pay discrimination, job discrimination, and the glass ceiling effect.

• Managing diversity is the process of developing an inclusive work environment that allows everyone to reach their full potential.

FOR DISCUSSION What can the leader of a small team do to reduce diversity prejudice being expressed by one team member?

TAKEAWAYQUESTION 3

What is the nature of organizational change?

• Change leaders are change agents who take initiative to change the behavior of people and organizational systems.

• Organizational change can proceed with a top-down emphasis, with a bottom-up emphasis, or a combination of both.

• Incremental change makes continuing adjustments to existing ways and practices; transformational change makes radical changes in organizational directions.

• Lewin’s three phases of planned change are unfreezing— preparing a system for change; changing—making a change; and refreezing—stabilizing the system. To this can be added a fourth—improvising as needed.

• Change agents should understand the force-coercion, rational persuasion, and shared power change strategies.

• People resist change for a variety of reasons, including fear of the unknown and force of habit.

• Good change agents deal with resistance in a variety of ways, including education, participation, support, and facilitation.

FOR DISCUSSION Can a change leader ever be satisfi ed that the refreezing stage of planned change has been accomplished in today’s dynamic environments?

Management Learning Review Get Prepared for Quizzes and Exams

286 CHAPTER 12 ■ Organization Culture and Change

Multiple-ChoiceQuestions 1. Pluralism and the absence of discrimination and

prejudice in policies and practices are two important hallmarks of __________. (a) the glass ceiling effect (b) a multicultural organization (c) quality circles (d) affi rmative action

2. When members of minority cultures feel that they have to behave in ways similar to the majority culture, this is called __________. (a) biculturalism (b) symbolic leadership (c) the glass ceiling effect (d) inclusivity

3. Engineers, scientists, and information systems specialists are likely to become part of separate __________ subcultures in an organization. (a) ethnic (b) generational (c) functional (d) occupational

4. Stories told about an organization’s past accomplishments and heroes such as company founders are all part of what is called the __________ culture. (a) observable (b) underground (c) functional (d) core

5. Honesty, social responsibility, and customer service are examples of __________ that can become foundations for an organization’s core culture. (a) rites and rituals (b) values (c) subsystems (d) ideas

6. Which leadership approach is most consistent with an organizational culture that values the full utilization of all diverse talents of all the organization’s human resources? (a) Managing diversity (b) Affi rmative action (c) Status quo (d) Rational persuasion

7. When members of a dominant subculture, such as white males, make it hard for members of minority subcultures, such as women, to advance to higher level positions in the organization, this is called the __________ effect. (a) dominator (b) glass ceiling (c) brick wall (d) end-of-line

8. An executive pursuing transformational change would give highest priority to which one of these change targets? (a) an out-of-date policy (b) the organizational culture (c) a new information system (d) job designs in a customer service department

9. __________ change results in a major change of direction for an organization, while __________ change makes small adjustments to current ways of doing things. (a) Frame-breaking; radical (b) Frame-bending; incremental (c) Transformational; frame-breaking (d) Transformational; incremental

10. The presence or absence of a felt need for change is a key issue in the __________ phase of the planned change process. (a) improvising (c) unfreezing (b) evaluating (d) refreezing

11. When a manager listens to users, makes adaptations, and continuously tweaks and changes a new MIS as it is being implemented, the approach to technological change can be described as__________. (a) top-down (b) improvisational (c) organization development (d) frame breaking

12. A manager using a force-coercion strategy will rely on __________ to bring about change. (a) expertise (b) benchmarking (c) formal authority (d) information

13. The most participative of the planned change strategies is __________. (a) force-coercion (b) rational persuasion (c) shared power (d) command and control

14. True internalization and commitment to a planned change is most likely to occur when a manager uses a(n) __________ change strategy. (a) education and communication (b) rational persuasion (c) manipulation and co-optation (d) shared power

15. Trying to covertly infl uence others, offering only selective information, and structuring events in favor of the desired change is a way of dealing with resistance by __________. (a) participation (b) manipulation and co-optation (c) force-coercion (d) facilitation

Self-Test 12

287Management Skills & Competencies

Short-ResponseQuestions 16. What core values might be found in high-performance

organizational cultures?

17. Why is it important for managers to understand subcultures in organizations?

18. What are the three phases of change described by Lewin, and what are their implications for change leadership?

19. What are the major differences in potential outcomes of using the force-coercion, rational persuasion, and shared power strategies of planned change?

EssayQuestion 20. Two businesswomen, former college roommates,

are discussing their jobs and careers over lunch. You overhear one saying to the other: “I work for a large corporation, while you own a small retail business. In my company there is a strong corporate culture and everyone feels its influence. In fact, we are always expected to act in ways that support the culture and serve as role models for others to do so as well. This includes a commitment to diversity and multiculturalism. Because of the small size of your firm, things like corporate culture, diversity, and multiculturalism are less important to worry about.” Do you agree or disagree with this statement? Why?

Evaluate Career Situations

What Would You Do?

1. Two Job Off ers

You will soon have to choose between two really nice job

off ers. Th ey are in the same industry, but you wonder which

employer would be the “best fi t.” You have a sense that their

“cultures” are quite diff erent. Fortunately, you’ve been invited

back to spend a full day at each before making your decision.

One of your friends suggests that doing a balance-sheet as-

sessment of cultural pluses and minuses for each employer

could be helpful. What aspects of organizational culture

would you identify as important to your job choice? Given the

items on your list, what can you look for or do in the coming

visits to discover the real organizational cultures pluses and

minuses for each item?

2. Team Culture Nightmare

Th e promotion to team manager puts you right where you

want to be in terms of career advancement. Even though

you’ve had to move to a new location, it’s a great opportunity

. . . if you can do well as team leader. Th at’s the problem. Now

that you’re in the job, you realize that the culture of the team

is really bad. Some of the ways you’ve heard members describe

it to one another are “toxic,” “dog-eat-dog,” “watch your back,”

and “keep your head down.” Realizing that culture change

takes time but that’s it’s also necessary in this situation, what

can you do right away as the new team leader to set the team

on course for a positive change to its culture?

ManagementSkills& Competencies Make yourself valuable!

3. Tough Situation

Times are tough at your organization, and, as the director of

human resources, you have a problem. Th e company’s senior

executives have decided that 10% of the payroll has to be cut

immediately. Instead of laying off about 30 people, you would

like to have everyone cut back their work hours by 10%. Th is

way the payroll would be cut but everyone would get to keep

their jobs. But you’ve heard that this idea isn’t popular with all

of the workers. Some are already grumbling that it’s a “bad

idea” and the company is just looking for excuses “to cut

wages.” How can you best handle this situation as a change

leader?

Refl ect on the

Self-Assessment

Change Leadership IQ

Instructions Indicate whether each of the following statements is true (T)

or false (F). 65

T F 1. People invariably resist change.

T F 2. One of the most important responsibilities of any change

eff ort is that the leader clearly describes the expected

future state.

288 CHAPTER 12 ■ Organization Culture and Change

T F 3. Communicating what will remain the same after change

is as important as communicating what will be diff erent.

T F 4. Planning for change should be done by a small,

knowledgeable group, and then that group should

communicate its plan to others.

T F 5. Managing resistance to change is more diffi cult than

managing apathy about change.

T F 6. Complaints about a change eff ort are often a sign of

change progress.

T F 7. Leaders fi nd it more diffi cult to change organizational

goals than to change the ways of reaching those goals.

T F 8. Successful change eff orts typically involve changing

reward systems to support change.

T F 9. Involving more members of an organization in planning

a change increases commitment to making the change

successful.

T F 10. Successful organizational change requires certain

signifi cant and dramatic steps or “leaps,” rather than

moderate or “incremental” ones.

Scoring Questions 2, 3, 6, 8, 9, 10 are true; the rest are false. Tally the

number of correct items to indicate the extent to which your

change management assumptions are consistent with fi ndings

from the discipline.

Contribute to the

Class Exercise

Force-Field Analysis

Instructions 1. Form into your class discussion groups and review this model

of force-fi eld analysis—the consideration of forces driving

in support of a planned change and forces resisting the change.

Current state

Desired future state

Resisting forcesDriving forces

2. Use force-fi eld analysis and make lists of driving and resisting

forces for one of the following situations:

(a) “Home Schooling” at College Level. Th ings are changing in

colleges and universities as budget declines create pressures

for a rethinking of educational programming. Home

schooling has grown popular at primary and secondary

levels. Why can’t it work for college as well, at least for

the fi rst two years? At least one vice president at the local

university is in favor of making a proposal to move her

campus to a 3rd/4th-year-only status and have years 1 and

2 go fully online. She wonders what she should prepare for

when sharing her ideas with the rest of the executive team.

(b) Scheduling Dilemma. A new owner has just taken over a

small walk-in-and-buy-by-the-slice pizza shop in a college

town. Th ere are presently eight employees, three of whom

are full-time and fi ve of whom are part-time. Th e shop is

open seven days a week from 10:30 a.m. to midnight. Th e

new owner believes there is a market niche available for

late-night pizza and would like to stay open each night until

4 a.m. She wants to make the change as soon as possible.

3. Choose the three driving forces that are most signifi cant for

the proposed change. For each force, develop ideas on how

it could be further increased or mobilized in support of the

change.

4. Choose the three resisting forces that are most signifi cant for

the proposed change. For each force, develop ideas on how it

could be reduced or turned into a driving force.

5. Be prepared to participate in a class discussion led by your

instructor.

Manage a Critical Incident

Proposal for Open Offi ce Design

and Hotdesking

You are just starting to work with an architect on designs for a

new offi ce space for your fast-growing tech startup. She proposes

a design that does away with private offi ces, includes two or three

personal cubicles with fl exible dividers, and provides lots of fl ex-

ible open spaces for casual and arranged meetings. She also pro-

poses a shift to “hotdesking” for the sales representatives because

they spend a lot of time away from the offi ce. Th is means that

they will not have permanent space and will instead “sign up” to

use temporary cubicle desks when they come into the offi ce. You

really like the total design concept because it supports collabora-

tion and teamwork while also saving space and facilities costs

as the fi rm grows. But, you’re worried about possible resistance

from employees who are used to having private offi ces and their

own desks. You sit down to write a list of “pros” and “cons” for the

architect’s proposal. You also make some notes on how to engage

the staff with these ideas in order to head off any problems.

Questions What’s on your list and what’s in your notes? What kind of

change leadership approach do you think will be most likely to

work with this group and situation?

Collaborate on the

Team Activity

Organizational Culture Walk

Question What organizational cultures do we encounter and deal with

every day, and what are their implications for employees,

customers, and organizational performance?

289Analyze the Case Study

Instructions 1. In your team, make two lists. List A should identify the

things that represent the core cultures of organizations.

List B should identify the things that represent the

observable cultures of organizations. For each item on the

two lists, identify one or more indicators that you might

use to describe this aspect of the culture for an actual

organization.

2. Take an organizational culture walk through a major

shopping area of your local community. Choose at least

three business establishments. Visit each as customers.

As you approach, put your “organizational culture senses”

to work. Start gathering data on your lists A and B. Keep

gathering it while you are at the business and right through

your departure. Take good notes, and gather your thoughts

together after leaving. Do this for each of the three

organizations you choose.

3. Analyze and compare your data to identify the major cultural

attributes of the three organizations and how they infl uence

customers and organizational performance.

4. Use your results to make some general observations and

report on the relationship between organizational cultures

and performance as well as among organizational cultures,

employee motivation, and customer satisfaction.

AnalyzeTHE CaseStudy

GAMIFICATION

Finding Legitimacy in the New Corporate Culture Go to Management Cases for Critical Th inking at the back of the book to fi nd this case.

A Pew Research study reports that 50% of working fathers and 56% of working mothers have “very” or “somewhat” diffi cult times balancing work and family . . . 50% of working fathers and 23% of working mothers feel they “spend too little time with kids.”

Human

Resource

Management Nurturing turns potential into

performance

C H A P T E R Q U I C K STA RT

As a manager or team leader, in many ways it’s all about talent—the talent that

you hire, nurture, develop, and support to help organizations and teams succeed.

We’re also talking about your talent, which you possess and develop—or not—to

stay marketable and successful in your career fi eld. Human resource management

locates, cultivates, and sustains talent in organizations, and it’s one of a manager’s

most important responsibilities.

Key Takeaways

■ Explain the human

resource management

process and the legal

framework that governs it.

■ Identify how managers

help organizations attract

a quality workforce.

■ Identify how managers

help organizations develop

a quality workforce.

■ Identify how managers

help organizations

maintain a quality

workforce.

291

MANAGEMENT IS REAL

MAKE DATA YOUR FRIEND Underemployment Affects Almost One Fifth of U.S. Workers

THINK BEFORE YOU ACT

Teammates Know You, But Should They Pay You?

KNOW RIGHT FROM WRONG

Personality Test? Drug Test? Social Media Test?

LEARN ABOUT YOURSELF

Conscientiousness Is a Career Booster

LEARN FROM ROLE MODELS

Tony Hsieh Taps HRM to Keep Zappos One Step Ahead

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Performance Assessment Assumptions

■ CONTRIBUTE To the Class Exercise: Upward Appraisal

■ MANAGE A Critical Incident: Athletic Director’s Dilemma

■ COLLABORATE On the Team Activity: Future of Labor Unions

■ ANALYZE Th e Case Study: Two-Tier Wages: Same Job, Different Pay

what to look for inside >

292 CHAPTER 13 ■ Human Resource Management

Th e key to managing people in ways that lead to profi t, productivity, inno-

vation, and real organizational learning ultimately lies in how you think

about your organization and its people. . . . When you look at your people,

do you see costs to be reduced? . . . Or, when you look at your people do

you see intelligent, motivated, trustworthy individuals—the most critical

and valuable strategic assets your organization can have?

W ith these words from his book Th e Human Equation: Building Profi ts

by Putting People First, scholar Jeff rey Pfeff er challenges managers to

invest in people and their talents. 1 His research shows that organizations

investing more in people outperform those that don’t. Th ese high- performing

organizations thrive on strong foundations of human capital—the

economic value of people with job-relevant knowledge, skills, abilities, expe-

rience, ideas, energies, and commitments. Th e best employers put people

fi rst and benefi t from doing so.

Human Resource Management TAKEAWAY 1 What is human resource management?

Human resource management process • Strategic human resource management Legal environment of human resource management

A marketing manager at IDEO, a Palo Alto-based consulting design fi rm, once said: “If you

hire the right people . . . if you’ve got the right fi t . . . then everything will take care of itself.” 2

Th is is what human resource management, or HRM, is all about—attracting, developing,

and maintaining a talented and energetic workforce. Organizations that can’t do this well,

and don’t have talented and committed employees to do the required work, have very little

chance of being competitive in the long-term.

Th ere are many career opportunities in a wide variety of areas in human resource

management. HRM specialists within organizations deal with hiring, compensation and

benefi ts, training, employee relations, and more. Common HR job titles include human

resource planner, corporate recruiter, training and development specialist, compensation

analyst, salary and benefi ts manager, and director of diversity. A growing number of consulting

and outsourcing fi rms employ HR professionals to off er their clients specialized services in

the same areas. And in the C-suite of senior executives, the title of Chief Talent Offi cer is

becoming more popular and it gives direct testimony to what a commitment to HR is all

about. Attention to the many facets of human resource management is essential for organi-

zations in environments complicated by legal issues, economic turmoil, new corporate

strategies, shifting labor markets, and changing social values.

Human Resource Management Process

Th e goal of human resource management is to support organizational performance by aligning

people and their talents with organizational strategies and objectives. All managers, not

just human resource specialists, share the responsibility to ensure that highly capable and

enthusiastic people are in the right positions and working with the support they need to be

successful. Th e three major tasks in human resource management are typically described as

1. Attracting a quality workforce—talent acquisition through human resource planning,

employee recruitment, and employee selection.

2. Developing a quality workforce—talent development through employee onboarding

and orientation, training and development, and performance management.

Human resource management is a

process of attracting, developing, and

maintaining a talented workforce.

LEARN MORE

ABOUT

HHHuummaaan Reessoouurrcee MMaanaagggeemmeennttH

Human capital is the economic value

of people with job-relevant knowledge,

skills, abilities, ideas, energies, and

commitments.

Tasks of human resource management

293Human Resource Management

3. Maintaining a quality workforce—talent retention through career development, work–life

balance, compensation and benefi ts, retention and turnover, and labor–management

relations.

A key concept in HRM is “fi t”—individual/job fi t and individual/organization culture fi t.

In fact, an organization’s HRM approach should always focus on establishing both a good

fit between the employee and the specific job to be accomplished, and between the

employee and the overall culture of the organization. Person–job fi t is the extent to which

an individual’s knowledge, skills, experiences, and personal characteristics are consis-

tent with the requirements of their work. 3 Person–organization fi t is the extent to

which an individual’s values, interests, and behavior are consistent with the culture of the

organization. 4

Strategic Human Resource Management

When Sheryl Sandberg left her senior management position with Google to become

Facebook’s chief operating offi cer, one of her fi rst steps was to strengthen the fi rm’s human

resource management systems. She updated the approach for performance reviews, started

new recruiting methods, and launched new management training programs. 5 Sandberg’s

initiatives are consistent with the concept of strategic human resource management—

mobilizing human capital through the HRM process to best implement organizational

strategies. 6

One indicator that HRM is truly strategic to organizations is when it is headed by a senior

executive reporting directly to the chief executive offi cer. At Google that position is Vice

President of People Operations . . . Netfl ix has a Chief Talent Offi cer . . . Under Armour has a

Senior Vice President of Human Resources. By locating the senior HRM position in the

C-suite, these organizations allow it to play a strategic role in building a high-performing

workforce while supporting core values and the corporate culture.

Th e foundations for strategic human resource management are set with employee value

propositions that align people with organizational strategies and objectives. Called EVPs,

these are packages of opportunities and rewards, such as pay, benefi ts, meaningful work, and

advancement possibilities, that make diverse and talented people want to belong to and

work hard for the organization. Organizations with compelling EVPs have the edge over

others in hiring and retaining talented people in scarce labor markets. Starbuck’s, for exam-

ple, teamed up with Arizona State University to off er online degree programs for employees

who work at least 20 hours per week. In return for paying part of the tuition bills, Starbuck’s

expects to attract and retain talented workers while lowering its hiring and training costs. 7

Person–job fi t is the extent to

which an individual’s knowledge,

skills, experiences and personal

characteristics are consistent with

the requirements of their work.

Person–organization fi t is the

extent to which an individual’s values,

interests, and behavior are consistent

with the culture of the organization.

Strategic human resource

management mobilizes human capital

to implement organizational strategies.

Employee value propositions are

packages of opportunities and rewards

that make diverse and talented people

want to belong to and work hard for the

organization.

Amazon Bar Raisers Put Job Candidates to a Tough Test

Don’t count on getting an engineering job or other top jobs at Amazon without

getting the approval of one of the company’s “bar raisers.” Th ese are volunteers who

are well schooled in the organization’s culture and business goals and possess

strong mentoring skills. During employment interviews that also include HR staff ,

the candidate’s potential manager, and teammates, the goal is to ensure that any

hiring decision meets a tough test: Each new hire should “raise the bar” and make

Amazon’s talent pool stronger. Th e bar raisers work across functional lines and

essentially represent the company as a whole in interviews. Amazon’s Vice President

of Global Talent Acquisition, Susan Harker, says: “We want to be as objective and

scientifi c in our hiring as possible. Th e point is to optimize our chances of having

long-term employees.”Fr an

ce s

M . R

o b

er ts

/N ew

sC o

Issues&Trends

294 CHAPTER 13 ■ Human Resource Management

A s the CEO of Zappos.com, a popular online retailer that sells shoes, clothing, handbags, and more, Tony Hsieh (pro- nounced shay) has led the company through an amazing period of

growth. He’s also forged a creative and unique approach to human

resources management, designed to hire and retain only those

individuals who are truly committed to the company’s values.

Before becoming “Zapponians,” prospective hires go through

two interviews. In the fi rst, Zappos interviewers assess applicants’

technical profi ciency. In the second, they evaluate applicants’

ability to fi t into the Zappos culture, which is characterized by

10 core values. Hsieh actually created the “cultural fi t interview”

himself. He included questions such as: “On a scale of 1 to 10, how

weird are you?” “If they say ‘one,’ we won’t hire them . . . . We like

7s or 8s,” says Hsieh. He also notes that “qualifi ed egotists need not

apply” because one of our core values is to “be humble.”

Once hired, all employees, including executives, are required to

go through a four-week customer loyalty training, where they not

only spend time on the phone with customers but also work at the

company’s giant warehouse in Kentucky. At the end of this “KY

Boot Camp,” boot camp trainees are off ered a $2,000 bonus to quit

and walk away. When asked why he off ers to pay new employees

to leave the company, Hsieh says that he wants only people who

are committed to his long-term vision. Interestingly, 97% of the

trainees turn down the buyout.

Hsieh also believes in creating a “work hard, play hard” atmo-

sphere. To keep Zapponians inspired, he throws a weekly costume

party at the main offi ce. Hsieh also has implemented several

employee-friendly practices such as providing free food in the

company’s cafeterias and vending machines as well as paying

100% of employees’ medical and dental expenses.

FIND THE INSPIRATION

Is Hsieh’s approach to human resource management just an interesting oddity? Or, is it representative of the direction more organizations should follow to attract today’s new gener- ation of talented workers? What aspects of the Zappos ap- proach could be used by just about any employer? What parts might not fi t at all? If Hsieh moves on to other opportunities, can his HRM practices survive at Zappos without his continued leadership?

wisdom> LEARN FROM ROLE MODELS > Zappos’ “work-hard play-hard” setting includes free food and fully paid medical and dental insurance.

Tony Hsieh Taps HRM to Keep Zappos One Step Ahead

Brad Swonetz/Redux Pictures

Legal Environment of Human Resource Management

Hire a relative? Promote a friend? Fire an enemy? Hold on! Managers and employers can’t

simply do whatever they want when it comes to human resource management practices.

Everything has to be done within the framework of government laws and regulations about

employment practices.

Laws Protecting Against Discrimination If valuing people is at the heart of human resource management, job discrimination is its

nemesis. It occurs when organizations deny someone employment or a promotion for

reasons unrelated to their performance potential. Th ink of this the next time you or someone

else wonders: “Why didn’t I get invited for a job interview? Is it because my fi rst name is

Shaniqua?” “Why didn’t I get that promotion? Is it because I’m obviously pregnant?”

Job discrimination occurs when

someone is denied a job or work

assignment for reasons that are not

job relevant.

295Human Resource Management

Th e cornerstone of U.S. laws designed to protect workers from job discrimination is

Title VII of the Civil Rights Act of 1964, amended by the Equal Employment Opportunity Act

of 1972 and the Equal Employment Opportunity Act (EEOA) of 1991. Th ese acts provide for

equal employment opportunity (EEO), giving everyone the right to employment without

regard to sex, race, color, ethnicity, national origin, able-bodiedness, or religion. It is illegal

under Title VII to consider any of these factors in decisions related to hiring, promoting,

compensating, terminating, or in any way changing someone’s terms of employment.

Th e intent of equal employment opportunity is to ensure the rights of all citizens to gain

and keep employment based only on their ability to do the job and their performance once

on the job. Th is right is federally enforced by the Equal Employment Opportunity Commis-

sion (EEOC). Th is agency has the power to fi le civil lawsuits against organizations that do

not provide timely resolution of charges of discrimination lodged against them. Th e laws

generally apply to all public and private organizations with 15 or more employees.

Under Title VII, organizations are expected to show affi rmative action by setting goals

and having plans that ensure equal employment opportunity for members of protected

groups, those historically underrepresented in the workforce. Th e purpose of affi rmative

action is to ensure that women and minorities are represented in the workforce in propor-

tion to their labor market availability. 8 Th e pros and cons of affi rmative action are debated

at both the federal and state levels. Criticism tends to focus on the use of group member-

ship, such as female or minority status, as a criterion in employment decisions. 9 Issues

include claims of reverse discrimination by members of majority populations. White males,

for example, may believe that preferential treatment given to women and minorities inter-

feres with their own employment rights.

As a general rule, legal protections for equal employment opportunity do not restrict an

employer’s right to establish bona fi de occupational qualifi cations (BFOQs). Th ese are

criteria for employment that can be clearly justifi ed as being a reasonable necessity for the

normal operation of a business and are clearly related to a person’s capacity to perform a job.

Th e use of bona fi de occupational qualifi cations based on race and color is not allowed

under any circumstances. Th ose based on sex, religion, age, able-bodiedness, and national

origin are possible, but organizations must take great care to support these requirements. 10

Examples of a BFOQ include age-based mandatory retirement for pilots and bus drivers

based on issues of public safety. Religion may be a BFOQ in religious education contexts where

faculty must adhere to the beliefs of the denomination running the school. Able-bodiedness

may be a BFOQ where space constraints, such as in aircraft where fl ight attendants must

operate with narrow aisles, physically preclude the introduction of wheelchairs.

Employment Issues and Controversies Th e legal environment is complex and dynamic, and it’s important to stay informed about

new laws and changes to existing laws. As Figure 13.1 shows, major U.S. laws prohibiting

employment discrimination provide extensive protections. Matters relating to race, sex,

religion, disabilities, age, and pregnancy are generally well covered, but open issues and

controversies still exist. 11

In the case of bias due to sexual orientation and gender identity, federal legal protection is

still pending. Th e Employment Non-Discrimination Act of 2013 (ENDA) allows cases of

discrimination against lesbians, gays, bisexual, and transgender workers to be fi led with the

EEOC. 12

As of this writing, ENDA has passed the Senate but still needs House of Representa-

tives approval or an executive order for its contents to go into eff ect. Currently, legal protec-

tions for lesbian, gay, bisexual, transgender (LGBT) workers vary by state. Discrimination

on the basis of sexual orientation is legal in 29 states, and discrimination on the basis of

gender identity is legal in 33 states. 13

Sexual harassment remains an important workplace concern. It occurs when a person

experiences conduct or language of a sexual nature that aff ects his or her employment situ-

ation. Th e EEOC defi nes sexual harassment as behavior of a sexual nature that creates a

hostile work environment, interferes with a person’s ability to do a job, or impedes a person’s

promotion potential. Quid pro quo sexual harassment is where job decisions are made based

on whether the employee submits to or rejects sexual advances. Hostile work environment

Equal employment opportunity is

the requirement that employment

decisions be made without regard to

sex, race, color, ethnicity, national origin,

able-bodiedness, or religion.

Affi rmative action is an eff ort to give

preference in employment to women

and minority group members who have

traditionally been underrepresented.

Bona fi de occupational qualifi cations

are employment criteria justifi ed by the

capacity to perform a job.

Sexual harassment is behavior of a

sexual nature that aff ects a person’s

employment situation.

296 CHAPTER 13 ■ Human Resource Management

Equal Pay Act of 1963

Title VII of the Civil Rights Act of 1964 (as amended)

Age Discrimination in Employment Act of 1967

Occupational Health and Safety Act of 1970

Pregnancy Discrimination Act of 1978

Americans with Disabilities Act of 1990

Civil Rights Act of 1991

Family and Medical Leave Act of 1993

Requires equal pay for men and women performing equal work in an organization.

Prohibits discrimination in employment based on race, color, religion, sex, or national origin.

Prohibits discrimination against persons over 40; restricts mandatory retirement.

Establishes mandatory health and safety standards in workplaces.

Prohibits employment discrimination against pregnant workers.

Prohibits discrimination against a qualified individual on the basis of disability.

Reaffirms Title VII of the 1964 Civil Rights Act; reinstates burden of proof by employer, and allows for punitive and compensatory damages.

Allows employees up to 12 weeks of unpaid leave with job guarantees for childbirth, adoption, or family illness.

FIGURE 13.1 Sample of U.S. laws against employment discrimination.

sexual harassment occurs when any unwelcome form of sexual conduct (inappropriate

touching, teasing, dirty jokes, vulgar conversations, or the display of sexually explicit images)

creates an intimidating, hostile, or off ensive work setting. Organizations should have clear

sexual harassment policies in place, along with fair and equitable procedures for imple-

menting them.

Th e Equal Pay Act of 1963 requires that men and women in the same organization be

paid equally for doing work that is equivalent in terms of skills, responsibilities, and working

conditions. But a lingering issue over gender disparities in pay involves comparable worth,

the notion that persons performing jobs of similar importance should be paid at compara-

ble levels. Why should a long-distance truck driver, for example, be paid more than a teacher

in an elementary school? Does it make any diff erence that truck driving is a traditionally male

occupation and teaching is a traditionally female occupation? Advocates of comparable

worth argue that historical disparities in pay across occupations can result from gender

bias. Th ey would like to have the issue legally resolved.

Our new economy has given rise to a growing number of people who work in temporary

or part-time jobs, hire themselves out with temporary staffi ng agencies, or freelance as inde-

pendent contractors for a changing mix of employers. Organizations are hiring more tem-

porary and part-time workers and using more independent contractors in the attempt to

reduce costs and increase staffi ng fl exibility. Critics say this employment trend has created

a category of “disposable workers” who are caught in “a race to the bottom” and labor in a

system where “when they’re used up it’s on to the next one.” 14

Th ese individuals often work

without benefi ts—or with reduced benefi ts—such as health insurance, retirement plans,

sick pay, and holiday leave. Many, called permatemps, are employed in a temporary status

for an extended period of time. Th e legal status of part-timers and independent contractors

is regularly in the news and varies from state to state in the U.S. 15

Privacy is another hot-button employment and societal issue in our high-tech work

world. Th e Pew Research Center fi nds that 86% of Americans already try to hide their online

footprints as consumers and web browsers, and 68% believe current laws protecting their

Comparable worth holds that persons

performing jobs of similar importance

should be paid at comparable levels.

Independent contractors are hired

as needed and are not part of the

organization’s permanent workforce.

Permatemps are workers that are

employed in a temporary status for an

extended period of time.

297Human Resource Management

electronic privacy aren’t strong enough. 16

Workplace privacy is the right of individuals to

privacy on the job. 17

Although it is legal for employers to monitor the work performance and

behavior of their employees, employer practices can become invasive and cross legal and

ethical lines in everything from recruitment to day-to-day task performance. Software can

easily monitor e-mails, record Internet searches, follow keystrokes, document performance

moment to moment, check social media activity and online profi les for key words, and track

employee movements during the workday. All of this information can also be stored in vast

databases without an employee’s permission. Until the legal status of electronic surveillance

is cleared up, one consultant says the best approach is to “assume you have no privacy

at work.” 18

Workplace privacy is the right to

privacy while at work.

request and withdrew her application. She didn’t want to work for

an employer that would even ask to view her private Web pages.

A survey by Microsoft Research found 70% of recruiters saying

that they had rejected applicants based on information they

found online. Although a social media profi le can be a treasure

chest of information for recruiters and employers, it is less clear

whether it is ethical to tap this resource to measure candidates’

characters and make employment decisions. Since when is a

Facebook profi le meant to be an online résumé?

Sometimes recruiters make negative hiring decisions after

fi nding relatively mild forms of questionable behavior such as

using poor grammar, posting negative comments about prior

employers, or uploading drinking pictures. Th is may be information

or pictures that the individual has little control over. What

happens if a “friend” posts a picture of someone from a party from

years ago, or if inaccurate or untrue information is posted as a

joke among friends?

WHAT DO YOU THINK?

What are the ethical issues involved with regard to recruiters asking for access to personal Facebook—or other online social network—pages? Should it be held against applicants if they refuse? Is it okay for managers to search online sites to check up on what employees are doing outside of work? Should what someone does outside of work cost them their job? On the other hand, shouldn’t individuals who knowingly post online information understand that it may end up in the hands of their employers? Where do the lines of responsibility fall?

ethics> KNOW RIGHT FROM WRONG > Since when is someone’s Facebook profi le meant to be an online résumé?

Personality Test? Drug Test? Social Media Test?

Arda Guldogan/iStockphoto

It used to be that preparing for a job interview meant being ready to answer questions about your education, work experience, interests, and activities. Now there’s another question to prepare

for: What’s your Instagram user name and password?

Believe it or not, it’s true. Many interviewers are now asking for

access to an applicants’ social media pages. Th ey don’t want just a

quick glance at the public profi le; they want access to the private

profi le, too. It’s time to get worried when the recruiter says, “Please

friend me.”

“It’s akin to requiring someone’s house keys,” says a law professor.

One job candidate turned over a password because “I needed the

job to feed my family. I had to.” Another refused the interviewer’s

Learning Check 1

TAKEAWAYQUESTION 1 What is human resource management?

BE SURE YOU CAN • explain the human resource management process • defi ne discrimination, equal employment

opportunity, affi rmative action, and bona fi de occupational qualifi cation • identify major laws that protect against

discrimination in employment • discuss legal issues of sexual harassment, comparable worth, independent contractors,

and workplace privacy

298 CHAPTER 13 ■ Human Resource Management

Attracting a Quality Workforce TAKEAWAY 2 How do organizations attract a quality workforce?

Human resource planning • Recruitment process • Selection techniques

Th e fi rst responsibility of human resource management is talent acquisition. Its goal is to

attract a high-quality workforce that has the talents needed for the organization to meet its

performance goals. An advertisement once run by the Motorola Corporation put it this way:

“Productivity is learning how to hire the person who is right for the job.” To attract the right

people, an organization must know exactly what it is looking for in terms of the jobs to be

done and the talents required to do them well. It must create an employee value proposition

that makes the organization stand out as a preferred employer. And, it must have the human

resource management systems in place so that it can excel at employee recruitment and

selection.

Human Resource Planning

Human resource planning is the process of analyzing an organization’s staffi ng needs

and determining how to best fi ll them. As shown in Figure 13.2, human resource planning

begins with assessing staffi ng needs and the current workforce, and deciding what additions,

replacements, and upgrades are required for the future. Th e process involves job analysis—

the systematic evaluation of job facets to determine what is done when, where, how, why,

and by whom. 19

Th is information is then used to write or update job descriptions that

describe specifi c job duties and responsibilities. Th e information in a job analysis is used to

create job specifi cations that identify the qualifi cations—such as education, prior experience,

and skills—needed by someone hired for a given job.

Recruitment Process

Recruitment is a set of activities designed to attract a talented pool of job applicants to an

organization. Th ree steps in the traditional recruitment process are: (1) advertisement of a

job vacancy, (2) preliminary contact with potential job candidates, and (3) initial screening

to create a pool of applicants potentially meeting the organization’s staffi ng needs. Today,

recruitment increasingly involves social media where employers advertise jobs, individual

LEARN MORE

ABOUT

Human resource planning analyzes

staffi ng needs and identifi es actions to

fi ll those needs.

A job analysis studies exactly what is

done in a job, and why.

A job description details the duties

and responsibilities of a job holder.

Job specifi cations list the qualifi cations

required of a job holder.

Recruitment is a set of activities

designed to attract a talented pool

of job applicants.

AAAtttraaccctiinggg aa QQuualliiityy WWWoorrkkkforrrceeeA

Step 1: Review organization mission, objectives, strategies

Step 2: Review human resource objectives

and strategies

Step 5: Develop and implement human resource plans to match

people and job openings

Make comparison

Legal environment and government regulations

Step 3: Assess current human resources

Step 4: Forecast human resource needs

How many people are available now, and with what qualifications?

How many people will be required, when, and of what types?

• Recruiting & selection • Training & development • Compensation & benefits • Labor–management relations

FIGURE 13.2 Steps in strategic human resource planning.

299Attracting a Quality Workforce

post interests and talents, and connections between would-be new hires and employers

take place. At the extreme, you may be asked on a pre-recruitment basis to join a private

social media site run by the employer. If you want to get hired at Zappos, for example, the

front door is Zappos Insiders. 20

It’s a social network set up by Zappos to allow potential

employees to link with existing ones, show their personalities and talents, and learn what’s

going on at the fi rm. When a job vacancy opens, those with good reputations on Zappos

Insiders get the fi rst calls.

External and Internal Recruitment Th e recruiting that takes place on college campuses is an example of external recruitment

in which job candidates are sought from outside the hiring organization. External recruits

are found through company websites and social media, virtual job fairs, specialized recruiting

sites such as Monster and CareerBuilder, employment agencies and headhunters, university

placement centers, personal contacts, and employee referrals. Th rough social recruiting,

employers browse social media sites like LinkedIn, Facebook, Reddit, and Twitter, looking

for people whose online profi les show potential— things like leadership, special skills, and

connections—as prospective job candidates.

Internal recruitment involves the search for applicants from within the organization.

Most organizations have a procedure for announcing vacancies through newsletters,

electronic postings, and in-house social media sites. Th ey also rely on managers and team

leaders to recommend internal candidates for advancement. Th e college internship is a

form of internal recruitment that is an increasingly important pathway to employment. It

brings a student into the organization on a temporary basis and gives both parties an expe-

rience-based opportunity to consider one another for long-term employment.

Th ere are advantages and disadvantages to both external and internal recruitment.

External recruitment brings in outside applicants with fresh perspectives, expertise, and

External recruitment seeks job

applicants from outside the

organization.

Social recruiting is where employers

browse social media sites looking for

prospective job candidates.

Internal recruitment seeks job

applicants from inside the organization.

■ Adults aged 18 to 29 are almost twice as likely (31%) to be under-

employed as 30-to-49-year-olds (17%) and 50-to-65-year-olds

(17%).

■ Underemployed Americans report spending 36% less than their

employed counterparts on average, costing the U.S. economy

hundreds of millions of dollars.

■ Underemployed individuals in the South (42%) and East (40%)

are more optimistic about fi nding full-time employment than

those in the West (38%) and Midwest (36%).

YOUR THOUGHTS?

Check these facts against the latest data available. Are things getting better or worse for job seekers? What are the implica- tions of underemployment for organizations and the people they recruit? What are the implications for the economy as a whole? Is there anything an organization can do to keep the underem- ployed high performing, motivated, and loyal? Is a high level of underemployment likely to affect the wages of fully employed workers?

analysis> MAKE DATA YOUR FRIEND > Underemployment is much lower among college graduates than for those

with just high school diplomas.

Underemployment Affects Almost One Fifth of U.S. Workers

The Gallup organization tracks the percent of the U.S. work-force that is underemployed, meaning either part-time or un- employed people who want full-time work. A recent count showed

18.6% of people over 18 falling into this category. Th e underem-

ployment fi gure for recent college graduates is even higher—44%!

300 CHAPTER 13 ■ Human Resource Management

work experience. But extra eff ort is needed to get reliable information about these candi-

dates. A major downside of recruiting externally is that a hiring decision might turn out

bad because either not enough information was gathered about the applicant, or what was

discovered turned out to be inaccurate.

Internal recruitment is usually quicker and focuses on employees with well-known per-

formance records. A history of internal recruitment builds workforce loyalty and motivation

by showing that there are opportunities to advance within the organization. It also helps to

reduce turnover rates and facilitates retention of high-quality employees. But internal

recruiting also has downsides as well. Limiting job searches to internal talent pools increases

the risk that the best candidate may not be chosen for a position. A valuable opportunity to

bring in outside expertise and viewpoints also may be lost at the very moment when new

insights, skills, and creativity are most needed by the organization.

Realistic Job Previews In what may be called traditional recruitment, the emphasis is on selling the job and

organization to applicants. Th e focus is on communicating the most positive features of the

position, perhaps to the point where negatives are downplayed or even concealed. Th is

may create unrealistic expectations that cause costly turnover when new hires become

disillusioned and quit. Th e individual suff ers a career disruption; the employer suff ers lost

productivity and the added costs of having to recruit again.

Th e alternative to traditional recruitment is a realistic job preview that provides candi-

dates with all pertinent information about the job and organization without distortion, and

before the job is accepted. 21

Rather than seeking to “sell” applicants on the positive features

of the job or organization, realistic job previews are intended to be open and balanced. Both

favorable and unfavorable aspects of work are covered.

Th e interviewer in a realistic job preview might use phrases such as “Of course, there are

some downsides . . .”; “Something that you will want to be prepared for is . . .”; and “We have

found that some new hires have diffi culty with. . . .” Not surprisingly, such conversations may

lead some applicants to decide that the job is not for them. But, this helps to avoid mis-

matches that could prove troublesome later on. For those who do take the job, knowing

both the positive and negative features ahead of time builds realistic expectations that bet-

ter prepare them for the inevitable ups and downs of a new position. Th e expected benefi ts

of realistic recruiting practices include higher levels of early job satisfaction, greater trust in

the organization, and less inclination to quit prematurely.

Selection Techniques

Once a a pool of job candidates exists, the next step is to determine whom to hire. Th is

process of selection, as shown in Figure 13.3, involves gathering and assessing information

about job candidates and making a hiring decision.

Traditional recruitment focuses on

selling the job and organization to

applicants.

Realistic job previews provide job

candidates with all pertinent

information about a job and an

organization, both positive and

negative.

Selection is choosing individuals to hire

from a pool of qualifi ed job applicants.

Selection Process Deficient qualifications, poor references,

inappropriate use of social media1. Screening applicant information

Reasons for Rejection

Not prepared, bad impression, poor interpersonal skills, lacking job skills2. Interview or site visit

Poor test scores, negative personality indicators 3. Employment testing

Physically unfit for job, failed drug test, failed background check4. Preemployment checks

FIGURE 13.3 Steps in the selection process: Th e case of a rejected job

applicant.

301Attracting a Quality Workforce

Reliability and Validity Th e selection process is always a prediction exercise in which the reliability and validity

of techniques used are very important. Reliability means that the selection technique is

consistent with regard to how it measures something. Th at is, it returns the same results

time after time. For example, a personality test is reliable if the same individual receives a

similar score when taking the test on two separate occasions. Validity means that there is a

clear relationship between what the selection device is measuring and eventual job perfor-

mance. Th at is, there is clear evidence that once on the job, individuals with high scores on

an employment test, for example, outperform individuals with low scores.

Interviews Ins and Outs Very few individuals are hired for managerial and professional positions without passing

through one or more screening interviews. Th ey are used to evaluate applicants on technical

skill sets and experience, communication skills and personal impression, and potential

person–organization culture fi t. Th e traditional face-to-face interview is still the most

used, but the telephone interview and the virtual or online video interview are increasingly

common. Th e likelihood for most college graduates today is that success in a telephone or

online virtual interview will determine whether they ever get to the face-to-face on-site

interview stage.

Reliability means that a selection

device repeatedly gives consistent

results.

Validity means that scores on a

selection device have a demonstrated

correlation with future job performance.

Conscientiousness is the degree to which an individual is achievement-oriented, careful, hard-working, organized, persevering, responsible, and thorough. People who are low on

conscientiousness tend to be laid back, less goal-oriented, less

driven by success, and less self-disciplined. Th ey are also often

procrastinators.

Many employers tend to hire for attitude and train for skill.

Th ey try to identify future top performers by focusing on key

personality characteristics that are likely to predict job success.

Conscientiousness is often at the top of recruiters’ “must-have”

lists. Th eir search for clues about an individual job candidate’s

potential covers things like those shown in the box.

Are you someone whom others would describe as effi cient,

prompt, systematic, thorough, careful, practical, neat, and steady?

If you can check off each of these attributes as a positive personal

characteristic that accurately describes you then you’re on the

right path when it comes to conscientiousness. Th is is a good

path to be on. Conscientiousness often is associated with job

success. Remember too that conscientiousness is easy to monitor.

Its presence or absence will always be evident in the way you

approach work and how you follow through with the tasks and

challenges you face.

Conscientiousness is a personality characteristic that is

positively related to work performance across a wide range of

jobs. How about you? Can your credentials meet a recruiter’s

conscientiousness challenge? Why or why not?

GET TO KNOW YOURSELF BETTER

Just how conscientious are you, not only in work and school sit- uations but in your everyday life? Take the conscientiousness test in the box. Ask: “How would others rate me on these same characteristics?” Ask also: “Should I just accept where I am in terms of conscientiousness, or are there things I can do to change my behavior in ways that can make me more conscien- tious in the future?” Put your thoughts about whether conscien- tiousness is one of your personal traits down on paper. Share it with someone who knows you well and ask whether they agree, or not. Honest feedback can be important to your professional development.

insight> LEARN ABOUT YOURSELF > Conscientiousness is often at the top of recruiters’ “must-have” lists.

Conscientiousness Is a Career Booster

How to Show Recruiters You Are Conscientious

• Professional Résumé—Presenting a carefully proofed,

well-designed, and organized resume shows that you value

a high-quality product and attend to details.

• Interview Preparation—Doing research beforehand and

being well informed shows conscientiousness.

• Self-Presentation—First impressions count; conscientious-

ness shows up in dressing appropriately and acting profes-

sionally in with regard to manners and engagement.

• Career Plans—Being able to thoughtfully discuss career

and personal plans shows you are goal-oriented and

conscientious.

302 CHAPTER 13 ■ Human Resource Management

Even well-qualifi ed job applicants may

perform poorly in a job interview. Th ey may

be unprepared for questions related to the

specifi c organization with which they are

interviewing. Th ey may be nervous or may

be poor communicators. Or, they may sim-

ply fail at answering unusual and demand-

ing questions.

Google is famous for asking questions

like: “A man pushed his car to a hotel and

lost his fortune. What happened?” Other

employers are now pushing the interview

envelope as well. Whole Foods might ask:

“What’s your perfect last meal?” Expedia

might ask: “If you could go camping any-

where, where would you put your tent?”

Xerox wants to know why tennis balls are

fuzzy. 22

Th ese types of interview questions

are designed less for testing “right” answers

and more for fi nding, through a candidate’s

responses, how well they might fi t with the

organization overall and its culture specifi -

cally. But you have to be prepared for stan-

dard questions as well—“What are your strengths and weaknesses?” “Where do you see

yourself in fi ve years?” “What can you off er us that someone else cannot?” 23

It may surprise you to fi nd out that interviews often have relatively low validity as selec-

tion devices. Th is is especially true of unstructured interviews where the interviewer

doesn’t work from a formal and pre-established list of questions that is asked of all inter-

viewees. Some interviewers rush to judgment based on fi rst impressions of candidates and

fail to dig deeper for relevant information. Or, they may dominate the conversation and

spend more time talking about themselves or the organization than focusing on the appli-

cant’s readiness for the position.

Th e predictive validity of interviews increases as the amount of structure increases. In

this respect, behavioral interviews and situational interviews are much more eff ective at

predicting successful job performance than traditional interviews. 24

Behavioral interviews

ask job candidates about their past behavior, focusing specifi cally on actions that are

likely to be important in the work environment. For example: “Describe how you have

resolved a confl ict with a co-worker or team mate.” Situational interviews ask applicants

In unstructured interviews, the

interviewer does not work from a

formal and pre-established list of

questions that is asked of all

interviewees.

Behavioral interviews ask job

applicants about past behaviors.

Situational interviews ask job

applicants how they would react in

specifi c situations.

• Prepare ahead of time—Study the organization; carefully list your strengths

and capabilities; be ready to take notes.

• Take the call or video link in private—Make sure you are in a quiet room,

with privacy and without the possibility of interruptions.

• Dress professionally—Dress right to increase your confi dence and set a tone

for your side of the conversation; don’t dress in casual clothes.

• Practice your “interview voice” and “screen presence”—Impression counts;

speak slowly and clearly, look at the camera; look pleasant, interested, and

happy to be there.

• Have reference materials handy—Keep your résumé and other supporting

documents within easy reach.

• Have a list of questions—Don’t be caught unprepared; intersperse your best

questions during the interview.

• Ask what happens next—Find out how to follow up; ask what other

information you can provide; ask about the time frame for a decision.

• Follow up—Don’t forget to send a thank-you note and reiterate your interest

in the job.

How to Succeed in a Telephone or Video Interview

Discrimination Fears Raised over Social Media Use in Hiring

When at least 6 in 10 recruiters are checking the social media histories of job applicants,

there may be more at issue than privacy concerns alone. How do the employment laws

on discrimination apply to this new practice? Hearings are being held at the U.S. Equal

Employment Opportunity Commission to determine how an employer’s peek at a job

candidate’s postings on Twitter, Instagram, and other social media sites may aff ect

discrimination in hiring. If a recruiter can’t legally ask an interviewee, “Are you married

or pregnant?” or “What is your sexual preference?” what are the legalities of fi nding

answers to these questions on the Internet? And if recruiters get social media

information on one candidate but not on another, does this amount to discrimination

because they aren’t being treated equally?C JG

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303Developing a Quality Workforce

how they would react when confronted with specifi c work situations they would be likely to

experience on the job. For example: “How would you as team leader handle two team mem-

bers who do not get along with one another?” 25

Employment Tests Employment tests are often used to identify a candidate’s intelligence, aptitudes, personal-

ity, interests, and even ethics. But organizations need to be careful about the way that they

use tests and make sure that they are documented as valid predictors of job performance.

Biodata methods usually take the form of multiple-choice, self-report questionnaires. Th ey

collect “hard” biographical information and also include “soft” items that inquire about

more abstract characteristics such as value judgments, aspirations, motivations, attitudes,

and expectations. When used in conjunction with ability tests, biodata methods can increase

the reliability and validity of the selection process. 26

Google, for example, analyzes data

collected by its biodata surveys and compares them with those of current top performers. 27

Other types of employment tests involve actual demonstrations of job-relevant skills and

personal characteristics. An assessment center evaluates candidates’ potential by observ-

ing their performance in experiential activities designed to simulate daily work. When using

work sampling, companies ask applicants to do actual job tasks while being graded by

observers on their performance. Generally speaking, organizations should use a combina-

tion of methods in order to increase the predictive validity of the selection process.

Biodata methods collect certain

biographical information that has

been proven to correlate with good job

performance.

An assessment center examines how

job candidates handle simulated work

situations.

In work sampling, applicants are

evaluated while performing actual

work tasks.

Learning Check 2

TAKEAWAYQUESTION 2 How do organizations attract a quality workforce?

BE SURE YOU CAN • explain the diff erence between external recruitment and internal recruitment • discuss the value of

realistic job previews to employers and to job candidates • diff erentiate reliability and validity as two criteria of selection tools

• discuss the pros and cons of job interviews and employment tests

Developing a Quality Workforce TAKEAWAY 3 How do organizations develop a quality workforce?

Onboarding and socialization • Training and development Performance management

Th e second responsibility of human resource management is talent development. Th is

begins when new hires are brought on board with care so their fi rst experiences are positive

ones. When people join an organization they have to “learn the ropes” and become familiar

with “the way things are done.” Newcomers need to learn about the organization’s culture so

they can best fi t into the work setting. Th e best employers don’t leave all of this to chance.

Th ey step in and try to guide this learning process in the right direction. Talent development

also means that all employees must be continually trained and developed through

well-chosen job experiences and placements to keep their abilities and skills at the highest

possible levels.

Onboarding and Socialization

Th e fi rst formal experience newcomers have often begins with some form of onboarding or

orientation activities designed to familiarize new employees with their jobs, co-workers,

and key aspects of the organization as a whole. A good onboarding program brings new

hires into the organization with a clear understanding of the organization’s mission and

goals, culture, and key policies and procedures. It also introduces them to their jobs,

co-workers, and performance expectations in a positive and, ideally, motivating way. For

example, all new hires at the Disney World Resort in Buena Vista, Florida, learn during

Onboarding or orientation

familiarizes new hires with the

organization’s mission and culture,

their jobs and co-workers, and

performance expectations.

LEARN MORE

ABOUT

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304 CHAPTER 13 ■ Human Resource Management

onboarding that everyone, regardless of their specifi c job title—be it entertainer, ticket

seller, or groundskeeper—is a “cast member” who is there “to make the customer happy.”

Socialization is a process through which new members learn and adapt to the ways of

the organization. 28

Th e socialization that begins with onboarding and which continues

during the fi rst six months or so of employment often determines how well a new employee

is going to fi t in and perform. A technique used by Neil Blumenthal, co-founder of the online

eyewear retailer Warby Parker, is to “provide realistic short-term goals to establish quick

wins, which will get the employee into a rhythm where he or she is motivated.” 29

When done

well, socialization sets the right foundations for high performance, job satisfaction, and

work enthusiasm. When weak or neglected, however, it largely leaves integration to chance

as newcomers learn about the organization and their jobs through interactions with

co-workers. 30

Even though learning from experienced workers can be helpful to a new hire,

it also is possible for newcomers to learn the wrong kinds of things and pick up bad attitudes.

Training and Development

Training is a set of activities that helps people acquire and improve their job-related skills.

Th is applies both to an employee’s initial training and to upgrading skills to meet changing

job requirements. Organizations that value their human resources invest in extensive train-

ing and development programs to ensure that everyone always has the capabilities needed

to perform well and manage their personal lives. 31

On-the-job training takes place on the job in the work setting. A common approach is job

rotation, which allows people to spend time working in diff erent jobs or departments or

even geographical locations, and thus expand the range of their job capabilities. 32

Another

approach is coaching, in which an experienced person provides performance advice to a

newcomer or less experienced co-worker. Mentoring is a form of coaching in which early-

career employees are formally assigned as protégés to senior, veteran job holders. Th e men-

toring relationship gives new employees regular access to advice on developing skills and

getting better informed about the organization. More organizations, including Mastercard

and Cisco, are now also using reverse mentoring where younger employees mentor seniors

to improve their technology skills. At Capgemini Consulting, global practice leader Didier

Bonnet says “the main aim is to raise the digital IQ of business leaders in the fi rms.” 33

Off -the-job training is accomplished outside the work setting. It provides an opportunity

to enhance job-critical skills or even to develop skills that might be needed before a promotion

or transfer. An example is management development—formal training designed to

improve a person’s knowledge and skill in the fundamentals of management. New managers

just starting out often benefi t from training that emphasizes team leadership and

Socialization is a process of learning

and adapting to the organizational

culture.

Training provides learning

opportunities to acquire and improve

job-related skills.

In job rotation, people switch tasks to

learn multiple jobs.

Coaching occurs as an experienced

employee off ers performance advice to

a less experienced co-worker.

Mentoring assigns new hires and

early-career employees as protégés to

more senior employees.

In reverse mentoring, younger

employees mentor seniors to improve

their technology skills.

Management development is training

to improve knowledge and skills in the

management process.

Profi t at the Bottom of the Ladder: Creating Value by Investing in Your Workforce (Harvard Business Press Books, 2010)

By Jody Heymann It is said that employees are responsible for 90% of a company’s profi tability. Yet many fi rms

invest only in their most highly skilled, best-educated workers, while cutting wages and

benefi ts for workers at the bottom of the ladder as a quick way to improve profi ts. Re-

searcher Jody Heymann, Dean of UCLA’s Fielding School of Public Health, challenges this

approach by providing evidence that investing in frontline employees has a powerful impact

on corporate profi tability. Drawing on thousands of interviews with organizations around

the world, Heymann shows how organizations have profi ted by improving the working

conditions of their least-skilled employees. Examples of practices that improve productivity

are higher pay, fl exible working opportunities, increased training, and career development.

RecommendedReading

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305Developing a Quality Workforce

communication. Middle managers may benefi t from training to better understand multi-

functional viewpoints or techniques for motivating employees. Top managers may benefi t

from advanced management training to sharpen their decision-making and negotiation

skills, as well as to expand their awareness of corporate strategy and direction.

Performance Management

An important part of human resource management is the design and implementation of a

successful performance management system. Th is system ensures that performance

standards and objectives are set, that performance is regularly assessed, and that steps are

taken to improve employees’ future performance following the provision of performance

feedback by managers.

Performance assessment or performance review, also called performance appraisal

and performance evaluation, is the process of formally assessing employees’ work accom-

plishments and providing feedback. Such a performance review serves both evaluation and

development purposes. 34

Th e evaluation purpose focuses on past performance and measures

results against standards. Performance is documented for the record and for the purpose of

allocating rewards such as fi nancial incentives and bonuses. Th e manager provides an eval-

uation of the job holder’s accomplishments and areas of weakness. Th e development purpose

focuses on future performance. Performance goals and obstacles are identifi ed, along with

areas where training or supervisory support may be needed. Th e manager acts in a counsel-

ing role and gives attention to job holders’ developmental needs.

Surveys report that 42% of workers and 58% of HR managers dislike their performance

assessment systems. 35

One of the reasons is that the reviews aren’t frequent enough, often

an “annual” ritual. Another is the tendency to focus on the evaluation of performance

and neglect the discussion of pathways for performance development. 36

Use of ongoing

performance coaching helps minimize these problems. It provides employees with fre-

quent and developmental feedback as more of an ongoing dialogue than a formal, sched-

uled event. Th e coaching helps clarify performance expectations and prevent small

problems from getting out of control. At the same time it increases trust and improves the

quality of supervisor–subordinate relationships.

Another important reason for dissatisfaction with performance assessments is the nature

of the process itself. All parties involved in the giving and receiving of performance feedback

can fi nd the event uncomfortable, emotional, and even anger inducing. Along with this, the

assessment content–message and measures being delivered—are often open to disagree-

ment and debate. Th is is why good choices must be made among alternative performance

assessment methods, and why they should be as reliable and valid given the circumstances. 37

A reliable assessment method yields the same result over time or for diff erent raters. A valid

method is unbiased and measures only factors directly relevant to job performance.

Trait-Based Performance Assessment Trait-based approaches are designed to measure the extent to which employees possess char-

acteristics or traits that are considered important in the job. For example, trait-based measures

often assess characteristics such as dependability, initiative, conscientiousness, and leadership.

One of the oldest and most widely used performance appraisal methods is a graphic rating

scale. It is basically a checklist for rating individuals on traits or performance characteristics

such as quality of work, job attitude, and punctuality. Although this approach is quick and easy,

it tends to be very subjective and, as a result, also tends to have poor reliability and validity.

Behavior-Based Performance Assessment Behavior-based approaches evaluate employees on specifi c actions that are viewed as

important parts of the job. Th e behaviorally anchored rating scale, or BARS, describes

actual behaviors for various levels of performance achievement in a job. In the case of the

customer-service representative illustrated in Figure 13.4, “extremely poor” performance is

clearly defi ned as rude or disrespectful treatment of customers.

A performance management system

sets standards, assesses results, and

plans for performance improvements.

Performance assessment or

performance review is the process of

formally evaluating performance and

providing feedback to a job holder.

Performance coaching provides

frequent and developmental feedback

for how a worker can improve job

performance.

A graphic rating scale uses a checklist

of traits or characteristics to evaluate

performance.

A behaviorally anchored rating scale

uses specifi c descriptions of actual

behaviors to rate various levels of

performance.

306 CHAPTER 13 ■ Human Resource Management

Th e BARS is more reliable and valid than the graphic rating scale because it anchors perfor-

mance assessments to specifi c descriptions of work behavior. Behavior-based appraisals also are

more consistent with the developmental purpose of performance appraisal because they provide

specifi c feedback to employees as to areas in need of improvement. But one problem is that a

BARS evaluation may be infl uenced by recency bias. Th is is the tendency for evaluations to

focus on recent behaviors rather than on behavior occurring throughout the evaluation period.

Th e critical-incident technique is a behavior-based approach that can diminish

recency bias. With this technique a running log or inventory is kept of employees’ eff ective

and ineff ective job behaviors. Using the case of the customer-service representative, a

critical-incidents log might contain the following entries: Positive example—“Took extraor-

dinary care of a customer who had purchased a defective product from a company store in

another city”; negative example—“Acted rudely in dismissing the complaint of a customer

who felt that a sale item was erroneously advertised.” Such a written record can be discussed

in specifi c terms with the employee and used for both evaluative and developmental purposes.

Results-Based Performance Assessment Results-based approaches target just what their name implies. Rather than employees’ traits

or their specifi c behaviors, results-based assessments focus on accomplishments. Th is type of

assessment is typically quantitative and objective, making it ideal in some circumstances. But

results-based measures can sometimes create more problems than they solve. In some jobs

the outcomes that are the easiest to measure quantitatively aren’t necessarily the most import-

ant. For instance, although the number of hours a technician spends on a customer’s custom

speaker installation is easy to measure, it is less important than how eff ective the installation

is, which is more complicated to evaluate. In addition, results-based measures may ignore the

impact of circumstances beyond the employee’s control, such as inadequate technology or

poor performance by another member of their team. When people are evaluated only on goal

attainment, they also may adopt unethical approaches to accomplish goals. 38

One of the common performance appraisal errors is leniency—the tendency for super-

visors to rate employees more favorably than they deserve in order to avoid the unpleasant

task of giving negative feedback. 39

Although leniency tends to be less pronounced in results-

based performance appraisals, it may be further reduced by the use of multiperson com-

parisons that formally compare one manager’s evaluations with ratings provided by

another manager. In rank ordering, all employees being rated are arranged in order of per-

formance achievement. Th e best performers go at the top of the list, while the worst per-

formers go at the bottom; no ties are allowed. In a forced distribution, each employee is

placed into a frequency distribution, which requires that a certain percentage of employees

Recency bias overemphasizes the

most recent behaviors when evaluating

individuals’ performance.

Th e critical-incident technique

keeps a log of employees’ eff ective and

ineff ective job behaviors.

Leniency is the tendency to give

employees a higher performance rating

than they deserve.

A multiperson comparison compares

one person’s performance with that of

others.

If a customer has defective merchandise that is not the responsibility of the store, this representative helps the customer arrange for the needed repairs elsewhere.

This representative helps a customer by sharing complete information on the store's policies on returns.

After finishing with a request, this representative pleasantly encourages a customer to “shop again” in the store.

This representative delays a customer without explanation while working on other things.

This representative treats a customer rudely and with disrespect.

Outstanding performance

Unsatisfactory performance

FIGURE 13.4 Sample of a behaviorally anchored rating scale

for performance appraisal.

307Maintaining a Quality Workforce

fall into specifi c performance classifi cations, such as the top 10%, the next 40%, the next

40%, and the bottom 10%. Th ese systems are usually put in place to guard against supervi-

sors giving their employees too lenient or overly positive evaluations. 40

360-Degree Feedback It also is increasingly popular to include more than immediate supervisors in the perfor-

mance appraisal process. 41

In 360-degree appraisals, feedback is gathered from multiple

sources in order to provide a more comprehensive evaluation of employees’ performance.

These typically include input not only from an employee’s supervisor but from peers,

subordinates, and even customers—stakeholders inside and outside the organization who

depend on the job holder’s performance. Most 360-degree appraisals also include a self-

evaluation by job holders. Assessments from all of these sources are used to identify employ-

ees’ strengths, weaknesses, and development needs. 42

360-degree appraisals include

superiors, subordinates, peers, and even

customers in the appraisal process.

Learning Check 3

TAKEAWAYQUESTION 3 How do organizations develop a quality workforce?

BE SURE YOU CAN • defi ne orientation and socialization and describe their importance to organizations • give examples

of on-the-job and off -the-job training • discuss strengths and weaknesses of trait-based, behavior-based, and results-based

performance appraisals • explain how 360-degree appraisals work

Maintaining a Quality Workforce TAKEAWAY 4 How do organizations maintain a quality workforce?

Flexibility and work–life balance • Compensation and benefi ts Retention and turnover • Labor–management relations

Th e third responsibility in human resource management is talent retention. “Hiring good

people is tough . . . keeping them can be even tougher” states an article in the Harvard

Business Review. 43

Th e point is that it isn’t enough to hire and train workers to meet an

organization’s immediate needs; employees must also be successfully nurtured, supported,

and retained. A Society for Human Resource Management survey of employers shows

that popular tools for maintaining a quality workforce include fl exible work schedules and

personal time off , competitive salaries, and good benefi ts—especially health insurance. 44

Flexibility and Work–Life Balance

Today’s increasingly fast-paced, complex, and multifaceted lifestyles have contributed to

increased concerns about work–life balance—how people balance the demands of their

careers with their personal and family needs. 45

Not surprisingly, the “family friendliness” of

an employer is now frequently used as a screening criterion by job candidates. It is also used

in “best employer” rankings found in publications such as Working Mother, Fortune, and

Forbes, and online sources such as Linked In and Vault.Com.

Work–life balance is enhanced when workers have fl exibility in scheduling work hours, work

location, and even such things as vacations and personal time off . Flexibility allows people to

more easily balance their personal lives and work responsibilities. Research shows that workers

who have fl exibility, at least with regard to when they begin and end their workday, are less likely

to leave their jobs. 46

Th e health-care company Pfi zer encourages employees to customize their

work schedules around families’ needs. In one year 86% of all employees adjusted their hours at

some point, while 50% occasionally worked from their homes or other off -site locations. 47

Flexibility programs are becoming essential for many employers to attract and retain the

talented workers they need. Some fi rms are helping workers handle family matters through

initiatives such as on-site day care and elder care, and concierge services for miscellaneous

needs such as dry cleaning and getting a haircut. Others have moved into innovative programs

like work sabbaticals—FedEx, Genentech, Patagonia, and General Mills are now off ering

Work–life balance involves balancing

career demands with personal and

family needs.

LEARN MORE

ABOUT

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308 CHAPTER 13 ■ Human Resource Management

sabbaticals as a way to motivate (and retain) their best performers. 48

A few even off er limitless

vacation time. At investment research fi rm Morningstar, employees can take as much vacation

time as they want whenever they want. Th e same goes for online investment information web-

site Motley Fool and software company HubSpot. 49

Compensation and Benefi ts

It may be that no other work issue receives as much attention as pay. Base compensation

in the form of a market-competitive salary or hourly wage helps in hiring the right people.

Th e way pay increases are subsequently handled can have a signifi cant impact on employ-

ees’ job attitudes, motivation, and performance, and it can also infl uence their tendencies to

look for a better job elsewhere.

Benefi ts also rank right near the top of the list in importance with pay as a way of helping

to attract and retain workers. How many times does a graduating college student hear, “Be

Base compensation is a salary or

hourly wage paid to an individual.

Traditionally, managers or team leaders made fi nal pay raise decisions. But times may be changing in an increasingly crowdsourcing world. Your pay may now be decided by your

teammates, not your boss.

Picture this. Fifteen members of a work team log into to an

online exchange run by their employer. Their task is to distrib-

ute a pool of 1,200 stock options as an annual bonus to their

teammates. The only rule is that they can’t give any to them-

selves. Each person’s final bonus options are the sum of what

other team members give them. When the exchange closes

each individual gets notified of their bonus awards and the

distribution of bonuses awarded in the team—no names

attached.

Th e example is real. It comes from a San Francisco start-up

called Coff ee & Power. Th e pay practice was initiated by entre-

preneur and co-founder Philip Rosedale. Th e idea is that because

teammates know one another best, they also know who deserves

to be recognized at bonus time.

Th ose in favor of the practice might say that by giving the

bonus decision to the team, it empowers members who get to

invest in and reward one another for their performance and

contributions. One Coff ee & Power employee says the approach

“lets me reward people that management may not always rec-

ognize.” Th ose against the practice might say it’s a bit like having

students give each other grades on a team project. Th ere’s too

much room for results to be manipulated according to friend-

ships and perceived “need.” Too often, performance falls by the

wayside as an award criterion in favor of less relevant, nonper-

formance factors.

YOUR TAKE?

At this point, you’ve surely done peer evaluations in teams and perhaps even assigned grades to team members. What’s your take on the Coffee & Power approach to bonuses? Does this use of technology really dig down to the level of truly rewarding in- dividual contributions to team performance? Or, is it a practice that potentially introduces more problems than it is worth?

choices> THINK BEFORE YOU ACT > Fifteen members of a work team are asked to distribute a pool of 1,200 stock options

as annual bonuses to one another.

Teammates Know You, But Should They Pay You?

Helder Almeida/Shutterstockld l d / h k

309Maintaining a Quality Workforce

sure to get a job with benefi ts!”? 50

But with rising costs, these benefi ts—retirement plans and

health insurance in particular—are becoming harder to negotiate. Most employers that still

off er them require employees to pay at least part of the costs. 51

Merit Pay Systems Th e trend in compensation today is largely toward “pay-for-performance.”

52 If you are part of

a merit pay system, your pay increases will be based at least in part on some assessment of

how well you perform. Th e idea is that a good merit raise is a positive signal to high performers;

no merit raise or a low merit raise sends a negative signal to low performers. Because their

pay is contingent on performance, both groups are expected to work harder in the future.

Although they make sense in theory, merit systems are also not free of problems. A survey

reported by the Wall Street Journal found that only 23% of employees understood their compa-

nies’ reward systems. 53

Typical questions include: Who assesses performance? What happens if

the employee doesn’t agree with the assessment? Is the system fair and equitable to everyone

involved? Is there enough money available to make the merit increases meaningful?

Bonuses and Profi t-Sharing Plans How would you like to someday receive a letter like this one, once sent to two top executives

by Amazon.com’s chairman Jeff Bezos? “In recognition and appreciation of your contributions,”

his letter read, “Amazon.com will pay you a special bonus in the amount of $1,000,000.” 54

Bonus

pay plans provide one-time or lump-sum payments to employees who meet specifi c perfor-

mance targets or make some other extraordinary contribution, such as an idea for a work

improvement. Th ese pay plans have been most common at the executive level, but many com-

panies now use them more extensively across all levels. At Applebee’s, for example, “Applebucks”

are small cash bonuses given to reward employee performance and increase loyalty to the fi rm.

In contrast to straight bonuses, profi t-sharing plans give employees a proportion of

the net profi ts earned by the organization during a performance period. Gain-sharing plans

extend the profi t-sharing concept by allowing groups of employees to share in any savings

or “gains” realized when their eff orts or ideas result in measurable cost reductions or pro-

ductivity increases. As incentive systems, profi t-sharing plans, gain-sharing plans, and

bonus plans have the advantage of helping to ensure that individual employees work hard by

linking their pay to the performance of the organization as a whole.

Stock Ownership and Stock Options Some employers provide employees with ways to accumulate stock in their companies and

thus develop a sense of ownership. Th e idea is that stock ownership will motivate employees

to work hard so that the company becomes and stays successful. Employee stock ownership

plans, or ESOPs, help employees purchase stock in their employing companies, sometimes

at special discounted rates. For example, almost 95% of employees are stock owners at

Anson Industries, a Chicago construction fi rm. 55

An administrative assistant says it has

made a diff erence in her job performance: “You have a diff erent attitude . . . everyone here

has the same attitude because it’s our money.” Of course, there are downside risks of ESOPs.

When a company’s market value falls, so too does the value of any employee-owned stock.

Another approach is to grant employees stock options linked to their performance or as part

of their hiring packages. Stock options give owners rights to buy shares of stock at a future date

at a fi xed price. Employees gain fi nancially if the stock price rises above the option price, but the

stock options lose value if the stock price drops. Th e logic is that option holders will work hard so

that the company performs well and they can reap some of the fi nancial benefi ts. Th e Hay Group,

a global human resource management consulting fi rm, reports that the most admired U.S. com-

panies are also those that off er stock options to a greater proportion of their workforces. 56

Benefi ts Employee benefi ts packages include nonmonetary forms of compensation that are intended

to improve the work and personal lives of employees. Some benefi ts are required by law, such as

Merit pay awards pay increases in

proportion to performance

contributions.

Bonus pay plans provide one-time

payments based on performance

accomplishments.

Profi t-sharing plans distribute to

employees a proportion of net profi ts

earned by the organization.

Gain-sharing plans allow employees

to share in cost savings or productivity

gains realized by their eff orts.

Employee stock ownership plans

(ESOPs) help employees purchase stock

in their employing companies.

Stock options give the right to purchase

shares at a fi xed price in the future.

Employee benefi ts are nonmonetary

forms of compensation such as health

insurance and retirement plans.

310 CHAPTER 13 ■ Human Resource Management

contributions to Social Security, unemployment insurance, and workers’ compensation insur-

ance. Many organizations off er additional benefi ts in order to attract and retain highly qualifi ed

employees. Th ey include health care insurance, retirement plans, pay for time not worked—

such as personal days and vacations, sick leave, and maternity and paternity leave. But, the

majority of U.S. workers still don’t have access to such discretionary benefi ts. Although the

Family and Medical Leave Act requires employers to off er unpaid leaves for medical and family

problems, for example, President Obama told a Summit on Working Families: “Th ere is only one

country in the world that does not off er paid maternity leave, and that is us.” 57

And when it

comes to the “working sick” problem, some 40 million Americans lack paid sick leave benefi ts. 58

Th e ever-rising costs of benefi ts, particularly medical insurance and retirement, are a major

concern for employers. Many are attempting to gain control over health care expenses by shifting

more of the insurance costs to employees and by restricting choices among health care providers.

Some also are encouraging healthy lifestyles as a way to decrease health insurance claims.

Flexible benefi ts programs are increasingly common. Th ese plans allow employees to

choose a set of benefi ts within a certain dollar amount. Th e trend also is toward more

family-friendly benefi ts that help employees balance work and non-work responsibilities.

Th ese include child care, elder care, fl exible schedules, parental leave, and part-time

employment options, among others. Increasingly common as well are employee assistance

programs that help employees deal with troublesome personal problems. Such programs

may off er assistance in dealing with stress, counseling on alcohol and substance abuse, refer-

rals for domestic violence and sexual abuse, and sources for family and marital counseling.

Retention and Turnover

Retirement is one of those experiences that can increase employees’ fears and apprehen-

sions as it approaches. Many organizations off er special counseling and other forms of sup-

port for retiring employees, including advice on company benefi ts, fi nancial management,

estate planning, and use of leisure time. Increasingly on the radar at many fi rms are early

retirement incentive programs. Th ese programs give workers fi nancial incentives to retire

early. Th e potential benefi ts for employers include the opportunity to lower payroll costs by

reducing positions, replacing higher-wage workers with less expensive newer hires, and cre-

ating openings that can be used to hire workers with diff erent, more current skills and talents.

Th e most extreme replacement decisions involve termination, or the involuntary and

permanent dismissal of an employee. In some cases termination is based on performance

problems or violations of organizational policy. In other cases the employees involved may

be performing well, but may be terminated as part of strategic restructuring through work-

force reduction. In all cases, terminations should be handled fairly, according to organiza-

tional policies and in full legal compliance with all relevant federal and state statues.

Many employment relationships are governed by the employment-at-will doctrine.

Th is principle assumes that employers can terminate employees at any time for any reason.

Flexible benefi ts programs allow

employees to choose from a range of

benefi t options.

Family-friendly benefi ts help employ-

ees achieve better work–life balance.

Employee assistance programs help

employees cope with personal stresses

and problems.

Early retirement incentive programs

off er workers fi nancial incentives to

retire early.

Termination is the involuntary

dismissal of an employee.

Employment-at-will means that

employees can be terminated at any

time for any reason.

The Truth about Why Great Employees Quit

No one wants to lose a great employee. But when they do, many employers are caught

by surprise. Th ey think everything is fi ne and have no idea that their best employees might

be thinking about leaving. When 18,000 professionals were asked in a LinkedIn survey

what caused them to think about changing employers, their top thoughts were to get

better compensation and benefi ts, better work/life balance, and career advancement.

But when 7,530 actual job switchers were surveyed, they reported that the decision to

leave was most often driven by career advancement followed by opportunities to work

for organizations with better leadership. Getting more pay came in third.© d

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311Maintaining a Quality Workforce

Likewise, employees may quit their job at any time for any reason. In other cases, the princi-

ple of wrongful discharge gives workers legal protections against discriminatory fi rings,

and employers must have bona-fi de job-related cause to terminate the employee. In situa-

tions where workers belong to unions, terminations also are potentially subject to labor

contract rules and specifi cations.

Labor–Management Relations

Labor unions are organizations to which workers belong and that deal with employers on

the workers’ behalf. 59

Th ey are found in many industrial and business occupations, as well as

among public-sector employees including teachers, police offi cers, fi refi ghters, and govern-

ment workers. Unions have historically played an important role in American society.

Although they often are associated with wage and benefi t issues, workers also join unions

because of things like poor relationships with supervisors, favoritism or lack of respect by

supervisors, little or no infl uence with employers, and failure of employers to provide a

mechanism for grievance and dispute resolution. 60

Th e National Labor Relations Act of 1935 (known as the Wagner Act) protects employees

by recognizing their right to join unions and engage in union activities. It is enforced by

the National Labor Relations Board (NLRB). Th e Taft-Hartley Act of 1947 protects employers

from unfair labor practices by unions and allows workers to decertify unions. And, the Civil

Service Reform Act of 1978 clarifi es the right of government employees to join and to be

represented by labor unions.

Although union membership has been on the decline in the United States, dropping from

20.1% in 1983 to just under 12% in 2013, unions have historically had a signifi cant impact on the

lives of the majority of American citizens. Notable accomplishments attributed to unions

include (1) the "weekend," which emerged from the Fair Labor Standards Act of 1938, a federal

standard for a shorter workweek and leisure time; (2) an end to child labor, which had been

normative in the United States until 1938 with the fi rst passage of federal legislation regulating

child labor; (3) employer-based health care, which emerged in the 1950s; and (4) the Family

Medical Leave Act, which provides for job-protected leave for employees to care for infants or a

family member with an illness. 61

Notwithstanding the downward membership trend, unions

remain an important force in the workplace. 62

Th ey serve as a collective “voice” for their mem-

bers and act as bargaining agents to negotiate labor contracts with employers. Th ese contracts

specify the rights and obligations of employees and management with respect to wages, work

hours, work rules, seniority, hiring, grievances, and other conditions of employment. Th ey are

developed through collective bargaining, the process through which labor and management

representatives negotiate, administer, and interpret labor contracts. It typically involves face-to-

face meetings between labor and management representatives. During this time, a variety of

demands, proposals, and counterproposals are exchanged. Several rounds of bargaining may be

required before a contract is reached or a dispute over a contract issue is resolved.

As you might expect, the collective bargaining process is time-consuming and expensive,

and it can lead to problems. When negotiations break down and labor–management relations

take on an adversarial character, the confl ict can be prolonged and extremely costly for both

sides. Th is happens primarily when labor and management view each other as “win–lose”

adversaries. In these situations the collective bargaining becomes more of a battle than a

constructive dialogue. Th e ideal process, by contrast, is characterized by a mutual “win–win”

approach with a focus on achieving benefi ts to labor in terms of fair treatment and to man-

agement in terms of workforce quality.

Wrongful discharge is a doctrine

giving workers legal protections against

discriminatory fi rings.

A labor union is an organization that

deals with employers on the workers’

collective behalf.

A labor contract is a formal agreement

between a union and an employer about

the terms of work for union members.

Collective bargaining is the process

of negotiating, administering, and

interpreting a labor contract.

Learning Check 4

TAKEAWAYQUESTION 4 How do organizations maintain a quality workforce?

BE SURE YOU CAN • defi ne work–life balance • explain why compensation and benefi ts are important elements in human

resource management • explain potential benefi ts and problems for merit pay plans • diff erentiate among bonuses, profi t

sharing, and stock options • defi ne fl exible benefi ts plans and discuss their advantages • defi ne labor union and collective bargaining

312 CHAPTER 13 ■ Human Resource Management

Summary

TAKEAWAYQUESTION 1 What is human resource management?

• The human resource management process involves attracting, developing, and maintaining a quality workforce.

• Human resource management becomes strategic when it is integrated into the organization’s strategic management process.

• Employees have legal protections against employment discrimination; equal employment opportunity requires that employment and advancement decisions be made without discrimination.

• Current legal issues in human resource management include sexual harassment, comparable worth, rights of independent contractors, and employee privacy.

FOR DISCUSSION What gaps in legal protections against employment discrimination still exist?

TAKEAWAYQUESTION 2 How do organizations attract a quality workforce?

• Human resource planning analyzes staffi ng needs and identifi es actions to fi ll these needs over time.

• Recruitment is the process of attracting qualifi ed job candidates to fi ll positions.

• Realistic job previews provide candidates with both positive and negative information about the job and organization.

• Selection involves gathering and assessing information about job candidates and making decisions about whom to hire.

• The selection process often involves screening applicants for qualifi cations, interviewing applicants, administering employment tests, and doing preemployment checks.

FOR DISCUSSION Is it realistic to expect that when interviewing with a potential employer you will get a “realistic” job preview?

TAKEAWAYQUESTION 3 How do organizations develop a quality workforce?

• Orientation is the process of formally introducing new employees to their jobs, performance expectations, and the organization.

• On-the-job training includes job rotation, coaching, modeling, and mentoring; off-the-job training includes approaches like management development programs.

• Performance appraisal serves both evaluation and development purposes.

• Common performance appraisal methods focus on evaluating employees’ traits, behaviors, or performance achievements.

FOR DISCUSSION What are the potential downsides to using 360-degree feedback in the performance review process?

TAKEAWAYQUESTION 4 How do organizations maintain a quality workforce?

• Complex demands of job and family responsibilities have made work–life balance programs increasingly important in human resource management.

• Compensation and benefi ts packages must be attractive so that an organization stays competitive in labor markets.

• Merit pay plans link compensation and performance; bonuses, profi t sharing, and stock options are also forms of incentive compensation.

• Retention decisions in human resource management involve promotions, retirements, and/or terminations.

• The collective bargaining process and labor–management relations are carefully governed by law.

FOR DISCUSSION What creative options can employers offer to attract and retain motivated lower-wage employees?

Management Learning Review Get Prepared for Quizzes and Exams

313Self-Test 13

Multiple-ChoiceQuestions 1. Human resource management is the process of

__________, developing, and maintaining a high-quality workforce. (a) attracting (c) appraising (b) compensating (d) training

2. __________ programs are designed to ensure equal employment opportunities for persons historically underrepresented in the workforce. (a) Realistic recruiting (b) External recruiting (c) Affi rmative action (d) Employee assistance

3. The Age Discrimination in Employment Act prohibits discrimination against persons __________. (a) 40 years and older (b) 50 years and older (c) 65 years and older (d) of any age

4. __________ is the idea that jobs that are similar in terms of their importance to the organization should be compensated at the same level. (a) Affi rmative action (b) Realistic pay (c) Merit pay (d) Comparable worth

5. A __________ is a criterion that can be legally justifi ed for use in screening candidates for employment. (a) job description (b) bona fi de occupational qualifi cation (c) job specifi cation (d) BARS

6. The fi rst step in strategic human resource management is to __________. (a) forecast human resource needs (b) forecast labor supplies (c) assess the existing workforce (d) review organizational mission, objectives, and

strategies

7. In human resource planning, a(n) __________ is used to determine exactly what is done in an existing job. (a) critical-incident technique (b) assessment center (c) job analysis (d) multiperson comparison

8. If an employment test yields different results over time when taken by the same person, it lacks __________; if it bears no relation to actual job performance, it lacks __________. (a) equity, reliability (b) specifi city, equity (c) realism, idealism (d) reliability, validity

9. Which phrase is most consistent with a recruiter offering a job candidate a realistic job preview? (a) “There are just no downsides to this job.” (b) “No organization is as good as this one.” (c) “There just aren’t any negatives.” (d) “Let me tell you what you might not like once you

start work.”

10. Socialization of newcomers occurs during the __________ step of the staffi ng process. (a) recruiting (c) selecting (b) orientation (d) training

11. The __________ purpose of performance appraisal is being addressed when a manager describes training options that might help an employee improve future performance. (a) development (c) judgment (b) evaluation (d) legal

12. When a team leader is required to rate 10% of team members as “superior,” 80% as “good,” and 10% as “unacceptable” for their performance on a project, this is an example of the __________ approach to performance appraisal. (a) graphic (b) forced distribution (c) behaviorally anchored rating scale (d) realistic

13. An employee with domestic problems due to substance abuse would be pleased to learn that his employer had a(n) __________ plan to help on such matters. (a) employee assistance (b) cafeteria benefi ts (c) comparable worth (d) collective bargaining

14. Whereas bonus plans pay employees for special accomplishments, gain-sharing plans reward them for __________. (a) helping to increase social responsibility (b) regular attendance (c) positive work attitudes (d) contributing to cost reductions

15. In labor–management relations, the process of negotiating, administering, and interpreting a labor contract is known as __________. (a) arbitration (c) reconciliation (b) mediation (d) collective bargaining

Short-ResponseQuestions 16. What are the different advantages of internal and

external recruitment?

17. Why is orientation an important part of the human resource management process?

Self-Test 13

314 CHAPTER 13 ■ Human Resource Management

18. Why is a BARS potentially superior to a graphic rating scale for use in performance appraisals?

19. How does mentoring work as a form of on-the-job training?

EssayQuestion 20. Sy Smith is not doing well in his job. The problems began

to appear shortly after Sy’s job was changed from a manual to computer-based operation. He has tried hard

but is just not doing well in learning to use the computer; as a result, he is having diffi culty meeting performance expectations. As a 55-year-old employee with over 30 years with the company, Sy is both popular and infl uential among his work peers. Along with his performance problems, you have also noticed that Sy seems to be developing a more negative attitude toward his job. As Sy’s manager, what options would you consider in terms of dealing with the issue of his retention in the job and in the company? What would you do, and why?

Evaluate Career Situations

What Would You Do?

1. Tatoos in the Offi ce

A co-worker has come to you with a problem. He has tattoo

“sleeves” on both arms that extend to the wrists. Even in a

long-sleeved shirt they are diffi cult to cover. He’s upset be-

cause he learned that someone else got the promotion he had

been hoping for. Everyone respects his high performance,

diligence, and loyalty to the company. But it’s also common

knowledge that the boss “doesn’t like tattoos.” What advice

can you give to your colleague about handling the current sit-

uation regarding the lost promotion? What advice, if any, can

you off er about having both a career and tattoos?

2. Bad Appraisal System

As the new head of retail merchandising at a local depart-

ment store, you are disappointed to fi nd that the sales associ-

ates are evaluated on a graphic rating scale that uses a simple

list of traits to gauge their performance. You believe that bet-

ter alternatives are available, ones that will not only meet the

employer’s needs but also be helpful to the sales associates

themselves. After raising this issue with your boss, she says

“Fine, I hear you. Give me a good proposal and I’ll take it to

the store manager for approval.” What will you propose, and

how will you justify it as being good for both the sales associ-

ates and the boss?

3. Th e Union Wants In

Th ere’s a drive to organize the faculty of your institution and

have them represented by a union. Th e student leaders on cam-

pus are holding a forum to gather opinions on the pros and cons

of a unionized faculty. Because you represent a popular student

organization in your college, you are asked to participate in the

forum. You are expected to speak for about 3 minutes in front

of the other student leaders. So, are you for or against faculty

unionization? What will you say at the forum, and why?

Refl ect on the

Self-Assessment

Performance Assessment

Assumptions

Instructions In each of the following pairs, check the statement that best

refl ects your assumptions about performance assessment and

appraisal. 63

Performance assessment is:

1. (a) a formal process that should be done annually.

(b) an informal process should be done continuously.

2. (a) a process best planned for the person being assessed.

(b) a process best planned with the person being assessed.

3. (a) done as an organizational requirement.

(b) done regardless of organizational requirements.

4. (a) a time for team leaders to evaluate performance of team

members.

(b) a time for team members to evaluate their team leaders.

5. (a) a time to clarify performance standards for a worker.

(b) a time to clarify the a worker’s career needs.

6. (a) a time to confront poor performance.

(b) a time to express appreciation.

7. (a) an opportunity to improve direction and control.

(b) an opportunity to increase enthusiasm and commitment.

8. (a) only as good as the organization’s procedures for it.

(b) only as good as the manager’s coaching skills.

Scoring Th ere is no formal scoring for this assessment, but if you look

carefully and think through your answers there may be a pattern

worth thinking more about.

ManagementSkills& Competencies Make yourself valuable!

315Analyze the Case Study

Interpretation Th e “a” responses represent a more traditional approach to

performance appraisal that emphasizes its evaluation function.

Th is role largely puts the supervisor in the role of documenting a

subordinate’s performance for control and administrative pur-

poses. Th e “b” responses represent more emphasis on the coun-

seling or development role. Here, the supervisor is concerned

with helping the subordinate perform better and learn how he

or she might be of help.

Contribute to the

Class Exercise

Upward Appraisal

Instructions Form into work groups as assigned by the instructor. After the

instructor leaves the room, complete the following tasks. 64

1. Create a master list of comments, problems, issues, and

concerns about the course experience to date that members

would like to communicate to the instructor.

2. Select one person from the group to act as the spokesperson

who will give your feedback to the instructor when he or she

returns to the classroom.

3. Th e spokespersons should meet to rearrange the room

(placement of tables, chairs, etc.) for the feedback session. Th is

arrangement should allow the spokespersons and instructor

to communicate in view of the other class members.

4. While spokespersons are meeting, group members should

discuss what they expect to observe during the feedback

session.

5. Th e instructor should be invited in; spokespersons should

deliver feedback while observers make notes.

6. After the feedback session is complete, the instructor will call

on observers for comments, ask the spokespersons for their

reactions, and engage the class in general discussion about

the exercise and its implications.

Manage a Critical Incident

Athletic Director’s Dilemma

You are the athletic director at a large private university with

a highly comprehensive, highly competitive intercollegiate

athletics program. Every year the football team is ranked in

the top 25 and is always in the hunt for an NCAA Division I

national championship. Th e football team captain at your uni-

versity has just been in your offi ce. He presented you with a

petition signed by 70% of the players that requests permission

to start the process leading to unionization. Th e players aren’t

asking to be paid, but they believe it is in their best interests to

have union protection when it comes to their physical well-being,

academic progress, and fi nancial aff airs. Since you are at a pri-

vate university, the players are within their rights and can

speak with unions such as the National College Players Asso-

ciation about representing them. Th e next step in the process

will be for the players to distribute formal “union cards” for

signatures. If at least 30% sign the cards, they could ask the

National Labor Relations Board to endorse their request to

unionize. Th is is a complete surprise to you.

Questions You have to contact the university president, but you want to

be well prepared. What notes will you make about on goals,

critical issues, possible outcomes, and stakeholders in this

situation? What will be on your list of possible recommenda-

tions? What will be your preferred course of action, and why?

Collaborate on the

Team Activity

Future of Labor Unions

Question: What is the future for labor unions in America?

Instructions 1. Perform library research to identify trends in labor union

membership in the United States.

2. Analyze the trends to identify industries and settings where

unions are gaining and losing strength. Develop possible

explanations for your fi ndings.

3. Talk with members of labor unions—friends, family, commu-

nity members—to gather their viewpoints on the benefi ts of

unions and issues aff ecting the future of unions in the United

States.

4. Talk with managers in diff erent types of organizations to get

their views on unions, how they work, and the advantages

and disadvantages they present to management.

5. Consider examining data on labor union trends in other

countries.

6. Prepare a report that uses the results of your research to

answer the project question.

AnalyzeTHE CaseStudy

TWO-TIER WAGES

Same Job, Different Pay Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

“I have a dream,” said Dr. Martin Luther King, Jr., and his voice has traveled from the steps of the Lincoln Memorial in Washington, D.C., on August 28, 1963, across generations. Like other visionary leaders, Dr. King communicated shared dreams and inspired others to pursue lofty goals.

Flip Schulke/Corbis

Leading and

Leadership

Development A leader lives in each of us

14 C H A P T E R Q U I C K STA RT

“Leadership” is one of those words that we hear and use all the time but may rarely

stop to think much about. In fact, leadership is a very complicated process that

demands a great deal from leaders and followers alike, and requires lots of back-

ground understanding and personal insight. Th is review of the research founda-

tions of leadership and its implications for leadership development can help you

build skills and reach your full leadership potential.

Key Takeaways

■ Defi ne leadership and

explain its foundations in

power, vision, and service.

■ Identify key leader

behaviors that impact

leadership eff ectiveness.

■ Identify major

contingencies that impact

leadership eff ectiveness.

■ Understand the challenges

of personal leadership

development.

317

MANAGEMENT IS REAL

MAKE DATA YOUR FRIEND Followers Report Shortcomings of Leaders

THINK BEFORE YOU ACT

Sometimes “No” May Be Your Best Answer

KNOW RIGHT FROM WRONG

A Step over the Line into Community Service

LEARN ABOUT YOURSELF

There’s No Substitute for Integrity

LEARN FROM ROLE MODELS

Educator Turns Leadership Vision into Inspiration

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Least-Preferred Co-worker Scale

■ CONTRIBUTE To the Class Exercise: Most Needed Leadership Skills

■ MANAGE A Critical Incident: Playing Favorites as a Team Leader

■ COLLABORATE On the Team Activity: Leadership Believe-It-or-Not

■ ANALYZE Th e Case Study: Zappos: They Do It with Humor

what to look for inside >

318 CHAPTER 14 ■ Leading and Leadership Development

A glance at the shelves in your local bookstore will quickly confi rm that

“leadership” is one of the most popular topics in the fi eld of manage-

ment. Th e consensus is that leaders become great by bringing out the best in

the people who follow them. As the late Grace Hopper, management expert

and the fi rst female admiral in the United States Navy, once said: “You man-

age things; you lead people.” 1 Leadership scholar and consultant Barry Posner

believes, “Th e present moment is the domain of managers. Th e future is the

domain of leaders.” 2 Consultant and author Tom Peters claims the leader is

“rarely—possibly never?—the best performer.” 3 All seem to agree that leaders

thrive through and from the successes of others.

Although the leadership message seems clear, the task of leading isn’t easy.

Managers and team leaders often face daunting responsibilities. Resources

can be scarce and performance expectations high. Time frames for getting

things accomplished can be short, while problems to be resolved are com-

plex, ambiguous, and multidimensional. 4 It takes high self-awareness and

hard work to be a great leader. Th ere are many challenges to be mastered on

the pathways toward leadership success at work, in our communities, and at

home with families and loved ones. Th is chapter off ers an opportunity to fi nd

out more about the leader who resides in you.

Th e Nature of Leadership TAKEAWAY 1 What is the nature of leadership?

Leadership and power • Leadership and vision • Leadership and service Leadership and followership

It helps to think of leadership as the process of inspiring others to work hard to accomplish

important tasks. 5 As shown in Figure 14.1, it also is one of the four functions that constitute

the management process. Planning sets the direction and objectives; organizing brings

together resources to turn plans into action; leading builds the commitments and enthusi-

asm for people to apply their talents to help accomplish plans; and controlling makes sure

plans turn out right.

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ABOUT

Leadership is the process of inspiring

others to work hard to accomplish

important tasks.

ThThThThee NNNaatturrre ooff LLeaaaaddershiiippTh

Planning—

Leading— to inspire effort

to set the direction Controlling—

to ensure results

• Communicate the vision • Build enthusiasm • Motivate commitment, hard work

Organizing— to create structures

FIGURE 14.1 Leading viewed in relationship to the other management functions.

319Th e Nature of Leadership

Leadership and Power

Leadership success begins with the ways we use power to infl uence the behavior of other

people. Harvard professor Rosabeth Moss Kanter once called power “America’s last great

dirty word.” 6 She was concerned that too many people, including managers, are uncom-

fortable with the concept of power. Th ey don’t realize how critical it is for leadership.

Power is the ability to get others to do something you want done, or to make things

happen the way you want. Th e “positive” face of power is that it is the foundation of eff ec-

tive leadership. Th is means using power not with the desire to infl uence others for the

sake of personal satisfaction, but for the good of the group or organization as a whole. 7

Th eoretically, anyone in a managerial position—team leader, department head,

supervisor—has power, but how well it is used varies from person to person. Leaders gain

power both from the position they hold and from their personal qualities. 8 You can remember

this as an equation: Managerial Power 5 Position Power 1 Personal Power. Th e three bases of position power are reward power, coercive power, and legitimate power; three important

bases of personal power are expertise, information and networking, and referent power.

Position Power When it comes to the position of being a manager, reward power is the ability to infl uence

through rewards. It is the capacity to off er something of value—a positive outcome—as a way

to infl uence others’ behavior. Th is involves use of incentives such as pay raises, bonuses, promo-

tions, special assignments, and verbal or written compliments. In mobilizing reward power, a

manager says, in eff ect: “If you do what I ask, I’ll reward you.” As you might expect, this approach

works as long as people want the reward and the manager/leader makes it continuously avail-

able. But take the value of the reward or the reward itself away, and the power is quickly lost.

Coercive power is the ability to achieve infl uence through punish-

ment. It is the capacity to punish or withhold positive outcomes to

infl uence others’ behavior. A manager may attempt to coerce by threat-

ening with verbal reprimands, pay penalties, and even termination. In

mobilizing coercive power, a manager says, in eff ect: “If you don’t do

what I want, I’ll punish you.” How would you feel if threatened in these

ways? If you’re like most people, you’ll resent both the threat and the

person making it. You might do what you’re told or at least go through

the motions. But, you’re unlikely to continue once the threat is gone.

Legitimate power is the ability to infl uence through authority. It is

the right to exercise control by virtue of organizational position or sta-

tus. In mobilizing legitimate power, a manager says, in eff ect: “I am the boss; therefore, you

need to do what I ask.” When your instructor assigns homework, exams, and team projects,

most often you do what the instructor requested. Why? You do it because the requests seem

legitimate in the context of the course. But if the instructor moves outside of the boundaries

of the course, such as telling you to attend a campus sports event, the legitimacy is lost and

you are much less likely to comply.

Personal Power After all is said and done, position power alone isn’t suffi cient for any manager. It’s very often

the amount of personal power you can mobilize through expertise and reference that makes

the diff erence between success and failure in a leadership situation, and even in your career.

Expert power is the ability to achieve infl uence through special skills, knowledge, and

reputation. It is the capacity to infl uence others’ behavior because of expertise and a high-

performance reputation. When a manager uses expert power, the implied message is one of

credibility: “You should do what I want because of what I know and what I have accomplished.”

Th is expertise is part of our human capital, which is the ability to get things done based on

what we know and can do. It can be earned from credentials, experience, and visible perfor-

mance achievements. But, it has to be maintained by protecting credibility, not overstepping

boundaries or pretending to expertise that isn’t really there. Although some people, such as

Power is the ability to get others to do

something you want done or to make

things happen the way you want.

Expert power is the capacity to

infl uence others’ because of specialized

knowledge.

Human capital is the ability to get

things done based on what we know

and can do.

Power of the POSITION: Based on things managers can offer to others.

Rewards: “If you do what I ask, I’ll give you a reward.”

Coercion: “If you don’t do what I ask, I’ll punish you.”

Legitimacy: “Because I am the boss; you must do as I ask.”

Legitimate power is the capacity to

infl uence others by virtue of formal

authority, or the rights of offi ce.

Reward power is the capacity to

off er something of value as a means

of infl uencing other people.

Coercive power is the capacity to

punish or withhold positive outcomes

as a means of infl uencing other people.

320 CHAPTER 14 ■ Leading and Leadership Development

medical doctors and attorneys, are granted at least temporary expertise due to credentials,

they can quickly lose it through mistakes and bad behavior. Most of us acquire expertise one

step at a time. Gaining it, in fact, may be among of your biggest early career challenges.

Information and networking power is the ability to achieve infl uence through access to

information and contacts with other people. 9 It is the capacity to infl uence others due to

centrality in information fl ows and social networks, and as a result of being trusted as a cred-

ible information source and reliable networking partner. When a manager uses information

and networking power, the implied message is: “I have access to information and people, I can

get things done.” Th is power is linked to the informal structures and social networks—both

interpersonal and media driven—that give life to day-to-day organizational dynamics. It is

part of what is called social capital, the ability to get things done based on who you know.

Referent power is the ability to achieve infl uence through identifi ca-

tion. It is the capacity to infl uence others’ behavior because of their

admiration and their desire for positive identifi cation with you. Referent

power derives from charisma or interpersonal attractiveness. When a

manager uses referent power, the implied message is: “You should do

what I want in order to maintain a positive, self-defi ned relationship

with me.” It’s helpful to view referent power as something that can be

developed and maintained through good interpersonal relationships

that encourage others’ admiration and respect. It is a lot easier to get

others to do what you want when they like you than when they don’t.

Leadership and Vision

“Great leaders,” it is said, “get extraordinary things done in organizations by inspiring and

motivating others toward a common purpose.” 10

Th eir power is enhanced by their ability to

communicate a compelling vision—a hoped-for future that if achieved will improve on the

present state of aff airs. But simply talking up a vision isn’t enough. Truly exceptional leaders

excel at transforming their vision into accomplishments.

Th e term visionary leadership describes the behaviors of leaders who off er a clear and

compelling sense of the future, as well as an understanding of the actions needed to get

there successfully. 11

Th is means having a clear vision, communicating the vision, and getting

people motivated and inspired to pursue the vision in their daily work. Th ink of it this way.

Visionary leadership gives meaning to people’s work; it makes what they do seem worth-

while and valuable. Noted educational leader Lorraine Monroe says: “Th e job of a good

leader is to articulate a vision that others are inspired to follow.” 12

Her views match those of

the late John Wooden, member of the college basketball hall of fame and coach of 10 NCAA

Division I men’s national championship teams at UCLA. Wooden once said: “Eff ective lead-

ership means having a lot of people working toward a common goal.” If you can achieve that

with no one caring who gets the credit, you’re going to accomplish a lot. 13

Vision is a clear sense of the future.

Visionary leadership brings to the

situation a clear sense of the future and

an understanding of how to get there.

Power of the PERSON: Based on how managers are viewed by others.

Expertise—as a source of special knowledge and information.

Reference—as a person with whom others like to identify.

Power: Why Some People Have It and Others Don’t (HarperBusiness, 2010)

by Jeffrey Pfeffer According to Jeff rey Pfeff er, there’s no doubt about it. Power plays a major role in career

success, salary level, and job performance. He claims that it can even positively aff ect life

span. With power as the engine that helps people accomplish both personal and professional

social goals, it’s something to be cultivated—not avoided. Pfeff er believes that people in

organizations need to be politically savvy, know key power centers, and be diligent and adept

at getting resources and making decisions. Focus, energy, and ambition are desirable personal

qualities for power seekers. But raw intelligence, says Pfeff er, is no guarantee of power.

RecommendedReading

E ric

R is

b er

g /©

A P/

W id

e W

o rld

P ho

to s

Information and networking power

is the ability to infl uence others through

access to information and contacts with

other people.

Social capital is the ability to get things

done because of who you know.

Referent power is the capacity to

infl uence other people because of their

desire to identify personally with you.

321Th e Nature of Leadership

Leadership and Service

Institutions function better when the idea, the dream, is to the fore, and the person, the leader,

is seen as servant to the dream.

—Robert Greenleaf of the Greenleaf Center for Servant Leadership 14

The real leader is a servant of the people she leads. A really great boss is not afraid to

hire smart people. You want people who are smart about things you are not smart

about.

—Lorraine Monroe of the Monroe Leadership Institute 15

When thinking about leadership, power, and vision, it is critical to remember personal

integrity as described in the chapter opener. According to Peter Drucker, the concept of

“service” is central to integrity, and leaders who have integrity act as “servants of the organi-

zation.” 16

More and more today you’ll hear conversations about servant leadership that

is based on serving others and helping them fully use their talents so that organizations

benefi t society. 17

Ask this question: Who is most, the leader or the followers? For those who

believe in servant leadership the correct answer clear—the followers. A servant leader is

“other-centered” and not “self-centered.”

When servant leaders shift the focus away from themselves and toward others, what hap-

pens? Th e answer is empowerment. Th is is the process of allowing others to exercise power

Servant leadership is follower-centered

and committed to helping others in their

work.

Empowerment enables others to gain

and use decision-making power.

Th rough her experiences, Monroe formed a set of beliefs cen-

tered on a leader being vision-driven and follower-centered. Th ey

are summarized in what is called the “Monroe Doctrine.” It begins

with this advice: Th e job of the leader is to uplift her people—not

just as members of and contributors to the organization, but as

individuals of infi nite worth in their own right. “We can reform

society,“ she says, “only if every place we live—every school, work-

place, church, and family—becomes a site of reform.”

Monroe believes leaders must always start at the “heart of the

matter” and that “the job of a good leader is to articulate a vision

that others are inspired to follow.” She also believes in ensuring

that all workers know they are valued, that their advice is wel-

come, and that workers and managers should always try to help

and support one another. “I have never undertaken any project,”

she says, “without fi rst imagining on paper what it would ulti-

mately look like. . . . All the doers who would be responsible for

carrying out my imaginings have to be informed and let in on

the dream.”

FIND THE INSPIRATION

Is visionary leadership something that works only at the very top of organizations? Should the leader of a work team also have a vision? What about this notion that leaders should be follower centered? Does that mean that followers get to determine what gets done and when? What are the lessons of the Monroe Doc- trine for everyday leaders at all levels in organizations of all types and sizes? How could this doctrine serve you?

wisdom> LEARN FROM ROLE MODELS > “The job of the leader is to uplift her people . . . as individuals of infi nite worth. . . .”

Educator Turns Leadership Vision into Inspiration

Dr. Lorraine Monroe’s career in the New York City public schools began as a teacher. She went on to serve as assistant principal, principal, and vice-chancellor for curriculum and in-

struction. She then founded the Frederick Douglass Academy, a

public school in Harlem, where she grew up. Like its namesake, an

escaped slave who later became a prominent abolitionist and civil

rights leader, the school became highly respected for educational

excellence.

322 CHAPTER 14 ■ Leading and Leadership Development

and achieve organizational infl uence. Servant leaders realize that power is not a “zero-sum”

quantity. Th ey reject the idea that in order for someone to gain power, another has to give it up. 18

Th ey empower others by providing them with the information, responsibility, authority, and

trust to make decisions and act independently. Th ey also expect that people who are empow-

ered will work hard so that the organization is better equipped to pursue its cause or mission.

Leadership and Followership

Th e discussion of servant leadership and empowerment is a nice transition into the subject

of “followership.” What roles do followers play in leadership? How do followers infl uence

leadership success and failure? Do follower perceptions and expectations of eff ective leader-

ship vary in discoverable ways? Th ese are but a few of the questions that leaders and follow-

ers alike should be asking in teams and organizations.

If leadership is the act of inspiration, followership is the act of joining with a leader to

accomplish tasks and goals. 19

Th e work of scholar Mary Uhl-Bien and others strongly sug-

gests that the emphasis in this defi nition should be on the word “joining.” Th ey view leader-

ship as something that is “co-produced” by leaders and followers, rather than being a

singular result of a leader’s actions alone. Th ey criticize tendencies toward the romance of

leadership and the subordination of followership, which together create situations where

leaders get credit for accomplishments and the contributions of followers get overlooked. 20

In research on followership, the perceptions of both leaders and followers are of interest.

Some followers, for example, tend to see themselves as passive players whose job it is to obey

and take little responsibility for shared leadership. Th ey are comfortable being told what to do

and may get stressed and uncomfortable with a leader who emphasizes empowerment and

independence. Other followers may see themselves as proactive partners with responsibility to

make real leadership contributions. Th ey are likely to be unhappy in a top-down leadership cli-

mate, but act energized and motivated in a shared leadership climate. From an empowering

leader’s perspective, followers tend to get high ratings for showing initiative, enthusiasm, and

loyalty, and get low ratings for showing incompetence and conformity. 21

Followership is the act of joining with a

leader to accomplish tasks and goals.

Learning Check 1

TAKEAWAYQUESTION 1 What is the nature of leadership?

BE SURE YOU CAN • defi ne power • illustrate three types of position power and discuss how managers use each • illustrate

three types of personal power and discuss how managers use each • defi ne vision • explain the concept of visionary leadership

• explain the notion and benefi ts of servant leadership • defi ne empowerment and followership • explain the “romance of

leadership” and “subordination of followership”

Leadership Traits and Behaviors TAKEAWAY 2 What are the important leadership traits and behaviors?

Leadership traits • Leadership behaviors • Classic leadership styles

Societies have recognized for centuries that while some people do really well as leaders, others do

not. Th e question still debated is: “Why?” Historically, the answer has been sought by studying

leader traits, behaviors, and situational contingencies. Although they diff er in how leadership

eff ectiveness is explained, each approach still off ers useful insights on leadership development.

Leadership Traits

Question—What personal traits and characteristics are associated with leadership success?

An early direction in leadership research involved the search for universal traits or distin-

guishing personal characteristics that separate eff ective from ineff ective leaders. 22

Some-

times called the “great person theory,” the results from many years of research in this

direction can be summarized as follows.

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LLLeeaaddeersshiiip TTrraaitss aanddd BBeehhavvvioorrsL

323Leadership Traits and Behaviors

Physical characteristics such as a person’s height, weight, and physique make no diff er-

ence in determining leadership success. On the other hand, certain personal traits are com-

mon among the best leaders. A study of more than 3,400 managers, for example, revealed

that followers tend to consistently admire leaders who are honest, competent, forward look-

ing, inspiring, and credible. 23

A comprehensive review by Shelley Kirkpatrick and Edwin

Locke identifi es these personal traits of many successful leaders: 24

• Drive—Successful leaders have high energy, display initiative, and are tenacious.

• Self-confi dence—Successful leaders trust themselves and have confi dence in their abilities.

• Creativity—Successful leaders are creative and original in their thinking.

• Cognitive ability—Successful leaders have the intelligence to integrate and interpret

information.

• Job-relevant knowledge—Successful leaders know their industry and its technical

foundations.

• Motivation—Successful leaders enjoy infl uencing others to achieve shared goals.

• Flexibility—Successful leaders adapt to fi t the needs of followers and the demands of

situations.

• Honesty and integrity—Successful leaders are trustworthy, honest, predictable, and

dependable.

Leadership Behaviors

Question—How is leadership success aff ected by the ways leaders behave when engaging with

followers?

After the early trait studies, researchers turned their attention to the issue of how leaders

behave when dealing with followers. 25

If the most eff ective behaviors could be identifi ed,

they reasoned, then it would be possible to train leaders to become skilled at using these

behaviors.

Harris Interactive periodically conducts surveys of workers’ attitudes toward their jobs and employers. Th e results for “leaders” and “top managers” reveal some surprising shortcomings:

■ 37% believe their top managers display integrity and morality.

■ 39% believe leaders most often act in the best interest of the

organization.

■ 22% see leaders as ready to admit mistakes.

■ 46% believe their organizations give them freedom to do their

jobs.

■ 25% of women and 16% of men believe their organizations pick

the best people for leadership.

■ 33% of managers are perceived by followers as “strong leaders.”

YOUR THOUGHTS?

How do the leaders you have had experience with stack up? Which ones rate as strong or weak, or as moral or immoral? How would you describe your best leader and his or her impact on you? What makes the greatest difference in the ways leaders are viewed by followers?

analysis> MAKE DATA YOUR FRIEND > Only 37% of workers in a Harris survey believe leaders display “integrity and morality.”

Followers Report Shortcomings of Leaders

Anderson Ross/Blend/Getty Images

Personal leadership traits

324 CHAPTER 14 ■ Leading and Leadership Development

A stream of research that began in the 1940s, spearheaded by studies at Ohio State Uni-

versity and the University of Michigan, focused attention on two dimensions of leadership

behavior: (1) concern for the task to be accomplished, and (2) concern for the people doing

the work. Th e Ohio State studies used the terms initiating structure and consideration for the

respective dimensions; the University of Michigan studies called them production-centered

and employee-centered. 26

Regardless of the terminology used, the characteristics of each

dimension of leadership behavior were quite clear.

• A leader high in concern for task—plans and defi nes the work to be done, assigns task

responsibilities, sets clear work standards, urges task completion, and monitors perfor-

mance results.

• A leader high in concern for people—acts with warmth and supportiveness toward fol-

lowers, maintains good social relations with them, respects their feelings, is sensitive

to their needs, and shows trust in them.

Th e results of leader behavior research at fi rst suggested that followers of people-oriented

leaders would be the most productive and satisfi ed. 27

However, researchers eventually

moved toward the high-high position that eff ective leaders were high in concerns for both

people and task. 28

Th is type of leader focuses on task accomplishments while also sharing

decisions with team members, empowering them, encouraging participation, and support-

ing teamwork.

Classic Leadership Styles

Question—How do diff erent leadership styles combine concerns for task and concerns for

people?

Work in the leader behavior tradition made it easy to talk about diff erent leadership

styles—the recurring patterns of behaviors exhibited by leaders. When people talk about

the leaders with whom they work, even today, their

vocabulary often describes classic styles of leadership

shown in Figure 14.2. 29

Th ese styles represent diff erent

combinations of concerns for task and concerns for

people in the leadership experience.

A leader identifi ed with an autocratic style empha-

sizes task over people, retains authority and informa-

tion, and acts in a unilateral, command-and-control

fashion. A leader with a human relations style does

just the opposite and emphasizes people over task.

A leader with a laissez-faire style shows little concern

for the task, lets the group make decisions, and acts

with a “do the best you can and don’t bother me” atti-

tude. A leader with a democratic style, the “high-high”

team manager, is committed to both task and people.

Th is leader tries to get things done while sharing infor-

mation, encouraging participation in decision making,

and otherwise helping others develop their skills and

capabilities.

An autocratic leader acts in a

command-and-control fashion.

A human relations leader emphasizes

people over task.

A laissez-faire leader has a “do the best

you can and don’t bother me” attitude.

A democratic leader emphasizes both

tasks and people.

Concern for Task

HighLow

C o

n ce

rn fo

r P

eo p

High

Low

Human Relations Leader

Country Club Manager— Focuses on people’s needs,

building relationships

Laissez-Faire Leader

Impoverished Manager— Focuses on minimum effort to get work done

Democratic Leader Team Manager—

Focuses on building participation and support

for a shared purpose

Autocratic Leader Authority-Obedience

Manager— Focuses on efficiency

of tasks and operations

FIGURE 14.2 Classic leadership styles combining concerns for task

and concerns for people.

Learning Check 2

TAKEAWAYQUESTION 2 What are the important leadership traits and behaviors?

BE SURE YOU CAN • contrast the trait and leader-behavior approaches to leadership research • identify fi ve personal traits of

successful leaders • illustrate leader behaviors consistent with a high concern for task • illustrate leader behaviors consistent

with a high concern for people • describe behaviors associated with four classic leadership styles

Leadership style is a recurring pattern

of behaviors exhibited by a leader.

325Contingency Approaches to Leadership

Contingency Approaches to Leadership TAKEAWAY 3 What are the contingency approaches to leadership?

Fiedler’s contingency model • Hersey-Blanchard situational leadership model House’s path–goal leadership theory • Leader-member exchange theory Leader-participation model

Over time scholars became increasingly uncomfortable with both the trait and leader

behavior approaches. Th ey concluded that no one set of traits or behaviors or styles works

best all of the time. In response, they developed a number of contingency approaches to

explain the conditions for leadership success in diff erent situations.

Fiedler’s Contingency Model

Question—Which leadership styles work best in the diff erent types of situations that leaders face?

One of the fi rst contingency leadership models was developed by Fred Fiedler. He proposed

that good leadership depends on a match or fi t between a person’s leadership style and situ-

ational demands. 30

Fiedler viewed leadership style as part of personality and therefore as

diffi cult to change. He didn’t place much hope in trying to change styles and train leaders to

behave in new ways. Instead, he suggested that the key to success was to put existing lead-

ership styles to work in the situations where they fi t best. In order to achieve these style–

situation matches, leaders have to understand both their personal styles and the situational

strengths and weaknesses of those styles. 31

Understanding Leadership Styles and Situations Leadership style in Fiedler’s model is measured using the least-preferred co-worker scale,

known as the LPC scale, which can be found as the end-of-chapter self-assessment. It describes

tendencies to behave either as a task-motivated leader (low LPC score) or relationship- motivated

leader (high LPC score).

Leadership situations in Fiedler’s model are assessed according to the amount of control

they off er the leader. Th ree contingency variables measure situational control. Th e quality of

leader–member relations (good or poor) measures the degree to which the group supports

the leader. Th e degree of task structure (high or low) measures the extent to which task goals,

procedures, and guidelines are clearly spelled out. Th e amount of position power (strong or

weak) measures the degree to which the position gives the leader power to reward and

punish subordinates.

Figure 14.3 shows eight leadership situations that result from diff erent combinations of these

contingency variables. Th ey range from the most favorable situation of high control (good leader–

member relations, high task structure, strong in position power) to the least favorable situation of

low control (poor leader–member relations, low task structure, weak in position power).

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Th e least-preferred co-worker scale,

LPC, is used in Fiedler’s contingency

model to measure leadership style.

CCCoooonnntttiiinnnggggeeennnnnccyyyy AAAApppppppprooaccheeess tto LLLeeaddderssshhipo

High-control Situations

Moderate-control Situations

Low-control Situations

Best Fit = Task-motivated Leader

Best Fit = Relationship- motivated Leader

I III

Leader–member relations

Task structure

Position power

IV V VI VII VIIIII

Good Good Poor Poor

High Low Low High Low

Weak StrongStrong Weak WeakStrong Strong Weak

FIGURE 14.3 Predictions on style–situation fi t from

Fiedler’s contingency

leadership model.

326 CHAPTER 14 ■ Leading and Leadership Development

Matching Leadership Style and Situation Fiedler’s research showed that neither the task-oriented nor the relationship-oriented lead-

ership style was eff ective all the time. Instead, as summarized here and shown in Figure 14.3,

each style seemed to work best when used in the right situation.

• Task-motivated style—Th is leader will be most successful in either very favorable

high-control situations or very unfavorable low-control situations.

• Relationship-motivated style—Th is leader will be most successful in situations of moder-

ate control.

Consider some examples. Assume you are the leader of a team of market researchers. Th e

researchers seem highly supportive of you, and their job is clearly defi ned regarding what

needs to be done. You have the authority to evaluate their performance and to make pay and

promotion recommendations. Th is is a high-control situation consisting of good leader–

member relations, high task structure, and high position power. Figure 14.3 shows that a

task-motivated leader would be most eff ective in this situation.

Suppose now that you are the faculty chairperson of a committee asked to improve

student–faculty relationships in a university. Although the goal is clear, no one can say for

sure how to accomplish it, and task structure is low. Because the committee is voluntary and

members are free to quit any time, the chairperson has little position power. Because stu-

dent members thought that the chair should be a student rather than a faculty member,

leader–member relations are mixed. According to the fi gure, this low-control situation also

calls for a task-motivated leader.

Finally, assume that you are the new head of a fashion section in a large department store.

Because you were selected over one of the popular sales associates you now supervise,

leader–member relations are poor. Task structure is high because the associate’s job is well

defi ned. Your position power is low because associates work under a seniority system and

fi xed wage schedule. From Figure 14.3, you can see that Fiedler identifi es a relationship-

motivated leader as the best fi t for this moderate-control situation.

Hersey-Blanchard Situational Leadership Model

Question—How should leaders adjust their leadership styles according to the task readiness

of followers?

In contrast to Fiedler’s notion that leadership style is hard to change, the Hersey-Blanchard

situational leadership model suggests that successful leaders do adjust their styles. But they

do so wisely and based on the task readiness, or task maturity, of followers. 32

“Readiness,” in

this sense, refers to how able and willing or confi dent followers are performing required

tasks. Th e four leadership styles to choose from are shown in Figure 14.4 as:

• Delegating—allowing the group to take responsibility for task

decisions; a low-task, low-relationship style.

• Participating—emphasizing shared ideas and participative

decisions on task directions; a low-task, high-relationship style.

• Selling—explaining task directions in a supportive and persua-

sive way; a high-task, high-relationship style.

• Telling—giving specifi c task directions and closely supervising

work; a high-task, low-relationship style.

Th e delegating style works best in high-readiness situations

with able, willing, and confi dent followers. Th e telling style works

best at the other extreme of low readiness, where followers are unable

and unwilling, or insecure. Th e participating style is recommended

for low-to-moderate-readiness followers—able but unwilling, or

insecure. Finally, the selling style is most eff ective for moderate-to-

high-readiness followers—unable, but willing or confi dent.

Participating Share ideas

Followers able, unwilling, insecure

Selling Explain decisions

Followers unable, willing, confident

Delegating Turn over decisions

Followers able, willing, confident

Task Behavior Guidance Required

R el

at io

n sh

ip B

eh av

io r

S up

po rt

R eq

ui re

Low

High

Telling Give instructions

Followers unable, unwilling, insecure

FIGURE 14.4 Leadership impli- cations of the Hersey-Blanchard

situational leadership model.

327Contingency Approaches to Leadership

Hersey and Blanchard also believed that leadership styles should be adjusted as follow-

ers change over time. If the correct styles are used in lower-readiness situations, followers

will “mature” and grow in ability, willingness, and confi dence. Th is allows leaders to become

less directive and more participative as followers mature. Although the Hersey-Blanchard

model is intuitively appealing, limited research has been accomplished on it to date. 33

House’s Path–Goal Leadership Th eory

Question—How can leaders use alternative leadership styles to add value in diff erent types

of situations?

Th e path–goal theory advanced by Robert House seeks the right fi t between leadership style

and situation. 34

Unlike Fiedler, House believed that a leader can use all of the following lead-

ership styles and actually shift back and forth among them:

• Directive leadership—letting followers know what is expected; giving directions on what

to do and how; scheduling work to be done; maintaining defi nite performance stan-

dards; clarifying the leader’s role in the group.

• Supportive leadership—doing things to make work more pleasant; treating team mem-

bers as equals; being friendly and approachable; showing concern for the well-being of

subordinates.

• Achievement-oriented leadership—setting challenging goals; expecting the highest levels

of performance; emphasizing continuous performance improvement; displaying confi -

dence in meeting high standards.

• Participative leadership—involving team members in decision making; consulting with

them and asking for suggestions; using these suggestions when making decisions.

What if your company’s CEO is active in a local community group? It sounds great and she gets a lot of press for philan- thropy and leadership in the local Red Cross, homeless shelter, food

bank, and more. Th e company’s reputation for social responsibility

also gains from her outreach eff orts. But, fi rst thing this morning

she appeared in your offi ce and asked you to spend a good part of

the workweek helping organize a fundraising event for one of her

local charities. Caught off guard, you’ve given her a weak “okay.”

Now that you’ve had time to think a bit more about it, you’re

not sure you should comply. After all, you’ve already got a lot of top

priority work on your desk, there’s no direct connection between

the charity and the fi rm’s business, and the charity isn’t one that

you personally support.

Helping your boss with this request will obviously be good for

her. You’ll also probably benefi t from increased goodwill in your

relationship with her. However, the organization could actually

end up being worse off as your regular work slips behind schedule,

aff ecting not only you but client activities that depend on you.

Sure, you’re getting paid to do what she asks—but who benefi ts?

WHAT DO YOU THINK?

Is it ethical to help your manager in the situation just described? Are you doing a disservice to the organization’s other stakehold- ers if you go along with this request? Is it acceptable for a man- ager or team leader or top executive to ask others to help them with tasks and activities that are not directly tied to work? Just where would you draw the line on requests like these?

ethics> KNOW RIGHT FROM WRONG > The boss expects you to spend part of your workday on one of her community fundraising activities.

A Step over the Line into Community Service

Path-goal leadership styles

328 CHAPTER 14 ■ Leading and Leadership Development

Path–Goal Contingencies House’s path–goal theory suggests that the key task of any leader is to “add value” to a situa-

tion. Th ey do this by shifting among the four leadership styles in ways that contribute some-

thing that is missing or needs strengthening.

Th ey avoid redundancy by not trying to do

things that are already taken care of. When

team members are already expert and

competent at their tasks, for example, it is

unnecessary and even dysfunctional for the

leader to tell them how to do things.

Th ere is a variety of research-based

guidance on how to contingently match

path–goal leadership styles with situational

characteristics. When job assignments are

unclear, directive leadership helps to clarify

task objectives and expected rewards. When

worker self-confi dence is low, supportive

leadership can increase confi dence by emphasizing individual abilities and off ering needed

assistance. When task challenge is insuffi cient in a job, achievement-oriented leadership

helps to set goals and raise performance aspirations. When performance incentives are poor,

participative leadership might clarify individual needs and identify appropriate rewards. 35

Substitutes for Leadership Path–goal theory contributed to the recognition of what we call substitutes for leadership.

Th ese are aspects of the work setting and the people involved that reduce the need for active

leader involvement. In eff ect, substitutes provide leadership from within the situation and thus

make leadership from the outside unnecessary.

Possible substitutes for leadership include follower characteristics such as ability, expe-

rience, and independence; task characteristics such as the presence or absence of routine

and the availability of feedback; and organizational characteristics such as clarity of plans

and formalization of rules and procedures. When these substitutes for leadership are pres-

ent, managers are advised in true path–goal fashion to avoid duplicating them. Instead,

they should concentrate on making other and more important leadership contributions.

Leader–Member Exchange Th eory

Question—How do in-group and out-group dynamics infl uence leader–follower relationships?

One of the things you may have noticed is the tendency of leaders to develop “special” rela-

tionships with some team members, even to the point where not everyone is always treated

in the same way. Th is notion is central to leader–member

exchange theory, or LMX theory as it is often called. 37

Described in Figure 14.5, LMX theory recognizes that not

everyone is treated the same by leaders. People fall into “in-groups”

and “out-groups,” and the group you are in can make a big diff er-

ence in your experience with the leader. 38

In-group members

enjoy special and trusted high-exchange relationships with lead-

ers and often get special rewards, assignments, privileges, and

access to information. For a follower in the leader’s in-group, it’s

motivating and satisfying to receive such favorable treatment.

Out-group members have a low-quality exchange relationship

and may be marginalized, ignored, and receive fewer benefi ts

than in-group members with higher-quality exchange relation-

ships. For out-group members, it can be frustrating to receive

fewer rewards, less information, and little or no special attention.

Substitutes for leadership are factors

in the work setting that direct work

eff orts without the involvement of a

leader.

1. Directive leader—lets others know what is expected; gives directions,

maintains standards

2. Supportive leader—makes work more pleasant; treats others as equals, acts

friendly, shows concern

3. Achievement-oriented leader—sets challenging goals; expects high

performance, shows confi dence

4. Participative leader—involves others in decision making; asks for and uses

suggestions

Four Leadership Styles in House’s Path–goal Theory

Followers defined into “in-group”

Followers defined into “out-group”

Leader– Member

Exchange Relationships

“–” “+”

Compatibility Competency Personality

Perceptions of Followers

FIGURE 14.5 Elements of leader– member exchange (LMX) theory.

329Contingency Approaches to Leadership

Just look around. You’re likely to see examples of this in classroom situations between

instructors and certain students, and in work teams between leaders and certain team

members. Th e notion of leader in-groups and out-groups seems to make sense and corre-

sponds to working realities experienced by many people. Interestingly, research shows that

members of leaders’ in-groups get more positive performance evaluations and report higher

levels of job satisfaction. Th ey also are more loyal followers and are less prone to turnover

than are out-group members. 39

Leader-Participation Model

Question—How should leaders make decisions in diff erent types of problem situations?

Th e Vroom-Jago leader-participation model links leadership success with the use of

decision-making methods that best fi t problem situations. 40

An authority decision is made

by the leader and then communicated to the team. A consultative decision is made by the

leader after gathering information from team members either individually or as a group. A

group or team decision is made by the team either on its own or with the leader’s partici-

pation as a contributing member. 41

Figure 14.6 shows that a leader’s choice among alternative decision-making methods is

governed by three factors: (1) Decision quality—based on who has the information needed

for problem solving; (2) Decision acceptance—based on the importance of follower accep-

tance to the decision’s eventual implementation; and (3) Decision time—based on the time

available to make and implement the decision. Each decision method has advantages and

disadvantages with respect to these factors. As a consequence, eff ective leaders continu-

ally shift among the methods as they deal with daily problems and opportunities.

Authority decisions work best when leaders have the expertise needed to solve problems

and are confi dent acting alone. Th ey also work best when followers are likely to accept and

implement leader’s decisions, and when there is little or no time available for group discus-

sion. Consultative and group decisions work best when the leader lacks the expertise or

information needed to solve a problem. Th ey also work best when the problem is unclear,

follower acceptance is uncertain but necessary for implementation, and adequate time is

available.

Vroom and Jago believed that consultative and group

decisions off er special benefi ts. 42

Participation helps

improve decision quality by bringing more information to

bear on the problem. It helps improve decision acceptance

as participants gain understanding and commitment. It

also contributes to leadership development by allowing

others to gain experience in the problem-solving process.

Of course, the lost effi ciency of consultative and group

decisions is a potential negative. Participative decision

making is time consuming and leaders don’t always have

time available to involve group members in the process.

When problems must be resolved immediately, an author-

ity decision may be the only option. 43

An authority decision is made by the

leader and then communicated to the

group.

A consultative decision is made by a

leader after receiving information, ad-

vice, or opinions from group members.

A group or team decision is made by

team members.

FIGURE 14.6 Leadership implications of Vroom-Jago

leader-participation model.

Consultative decisions Group decisionsAuthority decision

LowHigh

YesNo

FollowersLeader

Time pressure for decision making?

Acceptance and commitment critical for implementation?

Who has information and expertise?

Learning Check 3

TAKEAWAYQUESTION 3 What are the contingency approaches to leadership?

BE SURE YOU CAN • contrast the leader-behavior and contingency leadership approaches • explain Fiedler’s contingency

model • identify the four leadership styles in the Hersey-Blanchard situational model • explain House’s path–goal theory

• defi ne substitutes for leadership • explain LMX theory • contrast the authority, consultative, and group decisions in the

Vroom-Jago model

330 CHAPTER 14 ■ Leading and Leadership Development

Personal Leadership Development TAKEAWAY 4 What are the challenges of personal leadership development?

Charismatic and transformational leadership

Emotional intelligence and leadership • Gender and leadership Moral leadership • Drucker’s “good old-fashioned” leadership

Th ere is no one answer to the question of what makes a particular person—say you—an eff ective

leader. And, there is always room to grow. Personal leadership development is best viewed as a

goal that you are more likely to reach if you know key leadership concepts and scholarly models.

But, success in personal leadership development also requires lots of self-awareness and a com-

mitment to continuous learning as you move from one practical experience to the next.

Charismatic and Transformational Leadership

It is popular to talk about “superleaders,” people whose vision and strong personality have

an extraordinary impact on others. 44

Dr. Martin Luther King, Jr.’s famous “I Have a Dream”

speech delivered in August 1963 on the Washington Mall is a good example. Some call peo-

ple like King charismatic leaders because of their ability to inspire others in exceptional

ways. We used to think charisma was limited to only a few lucky people. It’s now considered

one of several personal qualities—including honesty, credibility, and competence—that can

be developed with foresight and practice.

Leadership scholars James MacGregor Burns and Bernard Bass link charismatic qualities

like enthusiasm and inspiration with something called transformational leadership. 45

Th ey describe transformational leaders as using their personalities, character, and insight

to inspire followers. Th ese leaders get others so excited about their jobs and organizational

goals that these followers strive for extraordinary performance accomplishments. Indeed,

the easiest way to spot a truly transformational leader is through his or her followers. Th ey

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A charismatic leader inspires followers

in extraordinary ways.

Transformational leadership is

inspirational and arouses extraordinary

eff ort and performance.

PPPeerrsooonnaal LLLeeaaddeersshhhiip DDeevvveelooppmmmenntP

Whether you call it ethical leadership or moral leadership, the lesson is the same: Respect fl ows toward leaders who behave with integrity. If you have integrity, you’ll be honest,

credible, and consistent in all that you do. Th is seems obvious.

“Th is is what we have been taught since we were kids,” you

might say.

So, why are there so many well-publicized examples of leaders

who act without integrity? Where, so to speak, does integrity go

when some people fi nd themselves in positions of leadership?

CEO coach Kenny Moore says that our personal character gets

“revealed by how we treat those with no power.” Look closely at

how people in leadership positions treat everyday workers—

servers, technicians, custodians, and clerks, for example. Moore

says that the ways we deal with people who are powerless “brings

out our real dispositions.”

Th e “integrity line” in the fi gure marks the diff erence between

where we should and should not be. Below the line are leaders

who lie, blame others for personal mistakes, want others to fail,

and take credit for others’ ideas. Th ey’re conceited, and they’re

also selfi sh. Above the integrity line are honest, consistent, hum-

ble, and selfl ess leaders. Some call such leaders “servants” of the

organization and its members.

GET TO KNOW YOURSELF BETTER

Why is it that in the news and in everyday experience we so of- ten end up wondering where leadership integrity has gone? Ask: How often have I worked for someone who behaved below the “integrity line”? How did I feel about it, and what did I do? Write a set of notes on your behavior in situations where your own leadership integrity could be questioned. What are some of the lessons available from this experience? Who are your leadership exemplars, the ones you most admire and would like to emu- late? At this point in your life, who is the real leader in you?

insight> LEARN ABOUT YOURSELF > Our personal character gets revealed by how we treat those with no power.

Dishonest Inconsistent Conceited Selfish

Leadership and the Integrity Line

Honest Consistent Humble Selfless

Where leaders should always be

Where leaders don't want to be

There’s No Substitute for Integrity

331Personal Leadership Development

are likely to be enthusiastic about the leader, loyal, devoted to his or her ideas, and willing to

work exceptionally hard to achieve the leader’s vision.

Th e pathway to transformational leadership starts with the willingness to bring real emo-

tion to the leader–follower relationship. It involves acting with integrity and living up to the

trust of others. It requires both having a compelling vision of the future and the ability to

communicate that vision in ways that infl uence others to work hard together to achieve it.

Transformational leaders excel in part because of their strong sense of high aspiration, con-

fi dence, and contagious enthusiasm.

Emotional Intelligence and Leadership

Th e role of personality in transformational leadership relates to another area of inquiry in

leadership development—emotional intelligence. Popularized by the work of Daniel Gole-

man, emotional intelligence, or EI for short, is the ability to understand emotions in yourself

and others and use this understanding to handle social relationships eff ectively. 46

“Great lead-

ers move us,” say Goleman and his colleagues. “Great leadership works through emotions.” 47

Emotional intelligence shows up in research as an important infl uence on

leadership success, particularly in more senior management positions. In Gole-

man’s words: “the higher the rank of the person considered to be a star performer,

the more emotional intelligence capabilities showed up as the reason for his or

her eff ectiveness.” 48

Th is is a pretty strong endorsement for Goleman’s position

that not only is EI a key leadership asset; it is one that we can each develop.

Consider the four emotional intelligence competencies shown in the

fi gure. 49

A leader strong in emotional intelligence possesses self-awareness.

Th is is the ability to understand one’s own moods and emotions, and to

understand their impact on one’s own work and on others’ work. Emotion-

ally intelligent leaders are good at self-management, or self-regulation. Th is

is the ability to think before acting and to control otherwise disruptive

impulses. Emotional intelligence in leadership involves motivation and per-

sistence in being willing to work hard for reasons other than money and

status. Leaders who are high in emotional intelligence display social aware-

ness, or empathy. Th ey have the ability to understand the emotions of others and to use this

understanding to relate to them more eff ectively. A leader high in emotional intelligence is

good at relationship management. Th is is the ability to establish rapport with others and to

build social capital through relationships and informal social networks.

Gender and Leadership

When Sara Levinson was president of NFL Properties, Inc., she asked the all-male members

of her NFL management team this question: “Is my leadership style diff erent from a man’s?”

“Yes,” they replied, and even suggested that the very fact that she was asking the question

was evidence of the diff erence. Th ey said her leadership style emphasized communication

as well as gathering ideas and opinions from others. When Levinson probed further by

asking “Is this a distinctly ‘female’ trait?”, the men said they thought it was. 50

Are there gender diff erences in leadership? In pondering this question, three background

points deserve highlighting. First, social science research largely supports the gender similari-

ties hypothesis. Th at is, males and females are very similar to one another in terms of psycho-

logical properties. 51

Second, research leaves no doubt that both women and men can be equally

eff ective as leaders. 52

Th ird, research does show that men and women are sometimes perceived

as using diff erent styles, and perhaps arriving at leadership success from diff erent angles. 53

When men and women are perceived diff erently as leaders, the perceptions tend to fi t

traditional stereotypes. 54

Men may be expected to act as “take-charge” leaders who are

task-oriented, directive, and assertive while trying to get things done in traditional com-

mand-and-control ways. Women may be expected to act as “take-care” leaders who behave

in supportive and nurturing ways. Th ese stereotyped expectations can create what has been

called a leadership double bind for women. In this situation a female leader gets criticized

when displaying stereotypical male leadership characteristics and also gets criticized for

Emotional intelligence is the ability to

manage our emotions in social

relationships.

Th e gender similarities hypothesis

holds that males and females have simi-

lar psychological properties.

In the leadership double bind, women

get criticized for displaying stereotypical

male leadership characteristics and

also for displaying stereotypical female

leadership characteristics.

Motivated and persistent

High self-

awareness

Good relationship management

Good self-management

High social

awareness

The emotionally intelligent

leader

332 CHAPTER 14 ■ Leading and Leadership Development

showing female ones. In other words, the female leader can’t win when either breaking or

conforming to stereotyped expectations. 55

Studies also report favorable perceptions of female leaders. Harvard scholar Rosabeth

Moss Kanter says that “Women get high ratings on exactly those skills required to succeed in

the global information age, where teamwork and partnering are so important.” 56

For example,

female leaders have been rated by peers, subordinates, and supervisors as more participative

than male leaders and as strong on motivating others, emotional intelligence, persuading,

fostering communication, listening to others, mentoring, and supporting high-quality work. 57

In research using 360-degree assessments, female managers were rated more highly than

male managers in all but one area of leadership—visioning. Th e possible explanation was that

because women are less directive as leaders, they aren’t perceived as visionaries. 58

Th e pattern of positive leader behaviors sometimes attributed to women is called

interactive leadership. 59

Interactive leaders are democratic, participative, connecting, and

inclusive. Th ey approach problems and decisions through collaboration and teamwork, show

respect for others, and use connections to share power and information. Th ey build good

interpersonal relations through communication and involvement and have the confi dence to

seek consensus. 60

Th ey also tend to get things done more through personal power and good

interpersonal relationships than through command-and-control use of position power. 61

One of the risks in any discussion of gender and leadership is falling prey to stereotypes that

place individual men and women into leadership boxes in which they don’t necessarily belong. 62

Perhaps it would be most appropriate to set gender issues aside, accept the gender similarities

hypothesis, and focus instead on the notion of interactive leadership. Th e likelihood is that an

interactive leader is likely to be a very good fi t with the needs of today’s organizations and their

members. Th ere also is no reason why men and women can’t adopt this style equally well. 63

Interactive leaders are strong com-

municators and act in democratic and

participative ways with followers.

McDonald’s Restaurant—A telephone caller claiming to be a police offi cer and having “corporate” on the line, directs the assistant store manager to take a female employee into the back

room and interrogate her while he is on the line. Th e assistant

manager does so for over three hours and follows “Offi cer Scott’s”

instructions to the point where the 18-year-old employee is naked

and doing jumping jacks. Th e hoax was discovered only when the

assistant manager called her boss to check out the story. Th e

caller was later arrested and found to have tried similar tricks at

over 70 McDonald’s restaurants.

Managers are supposed to make decisions, and employees are

supposed to follow their lead. Although that is certainly the conven-

tional wisdom, sometimes saying “Yes” to an authority fi gure isn’t

the correct thing to do. Th ere may be times when it’s best to disobey.

Sooner or later someone in “authority” is going to ask for something

that seems odd or incorrect or just plain suspicious. If what’s asked

is wrong, but you still comply with the request, you’ll share the

blame. Blind followership can’t be excused with the claim: “I was

just following orders.” But, who’s prepared for the unexpected?

YOUR TAKE?

If obedience isn’t always the right choice, how can you know when it’s time to disobey? Should students get more training on both spotting bad directives and learning how to say “No”? Do management courses have enough to say about tendencies to obey, how to double-check decisions to make sure obedience to a manager’s request is justifi ed, and even about the price of disobedience? Is it possible to educate and train students to be “principled” followers who don’t always follow orders and sometimes question them?

choices> THINK BEFORE YOU ACT > Sooner or later someone in “authority” is going to ask us to do something that seems

odd or incorrect, or just plain suspicious.

Sometimes “No” May Be Your Best Answer

Masterfi le

333Personal Leadership Development

Moral Leadership

As highlighted in the chapter opener on integrity, society expects organizations to be run

with moral leadership. Th is is leadership with ethical standards that clearly meet the test

of being “good” and “correct.” 64

Strength in moral leadership begins with personal integrity,

a concept fundamental to the notion of transformational leadership. People who lead with

integrity act in an honest, credible, and consistent way to put their values into action. A

leader with integrity earns the trust of followers. When followers believe leaders are trust-

worthy, they try to behave in ways that live up to their leader’s expectations.

If moral leadership is the goal, why don’t we see more of it? Are you surprised by a Busi-

ness Week survey that found just 14% of top executives at large U.S. fi rms rated “having

strong ethical values” as a top leadership characteristic? 65

How about a Harris poll that

found only 37% of U.S. adults in a survey described their top managers as acting with

“integrity and morality”? 66

One of the risks we face in living up to the expectations of moral

leadership is moral overconfi dence, falling prey to an overly positive view of one’s strength

of character. 67

Leaders with moral overconfi dence may act unethically without realizing it

or while using inappropriate rationalizations to justify their behavior. “I’m a good person,

so I can’t be wrong,” might just be a signal of a leader’s moral overconfi dence. 68

Th e concept of servant leadership fi ts with the concept of a moral leader. So, too, does the

notion of authentic leadership. Fred Luthans and Bruce Avolio describe an authentic

leader as one with a high level of self-awareness and a clear understanding of his or her per-

sonal values. 69

An authentic leader acts in ways that are consistent with those values, being

honest and avoiding self-deception. Because of this approach, an authentic leader is per-

ceived by followers as genuine, gains their respect, and develops a capacity to positively

infl uence their behaviors. 70

Th e values and actions of authentic leaders create a positive

ethical climate in their organizations. 71

Drucker’s “Good Old-Fashioned” Leadership

Th e late and widely respected consultant Peter Drucker took a time-tested and very prag-

matic view of leadership. His many books and articles remind us that leadership eff ective-

ness must have strong foundations, something he refers to as the “good old-fashioned” hard

work of a successful leader. 72

Drucker believed that the basic building block for success

as a leader is defi ning and establishing a sense of mission.

A good leader sets the goals, priorities, and standards. And, a

good leader keeps them always clear and visible. As Drucker

put it, “Th e leader’s fi rst task is to be the trumpet that sounds a

clear sound.” 73

Drucker also believed that leadership should be

accepted as a responsibility rather than a rank. He pointed out

that good leaders surround themselves with talented people,

aren’t afraid to develop strong and capable followers, don’t

blame others when things go wrong, and accept the adage that

has become a hallmark of leadership—“Th e buck stops here.”

Finally, Drucker also stressed the importance of earning and keeping others’ trust. Th e key

is the leader’s personal integrity, the point on which the chapter began. Followers of good lead-

ers trust in their leadership. Th ey believe the leader means what he or she says, and know that

his or her actions will be consistent with what is said. “Eff ective leadership is not based on

being clever,” says Drucker, “it is based primarily on being consistent.” 74

Moral leadership is always “good” and

“right” by ethical standards.

Leaders show integrity by acting with

honesty, credibility, and consistency in

putting values into action.

Moral overconfi dence is an overly pos-

itive view of one’s strength of character.

Authentic leadership activates

positive psychological states to achieve

self-awareness and positive self-

regulation.

• Defi ne and communicate a clear vision.

• Accept leadership as a responsibility, not a rank.

• Surround yourself with talented people.

• Don’t blame others when things go wrong.

• Keep your integrity; earn the trust of others.

• Don’t be clever, be consistent.

Peter Drucker’s Straight Talk on Leadership

Learning Check 4

TAKEAWAYQUESTION 4 What are the challenges of personal leadership development?

BE SURE YOU CAN • defi ne transformational leadership • explain how emotional intelligence contributes to leadership

success • discuss research insights on the relationship between gender and leadership • defi ne interactive leadership • discuss

integrity as a foundation for moral leadership • list Drucker’s essentials of good old-fashioned leadership

334 CHAPTER 14 ■ Leading and Leadership Development

Summary

TAKEAWAYQUESTION 1 What is the nature of leadership?

• Leadership is the process of inspiring others to work hard to accomplish important tasks.

• The ability to communicate a vision—a clear sense of the future—is essential for effective leadership.

• Power is the ability to get others to do what you want them to do through leadership.

• Sources of position power include rewards, coercion, and legitimacy or formal authority; sources of personal power include expertise, referent, and information and network- ing power.

• Servant leadership is follower-centered and focused on empowering others and helping them to fully utilize their talents.

• Followership is the act of joining with a leader to accom- plish tasks and goals.

• There is a tendency to give credit to leaders—the romance of leadership, and overlook the contributions of followers— the subordination of followership.

FOR DISCUSSION When is a leader justifi ed in using coercive power?

TAKEAWAYQUESTION 2 What are the important leadership traits and behaviors?

• Traits that seem to have a positive impact on leadership include drive, integrity, and self-confi dence.

• Research on leader behaviors has focused on alternative leadership styles based on concerns for tasks and concerns for people.

• One suggestion of leader-behavior researchers is that effective leaders are team-based and participative, showing both high task and people concerns.

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

TAKEAWAYQUESTION 3 What are the contingency approaches to leadership?

• Contingency leadership approaches point out that no one leadership style always works best; the best style is one that properly matches the demands of each unique situation.

• Fiedler’s contingency model matches leadership styles with situational differences in task structure, position power, and leader–member relations.

• The Hersey-Blanchard situational model recommends using task-oriented and people-oriented behaviors, depending on the “maturity” levels of followers.

• House’s path–goal theory points out that leaders add value to situations by using supportive, directive, achievement-oriented, or participative styles.

• The Vroom-Jago leader-participation model advises leaders to choose decision-making methods—individual, consulta- tive, group—that best fi t the problems to be solved.

FOR DISCUSSION What are the career development implications of Fiedler’s contingency model of leadership?

TAKEAWAYQUESTION 4 What are the challenges of personal leadership development?

• Transformational leaders use charisma and emotion to inspire others toward extraordinary efforts and perfor- mance excellence.

• Emotional intelligence—the ability to manage our relationships and ourselves effectively—is an important leadership capability.

• The interactive leadership style emphasizes communica- tion, involvement, and interpersonal respect.

• Managers are expected to be moral leaders who commu- nicate high ethical standards and show personal integrity in all dealings with other people.

FOR DISCUSSION Is transformational leadership always moral leadership?

Management Learning Review Get Prepared for Quizzes and Exams

335Self-Test 14

Multiple-ChoiceQuestions 1. Someone with a clear sense of the future and the

actions needed to get there is considered a __________ leader. (a) task-oriented (c) transactional (b) people-oriented (d) visionary

2. Leader power 5 __________ power 1 __________ power. (a) reward, punishment (c) legitimate, position (b) reward, expert (d) position, personal

3. A manager who says “Because I am the boss, you must do what I ask” is relying on __________ power. (a) reward (c) expert (b) legitimate (d) referent

4. When a leader assumes that others will do as she asks because they want to positively identify with her, she is relying on __________ power to infl uence their behavior. (a) expert (c) legitimate (b) referent (d) reward

5. The personal traits now considered important for managerial success include __________. (a) self-confi dence (c) age (b) gender (d) height

6. In the leader-behavior approaches to leadership, someone who does a very good job of planning work, setting standards, and monitoring results would be considered a(n) __________ leader. (a) task-oriented (b) control-oriented (c) achievement-oriented (d) employee-centered

7. When leader behavior researchers concluded that “high-high” was the pathway to leadership success, what were they referring to? (a) High initiating structure and high integrity. (b) High concern for task and high concern for people. (c) High emotional intelligence and high charisma. (d) High job stress and high task goals.

8. A leader whose actions indicate an attitude of “do as you want, and don’t bother me” would be described as having a(n) __________ leadership style. (a) autocratic (b) country club (c) democratic (d) laissez-faire

9. In Fiedler’s contingency model, both highly favorable and highly unfavorable leadership situations are best dealt with by a __________ leader. (a) task-motivated (b) laissez-faire (c) participative (d) relationship-motivated

10. __________ leadership model suggests that leadership style is strongly anchored in personality and therefore hard to change. (a) Trait (b) Fiedler’s (c) Transformational (d) Path-goal

11. House’s __________ theory of leadership says that successful leaders fi nd ways to add value to leadership situations. (a) trait (c) transformational (b) path–goal (d) life-cycle

12. A leader who __________ would be described as achievement-oriented in the path–goal theory. (a) sets challenging goals for others (b) works hard to achieve high performance (c) gives directions and monitors results (d) builds commitment through participation

13. The critical contingency variable in the Hersey- Blanchard situational model of leadership is __________. (a) followers’ maturity (b) LPC (c) task structure (d) LMX

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

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

Short-ResponseQuestions 16. Why does a person need both position power and

personal power to achieve long-term managerial effectiveness?

17. What is the major insight of the Vroom-Jago leader- participation model?

18. What are the three variables that Fiedler’s contingency model uses to diagnose the favorability of leadership situations, and what does each mean?

19. How does Peter Drucker’s view of “good old-fashioned leadership” differ from the popular concept of transformational leadership?

Self-Test 14

336 CHAPTER 14 ■ Leading and Leadership Development

EssayQuestion 20. When Marcel Henry took over as leader of a new

product development team, he was both excited and apprehensive. “I wonder,” he said to himself on the fi rst day in his new assignment, “if I can meet the challenges of leadership.” Later that

day, Marcel shared this concern with you during a coffee break. Based on the insights offered in this chapter, how would you describe the implications of current thinking on transformational leadership and moral leadership for his personal leadership development?

Evaluate Career Situations

What Would You Do?

1. Autocratic Boss

Some might say it was bad luck. Others will tell you it’s life and

you’d better get used to it. You’ve just gotten a new team leader,

and within the fi rst week it was clear to everyone that she is

as “autocratic” as can be. Th e previous leader was very “demo-

cratic,” and so is the higher-level manager, with whom you’ve

always had a good working relationship. Is there anything you

and your co-workers can do to remedy this situation without

causing anyone, including the new boss, to lose their jobs?

2. New to the Team

You’ve just been hired as a visual eff ects artist by a top movie

studio. Th e team you are joining has already been together

for about two months. Th ere’s obviously an in-group when it

comes to team leader and team member relationships. Th is

job is important to you; the movie is going to be great résumé

material. But you’re worried about the leadership dynamics

and your role as a newcomer to the team. What can you do to

get on board as soon as possible, work well with the team

leader, and be valued by other team members?

3. Out of Comfort Zone

Okay, it’s important to be “interactive” in leadership. By per-

sonality, though, you tend to be a bit withdrawn. If you could

do things by yourself, that’s the way you would approach your

work. Th at’s your comfort zone. Yet you are talented and

ambitious. Career growth in your fi eld requires taking on

management responsibilities. So, here you are agreeing to

take over as a team leader in your fi rst upward career move.

Can you succeed by leading within your comfort zone? If not,

what can you do to “stretch” your capabilities into new lead-

ership territories?

Refl ect on the Self-Assessment

Least-Preferred Co-Worker Scale

Instructions Th ink of all the diff erent people with whom you have ever

worked—in jobs, in social clubs, in student projects, or other

areas of your life. Next think of the one person with whom you

could work least well—that is, the person with whom you had

the most diffi culty getting a job done. Th is is the one person—

a peer, boss, or subordinate—with whom you would least want

to work. Describe this person by circling numbers at the appro-

priate points on each of the following pairs of bipolar adjectives.

Work fast. Th ere are no right or wrong answers. 75

Pleasant 8 7 6 5 4 3 2 1 Unpleasant

Friendly 8 7 6 5 4 3 2 1 Unfriendly

Rejecting 1 2 3 4 5 6 7 8 Accepting

Tense 1 2 3 4 5 6 7 8 Relaxed

Distant 1 2 3 4 5 6 7 8 Close

Cold 1 2 3 4 5 6 7 8 Warm

Supportive 8 7 6 5 4 3 2 1 Hostile

Boring 1 2 3 4 5 6 7 8 Interesting

Quarrelsome 1 2 3 4 5 6 7 8 Harmonious

Gloomy 1 2 3 4 5 6 7 8 Cheerful

Open 8 7 6 5 4 3 2 1 Guarded

Backbiting 1 2 3 4 5 6 7 8 Loyal

Untrustworthy 1 2 3 4 5 6 7 8 Trustworthy

Considerate 8 7 6 5 4 3 2 1 Inconsiderate

Nasty 1 2 3 4 5 6 7 8 Nice

Agreeable 8 7 6 5 4 3 2 1 Disagreeable

Insincere 1 2 3 4 5 6 7 8 Sincere

Kind 8 7 6 5 4 3 2 1 Unkind

ManagementSkills& Competencies Make yourself valuable!

337Analyze the Case Study

Self-Assessment Scoring Compute your “least-preferred co-worker” (LPC) score by total-

ing all the numbers you circled; enter that score here [LPC

____________].

Interpretation Th e LPC scale is used by Fred Fiedler to identify a person’s domi-

nant leadership style. He believes that this style is a relatively fi xed

part of our personality and is therefore diffi cult to change. Th us,

he suggests the key to leadership success is fi nding (or creating)

good “matches” between style and situation. If your score is 73 or

above, Fiedler considers you a “relationship- motivated” leader. If

your score is 64 or below, he considers you a “task-motivated”

leader. If your score is between 65 and 72, Fiedler leaves it up to

you to determine which leadership style is most like yours.

Contribute to the

Class Exercise

Most Needed Leadership Skills

Instructions 1. Work individually to make a list of the leadership skills you

believe you need to develop further in order to be ready for

success in your next full-time job.

2. Share your list with teammates, discuss the rationale for your

choices, and listen to what they have to say about the list of skills.

3. Prepare a master list of the fi ve leadership skills that your

team believes are most important for further development.

4. For each skill on the team list prepare a justifi cation that

describes what the skill involves, why it is important to

leadership success, and why it is still a candidate for further

skills development among your teammates.

5. Present your leadership skills development list along with

justifi cations to the whole class for discussion.

Manage a Critical Incident

Playing Favorites as a Team Leader

One of your colleagues just returned from a leadership training

session at which the instructor presented the LMX, or leader-

member exchange, theory. Listening to her talk about the training

prompted thoughts about your own leader behaviors, and you

came to a somewhat startling conclusion: You may be playing

“favorites.” In fact, the last person you recommended for promotion

was a good friend and a member of your bi-weekly poker night

club. Of course he was competent and is doing a good job in the

new position. But as you think more about it, there were also two

others on the team who may well have been equally good choices.

Did you give them a fair chance when preparing your promotion

recommendation, or did you short-change them in favor of your

friend?

Questions Well, it’s a new day for the team, and basically the start of the rest

of your leadership career. What can you do as a team leader to

make sure that tendencies toward favoritism don’t disadvantage

some members? What warning signs can you watch for to spot

when and if you are playing favorites?

Collaborate on the

Team Activity

Leadership Believe-It-or-Not

You would think leaders would spend lots of time talking with

the people who make products and deliver services, trying to

understand problems and asking for advice. But Business Week

reports a survey showing that quite the opposite is true. Persons

with a high school education or less are asked for advice by only

24% of their bosses; for those with a college degree, the number

jumps to 54%.

Question What stories do your friends, acquaintances, family mem-

bers, and you tell about their bosses that are truly hard to

believe?

Instructions 1. Listen to others and ask others to talk about the leaders they

have had in the past or currently do have. What strange-but-

true stories are they telling?

2. Create a journal that can be shared with class members that

summarizes, role-plays, or otherwise communicates the real-

life experiences of people whose bosses sometimes behave in

ways that are hard to believe.

3. For each of the situations in your report, try to explain the

boss’s behaviors.

4. For each of the situations, assume that you observed or heard

about it as the boss’s supervisor. Describe how you would

“coach” or “counsel” the boss to turn the situation into a

“learning moment” for positive leadership development.

AnalyzeTHE CaseStudy

ZAPPOS

They Do It with Humor Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

You don’t have to take a selfi e to

gain more self-awareness. What

does your smartphone, tablet, or

notebook screen say about your

personality?

E O

P L

E A

N D

T E

C H

N O

L O

G Y

b y

V I S

IO N

/ A

la m

Individual

Behavior Th ere’s beauty in individual

diff erences

15 C H A P T E R Q U I C K STA RT

When people work, play, and live together they experience lots of ups and downs.

Th ere are relationship and communication miscues, and bonds of friendship that

fi ll life with pleasure. Within this natural ebb and fl ow are individual diff erences

in perceptions, personalities, attitudes, moods, and emotions. Th ose who under-

stand and respect diff erences are likely to succeed where those who are self-

centered and insensitive more likely will not.

Key Takeaways

■ Identify perceptual

tendencies and distortions

that infl uence behavior.

■ Explain common

personality diff erences

along with their

implications for work

and careers.

■ Discuss the components

of attitudes and the

importance of job

satisfaction.

■ Illustrate how emotions,

moods, and stress

infl uence behavior in work

and social situations.

339

MANAGEMENT IS REAL

MAKE DATA YOUR FRIEND Paying a High Price for Incivility at Work

THINK BEFORE YOU ACT

Curbing Bias in Hiring Decisions

KNOW RIGHT FROM WRONG

Is Personality Testing in Your Future?

LEARN ABOUT YOURSELF

Keep Ambition on Your Side

LEARN FROM ROLE MODELS

Little Things Are Big Things at Life Is Good

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Self-Monitoring

■ CONTRIBUTE To the Class Exercise: Job Satisfaction Preferences

■ MANAGE A Critical Incident: Facing Up to Attributions

■ COLLABORATE On the Team Activity: Diffi cult Personalities

■ ANALYZE Th e Case Study: Panera Bread: Growing a Company with Personality

what to look for inside >

340 CHAPTER 15 ■ Individual Behavior

I n his books Leadership Is an Art and Leadership Jazz, Max DePree, former

chairperson of the publicly traded furniture manufacturer Herman Miller,

Inc., talks about a millwright who worked for his father. When the man died,

DePree’s father, wishing to express his sympathy to the family, went to their

home. Th ere he listened as the widow read some beautiful poems which, to

his father’s surprise, the millwright had written. DePree says that he and his

father often wondered, “Was the man a poet who did millwright’s work, or a

millwright who wrote poetry?” He summarized the lesson this way: “It is fun-

damental that leaders endorse a concept of persons,” basically meaning you

have to care enough to fi nd and respect the whole person residing behind

the face. 1

Contrast DePree’s story with that of Karen Nussbaum, founder of the

national membership organization 9to5 which is “dedicated to putting work-

ing women’s issues on the public agenda.” 2 9to5 grew from an incident

Nussbaum experienced in her job as a secretary at Harvard University. “One

day I was sitting at my desk at lunchtime, when most of the professors were

out,” she says. “A student walked into the offi ce and looked me dead in the eye

and said, ‘Isn’t anyone here?’” 3 Nussbaum pledged to “remake the system so

that it does not produce these individuals.” Among the action priorities of

9to5 are family-supporting jobs, paid sick leave, equal pay for female employ-

ees, and elimination of discriminatory hiring practices based on gender or

sexual orientation. 4

Perceptions, personalities, attitudes, emotions, and moods can have a pos-

itive or a negative infl uence on individual behavior as shown in the small box.

When employees are treated with-

out respect at work, as refl ected in

Nussbaum’s story, they may respond

with low performance, poor cus-

tomer service, absenteeism, and

even antisocial behavior. In contrast,

when individuals work in supportive

settings, positive work behavior is

much more likely to emerge—including higher levels of work performance,

less withdrawal and dysfunction, and helpful citizenship behavior.

• Performance behaviors—task performance, customer service, productivity

• Withdrawal behaviors—absenteeism, turnover, job disengagement

• Citizenship behaviors—helping, volunteering, job engagement

• Dysfunctional behaviors—antisocial behavior, intentional wrongdoing

Individual Behavior Sets

Perception TAKEAWAY 1 How do perceptions infl uence individual behavior?

Perception and psychological contracts • Perception and attribution Perception tendencies and distortions • Perception and impression management

Perception is the process through which people receive and interpret external information

from the environment. It aff ects the impressions we form of ourselves, other people, and our

daily experiences. You can think of perception as a screen or fi lter through which informa-

tion passes into our consciousness and aff ects how we think about the world. Because

Perception is the process through

which people receive, organize, and

interpret information from the

environment.

LEARN MORE

ABOUT

PPPeerrceeeppttionnP

341Perception

perceptions are infl uenced by factors such as cultural background, values, and other per-

sonal and situational circumstances, people can and do perceive the exact same people,

events, situations or circumstances in very diff erent ways. Importantly, we most often

behave in accordance with our perceptions. 5

Perception and Psychological Contracts

One of the ways in which perceptions infl uence work behavior is through the psychological

contract, or what the individual employee expects both to give and to receive from the

employment relationship. 6 Figure 15.1 shows that a healthy psychological contract off ers a

balance between the contributions individuals make on behalf of their organization and

inducements they receive. Th ese contributions include time, energy, eff ort, creativity, commit-

ment, and loyalty. Inducements are what the organization gives to employees in exchange for

these contributions. Th ese inducements include pay, fringe benefi ts, training and opportuni-

ties for personal growth and advancement, a sense of professional identity, and job security.

Human resource managers use the term employee value proposition, or EVP to

describe the organization’s intentions for creating value on the employee and employer

sides of the psychological contract. Th e ideal EVP is one where the exchanges made on each

side of the psychological contract are perceived as fair by both parties. Problems are likely to

occur when the psychological contract is perceived as out of balance or broken. For exam-

ple, employees who perceive they are receiving too little in exchange for what they contrib-

ute might compensate by reducing their performance and withdrawing through absenteeism

or tardiness.

Perception and Attribution

What happens when you perceive that someone else in a job or student team isn’t perform-

ing up to the expectations of the team or their supervisor/instructor? How do you person-

ally explain this less-than-ideal level of performance? Given your explanation, how do you

react? Th ese questions involve attribution, which is the process of developing explanations

for events.

Attribution theory describes how people try to explain perceptions of their own behavior

and the behavior of other people, often making errors in the process. 7 Th e fundamental

attribution error occurs when someone’s per-

formance problems are blamed more on internal

failures of the individual than on external factors

relating to the environment. In the case of

poor-quality work, for example, a team leader

might blame a team member’s lack of job skills or

A psychological contract is the set

of individual expectations about the

employment relationship.

Th e employee value proposition

describes the organization’s intentions

for creating value for both the employee

and employer sides of the psychological

contract.

Attribution is the process of explaining

events.

Fundamental attribution error

overestimates internal factors and

underestimates external factors driving

individual behavior.

FIGURE 15.1 Components in the psychological contract.

Offers Contributions

Serving needs of the individual Pay Training Benefits

Offers Inducements

Serving needs of the organization Effort Time Creativity

Individual

Organization

Opportunity Respect • Security

Loyalty Commitment

I am performing

poorly

They are performing

poorly

Fundamental Attribution Error

“It’s their fault.”

Self-Serving Bias

“It’s not my fault.”

342 CHAPTER 15 ■ Individual Behavior

laziness—an unwillingness to work hard enough to get the job done. In response, the leader

may try to resolve the problem through rewards, punishment, or even replacement. Because

the fundamental attribution error neglects possible alternative, external explanations for

poor-quality work, such as unrealistic time pressures, bad technology, or poor training,

opportunities to improve these factors can be easily missed.

Attribution theory also recognizes tendencies toward self-serving bias. Th is happens

when individuals blame their own personal failures or problems on external causes, while

attributing successes to internal causes. You can recognize it as the “It’s not my fault!” error

when something is wrong but as the “It was me, I did it!” error when things go right. Th ink of

the self-serving bias the next time your favorite team loses a close game—“It was bad offi ci-

ating!” or when your team wins a close one—“It was great coaching and playmaking!”

Self-serving bias creates a false sense of confi dence. We don’t place responsibility for out-

comes in a consistent way, which also causes us to overlook opportunities for personal

change and development. Because the outcome infl uences where we ultimately place

responsibility, we can’t learn eff ectively from either our victories or our defeats.

Perception Tendencies and Distortions

A variety of perceptual tendencies and distortions also infl uence the way we communicate

with and behave toward one another. Inappropriate use of stereotypes, halo eff ects, selective

perception, and projections can cause us to lose sight of important individual diff erences.

Self-serving bias explains personal

success by internal causes and personal

failures by external causes.

Study Harvard scholars Iris Bohnet, Alexandra van Geen, and Max H. Bazerman asked 100 participants to act as candidates for a new job. Th ey performed a variety of “math and verbal tasks”

chosen by the researchers because of the common gender stereo-

type that “females are believed to be worse at math tasks and

better at verbal tasks than males.” Another 554 study participants

then acted as evaluators to select candidates from this set of 100

for a second round of testing. Th ey were given test results and

gender for each candidate. Some evaluators were asked to evalu-

ate the candidates one at a time while others directly compared

male and female candidates.

Findings Gender stereotypes infl uenced the one-by-one evalu-

ations, with female candidates more often chosen for further

verbal testing and male candidates for further math testing. When

male and female candidates were evaluated together, however,

gender stereotypes largely disappeared.

Conclusion One way to curb bias in hiring decisions is to make

sure evaluators compare candidates directly rather than one-by-one.

Bohnet and colleagues point out: “If you look at one pair of shoes, it’s

hard to evaluate the quality of those shoes. You will be much more

likely to go with stereotypes or heuristics or rules of thumb about

shoes. But if you have several pair of shoes available, you’re much

more likely to be able to compare diff erent attributes of the shoes.”

YOUR TAKE?

Does this research put its fi nger on a simple way to remove gender bias from human resource decisions? Is it time to stop assessing candidates one at a time and instead compare them to one another directly?

choices> THINK BEFORE YOU ACT > “. . . if you have several pair of shoes available, you’re much more likely to be able

to compare different attributes of the shoes.”

Curbing Bias in Hiring Decisions

Jon Feingersh Photography/SuperStock/Corbis

343Perception

Stereotypes A stereotype occurs when someone is identifi ed with a particular group or category, and

then oversimplifi ed attributes associated with that group or category are used to describe

the individual, to make assumptions about how the individual will behave, or the kinds of

things the individual is likely to think or assume. We all make use of stereotypes and they

aren’t always negative or ill-intended. But stereotypes based on individual diff erences such

as gender, age, race, religion, able-bodiedness, national origin, or sexual orientation can,

and unfortunately do, bias our perceptions of other people. 8 And because perceptions

infl uence behavior, we may behave toward people in incorrect and even disrespectful ways.

Th e problem with making decisions under the infl uence of stereotypes is that each indi-

vidual is just that—an individual, and not a generic archetype. For example, female manag-

ers in the U.S. get a smaller proportion of international assignments—about 25% fewer

assignments—than their male counterparts. 9 Why? A Catalyst study blames gender stereo-

types that place women at a disadvantage for global jobs. Th e perception seems to be that

women lack the abilities or willingness to work abroad eff ectively. 10

Th e many women serving

successfully in these roles as well as the high-powered women heading major global compa-

nies—like Indra Nooyi of Pepsico, Ursula Burns of Xerox, Mary Barra of General Motors,

Marillyn Hewson of Lockheed Martin, and Virginia Rometty of IBM—would surely disagree.

Halo Effects A halo eff ect occurs when one personal attribute is used to develop an overall impression

of a person or of a situation. When meeting someone new, for example, the halo eff ect may

cause one trait, such as a pleasant smile or a fi rm handshake, to trigger an overall positive

perception of that individual. A unique hairstyle or style of clothes, by contrast, may trigger

a generalized negative impression. Halo eff ect errors often show up during performance

evaluations. One factor, such as a person’s punctuality or pleasant personality, may become

the “halo” for a positive overall performance assessment, even though an accurate evaluation

of the full set of available performance facts would not have led to the same positive appraisal.

Selective Perception Selective perception is the tendency to single out those aspects of an individual or situa-

tion that reinforce one’s existing beliefs, values, or needs. 11

Information that makes us feel

uncomfortable tends to get screened out, while information that makes us feel comfortable

A stereotype occurs when attributes

commonly associated with a group are

assigned to an individual.

A halo eff ect occurs when one attribute

is used to develop an overall impression

of a person or situation.

Selective perception is the tendency

to defi ne problems from one’s own

point of view.

Women Count: A Guide to Changing the World (Purdue University Press, 2010)

by Susan Bulkeley Butler Author Susan Bulkeley Butler argues that women need to think big, take action, assert

their leadership value, and help one another. She certainly speaks from experience.

Butler was the fi rst female partner at Accenture. She argues that if some rebalancing of

work and home life is necessary, employers should work with female employees to

redefi ne their roles to help them to achieve a better fi t. Supportive human resource

policies can only pay off in this regard. Women have real leadership advantages when it

comes to critical organizational performance factors such as communication, compas-

sion, listening, and even the ability to keep their egos in check. Organizations need the

qualities female employees have to off er. “Women count,” says Butler, and “have the

numbers, the education, the track record, and the characteristics to change the world.”

Her fi nal appeal is to men and women alike: “It’s time to join the new movement. Let’s

get going.”

RecommendedReading

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344 CHAPTER 15 ■ Individual Behavior

is allowed in. What this often means in organizations is that people from diff erent depart-

ments or functions—such as marketing and information systems—see organizational

events from their own point of view but fail to recognize the validity of others’ point of view.

One way to reduce or avoid selective perception is to be sure to gather inputs and opinions

from people with divergent points of view.

Projection Projection involves the assignment of personal attributes to other individuals. A classic

projection error is to assume that other people share our own needs, desires, and values. For

example, suppose that you enjoy a lot of responsibility and challenge in your work. Suppose,

also, that you are the newly appointed head of a team whose jobs you see as dull and routine.

You might move quickly to redesign jobs within the team so that members take on more

responsibilities and perform more challenging tasks. But this may not be a good decision.

Instead of designing jobs to best fi t the team members’ needs, you might just have spent

a lot of time and eff ort designing their jobs to fi t with your own needs. Th e members may,

in fact, have been satisfi ed doing jobs that seem routine to you. Projection errors can be

controlled through self-awareness and a willingness to try to see things from others’

points of view.

Perception and Impression Management

Richard Branson, CEO of the Virgin Group, is one of the richest and most famous executives

in the world. 12

He’s also known for informality and being a casual dresser. One of his early

successes was launching Virgin Airlines as a competitor to British Airways (BA). Th e former

head of BA, Lord King, said: “If Richard Branson had worn a shirt and tie instead of a goatee

and jumper, I would not have underestimated him.” 13

Th is anecdote reveals how much

impressions can infl uence our experiences with others—both positive and negative.

Scholars discuss impression management as the systematic attempt to infl uence how

others perceive us. 14

Impression management is really a matter of routine in everyday life.

Th e way we dress, talk, act, and surround ourselves with objects (e.g., headphones, jewelry,

car) conveys what we perceive to be a desirable image to others. We try to create an image

of ourselves. When well done, impression management can help to develop personal

relationships with attractive people, advance in jobs and careers, form professional

relationships with people we admire, and even create inroads to group memberships,

internships, and prestigious universities. Some of the basic impression management tactics

are worth remembering. Dress in ways that convey positive appeal—for example, know

when to “dress up” and when to “dress down.” Use words to fl atter other people in ways that

Projection is the assignment of personal

attributes to other individuals.

Impression management is the

systematic attempt to infl uence how

others perceive us.

There Are Ways to Improve Your Personal Likability

Social scientists are fi nding that a person’s “likability” is a major success driver in the

workplace and in our personal lives. So, how do we get more of it? Can likability be

taught . . . and learned? Th e answers are “yes” and the lessons come in the form of better

impression management techniques such as these. Be authentic—act natural, not

contrived. Be curious—look others in the eye and ask them questions. Be expressive—use

your voice and gestures to show enthusiasm. Be a listener—pay attention to what is

being said and avoid distractions. Be similar—focus interactions on shared interests. Be

familiar—mimic the posture, gestures, and expressions of the other party.

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345Personality

Personality TAKEAWAY 2 What should we know about personalities in the workplace?

Big Five personality dimensions • Myers-Briggs Type Indicator Technology personality • Personal conception and emotional adjustment traits

How often do you complain about someone’s “bad personality,” tell a friend how much you

like someone because of their “nice personality,” or worry that co-workers mistake your

“quiet shyness” for a lack of competency? Th ese same kinds of personality-driven impres-

sions of other people emerge at work as frequently as they do in our everyday lives. Perhaps

you have been part of conversations like these: “I can’t give him that job; with a personality

like that there’s no way he can work with customers.” “Put Erika on the project—her person-

ality is perfect for the intensity that we expect from the team.” “Cynthia should present our

team’s proposal—she’s got a really outgoing personality.”

We use the term personality in management to describe the profi le of enduring charac-

teristics that makes each of us unique as an individual. No one can doubt that an individual’s

personality can infl uence how she or he behaves and how that behavior is regarded by

others. Th e implications of personality extend from how we face problems and pursue tasks,

to how we handle relationships with everyone from family to friends to co-workers.

Big Five Personality Dimensions

Although there are many diff erent personality traits, some of the most widely recognized are

a short list of fi ve that are especially signifi cant in the workplace. Known as the Big Five, 16

these personality dimensions are:

1. Extraversion—the degree to which someone is outgoing, sociable, and assertive. An

extravert is comfortable and confi dent in interpersonal relationships; an introvert is

more withdrawn and reserved.

2. Agreeableness—the degree to which someone is good-natured, cooperative, and

trusting. An agreeable person gets along well with others; a disagreeable person is a

source of confl ict and discomfort for others.

3. Conscientiousness—the degree to which someone is responsible, dependable, and

careful. A conscientious person focuses on what can be accomplished and meets

commitments; a person who lacks conscientiousness is careless, often trying to do

too much and failing, or doing little.

4. Emotional stability—the degree to which someone is relaxed, secure, and generally

unworried. A person who is emotionally stable is calm and confi dent; a person lacking

in emotional stability is anxious, nervous, and tense.

5. Openness to experience—the degree to which someone is curious, open to new

ideas, and imaginative. An open person is broad-minded, receptive to new things, and

comfortable with change; a person who lacks openness is narrow-minded, has few

interests, and is resistant to change.

LEARN MORE

ABOUT

Personality is the profi le of charac-

teristics making a person unique from

others.

Extraversion is being outgoing,

sociable, and assertive.

Agreeableness is being good-natured,

cooperative, and trusting.

Conscientiousness is being responsible,

dependable, and careful.

Emotional stability is being relaxed,

secure, and unworried.

Openness to experience is being

curious, receptive to new ideas, and

imaginative.

generate positive feelings toward you. Make eye contact and smile when engaged in conver-

sations to create a personal bond. Display a high level of energy that suggests lots of work

commitment and initiative. 15

Learning Check 1

TAKEAWAYQUESTION 1 How do perceptions infl uence individual behavior?

BE SURE YOU CAN • defi ne perception • explain the benefi ts of a healthy psychological contract • explain fundamental

attribution error and self-serving bias • defi ne stereotype, halo eff ect, selective perception, and projection and illustrate how

each can adversely aff ect work behavior • explain impression management

PPPeeerrrsooonnnaaaallittttyyy

346 CHAPTER 15 ■ Individual Behavior

A considerable body of evidence from published academic research links these person-

ality dimensions with a range of individual behaviors at work and in life overall. For exam-

ple, conscientiousness is a good predictor of job performance for most occupations.

Extraversion often is associated with success in management and sales. 17

Indications are

that extraverts tend to be happier than introverts in their lives overall, that conscientious

people tend to be less risky, and that those more open to experience are actually more

creative. 18

You can easily spot the Big Five personality traits in people with whom you work,

study, and socialize in your everyday life. But don’t forget that these traits also apply to

you! Others form impressions of your personality, and respond to it, just as you do with

theirs. Managers often use personality judgments when making job assignments, build-

ing teams, and otherwise engaging in the daily social give-and-take of work within an

organization.

Myers-Briggs Type Indicator

Th e Myers-Briggs Type Indicator is another popular approach to personality assessment.

It “types” personalities based on a questionnaire that probes into how people act or feel in

various situations. Called the MBTI for short, it was developed by Katherine Briggs and

her daughter Isabel Briggs-Myers from foundations set forth in the work of psychologist

Carl Jung. 19

Jung’s model of personality diff erences included three main distinctions. Th e fi rst is how

people diff er in the ways they in which they relate to others—by extraversion (outgoing and

Dear [your name goes here]:I am very pleased to invite you to a second round of screen- ing interviews with our fi rm. Your on-campus session with our

representative went very well, and we would like to consider you

further for a full-time position. Please contact me to arrange a visit

date. We will need a full day. Th e schedule will include several

meetings with executives and your potential team members, as

well as a round of personality tests.

Th ank you again for your interest in working with our fi rm. I

look forward to meeting you during the next step in our recruiting

process.

Sincerely,

[signed]

Human Resource Director

Getting a letter like this is great news. It’s serves as confi rmation

of your hard work and performance in college. You obviously made

a good fi rst impression. But have you thought about the whole

“personality test” thing? What do you know about personality tests

and how they are used for employment screening? Some people

might even consider their use to be an invasion of personal privacy.

WHAT DO YOU THINK?

What are the ethical issues associated with personality testing? What responsibilities does an employer have if these tests are being used to make selection or promotion decisions? Should your employer be required to have data showing that personal- ity tests actually predict key areas of employees’ performance on the job? Just when is personality testing inappropriate and an invasion of privacy? How should all these issues be handled by a job candidate as in the case just presented?

ethics> KNOW RIGHT FROM WRONG > If you want the job, take the personality test.

Is Personality Testing in Your Future?

347Personality

sociable) or introversion (shy and quiet). Th e

second is how they diff er in the ways in

which they gather information—by sensa-

tion (emphasizing details, facts, and routine)

or by intuition (looking for the “big picture”

and being willing to deal with various possi-

bilities). Th e third is how they diff er in the

ways in which they evaluate information—

by thinking (using reason and analysis) or by

feeling (responding to the feelings and

desires of others). Briggs and Briggs-Myers

used all three of Jung’s personality dimen-

sions in developing the MBTI. But, they

added a fourth dimension that describes how people diff er in the ways in which they relate

to the outside world—judging or perceiving. Th e four MBTI dimensions are:

• Extraverted vs. introverted (E or I)—social interaction: whether a person tends toward

being outgoing and sociable or shy and quiet.

• Sensing vs. intuitive (S or I)—gathering data: whether a person tends to focus on details

or on the big picture in dealing with problems.

• Th inking vs. feeling (T or F)—decision making: whether a person tends to rely on logic or

emotions in dealing with problems.

• Judging vs. perceiving (J or P)—work style: whether a person prefers order and control or

acts with fl exibility and spontaneity.

Sixteen possible MBTI personality types result from the various combinations of the four

dimensions just described. 20

A sample of Myers-Briggs types often found in work settings is

shown in the box. Th ese kinds of systematic, easily understandable personality classifi ca-

tions have made the Myers-Briggs Type Indicator an extremely popular management tool. 21

Employers and trainers like it because people can be taught to understand their own per-

sonality types, for example as an ESTJ or ISJF, and to learn how to work better with people

with diff erent personalities.

Technology Personality

Recent thinking also suggests that personality diff erences extend to the ways in which people

interact with technology. Someone’s technology personality is refl ected in the frequency of

technology and social media use as well as the ways in which it is used. 22

Th e following

seven technology personality types have been identifi ed in the adult U.S. population. Why

not pause and use this list to check your technology personality and consider its implica-

tions for your work and social relationships?

1. Always On—8%—early adopters who use technology to create content, actively engage

others, and make connections with people they’d like to know, not merely the people

they know already.

2. Live Wires—35%—very connected, use technology to stay in touch with family and

friends, own smartphones and tablets.

3. Social Skimmers—6%—highly connected, use social media sites, have substantial

on-line networks and connect with family and friends using mobile technology; pri-

marily use technology to gather information rather than to engage others.

4. Broadcasters—8%—less connected, selectively use technology to tell others what

they’re doing, are less likely to be active on social media, and tend not to text.

5. Toe Dippers—27%—low connectivity, use technology to converse, own desktops and

laptops, with less than 25% owning a smart phone; most likely to prefer person-to-

person contact with others.

Technology personality refl ects levels

of social media use and how media are

used to connect to others.

• ESTJ (extraverted, sensing, thinking, judging)—decisive, logical, and quick

to dig in; common among managers.

• ENTJ (extraverted, intuitive, thinking, judging)—analytical, strategic, quick

to take charge; common for leaders.

• ISJF (introverted, sensing, judging, feeling)—conscientious, considerate,

and helpful; common among team players.

• INTJ (introverted, intuitive, thinking, judging)—insightful, free thinking,

determined; common for visionaries.

Sample Myers-Briggs Types

MBTI personality dimensions

Technology personality types

348 CHAPTER 15 ■ Individual Behavior

6. Bystanders—15%—relatively unconnected, mostly own only desktops; use technology

primarily to keep up with the news and less frequently to connect with family and

friends.

7. Never-Minders—2%—relative outliers, who do not use cell phones, texting or social

media, are apprehensive about technology use, and see technology as isolating.

Personal Conception and Emotional

Adjustment Traits

In addition to the Big Five dimensions, the Myers-Briggs Type Indicator, and the more

recent possibility of a technology personality, psychologists have long studied a wide range

of other personality traits. As shown in Figure 15.2, some traits with special relevance to

people at work include the personal conception traits of locus of control, authoritarianism,

Machiavellianism, and self-monitoring, as well as the emotional adjustment trait of Type A

orientation. 23

In general, you can think of a personal conception trait as describing how

people’s personality infl uences how they tend relate to the environment, while an emo-

tional adjustment trait describes how they are inclined to handle stress and uncomfortable

situations.

Locus of Control Scholars have long had a strong interest in locus of control, recognizing that some people

believe they are in control of their destiny, while others believe that what happens to them is

beyond their control. 24

“Internals” are self-confi dent and accept responsibility for their own

actions and the outcomes they lead to. “Externals” are more likely to blame others and out-

side forces for what happens to them. Research suggests that internals tend to be more satis-

fi ed and less alienated from their work than externals.

Authoritarianism Authoritarianism is the degree to which a person yields to authority and accepts

interpersonal status diff erences. 25

Someone with an authoritarian personality tends to

behave in a rigid, control-oriented way when serving as a leader. Th is same person is likely

to behave in a subservient way and to comply with rules when serving as a follower. Th e

tendency of people with an authoritarian personality to obey rules and follow procedures

can cause problems if they follow orders to the point of acting unethically or even illegally.

Locus of control is the extent to which

one believes that what happens is

within one’s control.

Authoritarianism is the degree to

which a person tends to defer to

authority.

Machiavellianism

Openness

Self-monitoring

= Big Five

Extraversion

Locus of control

Authoritarianism

Emotional stabilityAgreeableness

Type A orientation

Conscientiousness

Individual Personality Variations

FIGURE 15.2 Common personality dimensions that infl uence human behavior at work.

349Personality

Machiavellianism In his 16th-century book Th e Prince, Niccolo Machiavelli gained lasting fame for giving his

prince advice on how to use power to achieve personal goals. 26

Th e personality trait of

Machiavellianism describes the extent to which someone is emotionally detached and

manipulative in his or her use of power. 27

A person with a “high-Mach” personality is viewed

as exploitative and unconcerned about others, often acting with the assumption that the

end (i.e., goal) justifi es the means (i.e., how the goal is accomplished). A person with a “low-

Mach” personality, by contrast, is deferential in allowing others to exert power over him or

her, and does not seek to manipulate others.

Self-Monitoring Self-monitoring refl ects the degree to which individuals are able to adjust and modify

their behavior in response to the immediate situation and to external factors. 28

A person

high in self-monitoring tends to be a learner, comfortable with feedback, and is both willing

and able to change. Because high self-monitors are fl exible in changing behavior from one

situation to the next, it may be hard to get a clear read on exactly where they stand on any

particular issue. A person low in self-monitoring, by contrast, is predictable and tends to

act in a consistent way regardless of circumstances or who happens to be present within a

particular situation.

Type A Personality A Type A personality is high in achievement orientation, impatience, and perfectionism.

One of the key aspects of the Type A personality is the tendency for Type A individuals to

bring stress on themselves, even in situations others are likely to fi nd relatively stress free.

Machiavellianism describes the extent

to which someone is emotionally

detached and manipulative.

Self-monitoring is the degree to which

someone is able to adjust behavior in

response to external factors.

A Type A personality is a person

oriented toward extreme achievement,

impatience, and perfectionism.

When it comes to understanding people’s behavior, their at-titudes, and their professional interactions with others, one of the most important distinctions can be their level of

ambition, which is the desire to succeed, accomplish things, and

achieve high goals. Ambition shows up in personality as a sense of

competitiveness and the urge to get better or to be the best at

something.

We tend to think of ambition as a positive individual quality to

be admired and developed. Scholar and consultant Ram Charan

calls it a “personal diff erentiator” that separates “people who per-

form from those who don’t.” But, there’s also a potential downside.

Charan points out that individuals blinded by ambition can end

up sacrifi cing substance for superfi ciality, and even sacrifi cing

right for wrong.

Overly ambitious people may exaggerate their accomplish-

ments to themselves and others. Th ey also may try to do too

much and end up accomplishing less than they would other-

wise have accomplished. Ambitious people who lack integrity

can also get trapped by corruption and misbehavior driven by

ambition.

GET TO KNOW YOURSELF BETTER

Review the “personal differentiators” in the small box nearby. How do you score? Can you say that your career ambition is backed with a suffi cient set of personal traits and skills to make success a real possibility? Ask others to comment on the ambi- tion you display as you go about your daily activities. Write a short synopsis of two situations—one in which you showed ambition and one in which you did not.

insight> LEARN ABOUT YOURSELF > Individuals blinded by ambition can end up sacrifi cing substance for superfi ciality,

and even sacrifi cing right for wrong.

Keep Ambition on Your Side

Personal Traits Associated with High Performers

• Ambition—to achieve

• Drive—to solve

• Tenacity—to persevere

• Confi dence—to act

• Openness—to experience

• Realism—to accept

• Learning—to grow

• Integrity—to fulfi ll

350 CHAPTER 15 ■ Individual Behavior

Attitudes TAKEAWAY 3 How do attitudes infl uence individual behavior?

What is an attitude? • What is job satisfaction? • Job satisfaction trends Job satisfaction outcomes

When Challis M. Lowe was executive vice president at Ryder System, she was one of only

two African American women among the fi ve highest-paid executives in over 400 U.S.

companies. 30

She rose to the executive VP level after a 25-year career that included several

changes of employers and lots of stressors—working-mother guilt, a failed marriage, gender

bias on the job, race-based barriers, and an MBA degree earned part-time. Th rough it all, she

said: “I’ve never let being scared stop me from doing something. Just because you haven’t

done it before doesn’t mean you shouldn’t try.” Th at, simply put, is what can be characterized

as a “can-do” attitude!

What Is an Attitude?

Attitudes are predispositions to act in a certain way toward people and events in our envi-

ronment. 31

In order to fully understand attitudes it helps to recognize the three components

shown in the small box. First, the cognitive component refl ects beliefs or opin-

ions. You might believe, for example, that your management course is very

interesting. Second, the aff ective or emotional component of an attitude refl ects

a specifi c feeling. For example, you might feel very good about being a man-

agement major. Th ird, the behavioral component of an attitude refl ects an

intention to behave in a way that is consistent with the belief and feeling.

Using the same example again, you might say to yourself: “I am going to work

hard and try to get an A in all of my management courses.”

Th e intentions refl ected in an attitude may or may not be confi rmed

through actual behavior. Despite having a positive attitude and good inten-

tions in your management courses, for example, demands on your time from

family, friends, or leisure activities have the potential to keep you from studying and prepar-

ing for your class. You end up not working hard enough to get an A, and fail to live up to your

original intentions to get a good grade in the course.

Th e psychological concept of cognitive dissonance describes the discomfort felt

when one’s attitude and behavior are inconsistent with one another. 32

For most people,

dissonance is very uncomfortable and results in changing the attitude to fi t the behavior—

“Oh, I really don’t like management that much anyway,” changing future behavior to fi t the

attitude—dropping out of intramural sports to get extra study time in order to get a good

LEARN MORE

ABOUT

An attitude is a predisposition to act in

a certain way.

Cognitive dissonance is discomfort

felt when attitude and behavior are

inconsistent.

AAAttttituuuddeesA

Learning Check 2

TAKEAWAYQUESTION 2 What should we know about personalities in the workplace?

BE SURE YOU CAN • list the Big Five personality traits and give work-related examples of each • list and explain the four

dimensions used to assess personality in the MBTI • explain and illustrate diff erent technology personality types • list fi ve

personal conception and emotional adjustment personality traits and give work-related examples for each

Th e following patterns of behavior reveal Type A personality tendencies in yourself and

others: 29

• Always moving, walking, and eating rapidly.

• Acting impatient, hurrying others, put off by waiting.

• Doing, or trying to do, several things at once.

• Feeling guilty when relaxing.

• Hurrying or interrupting the speech of others.

“This job isn’t challenging; work is

important to me.”

“I really don’t like my

job.”

“I’m going to ask for a better

job, or quit.”

AffectCognition Behavior

Components of Individual Attitudes

351Attitudes

grade in the course, or rationalizing to force the two to be compatible—”Management is an

okay major, but being a manager also requires the experience I’m gaining in my extracur-

ricular activities.”

What Is Job Satisfaction?

People hold attitudes about many aspects of their experiences at work—supervisors,

co-workers, tasks, policies, goals, pay, and promotion opportunities, among many others.

One of the most often discussed work attitudes is job satisfaction, which is the degree that

employees feel positively or negatively about various aspects of work. 33

Th e following facets

of job satisfaction are commonly discussed and measured:

• Work itself—Does the job off er responsibility, interest, challenge?

• Quality of supervision—Are task help and social support available?

• Co-workers—How much harmony, respect, and friendliness is there?

• Opportunities—Are there avenues for promotion, learning, and growth?

Job satisfaction is the degree to which

an individual feels positive or negative

about a job.

Imagine! Yes, you can! Go for it! Life is good. We’ll make that: Life is really good! Th ese are the kinds of thoughts can help turn your dreams into reality. Th ey’re also part and parcel of a

multimillion-dollar company that really is named Life is Good.

It all began with two brothers—Bert and John Jacobs—making

T-shirts for street sales. Picture a card table set up at a Boston

street fair and two young brothers setting out 48 T-shirts printed

with a smiling face—Jake—and the words “Life is good.” Th en

picture the cart empty, with all of the shirts sold for $10 apiece,

and the two brothers happily realizing they might—just might—

have come up with a viable business idea.

From that modest beginning, Bert—Chief Executive Optimist—

and John—Chief Creative Optimist—built a company devoted to

humor and humility. John says: “It’s important that we’re saying

‘Life is good,’ not ‘Life is great’ or ‘Life is perfect’; there’s a big diff er-

ence. . . . Don’t determine that you’re going to be happy when you

get the new car or the big promotion or meet that special person.

You can decide that you’re going to be happy today.” According to

Bert: “Th e little things in life are the big things.” Th at’s the message

of the Life Is Good brand.

How did the two brothers turn their belief in happiness and

that life is good into a successful fi rm? Th ey didn’t start with busi-

ness degrees or any real experience. Th ey developed their business

with good instincts, creativity, and a very positive view on life.

Th ey stuck to their values while learning about business as their

fi rm grew. Th ey still live the brand while enjoying leisure pursuits

like kayaking and ultimate Frisbee. Th ey also support philan-

thropic enterprises like Camp Sunshine for children with serious

illnesses and Playmakers for traumatized children.

FIND THE INSPIRATION

Bert and John Jacobs built a successful company with a positive message and approach to life that has an almost universal appeal. Just how far can positive thinking carry these entrepreneurs? Does there come a point where continuing to build and expand a busi- ness requires systematic, professional management approaches and tactics? How about us, personally? Is there more to be gained by looking for positives than negatives in our everyday experi- ences and relationships with others? What about when it comes to our own lives—your life—who’s in charge of the “good” factor?

wisdom> LEARN FROM ROLE MODELS > “You can decide you’re going to be happy today . . . the little things in life are the big things.”

Little Things Are Big Things at Life Is Good

Erick Jacobs/The New York Times/Redux Pictures

352 CHAPTER 15 ■ Individual Behavior

• Pay—Is compensation, actual and perceived, fair and substantial?

• Work conditions—Do conditions off er comfort, safety, support?

• Security—Is the job and employment secure?

Job Satisfaction Trends

If you watch the news on television or get news from the Internet, you’ll regularly fi nd

reports on employees’ job satisfaction. You’ll also fi nd reports on lots of job satisfaction stud-

ies from the academic literature. Th e results from these various sources and studies don’t

always agree. But they do show that job satisfaction tends to be higher in small fi rms and

lower in large fi rms, that it tends to be correlated with overall life satisfaction, that it is

higher for workers 501 years old, and that bosses tend to be more satisfi ed than workers. 34

Th e general trend in job satisfaction has been down for several years, with the percent-

ages recently falling below 45%. 35

Conference Board surveys fi nd fewer and fewer people

saying that they are satisfi ed with their jobs. In 1987 about 61% of workers said they were

satisfi ed. By 2008 that number had dropped to 49%, and by 2010, after the eff ects of the

recession were in full force, it dropped further to 45%. Younger workers under 25 were the

least happy with their jobs, with 64% reporting dissatisfaction. Among other fi ndings, only

51% of all workers surveyed said their jobs were interesting, 56% liked their co-workers, and

51% were satisfi ed with their supervisors. Th ese data suggest “something troubling about

work in America,” according to a Conference Board analyst. 36

Job Satisfaction Outcomes

Eff ective managers and team leaders help their employees and teammates to achieve not

just higher levels of work performance, but also higher job satisfaction as well. People

deserve to have satisfying work experiences, and job satisfaction is an important goal, if for

no other reason than on quality-of-work-life grounds alone. But, is job satisfaction import-

ant in other than a “feel-good” sense? In other words, does job satisfaction matter when it

comes to measurable organization-critical outcomes? Here is what we know about the con-

sequences of job satisfaction.

Job Satisfaction and Withdrawal Behaviors There is a strong relationship between job satisfaction and the withdrawal behaviors

of temporary absenteeism and actual job turnover. With regard to absenteeism, workers

who are more satisfied with their jobs are absent less often than workers who are dis-

satisfied with their jobs. With regard to turnover, satisfied workers also are more likely

to stay in their positions while dissatisfied workers are more likely to quit their jobs. 37

Both fi ndings are important. Absenteeism and turnover are costly in terms of the recruit-

ment and training needed to replace workers, as well as in the productivity lost while new

workers are learning how to perform the job tasks of the vacated positions up to expecta-

tions. 38

In fact, the results from one recent study revealed that changing retention rates up

or down results in magnifi ed changes to corporate earnings. It also warns about the negative

impact of declining employee loyalty and high turnover on corporate performance. 39

Job

satisfaction can hit the bottom line in many ways.

Job Satisfaction and Employee Engagement A survey of 55,000 American workers by the Gallup organization suggests that business prof-

its rise with higher levels of employee engagement—a strong sense of belonging or con-

nection with one’s job and employer. 40

Engagement shows up as a willingness to help others,

always trying to do something extra to improve work performance, and feeling and speaking

positively about the organization. Th e Gallup research shows that the things that counted

most toward employee engagement were workers believing that they had the opportunity

to do their best every day, that their opinions count, that fellow workers are committed to

Withdrawal behaviors occur as

temporary absenteeism and actual job

turnover.

Employee engagement is a strong

positive feeling about one’s job and the

organization.

353Attitudes

quality, and that there is a direct connection between their work and the company’s

mission. 41

Of course the fl ip side of engagement is disengagement. It shows up as low com-

mitment, lack of loyalty, absenteeism and turnover, and even disruptive and harmful work

behaviors. Gallup reports that roughly 18% of workers in its surveys report being “actively

disengaged” from their work. 42

Employee engagement is strongly connected with two other attitudes that infl uence

work behavior. Job involvement is the extent to which an employee feels dedicated to a job.

Someone with high job involvement psychologically identifi es with her or his job, and, for

example, would be expected to work beyond expectations to complete a special project, or

stay late to help a co-worker fi nish an assignment. Organizational commitment refl ects

the degree of loyalty an employee feels toward the organization. Individuals with a high level

of organizational commitment identify strongly with the organization and take pride when

viewing themselves as an organization member. Researchers fi nd that strong emotional

commitment to the organization—based on values and interests of others—has as much as

four times more positive infl uence on performance than rational commitment—which is

based primarily on pay and self-interest. 43

Job Satisfaction and Organizational Citizenship Have you ever wondered about those people who are always willing to “go beyond the call

of duty” or “go the extra mile” in their work? 44

Such actions represent organizational

citizenship behavior, OCB, and also are linked with job satisfaction. 45

A good organizational

citizen does things that, although not formally required, help advance the performance of

co-workers, the work unit, and the organization as a whole. Examples of OCBs include a

service worker who goes to extraordinary lengths to take care of a customer, a team member

who is always willing to take on extra tasks, or an employee who always volunteers to stay

late with no extra pay just to make sure a key assignment gets done right.

Job involvement is the extent to which

an individual feels dedicated to a job.

Organizational commitment is the

loyalty an individual feels toward the

organization.

Organizational citizenship behavior

is a willingness to “go beyond the call of

duty” or “go the extra mile” in one’s work.

L ook for losses in the bottom line when rudeness rules the work-place. Most managers say they are against incivility and try to stop it whenever they can. But it’s also the case that managers don’t

have a good handle on the real costs incurred when employees

are rude and disrespectful toward one another. When researchers

asked 800 workers from diff erent industries about how they re-

sponded when exposed to incivility at work, results showed:

■ 48% decreased work eff ort

■ 47% cut back time spent at work

■ 80% lost work time due to worry

■ 63% performed less well

■ 78% were less committed to the organization

■ 25% took frustration out on customers

YOUR THOUGHTS?

How about it, have you been on the receiving end of incivility? Is incivility taking a toll on the teams and organizations in your life? Is improved civility a hidden pathway to higher per formance in our workplaces? How can such improvements be achieved? Are you, for one, ready to put your best foot forward?

analysis> MAKE DATA YOUR FRIEND > Managers don’t have a good handle on the real costs incurred when employees are rude

and disrespectful toward one another.

Paying a High Price for Incivility at Work

354 CHAPTER 15 ■ Individual Behavior

Of course, the fl ip side of positive organizational citizenship is antisocial and counter-

productive behavior that disrupts work processes, relationships, teamwork, satisfaction,

and performance. 46

Two of its common forms are incivility and bullying. 47

Incivility is

antisocial behavior that shows up as individual or group displays of disrespectful acts,

social exclusion, and use of language that is hurtful to others. Bullying is antisocial

behavior, again individual or group, that is intentionally aggressive, intimidating, demeaning,

and/or abusive toward the recipients. Both incivility and bullying behaviors occur on a

continuing basis, making them clearly diff erent from what might be considered just one-time

“bad” behaviors.

Job Satisfaction and Job Performance Airline passengers are easily frustrated, but a report on passenger satisfaction by J. D. Power

& Associates states a conclusion that probably seems obvious: Customers tend to be more

satisfi ed when airline employees smile when dealing with them. Th e report went on to state

“One of the things we see is that when you see companies that have high internal employee

satisfaction, they have high customer satisfaction as well.” 48

Although it makes sense that an

employee’s job satisfaction in service industries will be linked with customer satisfaction,

scholars report that the satisfaction and performance relationship

is generally more complicated. 49

Th ree plausible arguments are

depicted in the small fi gure.

Th ere is probably a modest link between job satisfaction and

objective or quantifi able performance. 50

But, it is important to stress

the word modest when describing this relationship. We shouldn’t

rush to conclude that making employees happy or increasing their

job satisfaction is a foolproof way to improve their job performance.

Th e reality is that some employees will tend to like their jobs, be very

satisfi ed, and still will not perform very well. Th at is just part of the

complexity regarding the potential impact of individual diff erences

on job performance. Consider the implications of this sign that once

hung in a tavern near a Ford plant in Michigan: “I spend 40 hours a

week here, am I supposed to work too?”

Th ere also is a link between high levels of work performance and job satisfaction.

High-performing employees are likely to feel satisfi ed with their work. Here again, caution is

called for; not everyone is likely to fi t the model. Some employees may get their jobs done

eff ectively and effi ciently, meet high performance expectations, but still not feel satisfi ed

with their job. Given that job satisfaction is a good predictor of absenteeism and turnover,

managers are well advised to take steps to avoid losing highly productive but unhappy work-

ers. Unless changes are made to increase their job satisfaction, productive employees may

choose to leave, hurting fi rm performance.

Finally, job satisfaction and job performance most likely have a reciprocal infl uence on

one another—each playing a role in the level of the other. But the relationship between job

satisfaction and performance also is most likely to hold only under certain conditions, par-

ticularly those related to rewards. We know that job performance followed by rewards that

employees value and perceive as fair tends to create job satisfaction. Th is experienced satis-

faction is likely to increase motivation to work hard and achieve high performance in the

future in order to gain additional rewards.

Incivility is antisocial behavior in

the forms of disrespectful acts, social

exclusion, and use of hurtful language.

Bullying is antisocial behavior that is

intentionally aggressive, intimidating,

demeaning, and/or abusive.

Learning Check 3

TAKEAWAYQUESTION 3 How do attitudes infl uence individual behavior?

BE SURE YOU CAN • defi ne attitude and list the three components of an attitude • defi ne job satisfaction and list its

components • explain the potential consequences of high and low job satisfaction • defi ne employee engagement, job

involvement, organizational commitment, and organizational citizenship behavior • explain three arguments in the job

satisfaction and performance relationship

"The happy worker is a productive worker."

Satisfaction Performance

"The productive worker is a happy worker."

Performance Satisfaction

"Performance followed by rewards creates satisfaction; satisfaction influences future performance."

Performance Rewards Satisfaction

Arguments in the Job Satisfaction and Performance Relationship

355Emotions, Moods, and Stress

“I was really mad when Prof. Nitpicker criticized my presentation.”

• Linked with a specifi c cause

• Tends to be brief or episodic

• Specifi c eff ect on attitude, behavior

• Might turn into a mood

Understanding Emotions

Emotions, Moods, and Stress TAKEAWAY 4 How do emotions, moods, and stress infl uence individual behavior?

Emotions • Moods • Stress and strain

Situation: Th e Boeing 787 Dreamliner is falling further behind on its promised delivery

schedule. Boeing’s former head of Asia-Pacifi c sales, John Wojick, is in a meeting with the

chief sales offi cer. After a “heated” discussion over delivery dates and customer promises,

Wojick “storms” out. He says: “Quite frankly we were failing at meeting our commitment to

customers. Some of us may have been able to handle our emotions a little better than others.”

Now Boeing’s senior vice president of global sales, Wojick is described as having “an under-

stated manner” and an underlying “fi ery temper.” 51

Looking at this incident we might say that Wojick was emotional about the fact that his

customers weren’t being well served. His temper fl ared and his anger got the better of him

during the meeting. Whether that was good or bad for his clients . . . for him . . . and for his

boss, is an open question. But, for a time at least, he and his boss both probably ended up in

bad moods because of their stressful confrontation.

Emotions

Emotional intelligence is an important human skill for managers and an essential leader-

ship capability. Daniel Goleman defi nes “EI” as the ability to understand emotions in

ourselves and in others, and to use this understanding to manage relationships eff ectively. 52

His point is that we perform at our best when we are good at recognizing and dealing with

emotions. Emotional intelligence helps us to avoid letting our emotions “get the better of us.”

Emotional intelligence also allows individuals to show restraint when the emotions of others

would otherwise get the better of them. 53

An emotion is a strong feeling directed toward someone or something. For example, you

might feel positive emotion or elation when an instructor congratulates you on a fi ne class

presentation; you might feel negative emo-

tion or anger when an instructor criticizes

you in front of the class. In both cases the

object of your emotion is the instructor, but

the impact of the instructor’s behavior on

your feelings is quite diff erent. How you

respond to the aroused emotions is likely to

diff er as well—perhaps breaking into a wide

smile with the compliment, or making a

nasty side comment after the criticism.

Moods

Whereas emotions tend to be short term and clearly targeted, moods are more generalized

positive and negative feelings or states of mind that may persist for a longer period of time. 54

Everyone seems to have occasional moods, and we each know the full range of possibilities

they represent. How often do you wake up in the morning and feel excited, refreshed, and

happy? In contrast, how often do you wake up feeling low, depressed, and generally unhappy?

What are the consequences of these diff erent moods for your behavior with friends and

family, and your performance at work or at school?

Positive and negative emotions can spill over and become “contagious,” causing others

to display similarly positive and negative moods. Th is mood contagion can easily infl u-

ence one’s co-workers and teammates, as well as family and friends. 55

When a leader’s

mood contagion is positive, for example, researchers fi nd that followers display more pos-

itive moods, report being more attracted to their leaders, and rate their leaders more

favorably. 56

And in social media, emotion and mood contagion has been identifi ed in net-

works of online connections. In a study of Facebook posts, James Fowler and colleagues

LEARN MORE

ABOUT

Emotional intelligence is an ability

to understand emotions and manage

relationships eff ectively.

Emotions are strong feelings directed

toward someone or something.

Moods are generalized positive and

negative feelings or states of mind.

Mood contagion is the spillover of

one’s positive or negative moods to

others.

EEEmmmmmmoootttiiooonnnnss,,, MMMMMooooooooddddssss,,, aandd SStttreessss

356 CHAPTER 15 ■ Individual Behavior

found that positive updates tend to generate positive posts by others while negative updates

tend to generate negative ones. Th e contagion eff ect is higher for positive posts. Fowler’s

interpretation of these data is that “people are not just choosing other people like them-

selves to associate with but actually causing their friends’ emotional expressions to change

. . . emotional expressions spread online . . . positive expressions spread more than negative.” 57

With regard to CEO moods, a BusinessWeek article claims it pays to be likable. 58

If a

CEO goes to a meeting in a good mood and gets described as “cheerful,” “charming,”

“humorous,” “friendly,” and “candid,” she or he may be viewed as being on a professional

upswing. But if the CEO is in a bad mood and comes away perceived as “prickly,” “impa-

tient,” “remote,” “tough,” “acrimonious,” or

even “ruthless,” she or he may be more

likely to be perceived as being on a profes-

sional downhill slide. Many CEOs, C-suite

executives, and ambitious managers are

hiring executive coaches to help them

learn how to better manage emotions and

moods to come across as personable and

friendly at public relations events and in

professional relationships. 59

Stress and Strain

Closely aligned with emotions and moods is stress, a state of tension caused by extraordi-

nary demands, constraints, or opportunities. 60

It is certainly a powerful life force to be reck-

oned with. In one survey of college graduates, for example, 31% reported working over

50 hours per week, 60% rushed meals, 34% ate lunches “on the run,” and 47% of those under

35 and 28% of those over 35 had feelings of job burnout. 61

A study by the Society for Human

Resources Management (SHRM) found that 70% of those surveyed worked over and above

scheduled hours, including putting in extra time on the weekends; over 50% said that the

pressure to do the extra work was “self-imposed.” 62

Stressors Stressors are the experiences and events that cause tensions in our lives. Whether they come

from work or non-work situations, from personality, or from trauma, stressors infl uence our

attitudes, emotions and moods, behavior, job performance, and even health. 63

Having the

Type A personality discussed earlier is an example of a personal stressor. Stressful life situa-

tions include such things as family events (e.g., the birth of a new child, marriage, divorce,

moving), economics (e.g., a sudden loss of extra income), and personal aff airs (e.g., a preoccu-

pation with a bad relationship). Importantly, stressors from one space—work or non-work—

can spill over to aff ect other areas of one’s life.

Work can be full of stressors. In fact, 34% of workers in one survey reported that their jobs

were so stressful that they thought of quitting. 64

We can experience work stressors like long

hours of work, excessive e-mails, unrealistic deadlines, diffi cult supervisors or co-workers,

unwelcome or unfamiliar work, and unrelenting change. Potential stressors also include

excessively high or low task demands, role confl icts or ambiguities, poor interpersonal

relations, and career progress that is too slow or too fast. Two troublesome stress syndromes

caused by managerial miscues are set up to fail—holding performance expectations are

impossible to reach or for which the available support is inadequate to the task, and mistaken

identity—put people in jobs that don’t match their talents, or that they simply don’t like. 65

Constructive Stress and Destructive Strain Outcomes associated with the process of experiencing and dealing with stress vary from

person to person and also from situation to situation. At times we experience constructive

stress, sometimes called eustress, that is energizing and performance enhancing. 66

Th is is

a positive stress outcome that encourages increased eff ort, stimulates creativity, and

Stress is a state of tension caused by

extraordinary demands, constraints, or

opportunities.

A stressor is anything that causes

tension.

Constructive stress or eustress is

a positive stress outcome that can

increase eff ort, stimulate creativity, and

encourage diligence in one’s work.

“I just feel lousy today and don’t have any energy. I’ve been down all week.”

• Hard to identify the cause

• Tends to linger, and be long-lasting

• General eff ect on attitude, behavior

• Can be “negative” or “positive”

Understanding Moods

357Emotions, Moods, and Stress

enhances diligence, while still not overwhelming the individual or causing negative health

or behavioral outcomes. Individuals with a Type A personality, for example, are likely to

work long hours and are less likely to be satisfi ed with poor performance. Challenging task

demands move them toward ever-higher levels of task accomplishment. Even non-work

stressors such as new family responsibilities may cause them to work harder in anticipation

of greater fi nancial rewards.

All too often it seems, we experience destructive stress or strain that shows up as a

dysfunctional or negative impact on physical well-being, mental health, and behavior. 67

Medical researchers, for example, are concerned that too much strain harms health by

reducing resistance to disease and increasing the likelihood of physical and/or mental

illness. Other possible adverse health problems include hypertension, ulcers, substance

abuse, overeating, depression, and muscle aches, among a wide range of other negative health

outcomes. 68

Figure 15.3 shows that people experiencing destructive stress at work may react through

turnover, absenteeism, errors, accidents, dissatisfaction, and reduced work performance.

A common outcome is job burnout, feelings of physical and mental exhaustion that can be

personally incapacitating. A less common but very troubling outcome is workplace rage,

aggressive behavior toward co-workers and the work setting in general. Most often this rage is

temporary and moderate, such as lost tempers. But, it can also explode into disturbing acts of

violence and personal tragedy. 69

Destructive stress or strain is a

negative stress outcome that impairs

the performance and well-being of an

individual.

Job burnout is a feeling of physical and

mental exhaustion from work stress.

Tension Must Be Finely Tuned

A trip to the symphony can be a wonderful experience, and the violinists are often

standout performers. When the tension on a violin string is just right, a talented artist

can create a beautiful sound. But if the string is too loose the sound is weak, and if it’s too

tight the sound is shrill and the string can snap. Stress is a lot like the tension on a violin

string. It sometimes adds a creative high-performance edge to what we are doing. But

other times there’s too little or too much tension on the system. With too little tension

we can get lazy and underperform. With too much tension we also may underperform

while working too many hours, eating too many lunches “on the run,” missing too many

family and leisure activities . . . and end up with feelings of job burnout.St o

ck b

yt e/

G et

Management&PopularCulture

y y

Strain and Burnout

• Lack of energy • Emotional distress

• Bad attitude • Poor self-esteem

Possible Effects • Lower performance • Lower satisfaction • Workplace rage

• Personal problems • Poor health

Intense or Long-term

Stress

FIGURE 15.3 Potential negative consequences of a destructive job stress–burnout cycle.

Workplace rage is showing aggressive

behavior toward co-workers or the work

setting.

358 CHAPTER 15 ■ Individual Behavior

Stress and Strain Management Th e best strategy to manage work stress and strain is to prevent it from becoming excessive

in the fi rst place. A top priority for individuals and employers is personal wellness. Individ-

ually personal wellness means taking personal responsibility for your physical and mental

health through a disciplined approach to such things as smoking, alcohol use, diet, exercise,

and physical fi tness. As an employer this could mean setting up wellness programs and

assistance plans to help employees follow through with wellness commitments to healthy

living, and insurance plans that include preventative services.

Strain also can be managed by taking actions to cope with and, hopefully, minimize

the impact of personal and non-work stressors. Family diffi culties may be relieved by a

change in work schedule, or the anxiety these stressors cause may be reduced by a

supportive supervisor. 70

Work stressors can sometimes be dealt with by role clarifi cation

through frank and open communication between supervisors and co-workers. Jobs can

sometimes be redesigned to eliminate a poor fi t between individuals’ abilities and job

demands.

Some employers are trying to reduce the tendency to “work too much” as a way of helping

people “do better work.” Surveys by Glassdoor, for example, show that only 25% of American

workers used all their vacation days, and that 15% didn’t take any at all. 71

Th e consulting

fi rm KPMG uses a wellness scorecard to track and counsel workers who skip vacations and

work excessive hours of overtime. Harvard scholar Leslie Perlow says the goal is to avoid “a

feeling of having no time truly free from work, no control over work and no opportunity to

ask questions to clarify foggy priorities.” 72

Th e work–life balance issue—and getting a break

from work—is critical for relieving the negative consequences of work stressors, including

signifi cant employee health outcomes. 73

Personal wellness is the pursuit of

one’s full potential through a personal

health-promotion program.

Learning Check 4

TAKEAWAYQUESTION 4 How do emotions, moods, and stress infl uence individual behavior?

BE SURE YOU CAN • defi ne emotion, mood, and stress • explain how emotions and moods infl uence behavior • identify the

common stressors found in work and in personal life • diff erentiate constructive stress and destructive strain • defi ne job

burnout and workplace rage • discuss personal wellness as a stress management strategy

359Management Learning Review

Summary

TAKEAWAYQUESTION 1 How do perceptions infl uence individual behavior?

• Perception acts as a fi lter through which people receive and process information from the environment.

• Because people perceive things differently, they may interpret and respond to situations differently.

• A healthy psychological contract occurs with perceived balance between work contributions, such as time and effort, and inducements received, such as pay and respect.

• Fundamental attribution error occurs when we blame others for performance problems while excluding possible external causes; self-serving bias occurs when we take personal credit for successes and blame failures on external factors.

• Stereotypes, projection, halo effects, and selective perception can distort perceptions and result in errors as people relate with one another.

FOR DISCUSSION Are there times when self-serving bias is actually helpful?

TAKEAWAYQUESTION 2 What should we know about personalities in the workplace?

• Personality is a set of traits and characteristics that cause people to behave in unique ways.

• The personality factors included in the Big Five model are extraversion, agreeableness, conscientiousness, emotional stability, and openness to experience.

• The Myers-Briggs Type Indicator profi les personalities in respect to tendencies toward extraversion–introversion, sensing–intuitive, thinking–feeling, and judging– perceiving.

• Additional personality dimensions of work signifi cance include the personal conception traits of locus of control, authoritarianism, Machiavellianism, and behavioral self-monitoring, as well as the emotional adjustment trait of Type A orientation, and technology personality.

FOR DISCUSSION What dimension would you add to make the “Big Five” the “Big Six” personality model?

TAKEAWAYQUESTION 3 How do attitudes infl uence individual behavior?

• An attitude is a predisposition to respond in a certain way to people and things.

• Cognitive dissonance occurs when a person’s attitude and behavior are inconsistent.

• Job satisfaction is an important work attitude that refl ects a person’s evaluation of the job, co-workers, and other aspects of the work setting.

• Job satisfaction infl uences work attendance and turnover and is related to other attitudes, such as job involvement and organizational commitment.

• Three possible explanations for the job satisfaction-to- performance relationship: satisfaction causes perfor- mance, performance causes satisfaction, and rewards cause both performance and satisfaction.

FOR DISCUSSION What should a manager do with an employee who has high job satisfaction but relatively low performance?

TAKEAWAYQUESTION 4 How do emotions, moods, and stress infl uence individual behavior?

• Emotions are strong feelings that are directed at someone or something; they infl uence behavior, often with intensity and for short periods of time.

• Moods are generalized positive or negative states of mind that can persistently infl uence one’s behavior.

• Stress is a state of tension experienced by individuals facing extraordinary demands, constraints, or opportunities.

• Stress can be constructive in the form of eustress or destructive as strain; a moderate level of strain typically has a positive impact on performance.

• Strain can be managed through both prevention and coping strategies, including a commitment to personal wellness.

FOR DISCUSSION Is a Type A personality required for managerial success?

Management Learning Review Get Prepared for Quizzes and Exams

360 CHAPTER 15 ■ Individual Behavior

Multiple-ChoiceQuestions 1. In the psychological contract, job security is a(n)

__________, whereas loyalty is a(n) __________. (a) satisfi er factor, hygiene factor (b) intrinsic reward, extrinsic reward (c) inducement, contribution (d) attitude, personality trait

2. Self-serving bias is a form of attribution error that involves __________. (a) blaming yourself for problems caused by others (b) blaming the environment for problems you

caused (c) poor emotional intelligence (d) authoritarianism

3. If a new team leader changes job designs for persons on her work team mainly “because I would prefer to work the new way rather than the old,” the chances are that she is committing a perceptual error known as __________. (a) halo effect (b) stereotype (c) selective perception (d) projection

4. If a manager allows one characteristic of a person, say a pleasant personality, to bias performance ratings of that individual overall, the manager is committing a perceptual distortion known as __________. (a) halo effect (b) stereotype (c) selective perception (d) projection

5. Use of special dress, manners, gestures, and vocabulary words when meeting a prospective employer in a job interview are all examples of how people use __________ in daily life. (a) projection (b) selective perception (c) impression management (d) self-serving bias

6. A person with a(n) __________ personality would most likely act unemotionally and manipulatively when trying to infl uence others to achieve personal goals. (a) extraverted (b) sensation-thinking (c) self-monitoring (d) Machiavellian

7. When a person believes that he or she has little infl uence over things that happen in life, this indicates a(n) __________ personality. (a) low emotional stability (b) external locus of control (c) high self-monitoring (d) intuitive-thinker

8. Among the Big Five personality traits, __________ indicates someone who is responsible, dependable, and careful with respect to tasks. (a) authoritarianism (b) agreeableness (c) conscientiousness (d) emotional stability

9. The __________ component of an attitude is what indicates a person’s belief about something, whereas the __________ component indicates a specifi c positive or negative feeling about it. (a) cognitive, affective (b) emotional, affective (c) cognitive, attributional (d) behavioral, attributional

10. The term used to describe the discomfort someone feels when his or her behavior is inconsistent with an expressed attitude is __________. (a) alienation (b) cognitive dissonance (c) job dissatisfaction (d) person–job imbalance

11. Job satisfaction is known from research to be a good predictor of __________. (a) job performance (b) job burnout (c) conscientiousness (d) absenteeism

12. A person who is always willing to volunteer for extra work or to help someone else with his or her work is acting consistent with strong __________. (a) job performance (b) self-serving bias (c) emotional intelligence (d) organizational citizenship

13. Which statement about the job satisfaction–job performance relationship is most likely based on research? (a) A happy worker will be a productive worker. (b) A productive worker will be a happy worker. (c) A productive worker well rewarded for performance

will be a happy worker. (d) There is no link between being happy and being

productive in a job.

14. A(n) __________ represents a rather intense but short- lived feeling about a person or a situation, whereas a(n) __________ describes a more generalized positive or negative state of mind. (a) stressor, role ambiguity (b) external locus of control, internal locus of

control (c) self-serving bias, halo effect (d) emotion, mood

Self-Test 15

361Management Skills & Competencies

15. Through ____________, the stress people experience in their personal lives can create problems for them at work while the stress experienced at work can create problems for their personal lives. (a) eustress (c) spillover effects (b) self-monitoring (d) selective perception

Short-ResponseQuestions 16. What is a healthy psychological contract?

17. What is the difference between self-serving bias and fundamental attribution error?

18. Which three of the Big Five personality traits do you believe most affect how well people work together in organizations, and why?

19. Why is it important for a manager to understand the Type A personality?

EssayQuestion 20. When Scott Tweedy picked up a magazine article on

how to manage health care workers, he was pleased to fi nd some advice. Scott was concerned about poor or mediocre performance on the part of several respiratory therapists in his clinic. The author of the article said that the “best way to improve performance is to make your workers happy.” Scott was glad to have read this article and made a pledge to himself to start doing a much better job of making his employees happy. But should Scott follow this advice? What do we know about the relationship between job satisfaction and performance, and to apply this knowledge to the performance problems Scott has observed at his clinic?

Evaluate Career Situations

What Would You Do?

1. Putting Down Seniors

While standing on line at the offi ce coff ee machine, you over-

hear the person in front of you saying this to his friend: “I’m

really tired of having to deal with the old-timers in here. It’s

time for them to call it quits. Th ere’s no way they can keep up the

pace and handle all the new technology we’re getting these days.”

You can listen and forget, or you can listen and act. What would

you do or say here, and why? What does this comment suggest

regarding age-based attributions of technology personality?

2. Compulsive Co-worker

You’ve noticed that one of your co-workers is always rushing,

always uptight, and constantly criticizing herself while on the

job. She never takes breaks when the rest of you do, and even

at lunch it’s hard to get her to stay and just talk for a while.

Your guess is that she’s fi ghting stressors from some sources

other than work and the job itself. How can you help her out?

What might you say?

3. Bad Mood in the Offi ce

Your department head has just told you that some of your

teammates have complained to him that you have been in a

really bad mood lately. Th ey like you and point out that this

isn’t characteristic of you at all. But, they also think your

persistent bad mood is rubbing off on others in this situation.

What can you do? Is there anything your supervisors or

co-workers might do to help you get out of your funk?

Refl ect on the Self-Assessment

Self-Monitoring

Instructions Indicate your agreement with the following statements by cir-

cling the value that aligns with your belief. For example, if you

believe that a statement is always false, circle the 0 next to that

statement. 74

5 5 Certainly, always true

4 5 Generally true

3 5 Somewhat true, but with exceptions

2 5 Somewhat false, but with exceptions

1 5 Generally false

0 5 Certainly, always false

1. In social situations, I have the ability to alter

my behavior if I feel that something else is

called for.

5 4 3 2 1 0

2. I am often able to read people’s true emotions

correctly through their eyes.

5 4 3 2 1 0

3. I have the ability to control the way I come

across to people, depending on the

impression I wish to give them.

5 4 3 2 1 0

4. In conversations, I am sensitive to even the

slightest change in the facial expression of

the person I’m conversing with.

5 4 3 2 1 0

ManagementSkills& Competencies Make yourself valuable!

362 CHAPTER 15 ■ Individual Behavior

5. My powers of intuition are quite good when it

comes to understanding others’ emotions and

motives.

5 4 3 2 1 0

6. I can usually tell when others consider a joke

in bad taste, even though they may laugh

convincingly.

5 4 3 2 1 0

7. When I feel that the image I am portraying

isn’t working, I can readily change it to

something that does.

5 4 3 2 1 0

8. I can usually tell when I’ve said something

inappropriate by reading the listener’s eyes.

5 4 3 2 1 0

9. I have trouble changing my behavior to suit

diff erent people and diff erent situations.

5 4 3 2 1 0

10. I have found that I can adjust my behavior to

meet the requirements of any situation I fi nd

myself in.

5 4 3 2 1 0

11. If someone is lying to me, I usually know it at

once from that person’s manner of expression.

5 4 3 2 1 0

12. Even when it might be to my advantage, I

have diffi culty putting up a good front.

5 4 3 2 1 0

13. Once I know what the situation calls for, it is

easy for me to regulate my actions accordingly.

5 4 3 2 1 0

Scoring Add the circled numbers except for 9 and 12. Th ese are reverse-

scored and you should add them into your total using these

conversions: 5 5 0, 4 5 1, 3 5 2, 2 5 3, 1 5 4, 0 5 5. High self-monitoring is indicated by scores above 53.

Interpretation Th is instrument off ers an indication of your awareness of how

you are being perceived by others and their reactions to your be-

havior in social situations. Persons with a high self-monitoring

score tend to be quite aware of their public persona—the im-

pression that they are leaving others with. Th ey can use their

ability to self-monitor to create a favorable social impression.

Th eir behavior tends to change to match the demands of the sit-

uation. Persons with a low self-monitoring score, by contrast, are

less aware of the impact that their words, actions, and expres-

sions are having on others. Th ey tend to maintain a fairly con-

sistent self-presentation style and manner, regardless of their

audience or the circumstances.

Contribute to the

Class Exercise

Job Satisfaction Preferences

Preparation Rank the following items for how important (1 5 least important to 9 5 most important) they are to your future job satisfaction.75

My job will be satisfying when it—

(a) is respected by other people.

(b) encourages continued development of knowledge and skills.

(d) provides a feeling of accomplishment.

(e) provides the opportunity to earn a high income.

( f ) is intellectually stimulating.

(g) rewards good performance with recognition.

(h) provides comfortable working conditions.

(i) permits advancement to high administrative

responsibility.

Instructions Form into groups as designated by your instructor. Th e group

should be split by gender into two subgroups—one composed of

men and one composed of women. Each group should fi rst rank

the items on their own. Th en, the men should develop a consen-

sus ranking of the items as they think women ranked them, and

the women should do a consensus ranking of the items as they

think men ranked them. Th e two subgroups should then get

back together to share and discuss their respective rankings,

paying special attention to reasons for the rankings attributed to

the opposite gender group. A spokesperson for the men and for

the women in each group should share their subgroup’s rankings

and highlights of the total group discussion with the class.

Optional Instructions Form into groups consisting entirely of men or women. Each

group should meet and decide which of the work values mem-

bers of the opposite sex will rank fi rst. Do this again for the work

value ranked last. Th e reasons should be discussed, along with

the reasons why each of the other values probably was not

ranked fi rst or last. A spokesperson for each group should share

group results with the rest of the class.

Manage a Critical Incident

Facing Up to Attributions

You are the senior section manager for a medium-sized manufac-

turing fi rm producing high-tech digital devices. You’ve worked with

this company for 8 years and supervise teams of materials engineers.

As senior manager, you manage these teams, keep them working

together eff ectively, and fi nd ways to cut costs and increase profi ts.

Because of recent government regulations, your manufacturing

processes have undergone substantial changes. Th e fi rm has had

to hire outside consultants to help with the manufacturing transi-

tion. Th e consultants have been tasked with training the engineers

on the new protocol and evaluating their performance, which has

declined substantially since the transition. Although historically

the engineers have been very productive and received high perfor-

mance evaluations, this last quarter the majority received poor

evaluations and has been formally reprimanded by upper manage-

ment. You have also been reprimanded for the reduced perfor-

mance. Th e consultants have attributed the performance declines

363Analyze the Case Study

to poor leadership and poor motivation. You know that neither the

leadership these teams are given nor their motivation has changed.

Questions What role might fundamental attribution errors and self-serving

bias be playing here? What are the potential consequences of

these poor performance evaluations and formal reprimands,

and what can you do to off set any negatives? How might you

explain the declining performance of the engineers, and what

might you do to stop these declines?

Collaborate on the

Team Activity

Diffi cult Personalities

Question What personalities cause the most problems when people

work together in teams, and what can be done to best deal

with them?

Instructions 1. Do a survey of friends, family, co-workers, and even the public

at large to get answers to these questions:

(a) When you work in a team, what personalities do you have

the most diffi culty dealing with?

(b) How do these personalities aff ect you, and how do they

aff ect the team as a whole?

ties” that you have described, what have you found to be

the best way of dealing with them?

(d) How would you describe your personality, and are there

any circumstances or situations in which you believe

others could consider your personality “diffi cult” to deal

with?

(e) Do you engage in any self-management when it comes to

your personality and how it fi ts when you are part of a team?

2. Gather the results of your survey, organize them for analysis,

and then analyze them to see what patterns and insights your

study has uncovered.

3. Prepare a report to share your study with the rest of your class.

AnalyzeTHE CaseStudy

PANERA BREAD

Growing a Company with Personality Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

When J. K. Rowling fi nished the fi rst of her Harry Potter books, she was a single mother living on just over $100 per week. “You sort of start thinking anything’s possible,” she once said: “If you’ve got enough nerve.”

Alessia Pierdomenico/Reuters/Corbis

Motivation

Th eory and

Practice Respect unlocks human potential

16 C H A P T E R Q U I C K STA RT

Th ere are times when all of us lack the motivation to do something and other

times when we are so “psyched” it’s hard to stop what we’re doing. Th ese contrast-

ing situations have intrigued and perplexed generations of social scientists. Even

though there’s more work for researchers to do, we’ve learned a lot about the con-

ditions under which people—ourselves and others—can be highly motivated to

work hard on the job, at school, and in leisure pursuits.

Key Takeaways

■ Explain theories of how

individual needs motivate

behavior.

■ Identify the infl uences of

expectancy, equity, goal-

setting, and self-effi cacy

processes on motivation.

■ Discuss the roles

reinforcement principles

and strategies play in

motivation.

■ Explain how job designs

and alternative work

schedules infl uence

motivation.

365

MANAGEMENT IS REAL MAKE DATA YOUR FRIEND

One in Five Americans Already Working from Home

THINK BEFORE YOU ACT

To Pay or Not to Pay More Than Minimum Wage

KNOW RIGHT FROM WRONG

Information Goldmine Creates Equity Dilemma

LEARN ABOUT YOURSELF

The Personal Side of Engagement

LEARN FROM ROLE MODELS

Video Game Motivates High-Risk Kids to Take Medicines

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Student Engagement Survey

■ CONTRIBUTE To the Class Exercise: Why We Work

■ MANAGE A Critical Incident: Great Worker Won’t Take Vacation

■ COLLABORATE On the Team Activity: CEO Pay . . . Too High, or Just Right?

■ ANALYZE Th e Case Study: SAS: Business Success Starts on the Inside

what to look for inside >

366 CHAPTER 16 ■ Motivation Th eory and Practice

D id you know that J. K. Rowling’s fi rst Harry Potter book was rejected by

12 publishers; that the Beatles’ “sound” cost them a deal with Decca

Records; and, that Walt Disney lost a newspaper job because he supposedly

“lacked imagination”? 1 Th ank goodness they each didn’t give up. Th eir “moti-

vation” to stay engaged, hard working, and confi dent in their work paid off

abundantly—for them and for the millions who have enjoyed the fruits of

their labors.

Did you also know that only about 13% of global workers surveyed by

Gallup report that they are actively “engaged” while 24% say they are actively

“disengaged” on any given workday . . . that 25% of American employers

believe their workers have low morale . . . that up to 40% of workers say that

they have trouble staying motivated? 2 Such data raise questions like: Why

do some people work enthusiastically, persevere in the face of diffi culty, and

often exceed the requirements of their job? Why do others hold back, quit at

the fi rst negative feedback, and do the minimum needed to avoid reprimand

or termination? What can be done to ensure that every person, at every task,

in every job, on every workday achieves the best possible performance? 3

Individual Needs and Motivation TAKEAWAY 1 How do individual needs infl uence motivation?

Hierarchy of needs theory • ERG theory • Two-factor theory Acquired needs theory

Th e term motivation describes forces within individuals that account for the level, direc-

tion, and persistence of eff ort they expend at work. Simply put, a highly motivated person

works hard at a job while an unmotivated person does not. One of a manager’s most

important responsibilities is to create conditions under which people feel consistently

inspired to work hard.

Most discussions of motivation begin with the concept of individual needs—individuals’

unfulfi lled physiological or psychological desires. Although each of the following theories

discusses a slightly diff erent set of needs, all agree that needs create tensions that lead indi-

viduals to act in ways to help meet their needs. Th ey suggest that managers should attempt

to help people satisfy important needs through their work, and try to eliminate obstacles

that block the satisfaction of needs.

Hierarchy of Needs Th eory

Abraham Maslow’s theory of human needs is an important foundation in the history of

management thought. Th e lower-order needs in his hierarchy include physiological,

safety, and social concerns, while higher-order needs include esteem and self-actualization

concerns. 4 Lower-order needs focus on desires for physical and social well-being;

higher-order needs focus on desires for psychological development and growth.

Maslow used two principles to describe how these needs aff ect human behavior. Th e

defi cit principle provides that a satisfi ed need no longer motivates behavior. People are

expected to act in ways that satisfy deprived needs—that is, needs for which there is a

“defi cit.” Th e progression principle states that the need at one level does not become

activated until the next-lower-level need in the hierarchy is already satisfi ed. People are

expected to advance step by step up the hierarchy in their quest for need satisfaction. Th is

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Motivation accounts for the level,

direction, and persistence of eff ort

expended at work.

A need is an unfulfi lled physiological

or psychological desire.

Lower-order needs are physiological,

safety, and social needs in Maslow’s

hierarchy.

Higher-order needs are esteem and self-

actualization needs in Maslow’s hierarchy.

Th e defi cit principle states that a

satisfi ed need does not motivate behavior.

Th e progression principle states that

a need isn’t activated until the next

lower-level need is satisfi ed.

IIIndddivviidduuaall NNNeeeedss anndd MMooottivaaatiioonnnnI

367Individual Needs and Motivation

progression principle ends at the level of self-actualization. According to the theory, the

need to self-actualize can never be met fully. In fact, the more the need for self-actualization

is satisfi ed, the stronger it is theorized to grow.

Figure 16.1 illustrates how managers can use Maslow’s ideas to better meet the needs of

the people with whom they work. Notice that higher-order self-actualization needs are

served by opportunities like creative and challenging work and job autonomy; esteem needs

are served by respect, responsibility, praise, and recognition. Th e satisfaction of lower-order

social, safety, and physiological needs depends on aspects of the work environment, such as

positive interactions with others, compensation and benefi ts, and reasonable working

conditions.

ERG Th eory

One of the most promising eff orts to build on Maslow’s work is the ERG theory proposed by

Clayton Alderfer. 5 Th is theory collapses Maslow’s fi ve needs categories into three. Existence

needs are desires for physiological and material well-being. Relatedness needs are desires

for satisfying interpersonal relationships. Growth needs are desires for continued psycho-

logical growth and development.

Existence and relatedness needs are similar to the lower-order needs in Maslow’s hier-

archy, while growth needs are essentially the higher-order needs in Maslow’s hierarchy.

Beyond that, the dynamics of ERG theory diff er somewhat from Maslow’s hierarchy of

needs.

ERG theory doesn’t include the progression principle that certain needs must be satisfi ed

before other needs become activated. Instead, it maintains the various needs can infl uence

individuals’ behavior at any given time. Alderfer also rejects the deficit principle that

only unsatisfi ed needs have motivational impact. According to his frustration-regression

principle, an already satisfi ed need can become reactivated and infl uence behavior when a

higher-level need cannot be satisfi ed. Workers who are stuck in simple and repetitive jobs

that off er little room for growth and limited opportunities for promotion, for example, will

be frustrated in attempts to satisfy their growth needs. Th eir response could be to refocus

attention on getting better work schedules, working conditions, and even pay and benefi ts

to further fulfi ll their existence needs.

Existence needs are desires for physical

well-being.

Relatedness needs are desires for good

interpersonal relationships.

Growth needs are desires for personal

growth and development.

Th e frustration-regression principle

states that an already satisfi ed need can

become reactivated when a higher-level

need is blocked.

What satisfies higher-order needs?

Self-actualization needs

Esteem needs Responsibility of an important job Promotion to higher status job Praise and recognition from boss

What satisfies lower-order needs?

Social needs Friendly co-workers Interaction with customers Pleasant supervisor

Safety needs Safe working conditions Job security Adequate compensation and benefits

Physiological needs Rest and refreshment breaks Physical comfort on the job Reasonable work hours

Creative and challenging work Participation in decision making Job autonomy

FIGURE 16.1 Opportunities for satisfaction in Maslow’s hierarchy

of human needs.

368 CHAPTER 16 ■ Motivation Th eory and Practice

Two-Factor Th eory

Frederick Herzberg developed the two-factor theory of motivation from a pattern discovered

in almost 4,000 interviews. 6 When asked what they disliked about their jobs, respondents

talked mostly about issues related directly to the nature of the work itself. Herzberg called

these satisfi er factors, or motivator factors. When asked what they liked, respondents

talked more about issues related to the actual work environment. Herzberg called these

hygiene factors. As shown in Figure 16.2, Herzberg argued that these two factors aff ect

people in diff erent ways.

A satisfi er factor is found in job

content, such as challenging and

exciting work, recognition,

responsibility, advancement

opportunities, or personal growth.

A hygiene factor is found in the job

context, such as working conditions,

interpersonal relations, organizational

policies, and compensation.

Job Dissatisfaction

Improving the satisfier factors

increases job satisfaction

Improving the hygiene factors

decreases job dissatisfaction

Herzberg's Two-Factor Principles

• Working conditions • Coworker relations • Policies and rules • Base compensation

Job Satisfaction

Influenced by Satisfier Factors

• Challenging, exciting work • Recognition • Responsibility • Advancement • Personal growth

Influenced by Hygiene Factors

FIGURE 16.2 Elements in Herzberg’s two-factor theory.

One of the hot topics in management these days is engage-ment. You might think of it as personal initiative and the willingness to “go the extra mile” at work. Diff erences in job en-

gagement show up many ways. Is someone enthusiastic or lethar-

gic, diligent or lazy, willing to do more than expected or willing to

do only what is expected? According to Tim Galbraith, vice presi-

dent of people development at Yum Brands, Inc., “A person who’s

truly engaged says ‘I’m willing to give a little bit more; I’m willing

to help my team members when I see they’re in need’.”

Th e Conference Board defi nes engagement as “a heightened

emotional connection” with the organization that infl uences an

employee to “exert greater discretionary eff ort in his or her work.”

Its surveys show that high engagement generates positive out-

comes like lower turnover, higher productivity, and better cus-

tomer service.

Th ere is a great deal of variation in employees’ work engage-

ment, and in students’ school engagement. Consider your experi-

ences as a customer. When you’re disappointed, perhaps with how

a banking transaction or how a fl ight delay is handled, ask: Would

a high level of employee engagement generate better customer

service in such situations? How about engagement by your

teammates in your management course? What do you see and

what would you predict for the future of your classmates based on

their engagement as students?

insight> LEARN ABOUT YOURSELF > Is someone enthusiastic or lethargic, diligent or lazy, willing to do more than expected or

willing to do only what is expected?

The Personal Side of Engagement

Signs of High Engagement

• Look for problems and fi x them.

• Do more than the minimum required.

• Start early, stay late, do the “extras.”

• Help others who are overwhelmed.

• Make improvements.

• Th ink ahead and plan for the future.

GET TO KNOW YOURSELF BETTER

Ask: “How engaged am I in projects at school and at work? Ask also: “What could my instructor do to help increase my engage- ment? By the same token, what could I do?” Write a summary of your answers. Discuss their implications for both (a) your remain- ing time as a student, and (b) your future career and your future actions in the workplace.

369Individual Needs and Motivation

Two-factor theory links hygiene factors with job dissatisfaction. Job dissatisfaction goes

up as hygiene quality goes down. Hygiene factors are found in the job context—the environ-

ment in which the work takes place—and include factors such as working conditions, inter-

personal relations, organizational policies and administration, and compensation. Herzberg

argued that improving in these factors, such as remodeling work spaces or adding a quality

cafeteria, can help to decrease job dissatisfaction. But, these hygiene improvements will not

increase job satisfaction and motivation.

Satisfi er factors are linked with job satisfaction. Th ey are found in the job content—the

nature of the work itself—and include things like job challenge, recognition for work well done,

a sense of responsibility, the opportunity for advancement, and feelings of personal growth.

Herzberg believed that the more satisfi er factors present in a job, the higher individuals’ work

motivation. Th e way to build such high-content jobs, he argued, is to make job holders

responsible for not just doing the work, but also planning and controlling its accomplishment.

Scholars have criticized Herzberg’s research on this theory as being method-bound and

diffi cult to replicate. 7 But he reports confi rming studies from around the world.

8 At the very

least, the two-factor theory is a reminder that all jobs have two important aspects: job

content—what people do in terms of job tasks—and job context—the work setting in which

they do it. Herzberg’s advice to managers also makes good sense: (1) Correct poor job

context to eliminate potential job dissatisfaction; (2) build satisfi er factors into job content

to maximize job satisfaction.

cancer medication schedules. Now imagine him playing the video

game called Re-Mission and maneuvering a nanobot called Roxxi

through the body of a cancer patient to destroy cancer cells. Th en

think about an article in the medical journal Pediatrics that re-

ports teen patients who play the game at least one hour a week do

a better job of sticking to their medication schedules.

What’s taking place is the brainchild of HopeLab, founded by

Pam Omidyar. An immunology researcher and gaming enthusiast,

Omidyar saw the possible link between games and fi ghting dis-

ease. Th e nonprofi t’s mission is combining “rigorous research with

innovative solutions to improve the health and quality of life of

young people with chronic illness.”

One of HopeLab’s products is Zamzee, described as a “game-

based website.” It includes an activity meter where kids earn

points for movement and activity. A recent research study looking

at possible benefi ts concluded that “kids using Zamzee increased

their moderate-to-vigorous physical activity (MVPA) by an aver-

age of 59%—or approximately 45 additional minutes of MVPA

per week.”

FIND THE INSPIRATION

Re-Mission is one positive step in the war against childhood cancer. One of HopeLab’s current priorities is to use video gaming in the fi ght against childhood obesity. Think about how creative approaches to motivation might be used to improve peoples’ lives in other ways as well.

wisdom> LEARN FROM ROLE MODELS > The nonprofi t’s mission is combining “rigorous research with innovative solutions to improve the health

and quality of life of young people with chronic illness.”

Video Game Motivates High-Risk Kids to Take Medicines

Although many of us play video games just for fun, teens with cancer can now play games that can help them to beat the disease. Picture a teenager who has a tough time keeping up with

HopeLab/AP/Wide World Photos

370 CHAPTER 16 ■ Motivation Th eory and Practice

Acquired Needs Th eory

David McClelland and his colleagues developed yet another approach to the study of human

needs. Th ey began by asking people to view pictures and write stories about what they saw. 9

Th ese stories were then content-analyzed for themes that

display the strengths of three needs—achievement, power,

and affi liation. According to McClelland, people acquire or

develop these needs over time as a result of individual life

experiences. Because each need can be linked with a distinct

set of work preferences, he encourages managers to under-

stand these needs in themselves and in others, and to try and

create work environments responsive to them.

Need for achievement is the desire to do something better or more effi ciently, to solve

problems, or to master complex tasks. People with a high need for achievement like to put

their competencies to work; they take moderate risks in competitive situations, and are

willing to work alone. As a result, high-need achievers’ work preferences include individual

responsibility for results, achievable but challenging goals, and performance feedback.

Need for power is the desire to control other people, to infl uence their behavior, or to

be responsible for them. People with a high need for power are motivated to behave in

ways that have a clear impact on other people and events. Th ey enjoy being in control of

situations and being recognized for this responsibility. Importantly, though, McClelland

distinguishes between two forms of the power need. Th e need for personal power is exploit-

ative and involves manipulation for the pure sake of personal gratifi cation. Th is type of

power need does not lead to management success. Th e need for social power involves the use

of power in socially responsible ways directed toward group or organizational objectives

rather than personal gains. Th is need for social power is essential to eff ective managerial

leadership.

Need for affi liation is the desire to establish and maintain friendly and warm relations

with other people. People with a high need for affi liation seek companionship, social approval,

and satisfying interpersonal relationships. Th ey tend to like jobs that involve working with

people and off er opportunities for social approval. Th is is consistent with managerial work.

But, McClelland believes that managers must be careful that high needs for affi liation don’t

interfere with decision making. Th ere are times when managers and leaders must act in

ways that others disagree with. If the need for affi liation limits the ability to make these

tough decisions, managerial eff ectiveness gets lost. In McClelland’s view, successful executives

are likely to have a high need for social power that is greater than an otherwise strong need

for affi liation.

Need for achievement is the desire to

do something better, to solve problems,

or to master complex tasks.

Need for power is the desire to control,

infl uence, or be responsible for other

people.

Need for affi liation is the desire to

establish and maintain good relations

with people.

• Challenging but achievable goals

• Feedback on performance

• Individual responsibility

Work Preferences of High-Need Achievers

Learning Check 1

TAKEAWAYQUESTION 1 How do individual needs infl uence motivation?

BE SURE YOU CAN • defi ne motivation and needs • describe work practices that satisfy higher-order and lower-order needs

in Maslow’s hierarchy • contrast Maslow’s hierarchy with ERG theory • describe work practices that infl uence hygiene factors

and satisfi er factors in Herzberg’s two-factor theory • explain McClelland’s needs for achievement, power, and affi liation

• describe work conditions that satisfy people with a high need for achievement

Process Th eories of Motivation TAKEAWAY 2 What are the process theories of motivation?

Equity theory • Expectancy theory • Goal-setting theory • Self-effi cacy theory

Although the details vary, each of the needs theories off ers insights on individual diff er-

ences and how managers can deal eff ectively with them. Another set of motivation theo-

ries, the process theories, add further to this understanding. Th ese include the equity,

expectancy, goal-setting, and self-effi cacy theories.

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PPPrrooceessss ThThTh eeoriiess off MMotttivvvatiiionnnP

371Process Th eories of Motivation

Equity Th eory

Fact: In 1965, the average CEO pay in S&P companies was 24 times that of the typical

worker; in 1980 it was 42 times; in 2001 it was 202 times; by 2012 it was 354 times.

How do these data strike you? 10

Do they motivate you as an aspiring CEO? Or, do they concern

you as someone who empathizes with hourly and lower-wage workers? For many people,

facts like these bring the words “equity” and “fairness” to mind. In fact, one of the best known

motivation theories is the equity theory of motivation, brought to us through the work of

J. Stacy Adams. 11

It is based on the idea that we all want to be treated fairly in comparison to

others. Th e theory suggests that being unfairly treated (whether we receive too little or too

much when compared to someone else) makes people uncomfortable. When this happens,

we’re motivated to eliminate the discomfort and restore a sense of perceived equity to the

situation.

Equity and Social Comparison Figure 16.3 shows how the equity dynamic works. According to equity theory, people compare

their outcomes-to-inputs ratio to the outcomes-to-inputs ratios of others (called a referent).

Outcomes are what an individual receives from work—including things like pay, benefi ts,

job security, advancement opportunities, autonomy, interesting work experiences, and any-

thing else that the employee values. Inputs are the qualifi cations an individual possesses

and the contributions made to the organization—including things like education, experi-

ence, special skills and training, the quality and quantity of work completed, and a positive

attitude and loyalty.

Perceived inequities occur whenever people feel that the outcomes they receive for their

work contributions are unfair in comparison to the outcomes received by others. Equity

comparisons are especially common whenever managers allocate rewards such as pay

raises, preferred job assignments, work privileges, and even offi ce space or new technology.

Equity comparisons can be made with co-workers—individual equity comparisons, others

at diff erent levels within the same organization—internal equity comparisons, or even

people employed by other organizations—external equity comparisons.

Equity Dynamics A key point in the equity theory is that people behave according to their perceptions.

For example, in the case of a pay raise it isn’t the reward’s absolute value or the manager’s

intentions that infl uence individuals’ behavior; the recipient’s perceptions determine the

motivational impact of the raise.

An individual who perceives that she or he is being treated unfairly in comparison to

others will be motivated to act in ways that reduce the perceived inequity. Th ere are two

basic types of inequity: over-reward or positive inequity and under-reward or negative

inequity. Over-reward inequity occurs when individuals perceive that they are receiving

more than what is fair. Th at is, the outcomes-to-inputs ratio is greater than that of a referent

other. While such perceptions do occur, it is much more common for individuals to experience

In over-reward inequity (positive

inequity) an individual perceives that

rewards are more than what is fair.

are compared to Personal outcomes

vis-a-vis personal inputs

with the result

Others' outcomes vis-a-vis

others' inputs ` `

Perceived Equity

The individual is satisfied and does not change behavior.

Perceived Inequity

The individual feels discomfort and acts to eliminate the inequity.

FIGURE 16.3 Equity theory and the role of social comparison.

372 CHAPTER 16 ■ Motivation Th eory and Practice

under-reward inequity. Th e perception here is of receiving less than what is deserved in

comparison to someone else. Adams predicted that people try to deal with such perceived

negative inequity in the following ways:

• Changing their work inputs by putting less eff ort into their jobs—“If that’s all I’m going

to get, I’m going to do a lot less.”

• Changing the rewards received by asking for better treatment—“Next stop, the boss’s

offi ce; I should get what I deserve.”

• Changing the inputs or outcomes of their referent—“Bob either needs to work as hard

as the rest of us or else he shouldn’t get the same bonus that we get.”

• Changing the person to whom you compare yourself to make things seem better—

“Well, if I look at Marissa’s situation, I’m still doing pretty well.”

• Changing the situation by leaving the job—“No way I’m going to stick around here if this

is the way you get treated.”

Equity Research and Insights Th e research on equity theory is most conclusive with respect to perceived negative inequity.

Th ose who feel under-rewarded appear to be more likely to make active attempts to restore equity

than those who feel over-rewarded. 12

But, there is some evidence that equity dynamics can

occur among people who feel perceived positive inequity from being over-rewarded. In such

cases, attempts to restore perceived equity may involve increasing the quantity or quality of work,

taking on more diffi cult assignments, or advocating for others to be compensated more fairly.

In under-reward inequity (negative

inequity) an individual perceives that

rewards are less than what is fair.

A worker opens the top of the offi ce photocopier and fi nds a document someone has left behind. It’s a list of performance evaluations, pay, and bonuses for 80 co-workers. She reads the

document, and fi nds something very surprising. Someone she

considers a “nonstarter” is getting paid more than others regarded

as “super workers.” New hires are also being brought in at much

higher pay and bonuses than those of current staff . To make matters

worse, she’s in the middle of the list and not near the top, where

she would have expected to be. Th e fact is she makes a lot less

money than many others.

Looking at the data, she begins to question why she is spend-

ing extra hours working evenings and weekends at home, trying

to do a really great job for the fi rm. She wonders to herself: “Should

I pass this information around anonymously so that everyone

knows what’s going on? Or should I quit and fi nd another em-

ployer who fully values me for my talents and hard work?”

In the end she decided to quit, saying: “I just couldn’t stand the

inequity.” She also decided not to distribute the information to

others in the offi ce because “it would make them depressed, like it

made me depressed.”

WHAT DO YOU THINK?

What would you do in this situation? You’re going to be con- cerned and perhaps upset. Would you hit “print,” make about 80 copies, and put them in everyone’s mailboxes—or even just leave them stacked in a couple of convenient locations? That would get the information out into the gossip chains pretty quickly. But is this ethical? If you don’t send out the information, on the other hand, is it ethical to let other workers go about their days with inaccurate assumptions about the fi rm’s pay practices? By quitting and not sharing the information, did this worker commit an ethics mistake?

ethics> KNOW RIGHT FROM WRONG > “Why don’t I pass this information along anonymously so that everyone

knows what’s going on?”

Information Goldmine Creates Equity Dilemma

Image Source/Getty Images

How people deal with under-reward inequity

373Process Th eories of Motivation

Managers should anticipate that perceptions of negative inequity arise when especially

visible rewards such as pay or promotions are given. Th ey should make sure that processes

for allocating rewards are objectively fair, and also that they are perceived to be fair. One way

to do this is to be as transparent as possible. At a minimum, managers should communicate

the intended value of the rewards being given, clarify the performance appraisals on which

they are based, and suggest appropriate comparison points. Th is advice is particularly

relevant in organizations using merit-based pay-for-performance systems. A common problem

in these systems is that what constitutes “meritorious” performance can be a source of

debate. Any disagreement over performance ratings increases the likelihood of negative

equity dynamics problems.

Equity Sensitivity While equity theory is based on the premise that all employees desire fairness, research

suggests that equity considerations are not equally important to all individuals. Th e idea of

equity sensitivity proposes that people have diff erent preferences for equity and thus react

diff erently to perceptions of inequity. Diff erences in equity sensitivity are usually described

as follows. 13

Benevolents are less concerned about being under-rewarded. Th ey more readily

accept situations of negative inequity while situations of positive inequity make them very

uncomfortable. Sensitives have a strong preference for equitable distribution of rewards.

Th ey react as the basic theory proposes. Entitleds have a desire to be over-rewarded. Th ey try

to create situations of positive inequity for themselves and react very negatively in situations

of perceived negative inequity.

Expectancy Th eory

Victor Vroom’s expectancy theory of motivation asks the question: What determines people’s

willingness to work hard at organizational-critical tasks? 14

Th e answer is that motivation

depends on the relationships between three expectancy factors depicted in Figure 16.4 and

described here:

• Expectancy—a person’s belief that working hard will result in achieving a desired level

of task performance (this is sometimes called eff ort-performance expectancy).

• Instrumentality—a person’s belief that successful performance will be followed

by rewards and other work-related outcomes (this is sometimes called performance-

outcome expectancy).

• Valence—the value a person assigns to the possible rewards and other work-related

outcomes.

Motivation 5 Expectancy 3 Instrumentality 3 Valence In expectancy theory, motivation (M), expectancy (E), instrumentality (I), and valence (V)

are related to one another in a multiplicative fashion: M 5 E 3 I 3 V. In other words, moti- vation is determined by expectancy times instrumentality times valence. Mathematically,

Equity sensitivity refl ects that people

have diff erent preferences for equity

and react diff erently to perceptions of

inequity.

Expectancy is a person’s belief that

working hard will result in high task

performance.

Instrumentality is a person’s belief that

various outcomes will occur as a result

of task performance.

Valence is the value a person assigns to

work-related outcomes.

to achievePerson exerts work effort

Expectancy

“If I work hard, can I achieve the desired level

of task performance?”

Instrumentality

“What work outcomes will be received as a result of the performance?”

and realizetask performance

Valence

“How highly do I value work outcomes?”

work-related outcomes

FIGURE 16.4 Elements in the expectancy theory of motivation.

374 CHAPTER 16 ■ Motivation Th eory and Practice

a zero at any location on the right side of the equation (that is, for E, I, or V) will result in zero

motivation. What this means in practice is that all three factors must be high and positive

for motivation to also be high. 15

Suppose, for example, that a manager is

wondering whether or not the prospect of

earning a promotion will be motivational

to a job holder. Expectancy theory predicts

that a person’s motivation to work hard for

a promotion will be low if any one or more

of the following three conditions apply.

First, if expectancy is low motivation will

suffer. This is a negative answer to the “If

I try hard, will I succeed?” question. Th e

person may lack confi dence that he or she

can achieve the performance level necessary to get promoted. So, why try? Second, if

instrumentality is low motivation will suff er. Th is is a negative answer to the “If I succeed,

will I be rewarded?” question. The person may lack confidence that a high level of task

performance will result in being promoted. Perhaps the manager is notorious for

promoting close friends or hiring from the outside, so why try? Third, if valence is

low motivation will suffer. This is a negative answer to the “What does the possible

reward for this hard work and performance achievement mean to me?” question. Th e per-

son may place little value on receiving a promotion because it would require longer

hours away from home or because it would require relocation to another city. It simply

isn’t a desired reward. So, why try for it?

Expectancy Theory Applications Expectancy theory reminds managers and team leaders that people answer the question

“Why should I work hard today?” in diff erent ways. Every person has unique needs, prefer-

ences, and concerns at work. Knowing this, a manager should try to build work environ-

ments that respect individual diff erences so that expectancies, instrumentalities, and

valences all support motivation.

To maximize expectancy, people must believe in their abilities. Th ey must believe that if

they try, they can perform. Th is is an issue of perceived competency. Managers can build

positive expectancies by selecting workers with the right abilities for the jobs to be done,

providing them with the best training and development, and supporting them with resources

so that the jobs can be accomplished. To maximize instrumentality, people must see the link

between high performance and work outcomes. Th is is an issue of rewards for accomplish-

ments. Managers can create positive instrumentalities by clarifying the possible rewards

for high performance and then allocating these rewards fairly and on a performance-

contingent basis. To maximize positive valence, people must value the outcomes associated

with high performance. Th is is an issue of individual diff erences. Managers can use the content

theories to help understand what needs are important to diff erent individuals. Steps can

then be taken to link these needs with outcomes having positive valences and that can be

earned through high performance.

Goal-Setting Th eory

Steven A. Davis rose through a series of management jobs to become CEO of Bob Evans

Farms in Columbus, Ohio. 16

His parents gave him lots of encouragement as a child. “Th ey

never said that because you are an African-American, you can only go this far or do only this

or that,” he says, “they just said ‘go for it’.” Davis set goals when he graduated from college—

to be a corporate vice president in 10 years and a president in 20. Expectancy theory would

suggest that his parents increased his motivation by creating high positive expectancy

during his school years. Goal-setting theory would suggest that Davis found lots of motiva-

tion through the goals he set as a college graduate.

Create high expectancies—Select capable workers, train them well, support

them with adequate resources.

Create high instrumentalities—Clarify rewards earned by performance, give

rewards on performance-contingent basis.

Create positive valences—Identify individual needs, off er rewards that satisfy

these needs.

Managing by Expectancy Theory

375Process Th eories of Motivation

Goal-Setting Essentials Th e basic premise of Edwin Locke’s goal-setting theory is that task goals can be highly

motivating if they are properly set and well managed. 17

Goals give people direction in their

work. Th ey clarify the performance expectations in supervisory relationships, between

co-workers, and across organizational subunits. Th ey establish a frame of reference for task

feedback. Goals also set a foundation for behavioral self-management.

Th e motivational benefi ts of goal setting occur when managers and team leaders work

with others to set the right goals in the right ways. Th e nearby box points out that goal

specifi city, goal diffi culty, goal acceptance, and goal commitment are all important. Managers

can use goal setting in these and related ways to enhance employees’ work performance and

job satisfaction.

Goal Setting and Participation Participation goes a long way toward unlocking the motivational power of task goals. When

managers and team members join in a participative process of goal setting and performance

review, members are likely to experience greater motivation. Participation increases under-

standing of task goals, increases acceptance and commitment to them, and creates more

readiness to receive feedback bearing on goal accomplishment.

It isn’t always possible to allow participation when selecting which goals need to be pur-

sued. But it can be possible to allow participation in deciding how best to pursue them. It’s

also true that the constraints of time and other factors in some situations may not allow for

More and more Americans are fi nding themselves in hourly paid jobs, and many—perhaps most—don’t pay very well. Th e U.S. minimum wage is set by the Fair Labor Standards Act,

and the rate since 2009 has been $7.25 per hour for non-tipped

employees. Some states set higher minimums, with the highest

being $9.32 per hour in Washington. While Congress debates

raising the federal minimum wage to $10.10, the city of Seattle has

already raised its to $15.

It’s tempting for employers to view wages strictly as costs of pro-

duction and to try and minimize these costs. Th e less you can pay

for labor, the argument goes, the higher the “bottom line.” But that’s

not necessarily true, or just. When Gap raised its minimum to $9.00

and pledged to go up to $10.00 in 2015, CEO Glenn K. Murphy said:

“Our decision to invest in front-line employees will directly support

our business, and is one that we expect to deliver a return many

times over.” At Whole Foods Markets, co-CEO Walter Robb believes

that paying more than the minimum and competitors builds a

stronger and more committed workforce. He believes in “conscious

capitalism” where business operates as a balancing act between

owner/shareholders, customers, and employees as key stakehold-

ers. One way of achieving balance is paying employees more than

either the law or market conditions would necessarily require.

YOUR TAKE?

How about it? Should employers wait for federal or state govern- ments to raise the minimum wage, or should they act on their own to pay more than the required minimum no matter what it may be? Are Gap and Whole Foods onto something that more employers might learn—pay better and get more loyalty and higher perfor- mance? Or, are these fi rms just interesting specialty cases that make good news but probably wouldn’t apply in most other settings?

choices> THINK BEFORE YOU ACT > “Our decision to invest in front-line employees will directly support our business, and is one that

we expect to deliver a return many times over.”

To Pay or Not to Pay More Than Minimum Wage

376 CHAPTER 16 ■ Motivation Th eory and Practice

participation. But Locke’s research suggests that

workers respond positively to externally imposed

goals if supervisors assigning them are trusted,

and if workers believe they will be adequately sup-

ported in their attempts to achieve them.

Goal-Setting Downsides It is important to remember that poorly set and

managed goals can have a downside that actually

turns the motivation to accomplish them into

performance negatives rather than positives. 18

good example is the scandal over patient waiting

times in U.S. Veterans Aff airs hospitals and clinics,

where more than 120,000 veterans failed to get

care and at least 23 died while awaiting treat-

ment. 19

A VA audit report described the negative

eff ects of working with unrealistic goals—a maximum of 14 days for patient waiting times—

this way: “simply not attainable” . . . “an organizational leadership failure.” Th e audit also said

that the pressures to meet unattainable goals to achieve pay bonuses motivated some

schedulers “to utilize unoffi cial lists or engage in inappropriate practices in order to make

waiting times appear more favorable.” 20

Lawmakers at a congressional hearing claimed the

VA had an “outlandish bonus culture” and that the fabricated records were motivated by a

“quest for monetary gain.” 21

Th ese patterns of behavior in the Veterans Aff airs case are consistent with research that

identifi es goal-setting downsides when managers and leaders set or allow unrealistically high

goals, when individuals are expected to meet high goals over and over again, and when people

striving to meet high goals aren’t given the support they need to accomplish them. 22

Scholars

Gary Latham and Gerard Seijts sum up the research implications this way: “It is foolish and

even immoral for organizations to assign employees stretch goals without equipping them

with the resources to succeed—and still punish them when they fail to reach those goals. Th is

lack of guidance often leads to stress, burnout, and in some instances, unethical behavior.” 23

Self-Effi cacy Th eory

Closely related to both the expectancy and goal-setting approaches to motivation is self-

effi cacy theory, also referred to as social learning theory. Based on the work of psychologist

• Set specifi c goals: Th ey lead to higher performance than do more generally

stated ones, such as “do your best.”

• Set challenging goals: When viewed as realistic and attainable, more

diffi cult goals lead to higher performance than do easy goals.

• Build goal acceptance and commitment: People work harder for goals they

accept and believe in; they resist goals forced on them.

• Clarify goal priorities: Make sure that expectations are clear as to which

goals should be accomplished fi rst, and why.

• Provide feedback on goal accomplishment: Make sure that people know

how well they are doing with respect to goal accomplishment.

• Reward goal accomplishment: Don’t let positive accomplishments pass

unnoticed; reward people for doing what they set out to do.

How to Make Goal Setting Work for You

Good Boss, Bad Boss: How to Be the Best—and Learn from the Worst (Hachette Book Group, 2010)

by Robert I. Sutton In Good Boss, Bad Boss, Stanford Professor Robert Sutton combines psychological and

management research with personal case stories to identify the mind-sets and behaviors

of the best and worst bosses. After listening to stories people told him about their work

experiences, he realized they wanted a lot more than just a jerk-free workplace; they wanted

to become or work for an all-around great boss. Th is “great” boss is someone who inspires

the best in others and treats them with dignity and respect. Sutton says the best bosses

realize their success depends on controlling their own moods, accurately predicting the

impact of their actions on others, and treating others in ways that affi rm their sense of

self-worth.

RecommendedReading

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377Reinforcement Th eory

Albert Bandura, self-effi cacy refers to a person’s belief that she or he is capable of perform-

ing a specific task. 24

You can think of self-efficacy using such terms as confidence,

competence, and ability. From a manager’s perspective, the major point is that anything

done to boost employees’ feelings of self-effi cacy is likely to pay off with increased motivation.

Mahatma Gandhi once said: “If I have the belief that I can do it, I shall surely acquire

the capacity to do it, even if I may not have it at the beginning.” 25

Th is is the essence of

self-effi cacy theory. When people believe themselves to be capable, they will set higher goals

for themselves, be more motivated to work hard at these goals, and persist longer in the face

of any obstacles that impede their progress. Th e Wall Street Journal has called this “the

unshakable belief some people have that they have what it takes to succeed.” 26

Th ere are clears links between Bandura’s self-effi cacy theory, elements of Vroom’s expec-

tancy theory, and Locke’s goal-setting theory. With respect to Vroom, a person with higher

self-effi cacy will have greater expectancy that he or she can achieve a high level of task per-

formance. With respect to Locke, a person with higher self-effi cacy should be more willing to

set challenging performance goals. In terms of expectancy and goal setting, managers who

help create feelings of self-effi cacy in others should boost their motivation to work.

Bandura identifi es four major ways that we can enhance self-effi cacy. 27

First is

enactive mastery—when a person gains confi dence through positive experience. Th e

greater your initial success and the more experience you have with a task, the more

confi dent you become at doing it. Second is vicarious modeling—learning by observ-

ing others. When someone else is good at a task and observe how they do it, we gain

confi dence in being able to do it ourselves. Th ird is verbal persuasion—when some-

one tells us that we can or encourages us to perform a task. Hearing others praise

our eff orts and link those eff orts with performance successes can be very motiva-

tional. Fourth is emotional arousal—when we are highly stimulated or energized to

perform well in a situation. A good analogy for arousal is how athletes get “psyched

up” and highly motivated to compete.

Self-effi cacy is a person’s belief that she

or he is capable of performing a task.

Learning Check 2

TAKEAWAYQUESTION 2 What are the process theories of motivation?

BE SURE YOU CAN • explain the role of social comparison in Adams’s equity theory • describe how people with felt negative

inequity behave • defi ne equity sensitivity • defi ne expectancy, instrumentality, and valence • explain Vroom’s expectancy theory

equation: M 5 E 3 I 3 V • explain Locke’s goal-setting theory • defi ne self-effi cacy and explain four ways to increase it

Verbal persuasion

Emotional arousal

Vicarious modeling

Enactive mastery

Self-Efficacy

How to Increase Self-Effi cacy

Reinforcement Th eory TAKEAWAY 3 What role does reinforcement play in motivation?

Th e law of eff ect • Reinforcement strategies Positive reinforcement • Punishment

Th e motivation theories discussed so far have tried to explain why people do things in

terms of satisfying needs, resolving felt inequities, evaluating expectancies, and pursuing

task goals. Reinforcement theory, by contrast, views human behavior as determined

by its environmental consequences. Instead of looking within the individual to explain

what drives motivation, this perspective focuses on the external environment and its

consequences.

Th e Law of Eff ect

Th e basic premise of reinforcement theory is based on what E. L. Th orndike called the law

of eff ect. It states: Behavior that results in a pleasant outcome is likely to be repeated;

behavior that results in an unpleasant outcome is not likely to be repeated. 28

Th is law underlies

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ABOUT

Th e law of eff ect states that behavior

followed by pleasant consequences is

likely to be repeated; behavior followed

by unpleasant consequences is not.

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378 CHAPTER 16 ■ Motivation Th eory and Practice

Positive reinforcement

Negative reinforcement

Punishment

Extinction

High-quality production

Stop complaining to employee

Reprimand employee

Withhold praise and rewards

Praise employee and give rewards

Meets production goals with zero defects

Meets production goals but with many defects

Manager’s Objective

FIGURE 16.5 Four reinforcement strategies: Case of total quality

management.

the concept of operant conditioning, which was popularized by psychologist B. F. Skinner

as the process of applying the law of eff ect to control behavior by manipulating its con-

sequences. 29

You may think of operant conditioning as learning by reinforcement. When

applied in management, its goal is to use reinforcement principles to systematically rein-

force desirable work behavior and discourage undesirable work behavior. 30

Reinforcement Strategies

Figure 16.5 shows four strategies of reinforcement that can be used in operant condition-

ing—positive reinforcement, negative reinforcement, punishment, and extinction. Th e fi gure

uses a quality example to illustrate how these strategies can be used to infl uence work

behavior. Note that both positive and negative reinforcement strategies strengthen desired

work behavior when it occurs; punishment and extinction strategies weaken or eliminate

undesirable behaviors.

Positive reinforcement strengthens or increases the frequency of desirable behavior. It

does so by making a pleasant consequence contingent on its occurrence. Example: A man-

ager compliments an employee on his or her creativity in making a helpful comment during

a staff meeting. Negative reinforcement also strengthens or increases the frequency of

desirable behavior, but it does so by making the avoidance of an unpleasant consequence

contingent on its occurrence. Example: A manager who has been nagging a worker every

day about tardiness stops nagging when the individual shows up on time for work.

Punishment decreases the frequency of an undesirable behavior—or eliminates it

entirely. It does so by making an unpleasant consequence contingent on its occurrence.

Example: A manager issues a written reprimand to an employee whose careless work is cre-

ating quality problems. Extinction also decreases the frequency of or eliminates an undesir-

able behavior, but does so by making the removal of a pleasant consequence contingent on

its occurrence. Example: A manager observes that a disruptive employee is receiving social

approval from co-workers who laugh at his jokes during staff meetings; the manager coun-

sels co-workers to ignore the jokes and stop providing approval of this behavior.

Positive Reinforcement

Positive reinforcement deserves special attention among the reinforcement strategies. It

should be part of any manager’s motivational toolkit. Sir Richard Branson, founder of Virgin

Group, is a believer. “For the people who work for you or with you, you must lavish praise on

them at all times,” he says. “If a fl ower is watered, it fl ourishes. If not it shrivels up and dies.”

Besides, he adds, “It is much more fun looking for the best in people.” 31

David Novak, CEO of

Yum! Brands, Inc., is also a believer. He claims that one of his most important tasks as CEO

is “to get people fi red up” and that “you can never underestimate the power of telling someone

Operant conditioning is the control

of behavior by manipulating its

consequences.

Positive reinforcement strengthens

behavior by making a desirable conse-

quence contingent on its occurrence.

Negative reinforcement strengthens

behavior by making the avoidance of an

undesirable consequence contingent on

its occurrence.

Punishment discourages behavior by

making an unpleasant consequence

contingent on its occurrence.

Extinction discourages behavior by

making the removal of a desirable

consequence contingent on its

occurrence.

379Motivation and Job Design

he’s doing a good job.” Novak advocates celebrat-

ing “fi rst downs and not just touchdowns,” which

means publicly recognizing and rewarding small

wins that keep everyone motivated for the long

haul. 32

Th e small box presents useful guidelines for

positive reinforcement. One way to put them into

action is through a process known as shaping. 33

Th is is the creation of a new behavior by the posi-

tive reinforcement of successive approximations

to it. Continuous reinforcement administers a reward each time a desired—or approxi-

mated—behavior occurs. Intermittent reinforcement rewards behavior only periodi-

cally. Continuous reinforcement tends to work best to encourage desired behaviors through

shaping, while intermittent reinforcement works best to maintain it.

Th e power of positive reinforcement is governed by two important laws. 34

First is the law

of contingent reinforcement. It states that for a reward to have maximum reinforcing

value, it must be delivered only if the desired behavior is exhibited. Second is the law of

immediate reinforcement. It states that the more immediate the delivery of a reward after

the occurrence of a desirable behavior, the greater the reinforcing value of the reward.

Punishment

As a reinforcement strategy, punishment attempts

to eliminate undesirable behavior by making an

unpleasant consequence contingent on its occur-

rence. For example, a manager may punish an

employee by issuing a verbal reprimand, suspend-

ing the employee, or fi ning the employee. Just as

with positive reinforcement, punishment can be

done poorly or it can be done well. But because

punishment can have a harmful eff ect on rela-

tionships, it should be used sparingly. Th e nearby

box off ers advice on how best to handle punishment

as a reinforcement strategy.

Shaping is positive reinforcement

of successive approximations to the

desired behavior.

Continuous reinforcement rewards

each time a desired behavior occurs.

Intermittent reinforcement rewards

behavior only periodically.

Th e law of contingent reinforcement

is that a reward should only be given

when a desired behavior occurs.

Th e law of immediate reinforcement

is that a reward should be given as soon

as possible after a desired behavior occurs.

• Clearly identify desired work behaviors.

• Maintain a diverse inventory of rewards.

• Inform everyone what must be done to get rewards.

• Recognize individual diff erences when allocating rewards.

• Follow the laws of immediate and contingent reinforcement.

Guidelines for Positive Reinforcement

• Tell the person what is being done wrong.

• Tell the person what is being done right.

• Focus on the undesirable behavior, not on personal characteristics.

• Make sure the punishment matches the behavior so that it is neither

too harsh nor too lenient.

• Administer the punishment in private.

• Follow the laws of immediate and contingent reinforcement.

Guidelines for Punishment

Learning Check 3

TAKEAWAYQUESTION 3 What role does reinforcement play in motivation?

BE SURE YOU CAN • explain the law of eff ect and operant conditioning • illustrate how positive reinforcement, negative

reinforcement, punishment, and extinction infl uence work behavior • explain the reinforcement technique of shaping

• describe how managers can use the laws of immediate and contingent reinforcement • list guidelines for positive

reinforcement and punishment

Motivation and Job Design TAKEAWAY 4 What is the link between job design and motivation?

Job simplifi cation • Job enlargement • Job enrichment Alternative work schedules

One place where motivation theories can have a signifi cant impact is job design, the pro-

cess of arranging work tasks for individuals and groups. Building jobs so that satisfaction

and performance go hand in hand is in many ways an exercise in generating “fi t” between

task requirements and people’s needs, capabilities, and interests. 35

Th e alternatives range

from job simplifi cation at one extreme to job enrichment at the other.

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Job design is arranging work tasks for

individuals and groups.

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380 CHAPTER 16 ■ Motivation Th eory and Practice

Job Simplifi cation

Job simplifi cation standardizes work procedures and employs people in well-defi ned and

highly specialized tasks. 36

Simplifi ed jobs, such as those in classic automobile assembly

lines, limited menu restaurants such as McDonalds, and call center phone solicitation, are

narrow in job scope—the number and variety of diff erent tasks a person performs.

Th e logic of job simplifi cation is straightforward. Because these jobs don’t require com-

plex skills, workers should be more easily and quickly trained, less diffi cult to supervise, and

easily replaced if they leave. Because tasks are well defi ned, workers should become more

effi cient by performing them over and over again. But, things don’t always work out as

planned. 37

Routine, structured, and repetitive tasks can cause problems if workers become

bored and alienated. Productivity can decline when unhappy workers do poor work. Costs

can increase when low job satisfaction leads to more absenteeism and turnover.

One way to eliminate the problems with job simplifi cation is automation, the total

mechanization of a job. One example is in manufacturing where robots are being used to

perform tasks previously done by humans. A second is evident each time you use an ATM

machine; this technology is basically an automated replacement for a human teller.

Another way to deal with job simplifi cation problems, job rotation gives workers more

variety by periodically shifting them between jobs. Also, job enlargement increases task

variety by combining into one job two or more tasks that were previously assigned to sepa-

rate workers. It is sometimes called horizontal loading, which simply means making a job

bigger by allowing the worker to do tasks from earlier and later stages in the workfl ow.

Job Enrichment

Frederick Herzberg, whose two-factor theory of motivation was discussed earlier, not only

questions the motivational value of job simplifi cation, he also is critical of job enlargement and

rotation. “Why,” he asks, “should a worker become motivated when one or more meaningless

tasks are added to previously existing ones, or when work assignments are rotated among

equally meaningless tasks?” By contrast, he says: “If you want people to do a good job, give

them a good job to do.” 38

Herzberg believes this is best done through job enrichment that

expands job content and increases job depth—the extent to which planning and controlling

duties are performed by individual workers rather than the supervisor. Job enrichment is a

form of vertical loading, which means increasing job depth and giving employees more respon-

sibility for the way they carry out their tasks.

Job Characteristics Model Management theory now takes job enrichment a step beyond Herzberg’s approach. It adopts a

contingency perspective that recognizes job enrichment may not be good for everyone. Th is

thinking is evident in the job characteristics model developed by Hackman and Oldham and

Job simplifi cation employs people in

clearly defi ned and specialized tasks

with narrow job scope.

Automation is the total mechanization

of a job.

Job rotation increases task variety by

periodically shifting workers between

diff erent jobs.

Job enlargement increases task variety

by combining into one job two or more

tasks previously done by separate

workers.

Job enrichment increases job depth

by adding work planning and evaluating

duties normally performed by the

supervisor.

Motivation Was the Game in The Blind Side Th e movie Th e Blind Side tells the true story of Michael Oher, a homeless African

American teenager who meets and ends up being adopted by a caring, affl uent family.

After overcoming many challenges, he becomes a star football player at the University

of Mississippi and is drafted by the Baltimore Ravens of the NFL. If you watch the

movie, ask: Just how was Michael able to overcome so much adversity? What was it

about football that motivated him and kept him going? How did his family life respond

to important needs? How did Michael grow in self-effi cacy and self-esteem, both on and

off the fi eld?

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381Motivation and Job Design

shown in Figure 16.6. 39

It focuses attention on the presence

or absence of fi ve core job characteristics:

1. Skill variety—the degree to which a job requires a variety

of diff erent activities to carry out the work and involves

the use of a number of diff erent skills and talents.

2. Task identity—the degree to which the job requires

completion of a “whole” and identifi able piece of

work, one that involves doing a job from beginning

to end with a visible outcome.

3. Task signifi cance—the degree to which the job has

a substantial impact on the lives or work of other

people elsewhere in the organization, or in the

external environment.

4. Autonomy—the degree to which the job gives the

individual freedom, independence, and discretion in

scheduling work and in choosing procedures for

carrying it out.

5. Feedback from the job itself—the degree to which work activities required by the job result

in the individual obtaining direct and clear information on his or her job performance.

A job that is high in the fi ve core characteristics is considered enriched. But in true con-

tingency fashion, an enriched job will not aff ect everyone in the same way. Th e fi gure indi-

cates that people who respond most favorably to enriched jobs will have strong growth

needs as described in Alderfer’s ERG theory, appropriate job knowledge, skills, and abilities,

and be otherwise satisfi ed with job context as discussed in Herzberg’s two-factor theory.

Th is creates a good person–job fi t. When people without these characteristics are placed in

enriched jobs, however, a poor person–job fi t may cause their satisfaction and performance

to fall instead of rise.

Improving Job Characteristics For people and situations in which job enrichment is a good

choice, Hackman and his colleagues recommend fi ve ways

to improve the core job characteristics. First, combine tasks.

Expand job responsibilities by pulling a number of smaller tasks

previously done by others into one larger job. Second, form

natural units of work. Make sure that the tasks people perform

are logically related to one another and provide a clear and

meaningful task identity. Th ird, establish client relationships. Put

people in contact with others who, as clients inside or outside

the organization, benefi t from their work. Fourth, practice verti-

cal loading, which gives people authority to perform the plan-

ning and controlling previously done by supervisors. Fifth, open

feedback channels. Provide opportunities for people both to

receive performance feedback as they work and to learn how

performance changes over time. In contrast to job enlargement

and job rotation, which merely make jobs bigger horizontally by

expanding job scope, the small fi gure shows that job enrich-

ment expands job depth to make jobs vertically bigger as well.

Alternative Work Schedules

“Flexibility” is the key word driving the emergence of a range of alternative ways for people

to schedule their work time. 40

Employers are fi nding that alternative work schedules help

attract and retain motivated workers by off ering them fl exibility to deal with the complica-

tions of maintaining work–life balance.

• Motivation • Job satisfaction • Job performance

Core Job Characteristics

• Skill variety • Task identity • Task significance • Autonomy • Feedback

Job Outcomes

Individual Moderator Variables

• Growth need strength • Knowledge and skill • Context satisfaction

FIGURE 16.6 Job design essentials using the job characteristics model.

Vertical loading . . .

Move planning and controlling in from above

Move out work that can be done at lower levels

Move tasks in from later

in workflow

Move tasks in from earlier in workflow

Horizontal loading . . . . . . expands job scope

. . . increases job depth

Improving Job

Characteristics

382 CHAPTER 16 ■ Motivation Th eory and Practice

Flexible Working Hours Th e term fl exible working hours, also called fl extime, describes any work schedule that gives

employees some choice allocating their daily work hours. Flexible schedules for starting and

ending the workday give employees greater autonomy while meeting their work responsibili-

ties. Some may choose to come into work earlier and leave earlier while still completing a full

workday; others may choose to start later and leave later. Flexible scheduling allows employ-

ees to handle personal and family needs such as medical appointments, home emergencies,

and child care issues, as long as they get their work done. Reports indicate that fl exible sched-

ules reduce employee stress and diminish job turnover. 41

All top 100 companies in Working

Mother magazine’s list of best employers for working moms off er fl exible scheduling.

Compressed Workweek A compressed workweek is any work schedule that allows a full-time job to be completed

in less than the standard fi ve days of 8-hour shifts. Th e most common form is the “4–40,” that

is, accomplishing 40 hours of work in four 10-hour days. A key feature of the 4–40 schedule

is that employees receive three consecutive days off from work each week. Many employees

are on a four-day schedule at USAA, a diversifi ed fi nancial services company headquartered

in San Antonio, Texas, listed among the 100 best companies to work for in America. Its

advantages include improved employee morale, lower overtime costs, less absenteeism, and

fewer days lost to sick leave, as well as lower costs of commuting. 42

Potential disadvantages

of the compressed workweek include increased fatigue and family adjustment problems for

individual employees, as well as scheduling problems for employers.

Job Sharing Job sharing splits one full-time job between two or more persons. Th is can be done in a

variety of ways, from half day to weekly or monthly sharing arrangements. Organizations

benefi t by employing talented people who are unable or unwilling to commit to a full-time

job. A parent with young children, for example, might be unable to stay away from home for

a full workday, but able to work half a day.

Telecommuting and Working from Home It is increasingly popular for people to work by telecommuting, an arrangement that allows

them to work from home or outside the offi ce for at least a portion of scheduled time. It is

facilitated by smart wireless devices that allow easy electronic links with customers and

co-workers. New terms are even associated with telecommuting practices. We speak of

hoteling when telecommuters come to the central offi ce and use temporary offi ce facilities.

We also refer to virtual offi ces that include everything from an offi ce at home to a mobile

workspace in an automobile.

Although it would seem that telecommuting is in some ways a perfect fi t with the mod-

ern workplace, the issues associated with it are far from straightforward. When asked what

they like about this work arrangement, telecommuters report increased productivity, fewer

distractions, less time spent commuting to and from work, and the freedom to schedule

their own time. On the negative side, they may complain about working too much, diffi culty

separating work and personal life, and having less family time. 43

One telecommuter off ers

this advice: “You have to have self-discipline and pride in what you do, but you also have to

have a boss that trusts you enough to get out of the way.” 44

From the employer’s perspective, off ering options to telecommute and work from

home are ways of attracting and retaining talented workers who want this fl exibility. But,

a lack of face-to-face contact can also detract from the desired work culture. When Yahoo’s

CEO Marissa Meyer made a controversial decision to cut back on telecommuting, her

justifi cation was that people are “more collaborative and innovative when they’re

together.” 45

What do you think? Is telecommuting a motivating cure all for stress and

work-family confl icts? Or, is it a culture killer that reduces collaboration and productivity?

Flexible working hours give employees

some choice in daily work hours.

A compressed workweek allows a

full-time job to be completed in less

than fi ve days.

Job sharing splits one job between two

people.

Telecommuting involves working from

home or outside the offi ce at least part

of the time.

383Motivation and Job Design

Contingency and Part-Time Work If there is one trend that has been reinforced by our tight economy, it’s the use of more

contingency workers, hired on a temporary and part-time basis to supplement the regular

workforce. 46

You’ll hear them called temps, freelancers, and contract hires. Th ey provide

just-in-time and as-needed work for employers who want to avoid the cost and responsibili-

ties of hiring full-timers. One business analyst says the appeal for employers is that a tempo-

rary force is “easy to lay off , no severance; no company funded retirement plan; pay own

health insurance; get zero sick days and no vacation.” 47

It is now possible to hire on a part-time basis every kind of personnel from executive support,

such as a chief fi nancial offi cer, to special expertise in areas like engineering, computer program-

ming, and market research. Some worry that temporary employees lack the commitment of

permanent workers, and thus may be less productive and provide lower product or service qual-

ity. Others argue that contingent employees frequently do just as good a job and off er cost savings

of up to 30% over full-time workers. 48

But these cost advantages also are controversial. Contin-

gency workers are generally paid less than their full-time counterparts, can experience stress and

anxiety from their part-time and non-secure job status, and generally do not receive important

benefi ts such as health care, life insurance, pension plans, and paid vacations, or even sick days!

Contingency workers are employed

on a part-time and temporary basis to

supplement a permanent workforce.

Learning Check 4

TAKEAWAYQUESTION 4 What is the link between job design and motivation?

BE SURE YOU CAN • illustrate a job designed by simplifi cation, rotation, and enlargement • list fi ve core job characteristics

• describe how an enriched job scores on these characteristics • describe advantages of the compressed workweek, fl exible

work hours, job sharing, and telecommuting • discuss the role of part-time contingency workers in the economy

The Society for Human Resource Management reports that the work-from-home option is one of the fastest-growing benefi ts being off ered by employers. Some 30 million Americans already

spend at least one day per week working from home. Another

3 million never leave home to work. Th e Telework Research

Network reports that:

■ Employers save about $10,000 per year allowing workers to tele-

commute at least half time.

■ Employees save from $1,600 to $6,800 in commuting costs.

■ 47% of workers with telecommuting options say they are “very

satisfi ed” with their jobs.

■ 90% of those working from home say they work harder and

longer, but with more work–life balance.

■ Commuting workers are stuck in traffi c for 4.2 billion hours per

year while generating 58 million pounds of carbon emissions

and burning 2.9 billion gallons of fuel.

Th ese diff erences tend to fade away when women are in manage-

ment jobs, and tend to be magnifi ed among those not in managerial

roles.

YOUR THOUGHTS?

Do these data seem consistent or inconsistent with your experi- ences, and what you hear from family and friends? How import- ant is the telecommuting option for you? How do you explain its motivational impact on workers from different age groups and geographical locations? What are the potential risks to the employer, and are these risks worth taking given potential motivational gains for the workforce?

analysis> MAKE DATA YOUR FRIEND > 90% of those working from home say they work harder and longer, but with more work–life balance.

One in Five Americans Already Working from Home

384 CHAPTER 16 ■ Motivation Th eory and Practice

Summary

TAKEAWAYQUESTION 1 How do individual needs infl uence motivation?

• Motivation predicts the level, direction, and persistence of effort expended at work; simply put, a highly motivated person works hard.

• Maslow’s hierarchy of needs suggests a progression from lower-order physiological, safety, and social needs to higher-order esteem and self-actualization needs.

• Alderfer’s ERG theory identifi es existence, relatedness, and growth needs.

• Herzberg’s two-factor theory describes the importance of both job content and job context to motivation and performance.

• McClelland’s acquired needs theory identifi es the needs for achievement, affi liation, and power, all of which may infl uence what a person desires from work.

FOR DISCUSSION How can team leaders meet the individual needs of members while still treating everyone fairly?

TAKEAWAYQUESTION 2 What are the process theories of motivation?

• Adams’s equity theory recognizes that social comparisons take place when rewards are distributed in the workplace.

• People who feel inequitably treated are motivated to act in ways that reduce the sense of inequity; perceived negative inequity may result in someone working less hard in the future.

• The concept of equity sensitivity suggests that not all employees are equally concerned about being treated equitably and that not all employees respond to different types of inequity in the same way.

• Vroom’s expectancy theory states that Motivation 5 Expectancy 3 Instrumentality 3 Valence.

• Locke’s goal-setting theory emphasizes the motivational power of goals; task goals should be specifi c rather than ambiguous, diffi cult but achievable, and set with employees’ participation.

• Bandura’s self-effi cacy theory indicates that when people believe they are capable of performing a task, they

experience a sense of confi dence and are more highly motivated to work hard at it.

FOR DISCUSSION What are the most common triggers of felt inequity in the workplace, and what can a manager do about them?

TAKEAWAYQUESTION 3 What role does reinforcement play in motivation?

• Reinforcement theory recognizes that human behavior is infl uenced by its environmental consequences.

• The law of effect states that behavior followed by a pleasant consequence is likely to be repeated; behavior followed by an unpleasant consequence is unlikely to be repeated.

• Reinforcement strategies used by managers include positive reinforcement, negative reinforcement, punishment, and extinction.

• Positive reinforcement works best when applied according to the laws of contingent and immediate reinforcement.

FOR DISCUSSION Can a manager or a parent rely solely on positive reinforcement strategies?

TAKEAWAYQUESTION 4 What is the link between job design and motivation?

• Job design is the process of creating or defi ning jobs by assigning specifi c work tasks to individuals and groups.

• Job simplifi cation creates narrow and repetitive jobs composed of well-defi ned tasks with routine operations, such as typical assembly-line jobs.

• Job enlargement allows individuals to perform a broader range of simplifi ed tasks; job rotation allows individuals to shift among different jobs with similar skill levels.

• The job characteristics model of job design analyzes jobs according to skill variety, task identity, task signifi cance, autonomy, and feedback; a job high in these characteristics is considered enriched.

• Alternative work schedules make work hours more convenient and fl exible to better fi t workers’ needs and personal responsibilities; options include the compressed workweek, fl exible working hours, job sharing, telecom- muting, and part-time work.

FOR DISCUSSION Should getting an enriched job be reward enough for job holders, or should they also get pay increases?

Management Learning Review Get Prepared for Quizzes and Exams

385Self-Test 16

Multiple-ChoiceQuestions 1. Lower-order needs in Maslow’s hierarchy match well

with ____________ needs in ERG theory. (a) growth (b) affi liation (c) existence (d) achievement

2. When a team member shows strong ego needs in Maslow’s hierarchy, the team leader should fi nd that ___________ will be motivating to him or her. (a) alternative work schedules (b) praise and recognition for job performance (c) social interactions with other team members (d) easy performance goals

3. A worker with a high need for ____________ power in McClelland’s theory tries to use power for the good of the organization. (a) position (b) expert (c) personal (d) social

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

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

6. The expectancy theory of motivation says that motivation 5 expectancy 3 ____________ 3 ____________. (a) rewards, valence (b) instrumentality, valence (c) equity, instrumentality (d) rewards, valence

7. When someone has a high and positive “expectancy” in the expectancy theory of motivation, this means that the person ____________. (a) believes he or she can meet performance

expectations (b) highly values the rewards being offered (c) sees a link between high performance and available

rewards (d) believes that rewards are equitable

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

9. In goal-setting theory, the goal of “doing a better job” would not be considered a good source of motivation because it fails the test of goal ____________. (a) acceptance (b) specifi city (c) challenge (d) commitment

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

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

12. B. F. Skinner would argue that “getting a paycheck on Friday” reinforces a person for coming to work on Friday, but it does not reinforce the person for having done an extraordinary job on Tuesday. This is because the Friday paycheck fails the law of ____________ reinforcement. (a) negative (b) continuous (c) immediate (d) intermittent

13. When a job is redesigned to allow a person to do a whole unit of work from beginning to end, it becomes high on which core characteristic? (a) task identity (b) task signifi cance (c) task autonomy (d) feedback

14. A typical compressed workweek schedule involves 40 hours of work done in ____________ days. (a) 3 (b) 4 (c) 5 (d) a fl exible number of

15. A term often used to describe someone who is a long-term but part-time hire is ____________ worker. (a) contingency (b) virtual (c) fl exible (d) permatemp

Self-Test 16

386 CHAPTER 16 ■ Motivation Th eory and Practice

Short-ResponseQuestions 16. What preferences does a person with a high need for

achievement bring to the workplace? 17. Why is participation important to goal-setting

theory? 18. Where is the common ground in Maslow’s, Alderfer’s,

and McClelland’s views of human needs?

19. Why might an employer not want to offer employees the option of a compressed workweek schedule?

EssayQuestion 20. How can a manager combine the powers of goal

setting and positive reinforcement to create a highly motivational work environment for workers with high needs for achievement?

Evaluate Career Situations

What Would You Do?

1. Paying the Going Rate

As the owner-manager of a small engineering company, you

need to hire a replacement for a recently retired senior em-

ployee. Th e salaries you pay have always been a little below

average, but it has never been an issue because you off er ex-

cellent benefi ts and a great work environment. Th e individual

you want to hire has made it clear that she will not accept the

job unless the off er is $5,000 more than you’d really like to pay,

but it’s also the competitive market rate. If you pay her the

higher salary you’ll risk alienating your current workforce. If

you don’t, you’ll miss out on a great new hire. How can you

best handle this dilemma?

2. Across-the-Board Raises

Because of a poor economy your company has not been

able to off er pay raises to employees for the past three years.

Th is year the salary budget has been increased by 5%. Your

initial thought was to give everyone a 5% raise. Is this a

good idea? How should you allocate salary increases in this

situation?

3. Job Redesign for Better or for Worse?

As the manager of the university bookstore, you have come

up with a plan to give part-time student workers more auton-

omy and control over their jobs. Your assistant manager

believes this is a bad idea. She says that the student workers

show no capacity for initiative or responsibility, and just want

to do what they’re told to do and get their weekly paychecks.

She also predicts that both productivity and customer service

will suff er under your plan. You think the student workers are

bored and disengaged, but otherwise capable. What are you

going to do and why?

Refl ect on the

Self-Assessment

Student Engagement Survey

Instructions Use this scale to show the degree to which you agree with the

following statements. Write your choices in the margin next to

each question. 49

1—No agreement; 2—Weak agreement; 3—Some agreement;

4—Considerable agreement; 5—Very strong agreement

1. I know what is expected of me in this course.

2. I have the resources and support I need to do my coursework

correctly.

3. In this course, I have the opportunity to do what I do best

all the time.

4. In the last week, I have received recognition or praise for

doing good work in this course.

5. My instructor seems to care about me as a person.

6. Th ere is someone in the course who encourages my

development.

7. In this course, my opinions seem to count.

8. Th e mission/purpose of the course makes me feel my area

of study is important.

9. Other students in the course are committed to doing quality

work.

10. I have a good friend in the course.

11. In the last six class sessions, someone has talked to me

about my progress in the course.

12. In this course, I have had opportunities to learn and

grow.

ManagementSkills& Competencies Make yourself valuable!

387Analyze the Case Study

Scoring Score the instrument by adding up all your responses. A score of

0–24 suggests you are “actively disengaged” from the learning

experience; a score of 25–47 suggests you are “moderately en-

gaged”; a score of 48–60 indicates you are “actively engaged.”

Interpretation Th is instrument is a counterpart to a survey used by the Gallup

Organization to measure the “engagement” of American workers.

Th e Gallup results are surprising—indicating that up to 19% of

U.S. workers are actively disengaged, with the annual lost produc-

tivity estimated at some $300 billion per year. One has to wonder:

What are the costs of academic disengagement by students?

Contribute to the

Class Exercise

Why We Work

Preparation Read this “ancient story.”

In days of old, a wandering youth happened upon a group of men

working in a quarry. Stopping by the fi rst man, he said: “What are

you doing?” The worker grimaced and groaned as he replied:

“I am trying to shape this stone, and it is backbreaking work.”

Moving to the next man, the youth repeated the question. Th is

man showed little emotion as he answered: “I am shaping a stone

for a building.” Moving to the third man, our traveler heard him

singing as he worked. “What are you doing?” asked the youth.

“I am helping to build a cathedral,” the man proudly replied.

Instructions In groups assigned by your instructor:

1. Discuss this short story.

2. Ask and answer the question: “What are the motivation and

job design lessons of this ancient story?”

3. Discuss the question: How can managers help employees feel

more inspired about what they are doing?

4. Have someone prepared to report and share the group’s

responses with the class as a whole.

Manage a Critical Incident

Great Worker Won’t Take Vacation

Todd is a super hard worker and one of your team’s top perform-

ers. He’s also one of those workers who just won’t take a vacation.

Oh yes, he takes a day here and there. But each year he leaves as

much as two weeks of vacation time on the table. You believe he

would benefi t from the occasional break, working happier and

maybe more productively with some vacation time under his

belt. His unwillingness to take time off is also a subject of conver-

sation among his teammates. Th eir view is that he is starting to

make them look and feel bad when they take the vacation time

that they earn. Some are starting to act a bit resentfully toward

him, and you recently overheard this comment: “Take a little time

off , Todd—for the good of the team, if not for yourself.”

Questions What can you do as the team leader to avoid having Todd’s

reluctance to take vacation turn into major team morale and

working relationships problems? How might you motivate Todd

to take more vacation time, without risking his high perfor-

mance commitment and work ethic? How can you motivate his

teammates to accept his behavior and be able to confi dently

continue with their own work styles?

Collaborate on the

Team Activity

CEO Pay . . . Too High, or Just Right?

Question What is happening in the area of executive compensation, and

what do you think about it?

Instructions 1. Check the latest reports on CEO pay. Get the facts and prepare

a brief report as if you were writing a short, informative article

for Fortune magazine. Th e title of your article should be

“Status Report: Where We Stand Today on CEO Pay.”

2. Address the equity issue: Are CEOs paid too much, especially

relative to the pay of average workers?

3. Address the pay-for-performance issue: Do corporate CEOs

get paid for performance or for something else?

4. Gather some data: What do the researchers say? What do the

business analysts say? What do the unions say? Find some

examples to explain and defend your answers to these questions.

5. Address social responsibility issues: Is it “right” for CEOs to

accept pay packages that reward them many times over what

workers receive?

5. Take a position: Should a limit be set on CEO pay? If not,

why not? If yes, what type of limit should be set? And who

should set these limits—the government, company boards of

directors, or someone else?

AnalyzeTHE CaseStudy

SAS

Business Success Starts on the Inside Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

“Th e way a team plays as a whole determines its success. You may have the greatest bunch of individual stars in the world, but if they don’t play together, the club won’t be worth a dime.”

Former UCLA basketball coach John Wooden, quoting Hall-of-Famer Babe Ruth

Gary W. Green, Orlando Sentinel/MCT/Getty Images

Teams and

Teamwork Two heads really can be better

than one

17 C H A P T E R Q U I C K STA RT

Surely you’ve experienced the highs and the lows of teams and teamwork—as a

team contributor and as a team leader. Teams and teammates can be inspirational

and they can be frustrating. Th ey can accomplish great things or do very little of

consequence. Th e more we know about teams, teamwork, and our personal ten-

dencies toward team contributions, the better prepared we are to participate in

today’s team-driven organizations.

Key Takeaways

■ Identify the ways

teams contribute to

organizations.

■ Explain current trends

in the use of teams in

organizations.

■ Describe the key processes

through which teams

work.

■ Discuss the advantages

and disadvantages of team

decision making.

389

MANAGEMENT IS REAL MAKE DATA YOUR FRIEND

Unproductive Meetings Are Major Time Wasters

THINK BEFORE YOU ACT

Creating Disharmony to Build a Better Team

KNOW RIGHT FROM WRONG

Social Loafi ng Is Hurting Team Performance

LEARN ABOUT YOURSELF

Don’t Short Your Team Contributions

LEARN FROM ROLE MODELS

Amazon’s Jeff Bezos Feeds Innovation with Two-Pizza Teams

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Team Leader Skills

■ CONTRIBUTE To the Class Exercise: Work Team Dynamics

■ MANAGE A Critical Incident: The Rejected Team Leader

■ COLLABORATE On the Team Activity: Superstars on the Team

■ ANALYZE Th e Case Study: Auto Racing: When the Driver Takes a Back Seat

what to look for inside >

390 CHAPTER 17 ■ Teams and Teamwork

“Sticks in a bundle are hard to break”—Kenyan proverb

“Never doubt that a small group of thoughtful, determined people can

change the world”—Margaret Mead, anthropologist

“Pick good people, use small teams and give them great tools so that they

are very productive.”—Bill Gates, businessman and philanthropist

“Gettin’ good players is easy. Gettin’ ‘em to play together is the hard part”—

Casey Stengel, Hall of Fame Major League baseball manager

F rom proverbs to societies to sports to business, the operation of teams

and teamwork has been a consistent focal point of collective organiza-

tion and is widely recognized as a critical tool for accomplishing great things. 1

Even so, just the words group and team elicit both positive and negative reac-

tions in the minds of many people who have been involved—either as observ-

ers or participants—in these collectives. Although it is an embedded idiom

in Western culture that “two heads are better than one,” we also are warned

by an idiom equally embedded in our culture that “too many cooks spoil the

broth.” A true skeptic of the kind of collective action implied by groups or

teams can be heard to say: “A camel is a horse put together by a committee.”

Teams have a great deal of performance potential but also are extremely

complex in how they function. Teams can be a supercharged vehicle for the

achievement of great successes, and they can also be the cause of equally

monstrous failures. 2 More than a third of individuals participating in teams

report dissatisfaction with teamwork. Less than half of team members

report receiving training in team dynamics. 3 Still, many people prefer to

work in teams than working independently. What is clear is that there is a

great deal of variability in responses to—and the eff ectiveness of—teams in

organizations today.

Teams in Organizations TAKEAWAY 1 What are teams and how do they fi t in organizations?

Teamwork pros • Teamwork cons • Meetings, meetings, meetings Organizations as networks of groups

A team is a relatively small set of people with complementary skills who regularly interact

with one another, working together interdependently to achieve shared goals. 4 Teamwork

is the process of team members working together to accomplish these goals. Managers

must be prepared to perform at least four important teamwork roles. A team leader serves

as the appointed head of a team or a work unit. A team member serves as a contributing part

of a project team. A network facilitator serves as the peer leader and networking hub for a

special task force. A coach or developer serves as a team’s advisor on ways to improve team

processes and performance.

A fundamental diff erence between teams and groups is whether the goals or outcomes

members are tasked with require that they work interdependently with one another or inde-

pendently of one another. Th e interdependence that is characteristic of teams puts members

in positions where they depend on each other to fulfi ll tasks and carry out work eff ectively. 5

Interdependence infl uences the way team members combine inputs such as ideas and eff orts

LEARN MORE

ABOUT

A team is a collection of people who

regularly interact to pursue common

goals.

Teamwork is the process of

people actively working together

interdependently to accomplish

common goals.

Interdependence is the extent to

which employees depend on other

members of their team to carry out

their work eff ectively.

TTTeeaammmss iin OOrrrggaanizzzzaatioonssT

391Teams in Organizations

to create outcomes such as a completed task or project. 6 And

when team members are interdependent, they tend to share

information and communicate with one another more often,

as well as act cooperatively and helpfully toward one another. 7

Teamwork Pros

Although working eff ectively with other members within a

team can be hard work, the effort is worth it when the team meets anticipated perfor-

mance expectations. 8

Th e real benefi t of teams is their capacity to accomplish goals and

performance expectations far greater than what’s possible for individuals alone. Th is

collective performance potential is called synergy, which is the creation of a whole that is

greater than the sum of its individual parts.

Synergy pools the individual talents and eff orts of a team’s members to create extraordi-

nary results through collective action. When Jens Voigt, one of the top racers on the Tour de

France, was asked to describe a “perfect cyclist,” for example, he created a composite of his

nine-member team: “We take the time trial legs of Fabian Cancellara, the speed of Stuart

O’Grady, the climbing capacity of our leaders and my attitude.” His point in describing each of

these individual’s talents was that the tour is simply too hard for a single rider to win based

on his own talents. Like so many other performance drivers in the workplace, the synergies

made possible through eff ective teamwork represent a critical key to the success of teams. 9

Just being a member of a team is often

good for its members. The personal con-

nections developed through membership

can help employees to do their jobs better—

getting help, making contacts, sharing

ideas, responding to favors, and avoiding

roadblocks. Th e personal relationships that

develop among team members can help

satisfy important needs that may be diffi cult

to meet in regular work or personal settings,

offering positive interpersonal interac-

tions, a sense of security and belonging,

and emotional support. 10

Teamwork Cons

Although teams have a great potential to increase the collective performance of members,

what also is clear is that expectations and anticipated performance gains don’t always

materialize as intended when teams and teamwork are used. Problems with teams and

members within teams can easily transform their great potential into frustration and failure. 11

Personality confl icts and work style diff erences can disrupt how well teams function.

Unclear tasks, ambiguous agendas, and ill-defi ned problems and roles can cause teams to

work too long on the wrong things. Sometimes team members start out motivated and then

lose their motivation because teamwork takes too much time and eff ort away from other

tasks, deadlines, and priorities. A lack of success also can hurt members’ morale. It’s also

easy for members to lose motivation when the team is poorly organized and led, or when

other members slack off . 12

Anyone who’s had any extensive experience working in teams has encountered social

loafi ng. Th is is the presence of “free-riders” who slack off because responsibility for various

tasks is diff used in teams and others are present to do the work, picking up the slack. 13

Although social loafi ng can be very frustrating and can hurt team performance, there are

things that team leaders or concerned team members can do when others don’t do their work.

Th e possibilities include making individual contributions more visible, rewarding individuals

for their contributions, making task assignments more interesting, and keeping team sizes

small so that free-riders are subject to more intense peer pressure and leader evaluation. 14

Synergy is the creation of a whole

greater than the sum of its individual

parts.

Social loafi ng is the tendency of some

members to avoid responsibility by

“free-riding” during group tasks.

Roles managers play in teams and teamwork

Network facilitator Coach or DeveloperTeam memberTeam leader

• Performance gains through synergy

• More resources for problem solving

• Improved creativity and innovation

• Improved decision-making quality

• Greater member commitment to tasks

• Increased member motivation

• Increased need satisfaction of members

The Many Benefi ts of Teams

392 CHAPTER 17 ■ Teams and Teamwork

Meetings, Meetings, Meetings

“We have the most ineff ective meetings of any company,” says a technology executive. “We

just seem to meet and meet and meet, and we never seem to do anything,” says another in

the package delivery industry. “We realize our meetings are unproductive. A consulting fi rm

is trying to help us, but we’ve got a long way to go,” says a corporate manager. 15

What do you think when someone says: “Let’s have a meeting”? Are you ready and

willing, or apprehensive and even upset to have to participate? We aren’t always happy to

get a request to add another meeting to our busy schedules. Th e problems described in

the nearby box don’t help. 16

You might

even be able to add to the list from personal

experience.

Good meetings don’t happen by acci-

dent. People have to work hard and work

together to make meetings productive and

rewarding. Face-to-face and virtual meet-

ings are where lots of information is shared,

decisions get made, and people gain under-

standing of the issues and of one another.

Th ey’re important and necessary. Th is is

why knowing more about teams and

teamwork is so useful.

1. Psychology study: A German researcher asked people to pull

on a rope as hard as they could. First, individuals pulled alone.

Second, they pulled as part of a group. Th e results from this

study showed that people pull harder when working alone

than when working as part of a team. Such “social loafi ng” is

the tendency for individuals to reduce their level of eff ort when

working with others.

2. Faculty offi ce: A student wants to speak with the instructor

about his team’s performance on the last project. Th ere were

four members, but two did almost all of the work. Th e other

two largely disappeared, showing up only at the last minute to

be part of the formal presentation. His point is that the team

was disadvantaged because two free-riders were responsible

for reduced performance capacity.

3. Telephone call from the boss: “John, I really need you to serve on

this committee. Will you do it? Let me know tomorrow.” In

thinking about this, John ponders: I’m overloaded, but I don’t

want to turn down the boss. I’ll accept but let the committee

members know about my situation. I’ll be active in discussions

and try to off er viewpoints and perspectives that are helpful.

However, I’ll let them know up front that I can’t be a leader or

volunteer for any extra work.

WHAT DO YOU THINK?

What are the ethical issues involved in team situations when some members sit back and let others do more of the work the entire team is responsible for doing? When you join a team, do all of the team’s members have an ethical obligation to do a similar amount of work—why or why not? When it comes to John, does the fact that he intends to be honest with the other committee members make any difference? Isn’t he still going to be a social loafer while earning credit from his boss for serving on the committee? Is his approach ethical—or should he simply decline to participate on the committee? What factors would make you more/less comfort- able with another member not pulling their weight on the team?

ethics> KNOW RIGHT FROM WRONG > The student complained that free riders were making it hard for her team to perform well.

Social Loafi ng Is Hurting Team Performance

Masterfi le

1. People arrive late, leave early, and don’t take things seriously.

2. Th e meeting is too long, sometimes twice as long as necessary.

3. People don’t stay on topic; they digress and are easily distracted.

4. Th e discussion lacks candor; people are unwilling to tell the truth.

5. Th e right information isn’t available, so decisions are postponed.

6. Nothing happens when the meeting is over; no one puts decisions into action.

7. Th ings never get better; the same mistakes are made meeting after meeting.

Seven Deadly Sins of Meetings

393Trends in the Use of Teams

Organizations as Networks of Groups

Formal groups are offi cially recognized and supported by the organization. Th ey may be

called departments (e.g., market research department), units (e.g., audit unit), groups

(e.g., customer service group), or divisions (e.g., offi ce products division), among other possi-

bilities. Th ese formal groups form interlocking networks that serve as the foundation of the

organization’s structure, and managers are key “linking pins” among them. Managers lead

formal groups at one level while also serving as members of groups at the next higher level

and in groups formed across functional areas. 17

Informal groups also are present and important in all organizations. Th ey emerge from

natural or spontaneous relationships among members. Some informal groups are interest

groups where workers join together to pursue a common cause, such as better working

conditions. Some emerge as friendship groups that develop for a wide variety of personal

reasons, including shared non-work interests and social connections. Others exist as support

groups, in which members basically help one another to do their jobs or to cope with common

problems.

Although people may sometimes use informal groups as a forum for airing dissatisfac-

tions and spreading rumors, the social connections they off er can also play many positive

roles in organizations. Tapping into relationships within informal groups can help speed

workfl ow and “get things done” in ways not possible within the formal structure defi ned in

an organizational chart. Members of informal groups can also satisfy needs that are other-

wise left unmet in their formal work assignments. Th ese include gaining friendship, security,

support, and a sense of belongingness.

A formal group is an offi cially

recognized collective that is supported

by the organization.

An informal group is unoffi cial and

emerges from relationships and shared

interests among members.

Learning Check 1

TAKEAWAYQUESTION 1 What are teams and how do they fi t in organizations?

BE SURE YOU CAN • defi ne team and teamwork • explain why interdependence is a key characteristic of teams • identify

four roles managers perform in teams • defi ne synergy • explain teamwork pros and cons • discuss the implications of social

loafi ng • explain the potential benefi ts of informal groups

Trends in the Use of Teams TAKEAWAY 2 What are current trends in the use of teams?

Committees, project teams, and task forces • Cross-functional teams Self-managing teams • Virtual teams • Team building

A trend toward greater empowerment in organizations today shows up as an emphasis on

committees, project teams, task forces, cross-functional teams, and self-managing teams.

Importantly, all of these diff erent forms function in both face-to-face and virtual forms.

Committees, Project Teams, and Task Forces

A committee brings employees together outside of their daily job duties to work together

for a specifi c purpose. A committee’s agenda is typically narrow, focused, and ongoing.

Organizations usually have a variety of permanent or standing committees dedicated to a

wide variety of issues, such as diversity, quality, and product development. Committees

are led by a designated head or chairperson, who is held accountable for the committee’s

performance.

Project teams or task forces bring people together to work on common problems, but

on a temporary rather than permanent basis. Th e goals and task assignments are specifi c

and completion deadlines are clear. Creativity and innovation may be part of the agenda.

Project teams, for example, can be formed to develop a new advertising campaign, redesign

an offi ce layout, or streamline a work process. 18

LEARN MORE

ABOUT

A committee is designated to work on

a special task on a continuing basis.

A project team or task force is

convened for a specifi c purpose and

disbands when its task is completed.

TTTrrreeeennnndddds iiinnn tttthhheeee UUUUUssseeee off TTeeaammmss

394 CHAPTER 17 ■ Teams and Teamwork

Cross-Functional Teams

Many organizations make use of cross-functional teams that pull together members from

across diff erent functional units to work on common goals. Th ese teams help reduce the

functional chimneys problem by eliminating “walls” that can otherwise limit communica-

tion and cooperation among employees from diff erent departments and functions. Target

CEO Gregg Steinhafel, for example, says that his fi rm uses cross-functional teams from

“merchandising, marketing, design, communications, presentation, supply chain and stores”

to create and bring to customers new limited-edition fashions. 19

Self-Managing Teams

Traditional work teams consisting of first-level supervisors and their immediate sub-

ordinates are increasingly being replaced in a growing number of organizations with

self-managing work teams. As shown in Figure 17.1, these teams operate with a high

degree of task interdependence, authority to make many decisions about how they work, and

collective responsibility for results. 20

Th e expected advantages from self-managed teams are

better performance, reduced costs, and high levels of morale.

Multitasking is a key feature of all self-managing teams, whose members each have the

skills to perform several diff erent jobs. Within a team the emphasis is always on partici-

pation. Self-managing teams operate with members sharing tasks and taking collective

responsibility for management functions traditionally performed by supervisors. Th e

“self-management” responsibilities include planning and scheduling work, training mem-

bers in various tasks, distributing tasks, meeting performance goals, ensuring high quality,

and solving day-to-day operating problems. In some self-managing teams, members have

the authority to “hire” and “fi re” other members. Typical characteristics of self-managing

teams include:

• Members are held collectively accountable for performance results.

• Members have discretion in distributing tasks within the team.

• Members have discretion in scheduling work within the team.

• Members are able to perform more than one job on the team.

• Members train one another to develop multiple job skills.

• Members evaluate one another’s performance contributions.

• Members are responsible for the total quality of team products.

A cross-functional team operates

with members who come from diff erent

functional units of an organization.

Th e functional chimneys problem

is a lack of communication across

functions.

Members of a self-managing work

team have the authority to make

decisions about how they share and

complete their work.

Top manager

Middle manager

Self-managing team

Supervisor Team done by

Team management Planning and scheduling work Assignment of work tasks Training members Performance evaluation Quality control

Top manager

Middle manager

Supervisor

Traditional work unit

Team- leader

FIGURE 17.1 Organizational and management implications of

self-managing work teams.

Characteristics of self-managing teams

395Trends in the Use of Teams

Virtual Teams

Scene: U.S.-based IT manager needs to meet with team members in Brazil, the Philippines,

and Poland. Rather than pay for everyone to fl y to a common location, he checks world time

zones, sends an e-mail to schedule, and then turns on his tablet to join the other team mem-

bers online at the scheduled time using Google FaceTime or Skype.

Th e constant emergence of new technologies is making virtual collaboration both easier

and more common. At home it may be Twitter, Linked In, or Instagram; at the offi ce it’s likely

to be a wide variety of online meeting resources. Members of virtual teams, also called

distributed teams, work together through computer mediation rather than face to face. 21

Th ey operate like other teams with respect to what gets done. In virtual teams, it’s the way

that things get done that is diff erent. Th is diff erence has both potential advantages and

disadvantages. 22

In terms of potential advantages, virtual teams can save a signifi cant amount of time and

travel expense when members work in diff erent locations. Th ey also can be easily expanded

to include more members as needed, and the discussions and shared information can be

archived for later access. Virtual teams are usually quite effi cient because members are less

prone to stray off task and get sidetracked by interpersonal diffi culties. A vice president for

human resources at Marriott, for example, once called electronic meetings “the quietest,

least stressful, most productive meetings you’ve ever had.” 23

Th e lack of face-to-face interaction in virtual teams also creates potential disadvantages.

It limits the role of emotions and nonverbal cues in communication and often contributes

to member relationships that are depersonalized. 24

“Human beings are social animals for

whom building relationships matters a great deal,” says one scholar. “Strip away the social

side of teamwork and, very quickly, people feel isolated and unsupported.” 25

Th e following

guidelines can help keep the possible downsides of virtual teamwork to a minimum: 26

• Select team members high in initiative and capable of self-starting.

• Select members who will join and engage the team with positive attitudes.

• Select members known for working hard to meet team goals.

Members of a virtual team or

distributed team work together

and solve problems through

computer-based interactions.

A survey of some 38,000 workers around the world links low productivity with bad meetings, poor communication, and unclear goals.

■ 69% of meetings attended are considered ineff ective.

■ 32% of workers complain about team communication.

■ 31% complain about unclear objectives and priorities.

YOUR THOUGHTS?

Do the results from this survey match your own experiences with team meetings? Given the common complaints about meetings, what can a team leader do to improve them? Think about recent meetings you have attended. In what ways were the best meet- ings different from the worst meetings? Did your own behavior play a signifi cant role in both of these cases? How do the inter- actions of team members infl uence the quality of these meet- ings? Why?

analysis> MAKE DATA YOUR FRIEND > Meetings are frequent, but many say the ones they attend are ineffective.

Unproductive Meetings Are Major Time Wasters

Guidelines for virtual teamwork

396 CHAPTER 17 ■ Teams and Teamwork

• Begin with social messaging that allows members to exchange information about each

other in order to personalize the process.

• Assign clear goals and roles so that members can focus while working alone and also

know what others are doing.

• Gather regular feedback from members about how they think the team is doing and

how it might work more eff ectively.

• Provide regular feedback to team members about team accomplishments.

Team Building

High-performance teams of all the types just described operate with characteristics like

those shown in the box. 27

But real, eff ective teamwork and the great results teamwork can

generate don’t happen by accident.

Team building is a sequence of planned activities used to analyze the functioning of a

team and to make constructive, systematic changes in how it operates. 28

Th e process begins

with developing awareness that a problem may be present or may develop within the team.

Members then work together to gather data and fully understand the nature of the problem,

make plans to correct it, implement the plans

the team develops, and evaluate results from

the plan. Th is whole process is repeated as

diffi culties or new problems are discovered

within the team.

Th ere are many ways to gather data for

team building, including structured and

unstructured interviews, survey question-

naires, and team meetings. Regardless of the

method used to help understand what's hap-

pening, the basic principle of team building

remains the same. It is a careful and collabora-

tive assessment of all of the various aspects of the team, ranging from how members work

together to the results they are able to achieve.

Team building can be done with consulting assistance or under the direction of a

manager. It can also be done in the workplace or take place at outside locations. A popular

approach is to bring team members together in special outdoor settings where their

capacities for teamwork are put to the test through unusual and physically demanding

experiences, such as obstacle courses. Th ere’s lots of room for innovation in team building,

with options including activities like scavenger hunts, work with charities, cooking schools,

Team building is a sequence of

activities to analyze a team and make

changes to improve its performance.

• Clear and elevating goals

• Task-driven, results-oriented structure

• Competent, hard-working members

• Collaborative culture

• High standards of excellence

• External support and recognition

• Strong, principled leadership

Characteristics of High-Performance Teams

Cooking Together and Other Novel Ways to Build Teams

Th e outdoor experience approach to team-building is tried and true. But, it’s also a bit

old hat to some. A variety of new options are being tried avoid team-building burnout.

When 25 global managers from Th ermo Fisher Scientifi c got together, fi ve-person teams

cooked dinner with culinary coaches. One participant said: “We were all leaders and the

process highlighted the diff erences in the way we all approach a situation, which person

would be in charge, and how work would be delegated.” Senior executives at Superior

Farms attended a team-building session where they had to operate heavy construction

equipment. A vice president said that the help of a teammate speaking through her

headset allowed her to run the big excavator. “He was so patient with me and knew

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397How Teams Work

building and sculpting, and competitive activities. 29

Says one team-building trainer: “We

throw clients into situations to try and bring out the traits of a good team.” 30

Learning Check 2

TAKEAWAYQUESTION 2 What are current trends in the use of teams?

BE SURE YOU CAN • diff erentiate a committee from a task force • explain the benefi ts of cross-functional teams • discuss

potential advantages and disadvantages of virtual teams • list the characteristics of self-managing work teams • explain how

self-managing teams are changing organizations • describe the typical steps in team building

How Teams Work TAKEAWAY 3 How do teams work?

Team inputs • Stages of team development • Norms and cohesiveness Task and maintenance roles • Communication networks

An eff ective team does three things well—perform its tasks, satisfy its members, and

remain viable for the future. 31

On the task performance side, a work team is expected to

transform resource inputs (such as ideas, materials, and information) into product outputs

(such as a report, decision, service, or commodity). With respect to member satisfaction,

members should take pleasure from both the team’s performance accomplishments and

their contributions toward making these happen. As to future viability, the team should have

a social fabric and work climate that makes its members willing and able to work well

together in the future, again and again as needed.

You sometimes hear top executives saying that team eff ectiveness comes from having

“the right players in the right seats on the same bus, headed in the same direction.” 32

Th e

open-systems model in Figure 17.2 supports this view. It shows that a team’s eff ectiveness is

infl uenced by inputs—“right players in the right seats”—and by process—“on the same bus,

headed in the same direction.” 33

You can remember the implications of this fi gure by the

following Team Eff ectiveness Equation: 34

Team eff ectiveness 5 Quality of inputs 1 (Process gains 2 Process losses)

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ABOUT

An eff ective team achieves high levels

of task performance, membership

satisfaction, and future viability.

Team Eff ectiveness Equation Team

eff ectiveness 5 Quality of inputs 1 (Process gains 2 Process losses).

HHHHooowwww TTTTeeeaaaammmmmss WWWWWWoooorrrkkkkkk

Resources & setting Resources Technology Structures Rewards Information

Team effectiveness

Clarity Complexity

Team size Number of members Even-odd number

Accomplishment of desired outcomes

Task performance Member satisfaction Future viability

Team process

Team Inputs

How team members work together • Norms • Cohesion • Roles • Decision making • Communication • Conflict

Nature of task

Feedback

Membership characteristics

Abilities Values Personalities Diversity

FIGURE 17.2 An open-systems model of team eff ectiveness.

398 CHAPTER 17 ■ Teams and Teamwork

Team Inputs

Among the important inputs that infl uence team eff ectiveness are membership character-

istics, resources and setting, nature of the task, and team size. 35

You can think of these con-

ditions as the drivers that prepare the team for action. A team with the right inputs has a

greater chance of having a positive process and being eff ective.

Membership Characteristics Th e right blend of member characteristics on a team is critical for success. Teams need

members with the right abilities, or skill sets, to master and perform tasks well. Teams must

also have members whose attitudes, values, and personalities are suffi ciently compatible for

everyone to work well together. How often, for example, have you read or heard about col-

lege sports teams where a lack of the right “chemistry” among talented players leads to sub-

par team performance? As one of the chapter opening quotes states: “Gettin’ good players is

easy. Gettin’ ‘em to play together is the hard part.” 36

“There is no ‘I’ in team!” is a common cry. But basketball superstar Michael Jordan once responded: “Th ere is an ‘I’ in win.” What’s the point here? Jordan is suggesting that

someone as expert in task direction as himself shouldn’t always be

subordinated to the team. Rather, the team’s job may be to support

his or her talents so that they shine to their brightest potential.

In his book, Th ere Is an I in Team: What Elite Athletes and

Coaches Really Know about High Performance (Harvard Business

Review Press, 2012), Cambridge scholar Mark de Rond notes

that sports metaphors abound in the workplace. We talk about

“heavy hitters” and ask teammates to “step up to the plate.” Th e

real world of teamwork is dominated by the quest for coopera-

tion, perhaps at the cost of needed friction. And that, according

to du Rond, is a potential performance problem. “When teams

work well,” du Rond says, “it is because, not in spite, of individ-

ual diff erences.”

Th ose in favor of du Rond’s views are likely to argue that even if

superstars bring a bit of confl ict to the team, the result may well

be added creativity and a performance boost. Instead of trying to

make everyone happy, perhaps it’s time for managers and team

leaders to accept that disharmony can be functional, adding a

needed edge. A bit of team tension may be a price worth paying for

high performance. Th ose worried about du Rond’s views might say

there’s a fi ne line between a superstar’s real performance contribu-

tion and the collateral damage or negative impact caused by per-

sonality and temperament clashes. Th at line is a hard one to spot

and to manage.

YOUR TAKE?

Given what we know about teams and your personal experi- ences with them, should we be fi nding ways to accommodate superstars on a team . . . or avoid them?

choices> THINK BEFORE YOU ACT > “There is no ’I’ in team!” is a common cry. But basketball superstar Michael Jordan once

responded: “There is an ’I’ in win.”

Creating Disharmony to Build a Better Team

Jonathan Daniel/Allsport/Getty Images

399How Teams Work

Team diversity, in the form of diff erent values, personalities, experiences, demographics,

and cultures among the members of the team aff ects how teams work. 37

It is easier to man-

age relationships among members of more homogeneous teams—teams where members

share similar characteristics. It is harder to manage relationships among the members of

more heterogeneous teams—where members are more dissimilar to one another. As team

diversity increases, so does the complexity of members’ interpersonal relationships But the

potential complications of membership diversity also come with special performance

opportunities. When heterogeneous teams are well managed, the variety of ideas, perspectives,

and experiences within them can be a valuable problem solving and performance asset.

Resources and Setting Th e available resources and organizational setting can infl uence how well team members

use and pool their talents to accomplish team tasks. Teams function best when members

have good information, material resources, technology, organization structures, and

rewards. Th e physical work space also is critical, and the physical plant spaces of many orga-

nizations are being architecturally designed to directly facilitate teamwork. At SEI Invest-

ments, employees work in a large, open space without cubicles or space dividers; each has a

private set of offi ce furniture and fi xtures—all of it on wheels. All of the technology that

employees use easily plugs and unplugs from suspended power beams that run overhead.

Th is makes it easy for project teams to convene and disband as needed, and for people to

meet and communicate during the ebb and fl ow of daily work. 38

Nature of the Task Th e nature of the tasks teams are responsible for not only sets standards for the talents

needed by team members, it also aff ects how they work together. Clearly defi ned tasks are

easier to deal with. Complex tasks require a lot more of members in terms of information

sharing and coordinated action. 39

Th e next time you fl y, check out the ground crews. You

should notice some similarities between them and NASCAR pit crews. If you fl y United Air-

lines, in fact, there’s a chance that the members of the ramp crews have been through “Pit

Crew U.” United is among the many organizations sending employees to Pit Instruction &

Training in Mooresville, North Carolina. At this facility, where NASCAR racing crews train,

United’s ramp workers learn to work intensely and under pressure while meeting the goals

of teamwork, safety, and job preparedness. Teams participate in the training at the Moores-

ville facility to achieve better teamwork to reduce aircraft delays and service problems. 40

Team Size Team size aff ects how well team members work together, handle disagreements, and make

decisions. Having an odd numbers of members, such as in juries, helps prevent “ties” when

votes need to be taken. And importantly, the number of potential interactions among team

members increases geometrically as teams get bigger. Large team size creates communica-

tion and relationship problems for members and leaders. It’s also easier for individuals to

hide and engage in social loafi ng in larger teams.

Th e general conclusions from social science research are that very small teams—four

members or fewer—may be dominated by one or two strong characters. Six- to eight-mem-

ber teams are probably best for creative problem solving because their members are better

able to form trusting relationships and function more like families. When teams get larger

than this, the added size and complexity can be diffi cult to manage. 41

Amazon.com’s founder

and CEO Jeff Bezos is a great fan of teams. But he also has a simple rule when it comes to

sizing the fi rm’s product development teams: No team should be larger than two pizzas can

feed. 42

Have you ever been on a team that was too large? How did the members interact?

Stages of Team Development

Although having the right inputs is critical, it doesn’t guarantee team eff ectiveness. Team

process also plays an important role. Th is is the way that the members of a team actually

Team diversity represents the

diff erences in values, personalities,

experiences, demographics, and

cultures among members.

Team process is the way team members

work together to accomplish tasks.

400 CHAPTER 17 ■ Teams and Teamwork

work together as they transform inputs into output. Also called group dynamics, the process

aspects of any group or team include how members develop norms and cohesiveness, share

roles, make decisions, communicate with one another, and handle confl icts. 43

Importantly,

teams experience diff erent process challenges as they pass through the stages of team devel-

opment—forming, storming, norming, performing, and adjourning. 44

Forming Stage Th e forming stage of team development involves the fi rst entry of individual members into a

team. Th is is a time of initial task orientation and interpersonal testing. When people fi rst come

together, they ask questions: “What can or does this team off er me?” “What will I be asked to

contribute?” “Can my needs be met while my eff orts serve the task needs of the team?”

In the forming stage individuals begin to identify with other members and with the team

itself. Th ey are concerned about getting acquainted, establishing relationships, discovering

what behavior is acceptable, and learning how others perceive the team’s task. Th is may also

be a time when some members rely on others who appear “powerful” or especially “knowl-

edgeable.” Such things as prior experience with team members in other contexts and per-

sonal impressions of organization culture, goals, and practices may aff ect emerging

relationships between members. Diffi culties in the forming stage tend to be greater in more

culturally and demographically diverse teams.

Storming Stage Th e storming stage is a period of high emotionality and can be the most

diffi cult stage to pass through successfully. Tensions often emerge over

tasks and interpersonal concerns. Th ere may be periods of outright hostil-

ity and infi ghting. Coalitions or cliques may form around personalities or

interests. Subgroups may form around faultlines defi ned by areas of agree-

ment and disagreement. Confl ict also may develop as members compete

to impose their preferences on other members and to become infl uential.

Important changes occur in the storming stage as task agendas become

clarifi ed and members begin to understand one another’s styles. Attention

begins to shift toward obstacles that stand in the way of task accomplish-

ment. Eff orts are made to fi nd ways to meet team goals while also satis-

fying members’ individual needs. Th e storming stage is part of a “critical

zone” in team development, where successes create long-term gains while failures create

long-lasting problems.

Norming Stage It is in the norming stage that team members begin to cooperate with one another. Shared

rules of conduct emerge and the team develops a sense of leadership as each member starts

to occupy and fulfi ll key roles. Interpersonal hostilities start to diminish and harmony is

emphasized, but minority viewpoints may still be discouraged.

Th e norming stage also is part of the critical zone of team development. As members

develop initial feelings of closeness, a division of labor, and shared expectations, this helps

protect the team from disintegration. In fact, holding the team together may seem more

important than accomplishing important tasks.

Performing Stage Teams in the performing stage are more mature, organized, and well-functioning. Th ey score

high on the criteria of team maturity shown in Figure 17.3. 45

Performing is a stage of integra-

tion in which team members are able to deal in creative ways with complex tasks and

interpersonal confl icts. Th e team operates with a clear and stable structure, and members

are motivated by team goals. Th e primary challenges in the performing stage are to continue

to refi ne how the team operates and build relationships to keep everyone working well

together as an integrated unit.

Te am

P er

fo rm

an ce

Team Development Stages

Forming – Storming Norming – Performing

Critical Zone

Effective Team Process gains > losses

Process losses > gains Ineffective Team

Critical Zone of Team Effectiveness and Stages of Team Development

401How Teams Work

1 . Trust among members

3. Open communications

4. Approach to decisions

5. Leadership sharing

6. Acceptance of goals

7. Valuing diversity

8. Member cohesiveness

9. Support for each other

10. Performance norms

2. Feedback mechanisms

Very poor Very good

2 3 4 5

1 2 3 4 5

Adjourning Stage Th e fi nal stage of team development is adjourning, when

team members prepare to achieve closure and disband.

Temporary committees, task forces, and project teams should

disband with a sense that important goals have been accom-

plished. Th is can be an emotional period after team members

have worked together intensely for a period of time. Adjourn-

ing is a time when it is important to acknowledge everyone’s

contributions, praise them, and celebrate the team’s success.

A team ideally disbands with everyone feeling they would like

to work with one another again in the future.

Norms and Cohesiveness

A norm is a behavioral expectation of team members. 46

is a “rule” or “standard” that guides behavior. Typical team

norms relate to such things as helpfulness, participation,

timeliness, work quality, creativity and innovation. A team’s

performance norm is critical, as it defi nes the level of work eff ort and performance that

members are expected to contribute. Work groups and teams with positive performance

norms are more successful accomplishing task objectives than are teams with negative

performance norms.

Managing Team Norms Team leaders should help and encourage members to develop positive norms. During the

forming and storming stages of development, for example, norms relating to expected atten-

dance and levels of commitment are important. By the time the performing stage is reached,

norms relating to adaptability and change become relevant. Here are some things leaders

can do to help their teams build positive norms: 47

• Act as a positive role model.

• Reinforce desired behaviors with rewards.

• Control results by performance reviews and regular feedback.

• Train and orient new members to adopt desired behaviors.

• Recruit and select new members who exhibit desired behaviors.

• Hold regular meetings to discuss progress and ways of improving.

• Use team decision-making methods to reach agreement.

One normative issue of growing research interest is the extent to which members of

teams display virtuousness and share a commitment to moral behavior. Th e work of scholar

Kim Cameron, for example, discusses team virtuousness in respect to these fi ve norms of

moral behavior. 48

Optimism—Team members are expected to strive for success even

when experiencing setbacks. Forgiveness—Team members are expected to forgive one

another’s mistakes and avoid assigning blame. Trust—Team members are expected to be

courteous with one another and interact in respectful, trusting ways. Compassion—Team

members are expected to help and support one another and to show kindness in diffi cult

times. Integrity—Team members are expected to be honest in what they do and say while

working together.

Managing Team Cohesiveness Team members vary in their adherence to established group norms. Conformity to norms

is largely determined by the strength of team cohesiveness, the degree to which members

are attracted to and motivated to remain part of a team. 49

Members of teams that are

highly cohesive value their membership and strive to maintain positive relationships with

A norm is a behavioral expectation,

rule, or standard to be followed by team

members.

Team virtuousness indicates the

extent to which members adopt norms

that encourage shared commitments to

moral behavior.

Cohesiveness is the degree to which

members are attracted to and

motivated to remain part of a team.

FIGURE 17.3 Criteria for assessing the maturity of a team.

How to build positive team norms

402 CHAPTER 17 ■ Teams and Teamwork

other team members. Because of this, they tend to conform to team norms. In the extreme,

violation of a norm on a highly cohesive team can result in a member being expelled or socially

ostracized.

Figure 17.4 shows the power of cohesiveness. Th e “best-case” scenario is a team with high

cohesiveness and a high performance norm. Strong conformity to norms by members of

“high-high” teams is likely to have a benefi cial eff ect on team performance. Contrast this

with the “worst-case” scenario of high cohesiveness and a low performance norm. Members

of “high-low” teams conform to the low performance norm and restrict their work eff orts in

order to adhere to the norm.

We’ve already discussed ways to build positive norms. But, the implications of Figure 17.4

suggest that managers also must be good at building high levels of cohesiveness as well. Th is

can be done in the following ways:

• Create agreement on team goals.

• Reward team rather than individual results.

• Increase membership homogeneity.

• Increase interactions among members.

• Decrease team size.

• Introduce competition with other teams.

• Provide physical isolation from other teams.

Task and Maintenance Roles

Research on the social psychology of collectives such as groups and teams identifi es two

types of roles or activities that are essential if members are to work well together. 50

Task

activities contribute directly to the team’s performance purpose, while maintenance

activities support the emotional life of the team as an ongoing social system.

Although the team leader or supervisor should give these activities special attention, the

responsibility for task and maintenance activities also should be shared and distributed

among all team members. Anyone can help lead a team by acting in ways that satisfy these

needs. Th e concept of distributed leadership in teams makes every member continually

responsible for both recognizing when task or maintenance activities are needed, and also

taking actions to provide them.

Leading through task activities involves making an eff ort to defi ne and solve problems,

and to advance work activities toward performance results. Without the relevant task activ-

ities such as initiating agendas, sharing information, and others shown in Figure 17.5, teams

have diffi culty accomplishing their objectives. Leading through maintenance activities, by

contrast, helps strengthen the team as a social system. When maintenance activities such

A task activity is an action taken by a

team member that directly contributes

to the team’s performance purpose.

A maintenance activity is an action

taken by a team member that supports

the emotional life of the team.

Distributed leadership is when all

members of a team contribute helpful

task and maintenance behaviors.

High performance Strong commitments to

positive norms

Low performance Strong commitments to

negative norms

Worst-case scenario Best-case scenario

Team cohesiveness

Negative Positive

Performance norms

High

Low Moderate performance Weak commitments to

positive norms

Low to moderate performance Weak commitments to

negative norms

FIGURE 17.4 How cohesiveness and norms infl uence team

performance.

How to increase team cohesiveness

403How Teams Work

as gatekeeping, encouraging others, and reducing tensions are performed, good interper-

sonal and working relationships are achieved, increasing the probability that the team will

stay together over the longer term.

Both team task and maintenance activities stand in distinct contrast to the disruptive

activities described in Figure 17.5. Activities such as showing incivility toward other members,

withdrawing from discussions, and fooling around are self-serving and detract from, rather

than enhance, team eff ectiveness. Unfortunately, very few teams are immune to dysfunctional

behavior. Every team member shares in the responsibility for minimizing its occurrence.

Communication Networks

There is considerable research on the team interaction patterns and communication

networks shown in Figure 17.6. 51

When team members must interact intensively and work

closely together on complex tasks, this need is best met by a decentralized communica-

tion network. Sometimes called the all-channel or star communication network, this pattern

of interaction is where all members communicate directly with one another. At other times

Disruptive activities are self-serving

behaviors that interfere with team

eff ectiveness.

A decentralized communication

network allows all members to

communicate directly with one another.

Distributed leadership roles in teams

Initiating Information sharing Summarizing

Gatekeeping Encouraging

Team leaders provide task activities

Elaborating Opinion giving

Team leaders provide maintenance activities

Following Harmonizing Reducing tension

Team leaders avoid disruptive activities

Competing Withdrawal Horsing around Seeking recognition

Being aggressive Blocking Self-confessing Seeking sympathy

FIGURE 17.5 Distributed leadership helps teams meet task

and maintenance needs.

FIGURE 17.6 Interaction patterns and communication networks in

teams.

Pattern CharacteristicsDiagram

Interacting Group

High interdependency around a common task Best at complex tasks

Decentralized communication network

Co-acting Group

Centralized communication network

Independent individual efforts on behalf of common task Best at simple tasks

Counteracting Group

Restricted communication network

Subgroups in disagreement with one another Slow task accomplishment

404 CHAPTER 17 ■ Teams and Teamwork

team members can work on tasks independently, with the required work being divided

among them. Th is creates a centralized communication network, sometimes called a

wheel or chain communication structure. In this pattern of interaction, activities are coordi-

nated and results pooled by a central point of control.

When teams are composed of subgroups experiencing issue-specifi c disagreements,

such as a temporary debate over the best way to achieve a goal, the resulting interaction

pattern often involves a restricted communication network. Here, polarized sub-

groups contest one another and may even engage in confl ict. Communication between

subgroups is limited and biased, with negative consequences for group process and

eff ectiveness.

The best teams use each of these communication networks, but they use them in the

right ways and at the right times. Centralized communication networks seem to work

better on simple tasks. 52

These tasks lend themselves to more centralized control

because they require little creativity, information processing, problem solving, or collab-

orative effort. The reverse is true for more complex tasks, for which interacting groups

perform better. Decentralized communication networks support the more intense

interactions and information sharing required to perform complicated tasks. Even con-

fl icting groups can be useful. When teams get complacent, the confl ict that emerges from

them can be a source of creativity and critical evaluation. But when these subgroups stop

In a centralized communication

network, communication fl ows only

between individual members and a hub,

or center point.

In a restricted communication

network, subgroups have limited

communication with one another.

Positive team contributions are things that members do to help their team succeed at their tasks and help one another enjoy the experience of being on the team.

Scene—Hospital operating room: Scholars notice that heart

surgeons have lower death rates for similar procedures

performed in hospitals where they do more operations than

in hospitals where they do fewer operations.

Why? Researchers say the operations are more likely to be suc-

cessful because the doctors in the better hospitals spend more

time working together with members of their surgical teams. It’s

not only the surgeon’s skills that count, they say “Th e skills of the

team, and of the organization, matter.” Th e ability to practice to-

gether increases how eff ectively the skills of the members of the

surgical team can be integrated with one another. Practice in-

creases the potency of team contributions.

Scene—NBA basketball court: Scholars fi nd that basketball

teams win more games the longer the players have been

together.

Why? Researchers claim it’s a “teamwork eff ect.” Sports teams

whose members have played together the longest tend to win

more games because the players get to know each other’s moves

and playing tendencies. Players develop a sense, over time, of what

their teammates are thinking and where they will be on the court

before they get there. Knowledge of other team members in-

creases the benefi ts of team contributions.

A large part of your career success will depend on how well you

work in and lead teams. Take a look at the list of “must-have” team

skills presented here. Do you have the skills portfolio and personal

commitment to make truly valuable team contributions?

insight> LEARN ABOUT YOURSELF > Sports teams whose members play together the longest win more because the players get

to know each other’s moves and playing tendencies.

Don’t Short Your Team Contributions

“Must Have” Team Skills

• Encouraging and motivating others

• Accepting suggestions

• Listening to diff erent points of view

• Communicating information and ideas

• Persuading others to cooperate

• Resolving and negotiating confl ict

• Building consensus

• Fulfi lling commitments

• Avoiding disruptive acts and words

GET TO KNOW YOURSELF BETTER

Have a serious conversation with others who know and work with you about your performance as a team member and team leader. What do you expect that they’ll say? Ask for suggestions on how you could improve your team contributions. Prepare a short presentation to a potential employer describing your team skills. Write a set of notes on how you will describe yourself and what examples you will give to support your potential as a team leader and member.

405Decision Making in Teams

Decision Making in Teams TAKEAWAY 4 How do teams make decisions?

Ways teams make decisions • Advantages and disadvantages of team decisions Groupthink • Creative team decision making

Decision making, the process of making choices among alternative possible courses of

action, is one of the most important processes that occur in groups and teams. Th e best

teams will use a variety of decision-making methods over time as they face diff erent kinds

LEARN MORE

ABOUT

Decision making is the process of

making choices among alternative

possible courses of action.

Learning Check 3

TAKEAWAYQUESTION 3 How do teams work?

BE SURE YOU CAN • defi ne team eff ectiveness • identify inputs that infl uence eff ectiveness • discuss how membership

diversity infl uences team eff ectiveness • list fi ve stages of group development • defi ne group norm and list ways to build

positive group norms • defi ne cohesiveness and list ways to increase group cohesion • explain how norms and cohesiveness

infl uence team performance • diff erentiate between task, maintenance, and disruptive activities • describe the use of

decentralized and centralized communication networks

communicating and helping one another, task accomplishment typically suff ers—at least

in the short term.

DDDDeeeccciiisssiiiooonnnnn MMMMMMaaaakkkiinnnnggg iiin TTeeammmms

business mind. If you go to Amazon.com and click on the “Gold

Box” at the top, you’ll be tuning in to Bezos’s vision. It’s a place for

special deals, lasting only an hour and off ering everything from a

power tool to a new pair of shoes. If you join Amazon Prime and

“One-Click” your way to free shipping and a hassle-free checkout,

you’re benefi ting from his vision as well. And, of course, there’s also

the Kindle. Not only has it become Amazon’s best-selling product

ever, but it also made electronic books an everyday reality—one

that competitors have been racing to take advantage of.

Amazon’s innovations don’t just come out of the blue. Th ey’re

part and parcel of the management philosophy Bezos has instilled

at the fi rm. And teams are a central ingredient in the innovation

process. Bezos calls Amazon’s small two-pizza teams “innovation

engines,” betting that they’ll help fi ght creeping bureaucracy as

the company grows larger and more complex.

FIND THE INSPIRATION

Is Bezos on to a great management lesson with his notion of the two-pizza team? What difference does team size make in your experience? Can you come up with an example of a team with over a dozen members that performed really well? If so, how can you explain its success? On the other hand, can a team be too small? What example can you give of a team that would have done better if it was just a little bigger?

wisdom> LEARN FROM ROLE MODELS > If two pizzas aren’t enough to feed a team, it’s too big.

Amazon’s Jeff Bezos Feeds Innovation with Two-Pizza Teams

Amazon.com’s founder and CEO Jeff Bezos is one of America’s top businesspersons and a technology visionary. He’s also a great fan of teams. Bezos coined a simple rule when it comes to

sizing the fi rm’s product development teams: If two pizzas aren’t

enough to feed a team, it’s too big.

Don’t expect to spot a stereotyped corporate CEO in Jeff Bezos.

His standard offi ce attire is still blue jeans and a blue-collared

shirt. But, this attire comes with a unique personality and a great

Ted S. Warren/AP Photos

406 CHAPTER 17 ■ Teams and Teamwork

of problems. 53

But as with other aspects of teamwork, decision making also can be challeng-

ing. 54

Edgar Schein, a respected scholar and consultant, says all this can be better under-

stood when we recognize that teams use at least six methods to make decisions: lack of

response, authority rule, minority rule, majority rule, consensus, and unanimity. 55

Ways Teams Make Decisions

In decision by lack of response, one idea after another is suggested without any discussion

taking place. When the team fi nally accepts an idea, all others have been bypassed by simple

lack of response rather than by critical evaluation. Th e last alternative is chosen by default.

In decision by authority rule, the leader, manager, committee head, or other authority

fi gure makes a decision for the team. Th is can be done with or without discussion and is very

time-effi cient. Whether the decision ultimately is good or bad, however, depends on whether

the authority fi gure has the necessary information and expertise, and on how well this

approach is accepted by other team members.

In decision by minority rule, two or three people are able to dominate or “railroad” the

team into making a decision that they prefer. Th is often is done by providing a suggestion

and then forcing quick agreement by challenging the team with such statements as “Does

anyone object? No? Well, let’s go ahead then.”

One of the most common things teams do, particularly when signs of disagreement

emerge, is to take a vote and arrive at a decision by majority rule. Although this is broadly

consistent with the democratic political process, it has some potential problems. Th e

very act of voting can create coalitions as some people become “winners” and others

“losers.” Th ose in the minority—the “losers”—may feel left out or discarded without hav-

ing had a fair say. Th ey may be unenthusiastic about implementing the decision of the

“majority,” and lingering resentments may impair future team eff ectiveness. Such possi-

bilities are well illustrated in the political arena, where candidates receiving only small

and controversial victory margins end up struggling against entrenched opposition from

the losing party.

Teams often are encouraged to achieve decision by consensus. Th is is where full discus-

sion leads to one alternative being favored by most members, and the other members agree

to support it. When a consensus is reached,

even those who may have opposed the deci-

sion know that their views have been heard

by everyone involved. Consensus does not

require unanimous support, but it does

require that members be able to argue,

engage in reasonable confl ict, and still get

along with and respect one another. 56

pointed out in the nearby box, true consen-

sus occurs only when any dissenting mem-

bers have been able to speak their mind and

know they’ve been heard. 57

A decision by unanimity may be the ideal state of aff airs. “Unanimity” means that all team

members agree on the course of action to be taken. Th is is a logically perfect method, but it

also is extremely diffi cult to achieve in practice. One of the reasons that teams sometimes

turn to authority decisions, majority voting, or even minority decisions is the diffi culty of

managing team processes to achieve consensus or unanimity.

Advantages and Disadvantages of Team Decisions

When teams take time to make decisions by consensus or unanimity, they gain special

advantages over teams relying more on individual or minority decision methods. 58

Th e pro-

cess of making a true team decision increases the availability of useful information, knowl-

edge, and expertise. It expands the number of action alternatives teams examine, and helps

to avoid bad decisions that emerge through tunnel vision and the consideration of only one

1. Don’t argue blindly; consider others’ reactions to your points.

2. Don’t change your mind just to reach quick agreement.

3. Avoid confl ict reduction by voting, coin tossing, or bargaining.

4. Keep everyone involved in the decision process.

5. Allow disagreements to surface so that issues can be deliberated over.

6. Don’t focus on winning versus losing; seek acceptable alternatives.

7. Discuss assumptions, listen carefully, and encourage members’ inputs.

How to Achieve Consensus

407Decision Making in Teams

or a few options. Team decisions also increase members’ understanding and acceptance.

Th is helps to build members’ commitment to work hard to implement decisions the team

has made together.

Th e potential disadvantages of team decision making trace largely to the diffi culties with

group processes. It can be hard to reach agreement when many people are trying to make a

team decision. Th ere may be social pressure to conform and even minority domination,

where some members feel forced or “railroaded” into accepting a decision advocated by one

vocal individual or small coalition. Th e time required to make team decisions also can some-

times be a real disadvantage. As more people are involved in the dialogue and discussion,

decision making takes longer. Th is added time may be costly, even prohibitively so under

certain circumstances.

Groupthink

One of the potential downsides of team

decision making is what psychologist Irving

Janis called groupthink, the tendency for

highly cohesive teams to lose their critical

evaluative capabilities. 59

Although it may

seem counterintuitive, a high level of cohe-

siveness can be a disadvantage if strong

feelings of team loyalty make it hard for

members to criticize and evaluate one

another’s ideas and suggestions objectively.

Members of very cohesive teams may feel

so strongly about the group that they won’t

say or do anything that might harm it. Th ey

end up publicly agreeing with actual or sug-

gested courses of action about which they

have serious private, unspoken doubts or

objections. Groupthink occurs as the desire

to hold the team together and avoid dis-

agreements results in poor decisions.

Janis suggests that groupthink played a

role in well-known historical disasters such

as the lack of preparedness of U.S. naval

forces for the Japanese attack on Pearl

Groupthink is a tendency for highly

cohesive teams to lose their evaluative

capabilities.

When Teams Stand Up, Decisions Speed Up

Did you ever wonder what it would take to move decisions along a lot faster in a

team meeting? One solution is simple: Take away the seats. At the software fi rm

Atomic Object, seats are out and speed is in. At the regular team meeting that starts

each workday, every one stands up. Meetings also have to be on time and are

expected to stay on task; no playing Angry Birds or chatting. Even tables are out at

many Atomic Object meetings. A vice president declares “Th ey make it too easy to

lean or rest laptops.” Stand-up meetings are popular in the tech industry, where

some call them “agile meetings.” At Atomic Object, agile they are; the typical

meeting lasts less than fi ve minutes.C ul

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Illusions of invulnerability—Members assume that the team is too good for

criticism or is beyond attack.

Rationalizing unpleasant and disconfi rming data—Members refuse to

accept contradictory data or to thoroughly consider alternatives.

Belief in inherent group morality—Members act as though the group is

inherently right and above reproach.

Stereotyping competitors as weak, evil, and stupid—Members refuse to

look realistically at other groups.

Applying direct pressure to deviants to conform to group wishes—Members

refuse to tolerate anyone who suggests the team may be wrong.

Self-censorship by members—Members refuse to communicate personal

concerns to the whole team.

Illusions of unanimity—Members accept consensus prematurely, without

testing its completeness.

Mind guarding—Members protect the team from hearing disturbing ideas

or outside viewpoints.

Symptoms of Groupthink

408 CHAPTER 17 ■ Teams and Teamwork

Harbor, the Bay of Pigs invasion under President Kennedy, the many roads that led to the

United States’ diffi culties in the Vietnam War, and the space shuttle Challenger explosion.

But he also says that when the groupthink symptoms listed in the nearby box are spotted,

managers and team leaders can prevent them from causing too much harm if they act

proactively.

When you are leading or are part of a team heading toward groupthink, don’t assume

there’s no way out. Janis noted, for example, that after suff ering the Bay of Pigs fi asco, Presi-

dent Kennedy approached the Cuban missile crisis quite diff erently. He purposely did not

attend some cabinet discussions and allowed the group to deliberate without him. His

absence helped the cabinet members talk more openly and to be less inclined to try and say

things that were consistent with his own thinking. When a decision was fi nally reached, the

crisis was successfully resolved.

In addition to having the leader stay absent for some team discussions, Janis has other

advice on how to get a team that is moving toward groupthink back on track. You can assign

one member to act as a critical evaluator or “devil’s advocate” during each meeting. Sub-

groups can be assigned to work on issues and then share their fi ndings with the team as a

whole. Outsiders can be brought in to observe and participate in team meetings and off er

their advice and viewpoints on both team processes and tentative decisions. Th e team can

also hold a “second chance” meeting after an initial decision is made to review, change, or

even cancel the decision. With actions like these available, there’s no reason to let group-

think lead a team down the wrong pathways.

Creativity in Team Decision Making

When team creativity is needed in special situations, managers shouldn’t hesitate to use

time-tested brainstorming and nominal group techniques. Both techniques can be used in

face-to-face or in virtual team settings.

Classic brainstorming usually asks members to follow these strict guidelines. Don’t crit-

icize each other—withhold judging or evaluating ideas as they are being presented. Welcome

“freewheeling”—the wilder or more radical the idea, the better. Go for quantity—the more

ideas generated, the greater the likelihood that one or more will be outstanding. Keep build-

ing on one another’s ideas—don’t hesitate to piggyback and tweak one or more existing ideas

into new forms.

At the Aloft Group, Inc., a small advertising fi rm in Newburyport, Massachusetts, Presi-

dent Matt Bowen says brainstorming works best if he specifi es the goal—ideally in a sentence

that he distributes a day or two ahead of the session. He limits the brainstorming session to

an hour, and keeps the group small—ideally fi ve to seven members. He allows no criticism—

there is no such thing as a “bad” idea. He also encourages everyone to build on one another’s

ideas and is sure to follow up by implementing something from the brainstorming session. 60

In situations where brainstorming won’t work, such as in a situation prone to intense dis-

agreement and interpersonal confl icts, an approach known as the nominal group technique

can sometimes be useful. 61

It uses a highly structured meeting agenda that allows everyone to

contribute ideas without the interference of evaluative comments by others. Participants are

fi rst asked to work alone and respond in writing with possible solutions to a stated problem.

Ideas are then shared in round-robin fashion without any criticism or discussion, and all ideas

are recorded as they are presented. Ideas are next discussed and clarifi ed in another round-

robin sequence, with no evaluative comments allowed. Finally, members individually and

silently follow a written voting procedure that ranks all alternatives in priority order.

Brainstorming engages group

members in an open, spontaneous

discussion of problems and ideas.

Th e nominal group technique

structures interaction among team

members discussing problems and

ideas.

Learning Check 4

TAKEAWAYQUESTION 4 How do teams make decisions?

BE SURE YOU CAN • illustrate how groups make decisions by authority rule, minority rule, majority rule, consensus, and

unanimity • list advantages and disadvantages of group decision making • defi ne groupthink and identify its symptoms • illustrate

how brainstorming and the nominal group technique can improve creativity in team decision making

409Management Learning Review

Summary

TAKEAWAYQUESTION 1 What are teams and how do they fi t in organizations?

• A team is a collection of people working together interdependently to accomplish a common goal.

• Teams help organizations perform through synergy—the creation of a whole that is greater than the sum of its parts.

• Teams help satisfy important needs for their members by providing sources of job support and social satis- factions.

• Social loafi ng and other problems can limit the perfor- mance of teams.

• Organizations operate as networks of formal and informal teams and groups.

FOR DISCUSSION Why do people often tolerate social loafers at work?

TAKEAWAYQUESTION 2 What are current trends in the use of teams?

• Committees and task forces are used to accomplish special tasks and projects.

• Cross-functional teams bring members together from different departments and help improve lateral relations and integration in organizations.

• New developments in information technology are making virtual teams commonplace at work, but virtual teams also pose special management challenges.

• Self-managing teams are changing organizations, as team members perform many tasks previously done by their supervisors.

• Team building engages members in a process of assessment and action planning to improve teamwork and future performance.

FOR DISCUSSION What are some of the things that virtual teams probably can’t do as well as face-to-face teams?

TAKEAWAYQUESTION 3 How do teams work?

• An effective team achieves high levels of task performance, member satisfaction, and team viability.

• Important team inputs include the organizational setting, nature of the task, size, and membership characteristics.

• A team matures through various stages of development, including forming, storming, norming, performing, and adjourning.

• Norms are the standards or rules of conduct that infl uence team members’ behavior; cohesion is the attractiveness of the team to its members.

• In highly cohesive teams, members tend to conform to norms; the best situation is a team with positive perfor- mance norms and high cohesiveness.

• Distributed leadership occurs as members share in meeting a team’s task and maintenance needs.

• Effective teams make use of alternative communication structures, such as centralized and decentralized networks, to best complete tasks with distinct communication requirements.

FOR DISCUSSION What can be done if a team gets trapped in the storming stage of group development?

TAKEAWAYQUESTION 4 How do teams make decisions?

• Teams can make decisions by lack of response, authority rule, minority rule, majority rule, consensus, and unanimity.

• Although group decisions often make more information available for problem solving and generate more understanding and commitment, they are slower than individual decisions and may involve social pressures to conform.

• Groupthink is the tendency for members of highly cohesive teams to lose their critical evaluative capabilities and make poor decisions.

• Techniques for improving creativity in teams include brainstorming and the nominal group technique.

FOR DISCUSSION Is it possible that groupthink doesn’t only occur when groups are highly cohesive, but also when they are pre-cohesive?

Management Learning Review Get Prepared for Quizzes and Exams

410 CHAPTER 17 ■ Teams and Teamwork

Multiple-ChoiceQuestions 1. When a group of people is able to achieve more than

what its members could by working individually, this is called ____________. (a) social loafi ng (b) consensus (c) viability (d) synergy

2. One of the recommended strategies for dealing with a group member who engages in social loafi ng is to __________. (a) redefi ne tasks to make individual contributions more

visible (b) ask another member to encourage this person to

work harder (c) give the person extra rewards and hope he or she

will feel guilty (d) just forget about it

3. In an organization operating with self-managing teams, the traditional role of ____________ is replaced by the role of team leader. (a) chief executive offi cer (b) fi rst-line supervisor (c) middle manager (d) general manager

4. An effective team is defi ned as one that achieves high levels of task performance, member satisfaction, and ____________. (a) resource effi ciency (b) future viability (c) consensus (d) creativity

5. In the open-systems model of teams, the ____________ is an important input factor. (a) communication network (b) decision-making method (c) performance norm (d) set of membership characteristics

6. The team effectiveness equation states the following: Team effectiveness 5 Quality of inputs 1 ( ____________ 2 Process losses). (a) Process gains (b) Leadership impact (c) Membership ability (d) Problem complexity

7. A basic rule of team dynamics states that the greater the ____________ in a team, the greater the conformity to norms. (a) membership diversity (b) cohesiveness (c) task structure (d) competition among members

8. Members of a team tend to start to get coordinated and comfortable with one another in the ____________ stage of team development. (a) forming (b) norming (c) performing (d) adjourning

9. One way for a manager to build positive norms within a team is to ____________. (a) act as a positive role model (b) increase group size (c) introduce groupthink (d) isolate the team

10. To increase the cohesiveness of a group, a manager would be best off ____________. (a) starting competition with other groups (b) increasing the group size (c) acting as a positive role model (d) introducing a new member

11. Groupthink is most likely to occur in teams that are ____________. (a) large in size (b) diverse in membership (c) high-performing (d) highly cohesive

12. A team member who does a good job at summarizing discussion, offering new ideas, and clarifying points made by others is providing leadership by contributing __________ activities to the group process. (a) required (b) task (c) disruptive (d) maintenance

13. A ____________ decision is one in which all members agree on the course of action to be taken. (a) consensus (b) unanimous (c) majority (d) nominal

14. A team performing very creative and unstructured tasks is most likely to succeed using ___________. (a) a decentralized communication network (b) decisions by majority rule (c) decisions by minority rule (d) more task than maintenance activities

15. Which of the following approaches can help groups achieve creativity in situations where lots of interpersonal confl icts are likely to occur? (a) nominal group technique (b) minority rule (c) consensus (d) brainstorming

Self-Test 17

411Management Skills & Competencies

Short-ResponseQuestions 16. How can a manager improve team effectiveness by

modifying inputs?

17. What is the relationship among a team’s cohesiveness, performance norms, and performance results?

18. How would a manager know that a team is suffering from groupthink (give two symptoms), and what could the manager do about it (give two responses)?

19. What makes a self-managing team different from a traditional work group?

EssayQuestion 20. Marcos Martinez has just been appointed manager

of a production team operating the 11 p.m. to 7 a.m. shift in a large manufacturing fi rm. An experienced manager, Marcos is pleased that the team members really like and get along well with one another, but they also appear to be restricting their task outputs to the minimum acceptable levels. What could Marcos do to improve things in this situation, and why should he do them?

Evaluate Career Situations

What Would You Do?

1. New Task Force

It’s time for the fi rst meeting of the task force that you have

been assigned to lead. Th is is a big opportunity, since it’s the

fi rst time your supervisor has given you this level of responsi-

bility. Th ere are seven members of the task force, all of whom

are your peers and co-workers. Th e task is to develop a pro-

posal for increased use of fl exible work schedules and tele-

commuting in the organization. What will your agenda be for

the fi rst meeting, and what opening statement will you make?

2. Declining Performance

You’ve been concerned for quite some time about a drop in

the performance of your work team. Although everyone

seems to like one another, the “numbers” in terms of measured

daily performance are on the decline. It’s time to act. What

will you look at, and why, to determine where and how steps

might be taken to improve the eff ectiveness of the work

team?

3. Groupthink Possibilities

Th e members of the executive compensation committee that

you are chairing show a high level of cohesiveness. It’s obvious

that they enjoy being part of the committee and are proud to

be on the board of directors. But the committee is about to

approve extraordinarily high bonuses for the CEO and fi ve

other senior executives. Th is is occurring at a time when ex-

ecutive pay is getting a lot of criticism from the press, unions,

and the public at large. What can you do to make sure group-

think isn’t causing this committee to potentially make a bad

decision? What clues might you use to determine whether

groupthink is having an infl uence on what is taking place?

Refl ect on the

Self-Assessment

Team Leader Skills

Instructions Consider your experience in groups and work teams while com-

pleting the following inventory. Rate yourself on each item using

the following scale (circle the number that applies). 62

1 5 Almost never 2 5 Seldom 3 5 Sometimes 4 5 Usually 5 5 Almost always

Question: “How do I behave in team leadership situations?”

1 2 3 4 5 1. Facilitate communications with and among

team members between team meetings.

1 2 3 4 5 2. Provide feedback/coaching to individual team

members on their performance.

1 2 3 4 5 3. Encourage creative and “out-of-the-box”

thinking.

1 2 3 4 5 4. Continue to clarify stakeholder needs/

expectations.

1 2 3 4 5 5. Keep team members’ responsibilities and

activities focused within the team’s objectives

and goals.

1 2 3 4 5 6. Organize and run eff ective and productive

team meetings.

1 2 3 4 5 7. Demonstrate integrity and personal

commitment.

1 2 3 4 5 8. Have excellent persuasive and infl uencing

skills.

ManagementSkills& Competencies Make yourself valuable!

412 CHAPTER 17 ■ Teams and Teamwork

1 2 3 4 5 9. Respect and leverage the team’s cross-

functional diversity.

1 2 3 4 5 10. Recognize and reward individual contributions

to team performance.

1 2 3 4 5 11. Use the appropriate decision-making style for

specifi c issues.

1 2 3 4 5 12. Facilitate and encourage border management

with the team’s key stakeholders.

1 2 3 4 5 13. Ensure that the team meets its commitments.

1 2 3 4 5 14. Bring team issues and problems to the team’s

attention and focus on constructive problem

solving.

1 2 3 4 5 15. Provide a clear vision and direction for the

team.

Self-Assessment Scoring Th e inventory measures seven dimensions of team leadership.

Add your scores for the items listed next to each dimension

below to get an indication of your potential strengths and weak-

nesses.

1, 9 Building the Team

2, 10 Developing People

3, 11 Team Problem Solving and Decision Making

4, 12 Stakeholder Relations

5, 13 Team Performance

6, 14 Team Process

7, 8, 15 Providing Personal Leadership

Interpretation Th e higher your score, the more confi dent you are on the par-

ticular skill and leadership capability. Consider giving this in-

ventory to people who have worked with you in teams and

have them rate you. Compare the results to your self-

assessment. Also, remember it is doubtful that any one team

leader is capable of exhibiting all of the skills listed. More and

more, organizations are emphasizing teams that blend a vari-

ety of skills, rather than depending on the vision of the single,

heroic leader fi gure. As long as the necessary leadership skills

are represented within the membership of the team, it is more

likely that the team will be healthy and achieve a high level of

performance. Of course, the more skills you bring with you to

team leadership situations, the better the team is likely to

perform.

Contribute to the

Class Exercise

Work Team Dynamics

Preparation Th ink about your class work group, a work group you are in-

volved in for another course, or any other group suggested by

your instructor. Use this scale to indicate how often each of the

following statements accurately refl ects your experience in the

group. 63

1 All the time 2 Very often

3 Sometimes 4 Never happens

1. My ideas get a fair hearing.

2. I am encouraged to give innovative ideas and take risks.

3. Diverse opinions within the group are encouraged.

4. I have all the responsibility I want.

5. Th ere is a lot of favoritism shown in the group.

6. Members trust one another to do their assigned work.

7. Th e group sets high standards of performance excellence.

8. People share and change jobs a lot in the group.

9. You can make mistakes and learn from them in this group.

10. Th is group has good operating rules.

Instructions Form teams as assigned by your instructor. Ideally, this will be

the group you have just rated. Have all members share their

ratings, and then make one overall rating for the team as a

whole. Circle the items for which there are the biggest diff er-

ences of opinion. Discuss those items and try to determine

what accounts for these diff erences. In general, the better a

team scores on this instrument, the higher its creative poten-

tial. Make a list of the fi ve most important things members

believe they can do to help the team perform better. Nominate

a spokesperson to summarize your discussion for the class as

a whole.

Manage a Critical Incident

Th e Rejected Team Leader

You have been a team leader at a big-box electronics store for

three years, and the team you supervise is great. Everyone is

hard working, gets along really well, comes in early, stays late,

helps one another, and gets the job done. Th e members go out

together after work and are good friends with each other and

with you. A week ago, your team was assigned exclusive respon-

sibility for designing and setting up the upcoming product dis-

play for tablets and other mobile devices in an entire section of

the store. Crystal—one of your team members—was especially

excited about the project. She has been taking online courses at

the local technical college and wants to move into advertising

design as a career. Because the team works so well together, you

had expected the whole process to go smoothly with a bunch of

great display formats fi gured out for you to choose from. But by

the end of the week, you’d only gotten one proposal from the

team, and it wasn’t very good. You talked to each team member

individually. Th ey all stood behind the design the team had sub-

mitted. Th ey got mad at you for suggesting that they come up

with another design, and wouldn’t even listen to you. Th ey

wouldn’t tell you how they came up with the design, how they

fi gured things out, or share any information with you at all. Even

though you are the supervisor, you are also a friend, so it was hard

413Analyze the Case Study

when they reacted in such a hostile way to your feedback—

particularly in light of the looming deadline.

Questions What is happening in this team? Th ese employees know and

trust you, but you can’t even get them to talk to you about what’s

happening—why? What can you do to get through the wall

they’ve put around themselves? Why have you been shut out of

the team in this way? What does it mean for the project and how

you handle the team moving forward?

Collaborate on the

Team Activity

Superstars on the Team

During a period of refl ection following a down cycle for his

teams, Sasho Cirovski, head coach of the two-time NCAA Divi-

sion I University of Maryland men’s soccer team, came to a real-

ization. “I was recruiting talent,” he said. “I wasn’t doing a very

good job of recruiting leaders.” With a change of strategy, his

teams moved back to top-ranked national competition.

Question What do you do with a “superstar” on your team?

Instructions 1. Everywhere you look—in entertainment, in sports, and in

business—a lot of attention goes to the superstars. What is

the record of teams and groups with superstars? Do they

really outperform the rest?

2. What is the real impact of a superstar’s presence on a team

or in the workplace? What do they add? What do they cost?

Consider the potential cost of having a superstar on a team

within the equation: Benefi ts 5 Cost—Value. What is the bot- tom line of having a superstar on the team?

3. Interview the athletic coaches on your campus. Ask them the

previous questions about superstars. Compare and contrast

their answers. Interview players from various teams, and ask

them the same questions.

4. Develop a set of guidelines for creating team eff ectiveness in

a situation where a superstar is present. Be thorough and

practical.

AnalyzeTHE CaseStudy

AUTO RACING

When the Driver Takes a Back Seat Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

Kayak.com’s chief technology offi cer Paul English placed a two-foot-tall elephant toy, Annabelle, in the conference room where it can’t be ignored. “So often at work,” he says, “people have issues that they can’t resolve because they won’t talk about it.”

Communication

and Collaboration

Listening is the key to understanding

18 C H A P T E R Q U I C K STA RT

A lot of what we accomplish in life and at work depends on our abilities to com-

municate well and collaborate with others. Recruiters prize job candidates with

strong communication skills who can achieve positive impact through their writ-

ing and presentations, and in teamwork and interpersonal settings. Th e ability to

communicate and collaborate also includes confl ict and negotiation situations.

How well we handle them often makes the diff erence between success and failure

when multiple interests are at play.

Key Takeaways

■ Describe the elements

in the communication

process.

■ Identify ways to improve

the eff ectiveness of

communication.

■ Discuss how confl ict

can be functional and

managed successfully.

■ Explain ways to negotiate

successfully and avoid

negotiation pitfalls.

415

MANAGEMENT IS REAL MAKE DATA YOUR FRIEND

Value of Performance Reviews Gets Increasing Scrutiny

THINK BEFORE YOU ACT

Tapping into the Science of Persuasion

KNOW RIGHT FROM WRONG

Blogging Is Easy, but Bloggers Should Beware

LEARN ABOUT YOURSELF

Collaboration Begins with Communication and Networking

LEARN FROM ROLE MODELS

Lane Bryant CEO Linda Heasley Gives Others Reasons to Work with Her

SKILLS MAKE YOU VALUABLE ■ EVALUATE Career Situations:

What Would You Do?

■ REFLECT On the Self-Assessment: Confl ict Management Strategies

■ CONTRIBUTE To the Class Exercise: Feedback Sensitivities

■ MANAGE A Critical Incident: Headphones on in the Offi ce

■ COLLABORATE On the Team Activity: How Words Count

■ ANALYZE Th e Case Study: Twitter: Rewriting (or Killing) Communication

what to look for inside >

416 CHAPTER 18 ■ Communication and Collaboration

W hether you work at the top of an organization—building support for

strategies and goals, or in teams at other levels—interacting with

teammates and co-workers to support their eff orts and your own, your

career toolkit must include the abilities to achieve positive impact through

communication and collaboration. Th ey are foundations for social capital,

the capacity to attract support and help from others in order to get things

done. Whereas intellectual capital comes from what you know, social capital

comes from the people you know and how well you relate to them. It’s some-

thing all managers need, and it’s all about communication, connections, and

relationships. Pam Alexander, former CEO of Ogilvy Public Relations World-

wide, says: “Relationships are the most powerful form of media. Ideas will

only get you so far these days. Count on personal relationships to carry you

further.” 1

Social capital is a capacity to get things

done with the support and help of others.

Th e Communication Process TAKEAWAY 1 What is the communication process?

Eff ective communication • Persuasion and credibility in communication Communication barriers • Cross-cultural communication

Figure 18.1 describes communication as an interpersonal process of sending and receiving

symbols with messages attached to them. Th is process can be understood as a series of

questions: “Who?” (sender) “says what?” (message) “in what ways?” (channel) “to whom?”

(receiver) “with what result?” (meaning). It is through this process that people build and use

social capital, exchange and share information, lead and inspire followers, and infl uence one

another’s attitudes, behaviors, and understandings.

It is important to respect and understand the communication process as the glue that

binds together the four functions of planning, organizing, leading, and controlling. 2

Planning is accomplished and plans are shared through the communication of information.

Organizing identifi es and structures communication links among people and positions.

Leading uses communication to achieve positive infl uence over organization members

and stakeholders. Controlling relies on communication to process information to measure

performance results.

Eff ective Communication

Most of us probably think we’re pretty good at communicating. However, this sense of

confi dence can cause a signifi cant problem in the communication process: We take our

abilities for granted and end up disappointed when things go wrong. Getting things to “go

right” requires alertness to issues of “eff ectiveness” and “effi ciency” in the ways we commu-

nicate. Eff ective communication occurs when the sender’s message is fully understood

LEARN MORE

ABOUT

Communication is the process of

sending and receiving symbols with

meanings attached.

In eff ective communication the

intended meaning is fully understood by

the receiver.

ThThThThee CCCoommmmmuuunnicattiioon PrrooccessssTh

Message/Channel Encodes

Intended meaning

Receiver

Decodes

Perceived meaning Feedback/Channel

Sender FIGURE 18.1 Th e interactive two-way process of interpersonal

communication.

417Th e Communication Process

by the receiver. Effi cient communication occurs at minimum cost in terms of resources

expended. It’s great when our communications are both eff ective and effi cient. But, trade

off s between the two are common.

An effi cient communication may not be eff ective. We are often too busy or too lazy to

invest enough time to make sure that communication is eff ective. Instead, we shoot for effi -

ciency. Picture your instructor taking the time to communicate individually with each stu-

dent about this chapter. It would be virtually impossible and certainly very costly in terms of

the instructor’s time. Th is is why managers, co-workers, and even family members often

communicate with others by leaving voice mail and sending texts and messages rather than

visiting face-to-face. Th ese choices are effi cient but not always eff ective ways of communicat-

ing. Although an e-mail note sent to several people on a distribution list may save the send-

er’s time, not all receivers might interpret the message in the same way.

By the same token, an eff ective communication may not be effi cient. If a team leader

visits each team member individually to explain new procedures, this may guarantee that

everyone truly understands the change. But, it also requires a lot of the leader’s time. And

rightly or wrongly, saving time may be our top priority.

Persuasion and Credibility in Communication

Communication is not only about sharing information or being “heard.” It’s about the

intent of one party to infl uence or motivate the other in a desired way. Persuasive commu-

nication results in a recipient agreeing with or supporting the message being presented. 3

Managers, for example, get things done by drawing on social capital in their relationships

Effi cient communication occurs at

minimum cost.

Persuasive communication presents

a message in a manner that causes the

other person to support it.

social norm. Researchers found that guests reused 33% more

towels when left a message card that said “75% of customers who

stay in this room reuse their towels.”

Lesson: Want to persuade? Identify with the social norm.

Scene 2. Restaurant servers want to maximize tips. How can they

get more customers to leave bigger tips? Th e science of persuading

suggests that it’s best to create a sense of reciprocity in the server–

customer relationship. Researchers found that tip giving increased

when servers gave customers a piece of candy when presenting

the bill.

Lesson: Want to persuade? Create a sense of reciprocity.

YOUR TAKE?

Can these lessons be turned into advice for leaders? Leadership is complicated in any setting. But, it ultimately requires success at infl uencing other people. Do a self-check of your success in leadership situations: To what extent is “persuasion” part of your leadership skill portfolio? How about the leaders you work with: Do they pass or fail as masters of the science of persuasion? If persuasion is so important, should we spend more time learning and practicing how to do it really well?

choices> THINK BEFORE YOU ACT > Researchers found that tip giving increased when servers gave customers a piece

of candy when presenting the bill.

Tapping into the Science of Persuasion

Scene 1. Hoteliers want to wash fewer towels. So how do they get their customers to reuse more of them? Th e science of persuading suggests that it’s best to identify the request with a

418 CHAPTER 18 ■ Communication and Collaboration

with peers, teammates, co-workers, and bosses. Th eir success often comes about more

through convincing than by order giving. Scholar and consultant Jay Conger says that

without credibility there is little chance that persuasion can be successful. 4 He describes

credible communication as that which is based on trust, respect, and integrity in the eyes

of others.

Credibility is gained through expertise, when you are knowledgeable about the issue in

question or have a successful track record in dealing with similar issues in the past. In a

hiring situation where you are trying to persuade team members to select candidate A

rather than B, for example, you must be able to defend your reasons for this choice. And, it

will always be better if your past recommendations turned out to be good for the team.

Credibility is also gained through relationships, when you work well and get along with

the people to be persuaded. In a hiring situation where you want to persuade your boss to

provide a special bonus package to attract top job candidates, for example, having a good

relationship with your boss can add credibility to your request. Th is is social capital again: It

is always easier to get someone to do what you want if that person likes you.

Communication Barriers

Scene: A Japanese executive used an interpreter when meeting with representatives of the

fi rm’s American joint venture partner. Result: About 20% of his intended meaning was lost in

the exchange between himself and the interpreter, while another 20% was lost between the

interpreter and the Americans. 5

Noise, as shown in Figure 18.2, is anything that interferes with the eff ectiveness of

the communication process. And, this isn’t just a cross-cultural issue. Do you recognize

its potential in everyday conversations, such as the nearby text messages

exchanged between a high-tech millennial and her low-tech baby boomer man-

ager? Th e diff erences show a clash of generational cultures and the challenges

of communicating across these boundaries. Common sources of noise include

information fi ltering, poor choice of channels, poor written or oral expression,

failure to recognize nonverbal signals, and physical distractions.

Information Filtering “Criticize my boss? I don’t have the right to.” “I’d get fi red.” “It’s her company, not

mine.” Th ese comments display tendencies toward information fi ltering—the

intentional distortion of information to make it appear favorable to the recipient.

Management author and consultant Tom Peters calls it “Management Enemy Number 1.” He

even goes so far as to say that “once you become a boss you will never hear the unadulterated

truth again.” 6

Credible communication earns trust,

respect, and integrity in the eyes of

others.

Noise is anything that interferes with

the eff ectiveness of communication.

Information fi ltering is the intentional

distortion of information to make it

appear more favorable to the recipient.

Message Channel

Noise

Encodes

Intended meaning

Semantic problems Absence of feedback Improper channels Physical distractions Status effects Cultural differences

Receiver

Decodes

Perceived meaning Feedback Channel

Sender

FIGURE 18.2 Downsides of noise, shown as anything that interferes with the eff ectiveness of the communication process.

• sry abt mtg b rdy nxt 1

Baby Boomer to Millennial • Missed you at important meeting. Don’t

forget next one. Stop by to discuss.

Millennial to Baby Boomer

419Th e Communication Process

Th e problem with information fi ltering is that someone tells the boss only what they

think he or she wants to hear. Whether the reason is career protection, fear of retribution for

bringing bad news, unwillingness to identify personal mistakes, or just a general desire to

please, the end result is the same. Th e higher level gets biased and inaccurate information

from below and ends up making bad decisions. It’s a continuing challenge for managers to

fi ght this problem, and the larger the organization, the bigger the problem seems to get.

Leadership consultant Deborah J. Cornwall says: “Th ere’s a tendency for people in large, hier-

archical organizations to tell the boss what he wants to hear.” During Congressional hear-

ings on the General Motors ignition switch recall scandal, CEO Mary Barra confi rms this

view in her comment: “I cannot tell you why it took years for the safety defect to be

announced in that program.” Former Ford global vice president Martin Zimmerman says:

“You get blindsided when things deteriorate. You want to know about mistakes.” 7

Poor Choice of Channels A communication channel is the pathway or medium through which a message is conveyed

from sender to receiver. Good communicators choose the right channel or combination of

channels to accomplish their intended purpose. 8

Written channels—paper or electronic—are most acceptable for simple messages that

are easy to convey, and for those that require quick and extensive dissemination to a

wide audience. Th ey also are useful when it is important to document information or

directives. But, it’s important to remember that these messages are largely impersonal

and one-way interactions with only limited opportunity for feedback from recipients.

Spoken channels—face-to-face or electronic—work best for complex and difficult

messages and where

immediate feedback

to the sender is valu-

able. Th ey are more

personal and more

likely to be perceived

by the receiver as

supportive or inspi-

rational.

Poor Written or Oral Expression Communication will only be eff ective when the sender expresses the message in a way that

is clearly understood by the receiver. Words must be well chosen and used properly,

something we all too often fail to do. Consider the following “baffl egab” found among some

executive communications. 9

A communication channel is the

pathway through which a message

moves from sender to receiver.

Boss Goes Underground to Open Communication Channels

CEO Stephen Martin “went underground” at a fi rm in England for two weeks. He posed

with an assumed name as an offi ce worker and kept his ears and eyes open wide while

going about his daily work. After the experience, Martin said: “Th ey (workers) said

things to me that they never would have told their manager” . . . “Our key messages were

just not getting through to people” . . . “We were asking the impossible of some of them.”

But when he shared these concerns with the fi rm’s managers, the response was: “Th ey

never told us that!”C o

ur te

sy C

lu g

st o

n G

ro up

L im

ite d

Issues&Trends

C o

ur te

sy C

lu g

st o

n G

ro up

L im

ite d

Postings, e-bulletins,

reports

Memos, letters

E-mail, blogs, podcasts, voice-mail

Low Richness

• Impersonal • One-way • Fast

High Richness • Personal • Two-way • Slow

Telephone, instant

messaging

Face-to-face meetings, online

conferences

Richness of Communication Channel

420 CHAPTER 18 ■ Communication and Collaboration

A business report said: “Consumer elements are continuing to stress the fundamental neces-

sity of a stabilization of the price structure at a lower level than exists at the present time.”

Translation: Consumers keep saying that prices must go down and stay down.

A manager said: “Substantial economies were aff ected in this division by increasing

the time interval between distributions of data-eliciting forms to business entities.”

Translation: Th e division saved money by sending out fewer questionnaires.

A university president said: “We have strived to be as transparent as possible about the

strategic alliance plans within the confi nes of our . . . closed negotiations.”

Translation: Th e negotiations were confi dential.

Failure to Recognize Nonverbal Signals Nonverbal communication takes place through gestures, facial expressions, body pos-

ture, eye contact, and the use of interpersonal space. Research shows that up to 55% of a

message’s impact may come through nonverbal communication. 10

A lack of gestures and

other nonverbal signals is one of the weaknesses of voice mail, texts, and other electronic

communications. It’s hard for things like clickable emoticons to make up for their

absence.

Th ink of how nonverbal signals play out in your own communications. 11

Sometimes our

body language “talks” even as we maintain silence. And when we do speak, our body may

“say” diff erent things than our words actually convey. Th is is called a mixed message—

where words communicate one message while actions and body language communicate

something else. Watch how people behave in a meeting. A person who feels under attack

may move back in a chair or lean away from the presumed antagonist, even while expressing

verbal agreement. All of this may be done quite unconsciously, but the mixed message will

be picked up by those tuned in to nonverbal signals.

Overloads and Distractions Overloads and distractions caused by the availability and abundance of electronic commu-

nications and social media can make it hard to communicate well. McKinsey reports that

professionals are spending 28% of their time dealing with e-mail, while the Radicati Group

reports that the average business person deals with 108 e-mails per day. 12

Scholar Gloria

Mark’s research found that people check their e-mail inboxes as many as 74 times per day,

causing her to say “It’s really out of control.” 13

Couple this information with everyday per-

sonal experience—e-mails, messages, and chats pretty much follow us wherever we go 24/7.

Th ey coexist simultaneously on our computer screens and smart devices, and they compete

with one another, social media, and video streams for our attention. Our eff ectiveness in

attending to this ever-present and shifting mix of electronic communications is often com-

promised by the size and stress of overwhelming demands.

Even a scheduled meeting may be compromised by overloads and distractions in the

form of telephone interruptions, texts, e-mails, drop-in visitors, and lack of privacy. Con-

sider the following exchange between George and his manager. 14

Okay, George, let’s hear your problem [phone rings, manager answers it and promises

caller to deliver a report “just as soon as I can get it done”]. Uh, now, where were we—oh,

you’re having a problem with your technician. She’s . . . [manager’s assistant brings in

some papers that need his immediate signature] . . . you say she’s overstressed lately,

wants to leave. I tell you what, George, why don’t you [phone beeps a reminder, boss looks

and realizes he has a lunch meeting] . . . uh, take a stab at handling it yourself. I’ve got to

go now [starts texting].

It’s obvious that this manager was not eff ective in communicating with George, even if he

really wanted to. But, errors like these can be easily avoided by anyone sincerely interested

in communicating face-to-face with someone. At a minimum, adequate time should be

set aside and arrangements made for privacy. Th e likelihood of interruptions such as the

Nonverbal communication takes

place through gestures and body

language.

A mixed message results when words

communicate one message while

actions, body language, or appearance

communicate something else.

421Th e Communication Process

telephone, drop-in visitors, and electronic messages should be anticipated and then avoided

by good planning and the discipline to stay focused on the visitor rather than on devices.

Cross-Cultural Communication

After taking over as the CEO of the Dutch publisher Wolters Kluwer, Nancy McKinstry

initiated major changes in strategy and operations—cutting staff , restructuring divisions,

and investing in new business areas. She was the fi rst American to head the fi rm, and she

described herself as “aggressive” when fi rst meeting with her management team. After

learning her use of that word wasn’t well received by Europeans, she switched to “decisive.”

McKinstry says: “I was coming across as too harsh, too much of a results-driven American

to the people I needed to get on board.” 15

Communicating across cultures requires lots of sensitivity, awareness, and the ability to

quickly learn local rights and wrongs. Th e most diffi cult situation is when you don’t speak

the local language, or when one or both of the people trying to communicate are weak in a

shared second language. Advertising messages are notorious for getting lost in translation.

A Pepsi ad in Taiwan that was intended to say “Th e Pepsi Generation” came out as “Pepsi will

bring your ancestors back from the dead.” A KFC ad in China that was intended to say

“fi nger lickin’ good” came out as “eat your fi ngers off .” 16

Ethnocentrism is a major enemy of eff ective cross-cultural communication. Th is is the

tendency to consider one’s culture superior to other cultures. It hurts communication in at

least three major ways. First, it may lead to poor listening. Second, it may cause someone to

address or speak with others in ways that alienate them. Th ird, it may lead to the use of

inappropriate stereotypes. 17

One of the ways ethnocentrism shows up is as a failure to respect cultural diff erences in

nonverbal communication. 18

Th e American “thumbs-up” sign is an insult in Ghana and

Australia; signaling “OK” with thumb and forefi nger circled together is not okay in parts of

Europe. Waving “hello” with an open palm is an insult in West Africa, suggesting the other

person has fi ve fathers. 19

Ethnocentrism is the tendency to

consider one’s culture superior to any

and all others.

Things Bad Managers and Lousy Team Leaders Say

Talk about poor communication skills. How would you like to be on the receiving end of

messages reported in a Forbes magazine list of things only bad managers say? Th e writer

hopes that reading them will “remind you how not to communicate with your team and

to cheer you on if you are living under a less-than-sensational boss right now.” You know

you’ve got—or are—a lousy boss when the conversation includes: “It’s work, it’s not

supposed to be fun” . . . “You are not my only employee” . . . “If you don’t want the job

I’ll fi nd someone that does” . . . “I don’t care what your priorities are, this is your new

priority” . . . “Th is is the way we’ve always done it” . . . “I don’t pay you to think.”Fu se

/G et

ty Im

ag es

Issues&Trends

Fu se

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ag es

Learning Check 1

TAKEAWAYQUESTION 1 What is the communication process?

BE SURE YOU CAN • describe the communication process and identify its key components • diff erentiate between eff ective

and effi cient communication • explain the role of credibility in persuasive communication • list the common sources of

noise that limit eff ective communication • explain how mixed messages interfere with communication • explain how

ethnocentrism aff ects cross-cultural communication

422 CHAPTER 18 ■ Communication and Collaboration

Improving Collaboration

through Communication TAKEAWAY 2 How can we improve collaboration through communication?

Transparency and openness • Use of electronic media • Active listening Constructive feedback • Space design

Eff ective communication is essential as people work together in teams and organizations.

Th e better the communication, the more likely it is that collaboration will be successful.

Pathways toward better communication are found in such things as attention to transpar-

ency and openness, good use of electronic media, active listening practices, focusing on con-

structive feedback, and appropriate space design.

Transparency and Openness

At HCL Industries, a large technology outsourcing fi rm, former CEO and currently Senior

Advisor to HCL Vineet Nayar believes that one of his most important tasks as CEO was to

create transparency so that a “culture of trust” exists within the fi rm. Transparency at HCL

means that the fi rm’s fi nancial information is fully posted on the internal Web. “We put all

the dirty linen on the table,” Nayar says. Transparency also means that the results of

360-degree feedback reviews for HCL’s 3,800 managers get posted as well, including Nayar’s

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tthrrouuugghh CCCommmmmmuunnnicaaatioonn

says it’s her job to “re-recruit them every day and give them a rea-

son to choose to work for us and for me as opposed to anyone

else.” Th is is part of a leadership philosophy based on the belief

that “it’s not about me . . . it’s very much about the team.”

Newcomers to Heasley’s team are advised to follow a 90-day

rule when it comes to communication. Based on her experience

living in Th ailand as a high school exchange student, she believes in

taking the fi rst 90 days to “watch and listen,” trying “not to talk at

meetings,” and working to build relationships. And when it comes

to performance, she also says: “I like to know the bad news as soon

as you know it—I promise no recriminations—but I will expect to

know what we could’ve avoided so it doesn’t happen again.”

When asked what she looks for in new hires, Heasley highlights

things like passion, curiosity, energy, willingness to take risks, and

a sense of humor. During interviews she uses proven questions to

try to draw out job candidates and discover their capabilities. She

might ask “What books have you read lately?” or “Can you describe

a challenging situation you’ve been in and where you took a

controversial position?”

FIND THE INSPIRATION

Linda Heasley seems very comfortable with herself and her role as CEO of this major retailer. Can you see where communication is one of her strengths? Would you respond well to a leader like this? In what respects might Heasley become a role model for making communication skills part of your own leadership approach?

wisdom> LEARN FROM ROLE MODELS > “I like to know the bad news as soon as you know it—I promise no recriminations.”

Lane Bryant CEO Linda Heasley Gives Others Reasons to Work with Her

Would you like to work for a boss who encourages you to keep your eyes open for other job opportunities? Th at’s the message Linda Heasley, current CEO of Lane Bryant, communi-

cated to members of her former team at the Limited. Th at mes-

sage contributed to her executive success. About employees, she

Will Ragozzino/BFA/SIPA/Newscom

423Improving Collaboration through Communication

own reviews. When managers present plans to the top management team, Nayar insists

that they also get posted so that everyone can read them and off er comments. His intent

was to stimulate what he calls a company-wide process of “massive collaborative learning.”

Th is ensures that by the time a plan gets approved, it’s most likely to be a good one. 20

Communication transparency involves being honest in sharing accurate and com-

plete information about the organization and workplace aff airs. A lack of communica-

tion transparency is evident when managers try to hide information and restrict access

to it by organizational members. High communication transparency, such as that just

illustrated in the HCL case, is evident when managers openly share information through-

out an organization.

Th e term open book management describes a form of communication transparency

where employees are provided with essential fi nancial information about their companies.

At Bailard, Inc., a private investment fi rm, this openness extends to salaries. If you want to

know what others are making at the fi rm, all you need to do is ask the chief fi nancial offi cer.

Th e fi rm’s co-founder and CEO, Th omas Bailard, believes open book management is a good

way to defeat offi ce politics. “As a manager,” he says, “if you know that your compensation

decisions are essentially going to be public, you have to have pretty strong conviction about

any decision you make.” 21

As the prior examples suggest, the benefi ts of communication transparency start with

better decision making. When people are well informed, they can be expected to make good

decisions that serve the best interests of the organization. But, the benefi ts of transparency

also extend into the realm of motivation and engagement. When people are trusted with

information, they also can be expected to feel more loyal and show more engagement as

organizational members.

Communication transparency

involves openly sharing honest and

complete information about the

organization and workplace aff airs.

Open book management is where

managers provide employees with

essential fi nancial information about

their companies.

■ Only 30% of HR executives believed that employees trust their

employer’s performance measurement system.

■ 60% of HR executives give their performance management

systems “C” grades or worse.

■ Top concerns of HR executives are that managers aren’t willing

to face employees and give constructive feedback, and employ-

ees don’t have a clear understanding of what rates as good and

bad performance.

■ 1% of fi rms are completely doing away with performance

reviews and shifting to regular one-on-one meetings where

performance is discussed.

YOUR THOUGHTS?

Performance review is often a hot topic. The buzzwords are “merit pay” and “performance accountability.” But is it really possible to have a performance measurement system that is respected by managers and workers alike? Do the data reported here fi t with your own experiences? What are their implications for manage- ment practice? Will we soon see a dramatic increase in the num- ber of employers who shift away from formal annual reviews and replace them with something less formal and more timely?

analysis> MAKE DATA YOUR FRIEND > Only 3% of HR executives give “A” grades to their fi rms’ performance

measurement systems.

Value of Performance Reviews Gets Increasing Scrutiny

Surveys show people aren’t always pleased with the way man-agers in their organizations do performance reviews. Some are so concerned that they suggest dropping them altogether.

Check these survey fi ndings:

enis izgi/iStockphoto

424 CHAPTER 18 ■ Communication and Collaboration

Use of Electronic Media

Are you part of the Twitter community, post to Facebook, a frequent messanger on WhatsApp

or Line, or generally a heavy user of your smart mobile devices? Technology hasn’t just

changed how we communicate. It has created a social media revolution—one that can be a

performance asset or detriment in the world of work. 22

To begin, we may be getting so familiar with writing online shorthand that we use it in the

wrong places. Sending a message like “Th nx for the IView! I Wd Lv to Wrk 4 U!! ;)” isn’t the

follow-up most employers like to receive from job candidates. When Tory Johnson, founder

and CEO of Women for Hire, Inc., received a thank-you note by e-mail from an intern

candidate, it included “hiya,” “thanx,” three exclamation points, and two emoticons. She says:

“Th at e-mail just ruined it for me.” 23

Textspeak and emoticons may be the norm in social

networks, but their use can be inappropriate in work settings.

Privacy also is a concern in any form of electronic communication. 24

When

Facebook’s CEO, Mark Zuckerberg, says privacy is “no longer a social norm,” it’s time

to take the issue seriously. An American Management Association survey of 304 U.S.

companies found that 66% monitor Internet connections; 43% store and review com-

puter files and monitor e-mail; 45% monitor telephone time and numbers dialed; and

30% have fired employees for misuse of the Internet. 25

When it comes to Web browsing

and using social media at work, the best advice comes down to this: Find out the

employer’s policy and follow it. Don’t ever assume that you have electronic privacy;

chances are the employer is checking or can easily check on you. 26

Th e electronic grapevine that passes

messages and information among members

of social networks is now a fact of life.

Electronic messages—both accurate and

inaccurate—fl y with great speed around our

world. Th e YouTube grapevine stung Domi-

no’s Pizza executives when a posted video

showed two employees doing nasty things to

sandwiches. It was soon viewed over a mil-

lion times. By the time the video was pulled

(by one of its authors who apologized for

“faking”), Domino’s faced a crisis in cus-

tomer confi dence. Th e CEO fi nally created

a Twitter account and posted a YouTube

video message to present the company’s

own view of the story. 27

Active Listening

Whether trying to communicate electronically or face to face, managers must be very good

at listening. When people “talk,” they are trying to communicate something. Th at “some-

thing” may or may not be what they are actually saying.

Active listening is the process of taking action to help someone say exactly what he or

she really means or wants to communicate. 28

It involves being sincere and trying to fi nd out

the full meaning of what is being expressed. It also involves being disciplined in controlling

emotions and withholding premature evaluations or interpretations. Diff erent responses to

the following two questions contrast how a “passive” listener and an “active” listener might

act in real workplace conversations. 29

Question 1: “Don’t you think employees should be promoted on the basis of seniority?”

Passive listener’s response: “No, I don’t!” Active listener’s response: “It seems to you that they

should, I take it?”

Question 2: “What does the supervisor expect us to do about these out-of-date comput-

ers?” Passive listener’s response: “Do the best you can, I guess.” Active listener’s response:

“You’re pretty frustrated with those machines, aren’t you?”

Active listening helps the source of

a message say what he or she really

means.

1. Listen for message content: Try to hear exactly what content is being

conveyed in the message.

2. Listen for feelings: Try to identify how the source feels about the content in

the message.

3. Respond to feelings: Let the source know that her or his feelings are being

recognized.

4. Note all cues: Be sensitive to nonverbal and verbal messages; be alert for

mixed messages.

5. Paraphrase and restate: State back to the source what you think you are

hearing.

Guidelines for Active Listening

425Improving Collaboration through Communication

Constructive Feedback

Th e process of telling other people how you feel about something they did or said, or about

the situation in general, is called feedback. It occurs in the normal give-and-take of working

relationships, and in more formal performance review sessions.

Th e art of giving feedback is an indispensable skill, particularly for managers who must

regularly give feedback to other people. When poorly done, feedback can be threatening to

the recipient and cause resentment. Properly handled feedback—even performance criti-

cism—can be listened to, accepted, and used to good advantage by the receiver. 30

Consider

someone who comes late to meetings. Feedback from the meeting chair might be evalua-

tive—“You are unreliable and always late for everything.” It might be interpretive—“You’re

coming late to meetings; you might be spreading yourself too thin and have trouble meeting

your obligations.” It might also be descriptive—“You were 30 minutes late for today’s meeting

and missed a lot of the context for our discussion.” 31

Feedback is most useful and constructive, rather than harmful, when it off ers real bene-

fi ts to the receiver and doesn’t just satisfy some personal need of the sender. A supervisor

who berates a computer programmer for errors, for example, may actually be angry about

failing to give clear instructions in the fi rst place. Some thoughts on becoming a better

receiver of critical feedback are shown in the small box. 32

Advice on becoming a better giver

of constructive feedback includes the following tips. 33

• Give feedback directly and with real

feeling, based on trust between you and

the receiver.

• Make sure that feedback is specifi c

rather than general; use good, clear, and

preferably recent examples to make

your points.

• Give feedback at a time when the

receiver seems most willing or able to

accept it.

• Make sure the feedback is valid; limit it

to issues the receiver can be expected to address.

• Give feedback in small doses; never give more than the receiver can handle at any

particular time.

Space Design

Proxemics is the study of how we use space. 34

And, space counts in communication. Th e

distance between people conveys varying intentions in terms of intimacy, openness, and

status in interpersonal communications. Even the physical layout of an offi ce or room is a

form of nonverbal communication. Th ink about it. Offi ces with chairs available for side-by-

side seating convey diff erent messages than offi ces where the manager’s chair sits behind

the desk and those for visitors sit facing it in front.

Organizations today are being run with the premise that the better people communicate

with one another, the better the organization will perform. We live in an increasingly con-

nected world, and the same levels of connectedness are sought in the workplace. Google, for

example, thrives and depends on high levels of innovation. So, the company’s new headquar-

ters is designed to make it easy for employees to have casual, not just formal, communica-

tions. “We want it to be easy [ for] Googlers to bump into one another,” says a spokeswoman. 35

Part of the push toward greater connectedness and more casual conversations is found in

what might be called the demise of the offi ce cubicle. It’s been popular for quite awhile to

design offi ce spaces with small cubicles for individual workers and larger meeting rooms for

meetings. Th e new trend is toward smaller teams, less formal meetings, and more frequent

casual interaction. Architects and offi ce supply fi rms are responding with designs that elimi-

nate or open up cubicles by giving them shorter walls or no walls at all. Th ey are also creating

Feedback is the process of telling

someone else how you feel about

something that person did or said.

Proxemics involves the use of space in

communication.

Don’t get mad or cry.

Do say: “Let me give this some thought and we can talk later.”

Don’t be defensive or deny things.

Do say: “I’m surprised. Can you give me some examples?”

Don’t blame others.

Do say: “Th at wasn’t my impression. How did you come to see it that way?”

Don’ts and Do’s for Handling Criticism

426 CHAPTER 18 ■ Communication and Collaboration

lots of small offi ce “nests” of six to eight co-workers and “focus rooms” where a few people can

huddle up while exchanging ideas, working on a project, or just having a chat. Martha Clark-

son heads Microsoft’s global workplace strategy. She says it’s based on a post-cubicle model

because “Work is really getting done in smaller teams.” 36

Learning Check 2

TAKEAWAYQUESTION 2 How can we improve collaboration through communication?

BE SURE YOU CAN • explain how transparency and openness improves communication • explain how interactive

management and practices like structured meetings can improve upward communication • discuss possible uses of electronic

media by managers • defi ne active listening and list active listening rules • illustrate the guidelines for constructive feedback

• explain how space design infl uences communication

Managing Confl ict TAKEAWAY 3 How can we deal positively with confl ict?

Functional and dysfunctional confl ict • Confl ict resolution Confl ict management styles • Structural approaches to confl ict management

Confl ict occurs as disagreements on substantive or emotional issues. 37

Th ese disagree-

ments can be overt and openly expressed, or covert and hidden behind false surface har-

mony and political intrigue. Th e ability to deal with confl icts is a critical communication

and collaboration skill in the social settings of teams and organizations. Managers and

team leaders become ineff ective and lose credibility when they deny or hide from confl icts,

or pass confl ict situations on for others to handle as the “bad cops.” 38

Substantive confl icts involve disagreements over such things as goals and tasks, allo-

cation of resources, distribution of rewards, policies and procedures, and job assignments.

Emotional confl icts result from feelings of anger, distrust, dislike, fear, and resentment, as

well as from personality clashes and relationship problems. Both forms of confl ict can cause

diffi culties. But, they can also stimulate creativity and high performance.

Functional and Dysfunctional Confl ict

Th e inverted “U” curve depicted in Figure 18.3 shows that confl ict of moderate intensity can

be good for performance. Th is functional confl ict, or constructive confl ict, moves people

toward greater work eff orts, cooperation, and creativity. It helps teams achieve their goals

and avoid making poor decisions because of groupthink. Dysfunctional confl ict, or

destructive confl ict, harms performance, relationships, and even individual well-being. It

occurs when there is either too much or too little confl ict. Too much confl ict is distracting

and overwhelming. Too little confl ict promotes groupthink, complacency, and the loss of a

high-performance edge.

Causes of Confl ict

A number of drivers can cause or set

the stage for confl ict. Role ambigu-

ities in the form of unclear job expec-

tations and other task uncertainties

increase the likelihood for people

to work at cross-purposes. Resource

scarcities cause confl ict when people

have to share or compete for them.

Task interdependencies breed con-

fl ict when people depend on others

to perform well in order to perform

well themselves.

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Confl ict is a disagreement over issues

of substance and/or an emotional

antagonism.

Substantive confl ict involves disagree-

ments over goals, resources, rewards,

policies, procedures, and job assignments.

Emotional confl ict results from

feelings of anger, distrust, dislike,

fear, and resentment, as well as from

personality clashes.

Functional confl ict is constructive and

helps task performance.

Dysfunctional confl ict is destructive

and hurts task performance.

Intensity of Conflict

Positive

Neutral

Negative

Impact on Performance

Moderate levels of conflict are constructive

Functional Conflict

Low High

Dysfunctional Conflict

Too little or too much conflict is destructive

FIGURE 18.3 Th e relationship between confl ict and performance.

MMMMaannnagggiinng CCCCooonnflflicctttM

427Managing Confl ict

Competing objectives also are opportunities for confl ict. When goals are poorly set or

reward systems are poorly designed, individuals and groups may come into confl ict by

working to one another’s disadvantage. Structural diff erentiation breeds confl ict. Diff er-

ences in organization structures and in the characteristics of the people staffi ng them may

foster confl ict because of incompatible approaches toward work. And, unresolved prior con-

fl icts tend to erupt in later confl icts. Unless a confl ict is fully resolved, it may remain latent

only to emerge again in the future.

Confl ict Resolution

When confl icts do occur, they can be “resolved” in the sense that the causes are corrected,

or “suppressed” in that the causes remain but the confl ict behaviors are controlled. Sup-

pressed confl icts tend to fester and recur at a later time. Th ey postpone issues and prob-

lems that may be best addressed immediately, and the suppression itself can be a source of

personal stress. 39

True confl ict resolution eliminates the underlying causes of confl ict and

reduces the potential for similar confl icts in the future.

Confl ict Management Styles

People tend to respond to interpersonal conflict through different combinations of

cooperative and assertive behaviors. 40

Cooperativeness is the desire to satisfy another

Confl ict resolution is the removal of

the substantive and emotional reasons

for a confl ict.

3,000 readers. But, the Internet diary included reports on her expe-

riences at work—and her employer wasn’t happy when it became

public knowledge.

Even though Sanderson was blogging anonymously, her photo

was on the site, and the connection was eventually discovered.

Noticed, too, was her running commentary about bosses, col-

leagues, and life at the offi ce. A Christmas party was described in

detail, including an executive’s “unforgivable faux pas.” When her

blog came to management attention, Sanderson says that she was

“dooced”—a term used to describe being fi red for what one writes

in a blog. She sued for fi nancial damages and confi rmation of her

rights, on principle, to have a private blog. Th e court awarded her

a year’s salary.

WHAT DO YOU THINK?

What are the ethical issues here from both the blogger’s and the employer’s perspective? What rights do employees have with regard to communicating about their work experiences? Is it ethical for a supervisor to fi re an employee any time the employee says something negative about the organization? For example, which is the bigger “crime,” to get drunk at the offi ce holiday party or to write a blog that reports that your supervisor got drunk at the offi ce party? What obligations do employees have to their employers even when they are off the clock? In contrast, where does the employer’s ability to control employee behaviors outside of work end?

ethics> KNOW RIGHT FROM WRONG > A Christmas party was described in detail, including an executive’s “unforgivable faux pas.”

Blogging Is Easy, but Bloggers Should Beware

It is easy and tempting to set up your own blog, write about your experiences and impressions, and then share your thoughts with others online. So, why not do it?

Catherine Sanderson, a British citizen living and working in

Paris, might have asked this question before launching her blog,

Le Petite Anglaise. At one point it was so “successful” that she had

Magali Delporte/eyevine/Redux Pictures

428 CHAPTER 18 ■ Communication and Collaboration

party’s needs and concerns. Asser-

tiveness is the desire to satisfy one’s

own needs and concerns. Figure 18.4

shows fi ve interpersonal styles of

confl ict management resulting

from combinations of these two

tendencies. 41

• Avoidance or withdrawal—being

uncooperative and unassertive,

downplaying disagreement, with-

drawing from the situation, and/or

staying neutral at all costs.

• Accommodation or smoothing—

being cooperative but unassertive,

letting the wishes of others rule,

smoothing over or overlooking dif-

ferences to maintain harmony.

• Competition or authoritative command—being uncooperative but assertive, working

against the wishes of the other party, engaging in win–lose competition, and/or forcing

through the exercise of authority.

• Compromise—being moderately cooperative and assertive, bargaining for “accept-

able” solutions in which each party wins a bit and loses a bit.

• Collaboration or problem solving—being cooperative and assertive, trying to fully

satisfy everyone’s concerns by working through diff erences, fi nding and solving problems

so that everyone gains.

Th e avoiding and accommodating styles often create lose–lose confl ict. 42

No one

achieves their true desires, and the underlying reasons for confl ict remain. Although the

confl ict appears settled or may even disappear temporarily, it tends to recur in the future.

Avoidance pretends that confl ict doesn’t really exist. Everyone withdraws and hopes it will

simply go away. Accommodation plays down diff erences and highlights areas of agreement.

Peaceful coexistence is the goal, but the real essence of a confl ict may be ignored.

Competing and compromising styles tend to create win–lose confl ict where each party

strives to gain at the other’s expense. Because win–lose methods don’t address the root

causes of confl ict, future confl icts of the same or a similar nature are likely to reoccur. In com-

petition, one party wins because superior skill or outright domination allows his or her

desires to be forced on the other. An example is authoritative command where a supervisor

simply dictates a solution to subordinates. Compromise occurs when trade-off s are made

such that each party to the confl ict gives up and gains something. But because each party

loses something, antecedents for future confl icts are established.

A collaborating or problem-solving style is a form of win–win confl ict where issues get

resolved to everyone’s benefi t. Parties to the confl ict recognize that something is wrong and

needs attention, and they confront the issues head-on. Win–win outcomes eliminate the

underlying causes of the confl ict because all matters and concerns are raised and discussed

openly. But, this approach also takes more time because it involves eff orts in information

collection and analysis of one another’s positions.

Structural Approaches to Confl ict Management

Not all confl ict can be resolved at the interpersonal level. Th ink about it. Aren’t there likely

to be times when personalities and emotions prove irreconcilable? In such cases a structural

approach to confl ict management often can help. 43

When confl ict traces back to a resource issue, the structural solution is to make more resources

available. Although costly and not always possible, this is a straightforward way to resolve

resource-driven confl icts. When people are stuck in confl ict and just can’t seem to appreciate one

Degree of Assertiveness

Low High

Low

High

Degree of Cooperativeness

Competition or Authoritative Command

Forcing a solution to impose one's will on the other party

Collaboration or Problem Solving

Searching for a solution that meets each other's needs

Accommodation or Smoothing

Playing down the conflict and seeking harmony among parties

Avoidance or Withdrawal

Denying the existence of conflict and hiding one's true feelings

Compromise

Bargaining for gains and losses to each party

FIGURE 18.4 Alternative confl ict management styles.

Avoidance, or withdrawal, pretends

that a confl ict doesn’t really exist.

Accommodation, or smoothing, plays

down diff erences and highlights

similarities to reduce confl ict.

Competition, or authoritative

command, uses force, superior skill, or

domination to “win” a confl ict.

In lose–lose confl ict no one achieves

their true desires, and the underlying

reasons for confl ict remain.

Collaboration, or problem solving,

involves working through confl ict

diff erences and solving problems so

everyone wins.

Compromise occurs when each party

to the confl ict gives up something of

value to the other.

In win–lose confl ict one party achieves

its desires, and the other party does not.

In win–win confl ict the confl ict is

resolved to everyone’s benefi t.

429Managing Negotiation

another’s points of view, appealing to higher-level goals can sometimes focus

their attention on mutually desirable outcomes. In a student team where

members are arguing over content choices for a PowerPoint presentation, for

example, it might help to remind everyone that the goal is to get an “A” from

the instructor. An appeal to higher goals off ers a common frame of reference

for analyzing diff erences and reconciling disagreements.

It may be necessary to change the people. Th ere are times when a

manager may need to replace or transfer one or more of the confl icting

parties to eliminate confl ict. When the people can’t be changed, they

may have to be separated by altering the physical environment. Some-

times it is possible to rearrange facilities, work space, or workfl ows to

physically separate confl icting parties and decrease opportunities for

contact with one another. Organizations also can use integrating devices to help manage

confl icts between groups. Th ese approaches include assigning people to formal liaison

roles, convening special task forces, setting up cross-functional teams, and even switch-

ing to the matrix form of organization.

By changing reward systems it is sometimes possible to reduce confl icts that arise when

people feel they have to compete with one another for attention, pay, and other rewards. An

example is shifting pay bonuses, or even student project grades, to the group level. Using this

approach allows individuals to benefi t in direct proportion to how well the team performs as

a whole. Th is is a way of reinforcing teamwork and reducing the tendencies of team members

to compete with one another. Last, people who get good training in interpersonal skills are bet-

ter prepared to communicate and work eff ectively in confl ict-prone situations. When employ-

ers list criteria for recruiting new college graduates, such “soft” or “people” skills are often right

at the top of that list. You can’t succeed in today’s horizontal and team-oriented organizations

if you can’t work well with other people, even when disagreements are inevitable.

• Make resources available.

• Appeal to higher goals.

• Change the people.

• Change the environment.

• Use integrating devices.

• Provide training.

• Change reward systems.

Structural Ways to Manage Confl ict

Learning Check 3

TAKEAWAYQUESTION 3 How can we deal positively with confl ict?

BE SURE YOU CAN diff erentiate substantive and emotional confl ict • diff erentiate functional and dysfunctional confl ict

• explain the common causes of confl ict • defi ne confl ict resolution • explain the confl ict management styles of avoidance,

accommodation, competition, compromise, and collaboration • discuss lose–lose, win–lose, and win–win confl icts • list the

structural approaches to confl ict management

Managing Negotiation TAKEAWAY 4 How can we negotiate successful agreements?

Negotiation goals and approaches • Gaining agreement Negotiation pitfalls • Th ird-party dispute resolution

Situation: Your employer off ers you a promotion, but the pay raise being off ered is disap-

pointing.

Situation: You have enough money to send one person for training from your department,

but two really want to go.

Situation: Your team members are having a “cook-out” on Saturday afternoon and want

you to attend, but your husband wants you to go with him to visit his mother in a neigh-

boring town.

Situation: Someone on your sales team has to fl y to Texas to meet an important client;

you’ve made the last two trips out of town and don’t want to go; another member of the

team hasn’t been out of town in a long time and “owes” you a favor.

Th ese are examples of the many work situations that lead to negotiation—the process of

making joint decisions when the parties involved have diff erent preferences. Stated a bit

LEARN MORE

ABOUT

Negotiation is the process of making

joint decisions when the parties

involved have diff erent preferences.

MMMMMaaaannnnaaagggiiinnnnnggg NNNNeeeeggoooottiiaaaaatiionnn

430 CHAPTER 18 ■ Communication and Collaboration

• Prepare, prepare, prepare—Do the research beforehand and fi nd out what others

make for a similar position inside and outside the organization, including

everything from salary to benefi ts, bonuses, incentives, and job perks.

• Document and communicate—Identify and communicate your performance

value; put forth a set of accomplishments that show how you have saved or

made money and created value in your present job or for a past employer.

• Identify critical skills and attributes—Make a list of your strengths and link each

of these with potential contributions to the new employer; show how you off er

talents and personal attributes of immediate value to the work team.

• Advocate and ask—Be your own best advocate; the rule in salary negotiation is

“Don’t ask, don’t get.” But don’t ask too soon; your boss or interviewer should be

the fi rst to bring up salary.

• Stay focused on the goal—Your goal is to achieve as much as you can in the

negotiation; this means not only doing well at the moment but also getting

better positioned for future gains.

• View things from the other side—Test your requests against the employer’s point

of view; ask if you are being reasonable, convincing, and fair; ask how the boss

could explain to higher levels and to your peers a decision to grant your request.

• Don’t overreact to bad news—Never “quit on the spot” if you don’t get what you

want; be willing to search for and consider alternative job off ers.

“Ins” and “Outs” of Negotiating Salaries

diff erently, negotiation is a way of reaching agreement. People negotiate over job assign-

ments, work schedules, work locations, and salaries. 44

Any and all negotiations are ripe for

confl ict. And, like the salary negotiation described in the box, they are a stiff test of anyone’s

communication and collaboration skills. 45

Negotiation Goals and Approaches

Two important goals should be considered in any negotiation. Substance goals are con-

cerned with negotiation outcomes. Th ey are tied to content issues. Relationship goals are

concerned with negotiation processes. Th ey are tied to the ways in which people work

together while negotiating and how they (and any constituencies they represent) will be

able to work together again in the future.

Eff ective negotiation occurs when issues of substance are resolved and working relation-

ships among the negotiating parties are maintained or even improved. Th e three criteria

of eff ective negotiation are: (1) Quality—negotiating a “wise” agreement that is truly satisfac-

tory to all sides. (2) Cost—negotiating effi ciently, using a minimum of resources and time.

(3) Harmony—negotiating in a way that fos-

ters, rather than inhibits, good relationships. 46

Gaining Agreements

In distributive negotiation each party

makes claims for certain preferred out-

comes. 47

Th is emphasis on substance can

become self- centered and competitive, with

all parties thinking the only way for them to

gain is for others to lose. Relationships often

get sacrifi ced as process breaks down in

these win–lose situations.

In principled negotiation, sometimes

called integrative negotiation, the orienta-

tion is win–win. Th e goal is to achieve a

fi nal agreement based on the merits of each

party’s claims. No one should lose in a prin-

cipled negotiation, and positive relation-

ships should be maintained in the process.

Four pathways or rules for gaining such

integrated agreements are set forth by

Roger Fisher and William Ury in their book

Getting to Yes: 48

1. Separate the people from the problem.

2. Focus on interests, not on positions.

3. Generate many alternatives before deciding what to do.

4. Insist that results be based on some objective standard.

Th e attitudinal foundations of principled negotiation involve each party’s willingness to trust,

share information, and ask reasonable questions. Th e information foundations involve both par-

ties knowing what is important to them and fi nding out what is important to the other party.

Attitudes and information both come into play during classic two-party labor–manage-

ment negotiations over a new contract and salary increase. 49

Look at Figure 18.5 and con-

sider the situation from the labor union’s perspective. Th e union negotiator has told her

management counterpart that the union wants a new wage of $15.00 per hour. Th is

expressed preference is the union’s initial off er. However, she also has in mind a minimum

reservation point of $13.25 per hour. Th is is the lowest wage she is willing to accept for the

union. Now look at it from the perspective of the management negotiator. His initial off er is

Substance goals in negotiation are

concerned with outcomes.

Relationship goals in negotiation are

concerned with the ways people work

together.

Eff ective negotiation resolves issues of

substance while maintaining a positive

process.

Rules for gaining integrated agreements

431Managing Negotiation

$12.75 per hour. But his maximum

reservation point, the highest wage

he is prepared to eventually off er the

union, is $13.75 per hour.

Th e bargaining zone in a nego-

tiation is defi ned as the space

between one party’s minimum res-

ervation point and the other party’s

maximum reservation point. In this

case it lies between $13.25 per hour

and $13.75 per hour. It is a “positive”

zone since the reservation points of the two parties overlap. If the union’s minimum reserva-

tion point was greater than management’s maximum reservation point, say $14 per hour,

there would be no room for bargaining. A key task for any negotiator is to discover the other

party’s reservation point. It is diffi cult to negotiate eff ectively until this is known and each

party realizes that there is a positive bargaining zone.

Negotiation Pitfalls

Th e negotiation process is admittedly complex, and negotiators must guard against common

pitfalls. Th e fi rst is the myth of the “fi xed pie.” Th is involves acting on the distributive win–lose

assumption that in order for you to gain, the other person must give something up. Th is fails

to recognize the integrative assumption that the “pie” can sometimes be expanded or utilized

to everyone’s advantage. A second negotiation error is nonrational escalation of confl ict. Th e

negotiator gets locked into previously stated “demands” and allows personal needs for “ego”

and “saving face” to infl ate the perceived importance of satisfying them.

A third negotiating error is overconfi dence and ignoring the other’s needs. Th e negotiator

becomes overconfi dent, believes his or her position is the only correct one, and fails to con-

sider the needs of the other party. Th e fourth error is too much “telling” and too little “hearing.”

Th e “telling” error occurs when parties to a negotiation don’t really make them-

selves understood to each other. Th e “hearing” error occurs when they fail to

listen well enough to understand what the other party is saying. 50

Another potential negotiation pitfall in our age of globalization is premature

cultural comfort. Th is occurs when a negotiator is too quick to assume that he or

she understands the intentions, positions, and meanings of a negotiator from a

diff erent culture. A negotiator from a low-context culture, for example, is used to

getting information through direct questions and answers. But this style might

lead to diffi culties if used with negotiators from a high-context culture. Th eir

tendencies may be to communicate indirectly with nondeclarative language,

nonverbal signals, and avoidance of hard-and-fast position statements. 51

It is important to avoid the trap of ethical misconduct. Th e motivation to nego-

tiate unethically sometimes arises from pure greed and undue emphasis on the

profi t motive. Th is may be experienced as a desire to “get just a bit more” or to “get as much

as you can” from a negotiation. Th e motivation to behave unethically also may result from a

sense of competition. Th is is a desire to “win” a negotiation just for the sake of winning it, or

because of the misguided belief that someone else must “lose” in order for you to gain.

When unethical behavior occurs in negotiation, the persons involved may try to explain it

away with inappropriate rationalizing: “It was really unavoidable.” “Oh, it’s harmless.” “Th e

results justify the means.” “It’s really quite fair and appropriate.” 52

Th ese and other excuses for

questionable behavior are morally unacceptable. Th eir use also runs the risk that any short-run

gains will be off set by long-run losses. Unethical negotiators risk being viewed with distrust,

disrespect, and dislike, and even the risk of being targeted for revenge in future negotiations.

Th ird-Party Dispute Resolution

Even with the best of intentions, it may not always be possible to achieve integrative agree-

ments. When disputes reach a point of impasse, third-party assistance with dispute resolution

A bargaining zone is the space

between one party’s minimum

reservation point and the other party’s

maximum reservation point.

FIGURE 18.5 Th e bargaining zone in classic two-party negotiation.

$12.75/hour Mi

$13.25/hour Ur

$13.75/hour Mr

$15.00/hour Ui

Bargaining Zone

Mi = Management's initial offer Ur = Union's minimum reservation point

Mr = Management's maximum reservation point Ui = Union's initial offer

• Myth of fi xed pie

• Escalation of confl ict

• Overconfi dence

• Too much telling

• Too little hearing

• Cultural miscues

• Unethical behavior

Beware of Negotiation Pitfalls

432 CHAPTER 18 ■ Communication and Collaboration

can be useful. Mediation involves a neutral third party who tries to improve communication

between negotiating parties and keep them focused on relevant issues. Th e mediator does

not issue a ruling or make a decision, but can take an active role in discussions. Th is may

include making suggestions in an attempt to move the parties toward agreement.

Arbitration, such as salary arbitration in professional sports, is a stronger form of dis-

pute resolution. It involves a neutral third party, the arbitrator, who acts as a “judge” and

issues a binding decision. Th is usually includes a formal hearing in which the arbitrator

listens to both sides and reviews all facets of the case before making a ruling that all parties

are required to follow.

Some organizations provide for a process called alternative dispute resolution. Th is

approach uses mediation or arbitration, but does so only after direct attempts to negotiate

agreements between confl icting parties have failed. A designated ombudsperson who

listens to complaints and disputes often plays a key role in this process.

In mediation a neutral party tries

to help confl icting parties improve

communication to resolve their dispute.

In arbitration a neutral third party

issues a binding decision to resolve a

dispute.

An ombudsperson is designated by the

organization to listen to complaints and

disputes in an attempt to resolve them.

Recruiters give communication and networking skills high priority when screening candidates for college intern- ships and fi rst jobs. Th ey’re looking for candidates who can com-

municate well both orally and in writing, and network well with

others for collaboration and teamwork. Th ey also want people

who gain social capital through communication and networking

so that they can handle confl icts and negotiate successfully. But

if you’re like many of us, there’s work to be done to master these

challenges.

Th e American Management Association found that workers

rated their bosses only slightly above average on transforming

ideas into words, being credible, listening and asking questions,

and giving written and oral presentations. More than three-

quarters of university professors rated incoming high school

graduates as only “fair” or “poor” in writing clearly, and in spelling

and use of grammar. When it comes to decorum or just plain old

“good manners,” a BusinessWeek survey reported that 38% of

women complain about “sexual innuendo, wisecracks and taunts”

at work.

Social networking is very popular on the college campus and

among young professionals, as everyone wants to be linked in. Th e

same skills transfer to the workplace. A good networker acts as a

hub—connected with others; gatekeeper—moving information to

and from others; and pulse-taker—staying abreast of what is

happening.

GET TO KNOW YOURSELF BETTER

Can you convince a recruiter that you are ready to run effective meetings? . . . write informative reports? . . . deliver persuasive presentations? . . . conduct job interviews? . . . use e-mail and social media well? network well with peers and mentors? . . . keep confl icts constructive and negotiations positive? Where does social capital rank on your own list of personal strengths? Ask friends, co-workers, and family members to rate your communi- cation and networking skills. Turn these ratings into a personal development “To Do” list that you can share with your instructor.

insight> LEARN ABOUT YOURSELF > Recruiters give communication and networking skills high priority when screening candidates

for college internships and fi rst jobs.

Collaboration Begins with Communication and Networking

Give and receive feedback

Give persuasive presentations

Conduct and give interviews

Run meetings, contribute to

meetings

Write memos, letters, reports

Network with peers and mentors

Work well in teams

Check Your Communication

Networking Skills

Use e-mail and

social media

Learning Check 4

TAKEAWAYQUESTION 4 How can we negotiate successful agreements?

BE SURE YOU CAN • diff erentiate between distributive and principled negotiation • list four rules of principled negotiation

• defi ne bargaining zone and use this term to illustrate a labor–management wage negotiation • describe the potential pitfalls

in negotiation • diff erentiate between mediation and arbitration

433Management Learning Review

Summary

TAKEAWAYQUESTION 1 What is the communication process?

• Communication is the interpersonal process of sending and receiving symbols with messages attached to them.

• Effective communication occurs when the sender and the receiver of a message both interpret it in the same way.

• Effi cient communication occurs when the message is sent at low cost for the sender.

• Persuasive communication results in the recipient acting as intended by the sender; credibility earned by expertise and good relationships is essential to persuasive communication.

• Noise is anything that interferes with the effectiveness of communication; common examples are poor utilization of channels, poor written or oral expression, physical distractions, and status effects.

FOR DISCUSSION When, if ever, is it okay to sacrifi ce effectiveness in order to gain effi ciency in communication?

TAKEAWAYQUESTION 2 How can we improve collaboration through communication?

• Transparency in the sense that information conveyed to others is honest, credible, and fully disclosed is an important way to improve communication in the workplace.

• Interactive management through structured meetings, use of electronic media, and advisory councils can improve upward communication.

• Active listening, through refl ecting back and paraphrasing, can help overcome barriers and improve communication.

• Constructive feedback is specifi c, direct, well-timed, and limited to things the receiver can change.

• Offi ce architecture and space designs can be used to improve communication in organizations.

• Proper choice of channels and use of information technology can improve communication in organizations.

• Greater cross-cultural awareness and sensitivity are important if we are to overcome the negative infl uences of ethnocentrism on communication.

FOR DISCUSSION Which of the rules of active listening do people most often break?

TAKEAWAYQUESTION 3 How can we deal positively with confl ict?

• Confl ict occurs as disagreements over substantive or emotional issues.

• Moderate levels of confl ict are functional for performance and creativity; too little or too much confl ict becomes dysfunctional.

• Confl ict may be managed through structural approaches that involve changing people, goals, resources, or work arrangements.

• Personal confl ict management styles include avoidance, accommodation, compromise, competition, and collaboration.

• True confl ict resolution involves problem solving through a win–win collaborative approach.

FOR DISCUSSION When can it be better to avoid confl ict rather than to engage in it?

TAKEAWAYQUESTION 4 How can we negotiate successful agreements?

• Negotiation is the process of making decisions in situations in which participants have different preferences.

• Substance goals concerned with outcomes and relationship goals concerned with processes are both important in successful negotiation.

• Effective negotiation occurs when issues of substance are resolved while the process maintains good working relationships.

• Distributive negotiation emphasizes win–lose outcomes; integrative negotiation emphasizes win–win outcomes.

• Common negotiation pitfalls include the myth of the fi xed pie, overconfi dence, too much telling and too little hearing, and ethical misconduct.

• Mediation and arbitration are structured approaches to third-party dispute resolution.

FOR DISCUSSION How can you successfully negotiate with someone who is trapped in the “myth of the fi xed pie”?

Management Learning Review Get Prepared for Quizzes and Exams

434 CHAPTER 18 ■ Communication and Collaboration

Multiple-ChoiceQuestions 1. When the intended meaning of the sender and the

interpreted meaning of the receiver are the same, a communication is __________. (a) effective (b) persuasive (c) selective (d) effi cient

2. The use of paraphrasing and refl ecting back what someone else says in communication is characteristic of __________. (a) mixed messages (b) active listening (c) projection (d) lose–lose confl ict

3. Which is the best example of a supervisor making feedback descriptive rather than evaluative? (a) You are a slacker. (b) You are not responsible. (c) You cause me lots of problems. (d) You have been late to work three days this month.

4. When interacting with an angry co-worker who is complaining about a work problem, a manager skilled at active listening would most likely try to __________. (a) suggest that the conversation be held at a better time (b) point out that the conversation would be better held

at another location (c) express displeasure in agreement with the co-worker’s

complaint (d) rephrase the co-worker’s complaint to encourage

him to say more

5. When a manager uses e-mail to send a message that is better delivered face-to-face, the communication process suffers from __________. (a) semantic problems (b) a poor choice of communication channels (c) physical distractions (d) information overload

6. If a visitor to a foreign culture makes gestures commonly used at home even after learning that they are offensive to locals, the visitor can be described as __________. (a) a passive listened (b) ethnocentric (c) more effi cient than effective (d) an active listener

7. In order to be consistently persuasive when communicating with others in the workplace, a manager should build credibility by __________. (a) making sure rewards for compliance are clear (b) making sure penalties for noncompliance are clear (c) making sure they know who is the boss (d) making sure good relationships have been

established

8. A manager who understands the importance of proxemics in communication would be likely to __________. (a) avoid sending mixed messages (b) arrange work spaces so as to encourage interaction (c) be very careful in the choice of written and spoken

words (d) make frequent use of e-mail messages to keep people

well informed

9. A confl ict is most likely to be functional and have a positive impact on performance when it is __________. (a) based on emotions (b) resolved by arbitration (c) caused by resource scarcities (d) of moderate intensity

10. An appeal to super ordinate goals is an example of a(n) __________ approach to confl ict management. (a) avoidance (b) structural (c) dysfunctional (d) self-serving

11. The confl ict management style with the greatest potential for true confl ict resolution involves __________. (a) compromise (b) competition (c) smoothing (d) collaboration

12. When a person is highly cooperative but not very assertive in approaching confl ict, the confl ict management style is referred to as __________. (a) avoidance (b) authoritative (c) smoothing (d) collaboration

13. The three criteria of an effective negotiation are quality, cost, and __________. (a) harmony (b) timeliness (c) effi ciency (d) effectiveness

14. In classic two-party negotiation, the difference between one party’s minimum reservation point and the other party’s maximum reservation point is known as the __________. (a) critical choice (b) arena of indifference (c) myth of the fi xed pie (d) bargaining zone

15. The fi rst rule of thumb for gaining integrative agreements in negotiations is to __________. (a) separate the people from the problems (b) focus on positions (c) deal with a minimum number of alternatives (d) avoid setting standards for measuring outcomes

Self-Test 18

435Management Skills & Competencies

Short-ResponseQuestions 16. Briefl y describe how a manager would behave as an

active listener when communicating with subordinates.

17. Explain the relationship between confl ict intensity and performance.

18. How do tendencies toward assertiveness and cooperativeness in confl ict management result in win–lose, lose–lose, and win–win outcomes?

19. What is the difference between substance and relationship goals in negotiation?

EssayQuestion 20. After being promoted to store manager for a new

branch of a large department store chain, Kathryn was concerned about communication in the store. Six department heads reported directly to her, and 50 full- time and part-time sales associates reported to them. Given this structure, Kathryn worried about staying informed about all store operations, not just those coming to her attention as the senior manager. What steps might Kathryn take to establish and maintain an effective system of upward communication in this store?

Evaluate Career Situations

What Would You Do?

1. Work versus Family

Your boss just sent a text message that he wants you at a

meeting starting at 3 p.m. Your daughter is performing in a

program at her elementary school at 2:45 p.m., and she expects

you to attend. You’re out of the offi ce making previously

scheduled sales calls that put you close to the school in the

early afternoon. Th e offi ce is all the way across town, and going

there will mean you can’t get back to the school in time to see

your daughter’s performance. Do you call your boss, text him,

or send him an e-mail? What exactly will you say?

2. Bearer of Bad News

Th e restaurant you own is hit hard by a bad economy. Cus-

tomer count is down. So is the average dinner bill. You have a

staff of 12, but it’s obvious that you have to cut back so that

the payroll covers no more than 8. One of the servers has just

told you that a regular customer is tweeting that the restau-

rant is going to close its doors after the weekend. Th e staff is

“buzzing” about the news and customers are asking ques-

tions. How do you deal with this situation?

3. Can’t Get Along

Two of your co-workers are constantly bickering. Th ey just

can’t seem to get along, and it’s starting to aff ect the rest of the

team—including you. Th eir bickering seems to have some-

thing to do with a diff erence in wages. One has been there a

long time while the other is relatively new. But, the newcomer

earns more than the veteran. Th e other team members think

it’s time to take the problem to the team leader, and they have

asked you to do it. You’re willing, but want to give the team

leader not just the message but also a suggested plan of ac-

tion. What will it be?

Refl ect on the

Self-Assessment

Confl ict Management Strategies

Instructions Th ink of how you behave in confl ict situations in which your

wishes diff er from those of others. In the space to the left, rate

each of the following statements on a scale of “1” 5 “not at all” to “5” 5 “very much.” When I have a confl ict at work, school, or in my personal life, I do the following:

___ 1. I give in to the wishes of the other party.

___ 2. I try to realize a middle-of-the-road solution.

___ 3. I push my own point of view.

___ 4. I examine issues until I fi nd a solution that really

satisfi es me and the other party.

___ 5. I avoid a confrontation about our diff erences.

___ 6. I concur with the other party.

___ 7. I emphasize that we have to fi nd a compromise solution.

___ 8. I search for gains.

___ 9. I stand for my own and the other’s goals.

___ 10. I avoid diff erences of opinion as much as possible.

___ 11. I try to accommodate the other party.

___ 12. I insist we both give in a little.

___ 13. I fi ght for a good outcome for myself.

___ 14. I examine ideas from both sides to fi nd a mutually

optimal solution.

___ 15. I try to make diff erences seem less severe.

___ 16. I adapt to the other party’s goals and interests.

___ 17. I strive whenever possible toward a 50–50 compromise.

ManagementSkills& Competencies Make yourself valuable!

436 CHAPTER 18 ■ Communication and Collaboration

___ 18. I do everything to win.

___ 19. I work out a solution that serves my own as well as

other’s interests as much as possible.

___ 20. I try to avoid a confrontation with the other person.

Scoring Total your scores for items as follows.

Yielding tendency: 1 1 6 1 11 1 16 5 ______.

Compromising tendency: 2 1 7 1 12 1 17 5 ______.

Forcing tendency: 3 1 8 1 13 1 18 5 ______.

Problem-solving tendency: 4 1 9 1 14 1 19 5 ______.

Avoiding tendency: 5 1 10 1 15 1 20 5 ______.

Interpretation Each of the scores above approximates one of the confl ict

management styles discussed in the chapter. Look back to

Figure 18.4 and make the matchups. Although each style is

part of management, only collaboration or problem solving

leads to true conflict resolution. You should consider any

patterns that may be evident in your scores and think about

how to best handle future conflict situations in which you

become involved.

Contribute to the

Class Exercise

Feedback Sensitivities

Preparation Indicate the degree of discomfort you would feel in each situa-

tion below by circling the appropriate number: 54

1. High discomfort 2. Some discomfort 3. Undecided

4. Very little discomfort 5. No discomfort

1 2 3 4 5 1. Telling an employee who is also a friend that

she or he must stop coming to work late.

1 2 3 4 5 2. Talking to an employee about his or her

performance on the job.

1 2 3 4 5 3. Asking an employee for comments about your

rating of her or his performance.

1 2 3 4 5 4. Telling an employee who has problems in

dealing with other employees that he or she

should do something about it.

1 2 3 4 5 5. Responding to an employee who is upset over

your rating of his or her performance.

1 2 3 4 5 6. Responding to an employee’s becoming

emotional and defensive when you tell her or

him about mistakes on the job.

1 2 3 4 5 7. Giving a rating that indicates improvement is

needed to an employee who has failed to meet

minimum requirements of the job.

1 2 3 4 5 8. Letting a subordinate talk during an appraisal

interview.

1 2 3 4 5 9. Having an employee challenge you to justify

your evaluation during an appraisal inter-

view.

1 2 3 4 5 10. Recommending that an employee be dis-

charged.

1 2 3 4 5 11. Telling an employee that you are uncomforta-

ble having to judge his or her performance.

1 2 3 4 5 12. Telling an employee that her or his perfor-

mance can be improved.

1 2 3 4 5 13. Telling an employee that you will not

tolerate his or her taking extended coff ee

breaks.

1 2 3 4 5 14. Telling an employee that you will not tolerate

her or his making personal telephone calls on

company time.

Instructions Form three-person teams as assigned by your instructor. Iden-

tify the three behaviors with which each person indicates the

most discomfort. Th en each team member should practice per-

forming these behaviors with another member, while the third

member acts as an observer. Be direct, but try to perform the

behavior in an appropriate way. Listen to feedback from the ob-

server and try the behaviors again, perhaps with diff erent mem-

bers of the group practicing each behavior. When fi nished,

discuss the overall exercise.

Manage a Critical Incident

Headphones on in the Offi ce

Sean has just started a new job in your company, where every-

one works in an open-plan offi ce. He’s just out of college and is

happy and getting into his new responsibilities. A music lover,

he has been wearing ear buds off and on during the day while

working on the computer at his work station. Yesterday an

older colleague came over and off ered him some advice. “You

should take off the headphones in the offi ce,” she said, “it’s not

the way we do things here. People are starting to say that you

aren’t a team player.” Now Sean is relating the incident to you.

His point is that headphones today are as common in some

offi ces as they are on the streets. For him it’s “just normal to

listen to music while he works” and that “it keeps me relaxed

so that I work better.” But as a newcomer to the company

and its corporate culture, Sean is perceived as sending out a

nonverbal message when he puts the ear buds in: “Do not dis-

turb!” Sean is looking at you and expecting a reply, probably one

that takes his side of this situation.

Questions What do you say, and why? Do you do more than speak with

Sean about this situation, and what it might represent in terms

of work expectations and the new generation of workers? If so,

what will you do and why?

437Analyze the Case Study

Collaborate on the

Team Activity

How Words Count

Question What words do people use in organizations that carry meanings

that create unintended consequences for the speaker?

Research Directions 1. Brainstorm with others to make a list of words that you have

used or heard used by people and that cause other persons to

react or respond negatively and even with anger toward the

person speaking them.

2. For each word on the list, write its “positive” meaning and

“negative” meaning.

3. Choose two or three of the words that seem especially

signifi cant. Write role-plays that display speakers using each

word in the positive sense in conversations and in which the

words are interpreted positively by receivers.

4. For these same words, write role-plays that display

speakers using each word conversationally with positive

intentions but in which they are interpreted negatively by

receivers.

5. Explain the factors that infl uence whether the same words

are interpreted positively or negatively by receivers.

6. Draft a report that explains how people in organizations can

avoid getting trapped unintentionally in problems caused by

poor choice and/or use of words in their conversations.

AnalyzeTHE CaseStudy

TWITTER

Rewriting (or Killing) Communication Go to Management Cases for Critical Th inking at the end of the book to fi nd this case.

Today’s problems and opportunities—career and personal—are often complex and unstructured. It takes lots of wisdom and good analytic skills to master them. How about it: Are you developing the critical thinking skills needed for future success?

439

CASE 1 Trader Joe’s—Keeping a Cool Edge

CASE 2 Zara International—Fashion at the Speed of Light

CASE 3 Patagonia—Leading a Green Revolution

CASE 4 Timberland —From Bootmaker to Earthkeeper

CASE 5 Harley-Davidson —Style and Strategy with a Global

Reach

CASE 6 In-N-Out Burger —Building Th em Better

CASE 7 Amazon —One E-Store to Rule Th em All

CASE 8 Walgreens—Staying One Step Ahead

CASE 9 Electronic Arts—Inside Fantasy Sports

CASE 10 Dunkin’ Donuts—Betting Dollars on Donuts

CASE 11 Nike—Spreading Out to Win the Race

CASE 12 Gamifi cation—Finding Legitimacy in the New

Corporate Culture

CASE 13 Two-Tier Wages —Same Job, Diff erent Pay

CASE 14 Zappos—Th ey Did It with Humor

CASE 15 Panera Bread—Growing a Company with Personality

CASE 16 SAS—Business Success Starts on the Inside

CASE 17 Auto Racing—When the Driver Takes a Back Seat

CASE 18 Twitter—Rewriting (or Killing) Communication

Management Cases for Critical Th inking

440 Management Cases for Critical Th inking

CASE 1

TRADER JOE’S Keeping a Cool Edge The average Trader Joe’s stocks only a small percentage of the products of local supermarkets in a space little larger than a corner store. How did this neighborhood market grow to major status, garner superior ratings, and become a model of management? Take a walk down the aisles of Trader Joe’s and learn how sharp attention to fundamentals of management made this chain more than the average Joe.

Ruaridh Stewart/Zuma Press

From Corner Store to Foodie Mecca

All across the United States hundreds of thousands of customers

are treasure hunting. 1 Driven by gourmet tastes but hungering for

deals, they are led by cheerful guides in Hawaiian shirts who point

them to culinary discoveries such as Ahi jerky, ginger granola, and

baked jalapeño cheese crunchies. It’s just an average day at Trader

Joe’s, the gourmet, specialty, and natural-foods store. 2

Foodies, hipsters, and recessionistas alike are attracted to the

chain’s charming blend of tasty treats and laid-back but enthusi-

astic customer service. Shopping at Trader Joe’s is less a chore

than it is immersion into another culture. Crew members and

managers wear smiles and are quick to engage in a friendly chat.

Chalkboards unabashedly announce slogans such as, “You don’t

have to join a club, carry a card, or clip coupons to get a good

deal.”

“When you look at food retailers,” says Richard George, pro-

fessor of food marketing at St. Joseph’s University, “there is the

low end, the big middle, and then there is the cool edge—that’s

Trader Joe’s.” 3 But how does Trader Joe’s compare with other

stores with an edge, such as Whole Foods? Both source locally

and around the world. Each values employees and strives to

off er the highest quality. However, Trader Joe’s has a cozy and

intimate atmosphere that its rival lacks.

Trader Joe’s limits its stock and sells quality products at low

prices—about twice as much per square foot than other super-

markets. 4

But this scarcity benefi ts both Trader Joe’s and its

customers. According to Swarthmore professor Barry Schwartz,

author of Th e Paradox of Choice: Why Less Is More, “Giving people

too much choice can result in paralysis . . . [R]esearch shows that

the more options you off er, the less likely people are to choose

any.” 5

Founder “Trader” Joe Coulombe opened the fi rst Trader Joe’s

store over 50 years ago in Pasadena, California. Its success led to

expansion into a bona-fi de chain, as Trader Joe’s stores became

known as oases of value that replaced humdrum sundries with

exotic, one-of-a-kind foods priced persuasively below those of

any reasonable competitor. 6 Coulombe eventually sold the chain

to the Albrecht family, German billionaires and owners of Aldi

markets in the United States, Europe, and Australia. 7

Cost Control

Trader Joe’s prides itself on its thriftiness and cost-saving

measures, proclaiming, “Every penny we save is a penny you

save” and “Our CEO doesn’t even have a secretary.” 8

Its strong-

est weapon is a deliciously simple approach to stocking stores:

(1) search out tasty, unusual foods from all around the world;

(2) contract directly with manufacturers; (3) label each prod-

uct under one of several catchy house brands; and, (4) main-

tain a small stock, making each product fi ght for its place on

the shelf.

Most Trader Joe’s products are sold under a variant of their

house brand—dried pasta under the “Trader Giotto’s” moniker,

frozen enchiladas under the “Trader Jose’s” label, vitamins under

“Trader Darwin’s,” and so on. But these store brands don’t sacri-

fi ce quality—readers of Consumer Reports award Trader Joe’s

house brands top marks. 9

Th e house brand success is no acci-

dent. According to Trader Joe’s [ former] president, Doug Rauch,

“the company pursued the strategy to put our destiny in our own

hands.” 10

Customer Connection

Ten to 15 new products debut each week at Trader Joe’s—and

the company maintains a strict “one in, one out” policy. Items

that sell poorly or whose cost rises get the heave-ho in favor of

new blood, something the company calls the “gangway factor.” 11

If customers don’t like something about a product, out it goes—

count spinach and garlic from China among the rejected losers.

“Our customers have voiced their concerns about products from

this region and we have listened,” the company said. 12

ManagementCases forCriticalThinking

Learn to Master Complex Situations

441Management Cases for Critical Th inking

Discontinued items may be brought back if customers

complain. “We feel really close to our customers,” says Audrey

O’Connell, vice president of marketing for Trader Joe’s East.

“When we want to know what’s on their minds, we don’t need to

put them in a sterile room with a swinging bulb. We like to think

of Trader Joe’s as an economic food democracy.” 13

In return, cus-

tomers keep talking and recruit new converts. Word-of-mouth

advertising has lowered the corporation’s advertising budget to

a fraction of that spent by supermarkets. 14

Trader Joe’s culture of product knowledge and customer in-

volvement is carefully cultivated among new hires and exist-

ing employees. Everyone is encouraged to taste and learn

about the products and to engage customers to share what

they’ve experienced. Most shoppers recall instances when

helpful crew members took the time to locate or recommend

particular items. Job descriptions highlight desired soft skills,

such as “ambitious and adventurous, enjoy smiling and have a

strong sense of values.” Th ey count as much as actual retail

experience. 15

Strength from Within

A responsible, knowledgeable, and friendly “crew” is a natural

extension of the fi rm’s promote-from-within philosophy. And

crew members earn more than their counterparts at other

chain grocers, sometimes by as much as 20%. 16

Starting bene-

fi ts include medical, dental, and vision insurance; company

paid retirement; paid vacation; and a 10% employee dis-

count. 17

Assistant store managers earn a compensation pack-

age averaging $70,0001 a year (including salary and cash bonus) while the store managers’ packages average $109,000.

Future leaders enroll in training programs such as Trader Joe’s

University that foster in them the loyalty necessary to run

stores according to both company and customer expecta-

tions. Th e program teaches managers to imbue their part-

timers with the customer-focused attitude shoppers have

come to expect. 19

What does the future hold? Will Trader Joe’s allure of cosmo-

politan food at provincial prices continue to tempt new con-

sumers? Will management practices continue to attract the

talent Trader Joe’s needs to maintain its culture and customer

focus as the competition heats up?

Case Analysis Questions 1. Discussion In what ways does Trader Joe’s demonstrate

the importance of each responsibility in the management process—planning, organizing, leading, and controlling?

2. Discussion What lessons does the Trader Joe’s story offer to aspiring entrepreneurs who want to get off to a good start in any industry?

3. Problem Solving At the age of 22 and newly graduated from college, Hazel has just accepted a job with Trader Joe’s as a shift leader. She’ll be supervising four team members who fi ll part-time jobs in the produce section. Given Trader Joe’s casual and nontraditional work environment, what skills will she need, what should she do, and what should she avoid doing in the fi rst few days of work to establish herself as a successful team leader?

4. Further Research Study news reports to fi nd more information on Trader Joe’s management and organization practices. Look for comparisons with its competitors and try to identify whether or not Trader Joe’s still has the right management approach and business model for continued success. Are there any internal weaknesses in the Trader Joe’s management approach or new practices by external competitors, or changing industry forces that might cause future problems?

CASE 2

ZARA INTERNATIONAL Fashion at the Speed of Light In this world of “hot today, gauche tomorrow,” no company does fast fashion better than Zara International. Shoppers in a growing number of countries—86 at last count—are fans of Zara’s knack for bringing the latest styles from sketchbook to clothing rack at lightning speed and reasonable prices.1

Nano Calvo/VWPics/Redux

In Fast Fashion, Moments Matter

Zara’s parent company Inditex is known for year-on-year strong

sales gains. Low prices and a rapid response to fashion trends

have pushed it into the top ranks of global clothing vendors. Th e

chain specializes in lightning-quick turnarounds of the latest

designer trends at prices tailored to the young—about $27 an

item. 2 Louis Vuitton fashion director Daniel Piette has described

Zara as “possibly the most innovative and devastating retailer in

the world.” 3

Inditex shortens the time from order to arrival using a com-

plex system of just-in-time production and inventory manage-

ment that keeps Zara ahead of the competition. Th eir

distribution centers can have items in European stores within

24 hours of order receipt, and in American and Asian stores in

under 48 hours. 4 “Th ey’re a fantastic case study in terms of how

they manage to get product to their stores so quick,” said Stacey

Cartwright, executive vice president and CFO of Burberry Group

PLC. “We are mindful of their techniques.” 5

442 Management Cases for Critical Th inking

Th e fi rm carefully controls design, production, distribution,

and retail sales to optimize the fl ow of goods, without having to

share profi ts with wholesalers or intermediary partners. Cus-

tomers win with access to new fashions while they’re still fresh

off the runway. 6 Twice a week Zara’s fi nished garments are

shipped to physical distribution centers that all simultaneously

distribute products to stores worldwide. Th ese small production

batches help the company avoid the risk of oversupply. Because

batches always contain new products, Zara’s stores perpetually

energize their inventories. 7 Most clothing lines are not replen-

ished. Instead they are replaced with new designs to create scar-

city value—shoppers cannot be sure that designs in stores one

day will be available the next day.

Store managers track sales data with handheld devices. Th ey

can reorder hot items in less than an hour. Zara always knows

what’s selling and what’s not. When a look doesn’t pan out, de-

signers promptly put together new products. New arrivals are

rushed to store sales fl oors still on the black plastic hangers used

in shipping. Shoppers who are in the know recognize these de-

signs as the newest of the new; soon after, any items left over are

rotated to Zara’s standard wood hangers. 8

Inside and out, Zara’s stores are designed to strengthen the

brand. Inditex considers this to be very important because that is

where shoppers ultimately decide which fashions make the cut.

In a faux shopping street in the basement of the company’s head-

quarters, stylists craft and photograph eye-catching layouts that

are e-mailed every two weeks to store managers for replication. 9

Zara stores sit on some of the glitziest shopping streets—in-

cluding New York’s Fifth Avenue, near the fl agship stores of lead-

ing international fashion brands—which make its reasonable prices

stand out. It’s all part of the strategy. “Inditex gives people the

most up-to-date fashion at accessible prices, so it is a real alterna-

tive to high-end fashion lines,” said Luca Solca, senior research

analyst with Sanford C. Bernstein in London. Th at is good news

for Zara as many shoppers trade down from higher priced chains. 10

A Single Fashion Culture

Th e Inditex group began in 1963 when Amancio Ortega Gaona,

chairman and founder of Inditex, got his start in textile manu-

facturing. 11

After a period of growth, he assimilated Zara into a

new holding company, Industria de Diseño Textil. 12

Inditex has a

tried-and-true strategy for entering new markets: start with a

handful of stores and gain a critical mass of customers. Gener-

ally, Zara is the fi rst Inditex chain to break ground in new coun-

tries, paving the way for the group’s other brands, including Pull

and Bear, Massimo Dutti, and Bershka. 13

Inditex farms out much of its garment production to special-

ist companies, located on the Iberian Peninsula, which it sup-

plies with its own fabrics. Although some pieces and fabrics are

purchased in Asia—many of them not dyed or only partly

fi nished—the company manufactures about half of its clothing

in its hometown of La Coruña, Spain. 14

Inditex CEO Pablo Isla

believes in cutting expenses wherever and whenever possible.

Zara spends just 0.3% of sales on ads, making the 3–4% typically

spent by rivals seem excessive in comparison. Isla disdains

markdowns and sales as well. 15

H&M, one of Zara’s top competitors, uses a slightly diff erent

strategy. Around one-quarter of its stock is made up of

fast-fashion items that are designed in-house and farmed out to

independent factories. As at Zara, these items move quickly

through the stores and are replaced often by fresh designs. But

H&M also keeps a large inventory of basic, everyday items

sourced from inexpensive Asian factories. 16

Fast Fashion on the Move

Inditex launched its Zara online store in the United States by

off ering free 2–3 day shipping and free returns in the model of

uber-successful e-retailer Zappos. 17

A Zara iPhone app has been

downloaded by more prospective clients in the United States than

in any other market, according to chief executive Pablo Isla—more

than a million users in just three months. But, when will Inditex’s

rapid expansion bring undue pressure to its business? Th e rising

number of overseas stores increases cost and complexity and

could strain operations. 18

Is Zara expanding too quickly—opening

about 400 stores per year? 19

Will its existing logistics system carry

it into another decade of intense growth? Can fast-fashion win the

long-term retailing race?

Case Analysis Questions 1. Discussion In what ways are elements of the classical and

behavioral management approaches evident in how things are done at Zara International? How can systems concepts and contingency thinking explain the success of some of Zara’s distinctive practices?

2. Discussion Zara’s logistics system and management practices can handle the current pace of growth, but they will need updating at some point in the future. How could quantitative management approaches and data analytics help Zara executives plan for the next generation of its logistics and management approaches?

3. Problem Solving As a consultant chosen by Zara to assist with the expansion of its U.S. stores, you have been asked to propose how evidence-based management might help the fi rm smooth its way to success with an American workforce. What areas will you suggest be looked at for evidence-based decision making, and why?

4. Further Research Gather the latest information on competitive trends in the apparel industry, and on Zara’s latest actions and innovations. Is the fi rm continuing to do well? Are other retailers getting just as profi cient with the fast-fashion model? Is Zara adapting and innovating in ways needed to stay abreast of both its major competition and the pressures of a changing global economy? Is this fi rm still providing worthy management benchmarks for other fi rms to follow?

CASE 3

PATAGONIA Leading a Green Revolution How has Patagonia managed to stay both green and profi table even when the economy is down, consumers are tight for cash, and doing the profi table thing is not necessarily doing the right thing? Are

443Management Cases for Critical Th inking

Patagonia’s business practices just good for the environment and Patagonia, or are there lessons here others can follow?

KaiNedden/laif/Redux Pictures

Twelve hundred Wal-Mart buyers, a group legendary for their

tough-as-nails negotiating tactics, sit in rapt attention in the com-

pany’s Bentonville, Arkansas, headquarters. Th ey’re listening to a

small man in a mustard-yellow corduroy sport coat lecture them

on the environmental impact of Wal-Mart’s purchasing choices. 1

When Patagonia’s founder Yvon Chouinard fi nishes speaking, the

buyers leap to their feet and applaud enthusiastically.

Such is the authenticity of Chouinard. Since 1972 he’s built

the company into one of the most successful outdoor clothing

companies in the world, and one that is steadfastly committed

to environmental sustainability. Even though he turned the CEO

reins over to Casey Sheahan several years ago, it’s hard to discuss

Patagonia without constantly referencing Chouinard. For all

practical purposes the two are one. He breathes life into the

company and models the outdoorsy athleticism of Patagonia’s

customers. In turn, Patagonia’s business practices refl ect Choui-

nard’s values and insistence on minimizing environmental

impact, even at the expense of profi ts.

Taking Risks to Succeed

Patagonia sits at the forefront of a cozy niche: high-quality, per-

formance-oriented outdoor clothes and gear sold at top price

points. Derided as Pradagonia or Patagucci by critics, the brand

is aligned with top-shelf labels like North Face and Mountain

Hardware. Patagonia clothes are designed for fl y fi shermen,

rock climbers, skiers, and surfers. Th e clothes are durable,

comfortable, and sustainably produced, and they are not cheap.

It seems counterintuitive, almost dangerous, to market a $400

raincoat in a down economy. But the fi rst thing you learn about

Yvon Chouinard is that he’s a risk taker. Th e second thing you

learn is that he’s usually right. “Corporations are real weenies,” he

says. “Th ey are scared to death of everything. My company exists,

basically, to take those risks and prove that it’s a good business.” 2

And it is a good business. Patagonia succeeds by staying true

to Chouinard’s vision. 3 “Th ey’ve become the Rolls-Royce of their

product category,” says Marshal Cohen, chief industry analyst

with market research fi rm NPD Group. “When people were

stepping back, and the industry became copycat, Chouinard

didn’t sell out, lower prices, and dilute the brand. Sometimes,”

he says, “the less you do the more provocative and true of a

leader you are.” 4

Ideal Corporate Behavior

Chouinard is not shy about espousing the environmentalist ide-

als intertwined with Patagonia’s business model. “It’s good busi-

ness to make a great product, and do it with the least amount of

damage to the planet,” he says. “If Patagonia wasn’t profi table or

successful, we’d be an environmental organization.” 5

In many ways, Patagonia is just that—an environmental or-

ganization. Th e company publishes an online library of work-

ing documents, Th e Footprint Chronicles, which is intended to

help employees to make sustainability decisions in even the

most mundane offi ce scenarios. Its mission statement is to

“Build the best product, cause no unnecessary harm, use

business to inspire and implement solutions to the environ-

mental crisis.”

Chouinard has cofounded a number of external environmen-

tal organizations, including 1% For the Planet, which secures

pledges from companies to donate 1% of annual sales to a world-

wide network of environmental causes. 6 Th e name comes from

Patagonia’s 30-year practice of contributing 10% of pre-tax profi ts

or 1% of sales—whichever is greater—to environmental groups

each year. Whatever you do, don’t call it a handout. “It’s not a

charity,” Chouinard fl atly states. “It’s a cost of doing business. We

use it to support civil democracy.” 7

Another core value at Patagonia is providing opportunities

for motivated volunteers to devote themselves to sustainability

causes. Employees can leave their jobs for up to two months to

volunteer full-time for the environmental cause of their choice,

while continuing to receive full pay and benefi ts from Patagonia. 8

Every 18 months, the company hosts the Tools for Grassroots

Activists Conference, where a handful of participants is invited

to engage in leadership training, much of it derived from the

advocacy experiences of Patagonia management. 9

Growing Green

During its early growth phase Patagonia commissioned an ex-

ternal audit of the environmental impact of its manufacturing.

Management anticipated bad news about petroleum-derived

nylon and polyester. But they were shocked to learn that the

production of cotton had a more negative impact on the

environment—destructive soil and water pollution, adverse

health consequences for fi eldworkers, and the consuming of

25% of all toxic pesticides used in agriculture. Chouinard’s re-

sponse was to source organic fi bers for all cotton clothing prod-

ucts. Company representatives went directly to organic cotton

farmers, ginners, and spinners, seeking pledges from them to

increase production, dust off dormant processing equipment,

and do whatever it would take to line up enough raw materials

to fulfi ll the company’s promise to its customers and the envi-

ronment. Ever since, all of Patagonia’s cotton garments have

been spun from organic cotton.

444 Management Cases for Critical Th inking

Sustaining Momentum

Now in his 70s, Chouinard continues to seek better ways for

Patagonia to do business. “I think entrepreneurs are like juvenile

delinquents who say ‘Th is sucks. I’ll do it my own way,’” he says.

“I’m an innovator because I see things and think I can make it

better. So I try it. Th at’s what entrepreneurs do.” 10

One of his innovations is the Common Th reads initiative. De-

signed to minimize the number of Patagonia clothes that wind

up in landfi lls, the program commits the company to making

clothes built to last, fi x wear-and-tear items for consumers that

can be repaired, and collect and recycle worn-out fashions as

effi ciently and responsibly as possible. 11

Chouinard calls it “our

promise that none of our stuff ever ends up in a landfi ll.” 12

Also in

terms of cradle to grave manufacturing, he describes “trying to

convince zipper companies to make teeth out of polyester or

nylon synths, which can be recycled infi nitely.” Th e goal is to

then be able to “take a jacket and melt the whole thing down

back to its original polymer to make more jackets.” 13

Despite his boundless enthusiasm for all things green, Chouinard

admits that no process is truly sustainable. “I avoid using that

word as much as I can,” he says. He pauses for a moment and adds:

“I keep at it, because it’s the right thing to do.” 14

Case Analysis Questions 1. Discussion How do you think Patagonia executives decide

on what products to offer so that the outcomes will be both business practical (think profi ts) and environmentally friendly (think sustainability)? Take the case of a proposed new hiking boot. What criteria would you use to evaluate it as a new Patagonia product?

2. Discussion Even though he is no longer the CEO, Yvon Chouinard still exerts major infl uence over Patagonia’s business approach. What should he and other Patagonia executives be doing today to make sure that his ideals remain a permanent part of the company’s culture after he’s no longer active at the company?

3. Problem Solving Picture yourself working for Patagonia. The CEO comes to you and asks for a proposal on a new—“forward looking”—sustainability agenda for the fi rm. The goal is to drive Patagonia’s future, not just celebrate its past. What would you include in this proposed agenda in order to really stretch the fi rm beyond what it is already doing, and why?

4. Further Research Evaluate the risk that ethics might someday lose out to greed even in a company with the idealism of Patagonia. Look carefully into Patagonia’s products and practices and see if you can fi nd any missteps where decisions put profi ts ahead of the company’s publicly stated environmental goals. Can you fi nd evidence for strong governance and leadership that will protect Chouinard’s values and legacy far into the future? How about the competition? Just how does Patagonia operate today to ensure that ethics and social responsibility are not displaced as core company values? And fi nally, how about the competition? Is Patagonia still the best role model, or can you identify other fi rms that deserve to be studied as well as role models in business and society relationships?

CASE 4

TIMBERLAND—FROM BOOTMAKER TO EARTHKEEPER Walking a Green Path Timberland has built a reputation for creating simple, durable footwear and outdoor accessories. The company has developed a reputation as a leader in environmental stewardship. But, will Timberland’s recent sale to a clothing conglomerate change that?

Getty Images

Jeff rey Swartz is a straight-talking man. When asked how he felt

about the sale of Timberland, the outdoor shoe and apparel com-

pany founded by his grandfather and formerly run by his father, to

clothing giant VF Corporation, he replied: “It’s a magnifi cent day and

a bittersweet day, but the shareholders had to be our only concern.” 1

Stakeholders Count

During his 14-year stint running Timberland, Swartz made a suc-

cessful career of putting the interests of consumers, partners, and

virtually everyone on planet Earth ahead of his own, even in his last

days at the family business. As business writer Marc Gunther

notes, “It’s interesting—and very much in character—that as part

of the acquisition, Jeff didn’t negotiate a contract for himself to stay

on at Timberland, either as CEO or as an adviser. Executives of

companies that are being sold often do that, but they are, in eff ect,

using the leverage they have during a negotiation to take care of

themselves, potentially at the expense of other shareholders.” 2

And while Swartz can be confi dent that he left his family’s

60-year-old company on high moral standing, he has to wonder

about Timberland’s future. When VF Corporation acquired Timber-

land for $2.3 billion, the brand became just another holding for one

of the world’s largest clothing companies whose stable of nearly

two dozen brands includes Th e North Face, Nautica, and Vans. 3

Boot, Brand, Belief

Timberland describes its eras of evolution in terms of “Boot,

Brand, Belief.” Boot depicts Timberland’s roots as the Abington

Shoe Company, purchased by Jeff rey Swartz’s grandfather,

Nathan, partially in 1952 and then fully in 1955. For decades, the

445Management Cases for Critical Th inking

company specialized in tough-as-nails boots, only branching out

to shoemaking in 1979. When he took over in 1986, Sidney Swartz

(Nathan’s son and Jeff rey’s father) extended the Timberland

Brand internationally and added clothing, accessories, and wom-

en’s and children’s shoes to the product lineup. And when Jeff rey

assumed the post of CEO in 1998, he stamped the family business

with his Belief in social justice, environmental sustainability, and

corporate social responsibility. 4

While Nathan’s “do one thing and do it right” focus and Sidney’s

years of continuous corporate growth built a robust company to

inherit, Jeff rey’s deep moral convictions defi ned Timberland among

its competitors perhaps more than any of its products ever did. “If

I think there’s a big gap between belief and execution in corporate

governance,” Jeff rey once said, “I also think there’s a big gap in what

I espouse and how I live. And I investigate both gaps daily.” Th at

means asking the right questions. “As always, the decisions aren’t

hard—the questions are hard. If you have the right questions, and

you have the right people that care—and we do have bright, caring

people—you will almost always get a right answer.” 5

Timberland’s emphasis on social responsibility began as early

as 1989, when it partnered with Boston’s City Year, an “urban Peace

Corps,” to promote community service. But it took declining profi ts

and a stagnant economy to inspire Timberland to forge its current

identity as a protector of the earth. Says Mike Harrison, Timber-

land’s chief brand offi cer: “We really had to dig deep and fi gure out

how to create demand. In doing that, we reached back to what the

brand had always stood for. We went back to what we’re known for,

which was an authentic outdoor brand with a very strong heritage

of social responsibility and environmental sustainability. So, out of

necessity, we made a decision to refocus on our strengths.” 6

Th at refocusing ultimately spawned Timberland’s Earthkeeping

campaign. Defi ned as “taking actions that enable us to be good stew-

ards of the earth,” Earthkeeping encapsulates the environmental

virtues that Timberland has both espoused and lived in recent years.

While it may be hip for companies to adopt a green posture, Timber-

land deeply committed itself to sustainable and environmentally

and socially conscious business practices. Earthkeeping initiatives

include using partially or wholly recycled materials in manufactur-

ing, using reclaimed materials in retail stores, and giving employees

40 paid hours each year to volunteer in their community. 7

Profi ts and Values

Th e question now is how things may change in the future now

that Timberland is part of VF. As Swartz said in the days preceding

his departure, “When you change the signature in the bottom-right

corner of the paycheck, that means they will get to make decisions

that I now get to make.” 8

Betsy Blaisdell, Timberland’s senior

manager of environmental stewardship, said: “Bottom-line results

are obviously critical—if we cease to be profi table, we cease to

exist—but if we earn them at the expense of our values and

commitment to be a responsible corporate citizen, we’ve failed.” 9

For his part, former CEO Swartz said shortly before his departure.

“You can run a for-profit business and be mindful of basic

human rights and your environmental impact. You can run a

for-profi t business in a way you’d be proud to tell your children

about and face your God about.” 10

Case Analysis Questions 1. Discussion When Jeffrey Swartz was CEO, who did

Timberland identify as its stakeholders? Does this stakeholder map contain stakeholders that aren’t on the maps of other apparel companies? How can branding and sustainability complement one another to enhance competitiveness?

2. Discussion In what ways did Timberland’s strong commitment to sustainability create value for society and also help the fi rm gain competitive advantage as a major footwear brand?

3. Problem Solving Timberland and its new parent VF Corporation are heavily reliant on offshore production facilities. Be a global supply chain consultant. How would you describe the environmental uncertainty faced by fi rms sending work overseas? How can fi rms like this manage supply chains so that they maintain their environmental and sustainability principles?

4. Further Research Research other apparel companies held by VF as well as the corporation itself. Describe how they have fared as part of the VF corporate umbrella. How is Timberland doing with a new parent company in charge? In what ways are Timberland’s sustainability goals and practices rubbing off on VF? Has Timberland’s emphasis on Earthkeeping helped or hindered its integration into the VF family of brands?

CASE 5

HARLEY-DAVIDSON Style and Strategy with a Global Reach Harley-Davidson’s American success story began in 1903 when two friends—William Harley and Arthur Davidson—built a motorized bicycle in a machine shop in Milwaukee, Wisconsin.1 The progeny of that fi rst machine now travel the world—with speed and style. Now the Harley Hog is going electric.

Bloomberg/Getty Images

Harley’s Roots

When Harley-Davidson was founded it was one of more than

100 fi rms producing motorcycles in the United States. By the

1950s, it was the only remaining American manufacturer. 2 But in

the 1960s, Honda began sales in the United States and Harley

446 Management Cases for Critical Th inking

see themselves as rebels on wheels. 10

Th e company has also made

inroads into the previously elusive Chinese market. It partnered

with China’s Zongshen Motorcycle Group, which makes more

than 4 million small-engine motorcycles each year. 11

Despite

China’s growing disposable income, the new store has several

hurdles ahead of it, including riding restrictions imposed by the

government in urban areas.

Th e Future

Th e U.S. market still represents almost 75% of Harley’s sales. 12

Executives attribute Harley’s success to loyal customers and the

Harley-Davidson name. “It is a unique brand that is built on per-

sonal relationship and deep connections with customers, un-

matched riding experiences, and proud history,” said Jim Ziemer,

Harley’s former president and chief executive. 13

CEO Keith E. Wandell seeks to increase growth by focusing

eff ort and resources on the unique strengths of the Harley-

Davidson brand. He also plans to enhance productivity and

profi tability through continuous improvement. Part of his ap-

proach focuses company resources on Harley-Davidson prod-

ucts and experiences, demographic outreach, commitment to

core customers, and even more global growth. 14

Th e latest inno-

vation is the electric Hog, now in prototype and soon on the

highways of the world. A Harley spokesperson says: We antici-

pate it’s going to appeal to a younger, more urban demographic”

and that it is part of Harley’s commitment to “preserving the

riding environment.” 15

Case Analysis Questions 1. Discussion If you were CEO of Harley-Davidson, how

would you compare the advantages and disadvantages of using exports, joint ventures, and foreign subsidiaries as ways of expanding international sales?

2. Discussion In America, Harley has shifted the positioning of its products away from simply motorcycles and more toward being status symbols of a particular lifestyle. What are the implications of cultural factors for positioning in other countries that Harley has targeted for growth—ones like Japan, China, France, and Brazil?

3. Problem Solving If you were advising Harley’s CEO on business expansion in sub-Saharan Africa, what would you recommend in terms of setting up sales centers and manufacturing sites in countries like South Africa, Kenya, and Zimbabwe? When a new location is targeted, what would you suggest as the proper role for locals to play? Should they run everything, or should there be a mix of locals and expatriates? And if the CEO wants to send expatriates from the United States into some locations, what selection criteria would you recommend, and why?

4. Further Research Is it accurate to say that Harley is still “on top of its game”? How well is the company performing today in both domestic and global markets? Who are its top competitors in other parts of the world, and how well does Harley compete against them? Does the electric Harley have what it takes to fuel the company’s next stage of global growth?

had diffi culty competing against the Japanese fi rm’s smaller

bikes.

Th e American Machine and Foundry Co. (AMF) bought

Harley in 1969 and quickly increased production. 3

However, this

rapid expansion led to signifi cant problems with quality, and

the better-built Japanese motorcycles began to take over the mar-

ket. 4 A group of 13 managers bought Harley-Davidson back from

AMF in 1981 and began a turn around with the rallying cry “Th e

Eagle Soars Alone.” Richard Teerlink, former CEO of Harley,

explained: “Th e solution was to get back to detail. Th e key was to

know the business, know the customer, and pay attention to

detail.” 5 Th e goals driving this turn around were increasing qual-

ity and improving service to customers and dealers.

Consolidation and Renewal

In 1983 Harley-Davidson asked the International Trade Com-

mission (ITC) for tariff protection on the basis that Japanese

manufacturers, including Honda, were stockpiling inventory in

the United States and providing unfair competition. Th e request

was granted. Harley was confi dent enough in 1987 to petition

the ITC to have the tariff lifted because the company had im-

proved its ability to compete with foreign imports. Once Harley’s

image had been restored, the company began to increase pro-

duction and open new facilties. 6

Th e average Harley customer in the 1980s was male, late thir-

ties, with an average household income above $40,000. Teerlink

said: “Our customers want the sense of adventure that they get

on our bikes. . . . Harley-Davidson doesn’t sell transportation, we

sell transformation. We sell excitement, a way of life.” 7 Th e com-

pany created a line of Harley accessories available online, by cat-

alog, or through dealers, all adorned with the Harley-Davidson

logo. Th ese jackets, caps, T-shirts, and other items became pop-

ular with nonbikers as well. In fact, the clothing and parts had a

higher profi t margin than the motorcycles; nonbike products

made up as much as half of sales at some dealerships.

Global Expansion

Although Harley had been exporting motorcycles ever since it

was founded, it was not until the late 1980s that management

invested seriously in international markets. Traditionally, the

company’s ads had been translated word for word into foreign

languages. Now, new ads were developed specifi cally for diff er-

ent markets and Harley rallies were adapted to fi t local customs. 8

Harley actively recruited dealers in Europe and Japan, built a

large parts warehouse in Germany, and purchased a Japanese

distribution company.

Harley’s management learned a great deal from these early in-

ternational activities. Recognizing, for example, that German

motorcyclists rode at high speeds—often more than 100 mph—

the company began studying ways to give Harleys a smoother

ride and emphasizing accessories that would give riders more

protection. 9

Its Japanese subsidiary adapted the company’s mar-

keting to fi t local tastes, even producing shinier and more com-

plete toolkits than those available in the United States. Harley

bikes are now symbols of prestige in Japan, and many enthusiasts

447Management Cases for Critical Th inking

service in a sparkling clean environment.” So is the chain’s for-

mula for success: Make only a few food items, consistently make

them well, and earn the trust of customers by not deviating from

this premise.

All in the Family

Harry Snyder and his wife Esther opened the fi rst In-N-Out

Burger in Baldwin Park, California, in 1948. Unlike other carhop-

oriented fast-food restaurants of the era, Harry installed a two-

way speaker through which drivers could order without leaving

their car, creating California’s fi rst drive-thru hamburger stand.

He brought sons Rich and Guy to work at an early age, where the

boys learned their father’s insistence on complementing fresh,

promptly cooked food with great customer service.

Th e Snyders’ second restaurant opened three years later, and

franchising continued slowly until 1976, when Rich took over af-

ter his father’s death. Although he was only 24 when he became

CEO, Rich Snyder expanded In-N-Out into new cities but still

retained stringent control. Unlike his dad, who hoped employ-

ees would transfer skills learned at In-N-Out to a “better” job,

Rich thought: “Why let good people move on when you can use

them to help your company grow?” 2 Knowing that his expansion

plans would require a pool of talented and loyal store managers,

he opened In-N-Out University. Store associates had to please

hungry diners, show initiative, and exhibit strong decision-mak-

ing skills for at least one year before being invited to attend the

management training program. Reasoning that the same high-

tech tools for performance analysis employed by pro sports

teams could also improve his team, Rich videotaped trainees to

analyze their performance and produced training fi lms. 3

Entrepreneurship Under Control

Th e chain’s founding family is fi ercely entrepreneurial, and they

maintain strict control over the franchisees. Th eir infl uence

shows everywhere from the sock-hop décor to the secret menu

to its treatment of employees as long-term partners rather than

as low-cost, disposable resources. Th ey followed their own for-

mula for success instead of chasing, or copying, the competition.

Th ey’ve also avoided the temptations of selling the fi rm through

an IPO. A posting on the fi rm’s website states: “In-N-Out remains

privately owned and the Snyder family has no plans to take the

company public or franchise any units.” 4

Quality Drives Future Plans

In-N-Out Burger is now led by Guy’s daughter Linzi Snyder

Torres who is committed to following the Snyder family’s strat-

egy by not changing what already works so well. 5 Th e fi rm con-

tinues to get rave reviews for making only a handful of items

with great attention to quality. Vice President of Planning and

Development Carl Van Fleet says: “At In-N-Out Burger, we make

all of our hamburger patties ourselves and deliver them fresh to

all of our restaurants with our own delivery vehicles. Nothing is

ever frozen. Our new restaurant locations are limited by the dis-

tance we can travel from our patty making facilities and distri-

bution centers.” 6 How did this family-owned burger chain with

roadside diner roots inspire such a passionate following?

CASE 6

IN-N-OUT BURGER Building Them Better In-N-Out Burger seems like a modest enterprise—only four food items on the menu and little to no advertising. So, how has this West Coast chain achieved near-cult status among regular Joes and foodies alike? For more than 60 years, In-N-Out has wooed customers by providing them just the basics—fresh, well-cooked food served quickly in a sparkling clean environment. Its hallmarks are consistency and quality.

E.J. Baumeister Jr./Alamy

Gordon Ramsay is not an easy man to satisfy. Th e celebrity chef

and star of Hell’s Kitchen is well known for his culinary prowess,

perfectionism, and earth-shaking, profanity-strewn tantrums. He

is infamous for fi nding fault with simple and extravagant dishes

alike. So it came as a shock to many when Ramsay revealed his

affi nity for a darling of West Coast fast food. “In-N-Out Burgers

[are] extraordinary,” Ramsay says, recounting a recent visit. “I was

so bad: I sat in the restaurant, had my double cheeseburger, then

minutes later I drove back round and got the same thing again.” 1

Simple Formula for Success

Walk into any In-N-Out Burger location and you’ll only fi nd four

food items on the menu: Hamburger, Cheeseburger, Double-

Double, and French Fries. You can wash those down with a Coke

or a milk shake. In addition, there’s . . . nothing else. Th at’s the

entire menu. Or so In-N-Out would have you think.

Stand next to the ordering counter long enough, and you’ll

hear customers recite a litany of curious requests. None are on

the menu, but sure enough, the cashier rings each one up with a

smile: Animal Style (a mustard-cooked patty with extra pickles,

extra spread, and grilled onions), Flying Dutchman (two patties,

two slices of cheese, no bun or garnish), Protein Style (heavy on

the fi xings, wrapped in lettuce instead of a bun), or any permuta-

tion of patties and cheese slices up to a 4 3 4 ( four patties and four slices of cheese barely contained in one bun). It’s as if you’ve

gone through the looking glass, and the menu is not what it

seems. But the open secret of the secret menu is only part of

what keeps customers coming back for more.

In-N-Out’s motto is clear: “Give customers the freshest, high-

est quality foods you can buy and provide them with friendly

448 Management Cases for Critical Th inking

Th e Rocket Takes Off

From its modest beginning in Jeff Bezos’s garage in 1995 as an

online bookstore, Amazon.com has quickly sprouted into the

preeminent online retailer. Once Bezos saw that Amazon could

outgrow its role as an immense book retailer, even its logo was

updated to symbolize that Amazon.com sells almost anything

you can think of—from A to Z. Hundreds of other companies

also list their products on the Amazon Marketplace. Amazon

profi ts from the additional exposure and sales and the brand

thrives by keeping on the site customers who might otherwise

shop elsewhere.

Amazon keeps changing as it grows. No one is ever sure what

will come next. CEO Jeff Bezos keeps investing to make his com-

pany bigger, stronger, and harder to catch. Its millions of square

feet of distribution fulfi llment space keep growing domestically

and around the globe. Th e fi rm’s products and services are con-

tinuously upgraded and expanded. Just go to the website and

check multiple versions of the Kindle Fire e-book reader, Prime

Instant Video TV, and a variety of cloud computer services. A

New York Times article says that “within a few years, Amazon’s

creative destruction of both traditional book publishing and

retailing may be footnotes to the company’s larger and more

secretive goal: giving anyone on the planet access to an almost

unimaginable amount of computing power through its cloud

services.” 1

Priming the Competition

Time and time again, Amazon has squared off against retail

competition. Its Amazon Prime, an annual subscription provid-

ing free two-day shipping, was a big hit and has pushed other

online retailers in free shipping options and promotions. In tak-

ing on Apple, Amazon launched its music downloading service

and then, in a move of digital one-upmanship, 2 bought top-shelf

audiobook vendor Audible.com. Th e Amazon Kindle keeps re-

vamping the publishing industry. Sales of Kindle e-books now

outnumber those of hardcovers. 3 Contrary to other iPad com-

petitors, the Kindle Fire has sold well. 4 Now, there’s Fire TV to

compete with Apple TV.

Apple isn’t the only company in Amazon’s sights. It com-

petes with the likes of Hulu and Netfl ix with Amazon Prime

Instant Videos, a library of streaming movies and TV shows

available at no extra cost to Amazon Prime customers. 5

Prime

subscribers also can borrow books from the Kindle Owners’

Lending Library. 6

Beyond simply fi nding more and more products to sell, Bezos

pushes continuous innovation that creates new levels of service

to complement existing products. “We have to say, ‘What kind of

innovation can we layer on top of that that will be meaningful

for our customers?’” he explains. 7

Pressing Too Hard?

While it often feels as if Amazon can’t lose, this isn’t always

the case. Some high-profi le retailers have pulled their products

from the Amazon Marketplace, including Target, Th e Gap, and

Macy’s. According to Neel Grover, CEO of Buy.com—another

Case Analysis Questions 1. Discussion Rich Snyder was 24 years old when his father

passed away and he assumed leadership of In-N-Out. Was his young age an asset or a liability for leadership of the company? After answering, take a position on this question: Does age really matter in entrepreneurship?

2. Discussion In an era of fusion cuisine and extreme fajitas, is In-N-Out’s strategy of offering only four simple food items still on track? How about the fi rm’s approach to employees? Does it give them an edge over the fast-food competition?

3. Problem Solving A would-be entrepreneur walks into your bank and requests fi nancing for a business plan for a sandwich shop modeled after In-N-Out’s approach and limited menu. But, all the ingredients would come from local suppliers and growers within a 30-mile radius of town. Is this a winning recipe that deserves fi nancing from your bank? What would you like to see in the business plan before approving the loan?

4. Further Research Imagine you were asked by In-N-Out Burger to research current industry and social trends, and consumer values and tastes. Write an ad campaign that coincides with the current market landscape and still adheres to In-N-Out’s core values: quality, consistency, friendliness, and cleanliness. How would your ad appeal to customers in ways that the ads from the big chains— McDonald’s, Wendy’s, and Burger King—do not? How would you use social media as part of this ad campaign? And, what can you do that would make this ad so attractive that it goes viral on YouTube?

CASE 7

AMAZON One E-Store to Rule Them All Amazon.com has soared ahead of other online merchants. What the fi rm can’t carry in its worldwide fulfi llment centers, affi liated retailers distribute for it. CEO Jeff Bezos keeps introducing new products and services to keep customers glued to the Amazon site. What drives Bezos’s decisions, and will his moves and investments pay off in the years to come?

David Strick/Redux Pictures

449Management Cases for Critical Th inking

CASE 8

WALGREENS Staying One Step Ahead Squeezed by tough competitors like CVS and a dynamic health care environment, Walgreens has found success through agility and an uncanny sense of how to extend its brand within a very crowded marketplace. How has Walgreens managed to keep its plans up to date and profits on the books?

RICHARD B. LEVINE/Newscom

Walgreens, one of the oldest players in the drugstore game, is

working hard to redefi ne your image of the contemporary drug-

store. By broadening its portfolio to include counseling for

genetic and long-term diseases, selling health insurance, and

even installing EV (electric vehicle) charging stations outside

hundreds of their stores, Walgreens is betting that consumers

will like their range of expanded services.

Steady Growth, Unsteady Future

Charles R. Walgreen, Sr., opened his fi rst store on the south

side of Chicago in 1901. He purchased the dusty, dimly lit store

of a former employer and set about making it one of Chicago’s

most successful drugstores by thinking carefully about what

customers wanted—and couldn’t fi nd at the time—in com-

peting stores. He slowly expanded the store’s product line,

adding hot food to augment the standard ice cream and soda

fountain off erings in 1910, and introducing the malted milk-

shake in 1920. 1

Walgreen’s habit of listening to customers, adding the prod-

ucts and services they desired, and growing in a controlled, pre-

dictable way paid off very well and set a long-term plan for

Walgreens’s growth for decades to come. In many states, the

name Walgreens became synonymous with the very image of the

corner drugstore. Over time the fi rm thrived by steadily expand-

ing their presence across the United States. But once Walgreens

reached saturation in a number of key markets, even after buy-

ing NYC drugstore chain Duane Reade, the company was forced

to redefi ne how it could continue to expand.

retailer who abandoned Amazon’s ship—“We didn’t want to give

them information on products and sales that Amazon could

potentially use against us.”

Despite Amazon’s success in so many new markets, some

critics question whether Amazon.com, let alone the Internet, is

the best place to make high-involvement purchases. Bezos is

characteristically confi dent. “We sell a lot of high-ticket items,”

he counters. “We sell diamonds that cost thousands of dollars

and $8,000 plasma TVs. Th ere doesn’t seem to be any resistance,

and, in fact, those high-priced items are growing very rapidly as

a percentage of our sales.” 8

Looking Ahead

Amazon’s stock fl uctuates in value and has a very high price-

earnings ratio that fi nancial analysts like to criticize. But Bezos

believes that customer service and anticipating customers’

needs, not the stock ticker, defi ne the Amazon experience and

its success. “I think one of the things people don’t understand

is we can build more shareholder value by lowering product

prices than we can by trying to raise margins,” he says. “It’s a

more patient approach, but we think it leads to a stronger,

healthier company. It also serves customers much, much

better.” 9

In two decades, Amazon.com has grown from a one-man

operation into the global giant of commerce. By forging

alliances to ensure that he has what customers want and mak-

ing astute purchases, Jeff Bezos has made Amazon the go-to

brand for online shopping. With its signifi cant investments in

new media and services, does the company risk spreading

itself too thin? Will customers—individual and corporate—

continue to fl ock to Amazon, the go-to company for their every

need?

Case Analysis Questions 1. Discussion In what ways does Bezos’s decisions to develop

and deliver the Kindle, Kindle Fire, and Fire TV lines show systematic and intuitive thinking?

2. Discussion How do you describe the competitive risk in Amazon’s environment as other retailers, including Walmart, strengthen their online offerings?

3. Problem Solving Amazon is continuously looking for new markets to exploit. As CEO Jeff Bezos addresses the strategic opportunity of streaming video, he calls on you for advice on gaining more customers from the younger generations. Amazon’s presence and technology are well established, but Bezos sees a lot of untapped potential in this market. But what decision error and traps might cause him to make the wrong decisions regarding Amazon’s future moves in this regard, and why? What can he do to best avoid these mistakes?

4. Further Research What are the latest initiatives coming out of Amazon? How do they stack up in relation to actual or potential competition? Is Bezos making the right decisions as he guides the fi rm through the ever-evolving challenges of today’s cyber markets? Or, is he starting to lose touch as the company grows and his other personal interests take more time and attention?

450 Management Cases for Critical Th inking

may get access to health care under the Aff ordable Care Act.

Th is makes sense, considering that Walgreens has long de-

pended on prescription sales for a substantial portion of its

profi t. 9 Wasson also continues to freshen up the executive team,

off ering early retirement to old-timers and inviting outsiders

into key top-management spots, a move previously unheard of

in a company that prided itself on promoting from within.

Case Analysis Questions 1. Discussion What planning objectives and goals can you

identify in CEO Gregory Wasson’s plans for Walgreens? 2. Discussion What benchmarks can Walgreens use to measure

its success and control future progress in meeting its goals? 3. Problem Solving You’ve got a great assignment to serve

as special assistant to Walgreens’s CEO during a summer internship. But the fi rst task you are assigned is a bit daunting. The CEO says “You’re my conscience. You’re going to be present for every decision I make. I want you to be critical and make sure my decisions and plans stay on track. Be ready to speak out and defend yourself.” What planning errors will you be watching for? What planning techniques will you be ready to recommend if the CEO seems to be straying off course?

4. Further Research Imagine that you have been retained by Walgreens CEO Gregory Wasson as a scenario planning consultant. Research what is happening to describe three possible long-term scenarios in which Walgreens could face environmental, competitive, and strategic challenges. Explain from where Walgreens’s threats emerge, possible weaknesses these threats exploit, and strengths Walgreens can draw on to counter these challenges.

CASE 9

ELECTRONIC ARTS Inside Fantasy Sports Electronic Arts is the third largest and one of the most profi table players in the video game industry. Exclusive contracts with professional sports teams have enabled it to dominate the sports gaming market. Can EA stay in the pole position as gaming shifts to mobile in a crowded and contentious market?

A “New” Corner Drugstore

In an increasingly complex medical regulatory environment, the

business of fi lling prescriptions isn’t as simple as it used to be. Al-

though Walgreens never lost sight of its consumer-focused strat-

egy of convenience and one-stop shopping, price now matters

more than anything else to many shoppers, who fi nd that some-

times the corner drugstore isn’t the only option worth considering.

Two factors make business especially challenging for

Walgreens. Th e fi rst is increasing competition. Like a prizefi ghter,

Walgreens is learning how to duck a punch while going in for

the uppercut. It’s an aggressive game of cat-and-mouse that

Walgreens and competitors like CVS play, each trying to crowd

the other out of profi table marketplaces, attract new and vital

collaborators, or be the fi rst to host a new product or service.

Th e second stems from increasingly tight negotiations with

pharmacy benefi t managers (PBMs)—third-party organizations

that contract with pharmacies and negotiate discounts and

rebates with drug manufacturers. Roughly half of all Americans

receive drug benefi ts administered by PBMs, which handle

about 70% of all prescriptions. 2 Increasingly reliant on PBMs to

drive prescription sales, Walgreens found itself crossways with

Express Scripts, one of the largest PBMs, and lost up to $5.3 billion

in prescription sales. 3 Th rough negotiations, the two got back

together in a strategic alliance that created the Smart90

Walgreens plan, which allows Walgreens customers to order

90-day prescriptions through Express Scripts. 4

Th e Next Chapter

CEO Gregory Wasson is focused on delivering to customers what-

ever they want from Walgreens, a strategy dubbed customer-

centric retailing. One phase involves store makeovers that add food,

beer, wine, and liquor; eliminate unpopular products; and expand

the beauty aisles. More than 4,000 stores have been remodeled. 5

After introducing Walgreens apps for the IOS and Android plat-

forms, the company found consumers using the apps to submit

25% of all prescription refi lls. Using the apps, customers can select

store pickup locations as well as the date and time of pickup; they

can also receive SMS alerts when their prescriptions are ready. 6

Th e company has also appealed to its customers’ environ-

mental sensibilities. “A green drugstore?” consumers might ask,

“Why not?” Walgreens has been installing rooftop solar panels

on many of its stores. Th e rooftop panels typically off set 15% to

20% of a store’s energy consumption. 7 Walgreens also hopes to

soon have up to 800 EV (electric vehicle) charging stations in-

stalled outside stores. 8

Th ere’s also Walgreens’ acquisition of Drugstore.com, which it

purchased for $429 million. With new access to three million cus-

tomers and more than 60,000 health and beauty products, this

acquisition pushes the company another notch ahead of CVS

and into more direct competition with Walmart and Target.

More to Come

Despite ever-tighter competition, Walgreens is poised to profi t

from 76 million aging baby boomers who are increasingly reliant

on prescription drugs, along with the 36 million Americans who

451Management Cases for Critical Th inking

the announcement that computer code from third-party servers

could infi ltrate some of the EA gaming platforms. 6 And then un-

wanted bugs appeared in Battlefi eld 4 and the market turned

against EA games made for aging console players. 7

Although still a top player, EA faces substantial challenges

from competing game companies, the cost of doing business,

legal issues, and dissatisfi ed gamers. Th e next great bet by EA is

another futuristic shooter game, Titanfall. It sounds good, but

can EA overcome these threats and continue producing games

with franchises that brought the company considerable success

in the past? Above all, does EA have its operations under control

as it makes plans for the current big thing—mobile?

Case Analysis Questions 1. Discussion How can feedforward, concurrent, and

feedback controls help Electronic Arts meet its quality goals for video games?

2. Discussion Which of the control systems and techniques can be most useful to EA’s next round of business decisions, and why?

3. Problem Solving Break the video-game production process down into its various components, a start-to-fi nish workfl ow model. Identify for each phase in the process the control standards that could be set so that managers make the process work best overall.

4. Further Research What is the latest in Electronic Arts’ quest to regain its former glory as among the top gaming publishers? How is it doing? What’s the quality of its games? Is it positioned for future competitive advantage in an industry moving fast into mobile? Overall, is EA’s executive team in control and keeping the company on “top of its game”?

CASE 10

DUNKIN’ DONUTS Betting Dollars on Donuts Once a niche company operating in the Northeast U.S., Dunkin’ Donuts is opening hundreds of stores and entering new markets. The java giant is also expanding its food and coffee menus to ride the wave of fresh trends and appeal to a new generation of customers. Can the company keep up with its own rapid growth?

Jessica Rinaldi/Reuters/Newscom

Founded in 1982 by William “Trip” Hawkins, an early director of

strategy and marketing for Apple Computer, EA gained quick dis-

tinction for its detail-oriented sports titles compatible with the

Nintendo and Sega platforms. Although EA has also received

good reviews for its strategy and fi rst-person shooter games, it

left its heart on the gridiron, diamond, court, or any other playing

fi eld long ago. According to former EA Sports marketing chief Jef-

frey Karp, EA wanted to be “a sports company that makes games.”

Ad Revenue In, Ad Revenue Out

Word of mouth may still be the most trusted form of advertising, and

EA has always depended on fans to spread its gaming gospel. But in

a highly competitive—and lucrative—gaming market, EA knows

better than to skimp on brand building: it spends two to three times

as much to market and advertise a title as it does developing it. 1

Th e realism of EA’s graphics set it apart from competitors

long ago, but the energy and talent used to depict that realism

might be wasted if EA games didn’t include the one element fans

most want to see: their favorite players. However, top athletes

aren’t cheap, and neither are their virtual depictions. EA spends

$1001 million annually to license athletes, players’ associations, and teams. It’s a complex dance: FIFA Soccer for iPad, for exam-

ple, requires hundreds of diff erent licenses from a total of 22 club

leagues, 500 teams, and 15,000 players. 2

Past Glory

EA’s past devotion to sports games has been a winning asset. But a

funny thing happened on the way to the bank—over the course of

a few short years, the gaming market radically changed. Th e way

games were played in the past is not the way they are played now.

Blame the Wii. Or blame Apple. Or blame Android and social

media platforms. Or blame the success of Activision Blizzard’s

massively successful World of Warcraft (WoW) that dominated

EA’s failed Star Wars: Th e Old Republic, which was intended to

compete with WoW for gaming dollars. Successive generations

of iPhone and iPad improved iOS gaming, and Apple’s App Store

suddenly became a self-suffi cient gaming platform faster than

you can say Angry Birds. Android apps are keeping the smart

device playing fi eld on the move and increasingly popular. Face-

book also came into its own as a destination for simple but

time-swallowing games. Th is kind of gaming was worlds away

from EA’s graphics-intense, true-to-life realism traditions, and it

forced the company to do some serious reckoning on its future. 3

Playing for Keeps

Former CEO John Riccitiello stepped down in the face of man-

agement failures and tumbling market value. 4 Although histori-

cally a leader and an innovator in the gaming space, EA may

have become more of a trend follower than a trend setter under

his waning days at the top. When arch rival Activism found mar-

ket success with their game Call of Duty, Riccitiello tried to copy

their success with similar products. But consumers showed fa-

tigue with fi rst-person shooter military-themed games. EA also

failed to remain current with market trends, making a failed

foray into online gaming with SimCity and not keeping pace

with rivals in gaming hardware. 5 Another threat emerged with

452 Management Cases for Critical Th inking

But why stop at grocery stores? Taking its cooperation

philosophy a step further, Dunkin’ Donuts has also entered the

lodging market with their fi rst hotel restaurant at the Great Wolf

Lodge in Concord, North Carolina—one of North America’s

largest indoor water parks. Dunkin’ Donuts off ers a variety of

store models to suit any lodging property, including full retail

shops, kiosks, and self-serve hot coff ee stations perfect for gift

shops and general stores, snack bars, and convention registration

areas. 6

You’ll also fi nd Dunkin’ Donuts packaged coff ees for sale on

grocery store shelves, just like Starbucks. Th ey accomplished

this through a distribution alliance with Procter & Gamble. So,

Dunkin’ is clearly on the move. Who knows where the brand will

pop up next?

Sweet Future or a Cold Cup?

If Dunkin’ Donuts can fi nd the sweet spot, by being within

most consumers’ reach but falling just short of a Big Brother–

like omnipresence, the company’s strategy of expansion may

well be rewarded handsomely. But this strategy is not without

its risks. In the quest to appeal to new customers, off ering too

many original products and placements could dilute the

essential brand appeal of coff ee and donuts and alienate long-

time customers who respect simplicity and authenticity. On

the other hand, new customers previously unexposed to

Dunkin’ Donuts might see it as “yesterday’s brand” without

the new off erings.

For the time being, Dunkin’ Donuts seems determined in its

quest for domination of the coffee and breakfast market.

Will Dunkin’ Donuts strike the right balance of products and

placement needed to mount a formidable challenge against

competitors?

Case Analysis Questions 1. Discussion How does Porter’s fi ve forces analysis describe

the food industry in which Dunkin’ Donuts and Starbucks compete? What are the strategic implications for Dunkin’ Donuts?

2. Discussion Could Dunkin’ Donuts use strategic alliances to even better advantage than it does now? How could cooperative strategies help it succeed further with its master plan for growth?

3. Problem Solving Until recently, the Starbucks brand was much better known around the world than Dunkin’ Donuts. As Dunkin’s CEO, what global strategy—globalization, multidomestic, or transnational—would you follow to position Dunkin’ as a real challenge to Starbucks in the international markets, and why?

4. Further Research Gather information on industry trends, as well as current developments—domestic and international—affecting Dunkin’ Donuts and its competitors. Use this information to build an up-to- date SWOT analysis for Dunkin’ Donuts. Based on this analysis, is Dunkin’s top leadership doing the right things when it comes to strategic management for sustainable competitive advantage, or not?

Serving the Caff einated Masses

Th ere’s a lot more to a coff ee shop than just change in the tip jar.

Some 400 billion cups of coff ee are consumed every year, making

it the most popular beverage globally. Estimates indicate that

more than 150 million Americans drink a total of 465 million

cups of coff ee a day. 1 With Starbucks driving tastes for upscale

coff ee, some customers may wonder whether any coff ee vendors

remember the days when drip coff ee came in only two varieties—

regular and decaf. But Dunkin’ Donuts does, and it’s betting

dollars to donuts that consumers nationwide will embrace its

reputation for value, simplicity, and a superior Boston Kreme

donut.

Americans are familiar with the Dunkin’ Donuts brand

through its more than 7,300 domestic outlets, which have

their densest cluster in the Northeast and a growing presence

in the rest of the country. 2 But the brand has also managed to

carve out an international niche with international shops in

32 countries. Dunkin’ shops are not only found in expected

markets such as Canada and Brazil, but also in some unex-

pected locations like Qatar, South Korea, Pakistan, and the

Philippines. 3

Changing Course to Follow Demand

For most of its history, Dunkin’ Donuts’ primary product focus

was implicit in its name: donuts, and coff ee in which to dip

them. First-time customers acquainted with this simple reputa-

tion were often overwhelmed by the wide varieties of donuts

stacked end-to-end in neat, mouthwatering rows. But faced with

fi erce and innovative competition—think Starbucks and local

coff ee shops—Dunkin’ Donuts opted for a time-honored busi-

ness tradition: follow the leader. Th e company now off ers a com-

petitive variety of espresso-based drinks complemented with

a broad number of sugar-free fl avorings, including caramel,

vanilla, and Mocha Swirl. 4 You can also breakfast on Dunkin’s

bagel and croissant-based breakfast sandwiches or sausage

pancake bites, or have a Big N’ Toasted.

Spot on with Partnerships

Dunkin Donuts’ history of off ering simple and straightforward

morning fare has given it the competitive advantage of distinc-

tion as the anti-Starbucks—earnest and without pretense. Like

Craftsman tools and Levi’s jeans, the company appeals to unpre-

tentious people who enjoy well-crafted products.

Although Dunkin’ Donuts often partners with a select group

of grocery retailers—such as Stop & Shop and Walmart—to

create a store-within-a-store concept, the company won’t set up

shop in just any grocery store. “We want to be situated in super-

markets that provide a superior overall customer experience,”

said John Fassak, vice president of business development. “Of

course, we also want to ensure that the supermarket is large

enough to allow us to provide the full expression of our brand . . .

which includes hot and iced coff ee, our line of high-quality es-

presso beverages, donuts, bagels, muffi ns, and even our break-

fast sandwiches.” 5

453Management Cases for Critical Th inking

factories that it uses to make shoes, apparel, and other sporting

goods. 2 It released the data in conjunction with a comprehensive

corporate responsibility report summarizing the environmental

impact and the labor situations of its contract factories. 3

Jordan Isn’t Forever

Banking on the star power of its Swoosh, Nike has successfully

branded apparel, sporting goods, and even sunglasses. Like

many large companies who have found themselves at odds with

the possible limitations of their brand, Nike realized that it

would have to master the one-two punch: identifying new needs

and supplying creative and desirable products to fi ll those needs.

In fi tting with the times, Nike’s VP of Global Design, John R.

Hoke III, encourages his designers to develop environmentally

sustainable designs like the Nike Free, a lightweight running

shoe that boosted sales dramatically. 4 And Nike’s Sustainable

Business & Innovation Lab funds outside startups focused on

alternative energies, more effi cient approaches to manufactur-

ing, and the promotion of healthy lifestyles.

Staying in Front

Pressures is mounting from outside Nike’s Beaverton, Oregon,

headquarters. German rival Adidas drew a few strides closer to

Nike when it purchased Reebok. 5 Th e new super group of shoes

isn’t far off from Nike’s market size. But when faced with such

challenges, Nike simply knocks its bat against its cleats and

steps up to the plate. Says Nike spokesman Alan Marks: “Of

course we’re in a competitive business, but we win by staying

focused on our strategies and our consumers. And from that

perspective nothing has changed.” 6

Keeping It Together

Nike has so far balanced size and pressure to remain successful

by leveraging a decentralized and networked organization struc-

ture. Individual business centers—such as research, production,

and marketing—are free to focus on their core competencies

without worrying about the eff ects of corporate bloat. Th e

company has found continued marketplace success by positioning

itself not simply as a sneaker company but as a brand that fulfi lls

the evolving needs of today’s athletes and athletes-at-heart. Will

Nike continue to profi t from its organization structure, or will it

spread itself so thin that its competition will overtake it?

Case Analysis Questions 1. Discussion What factors drive Nike’s decision to stick with

some form of network organizational structure rather than own its manufacturing operations?

2. Discussion Could a shift toward a more mechanistic organizational design help Nike avoid past reputational problems with its global supply chain, such as bad labor practices by some of its foreign contractors?

3. Problem Solving Draw a diagram that shows what you believe Nike’s present organizational structure looks like. Be sure to include all possible components. Next look at the diagram as an organization design consultant. Ask: How can this structure be improved? How can Nike

CASE 11

NIKE Spreading Out to Win the Race Nike is indisputably a giant in the athletics industry. But the Portland, Oregon, company has reached the top by knowing how to stay small. Nike has managed to become an industry leader by focusing on core competencies—and outsourcing other tasks and functions. But can it stay out in front?

Where’s the Company?

If you don’t make anything, what do you actually do? It’s not a

joke or a Buddhist riddle. Rather, it’s a conundrum about one of

the most successful companies in the United States—Nike. Th e

company is known worldwide for its products, none of which it

actually makes. But if you outsource everything, what’s left? Th e

answer, for starters, is a whole lot of brand recognition.

Since captivating the shoe-buying public in the early 1980s

with legendary spokesperson Michael Jordan, Nike continues

to outpace the athletic shoe competition while spreading its

brand through an ever-widening universe of sports equipment,

apparel, and paraphernalia. Th e ever-present Swoosh graces

everything from bumper stickers to sunglasses to high school

sports uniforms. Nike products embody a love of sport, disci-

pline, ambition, practice, and other athletic traits. 1

Outsourcing Wins the Race

Nike has cleverly kept its advertising agency nestled close to

home, but has relied extensively on outsourcing many nonexec-

utive and back-offi ce responsibilities to reduce overhead. Th e

fi rm is structured around its core competency in product design—

not manufacturing. But Nike has taken outsourcing to a new

level, with subcontractors producing all of its shoes. Although

this hasn’t hurt product quality, it has challenged Nike’s reputa-

tion for social responsibility.

In a move designed to turn critics into converts, Nike posts

information on its Web site detailing every one of the hundreds of

454 Management Cases for Critical Th inking

Th e commercial contexts within which gamifi cation continues

to grow range from customer engagement, to employee perfor-

mance to training, to innovation management, to personal de-

velopment, to sustainability.

Top Firms Are Playing Games

Well-known fi rms are now riding the gamifi cation band wagon.

Nike uses a gaming platform called Nike1 to encourage higher levels of performance among consumers of their athletic prod-

ucts. At Khan Academy, a nonprofi t educational institution

founded by Harvard graduate Salman Khan and which reaches

approximately 10 million students each month, gamifi cation is a

core method for enhancing students’ learning experience. 5

IBM executive says the fi rm’s use of gaming for employees who

spend lots of time working from home or traveling is a “way to

help colleagues connect and stay engaged.” Software Company

SAP uses a game that includes “assigning sales leads and envi-

ronmental challenges that award points for tasks like carpooling,”

says its chief innovation strategist, Mario Herger. 6

Games Change Cultures

Gaming interfaces are changing traditional workplace rules

and behavioral norms, or at least realigning them with popular

culture. Users believe that gaming helps employees feel more

engaged and connected in an online environment that they

can enjoy separately from work activities. Gaming can be used

in strategic planning to simulate various business scenarios.

Reward and competition tactics in games can be applied to

boost interest in mundane tasks like data entry and invoicing.

Although some fear that gaming has the potential to breed

unhealthy competition and hurt relationships, experts claim

it’s a great motivator that can increase employees’ enthusiasm

for their daily activities and the energy they bring to work.

Game-specifi c problem solving can also enhance critical think-

ing and analytical abilities, as well as develop desirable personal

attributes such as persistence, creativity, and resilience. 7

But, it’s also recognized that gamifi cation has to be well inte-

grated with business needs and objectives. Industry analyst Brian

Burke cautions: “To achieve success for companies starting in gam-

ifi cation, the fi rst design point is to motivate players to achieve their

goals—and those goals should overlap with the business goals.” 8

To Play or Not to Play

As the gamifi cation trend continues to grow, employees may be

asking themselves whether a virtual badge of gaming accomplish-

ment is truly better than a good old-fashioned pat on the back and

verbal “job well done” from a manager. Clearly it’s no cure-all for all

of the issues that can potentially decrease the performance of a

team, or an organization. “Adding gamifi cation to the workplace

drives performance but it doesn’t make up for bad management,”

says Kris Duggan, chief executive of game-maker Badgeville. 9

Case Analysis Questions 1. Discussion What arguments can you make that support the

legitimation of gamifi cation in an organization’s culture? What examples can you give or create to justify your arguments?

gain even more operating effi ciency without losing its performance edge in terms of continually coming up with innovative, high quality, top-design shoes?

4. Further Research What is the current state of competition in this industry? Is Nike continuing to pull away from rivals, or are they catching up? Are new, sleek, and faster rivals starting to get into the picture? What moves has Nike made in regard to how it handles the vast amount of subcontracting used in its supply chain? Does it still have problems keeping control of this supply chain? Is Nike’s organizational structure still a major strength that contributes to its success, or is it creating problems that will call for organizational design changes in the future?

CASE 12

GAMIFICATION Finding Legitimacy in the New Corporate Culture Would you be surprised to see a co-worker playing a video game, and realizing the boss didn’t care? Companies are increasingly using video games or “gamifi cation” as a way to enhance productivity and increase creativity and satisfaction in the workplace.

Ann Hermes/The Christian Science Monitor/Getty Images

It is more and more common to see people playing games at

work and being praised—not criticized—for doing it. Th e new

legitimacy of gaming in the corporate world is called “gamifi ca-

tion.” Games are being seen as a way to promote a culture of

learning, individualism, and fun, while also focusing attention

on the company’s bottom-line performance goals. 1

Enjoyment-Based Economy

Jesse Schell, CEO of Schell Games, says: “We are shifting into an

enjoyment-based economy. And who knows more about making

enjoyment than game developers?” 2

Gamifi cation is exploding

in areas ranging from marketing and politics, to health and fi t-

ness, to business and higher education, with analysts predicting

that gamifi cation will soon be a multi–billion-dollar industry. 3

455Management Cases for Critical Th inking

In the past, two-tier contracts have been stop-gap measures,

since the diminished wages often disappeared once the econ-

omy picked up again. Now they appear to be here to stay, and it’s

easy to see why. Th e auto fi rms had long paid unionized workers

a comfortable salary and a healthy pension. But as labor and

pension costs rose, the Big Th ree needed to restructure labor

costs to match wages off ered by foreign manufacturers with

American plants. Th e United Auto Workers (UAW) negotiators

conceded to two-tier contracts in order to prevent layoff s and

protect the union’s presence in the auto plants.

“Th is is not going away,” said Kristin Dziczek, a labor analyst at

Ann Arbor’s Center for Automotive Research. “It has allowed the

Big Th ree to reduce labor costs without cutting the pay of incum-

bent workers. Is it good for the health and competitiveness of the

companies? Yes. And is that good for job security? Yes.” 2

What about the Workers?

Th e labor market’s reaction to the two-tier wages has been mixed.

While no one relishes the thought of earning 50% as much as the

worker across the aisle, “Everybody is appreciative of a job and

glad to be working,” said Derrick Chatman, a recent hire at

Chrysler’s Jeff erson North plant. Before joining Chrysler for

$14.65 per hour, he was laid off from Home Depot, worked the odd

construction job, and collected unemployment. 3 Gary Wurtz, a

line worker at GM’s Orion Township, MI, plant, where 40% of his

fellow workers receive lower-tier wages, said: “In order to get those

guys up, we’ll take a signing bonus or profi t sharing instead.” 4

Two-tier plans still have the potential to divide workers across

salary lines. As Gary Chaison, a professor of industrial relations at

Clark University, points out, “[Lower-tier workers] might even feel

suffi ciently aggrieved to someday negotiate away the benefi ts of

retired higher-tier workers. A higher-tier autoworker observed: “Af-

ter we retire, the next generation may ask, ‘Why should we defend

your pensions? You didn’t defend our pay when we were young.’” 5

Dualing Tiers

Chrysler CEO Sergio Marchione hopes to eliminate the higher

wage tier altogether as senior workers retire. Th e United Auto

Workers union wants to eliminate the two tiers and move to a

higher uniform wage rate for all. Th e new UAW president Dennis

Williams says: “It’s time to bridge the gap.” 6 “If you know you’re

going to get to the top wage eventually, the [two-tier] system

can work,” says Peter Cappelli, a professor at the University of

Pennsylvania’s Wharton School. “Th e big problem is when you

think you’ll never get there.” 7

Case Analysis Questions 1. Discussion How do Employee Value Propositions differ for

those being paid at different levels in two-tier wage plans? What are the implications of these differences for each phase in the human resource management process—attracting, developing, and maintaining a talented workforce?

2. Discussion What challenges do two-tier wage plans pose to the future of unions in the automobile industry? Do they give unions more or less reasons for existence?

3. Problem Solving If you were a negotiator for the United Auto Workers Union, what would be your

2. Discussion What arguments can you make against trying to make gamifi cation part of an organization’s culture? What examples can you give or create to justify your arguments?

3. Problem Solving Consider yourself the go-to “idea person” for friends who head two local organizations—a fi re department and a public library. Both complain about morale problems and ask you for advice on creating a positive organizational culture. They want to know how your interest in gaming can be used to improve staff morale and performance. What will you suggest and why?

4. Further Research Review how organizations, including major corporations, nonprofi ts, and the military, are using gaming. What role is gaming taking on in these settings, and how does its use affect the organizational cultures? What does the evidence suggest—is gamifi cation merely a passing trend, or is it here to stay and may even grow in use in the future?

CASE 13

TWO-TIER WAGES Same Job, Different Pay Domestic auto manufacturers were hit particularly hard by recession. Struggling to overcome rising material and pension costs, they felt they couldn’t compete with foreign carmakers without drastically cutting labor costs. Part of their response was a two-tier wage system that pays new workers signifi cantly less than existing ones doing the same job. What is the future for such two-tier wage systems?

Andreas Gebert/DPA/Zuma Press

A New Contract

In Ford, General Motors, and Chrysler manufacturing plants

across the United States, newly hired workers are earning an

hourly wage that may be half those of their more experienced

co-workers who perform identical tasks. Th eir benefi ts—health

insurance, paid time off , and retirement funding—are also less

than those received by experienced workers. Th ese diff erences

are the result of two-tier contracts in which labor unions

permit corporations to hire new workers with wage and benefi t

packages below those earned by veteran employees in the

same jobs. 1

456 Management Cases for Critical Th inking

When Zappos CEO Tony Hsieh was the featured guest on Th e

Colbert Report, host Stephen Colbert grilled him about Zappos’s

phenomenal success and rabid customer loyalty. Hsieh replied

that it’s Zappos’s goal to deliver “WOW” in every shoe or cloth-

ing box. Today, the company is consistently ranked highly as one

of Fortune’s ‘Best Companies to Work For’. 1

Unusual Leader, Unusual Employer

Zappos.com was launched in 1999 as the brainchild of Hsieh

and founder Nick Swinmurn. Within just a few years the Las

Vegas-based fi rm caught the eye of Amazon’s Jeff Bezos. He liked

what he saw so much that he bought the fi rm for Amazon’s busi-

ness stable, pledging not to interfere with Hsieh and Zappos’s

unique way of doing business.

Th e blog search engine Land calls Zappos “the poster child

for how to connect with customers online.” 2

And under Amazon,

Zappos has maintained its focus. Th e company’s relentless pur-

suit of the ultimate customer experience is the stuff of legend.

Zappos off ers extremely fast shipping at no cost and will cover

the return shipping if you are dissatisfi ed for any reason at any

time. For Hsieh, the Zappos brand is less about a particular type

of product and more about providing good customer service. He

has said, “We could be in any industry that we can diff erentiate

ourselves through better customer service and better customer

experience.” 3 He has even ventured that he could see the Zappos

name on things as large as airlines or hotels, as long as the

service was up to his exacting standards.

A Culture to Th rive In

Zappos’s success comes down to the company’s culture and the

unusual amount of openness Hsieh encourages among employ-

ees, vendors, and other businesses. “If we get the culture right,”

he says, “most of the other stuff , like the brand and the customer

service will just happen. . . . We want the culture to grow stronger

and stronger as we grow.”

Named “Th e Smartest Dude in Town” by business magazine

Vegas Inc., Hsieh believes employees have to be free to be them-

selves. Th at means no-call times or scripts for customer service

representatives, regular costume parties, and parades and deco-

rations in each department. Customer service reps are given a

lot of leeway to make sure every customer is an enthusiastic

customer.

Sharing the Fun

Hsieh believes so strongly in the Zappos culture that he’s on a

mission to share it with anyone who will listen. In a program

called Zappos Insights, “Company Evangelists” lead tour groups

of 20 around the Las Vegas headquarters. Offi ce cubicles often

overfl ow with kitschy action fi gures and brightly colored bal-

loons, giving participants a glimpse of a workplace that prizes

individuality and fun as much as satisfi ed customers. Staff ers

blow horns and ring cowbells to greet participants in the 16

weekly tours, and each department tries to off er a more outland-

ish welcome than the last. “Th e original idea was to add a little

fun,” Hsieh says, but it grew into a friendly competition “as the

next aisle said, ‘We can do it better.’” 4

“union” position management proposal to eliminate the highest tier in the existing two-tier pay system as senior workers retire? How would you expect the management negotiators to respond to your position? Do you see any room or way to negotiate a compromise or trade-offs that could protect the union’s desire for higher wages and meet management desires to control labor costs? Is there any way to forge a shared agreement in this situation?

4. Further Research Dig into current events, scholarly research, and even fi nancial analysts’ reports for information on two-tier wage systems and their outcomes in various industries. Find the pros and cons from both management and union points of view. Look for interviews with workers who express their real feelings about being on each side of the two-tier system. Create a report that summarizes for the reader or listener the current status of two-tier plans and what we know about how they work and what direction we can expect from them in the future.

CASE 14

ZAPPOS They Do It with Humor Zappos.com customers are known for fi erce loyalty, and it’s easy to see why. CEO Tony Hsieh has built a billion-dollar business by providing happiness to customers and employees. Even fellow businesspeople get happy while seeking to learn more about Zappos’s unique blend of humor, compassion, and high-quality customer service. How does Zappos do it?

Noah Berger/Bloomberg/Getty Images, Inc.

457Management Cases for Critical Th inking

CASE 15

PANERA BREAD Growing a Company with Personality Panera Bread is in the business of satisfying customers. With fresh-baked breads, gourmet soups, and efficient service, the franchise has surpassed all expectations for success. But how did a startup food company get so big, so fast?

French Roots, American Staples

What’s so exciting about bread and soup? For some people, it

conjures up images of bland food that soothes an upset stom-

ach. Others think of the kind of simple gruel off ered to jailed

prisoners in movies. But for Panera Bread, a company able to

successfully spot long-term trends in the food industry, arti-

san-style bread served with deli sandwiches and soups is a

combination proven to please the hungry masses.

Panera’s roots go back to 1981, when Louis Kane and Ron

Shaich founded Au Bon Pain Company Inc. Th e chain of French-

style bakeries soon became the dominant operator in the

bakery/café category on the East Coast. In a 1993 expansion

move Au Bon Pain purchased the Saint Louis Bread Company, a

Missouri-based chain of about 20 bakery-cafés. It renovated the

stores and renamed them Panera Bread, and their sales skyrock-

eted. In 1999, Panera Bread was spun off as a separate company.

Since then, its off erings have grown to include not only a variety

of soups and sandwiches, but also souffl és, salads, paninis,

breakfast sandwiches, and a variety of pastries and sweets. Most

of the menu off erings somehow pay homage to the company

name and heritage—bread—and Panera takes great pride that

its loaves are handmade and baked fresh daily. 1

Modern Tastes, Modern Trends

Panera’s self-perception as a purveyor of artisan bread well pre-

dated the current national trend for fresh bread and the explo-

sion of artisan bakeries throughout metropolitan America. 2

Th e tours are free, but many visitors actually come for paid

one- and two-day seminars that immerse participants in the

Zappos culture. Want to learn how to recruit employees who are

committed to your company culture? You’ll get face time with

Zappos HR staff . Yearn to learn what keeps customers coming

back? Ask their Customer Loyalty Team. Hungry for a home-

cooked meal? Th e capstone of the two-day boot camp is dinner

at Tony Hsieh’s house, with ample time to talk customer service

with the CEO himself. 5

Th ose who want to learn Zappos’s secrets without venturing

to Las Vegas can subscribe to a members-only community that

grants access to video interviews and chats with Zappos

management. Ask nicely, and the company will send you a free

copy of their Zappos Family Culture Book, an annual compilation

of every employee’s ideas about Zappos’s mission and core

values. Hsieh has his own tome, too—Delivering Happiness.

Zappos’s Next Act

So, what comes next? As Zappos grows within the Amazon

umbrella, which is constantly growing as well, and as Hsieh

devotes more time to community service and his writing and

speaking engagements, can the Zappos culture survive growth

and a possible leadership transition? Will Zappos continue to

remain prosperous and keep its reputation as a great em-

ployer? Is Hsieh’s unique brand of leadership so built into the

fi rm’s practices that Zappos will stay the same even under a

new CEO?

Case Analysis Questions 1. Discussion What leadership traits and style does Tony

Hsieh demonstrate at Zappos? What aspects of his leadership can you criticize, if any? Is his successful leadership approach transferable to other leaders and other organizations, or is it person and situation specific?

2. Discussion Can you fi nd examples of where House’s path– goal theory of leadership can be confi rmed or disconfi rmed in the Zappos setting? Explain your answer.

3. Problem Solving Tony Hsieh is a big thinker, and Zappos is clearly his baby. But he’s also into philanthropy and community development activities that are taking up more of his time. Perhaps he’ll come up with other new business ideas as well. As a leadership coach, what steps would you recommend that he take now to ensure that his leadership style and vision live on at Zappos long after his departure? What can a strong and secure leader like Hsieh do to ensure a positive leadership legacy?

4. Further Research Check the latest on Zappos and Tony Hsieh. How and what are each doing at the present time. Do some research to compare and contrast the leadership style and characteristics of Tony Hsieh with those of his boss at Amazon, Jeff Bezos. How are the leadership styles of the two CEOs alike? In what ways do they differ? For whom would you rather work? Is one better than the other in its situational context?

458 Management Cases for Critical Th inking

Case Analysis Questions 1. Discussion How might consumers’ perception of Panera’s

menu and atmosphere affect their dining experience and tendencies to return as customers?

2. Discussion Describe how stereotypes about the fast-food industry might positively and negatively affect Panera. Do you think of Panera as a fast-food restaurant, or has the company managed to distinguish itself from this industry segment?

3. Problem Solving What personality characteristics would you expect Panera’s founder Ron Shaich to display? How would these characteristics help or hinder him during Panera’s early entrepreneurship stage and during its continuing growth stage? As a leadership succession consultant, what would you identify as the three or four most important of Shaich’s personal qualities that should be sought after in the next CEO, and why?

4. Further Research Find data reporting on Panera’s recent sales and product initiatives. Find out more about Shaich and how his values and personality affect the company, its mission, and its strategies. Is Panera on the leading edge of its industry, or are other competitors—especially new entrants—starting to nip away at its traditional customers and markets? Does Panera seem to have what it takes to deal with shifting customer values and perceptions of the fast-food industry?

CASE 16

SAS Business Success Starts on the Inside How can a company that makes unemotional business software create so much positive emotion among employees and customers? Who are we talking about? The company is SAS Institute, headquartered in North Carolina. It’s the world’s largest privately owned software fi rm and a regular among top-rated fi rms on Fortune magazine’s annual list of “Best Companies to Work For.”

Charly Kurz/laif/Redux Pictures

addition, Panera proactively responded to unease about trans

fats by voluntarily removing them from its menu. “Panera recog-

nized that trans fat was a growing concern to our customers and

the medical community; therefore we made it a priority to elim-

inate it from our menu,” said Tom Gumpel, vice-president of

bakery development. Panera menu items are free from trans fats,

except for small amounts that occur naturally in dairy and meat

products as well as in some condiments. 3

According to Ron Shaich, former CEO and now executive

chairman of the board of Panera, “Real success never comes by

simply responding to the day-to-day pressures; in fact, most of

that is simply noise. Th e key to leading an organization is under-

standing the long-term trends at play and getting the organiza-

tion ready to respond.” 4

Stay Fresh Personality

Ron Shaich, growing up in Livingston, New Jersey, wasn’t fo-

cused on being a bread magnate. He wanted to be a public serv-

ant, working in government on public policy. As a high school

student he even interned for a congressman from his home

state. His entrepreneurial spark was ignited during his sopho-

more year in college at Clark University, when the owner of a lo-

cal convenience store that didn’t cater to students threw him and

his friends out. Th at negative experience lit Shaich’s entrepre-

neurial fi re. It was at that point when he had the inspiration for

the student government at his college—he was the treasurer—

to open a store for students, run by students. Th e store was a

huge success at Clark. He became an impassioned advocate of

student governments opening their own stores, speaking on the

topic across the country.

Shaich’s personal transformation from a government–public

service focus to a retailing–market focus emerged from the rec-

ognition that a store for the people, run by the people, could be a

success. Following college, he matriculated to Harvard business

school, where after graduation he went to work for the Original

Cookie Company. With a desire to start his own cookie business,

he was ultimately able to fi nd a tiny retail location, opening the

Cookie Jar in 1980. Th is fi rst taste of entrepreneurialism ulti-

mately led to a license agreement with Au Bon Pain, and to the

story that has become famous with the explosion of Panera

Bread Co. 5

Sticking It Out

All of Panera’s attention to monitoring trends has paid off

handsomely. BusinessWeek recognized Panera as one of its

“100 Hot Growth Companies.” And Forbes named it number 4

on its list of “Top 20 Franchises for the Buck.” It consistently

ranks at the top of Sandleman & Associates surveys of customer

satisfaction. 6 Under Shaich’s leadership Panera

has demon-

strated that sticking to company ideals while staying in the

lead on industry trends will please customers time and time

again. But can this company continue to navigate the chang-

ing dietary trends and concerns about fast food in today’s

unstable market?

459Management Cases for Critical Th inking

Th at’s likely because CEO Jim Goodnight lets customers tell

him where the company should go next. Users rave about SAS’s

technical support representatives, who are required to record

every product improvement users suggest. Th ese suggestions

are sorted, ranked, and sent to customers via the annual SAS-

ware Ballot. Th e results are analyzed and the top 10 results are

nearly always put into action. “It’s an amazingly eff ective busi-

ness practice, listening to your customers,” says Goodnight,

who also bets heavily on innovation to keep SAS on top of its

industry. 5 “Innovation is what has kept SAS growing for the past

36 years,” Goodnight said. “We can’t succeed without innova-

tion, new products, ideas and services. Loyal, creative, healthy

employees are innovative.” 6

Case Analysis Questions 1. Discussion In what ways is the work environment at SAS

consistent or inconsistent with the implications of Maslow’s hierarchy of needs theory, Alderfer’s ERG theory, and Herzberg’s two-factor theory?

2. Discussion If Goodnight’s approach to leadership is evaluated from the perspectives of Vroom’s expectancy theory and Locke’s goal-setting theory, where is he on track and where is he in danger of going off track when it comes to employee motivation?

3. Problem Solving As a compensation consultant, you’ve been called in to review how SAS pays its employees and the benefi ts it offers them. You’ve heard some employees say that they could be attracted to other employers if they offered higher salaries. Employees overwhelmingly like the SAS benefi ts and the working climate, but the fact is that offers of higher pay elsewhere could be hard to say “no” to. What insights do motivation theories offer about this situation? Should it be addressed somehow with changes to the way SAS presently operates? Or, is this a situation where time will take its course and those who leave will depart for their own good reasons, while those who stay will continue to be motivated to work hard by the current system?

4. Further Research What’s the latest news on SAS? How is the company doing in its industry? How is Goodnight faring as CEO? Are the employees still as motivated and happy as they appear in this case? Have any changes been made in compensation, benefi ts, or work practices at SAS? Are any such changes being planned? In short, is SAS Institute still a motivational role model for other employers, or is it starting to show some rough edges?

CASE 17

AUTO RACING When the Driver Takes a Back Seat When you think of auto racing, do you fi rst think of drivers . . . or teamwork? Watch any televised race, and the majority of the camera time is dedicated to the drivers and their cars. But, the driver is simply one member of a larger team that works together to achieve maximum performance. When the driver wins, the team wins as well, and the driver is the fi rst to thank them.

A Solution for Every Problem

Short for Statistical Analysis System, SAS (pronounced “sass”) is a

set of integrated software tools that help decision makers cope

with unwieldy amounts of unrelated data. “It is a very powerful

tool,” says Mu Hu, director of customer relationship manage-

ment for Golfsmith. “I can pretty much do anything with SAS.” 1

Companies utilize SAS tools intended for diverse applications

ranging from supply chain analysis to K–12 teacher evaluation

and anti–money laundering.

SAS brings an organization’s decision makers the data they

need to solve a problem in the absence of suffi cient expertise

or information. Th e institute goes to great lengths to provide a

constant stream of support for its users. Employees write more

than 600 SAS blogs, many focused on tips, tricks, and shortcuts. 2

Th e SAS website is overfl owing with useful sample queries,

webinars, and articles with titles like “Jedi SAS Tricks” and “Th e

Bayes Th eorem, Explained to an Above-Average Squirrel.”

Inspiring Employees

Although competitors like Oracle and SAP try to catch SAS by

buying up smaller business intelligence companies, SAS still

leads the pack. Most of its success derives from a top-quality

product created and supported by its extremely dedicated staff .

Here’s what it is like to be one of SAS’s 4,800 employees.

Th e typical workweek is 35 hours, and no one monitors what

time you show up or leave. Th ere are two day-care centers. You

can get dry cleaning, car detailing, and haircuts on site. Work–

life and wellness centers provide everything from workout

rooms to special programs in weight management to counseling

on family issues. For a fee you can even schedule an in-house

masseur at the company’s fi tness center.

SAS offers no stock options and does not offer the highest

salaries. CEO Jim Goodnight believes pampering makes up

for the lack of outright financial incentives. “My chief assets

walk out the door every day,” he says. “My job is to make sure

they come back.” Employee Bev Brown says: “Some may think

that because SAS is family-friendly and has great benefits

that we don’t work hard, but people do work hard here be-

cause they’re motivated to care for a company that takes care

of them.” 3

SAS buys undeveloped acres near its North Carolina head-

quarters and resells them to employees at a discount so they’ll

establish roots nearby. Th e corporate campus is a small town

unto itself, with a state-of-the art nursery school, health center,

and even private junior and senior high schools. Mark Moorman,

senior director in the Advanced Analytics Lab at SAS, summarizes

the company’s people strategy as: “We’re willing to take care of

you if you’re willing to take care of us.” It must be working:

Employee turnover is less than 4% per year, compared with 15%

turnover at typical U.S. software houses. 4

Loyal Employees Bring Loyal

Customers

Customers are equally enamored with the company. In fact,

95% of companies renew their annual lease of SAS software.

460 Management Cases for Critical Th inking

saved by pit crews are a driver’s best friends. Little wonder that

racing teams give high priority to hiring the right crew chiefs and

building high-performance pit crew teams to maximize their

winning chances on race days.

In his analysis of successful NASCAR teams, Robert William-

son notes that an essential characteristic is a team’s sense of

ownership for all actions—“We won the race, we hit the wall, we

had a tire problem, we missed the setup for the track, we nailed

that pit stop,” rather than noting the success or shortcoming of

an individual. 4

It’s impossible for a car to complete a NASCAR race without

multiple visits to the pit, and these pit stops are often the best

example of teamwork in the sport. Aside from the skill and mus-

cle memory of the pit crew members, other teammates contrib-

ute by modifying parts and equipment so they can be changed

out in less time. In Sprint Cup racing, NASCAR’s highest designa-

tion, pit stops can happen in less than twenty seconds! 5

Sprint Cup winner Jimmie Johnson cites the importance of

cohesive teamwork even before a car is assembled and tested on

the track. “If you really know each other then, you know what

each other is looking for, you’ve built that foundation and belief

on the teammates [and] the engineers, you can split those hairs

and get it right.” 6

Formula One

Th e Formula One drivers, team members, and fans have one

quality that sets them above all other racing participants: the

need for speed. Formula One fi elds the fastest circuit racing cars

in the world, screaming down the track at top speeds as high

as 225 miles per hour. Unlike in other racing sports, Formula

One teams are required to build their own chassis. Although

teams procure specialized engines from specifi c manufacturers,

they are primarily responsible for building their cars from the

ground up.

Each formula has its own set of rules that eligible cars must

meet (Formula One being the fastest of these designations). Th e

McLaren team, one of the most successful in Formula One, and

engineering director Paddy Lowe understand the importance of

teamwork. Speaking on the challenge of incorporating a new

component into an existing car, he noted, “You have to factor in

the skill of the team to work together in a very short period of

time to push in a completely diff erent direction; to understand

all the diff erent issues. Th e reliability, the performance, the skills

of the team, all the tools they’ve created over the years—they all

came through to our profi t. Everybody moves seamlessly. Th ey

know what they’ve got to do.” 7

Former BMW Motorsport Director Mario Th eissen put it

simply: “Teamwork is the key to success,” he said. “Of course the

basis is formed by a competitive technical package, but without

a well-integrated, highly motivated team, even the best car will

not achieve prolonged success.” 8

Rally Car

Whereas NASCAR and Formula One racers speed around a

paved track, rally car racing frequently heads off the circuit and

into territory that would make most any NASCAR driver step

CRYSTAL ALISON MACLEOD/CSM/Landov LLC

In the world of competitive auto racing, the drivers are the

sport’s rock stars. Th ey’re courted by sponsors, adored by fans,

and made the subject of interview after interview by the racing

press. While it goes without saying that drivers are absolutely

essential to earning a trophy, racing enthusiasts, teammates,

and especially drivers will tell you that they can’t win the race by

themselves—it takes a successful team to win a race.

Although three of the major forms of professional auto

racing—NASCAR, Formula One, and rally car racing—each use

diff erent vehicles, rules, and team structures, teamwork is the

common denominator among them. Ray Evernham, former

crew chief and team manager for Hendrick Motorsports’ DuPont

car, describes teamwork this way: “We’re all spark plugs. If one

doesn’t fi re just right, we can’t win the race. So no matter whether

you are the guy that’s doing the fabricating or changing tires on

Sundays and that’s the only job responsibility you have, if you

don’t do your job then we’re not going to win. And no one is more

or less important than you.” 1

What are the qualities of successful racing teams? Let’s take

a look.

NASCAR

NASCAR is the most widely known and watched racing sport in

the United States, and the popularity and success of Jeff Gordon

has more than a little to do with that. Gordon has the most wins

in NASCAR’s modern era, has the third-most all-time wins, and

has become a spokesperson for the importance of teamwork in

NASCAR racing. 2

“My job to communicate is probably the most

important thing,” Gordon has said. “Because I’ve got to send a

message from the race car and the race track back to the team so

that they can make the proper adjustments.”

Cars running in NASCAR races hit speeds over 200 miles per

hour. But winning or losing can be decided by tenths of a

second. 3 Although it’s the driver who gets featured in the win-

ner’s circle and in all the advertisements, the diff erence between

crossing the fi nish line fi rst or losing the race often comes down

to the pits, where the eff orts of teammates with titles like Car

Chief, Fueler, Jackman, Tire Carrier, and Changer have to operate

together in just the right way. It’s in a crowded pit lane that tires

get changed, windshields cleaned, fenders bent back into shape,

and spring and balance adjustments fi ne tuned. Any seconds

461Management Cases for Critical Th inking

the most recent racing season. Try to answer this question: What accounts for this team’s success or lack of success— driver talent, technology, teamwork, ownership/leadership, or all four? List at least three lessons from your analysis of the racing team that might be valuable and transferable to teams and organizations in any setting.

CASE 18

TWITTER Rewriting (or Killing) Communication Twitter’s 140-character text-based messages, or “Twitter-speak,” permeate everyday life. But questions about its infl uence are being asked—by parents, relationship partners, teachers, and employers. Is Twitter reinventing social communication or just abbreviating it? Do tweets create meaningful conversations or dumb down our abilities to write and communicate effectively with one another?

NICHOLAS KAMM/AFP/Getty Images

Twitter was conceived on a playground slide during a

burrito-fueled brainstorming session by employees of podcast-

ing company Odeo. Co-founder Jack Dorsey, now Twitter’s exec-

utive chairman, suggested the idea of using short, SMS-like

messages to connect with a small group. “[W]e came across the

word twitter, and it was just perfect,” Dorsey says. “Th e defi nition

was ‘a short burst of inconsequential information’ and ‘chirps

from birds.’ And that’s exactly what the product was.” 1

Dorsey, also CEO and founder of Square, a mobile payments

company, developed a working prototype based on an instant

messaging platform. It was fi rst used internally by Odeo employ-

ees, but was refi ned and released to the public. Within three

months and sensing the magnitude of the invention, Dorsey

and other members of Odeo, including product strategist Evan

Williams and creative director Biz Stone, acquired Odeo and

picked up Twitter.com in the process.

A Channel with Capacity

Twitter has become a vehicle for communicating carefully crafted

messages of self-promotion and branding by major companies,

on the brakes: Finnish rallies feature long, treacherous stretches

of ice and snow. Th e famed French Méditerranée-le Cap ran

10,000 miles from the Mediterranean to South Africa. Th e

reputed Baja 1000 Rally ran the length of the Baja California

peninsula, largely over deserts without a road in sight.

In rally car racing, drivers race against the clock instead of

each other. Races generally consist of several stages that the

driver must compete as quickly as possible, and the winning

driver completes all stages in the least amount of time. 9

You could argue that of all racing sports, rally drivers are the

most reliant on teamwork to win. Unlike other forms of circuit

racing, the driver is not only not racing on a fi xed track, but also

does not get to see the course before the race begins. Instead,

drivers are wholly reliant on a teammate, the navigator, for infor-

mation on upcoming terrain. Part coach and part copilot, the

navigator relies on page notes (detailed information on the

sharpness of turns and the steepness of gradients) to keep the

driver on course from the passenger seat. 10

Turkish driver Burcu Çetinkaya had already made a name for

herself as a successful snowboarder before deciding to take up rally

car racing at the age of twenty-four. She says: “Th e thing that hooked

me about rally driving was working together with a team for a com-

mon goal with nature working against you,” she said. “I love cars,

fi rst of all—I grew up with them and I love every part of them. And I

love competition. I have been competing all my life. In a rally, these

things come together: nature, competition, teamwork and cars.” 11

One Isn’t Enough

Even though they receive the lion’s share of the notoriety and

adulation, racing drivers are only one member of a larger team,

wherein every team member’s performance contributes to the

team’s success. Th e best drivers don’t let the fame go to their heads.

As Jeff Gordon—who knows a thing or two about success—put it,

“Th e only way I can do my job correctly is to be totally clear in my

mind and have 100% confi dence in every person’s job that went

into this team so that they can have 100% confi dence in what I’m

doing as a driver.” 12

Case Analysis Questions 1. Discussion What formal and informal groups would you

expect to fi nd in a complete racing team? What roles could each play in helping the driver toward a winning season?

2. Discussion Racing teams and their leaders make lots of decisions—from the pressures of race day to the routines of everyday team management. When and in what situations are these decisions made by authority rule, minority rule, majority rule, consensus, or unanimity? How do these decision-making approaches fi t certain times and situations but not others? Defend your answer.

3. Problem Solving Assume you have been retained as a team-building consultant by a famous racing team pit crew whose performance fell badly during the prior season. Design and explain a series of team-building activities you will use to engage team members to strengthen their trust in each other and improve their individual and collective efforts.

4. Further Research Choose a racing team of interest to you. Research the team, its personnel, and its performance in

462 Management Cases for Critical Th inking

Impulse Leads to Apology

Twitter’s quick and short messages are shortening the stages

of communication—quick thoughts warrant a tweet. Th ey’re in-

creasing the frequency of communication—more time effi cient

than a direct message or an e-mail. But, it’s not uncommon for

well-known tweeters to apologize and explain a tweet or two

after it was misinterpreted. Th e immediacy of tweeting can

make it impulsive communication—tweets are oh so easy to

send out—and regret later!

Case Analysis Questions 1. Discussion What are the advantages and disadvantages

of communicating via Twitter? Can a 140-character tweet really be effective? What guidelines would you recommend for maximizing the effectiveness of a tweet?

2. Discussion Choose a national brand or entertainment personality and discuss how the use of Twitter has helped to create a following and desired brand image. How about a college course? How could an instructor use Twitter to improve the classroom or online learning experience? Is Twitter more appropriate for the national brand and entertainment personality than for the college instructor? Why or why not?

3. Problem Solving You’ve been given a fi rst assignment as the new summer intern in the offi ce of a corporate CEO. The task is to analyze Twitter and make a presentation to the CEO and her executive team recommending whether or not it should be used for corporate purposes. What points will you make in the presentation to summarize its potential uses, possible downsides, and overall strategic value to the fi rm?

4. Further Research Research current developments with Twitter. What is presently happening with the fi rm? What are the fi nancial and business analysts saying? Is Twitter still innovating, and if so, what new directions are evident? Is Twitter on a continued path of success, or is its 140-character appeal starting to fade? Who are Twitter’s major competitors? Are they real threats, or not? Is the tweet here to stay, or will it soon be displaced by the next best leap forward in communication technology?

nonprofi ts, activist groups, politicians, actors, athletes, and musi-

cians. Top Twitter topics or “trends” driving tweets include sports,

politics, and music as well as natural disasters, human confl icts,

and crises. According to an Internet study by Pew Research, Twit-

ter usage is pervasive among technology early adopters and

widespread among a range of demographic groups. 2

Messages With(out) Meanings

Twitter’s 140-character limit keeps messages terse and to the

point. However, there’s no guarantee they’ll be pertinent or that

each message will be meaningful. Market research fi rm Pear

Analytics analyzed 2,000 U.S. and British tweets sent during day-

time hours over two weeks and concluded that 40% of them rep-

resented “pointless babble.” 3

While avid Twitter users may agree

that not all tweets are gems, the service has found a place in

digital culture. Social network researcher Danah Boyd has criti-

cized Pear Analytics’ results, pointing out that pointless babble

could be better characterized as social grooming, where tweeters

“want to know what the people around them are thinking and

doing and feeling.” 4

Tweets Travel Faster

Twitter’s low overhead translates into instantaneous broadcast

communication. And for some users, that’s part of the appeal.

“Twitter lets me hear from a lot of people in a very short period

of time,” says tech evangelist Robert Scoble. 5 In addition, Twitter

has become a de facto emergency broadcast network for break-

ing news. It is a means to transmit up-to-date information

during disasters and other unfolding situations. 6 Real-time

news, video clips, and images rapidly spread through the Twit-

terverse, often providing faster information than formal news

media. 7

More managers are using Twitter and it’s becoming a linchpin

for teams, whose leaders and members use it as a fast-channel

way to send announcements about upcoming events, post

rapid-response items, and share links that bear on what’s hap-

pening within the organization. Twitter is also being used in

educational settings as a way to promote student interactions

with faculty and administration and with one another.

Case Endnotes

Case 1: Trader Joe’s 1

“Trader Joe’s,” Hoover’s Company Records. Posted 2/14/12.

cobrands.hoovers.com (accessed 3/14/14). 2

“Where in the Dickens Can You Find a Trader Joe’s?” Trader Joe’s,

traderjoes.com (accessed 2/23/12). 3

Deborah Orr, “Th e Cheap Gourmet,” Forbes (April 10, 2006). 4

BusinessWeek Online, February 21, 2008. 5

Marianne Wilson, “When Less Is More,” Chain Store Age

(November 2006). 6

Orr, op. cit. 7

“Aldi,” Wikipedia, en.wikipedia.org/wiki/Aldi#Geographic_

distribution. Accessed 2/23/12. 8

traderjoes.com/value.html; and, traderjoes.com/how_we_do_biz.

html. 9

“Win at the Grocery Game,” Consumer Reports (October 2006), p. 10. 10

Orr, op. cit. 11

traderjoes.com/tjs_faqs.asp#DiscontinueProducts. 12

latimes.com/business/la-fi -tj12feb12,1,1079460.story 13

Jena McGregor, “2004 Customer 1st,” Fast Company (October

2004). 14

Orr, op. cit. 15

Irwin Speizer, “Th e Grocery Chain Th at Shouldn’t Be,” Fast

Company (February 2004). 16

Heidi Brown, “Buy German,” Forbes ( January 12, 2004). 17

traderjoes.com/benefi ts.html. 18

Information from glassdoor.com (accessed May 16, 2014). 19

Ibid.

Case 2: Zara International 1

“Inditex: Who We Are: Concepts: Zara,” Inditex, inditex.com

(accessed 2/21/12). 2

“Zara Grows as Retail Rivals Struggle,” Wall Street Journal (March

26, 2009). 3

“Zara, a Spanish Success Story,” CNN (June 15, 2001). 4

Inditex Press Dossier, inditex.com (accessed 3/14/10). 5

Cecile Rohwedder and Keith Johnson, “Pace-setting Zara Seeks

More Speed to Fight Its Rising Cheap-Chic Rivals,” Wall Street Journal

(February 20, 2008), p. B1. 6

“Th e Future of Fast Fashion.” Th e Economist ( June 16, 2005)

economist.com (accessed 4/4/06). 7

“Zara: Taking the Lead in Fast-Fashion,” BusinessWeek (April 4,

2006). 8

Rohwedder and Johnson, op. cit. 9

Ibid. 10

“Zara Grows as Retail Rivals Struggle,” Wall Street Journal (March

26, 2009). 11

Inditex Press Dossier, op. cit. 12

Ibid. 13

Ibid. 14

“Shining Examples,” Economist ( June 17, 2006). 15

“Th e Future of Fast Fashion,” op. cit.

16 Inditex Press Dossier, op. cit.

17 “Zara Launches Online Shopping in the USA,” College Fashion.

Posted 9/7/11. collegefashion.net (accessed 2/23/12). 18

“Zara Grows as Retail Rivals Struggle,” Wall Street Journal (March

26, 2009). 19

Susan Berfi eld and Manuel Baigorri, “Zara’s Fast Fashion Edge,”

Bloomberg BusinessWeek (November 14, 2013): businessweek.com

(accessed 5/19/14).

Case 3: Patagonia 1 Monte Burke, “Wal-Mart, Patagonia Team To Green Business,”

Forbes. Posted 5/6/10, 12:20 p.m. forbes.com (accessed 2/2/11). 2 Kent Garber, “Yvon Chouinard: Patagonia Founder Fights for the

Environment,” U.S. News. Posted 10/22/09. usnews.com (accessed

2/2/11). 3 Diana Random, “Finding Success by Putting Company Culture

First,” Entrepreneur. Posted 4/19/11. entrepreneur.com (accessed

5/2/14). 4 Jennifer Wang, “Patagonia, From the Ground Up,” Entrepreneur.

Posted 6/10. entrepreneur.com (accessed 5/2/14). 5 Ibid.

6 “Home page.” 1% For the Planet. onepercentfortheplanet.org

(accessed 3/1/12). 7 Kristall Lutz, “What Makes Patagonia ‘Th e Coolest Company

on the Planet’: Insights from Founder Yvon Chouinard,” Opportunity

Green. Posted 1/27/11. opportunitygreen.com (accessed 2/2/11). 8 “Environmental Internships,” Patagonia. patagonia.com (accessed

2/3/11). 9 “Tools for Grassroots Activists Conference,” Patagonia. patagonia.

com (accessed 2/3/11). 10

Wang, Entrepreneur. 11

“Introducing the Common Th reads Initiative,” Patagonia.

patagonia.com (accessed 2/3/11). 12

Wang, Entrepreneur. 13

Ibid. 14

U.S. News.

Case 4: Timberland 1

Bob Sanders, “Swartz: Timberland Deal ‘Magnifi cent and

Bittersweet,’” New Hampshire Business Review. Posted 6/14/11.

nhbr.com (accessed 2/15/11). 2

Marc Gunther, “Timberland’s Jeff Swartz: ‘Th is Is Hard,’”

MarcGunther.com. Posted 6/14/11. marcgunther.com (accessed

2/15/12). 3

“V.F. Corp. Completes Acquisition of Timberland Company,”

RTT News. Posted 9/13/11. rttnews.com (accessed 2/15/12). 4

“Service,” Timberland, responsibility.timberland.com/service

(accessed 2/15/12). 5

Jonathan Birchall, “Outdoor Boss Who Treads an Ethical Path,”

Financial Times. Posted 10/3/10. ft.com (accessed 2/15/12).

463

464 Case Endnotes

Case 7: Amazon 1

“2012 Earnings: Th ird Quarter Amazon.com,” New York Times.

Posted 8/28/12. topics.nytimes.com (accessed 9/6/12). 2

Th omas Ricker, “Amazon Adds Audible to Its Digital Empire.”

engadget.com (accessed 5/28/08). 3

Claire Cain Miller, “E-Books Top Hardcovers at Amazon,” New York

Times. Posted July 19, 2010. nytimes.com (accessed 2/29/12). 4

Zach Epstein, “Amazon To Sell 6 Million Kindle Fire Tablets,

8 Million eReaders in Q4.” Boy Genius Report. Posted 12/13/11. bgr.com

(accessed 2/29/12). 5

“Amazon Prime Members Now Get Unlimited, Commercial-

free, Instant Streaming of More Th an 5,000 Movies and TV Shows

at No Additional Cost.” Amazon Media Room. Posted 2/22/11. phx.

corporateir.net (accessed 2/29/12). 6

Jason Boog, “Kindle Owners’ Lending Library Unveiled.” Galleycat.

Posted 11/3/11, 3:47 p.m. mediabistro.com (accessed 2/29/12). 7

David Meerman Scott. “Th e Flip Side of Free.” eContent, vol. 28,

no. 10 (October 2005). 8

Jeff rey Ressner. “10 Questions for Jeff Bezos.” Time, August 1, 2005.

Vol. 166, Issue 5. 9

“Amazon CEO Takes Long View.” USA Today, July 6, 2005.

Case 8: Walgreens 1

“Our Past.” Walgreens. walgreens.com (accessed 2/14/12). 2

Brigid Sweeney. “Drugstore Drama: Th e Old Ways No Longer

Work for Walgreen.” Crain’s Chicago Business. Posted 7/18/11.

chicagobusiness.com (accessed 2/14/12). 3

Jondi Gumz. “CVS Gains New Prescription Customers as

Walgreens’ Agreement with Express Scripts Expires.” Mercury

News. Posted 01/04/12, 7:10 p.m. mercurynews.com (accessed

2/14/12). 4

News release, “Express Scripts and Walgreens Off er New Solution

to Improve Patient Health.” August 1, 2013: walgreens.com (accessed

6/2/14). 5

“Drugstore Drama.” 6

Rimma Kats. “Walgreens: Mobile Is Key Component of

Multichannel Loyalty Strategy.” Mobile Commerce Daily. Posted 3/4/11.

mobilecommercedaily.com (accessed 2/14/12). 7

Cameron Chai. “Walgreens Completes Solar Installation at

Ohio Facility.” AZoCleantech.com. Posted 9/26/11. azocleantech.com

(accessed 2/14/12). 8

“First Walgreens Electric Vehicle Charging Station in Orlando

Unveiled.” Walgreens. Posted 10/12/11. news.walgreens.com (accessed

2/14/11). 9

“Drugstore Drama.”

Case 9: Electronic Arts 1

Dean Takahashi. “EA’s Chief Creative Offi cer Describes Game

Industry’s Re-engineering.” GamesBeat. Posted 8/26/09. venturebeat.

com (accessed 2/20/11). 2

“FIFA 12 for iPad and iPhone.” Electronic Arts. ea.com

(accessed 3/10/12). 3

Dean Takahashi. “Zynga Confi rms It Hired EA’s Jeff Karp as

Marketing and Sales Chief.” Venture Beat. Posted 8/21/11. venturebeat.

com (accessed 2/29/12). 4

Peter Nowak. “5 reasons Electronic Arts is in big trouble (which

is bad news for Canada).” Canadian Business. canadianbusiness.com

(accessed 2/29/12). 5

Ibid. 6

Brian Proffi tt. “Electronic Arts Continues to Weather More Storms.”

readwrite.com (accessed 3/19/13).

6 Craig Hayman, “Argyle Conversation: Mike Harrison, Chief Brand

Offi cer, Timberland,” Argyle Journal. Posted 5/7/11. argylejournal.com

(accessed 2/15/12). 7

“What Makes It Sustainable?” Timberland, community.timberland.

com. Accessed 2/15/12; and “Climate,” Timberland, responsibility.

timberland.com (accessed 2/15/12). 8

Marc Gunther, “Th is Is Hard.” 9

Michael McCord, “Timberland Achieves Profi ts While Helping

the Environment,” Seacoast Online. Posted 5/4/10. seacoastonline.com

(accessed 2/15/12). 10

Dan Primack, “Q&A with Timberland CEO Jeff Swartz,” Fortune.

Posted 6/13/11. fi nance.fortune.cnn.com (accessed 2/15/12).

Case 5: Harley-Davidson 1

harley-davidson.com (accessed 5/25/09). 2

Malia Boyd, “Harley-Davidson Motor Company,” Incentive

(September 1993), pp. 26–27. 3

Shrader et al., “Harley-Davidson, Inc.—1991,” in Fred David (ed.),

Strategic Management, 4th ed. (New York: Macmillan, 1993), p. 655. 4

Ibid. 5

Martha H. Peak, “Harley-Davidson: Going Whole Hog to Provide

Stakeholder Satisfaction,” Management Review, vol. 82 ( June 1993),

p. 53. harley-davidson.com (accessed 5/18/08). motorcyclistonline.com

(accessed 5/18/08). 6

Harley-Davidson, 1992 Form 10K, p. 33; and, Harley-Davidson

home page. 7

Peak, op. cit.; and, Susanna Hanner. “Harley, You’re Not Getting

Any Younger.” New York Times. Posted 3/21/09. nytimes.com (accessed

2/17/12). 8

Kevin Kelly and Karen Miller, “Th e Rumble Heard Round the

World: Harley’s,” BusinessWeek (May 24, 1993), p. 60. 9

Ibid. 10

Sandra Dallas and Emily Th ornton, “Japan’s Bikers: Th e Tame

Ones,” BusinessWeek (October 20, 1997), p. 159. 11

“Introduction of Chongqing Zongshen Automobile

Industry Manufacturing Co., Ltd.” Zongshen International.

zongsheninternational.com (accessed 2/18/12). 12

“Global Customer Focus.” Harley-Davidson. investor.

harleydavidson.com (accessed 2/23/12). 13

businessweek.com 14

harley-davidson.com (accessed 3/22/10); and, “Harley-

Davidson’s CEO Discusses Q1 2014 Results—Earnings Call

Transcript,” Seeking Alpha (April 22, 2014): seekingalpha.com

(accessed 5/22/14). 15

James R. Hagerty and Bob Tita, “Harley Wheels Out an Electric

Hog,” Wall Street Journal ( June 20, 2014), p. B2.

Case 6: In-N-Out Burger 1

Jill Scott, “Gordon Ramsay Admits Secret Passion for Fast Food

Burgers,” Daily Record. Posted 4/20/08, dailyrecord.co.uk (accessed

2/17/11). 2

Stacy Perman, “In-N-Out Burger: Professionalizing Fast Food,”

Bloomberg BusinessWeek. Posted 4/9/09, 5:00 p.m., businessweek.com

(accessed 2/17/11). 3

Ibid. 4

Hayley Peterson, “Why In-N-Out Burger Won’t Expand To Th e East

Coast,” Business Insider (May 8, 2014), businessinsider.com: accessed

July 12, 2014. 5

“America’s Best In-N-Out Burger Outposts,” Fox News (April 14,

2014), foxnews.com: accessed July 12, 2014. 6 Peterson, op cit.

465Case Endnotes

2 Bill Vlasic, “Detroit Sets Its Future on a Foundation of Two-Tier

Wages.” New York Times. Posted 9/12/11. nytimes.com (accessed

2/13/12). 3

“Detroit Sets Its Future on a Foundation of Two-Tier Wages.” 4

Ibid. 5

Gary Chaison, “Two-Tier Wage Settlements and the

Legitimacy of American Unions,” Proceedings of the Fifteenth

Congress of the International Industrial Relations Association.

Sydney, Australia (December 2008). ilera-directory.org (accessed

2/13/12). 6

Christina Rogers, “UAW’s Next Chief Faces a Battle over Wage

Disparity,” Wall Street Journal ( June 3, 2014), p. B1. 7

“Detroit Sets Its Future on a Foundation of Two-Tier Wages.”

Case 14: Zappos 1

“Looking Ahead—Let Th ere Be Anything and Everything.” Zappos.

about.zappos.com (accessed 2/18/12). 2

Jeff Cerny. “10 Questions on Customer Service and ‘Delivering

Happiness’: An Interview with Zappos CEO Tony Hsieh.” TechRepublic.

Posted 10/1/09. techrepublic.com (accessed 2/27/12). 3

Andria Cheng. “Zappos, Under Amazon, Keeps its Independent

Streak.” MarketWatch. Posted 6/11/10 (accessed 2/27/12). 4

“Zappos Retails Its Culture.” Business Week. Posted 12/30/09,

5:00 p.m. businessweek.com (accessed 2/27/12). 5

“Zappos Launches Insights Service.” AdWeek. Posted 12/15/08.

adweek.com (accessed 2/27/12).

Case 15: Panera 1

bakingbusiness.com (accessed 8/2/06); “Panera Company

Overview: Company FAQs.” Panera. panerabread.com (accessed

2/18/12); “Panera Bread Financial Fact Sheet.” Panera. panerabread.

com (accessed 2/18/12). 2

“Panera Bread Introduces Panera Kids.” Panera Bread press

release, June 2, 2006. 3

“Panera Bread Removes Trans Fat from Menu.” Panera Bread press

release, February 23, 2006. 4

Shaich, Ron. Speech at Annual Meeting 2006, Temple Israel,

June 28, 2006. 5

Kowitt, Beth. “A founder’s bold gamble on Panera.” CNN Money.

Posted 7/18/12. money.cnn.com (accessed 2/16/14). 6

“Panera Bread Financial Fact Sheet”; and “Panera expects to

hire 25K employees: Exec Shaich.” CNBC. Posted 7/28/10. cnbc.com

(accessed 2/27/12).

Case 16: SAS 1 “Golfsmith Shoots Well Below Par with Help from SAS.” SAS.

sas.com (accessed 2/10/11). 2

Kelly Kass. “SAS Delivers a Personalized Internal Communication

Strategy for Employees.” Simply Communicate. simply-communicate.

com (accessed 2/18/12). 3

“100 Best Companies to Work for.” CNNMoney. money.cnn.com

(accessed 2/18/12); and, David A. Kaplan, “#1 SAS: Th e Best Company

to Work For.” Fortune ( January 26, 2010), Kindle edition. 4 Randall Lane. “Pampering Th e Customers, Pampering Th e

Employees.” Forbes. Posted 10/14/96, 11:37 a.m. forbes.com (accessed

2/10/11). 5 Ibid.

6 “SAS Achieves Double-Digit Growth, Rockets 12 Percent to

Record $2.725 Billion.” SAS. Posted 1/19/2012. sas.com (accessed

2/18/12).

7 Ian Sherr. “Big Game Maker Feels Sting of Console Shift,”

Wall Street Journal ( January 29, 2014), p. B4.

Case 10: Dunkin Donuts 1

“Coff ee Business Statistics Report.” E-Imports. eimportz.com

(accessed 2/26/12). 2 dunkindonuts.com/aboutus/company.

3 “Company Snapshot.” Dunkin’ Donuts. dunkindonuts.com

(accessed 2/18/12). 4 dunkindonuts.com/aboutus/products/HotCoff ee.aspx.

5 “Dunkin’ Donuts Expansion: Chain Says It Will Double Number

of U.S. Stores.” Huffi ngton Post. Posted 1/4/12, 4:33 p.m. huffi ngtonpost.

com (accessed 2/29/12). 6 dunkindonuts.com/aboutus/press (accessed 4/4/10).

Case 11: Nike 1

“Sports Industry Overview.” Plunkett Research, Ltd.

plunkettresearch.com (accessed 2/14/12). 2

nikeresponsibility.com/#workers-factories/active_factories 3

“Improving Conditions in Our Contract Factories.” Nikebiz. secure.

nikebiz.com (accessed 2/24/12). 4

“Nike Replaces CEO After 13 Months,” USA Today, January 24,

2006; Olga Kharif and Matt Townsend. “Nike Betting on Venture

Capital in Eff ort to Step Up Innovation.” Bloomberg Businessweek.

Posted 9/28/11. businessweek.com (accessed 2/24/12). 5

Nike 2009 Annual Report. Select Financials. media.corporate-ir.

net (accessed 4/6/10). 6

“2011 Letter to the Shareholder.” Nike. Posted 7/13/11. investors.

nikeinc.com (accessed 2/24/12).

Case 12: Gamifi cation 1

Douglas MacMillan (2011, January 19). “‘Gamifi cation’: A growing

business to invigorate stale websites.” Retrieved from businessweek.

com/magazine/content/11_05/b4213035403146.htm. 2

Schell, J. (2010). DICE 2010. Design Outside the Box Presentation.

Retrieved from g4tv.com/videos/44277/dice-2010-design-outside-the-

box-presentation. 3

academia.edu/570970/Gamifi cation_in_Education_What_How_

Why_Bother. 4

Schell, op cit. 5

forbes.com/sites/gartnergroup/2013/01/21/the-gamifi cation-of-

business. 6

See Debra Weiss, “Management Trend Is Gamifi cation of the

Workplace,” ABA Journal. Posted 11/17/11. abajournal.com (accessed

10/11/12); Rachel Emma Silverman, “Latest Game Th eory: Mixing

Work and Play,” Wall Street Journal (October 10, 2011), professional.wsj.

com (accessed 10/11/12); Rachel King, “Th e Games Companies Play,”

BusinessWeek (April 4, 2011), businessweek.com (accessed 10/12/12). 7

McGonigal, J. (2011). Reality Is Broken: Why Games Make Us Better

and How Th ey Can Change the World. Penguin, New York. 8

forbes.com/sites/gartnergroup/2013/01/21/the-gamifi cation-

of-business; and, Gee, J. P. (2008). Learning and games. In Katie Salen

(Ed.) Th e Ecology of Games: Connecting Youth, Games, and Learning

( John D. and Catherine T. MacArthur Foundation series on digital

media and learning). Cambridge, MA: MIT Press. 9

Silverman, op cit. (2011).

Case 13: Two-Tier Wages 1

James Martin, “Two-Tier Compensation Structures: Th eir Impact

on Union Employers and Employees.” W.E. Upjohn Institute for

Employment Research (1990).

466 Case Endnotes

11 Nick Hardy. “Th e Fastest Woman on Four Wheels?” Gulf News.

Posted 11/18/11. gulfnews.com (accessed 2/14/12). 12

“NASCAR Racing.”

Case 18: Twitter 1 Lauren Duggan, “Twitter to Surpass 500 Million Registered Users.”

Posted 2/21/12. Media Bistro. mediabistro.com (accessed 1/15/13). 2 Pew Research, “Th e Demographics of Twitter Users.”

mindjumpers.com (accessed 1/15/13); and, Shea Bennet, “22% of Black

Internet Users Are Active on Twitter (Compared to 16% of White).”

Posted 1/15/13. mediabistro.com (accessed 3/4/14). 3 Ryan Kelly, “Twitter Study Reveals Interesting Results About

Usage—40% Is Pointless Babble.” Posted 8/12/09. pearanalytics.com

(accessed 2/26/14). 4 Danah Boyd, “Twitter: ‘Pointless Babble’ or Peripheral Awareness 1

Social Grooming?” zephoria.org (accessed 2/26/14). 5 Alex Santoso, “10 Quickie Quotes about Twitter.” netorama.com

(accessed 2/26/14). 6 Jochan Embley, “Twitter Alerts: Service to Help During

Emergencies, Natural Disasters Comes to the UK.” Posted 11/18/13.

independent.co.uk (accessed 3/4/14). 7 Jolie O’Dell, “How Egyptians Used Twitter During the January

Crisis.” Posted 1/31/11. mashable.com (accessed 3/4/14).

Case 17: Auto Racing 1

Robert M. Williamson. “NASCAR Racing: A Model for Equipment

Reliability & Teamwork.” Strategic Work Systems. swspitcrew.com

(accessed 2/13/12). 2

“Modern Era Race Winners.” NASCAR.com. nascar.com (accessed

2/13/12); and, Mike Hembree. “CUP: Gordon’s Ride Has Been One

of Sport’s Grandest.” Speed TV. Posted 11/6/11. nascar.speedtv.com

(accessed 2/13/12). 3 Information and quotes from Allen St. John, “Racing’s Fastest Pit

Crew,” Wall Street Journal (May 9, 2008), p. W4; and, Bonnie Berkowitz,

“Pit Crews Keep NASCAR Racers on Track,” Columbus Dispatch

(May 28, 2008), p. D6. 4

“NASCAR Racing.” 5

Ibid. 6

Dave Rodman. “Teamwork More Important with COT Going Full

Time.” NASCAR.com. Posted 1/14/08. nascar.com (accessed 2/13/12). 7

Adam Cooper. “F1: Lowe Credits McLaren Teamwork for Success.”

Speed TV. Posted 4/27/11. formula-one.speedtv.com (accessed

2/13/12). 8

“Teamwork Is the Key to Success—Th eissen.” F1 Technical.

f1technical.net (accessed 2/13/12). 9

“Rallying.” Bethelame Indy. bethelame-indy.org (accessed 2/13/12). 10

Ibid.

Self-Test Answers

Chapter 1

1. d 2. c 3. a 4. b 5. a 6. a 7. c 8. a 9. b 10. b 11. c

12. a 13. b 14. c 15. c

16. Managers must value people and respect subordinates

as mature, responsible, adult human beings. Th is is part of

their ethical and social responsibility as persons to whom

others report at work. Th e work setting should be organized

and managed to respect the rights of people and their human

dignity. Included among the expectations for ethical behavior

would be actions to protect individual privacy, provide free-

dom from sexual harassment, and off er safe and healthy job

conditions. Failure to do so is socially irresponsible. It may also

cause productivity losses due to dissatisfaction and poor work

commitments.

17. Th e manager is held accountable by her boss for perfor-

mance results of her work unit. Th e manager must answer to

her boss for unit performance. By the same token, the man-

ager’s subordinates must answer to her for their individual

performance. Th ey are accountable to her.

18. If the glass ceiling eff ect were to operate in a given

situation, it would act as a hidden barrier to advancement

beyond a certain level. Managers controlling promotions and

advancement opportunities in the fi rm would not give them

to African American candidates, regardless of their capabili-

ties. Although the newly hired graduates might advance for a

time, sooner or later their upward progress in the fi rm would

be halted by this invisible barrier. Although unstated and

perhaps even unrecognized as such by top management, this

would be outright discrimination against the African Ameri-

cans in this fi rm.

19. Globalization means that the countries and peoples of the

world are increasingly interconnected and that business fi rms

increasingly cross national boundaries in acquiring resources,

getting work accomplished, and selling their products. Th is

internationalization of work will aff ect most everyone in the

new economy. People will be working with others from diff er-

ent countries, working in other countries, and certainly buying

and using products and services produced in whole or in part

in other countries. As countries become more interdependent

economically, products are sold and resources purchased

around the world, and business strategies increasingly target

markets in more than one country.

20. One approach to this question is through the framework

of essential management skills off ered by Katz. At the fi rst level

of management, technical skills are important, and I would feel

capable in this respect. However, I would expect to learn and

refi ne these skills through my work experiences.

Human skills, the ability to work well with other people,

will also be very important. Given the diversity anticipated for

this team, I will need good human skills. Included here would

be my emotional intelligence, or the ability to understand my

emotions and those of others when I am interacting with them.

I will also have a leadership responsibility to help others on the

team develop and utilize these skills so that the team itself can

function eff ectively.

Finally, I would expect opportunities to develop my concep-

tual or analytical skills in anticipation of higher-level appoint-

ments. In terms of personal development, I should recognize

that the conceptual skills will increase in importance relative to

the technical skills as I move upward in management respon-

sibility. Th e fact that the members of the team will be diverse,

with some of diff erent demographic and cultural backgrounds

from my own, will only increase the importance of my abilities

in the human skills area.

It will be a challenge to embrace and value diff erences to

create the best work experience for everyone and to fully value

everyone’s potential contributions to the audits we will be

doing. Conceptually I will need to understand the diff erences

and try to utilize them to solve problems faced by the team, but

in human relationships I will need to excel at keeping the team

spirit alive and keeping everyone committed to working well

together over the life of our projects.

Chapter 2

1. c 2. b 3. d 4. a 5. a 6. b 7. a 8. c 9. a 10. a 11. c

12. a 13. d 14. c 15. b

16. Th eory Y assumes that people are capable of taking

responsibility and exercising self-direction and control in their

work. Th e notion of self-fulfi lling prophecies is that managers

who hold these assumptions will act in ways that encourage

workers to display these characteristics, thus confi rming and

reinforcing the original assumptions. Th e emphasis on greater

participation and involvement in the modern workplace is an

example of Th eory Y assumptions in practice. Presumably, by

valuing participation and involvement, managers will create

self-fulfi lling prophecies in which workers behave this way in

response to being treated with respect. Th e result is a positive

setting where everyone gains.

17. According to the defi cit principle, a satisfi ed need is not

a motivator of behavior. Th e social need will only motivate

if it is not present, or in defi cit. According to the progression

principle, people move step-by-step up Maslow’s hierarchy as

they strive to satisfy needs. For example, once the social need is

satisfi ed, the esteem need will be activated.

467

468 Self-Test Answers

18. Contingency thinking takes an “if–then” approach to

situations. It seeks to modify or adapt management approaches

to fi t the needs of each situation. An example would be to give

more customer contact responsibility to workers who want

to satisfy social needs at work, while giving more supervisory

responsibilities to those who want to satisfy their esteem or ego

needs.

19. Th e external environment is the source of the resources an

organization needs to operate. In order to continue to obtain

these resources, the organization must be successful in selling

its goods and services to customers. If customer feedback is

negative, the organization must make adjustments or risk

losing the support needed to obtain important resources.

20. A bureaucracy operates with a strict hierarchy of authority,

promotion based on competency and performance, formal

rules and procedures, and written documentation. Enrique can

do all of these things in his store, since the situation is proba-

bly quite stable and most work requirements are routine and

predictable. However, bureaucracies are quite rigid and may

deny employees the opportunity to make decisions on their

own. Enrique must be careful to meet the needs of the workers

and not to make the mistake—identifi ed by Argyris—of failing

to treat them as mature adults. While remaining well orga-

nized, the store manager should still be able to help workers

meet higher-order esteem and self-fulfi llment needs, as well

as assume responsibility consistent with McGregor’s Th eory Y

assumptions.

Chapter 3

1. b 2. a 3. d 4. c 5. c 6. d 7. b 8. a 9. b 10. d 11. c

12. d 13. b 14. d 15. c

16. Th e individualism view is that ethical behavior is that

which best serves long-term interests. Th e justice view is that

ethical behavior is fair and equitable in its treatment of people.

17. Th e rationalizations are believing that: (1) Th e behavior

is not really illegal, (2) the behavior is really in everyone’s best

interests, (3) no one will fi nd out, and (4) the organization will

protect you.

18. Th e socioeconomic view of corporate social responsibil-

ity argues that investing in socially responsible behavior is in

a fi rm’s long-run best interest. It should be good for profi ts,

it creates a positive public image, it helps avoid government

regulation, it meets public expectations, and it is an ethical

obligation. In contrast, the classical view of social responsibil-

ity is that the only obligation of the fi rm is to produce profi ts.

Th is is what should drive executive decision making, and

direct expenditures to pursue socially responsible activities

are wasteful. Th e argument is that by pursuing profi ts the fi rm

will do what society wants most in the long run because, if it

doesn’t, profi ts will suff er as customers abandon the fi rm and

its products. Th e market, in other words, is the arbiter of what

society wants.

19. Management scholar Archie Carroll describes the

immoral, amoral, and moral manager this way: An immoral

manager does bad things on purpose, choosing to behave

unethically. Th e amoral manager does bad things sometimes,

but this is not intentional or calculated; it happens because

the amoral manager just doesn’t incorporate ethics into his or

her analysis of the situation. Th e moral manager, by contrast,

always includes ethics as a criterion for evaluating his or her

approach to decisions and situations. Th is manager strives to

act ethically and considers ethical behavior a personal goal.

20. Th e manager could make a decision based on any one

of the strategies. As an obstructionist, the manager may

assume that Bangladesh needs the business and that it is a

local matter as to who will be employed to make the gloves.

As a defensive strategy, the manager may decide to require

the supplier to meet the minimum employment requirements

under Bangladeshi law. Both of these approaches represent

cultural relativism. As an accommodation strategy, the man-

ager may require that the supplier go beyond local laws and

meet standards set by equivalent laws in the United States. A

proactive strategy would involve the manager in trying to set

an example by operating in Bangladesh only with suppliers

who not only meet local standards, but also actively support

the education of children in the communities in which they

operate. Th ese latter two approaches would be examples of

universalism.

Chapter 4

1. a 2. b 3. b 4. c 5. b 6. d 7. a 8. b 9. c 10. d 11. d

12. a 13. c 14. d 15. b

16. When it comes to organizational stakeholders, the list

should always begin with customers and suppliers to estab-

lish the output/input players in the value chain. Employees

should be included as well as shareholders/investors to identify

the interests of the “producers” and the “owners.” Given the

signifi cance of sustainability, it is important to include society

at large and future generations in the stakeholder map; it is

also important to include the local communities in which the

organization operates. Beyond these basic map components,

the stakeholders for any given organization will include a broad

mix of people, groups, and organizations from regulators to

activist organizations to government agencies, and more.

17. To make “sustainability” part of any goal statement or

objective for an organization, the basic defi nition should refl ect

the concept of sustainable development. Th at is, the organiza-

tion should act in ways that while making use of the environ-

ment to produce things of value today the potential for that

environment to meet the needs of future generations is also

being protected and ideally being enhanced.

18. Product innovations aff ect what goods and services an

organization off ers to its customers. Process innovations aff ect

how the organization goes about its daily work in producing

goods and services. Business model innovations aff ect the way

the organization makes money and adds value to society.

469Self-Test Answers

will not be tolerated. Th ere are both norms and a high degree

of conformity to those norms. In a loose culture the norms and

social expectations are often general and ambiguous. Individu-

als tend to behave with independence and in recognition that

deviation is generally tolerated.

19. For each region of the world you should identify a major

economic theme, issue, or element. For example: Europe—the

European Union should be discussed for its economic signifi -

cance to member countries and to outsiders; the Americas—

NAFTA should be discussed for its importance to Mexico,

the United States, and Canada, and also for implications in

political debates within these countries; Asia—the Asia-Pacifi c

Economic Forum should be identifi ed as a platform for growing

regional economic cooperation among a very economically

powerful group of countries, including China; Africa—the non-

racial democracy in South Africa should be cited as an example

of growing foreign investor interest in the countries of Africa.

20. Kim must recognize that the cultural diff erences between

the United States and Japan may aff ect the success of group-ori-

ented work practices such as quality circles and work teams.

Th e United States was the most individualistic culture in Hofst-

ede’s study of national cultures; Japan is much more collectivist.

Group practices such as the quality circle and teams are natural

and consistent with the Japanese culture. When introduced into

a more individualistic culture, these same practices might cause

diffi culties or require some time for workers to get used to them.

At the very least, Kim should proceed with caution; discuss

ideas for the new practices with the workers before making

any changes; and then monitor the changes closely so that

adjustments can be made to improve them as the workers gain

familiarity with them and have suggestions of their own.

Chapter 6

1. c 2. a 3. b 4. b 5. b 6. a 7. d 8. a 9. d 10. b 11. a

12. b 13. c 14. c 15. d

16. Entrepreneurship is rich with diversity. It is an avenue for

business entry and career success that is pursued by many

women and members of minority groups. Data show that al-

most 40% of U.S. businesses are owned by women. Many report

leaving other employment because they had limited opportu-

nities. For them, entrepreneurship made available the opportu-

nities for career success that they had lacked. Minority-owned

businesses are one of the fastest-growing sectors, with the

growth rates highest for Hispanic-owned, Asian-owned, and

African American–owned businesses, in that order.

17. Th e three stages in the life cycle of an entrepreneurial

fi rm are birth, breakthrough, and maturity. In the birth stage,

the leader is challenged to get customers, establish a market,

and fi nd the money needed to keep the business going. In the

breakthrough stage, the challenges shift to becoming and stay-

ing profi table, and managing growth. In the maturity stage, a

leader is more focused on revising/maintaining a good business

strategy and more generally managing the fi rm for continued

success, and possibly for more future growth.

19. Reverse innovation means fi nding innovations in alterna-

tive settings such as emerging markets and moving them into

uses in established markets. An example would be portable and

low-cost medical diagnostic equipment developed in markets

like India and China and then brought to the United States and

sold there.

20. First of all it sounds like a good idea to have a Chief

Sustainability Offi cer, or CSO, in order to focus attention on

sustainability goals and also bring some point of accountabil-

ity at the senior executive level for their accomplishment. In

terms of the job description, I would argue that things like

this would need to be refl ected. First, there should be some

acknowledgment of the “triple bottom line” of economic, social,

and environmental performance. Second, there should be a

clear focus on sustainable development in respect to moving

the organization forward in ways that while making use of the

environment and its resources, the capacity of the environment

to nurture and serve future generations is also being protected.

Th is sets the foundation for further priorities or objectives to

be set in the areas of pushing for green management practices

that support sustainability in all aspects of an organization’s

operations. And fi nally, there should be a responsibility to serve

as the “champion” for sustainable innovations that advance the

capability of the organization to be sustainable by green prod-

ucts, green processes, and even green business models.

Chapter 5

1. c 2. c 3. b 4. d 5. a 6. a 7. d 8. c 9. a 10. d 11. d

12. a 13. c 14. c 15. c

16. Th e relationship between a global corporation and a host

country should be mutually benefi cial. Sometimes, however,

host countries complain that MNCs take unfair advantage of

them and do not include them in the benefi ts of their interna-

tional operations. Th e complaints against MNCs include taking

excessive profi ts out of the host country, hiring the best local

labor, not respecting local laws and customs, and dominating

the local economy. Engaging in corrupt practices is another

important concern.

17. Th e power-distance dimension of national culture refl ects

the degree to which members of a society accept status and

authority inequalities. Since organizations are hierarchies with

power varying from top to bottom, the way power diff erences

are viewed from one setting to the next is an important man-

agement issue. Relations between managers and subordinates,

or team leaders and team members, will be very diff erent in

high-power-distance cultures than in low-power-distance

ones. Th e signifi cance of these diff erences is most evident in

international operations, when a manager from a high-power-

distance culture has to perform in a low-power-distance one,

or vice versa. In both cases, the cultural diff erences can cause

problems as the manager deals with local workers.

18. A tight culture is one in which clear norms exist for social

behavior and members know that deviance from these norms

470 Self-Test Answers

issue at a time. A manager using intuitive thinking will be more

spontaneous and open in problem solving. He or she may jump

from one stage in the process to another and deal with many

diff erent issues simultaneously.

19. It almost seems contradictory to say that one can prepare

for a crisis, but it is possible. Th e concept of crisis management

is used to describe how managers and others prepare for

unexpected high-impact events that threaten an organization’s

health and future. Crisis management involves both antici-

pating possible crises and preparing teams and plans ahead

of time for how to handle them if they do occur. Many organi-

zations today, for example, are developing crisis management

plans to deal with terrorism and cyber attacks.

20. Th is is what I would say in the mentoring situation:

continuing developments in information technology are

changing the work setting for most employees. An important

development for the traditional white-collar worker falls in the

area of offi ce automation—the use of computers and related

technologies to facilitate everyday offi ce work. In the “electronic

offi ce” of today and tomorrow, you should be prepared to work

with and take full advantage of the following: smart worksta-

tions supported by desktop computers; voice messaging sys-

tems, whereby computers take dictation, answer the telephone,

and relay messages; database and word processing systems

that allow storage, access, and manipulation of data, as well as

the preparation of reports; electronic mail systems that send

mail and data from computer to computer; electronic bulletin

boards for posting messages; and computer conferencing and

videoconferencing that allow people to work with one another

every day over distance. Th ese are among the capabilities of the

new workplace. To function eff ectively, you must be prepared

not only to use these systems to full advantage, but also to stay

abreast of new developments as they emerge in the market.

Chapter 8

1. d 2. a 3. a 4. d 5. b 6. c 7. a 8. d 9. a 10. b 11. a

12. c 13. c 14. d 15. c

16. Th e fi ve steps in the formal planning process are:

(1) Defi ne your objectives, (2) determine where you stand

relative to objectives, (3) develop premises about future

conditions, (4) identify and choose among action alternatives

to accomplish objectives, and (5) implement action plans and

evaluate results.

17. Benchmarking is the use of external standards to help

evaluate one’s own situation and develop ideas and directions

for improvement. Th e bookstore owner/manager might visit

other bookstores in other towns that are known for their success.

By observing and studying the operations of those stores and

then comparing her store to them, the owner/manager can

develop plans for future action.

18. Planning helps improve focus for organizations and for

individuals. Essential to the planning process is identifying

your objectives and specifying exactly where it is you hope to

get in the future. Having a clear sense of direction helps keep

18. Th e limited partnership form of small business ownership

consists of a general partner and one or more “limited partners.”

Th e general partner(s) play an active role in managing and

operating the business; the limited partners do not. All contrib-

ute resources of some value to the partnership for the conduct

of the business. Th e advantage of any partnership form is that

the partners may share in profi ts, but their potential for losses

is limited by the size of their original investments.

19. A venture capitalist, often a business, makes a living by

investing in and taking large ownership interests in fl edgling

companies, with the goal of large fi nancial gains eventually,

when the company is sold. An angel investor is an individual

who is willing to make a fi nancial investment in return for

some ownership in the new fi rm.

20. My friend is right—it takes a lot of forethought and

planning to prepare the launch of a new business venture. In

response to the question of how to ensure that I am really being

customer-focused, I would ask and answer for myself the follow-

ing questions. In all cases I would try to frame my business mod-

el so that the answers are realistic, but still push my business

toward a strong customer orientation. Th e “customer” questions

might include: “Who are my potential customers? What market

niche am I shooting for? What do the customers in this market

really want? How do these customers make purchase decisions?

How much will it cost to produce and distribute my product/

service to these customers? How much will it cost to attract and

retain customers?” After preparing an overall executive summa-

ry, which includes a commitment to this customer orientation,

I would address the following areas in writing up my initial

business plan: a company description—mission, owners, and

legal form—as well as an industry analysis, product and services

description, marketing description and strategy, staffi ng model,

fi nancial projections with cash fl ows, and capital needs.

Chapter 7

1. c 2. b 3. c 4. a 5. a 6. c 7. c 8. b 9. a 10. c 11. b

12. c 13. a 14. b 15. d

16. An optimizing decision is one that represents the absolute

“best” choice of alternatives. It is selected from a set of all

known alternatives. A satisfi cing decision selects the fi rst al-

ternative that off ers a “satisfactory” choice, not necessarily the

absolute best choice. It is selected from a limited or incomplete

set of alternatives.

17. Th e ethics of a decision can be checked with the “spotlight”

question: “How would you feel if your family found out?” “How

would you feel if this were published in the local newspaper?”

Also, one can test the decision by evaluating it on four criteria:

(1) Utility—does it satisfy all stakeholders? (2) Rights—does

it respect everyone’s rights? (3) Justice—is it consistent with

fairness and justice? (4) Caring—does it meet responsibilities

for caring?

18. A manager using systematic thinking is going to approach

problem solving in a logical and rational way. Th e tendency will

be to proceed in a linear, step-by-step fashion, handling one

471Self-Test Answers

19. Th e four questions to ask when developing a balanced

scorecard for inclusion on an executive dashboard are:

(1) Financial Performance—To improve fi nancially, how should

we appear to our shareholders? (2) Customer Satisfaction—

To achieve our vision, how should we appear to our customers?

(3) Internal Process Improvement—To satisfy our customers and

shareholders, at what internal business processes should we

excel? (4) Innovation and Learning—To achieve our vision, how

will we sustain our ability to change and improve?

20. A very large number of activities are required to complete

a new student center building on a college campus. Among

them, one might expect the following to be core requirements:

(1) land surveys and planning permissions from local govern-

ment, (2) architect plans developed and approved, (3) major

subcontractors hired, (4) site excavation completed, (5) build-

ing exterior completed, (6) building interior completed and

furnishings installed. Use the fi gure from the chapter as a guide

for developing your CPM/PERT diagram.

Chapter 10

1. a 2. b 3. c 4. d 5. b 6. c 7. a 8. c 9. b 10. c 11. a

12. c 13. d 14. b 15. a

16. A corporate strategy sets long-term direction for an

enterprise as a whole. Functional strategies set directions so

that business functions such as marketing and manufacturing

support the overall corporate strategy.

17. A SWOT analysis is useful during strategic planning. It

involves the analysis of organizational strengths and

weaknesses, and of environmental opportunities and threats.

18. Th e focus strategy concentrates attention on a special

market segment or niche. Th e diff erentiation strategy

concentrates on building loyalty to a unique product or service.

19. Strategic leadership is the ability to create enthusiasm in

people to participate in continuous change, performance

enhancement, and the implementation of organizational

strategies. Th e special qualities of the successful strategic leader

include the ability to make trade-off s, create a sense of urgency,

communicate the strategy, and engage others in continuous

learning about the strategy and its performance responsibilities.

20. Porter’s competitive strategy model involves the possible

use of three alternative strategies: diff erentiation, cost leader-

ship, and focus. In this situation, the larger department store

seems better positioned to follow the cost leadership strategy.

Th is means that Kim may want to consider the other two

alternatives.

A diff erentiation strategy would involve trying to distinguish

Kim’s products from those of the larger store. Th is might involve

a “Made in America” theme, or an emphasis on leather, canvas,

or some other type of clothing material. A focus strategy might

specifi cally target college students and try to respond to their

tastes and needs, rather than those of the larger community

population. Th is might involve special orders and other types of

individualized services for the college student market.

us on track by avoiding getting sidetracked on things that

might not contribute to accomplishing our objectives. It also

helps us to fi nd discipline in stopping periodically to assess

how well we are doing. With a clear objective, present progress

can be realistically evaluated and eff orts refocused on

accomplishing the objective.

19. Very often plans fail because the people who make the

plans aren’t the same ones who must implement them. When

people who will be implementing are allowed to participate in

the planning process, at least two positive results may happen

that help improve implementation: (1) Th rough involvement

they better understand the fi nal plans, and (2) through

involvement they become more committed to making those

plans work.

20. I would begin the speech by describing the importance of

goal alignment as an integrated planning and control approach.

I would also clarify that the key elements are objectives and

participation. Any objectives should be clear, measurable, and

time defi ned. In addition, these objectives should be set with

the full involvement and participation of the employees; they

should not be set by the manager and then told to the

employees. Th at understood, I would describe how each

business manager should jointly set objectives with each of

his or her employees and jointly review progress toward their

accomplishment. I would suggest that the employees should

work on the required activities while staying in communication

with their managers. Th e managers in turn should provide any

needed support or assistance to their employees. Th is whole

process could be formally recycled at least twice per year.

Chapter 9

1. a 2. b 3. d 4. b 5. b 6. b 7. d 8. b 9. b 10. c 11. a

12. b 13. c 14. c 15. c

16. Th e four steps in the control process are: (1) Establish

objectives and standards, (2) measure actual performance,

(3) compare actual performance with objectives and standards,

and (4) take necessary action.

17. Feedforward control involves the careful selection of

system inputs to ensure that outcomes are of the desired

quality and up to all performance standards. In the case of

a local bookstore, one of the major points of influence over

performance and customer satisfaction is the relationship

between the customers and the store’s employees who

serve them. Thus, a good example of feedforward control is

exercising great care when the manager hires new employ-

ees and then trains them to work according to the store’s

expectations.

18. Douglas McGregor’s concept of Th eory Y involves the

assumption that people can be trusted to exercise self-control

in their work. Th is is the essence of internal control—people

controlling their own work by taking personal responsibility

for results. If managers approach work with McGregor’s Th eory

Y assumptions, they will, according to him, promote more

self-control—or internal control—by people at work.

472 Self-Test Answers

16. Core values indicate important beliefs that underlie

organizational expectations about the behavior and

contributions of members. Sample values for high-performance

organizations might include expressed commitments to

honesty and integrity, innovation, customer service, quality,

and respect for people.

17. Subcultures are important in organizations because of

the many aspects of diversity found in the workforce today.

Although working in the same organization and sharing the

same organizational culture, members diff er in subculture

affi liations based on such aspects as gender, age, sexual

orientation, religious and ethnic diff erences, as well as with

respect to occupational and functional affi liations. It is

important to understand how subculture diff erences may

infl uence working relationships. For example, a 40-year-old

manager of 20-year-old workers must understand that the

values and behaviors of the younger workforce may not be

totally consistent with what she believes in, and vice versa.

18. Lewin’s three phases of planned change and the relevant

change leadership responsibilities are unfreezing—preparing

a system for change; changing—moving or creating change in

a system; and refreezing—stabilizing and reinforcing change

once it has occurred. In addition, we might also talk about

an additional or parallel phase of “improvising.” Th is calls for

change leadership that is good at gathering feedback, listening

to resistance, and making constructive modifi cations as the

change is in progress to smooth its implementation and ensure

that what is implemented is a best fi t for the circumstances

and people involved.

19. Use of force-coercion as a strategy of planned change is

limited by the likelihood of compliance being the major

outcome. People comply with force only so long as it remains

real, visible, and likely, but they have no personal commitment

to the behavior. So, when the force goes away, so does the

behavior. Also, a manager who relies on forcing people to

get changes made is likely to be viewed negatively and suff er

from additional negative halo eff ects in other work with them.

Rational persuasion and shared power are likely to have a more

long-lasting impact on behavior because employees respond

to the change strategy by internalization of the value of the

behavior being encouraged. Because of this commitment, the

infl uence on their actions is more likely to be long-lasting

rather than temporary as in the case of force-coercion.

20. I disagree with this statement, because a strong organiza-

tional or corporate culture can be a positive infl uence on any

organization, large or small. Also, issues of diversity, inclusive-

ness, and multiculturalism apply as well. In fact, such things as

a commitment to pluralism and respect for diversity should be

part of the core values and distinguishing features of the culture

of every organization. Th e woman working for the large

company is mistaken in thinking that the concepts do not

apply to her friend’s small business. In fact, the friend—as

owner and perhaps founder of the business—should be working

hard to establish the values and other elements that will

create a strong and continuing culture and respect for diversity.

Employees of any organization should have core organizational

Chapter 11

1. b 2. a 3. b 4. a 5. a 6. c 7. d 8. b 9. b 10. b 11. c

12. b 13. b 14. c 15. b

16. Th e functional structure is prone to problems of internal

coordination. One symptom may be that the diff erent func-

tional areas, such as marketing and manufacturing, are not

working well together. Th is structure also is slow to respond

to changing environmental trends and challenges. If the fi rm

fi nds that its competitors are getting to market faster with new

and better products, this is another potential indicator that

the functional structure is not supporting operations properly.

17. A network structure often involves one organization

“contracting out” aspects of its operations to other organiza-

tions that specialize in them. Th e example used in the text

was of a company that contracted out its mailroom services.

Th rough the formation of networks of contracts, the organiza-

tion is reduced to a core of essential employees whose expertise

is concentrated in the primary business areas. Th e contracts

are monitored and maintained in the network to allow the

overall operations of the organization to continue, even though

they are not directly accomplished by full-time employees.

18. Th e term “contingency” is used in management to indicate

that management strategies and practices should be tailored to

fi t the unique needs of specifi c situations. Th ere is no universal

solution that fi ts all problems and circumstances. Th us, in orga-

nizational design, contingency thinking must be used to iden-

tify and implement particular organizational points in time.

What works well at one point in time may not work well at

another, as the environment and other conditions change.

For example, the more complex, variable, and uncertain the

elements in the environment, the more diffi cult it is for the

organization to operate. Th is situation calls for a more organic

design. In a stable and more certain environment, the mech-

anistic design is appropriate, because operations are more

routine and predictable.

19. Several options for answering this question are described

in the chapter.

20. Faisal must fi rst have confi dence in the two engineers—he

must trust them and respect their capabilities. Second, he must

have confi dence in himself, trusting his own judgment to give

up some work and allow the others to do it. Th ird, he should

follow the rules of eff ective delegation. Th ese include being very

clear on what must be accomplished by each engineer. Th eir

responsibilities should be clearly understood. He must also give

them the authority and resources to act in order to fulfi ll their

responsibility, especially in relationship to the other engineers.

He must also not forget his own fi nal accountability for the

results. He should remain in control and, through communica-

tion, make sure that work proceeds as planned.

Chapter 12

1. b 2. a 3. d 4. a 5. b 6. a 7. b 8. b 9. d 10. c 11. b

12. c 13. c 14. d 15. b

473

legal problems. Transferring Sy, with his agreement, to another

position could be a positive move; promoting Sy to a supervi-

sory position in which his experience and networks would be

useful is another possibility. Th e key in this situation seems to

be moving Sy out so that a computer-literate person can take

over the job, while continuing to utilize Sy in a job that better

fi ts his talents. Transfer and/or promotion should be actively

considered, both in his and in the company’s interest.

Chapter 14

1. d 2. d 3. b 4. b 5. a 6. a 7. b 8. d 9. a 10. b 11. b

12. a 13. a 14. c 15. a

16. Position power is based on reward; coercion, or punishment;

and legitimacy, or formal authority. Managers, however, need to

have more power than that made available to them by the posi-

tion alone. Th us, they have to develop personal power through

expertise, reference, and information and networking. Th is per-

sonal power is essential in helping managers to get things done

beyond the scope of their position power alone.

17. Th e leader-participation model suggests that leadership

eff ectiveness is determined in part by how well managers or

leaders handle the many diff erent problem or decision situa-

tions that they face every day. Decisions can be made through

individual or authority, consultative, or group-consensus

approaches. No one of these decision methods is always the best;

each is a good fi t for certain types of situations. A good man ager

or leader is able to use each of these approaches and knows when

each is the best approach to use in particular situations.

18. Th e three variables used in Fiedler’s model to diagnose

situational favorableness are: (1) position power—how much

power the leader has in terms of rewards, punishments, and

legitimacy; (2) leader–member relations—the quality of

relationships between the leader and followers; and (3) task

structure—the degree to which the task is either clear and well

defi ned, or open-ended and more ambiguous.

19. Drucker says that good leaders have more than the “cha-

risma” or “personality” being popularized in the concept of

transformational leadership. He reminds us that good leaders

work hard to accomplish some basic things in their everyday ac-

tivities. Th ese include: (1) establishing a clear sense of mission;

(2) accepting leadership as a responsibility, not a rank; and

(3) earning and keeping the respect of others.

20. In his new position, Marcel must understand that the

transactional aspects of leadership are not suffi cient to

guarantee him long-term leadership eff ectiveness. He must

move beyond the eff ective use of task-oriented and people-

oriented behaviors and demonstrate through his personal

qualities the capacity to inspire others. A charismatic leader

develops a unique relationship with followers, in which they

become enthusiastic, highly loyal, and high achievers. Marcel

needs to work very hard to develop positive relationships

with the team members. In those relationships he must

emphasize high aspirations for performance accomplishments,

enthusiasm, ethical behavior, integrity and honesty in all

Self-Test Answers

values to serve as reference points for their attitudes and be-

havior. Th e rites and rituals of everyday organizational life also

are important ways to recognize positive accomplishments

and add meaning to the employment relationship. It may even

be that the friend’s roles as diversity leader and creator and

sponsor of the corporate culture are magnifi ed in the small

business setting. As the owner and manager, she is visible every

day to all employees. How she acts will have a great impact on

any “culture.”

Chapter 13

1. a 2. c 3. a 4. d 5. b 6. d 7. c 8. d 9. d 10. b 11. a

12. b 13. a 14. d 15. d

16. Internal recruitment deals with job candidates who

already know the organization well. It also is a strong moti-

vator because it communicates to everyone the opportunity

to advance in the organization through hard work. External

recruitment may allow the organization to obtain expertise not

available internally. It also brings in employees with new and

fresh viewpoints who are not biased by previous experience in

the organization.

17. Orientation activities introduce a new employee to the

organization and the work environment. Th is is a time when

individuals may develop key attitudes and when performance

expectations also will be established. Good orientation com-

municates positive attitudes and expectations and reinforces

the desired organizational culture. It formally introduces the

individual to important policies and procedures that everyone

is expected to follow.

18. Th e graphic rating scale simply asks a supervisor to rate

an employee on an established set of criteria, such as quantity

of work or attitude toward work. Th is leaves a lot of room for

subjectivity and debate. Th e behaviorally anchored rating scale

asks the supervisor to rate the employee on specifi c behaviors

that have been identifi ed as positively or negatively aff ecting

performance in a given job. Th is is a more specifi c appraisal

approach and leaves less room for debate and disagreement.

19. Mentoring is when a senior and experienced individual

adopts a newcomer or more junior person with the goal of

helping him or her develop into a successful worker. Th e men-

tor may or may not be the individual’s immediate supervisor.

Th e mentor meets with the individual and discusses problems,

shares advice, and generally supports the individual’s attempts

to grow and perform. Mentors also are considered to be very

useful for persons newly appointed to management positions.

20. As Sy’s supervisor, you face a diffi cult but perhaps

expected human resource management problem. Not only is

Sy infl uential as an informal leader, he also has considerable

experience on the job and with the company. Even though he is

experiencing performance problems using the new computer

system, there is no indication that he doesn’t want to work hard

and continue to perform for the company. Although retirement

is an option, Sy also may be transferred, promoted, or simply

terminated. Th e last response seems unjustifi ed and may cause

474 Self-Test Answers

their behalf. All of this relates as well to research that perfor-

mance can be a source of job satisfaction. Finally, Scott should

make sure that the therapists believe they are being properly

rewarded for their work, because research shows that rewards

have an infl uence on both job satisfaction and job performance.

Chapter 16

1. c 2. b 3. d 4. d 5. b 6. b 7. a 8. d 9. b 10. d 11. c

12. c 13. a 14. b 15. d

16. People high in need for achievement will prefer work settings

and jobs in which they have (1) challenging but achievable

goals, (2) individual responsibility, and (3) performance feedback.

17. Participation is important to goal-setting theory

because, in general, people tend to be more committed to the

accomplishment of goals they have helped set. When people

participate in the setting of goals, they also understand them

better. Participation in goal setting improves goal acceptance

and understanding.

18. Maslow, McClelland, and Herzberg would likely fi nd

common agreement regarding a set of “higher order” needs. For

Maslow these are self-actualization and ego; they correspond

with Alderfer’s growth needs, and with McClelland’s needs for

achievement and power. Maslow’s social needs link up with

relatedness needs in Alderfer’s theory and the need for affi liation

in McClelland’s theory. Maslow’s safety needs correspond to

Alderfer’s existence needs. Herzberg’s “satisfi er-factors”

correspond to satisfactions of Maslow’s higher needs, Alderfer’s

growth needs, and McClelland’s need for achievement.

19. Th e compressed workweek or 4–40 schedule off ers

employees the advantage of a three-day weekend. However, it

can cause problems for employers in terms of ensuring that

operations are covered adequately during the normal fi ve

workdays of the week. Labor unions may resist, and the

compressed workweek will entail more complicated work

scheduling. In addition, some employees fi nd that the schedule

is tiring and can cause family adjustment problems.

20. It has already been pointed out in the answer to question

16 that a person with a high need for achievement likes

moderately challenging goals and performance feedback.

Participation of both managers and subordinates in goal

setting off ers an opportunity to choose goals to which the

subordinate will respond, and which also will serve the

organization. Further, through goal setting managers and

individual subordinates can identify performance standards or

targets. Th e manager can positively reinforce progress toward

these targets. Such reinforcement can serve as an indicator

of progress to someone with a high need for achievement,

satisfying their desire for performance feedback.

Chapter 17

1. d 2. a 3. b 4. b 5. c 6. a 7. b 8. b 9. a 10. a 11. d

12. b 13. b 14. a 15. a

dealings, and a clear vision of the future. By working hard with

this agenda and by allowing his personality to positively express

itself in the team setting, Marcel should make continuous prog-

ress as an eff ective and a moral leader.

Chapter 15

1. c 2. b 3. d 4. a 5. c 6. d 7. b 8. c 9. a 10. b 11. d

12. d 13. c 14. d 15. c

16. A psychological contract is the individual’s view of the

inducements he or she expects to receive from the organiza-

tion in return for his or her work contributions. Th e contract

is healthy when the individual perceives that the inducements

and contributions are fair and balanced.

17. Self-serving bias is the attribution tendency to blame the

environment when things go wrong—“It’s not my fault; ‘they’

caused all this mess.” Fundamental attribution error is the

tendency to blame others for problems that they have—“It’s

something wrong with ‘you’ that’s causing the problem.”

18. All the Big Five personality traits are relevant to the

workplace. Consider the following basic examples. Extraver-

sion suggests whether or not a person will reach out to relate

and work well with others. Agreeableness suggests whether a

person is open to the ideas of others and willing to go along

with group decisions. Conscientiousness suggests whether or

not someone can be depended on to meet commitments and

perform agreed-on tasks. Emotional stability suggests whether

someone will be relaxed and secure, or uptight and tense, in

work situations. Openness to experience suggests whether or

not someone will be open to new ideas or resistant to change.

19. Th e Type A personality is typical of people who bring stress

on themselves by virtue of personal characteristics. Th ese tend

to be compulsive individuals who are uncomfortable waiting

for things to happen, who try to do many things at once, and

who generally move fast and have diffi culty slowing down.

Type A personalities can be stressful for both themselves and

the people around them. Managers must be aware of Type A

personality tendencies in their own behavior and among others

with whom they work. Ideally, this awareness will help the

manager take precautionary steps to best manage the stress

caused by this personality type.

20. Scott needs to be careful. Although there is modest re-

search support for the relationship between job satisfaction and

performance, there is no guarantee that simply doing things

to make his employees happier at work will cause them to be

higher performers. Scott needs to take a broader perspective on

this issue and his responsibilities as a manager. He should be

interested in job satisfaction for his therapists and do every-

thing he can to help them to experience it. But he should also

be performance-oriented and should understand that perfor-

mance is achieved through a combination of skills, support, and

motivation. He should be helping the therapists to achieve and

maintain high levels of job competency. He should also work

with them to fi nd out what obstacles they are facing and what

support they need—things that perhaps he can deal with on

475Self-Test Answers

Chapter 18

1. a 2. b 3. d 4. d 5. b 6. b 7. d 8. b 9. d 10. b 11. d

12. c 13. a 14. d 15. a

16. Th e manager’s goal in active listening is to help the

subordinate say what he or she really means. To do this, the

manager should carefully listen for the content of what is being

said, paraphrase or refl ect back what the person appears to be

saying, remain sensitive to nonverbal cues and feelings, and not

be evaluative.

17. Th e relationship between confl ict intensity and performance

can be pictured as an inverted “U” curve. It shows that perfor-

mance increases as confl ict intensity increases from low to

moderate levels. Confl ict of moderate intensity creates the zone

of constructive confl ict, where its impact on performance is most

positive. As confl ict intensity moves into extreme levels, perfor-

mance tends to decrease. Th is is the zone of destructive confl ict.

When confl ict is too low, performance also may suff er.

18. Win–lose outcomes are likely when confl ict is managed

through high-assertiveness and low-cooperativeness styles. In

this situation of competition, confl ict is resolved by one person

or group dominating another. Lose–lose outcomes occur when

confl ict is managed through avoidance (where nothing is re-

solved), and possibly when it is managed through compromise

(where each party gives up something to the other). Win–win

outcomes are associated mainly with problem solving and

collaboration in confl ict management, which result from high

assertiveness and high cooperativeness.

19. In a negotiation, both substance and relationship goals are

important. Substance goals relate to the content of the nego-

tiation. A substance goal, for example, may relate to the fi nal

salary agreement between a job candidate and a prospective

employer. Relationship goals relate to the quality of the inter-

personal relationships among the negotiating parties.

Relationship goals are important, because the negotiating

parties most likely have to work together in the future. For

example, if relationships are poor after a labor–management

negotiation, the likelihood is that future problems will occur.

20. Kathryn can do a number of things to establish and main-

tain a system of upward communication for her department

store branch. To begin, she should, as much as possible, try to

establish a highly interactive style of management based on

credibility and trust. Credibility is earned by building personal

power through expertise and reference. In regard to credibility,

she might set the tone for the department managers by prac-

ticing transparency and sharing information through open-

book management. Once this pattern is established, trust will

build between her and other store employees, and she should

fi nd that she learns a lot from interacting directly with them.

Kathryn also should set up a formal communication structure,

such as bimonthly store meetings, where she communicates

store goals, results, and other issues to the staff and listens to

them in return. An e-mail system where Kathryn and her staff

can send messages would also be benefi cial.

16. Input factors can have a major impact on group

effectiveness. In order to best prepare a group to perform

effectively, a manager should make sure that the right

people are put in the group (maximize available talents

and abilities), that these people are capable of working well

together (membership characteristics should promote good

relationships), that the tasks are clear, and that the group

has the resources and environment needed to perform up to

expectations.

17. A group’s performance can be analyzed according to the

interaction between cohesiveness and performance norms. In

a highly cohesive group, members tend to conform to group

norms. Th us, when the performance norm is positive and co-

hesion is high, we can expect everyone to work hard to support

the norm—high performance is likely. By the same token, high

cohesion and a low performance norm will yield the opposite

result—low performance is likely. With other combinations

of norms and cohesion, the performance results will be more

mixed.

18. Th e textbook lists several symptoms of groupthink, along

with various strategies for avoiding groupthink. For example,

a group whose members censor themselves from contribut-

ing “contrary” or “diff erent” opinions and/or whose members

keep talking about outsiders as “weak” or the “enemy” may be

suff ering from groupthink. Th is may be avoided or corrected,

for example, by asking someone to be the “devil’s advocate” for

a meeting, and by inviting in an outside observer to help gather

diff erent viewpoints.

19. In a traditional work group, the manager or supervisor

directs the group. In a self-managing team, the members

of the team provide self-direction. Th ey plan, organize,

and evaluate their work, share tasks, and help one another

develop skills; they may even make hiring decisions. A true

self-managing team does not need the traditional “boss” or

supervisor, because the team as a whole takes on traditional

supervisory responsibilities.

20. Marcos is faced with a highly cohesive group whose

members conform to a negative or low-performance norm.

Th is is a diffi cult situation that is ideally resolved by changing

the performance norm. In order to gain the group’s commit-

ment to a high-performance norm, Marcos should act as

a positive role model for the norm. He must communicate

the norm to the group clearly and positively and should not

assume that everyone knows what he expects of them. He

may also talk to the informal leader and gain his or her com-

mitment to the norm. He might carefully reward high-perfor-

mance behaviors within the group and may introduce new

members with high-performance records and commitments.

He might also hold group meetings in which performance

standards and expectations are discussed, with an emphasis

on committing to new high-performance directions. If his

attempts to introduce a high-performance norm fail, Marcos

may have to take steps to reduce group cohesiveness so that

individual members can pursue higher-performance results

without feeling bound by group pressures to restrict their

performance.

Balance sheets show assets and liabili-

ties at one point in time.

Balanced scorecards tally organiza-

tional performance in fi nancial, customer

service, internal process, and innovation

and learning areas.

Bargaining zone refers to the space be-

tween one party’s minimum reservation

point and the other party’s maximum

reservation point.

Base compensation is a salary or hourly

wage paid to an individual.

BCG Matrix analyzes business opportu-

nities according to market growth rate

and market share.

Behavioral decision model describes

decision making with limited informa-

tion and bounded rationality.

Behavioral interviews ask job applicants

about past behaviors.

Behaviorally anchored rating scales use

specifi c descriptions of actual behaviors

to rate various levels of performance.

Benchmarking uses external and

internal comparisons to plan for future

improvements.

Benefi t corporation, or B Corp, is a

corporate form for businesses whose

stated goals are to combine making a

profi t with benefi ting society and the

environment.

Best practices are things people and

organizations do that lead to superior

performance.

Biculturalism is when minority mem-

bers display characteristics of majority

cultures in order to succeed.

Big data exists in huge quantities and

is diffi cult to process without sophis-

ticated mathematical and computing

techniques.

3 P’s of organizational performance

are profi t, people, and planet.

360-degree appraisals include supe-

riors, subordinates, peers, and even

customers in the appraisal process.

Accommodation, or smoothing, plays

down diff erences and highlights similari-

ties to reduce confl ict.

Accommodative strategy accepts social

responsibility and tries to satisfy society’s

basic ethical expectations.

Accountability is the requirement to

show performance results to a supervisor.

Active listening helps the source of

a message say what he or she really

means.

Adaptive organizations operate with a

minimum of bureaucratic features and

encourage worker empowerment and

teamwork.

Administrators are managers in a public

or nonprofi t organization.

Affi rmative action is an eff ort to give

preference in employment to women

and minority group members who have

traditionally been underrepresented.

After-action review is a systematic

assessment of lessons learned and results

accomplished in a completed project.

Agenda setting develops action priorities

for accomplishing goals and plans.

Agreeableness is being good-natured,

cooperative, and trusting.

Amoral managers fail to consider the

ethics of their behavior.

Analytical competency is the ability

to evaluate and analyze information to

make actual decisions and solve real

problems.

Analytics involves systematic gathering

and processing of data to make informed

management decisions.

Anchoring and adjustment bias bases

a decision on incremental adjustments

from a prior decision point.

Angel investors are wealthy individuals

willing to invest in a new venture in

return for an equity stake.

Arbitration occurs when a neutral third

party issues a binding decision to resolve

a dispute.

Asia Pacifi c Economic Cooperation

(APEC) links 21 countries to promote

free trade and investment in the Pacifi c

region.

Assessment centers examine how job

candidates handle simulated work

situations.

Attitude is a predisposition to act in a

certain way.

Attribution is the process of explaining

events.

Authentic leadership activates positive

psychological states to achieve self-

awareness and positive self-regulation.

Authoritarianism is the degree to which

a person tends to defer to authority.

Authority decisions are made by the

leader and then communicated to the

group.

Authority-and-responsibility principle

states that authority should equal

responsibility when work is delegated.

Autocratic leaders act in a command-

and-control fashion.

Automation is the total mechanization

of a job.

Availability bias bases a decision on

recent information or events.

Avoidance, or withdrawal, pretends that

a confl ict doesn’t really exist.

Glossary

477

478 Glossary

Classical decision model means that

decisions are made with complete

information.

Classical view of CSR holds that busi-

ness should focus on profi ts.

Co-opetition is the strategy of working

with rivals on projects of mutual benefi t.

Coaching occurs as an experienced

employee off ers performance advice to a

less experienced co-worker.

Code of ethics is a formal statement of

values and ethical standards.

Coercive power is the capacity to pun-

ish or withhold positive outcomes as a

means of infl uencing other people.

Cognitive dissonance is discomfort

felt when attitude and behavior are

inconsistent.

Cognitive styles are shown by the ways

individuals deal with information while

making decisions.

Cohesiveness is the degree to which

members are attracted to and motivated

to remain part of a team.

Collaboration, or problem solving,

involves working through confl ict

diff erences and solving problems so

everyone wins.

Collective bargaining is the process

of negotiating, administering, and

interpreting a labor contract.

Commitment represents how hard you

work to apply your talents and capabili-

ties to important tasks.

Committees are designated to work on a

special task on a continuing basis.

Communication channels are the path-

ways through which a message moves

from sender to receiver.

Communication is the process of send-

ing and receiving symbols with meanings

attached.

Communication transparency involves

openly sharing honest and complete

information about the organization and

workplace aff airs.

Commutative justice is the degree to

which an exchange or a transaction is

fair to all parties.

Business intelligence taps information

systems to extract and report data in or-

ganized ways that are helpful to decision

makers.

Business model innovations result in

ways for fi rms to make money.

Business models are plans for making

a profi t by generating revenues that are

greater than costs.

Business plans describe the direction

for a new business and the fi nancing

needed to operate it.

Business strategy identifi es how a divi-

sion or strategic business unit will com-

pete in its product or service domain.

Centralization is the concentration of

authority for most decisions at the top

level of an organization.

Centralized communication networks

are when communication fl ows only

between individual members and a hub,

or center point.

Certain environments off er complete

information on possible action

alternatives and their consequences.

Chains of command link all employees

with successively higher levels of authority.

Change leaders take initiative in trying

to change the behavior of another person

or within a social system.

Changing is the phase where a planned

change actually takes place.

Chapter 11 bankruptcy under U.S. law

protects a fi rm from creditors while

management reorganizes to restore

solvency.

Charismatic leaders inspire followers in

extraordinary ways.

Child labor is the employment of children

for work otherwise done by adults.

Clan control infl uences behavior

through norms and expectations set by

the organizational culture.

Classic entrepreneurs are willing to

pursue opportunities in situations others

view as problems or threats.

Big-C creativity occurs when extraordi-

nary things are done by exceptional people.

Biodata methods collect certain

biographical information that has been

proven to correlate with good job perfor-

mance.

Board of directors or board of trustees is

a board whose members are supposed to

make sure an organization is well run and

managed in a lawful and ethical manner.

Bona fi de occupational qualifi cations

are employment criteria justifi ed by the

capacity to perform a job.

Bonus pay plans provide one-time

payments based on performance

accomplishments.

Bottom-up change is when change

initiatives come from all levels in the

organization.

Boundaryless organizations eliminate

internal boundaries among subsystems

and external boundaries with the

external environment.

Bounded rationality describes making

decisions within the constraints of

limited information and alternatives.

Brainstorming engages group members

in an open, spontaneous discussion of

problems and ideas.

Breakeven analysis performs what-if

calculations under diff erent revenue and

cost conditions.

Breakeven point occurs when revenues

just equal costs.

Budgets are plans that commit

resources to projects or activities.

Bullying is antisocial behavior that is

intentionally aggressive, intimidating,

demeaning, and/or abusive.

Bureaucracy is a rational and effi cient

form of organization founded on logic,

order, and legitimate authority.

Bureaucratic control infl uences

behavior through authority, policies,

procedures, job descriptions, budgets,

and day-to-day supervision.

Business incubators off er space, shared

services, and advice to help get small

businesses started.

479Glossary

Cost leadership strategy seeks to

operate with low cost so that products

can be sold at low prices.

Cost-benefi t analysis involves com-

paring the costs and benefi ts of each

potential course of action.

CPM/PERT is a combination of the

critical path method and the program

evaluation and review technique.

Creativity is the generation of a novel

idea or unique approach that solves a

problem or crafts an opportunity.

Credible communication earns trust,

respect, and integrity in the eyes of others.

Crisis decisions occur when an

unexpected problem arises that can lead

to disaster if not resolved quickly and

appropriately.

Critical path is the longest pathway in a

CPM/PERT network.

Critical-incident technique keeps a log

of employees’ eff ective and ineff ective job

behaviors.

Cross-functional teams operate with

members who come from diff erent

functional units of an organization.

Crowdfunding is when entrepreneurs

starting new ventures go online to get

startup fi nancing from crowds of investors.

Cultural intelligence is the ability to adapt,

adjust, and work well across cultures.

Cultural relativism suggests there is no

one right way to behave; ethical behavior

is determined by its cultural context.

Culture is a shared set of beliefs, values,

and patterns of behavior common to a

group of people.

Culture shock is the confusion and dis-

comfort a person experiences when in an

unfamiliar culture.

Customer structure groups together

people and jobs that serve the same

customers or clients.

Data are raw facts and observations.

Data mining is the process of analyzing

data to produce useful information for

decision makers.

Constructive stress or eustress is a

positive stress outcome that can increase

eff ort, stimulate creativity, and encourage

diligence in one’s work.

Consultative decisions are made by

a leader after receiving information,

advice, or opinions from group members.

Contingency planning identifi es alter-

native courses of action to take when

things go wrong.

Contingency thinking tries to match

management practices with situational

demands.

Contingency workers are employed

on a part-time and temporary basis to

supplement a permanent workforce.

Continuous improvement involves

always searching for new ways to

improve work quality and performance.

Continuous reinforcement rewards

each time a desired behavior occurs.

Control equation: Need for Action 5 Desired Performance 2 Actual Performance.

Controlling is the process of measuring

performance and taking action to ensure

desired results.

Core competencies are special strengths

that gives an organization a competitive

advantage.

Core culture consists of the core values,

or underlying assumptions and beliefs

that shape and guide people’s behaviors

in an organization.

Core values are beliefs and values

shared by organization members.

Corporate governance is the oversight

of top management by a board of

directors.

Corporate social responsibility is the

obligation of an organization to serve

the interests of multiple stakeholders,

including society at large.

Corporate strategy sets long-term

direction for the total enterprise.

Corporations are legal entities that exist

separately from their owners.

Corruption involves illegal practices to

further one’s business interests.

Comparable worth holds that persons

performing jobs of similar importance

should be paid at comparable levels.

Comparative management studies

how management practices diff er among

countries and cultures.

Competency represents your personal

talents or job-related capabilities.

Competition, or authoritative command,

uses force, superior skill, or domination to

“win” a confl ict.

Competitive advantage is something

that an organization does extremely

well, is diffi cult to copy, and that gives

it an advantage over competitors in the

marketplace.

Competitive advantage is the ability to

do something so well that one outper-

forms competitors.

Complacency trap means being carried

along by the fl ow of events.

Compressed workweeks allow a full-time

job to be completed in less than fi ve days.

Compromise occurs when each party to

the confl ict gives up something of value

to the other.

Concentration growth occurs within the

same business area.

Conceptual skill is the ability to think

analytically to diagnose and solve com-

plex problems.

Concurrent control focuses on what

happens during the work process.

Confi rmation error occurs when focus-

ing only on information that confi rms a

decision already made.

Confl ict is a disagreement over issues

of substance and/or an emotional

antagonism.

Confl ict minerals are ones sourced

in the Democratic Republic of Congo

and surrounding region and whose sale

fi nances armed groups that perpetuate

violence.

Confl ict resolution is the removal of the

substantive and emotional reasons for a

confl ict.

Conscientiousness is being responsible,

dependable, and careful.

480 Glossary

Electronic grapevines use electronic

media to pass messages and information

among members of social networks.

Emotional intelligence is the ability

to manage our emotions in social

relationships.

Emotional stability is being relaxed,

secure, and unworried.

Emotions are strong feelings directed

toward someone or something.

Employee assistance programs help

employees cope with personal stresses

and problems.

Employee benefi ts are nonmonetary

forms of compensation such as health

insurance and retirement plans.

Employee engagement is a strong

positive feeling about one’s job and the

organization.

Employee stock ownership plans

(ESOPs) help employees purchase stock

in their employing companies.

Employee value propositions are

packages of opportunities and rewards

that make diverse and talented people

want to belong to and work hard for the

organization.

Employment-at-will means that employ-

ees can be terminated at any time for any

reason.

Empowerment allows others to make

decisions and exercise discretion in their

work.

Entrepreneurship is risk-taking behav-

ior that results in new opportunities.

Environmental capital or natural cap-

ital is the supply of natural resources—

atmosphere, land, water, and minerals—

that sustains life and produces goods and

services for society.

Environmental uncertainty is a lack of

information regarding what exists in the

environment and what developments

may occur.

Equal employment opportunity is the

requirement that employment decisions

be made without regard to sex, race, color,

ethnicity, national origin, able- bodiedness,

or religion.

Distributed leadership is when all

members of a team contribute helpful

task and maintenance behaviors.

Distributive justice focuses on whether

or not outcomes are distributed fairly.

Distributive negotiation focuses on

win–lose claims made by each party for

certain preferred outcomes.

Diversifi cation growth occurs by

acquisition of or investment in new and

diff erent business areas.

Divestiture sells off parts of the orga-

nization to refocus attention on core

business areas.

Divisional structure groups together

people working on the same product, in

the same area, with similar customers, or

on the same processes.

Downsizing strategy decreases the size

of operations.

Dysfunctional confl ict is destructive

and hurts task performance.

Early retirement incentive programs

off er workers fi nancial incentives to

retire early.

Ecological fallacy assumes that a

generalized cultural value applies equally

well to all members of the culture.

Economic order quantity method

places new orders when inventory levels

fall to predetermined points.

Eff ective communication means that

the intended meaning is fully understood

by the receiver.

Eff ective managers help others achieve

high performance and satisfaction at

work.

Eff ective negotiation resolves issues of

substance while maintaining a positive

process.

Eff ective teams achieve high levels of

task performance, membership satisfac-

tion, and future viability.

Effi cient communication occurs at

minimum cost.

Debt fi nancing involves borrowing

money that must be repaid over time,

with interest.

Decentralization is the dispersion of

authority to make decisions throughout

all organization levels.

Decentralized communication net-

works allow all members to communi-

cate directly with one another.

Decision making is the process of mak-

ing choices among alternative possible

courses of action.

Decision-making process begins with

identifi cation of a problem and ends with

evaluation of results.

Decisions are choices among possible

alternative courses of action.

Defensive strategy does the minimum

legally required to display social respon-

sibility.

Defi cit principle states that a satisfi ed

need does not motivate behavior.

Delegation is the process of distributing

and entrusting work to others.

Demand legitimacy indicates the

validity and legitimacy of a stakeholder’s

interest in the organization.

Democratic leaders emphasize both

tasks and people.

Design thinking unlocks creativity in

decision making through a process of

experiencing, ideation, and prototyping.

Destructive stress or strain is a negative

stress outcome that impairs the perfor-

mance and well-being of an individual.

Diff erentiation strategy off ers products

that are unique and diff erent from the

competition.

Discrimination actively denies minority

members the full benefi ts of organiza-

tional membership.

Disruptive activities are self-serving

behaviors that interfere with team

eff ectiveness.

Disruptive innovation creates products

or services that become so widely used

that they largely replace prior practices

and competitors.

481Glossary

Focused cost leadership strategy seeks

the lowest costs of operations within a

special market segment.

Focused diff erentiation strategy off ers

a unique product to a special market

segment.

Followership is the act of joining with a

leader to accomplish tasks and goals.

Force-coercion strategy pursues change

through formal authority and/or the use

of rewards or punishments.

Forecasting attempts to predict the

future.

Foreign Corrupt Practices Act (FCPA)

makes it illegal for U.S. fi rms and their

representatives to engage in corrupt

practices overseas.

Foreign subsidiary is a local operation

completely owned by a foreign fi rm.

Formal groups are offi cially recognized

collectives that are supported by the

organization.

Formal structure is the offi cial structure

of the organization.

Framing error is trying to solve a

problem in the context in which it is

perceived.

Franchise is when one business owner

sells to another the right to operate the

same business in another location.

Free-agent economy means that people

change jobs more often, and many work

on independent contracts with a shifting

mix of employers.

Frustration-regression principle states

that an already satisfi ed need can become

reactivated when a higher-level need is

blocked.

Functional chimneys or functional silos

problem is a lack of communication,

coordination, and problem solving across

functions.

Functional confl ict is constructive and

helps task performance.

Functional managers are responsible

for one area, such as fi nance, marketing,

production, personnel, accounting, or

sales.

Functional plans indicate how diff erent

operations within the organization will

help advance the overall strategy.

Existence needs are desires for physical

well-being.

Expectancy is a person’s belief that

working hard will result in high task

performance.

Expert power is the capacity to in-

fl uence others’ because of specialized

knowledge.

Exporting involveslocal products being

sold abroad to foreign customers.

External recruitment seeks job

applicants from outside the organization.

Extinction discourages behavior by

making the removal of a desirable conse-

quence contingent on its occurrence.

Extraversion is being outgoing, sociable,

and assertive.

Family business feuds occur when fam-

ily members have major disagreements

over how the business should be run.

Family businesses are owned and con-

trolled by members of a family.

Family-friendly benefi ts help employ-

ees achieve better work–life balance.

Feedback control takes place after an

action is completed.

Feedback is the process of telling some-

one else how you feel about something

that person did or said.

Feedforward control ensures that direc-

tions and resources are right before the

work begins.

First-mover advantage comes from

being fi rst to exploit a niche or enter a

market.

Flat structures have wide spans of con-

trol and few hierarchical levels.

Flexible benefi ts programs allow

employees to choose from a range of

benefi t options.

Flexible working hours give employees

some choice in daily work hours.

Focus strategy concentrates on serving

a unique market segment better than

anyone else.

Equity fi nancing involves exchanging

ownership shares for outside investment

monies.

Equity sensitivity refl ects that people

have diff erent preferences for equity

and react diff erently to perceptions of

inequity.

Escalating commitment is the

continuation of a course of action even

though it is not working.

Ethical behavior is “good” or “right” in

the context of a governing moral code.

Ethical dilemmas are situations that

off er potential benefi t or gain and that

may also be considered unethical.

Ethical framework is a personal rule or

strategy for making ethical decisions.

Ethical imperialism is an attempt to

impose one’s ethical standards on other

cultures.

Ethics establish standards of good or

bad, or right or wrong, in one’s conduct.

Ethics intensity or issue intensity

indicates the degree to which an issue

or a situation is recognized to pose

important ethical challenges.

Ethics self-governance is making sure

day-to-day performance is achieved

ethically and in socially responsible ways.

Ethics training seeks to help people un-

derstand the ethical aspects of decision

making and to incorporate high ethical

standards into their daily behavior.

Ethnic subcultures or national

subcultures form among people who

work together and have roots in the

same ethnic community or nationality.

Ethnocentrism is the tendency to

consider one’s culture superior to others.

Euro is the common European currency.

European Union is a political and

economic alliance of European countries.

Evidence-based management involves

making decisions based on hard facts

about what really works.

Executive dashboards visually display

graphs, charts, and scorecards of key

performance indicators and information

on a real-time basis.

482 Glossary

Heuristics are strategies for simplifying

decision making.

Hierarchy of goals or hierarchy of

objectives means that lower-level goals

and objectives support accomplishment

of higher-level goals and objectives.

High-context cultures rely on nonverbal

and situational cues as well as on spoken

or written words in communication.

Higher-order needs are esteem and

self-actualization needs in Maslow’s

hierarchy.

Human capital is the economic value

of people with job-relevant knowledge,

skills, abilities, ideas, energies, and

commitments.

Human relations leaders emphasize

people over task.

Human resource management is a

process of attracting, developing, and

maintaining a talented workforce.

Human resource planning analyzes

staffi ng needs and identifi es actions to

fi ll those needs.

Human skill or interpersonal skill is the

ability to work well in cooperation with

other people.

Hygiene factor is found in the job con-

text, such as working conditions, inter-

personal relations, organizational policies,

and compensation.

Immoral managers choose to behave

unethically.

Importing involves the selling in domes-

tic markets of products acquired abroad.

Impression management is the systemat-

ic attempt to infl uence how others perceive

us.

Improvisational change makes con-

tinual adjustments as changes are being

implemented.

Incivility is antisocial behavior in the

forms of disrespectful acts, social exclu-

sion, and use of hurtful language.

Income statements show profi ts or

losses at one point in time.

Global economy means that resources,

markets, and competition are worldwide

in scope.

Global management involves managing

business and organizations with interests

in more than one country.

Global managers are culturally aware

and informed on international aff airs.

Global sourcing means that materials

or services are purchased around the

world for local use.

Global strategic alliances are partner-

ships in which foreign and domestic fi rms

share resources and knowledge for mutual

gains.

Globalization gaps occur when large

multinational corporations and indus-

trialized nations gain disproportionately

from the benefi ts of globalization.

Globalization is the worldwide inter-

dependence of resource fl ows, product

markets, and business competition.

Globalization strategy adopts stan-

dardized products and advertising for

use worldwide.

Graphic rating scales use a checklist

of traits or characteristics to evaluate

performance.

Greenfi eld ventures are foreign subsid-

iaries built from the ground up by the

foreign owner.

Group or team decisions are made by

team members.

Groupthink is a tendency for highly

cohesive teams to lose their evaluative

capabilities.

Growth needs are desires for personal

growth and development.

Growth strategy involves expansion of

the organization’s current operations.

Halo eff ect occurs when one attribute is

used to develop an overall impression of

a person or situation.

Hawthorne eff ect is the tendency of

persons singled out for special attention

to perform as expected.

Functional strategy guides activities

within one specifi c area of operations.

Functional structure groups together

people with similar skills who perform

similar tasks.

Fundamental attribution error over-

estimates internal factors and underesti-

mates external factors driving individual

behavior.

Gain-sharing plans allow employees

to share in cost savings or productivity

gains realized by their eff orts.

Gantt charts graphically display the

scheduling of tasks required to complete

a project.

Gender similarities hypothesis holds

that males and females have similar

psychological properties.

Gender subcultures form among

persons who share gender identities and

display common patterns of behavior.

General environment consists of

economic, legal-political, sociocultural,

technological, and natural environment

conditions in which the organization

operates.

General managers are responsible for

complex, multifunctional units.

Generational cohorts consist of people

born within a few years of one another

and who experience somewhat similar

life events during their formative years.

Generational subcultures form among

persons who work together and share

similar ages, such as millennials and

baby boomers.

Geographical structure groups together

people and jobs performed in the same

location.

Glass ceiling eff ect is an invisible

barrier limiting career advancement of

women and minorities.

Global corporations are multinational

enterprises (MNEs) or multinational

corporations (MNCs) that conduct

commercial transactions across national

boundaries.

483Glossary

Job discrimination occurs when some-

one is denied a job or work assignment

for reasons that are not job relevant.

Job enlargement increases task variety

by combining into one job two or more

tasks previously done by separate

workers.

Job enrichment increases job depth by

adding work planning and evaluating

duties normally performed by the

supervisor.

Job involvement is the extent to which

an individual feels dedicated to a job.

Job migration occurs when fi rms shift

jobs from a home country to foreign

ones.

Job rotation increases task variety by

periodically shifting workers between

diff erent jobs.

Job satisfaction is the degree to which

an individual feels positive or negative

about a job.

Job sharing splits one job between two

people.

Job simplifi cation employs people in

clearly defi ned and specialized tasks with

narrow job scope.

Job specifi cations list the qualifi cations

required of a job holder.

Joint ventures operate in a foreign coun-

try through co-ownership by foreign and

local partners.

Just-in-time scheduling (JIT) routes

materials to workstations just in time for

use.

Justice view holds that ethical behavior

treats people impartially and fairly.

Knowledge workers are people

whose mindsare a critical asset to their

employers.

Labor contracts are formal agreements

between a union and an employer about

the terms of work for union members.

Intellectual capital is the collective

brainpower or shared knowledge of a

workforce.

Interactional justice is the degree to

which others are treated with dignity and

respect.

Interactive leaders are strong com-

municators and act in democratic and

participative ways with followers.

Intercultural competencies are skills

and personal characteristics that help us

be successful in cross-cultural situations.

Interdependence is the extent to which

employees depend on other members

of their team to carry out their work

eff ectively.

Intermittent reinforcement rewards

behavior only periodically.

Internal recruitment seeks job appli-

cants from inside the organization.

International businesses conduct for-

profi t transactions of goods and services

across national boundaries.

Internet censorship is the deliberate

blockage and denial of public access to

information posted on the Internet.

Intuitive thinking approaches problems

in a fl exible and spontaneous fashion.

Inventory control ensures that inven-

tory is only big enough to meet immedi-

ate needs.

ISO certifi cation indicates conformance

with a rigorous set of international quality

standards.

Issue urgency indicates the extent to

which a stakeholder’s concerns need

immediate attention.

Job analysis studies exactly what is done

in a job, and why.

Job burnout is a feeling of physical and

mental exhaustion from work stress.

Job descriptions detail the duties and

responsibilities of a job holder.

Job design is arranging work tasks for

individuals and groups.

Incremental change bends and

adjusts existing ways to improve

performance.

Independent contractors are hired as

needed and are not part of the organiza-

tion’s permanent workforce.

Individualism view holds that ethical

behavior advances long-term self-

interests.

Individualism–collectivism is the

degree to which a society emphasizes

individuals and their self-interests.

Informal groups are unoffi cial and

emerge from relationships and shared

interests among members.

Informal structure is the set of social

networks found in unoffi cial relation-

ships among the members of an organi-

zation.

Information and networking power

is the ability to infl uence others through

access to information and contacts with

other people.

Information competency is the ability

to locate, gather, and organize informa-

tion for use in decision making.

Information fi ltering is the intentional

distortion of information to make it ap-

pear more favorable to the recipient.

Information is data made useful for

decision making.

Initial public off erings, or IPOs, are an

initial selling of shares of stock to the

public at large.

Innovation is the process of taking a

new idea and putting it into practice.

Input standards measure work eff orts

that go into a performance task.

Insourcing is job creation through for-

eign direct investment.

Instrumental values are preferences

regarding the means to desired ends.

Instrumentality is a person’s belief that

various outcomes will occur as a result of

task performance.

Integrity is acting with honesty, credibil-

ity, and consistency in putting values into

action.

484 Glossary

Management development is training

to improve knowledge and skills in the

management process.

Management information systems

collect, organize, and distribute data for

use in decision making.

Management process is planning, orga-

nizing, leading, and controlling the use

of resources to accomplish performance

goals.

Managers are people who support,

activate, and are responsible for the work

of others.

Managing diversity is a leadership

approach that creates an organizational

culture that respects diversity and sup-

ports multiculturalism.

Market control is essentially the infl u-

ence of market competition on the

behavior of organizations and their

members.

Masculinity–femininity is the degree to

which a society values assertiveness and

materialism.

Matrix structure combines the func-

tional and divisional approaches to cre-

ate permanent cross-functional project

teams.

Mechanistic design is centralized, with

many rules and procedures, a clear-cut

division of labor, narrow spans of control,

and formal coordination.

Mediation a neutral party tries to help

confl icting parties improve communica-

tion to resolve their dispute.

Mentoring assigns new hires and early-

career employees as protégés to more

senior employees.

Merit pay awards pay increases in pro-

portion to performance contributions.

Middle managers oversee the work of

large departments or divisions.

Mission statements express the organi-

zation’s reason for existence in society.

Mixed messages result when words

communicate one message while

actions, body language, or appearance

communicate something else.

Leniency is the tendency to give employ-

ees a higher performance rating than they

deserve.

Licensing agreement is where a local

fi rm pays a fee to a foreign fi rm for rights

to make or sell its products.

Lifelong learning is continuous learning

from daily experiences.

Limited liability corporation (LLC) is

a hybrid business form combining the

advantages of the sole proprietorship,

partnership, and corporation.

Line managers directly contribute to

producing the organization’s goods or

services.

Liquidation is where a business closes

and sells its assets to pay creditors.

Little-C creativity occurs when average

people come up with unique ways to deal

with daily events and situations.

Locus of control is the extent to which

one believes that what happens is within

one’s control.

Long-term plans typically look three or

more years into the future.

Loose cultures have relaxed social

norms and allows conformity by mem-

bers to vary a good deal.

Lose–lose confl ict occurs when no one

achieves their true desires, and the under-

lying reasons for confl ict remain.

Low-context cultures emphasize

communication via spoken or written

words.

Lower-order needs are physiological,

safety, and social needs in Maslow’s

hierarchy.

Machiavellianism describes the extent

to which someone is emotionally

detached and manipulative.

Maintenance activities are actions

taken by a team member that support

the emotional life of the team.

Management by exception focuses

attention on substantial differences be-

tween actual and desired performance.

Labor unions are organizations that

deal with employers on the workers’

collective behalf.

Lack-of-participation error is failure to

involve in a decision the persons whose

support is needed to implement it.

Laissez-faire leaders have a “do the best

you can and don’t bother me” attitude.

Law of contingent reinforcement

states that a reward should only be given

when a desired behavior occurs.

Law of eff ect states that behavior

followed by pleasant consequences is

likely to be repeated; behavior followed

by unpleasant consequences is not.

Law of immediate reinforcement states

that a reward should be given as soon as

possible after a desired behavior occurs.

Leadership double bind means that

women get criticized for displaying

stereotypical male leadership character-

istics and also for displaying stereotypi-

cal female leadership characteristics.

Leadership is the process of inspiring

others to work hard to accomplish

important tasks.

Leadership style is a recurring pattern

of behaviors exhibited by a leader.

Leading is the process of arousing enthusi-

asm and inspiring eff orts to achieve goals.

Leaking pipeline problem is where

glass ceilings and other obstacles cause

qualifi ed and high-performing women to

drop out of upward career paths.

Lean startups use resources such as

open-source software while containing

costs, staying small, and keeping

operations as simple as possible.

Learning goals set targets to create

the knowledge and skills required for

performance.

Learning is a change in behavior that

results from experience.

Least-preferred co-worker scale, LPC,

is used in Fiedler’s contingency model to

measure leadership style.

Legitimate power is the capacity to

infl uence others by virtue of formal

authority, or the rights of offi ce.

485Glossary

heroes, rituals, and symbols that are part

of daily organizational life.

Obstructionist strategy tries to avoid and

resist pressures for social responsibility.

Occupational and functional subcul-

tures form among persons who share the

same skills and work responsibilities.

Off shoring is the outsourcing of jobs to

foreign locations.

Ombudsperson is a designated neutral

third party who listens to complaints and

disputes in an attempt to resolve them.

Onboarding or orientation familiarizes

new hires with the organization’s mission

and culture, their jobs and co-workers,

and performance expectations.

Open book management is where

managers provide employees with

essential fi nancial information about

their companies.

Open systems interact with their envi-

ronment and transform resource inputs

into outputs.

Openness to experience is being curi-

ous, receptive to new ideas, and imagi-

native.

Operant conditioning is the control

of behavior by manipulating its conse-

quences.

Operating objectives are specifi c results

that organizations try to accomplish.

Operational plans identify short-term

activities to implement strategic plans.

Optimizing decisions choose the alter-

native giving the absolute best solution

to a problem.

Organic design is decentralized, with

fewer rules and procedures, open divi-

sions of labor, wide spans of control, and

more personal coordination.

Organization is a collection of people

working together to achieve a common

purpose.

Organization charts describe the arrange-

ment of work positions within an organi-

zation.

Organization structure is a system

of tasks, reporting relationships, and

communication linkages.

Need for achievement is the desire to

do something better, to solve problems,

or to master complex tasks.

Need for affi liation is the desire to

establish and maintain good relations

with people.

Need for power is the desire to control,

infl uence, or be responsible for other

people.

Needs are physiological or psychological

defi ciencies that a person feels compelled

to satisfy.

Negative reinforcement strengthens

behavior by making the avoidance of an

undesirable consequence contingent on

its occurrence.

Negotiation is the process of making

joint decisions when the parties involved

have diff erent preferences.

Network structure uses information

technologies to link with networks

of outside suppliers and service con-

tractors.

Networking is the process of creating

positive relationships with people who

can help advance agendas.

Noise is anything that interferes with the

eff ectiveness of communication.

Nominal group technique structures

interaction among team members

discussing problems and ideas.

Nonprogrammed decisions apply a

specifi c solution crafted for a unique

problem.

Nontariff barriers to trade discourage

imports in nontax ways such as quotas

and government import restrictions.

Nonverbal communication takes place

through gestures and body language.

Norms are behavioral expectations, rules,

or standards to be followed by team

members.

Objectives and goals are specifi c results

that one wishes to achieve.

Observable culture is visible in the

way members behave, and in the stories,

Mompreneurs pursue business opportu-

nities they spot as mothers.

Monochronic cultures are where

people tend to do one thing at a time.

Mood contagion is the spillover of one’s

positive or negative moods to others.

Moods are generalized positive and neg-

ative feelings or states of mind.

Moral absolutism suggests ethical

standards apply universally across all

cultures.

Moral leadership is always “good” and

“right” by ethical standards.

Moral managers make ethical behavior

a personal goal.

Moral overconfi dence is an overly posi-

tive view of one’s strength of character.

Moral rights view holds that ethical

behavior respects and protects funda-

mental rights.

Most favored nation status gives a trad-

ing partner most favorable treatment for

imports and exports.

Motion study is the science of reducing

a task to its basic physical motions.

Multicultural organizations have a

culture with core values that respect

diversity and support multiculturalism.

Multiculturalism in organizations

involves inclusiveness, pluralism, and

respect for diversity.

Multidimensional thinking is an ability

to address many problems at once.

Multidomestic strategy customizes

products and advertising to best fi t local

needs.

Multiperson comparison compares one

person’s performance with that of others.

NAFTA is the North American Free Trade

Agreement linking Canada, the United

States, and Mexico in an economic

alliance.

Necessity-based entrepreneurship

takes place because other employment

options don’t exist.

486 Glossary

Political-risk analysis tries to forecast

political disruptions that can threaten

the value of a foreign investment.

Polychronic cultures are where time is

used to accomplish many diff erent things

at once.

Positive reinforcement strengthens

behavior by making a desirable conse-

quence contingent on its occurrence.

Power is the ability to get others to do

something you want done or to make

things happen the way you want.

Power distance is the degree to which

a society accepts unequal distribution of

power.

Prejudice is the display of negative,

irrational attitudes toward members of

diverse populations.

Principled negotiation or integrative

negotiation uses a “win–win” orien-

tation to reach solutions acceptable to

each party.

Proactive strategy actively pursues social

responsibility by taking discretionary ac-

tions to make things better in the future.

Problem avoiders ignore information

indicating a performance opportunity or

threat.

Problem seekers constantly process

information looking for problems to

solve, even before they occur.

Problem solvers try to solve problems

when they occur.

Problem solving involves identifying

and taking action to resolve problems.

Procedural justice is concerned that

policies and rules are fairly applied.

Procedures are rules describing actions

that are to be taken in specifi c situations.

Process innovations result in better ways

of doing things.

Process structure groups jobs and activ-

ities that are part of the same processes.

Product innovations result in new or

improved goods or services.

Product structure groups together

people and jobs focused on a single

product or service.

Performance coaching provides frequent

and developmental feedback for how a

worker can improve job performance.

Performance eff ectiveness is an output

measure of task or goal accomplishment.

Performance effi ciency is an input

measure of resource cost associated with

goal accomplishment.

Performance management systems

set standards, assess results, and plan for

performance improvements.

Performance opportunities are situ-

ations that off er the chance for a better

future if the right steps are taken.

Performance threats are situations in

which something is obviously wrong or

has the potential to go wrong.

Permatemps are workers who are

employed in a temporary status for an

extended period of time.

Person–job fi t is the extent to which an

individual’s knowledge, skills, experiences

and personal characteristics are consis-

tent with the requirements of their work.

Person–organization fi t is the extent

to which an individual’s values, interests,

and behavior are consistent with the

culture of the organization.

Personal wellness is the pursuit of one’s

full potential through a personal health-

promotion program.

Personality is the profi le of characteris-

tics making a person unique from

others.

Persuasive communication presents

a message in a manner that causes the

other person to support it.

Planning is the process of setting goals

and objectives and making plans to

accomplish them.

Plans are statements of intended means

for accomplishing objectives.

Policies are standing plans that

communicate broad guidelines for

decisions and action.

Political risk is the potential loss in

value of a foreign investment due to

instability and political changes in the

host country.

Organizational behavior is the study of

individuals and groups in organizations.

Organizational citizenship behavior

is a willingness to “go beyond the call of

duty” or “go the extra mile” in one’s work.

Organizational commitment is the

loyalty an individual feels toward the

organization.

Organizational culture is the system

of shared beliefs and values that guides

behavior in organizations.

Organizational design is the process

of creating structures that accomplish

mission and objectives.

Organizational subcultures or co-

cultures consist of members who share

similar beliefs and values based on their

work, personal characteristics, or social

identities.

Organizing is the process of defi ning

and assigning tasks, allocating resources,

and providing resource support.

Outcome goals set targets for actual

performance results.

Output standards measure performance

results in terms of quantity, quality, cost,

or time.

Over-reward inequity (positive inequity)

is when an individual perceives that

rewards received are more than what is

fair for work inputs.

Pareto Principle states that 80% of

consequences come from 20% of causes.

Participatory planning includes the

persons who will be aff ected by plans

and/or those who will implement them.

Partnership is when two or more people

agree to contribute resources to start

and operate a business together.

Perception is the process through which

people receive, organize, and interpret

information from the environment.

Performance assessment or review

is the process of formally evaluating

performance and providing feedback to a

job holder.

487Glossary

Satisfi er factors are found in job con-

tent, such as challenging and exciting

work, recognition, responsibility, ad-

vancement opportunities, or personal

growth.

Scenario planning identifi es alternative

future scenarios and makes plans to deal

with each.

Scientifi c management emphasizes

careful selection and training of workers

and supervisory support.

Selection is choosing individuals to hire

from a pool of qualifi ed job applicants.

Selective perception is the tendency to

defi ne problems from one’s own point of

view.

Self-control is internal control that

occurs through self-management and

self-discipline in fulfi lling work and

personal responsibilities.

Self-effi cacy is a person’s belief that she

or he is capable of performing a task.

Self-enhancement bias is the tendency

to view oneself as more capable, intelli-

gent, and ethical than others.

Self-fulfi lling prophecy occurs when

a person acts in ways that confi rm

another’s expectations.

Self-management is the ability to

understand oneself, exercise initiative,

accept responsibility, and learn from

experience.

Self-managing work team members

have the authority to make decisions

about how they share and complete their

work.

Self-monitoring is the degree to which

someone is able to adjust behavior in

response to external factors.

Self-serving bias explains personal

success by internal causes and personal

failures by external causes.

Serial entrepreneurs start and run

businesses and nonprofi ts over and over

again, moving from one interest and

opportunity to the next.

Servant leadership is follower-centered

and committed to helping others in their

work.

Recency bias overemphasizes the most

recent behaviors when evaluating indi-

viduals’ performance.

Recruitment is a set of activities designed

to attract a talented pool of job applicants.

Referent power is the capacity to infl u-

ence other people because of their desire

to identify personally with you.

Refreezing is the phase at which change

is stabilized.

Regional economic alliances link

member countries in agreements to

work together for economic gains.

Relatedness needs are desires for good

interpersonal relationships.

Relationship goals in negotiation are

concerned with the ways people work

together.

Reliability means that a selection device

repeatedly gives consistent results.

Representativeness bias bases a

decision on similarity to other situations.

Reshoring is the movement of jobs from

foreign locations back to domestic ones.

Restricted communication networks

are those in which subgroups have limit-

ed communication with one another.

Retrenchment, restructuring, and

turnaround strategies pursue radical

changes to solve problems.

Reverse innovation is launched from

lower organizational levels and diverse

locations, including emerging markets.

Reverse mentoring is when younger

employees mentor seniors to improve

their technology skills.

Reward power is the capacity to off er

something of value as a means of infl u-

encing other people.

Risk environments lack complete

information but off er “probabilities” of

the likely outcomes for possible action

alternatives.

Satisfi cing decisions are the choice

of the fi rst satisfactory alternative that

comes to one’s attention.

Productivity is the quantity and quality

of work performance, with resource utili-

zation considered.

Profi t-sharing plans distribute to em-

ployees a proportion of net profi ts earned

by the organization.

Programmed decisions apply a solu-

tion from past experience to a routine

problem.

Progression principle states that a need

isn’t activated until the next lower-level

need is satisfi ed.

Projects are one-time activities with

many component tasks that must be

completed in proper order and according

to budget.

Project management is the responsibil-

ity for overall planning, supervision, and

control of projects.

Project teams or task forces are con-

vened for a specifi c purpose and disband

when their task is completed.

Projection is the assignment of personal

attributes to other individuals.

Protectionism is a call for tariff s and

favorable treatments to protect domestic

fi rms from foreign competition.

Proxemics is the study of how people

use space to communicate.

Psychological contract is the set of in-

dividual expectations about the employ-

ment relationship.

Punishment discourages behavior by

making an unpleasant consequence

contingent on its occurrence.

Quality of work life is the overall quality

of human experiences in the workplace.

Rational persuasion strategy pursues

change through empirical data and

rational argument.

Realistic job previews provide job

candidates with all pertinent information

about a job and an organization, both

positive and negative.

488 Glossary

Stereotypes occur when attributes

commonly associated with a group are

assigned to an individual.

Stewardship means taking personal

responsibility to always respect and

protect the interests of organizational

stakeholders, including society at large.

Stock options give the right to purchase

shares at a fi xed price in the future.

Strategic alliance is a cooperation

agreement with another organization

to jointly pursue activities of mutual

interest.

Strategic analysis is the process of

analyzing the organization, the environ-

ment, and the organization’s competitive

position and current strategies.

Strategic control makes sure strategies

are well implemented and that poor

strategies are scrapped or modifi ed.

Strategic human resource manage-

ment mobilizes human capital to imple-

ment organizational strategies.

Strategic intent focuses and applies

organizational energies on a unifying and

compelling goal.

Strategic leadership inspires people to

continuously change, refi ne, and improve

strategies and their implementation.

Strategic management is the process of

formulating and implementing strategies.

Strategic opportunism focuses on long-

term objectives while being fl exible in

dealing with short-term problems.

Strategic plans identify long-term direc-

tions for the organization.

Strategy is a comprehensive plan guid-

ing resource allocation to achieve long-

term organization goals.

Strategy formulation is the process of

crafting strategies to guide the allocation

of resources.

Strategy implementation is the process

of putting strategies into action.

Stress is a state of tension caused by

extraordinary demands, constraints, or

opportunities.

Stressors are anything that causes

tension.

and their embedded social relationships

that are active in an organization.

Social networking is the use of dedi-

cated websites and applications to con-

nect people having similar interests.

Social recruiting is where employers

browse social media sites looking for

prospective job candidates.

Social responsibility audits measure

an organization’s performance in various

areas of social responsibility.

Socialization is the onboarding process

through which new members learn the

culture of an organization.

Socioeconomic view of CSR holds that

business should focus on broader social

welfare as well as profi ts.

Sole proprietorship is when an individ-

ual pursues business for a profi t.

Southern Africa Development

Community (SADC) links 14 countries

of southern Africa in trade and economic

development eff orts.

Span of control is the number of subor-

dinates directly reporting to a manager.

Specifi c environment, or task environ-

ment, includes the people and groups

with whom an organization interacts.

Spotlight questions test the ethics of

a decision by exposing it to scrutiny

through the eyes of family, community

members, and ethical role models.

Staff managers use special technical

expertise to advise and support line

workers.

Staff positions provide technical exper-

tise for other parts of the organization.

Stakeholder power refers to the

capacity of the stakeholder to positively

or negatively aff ect the operations of the

organization.

Stakeholders are the persons, groups,

and other organizations that are directly

aff ected by the behavior of the organiza-

tion and that hold a stake in its perfor-

mance.

Startups are new and temporary ven-

tures that are trying to discover a profi t-

able business model for future success.

Sexual harassment is behavior of a

sexual nature that aff ects a person’s

employment situation.

Shamrock organizations operate

with a core group of full-time long-term

workers supported by others who work

on contracts and part-time.

Shaping is positive reinforcement of

successive approximations to the desired

behavior.

Shared power strategy pursues change

by participation in assessing change

needs, values, and goals.

Shared value view of CSR sees economic

progress for a fi rm and social progress for

society as fundamentally interconnected.

Short-term plans typically cover one

year or less.

Situational interviews ask job appli-

cants how they would react in specifi c

situations.

Skill is the ability to translate knowledge

into action that results in desired

performance.

Small Business Development Centers

founded with support from the U.S. Small

Business Administration provide advice

to new and existing small businesses.

Small businesses have fewer than 500

employees, are independently owned

and operated, and do not dominate their

industry.

Social business innovation fi nds ways

to use business models to address im-

portant social problems.

Social capital is a capacity to get things

done with the support and help of others.

Social enterprises have a social mission

to help make lives better for underserved

populations.

Social entrepreneurship is a unique

form of ethical entrepreneurship that

seeks novel ways to solve pressing social

problems.

Social loafi ng is the tendency of some

members to avoid responsibility by “free-

riding” during group tasks.

Social network analysis or sociomet-

rics identifi es the informal structures

489Glossary

Teamwork is the process of people ac-

tively working together interdependently

to accomplish common goals.

Tech IQ is the ability to use technology

and to stay updated as technology

continues to evolve.

Technical skill is the ability to use

expertise to perform a task with

profi ciency.

Technological competency is the abil-

ity to understand new technologies and

to use them to their best advantage.

Technology personality refl ects levels

of social media use and how media are

used to connect to others.

Telecommuting involves using IT to

work at home or outside the offi ce.

Terminal values are preferences about

desired end states.

Termination is the involuntary dis-

missal of an employee.

Th eory X assumes people dislike work,

lack ambition, act irresponsibly, and

prefer to be led.

Th eory Y assumes people are willing to

work, like responsibility, and are self-

directed and creative.

Tight cultures have rigid social norms

expects members to conform with them.

Time orientation is the degree to which

a society emphasizes short-term or long-

term goals.

Top managers guide the performance of

the organization as a whole or of one of

its major parts.

Top-down change occurs when the

change initiatives come from senior

management.

Total quality management is an orga-

nization-wide commitment to continu-

ous improvement, product quality, and

customer needs.

Traditional recruitment focuses on

selling the job and organization to

applicants.

Training provides learning

opportunities to acquire and improve

job-related skills.

Symbolic leaders use language to com-

municate core values, and their actions

are consistent with core values and the

organizational culture.

Synergy is the creation of a whole greater

than the sum of its individual parts.

System is a collection of interrelated

parts working together for a purpose.

Systematic thinking approaches prob-

lems in a rational and analytical fashion.

Tactical plans help to implement all or

parts of a strategic plan.

Tall structures have narrow spans of

control and many hierarchical levels.

Tariff s are taxes governments levy on

imports from abroad.

Task activity is an action taken by a

team member that directly contributes

to the team’s performance purpose.

Tax inversion is where a U.S.-based

MNC buys a fi rm in a low-tax country in

order to shield foreign earnings from U.S.

taxes.

Team building is a sequence of activities

to analyze a team and make changes to

improve its performance.

Team diversity represents the diff erences

in values, personalities, experiences, demo-

graphics, and cultures among members.

Team Eff ectiveness Equation: Team

eff ectiveness 5 Quality of inputs 1 (Process gains 2 Process losses).

Teams are collections of people who reg-

ularly interact to pursue common goals.

Team leaders report to middle

managers and supervise non-managerial

workers.

Team process is the way team members

work together to accomplish tasks.

Team structure uses permanent and

temporary cross-functional teams to

improve lateral relations.

Team virtuousness indicates the extent

to which members adopt norms that

encourage shared commitments to moral

behavior.

Stretch goals are performance targets

that one must work extra hard and

stretch to reach.

Strong organizational cultures are

clear, well defi ned, and widely shared

among members.

Structured problems are straightfor-

ward and clear with respect to informa-

tion needs.

Substance goals in negotiation are con-

cerned with outcomes.

Substantive confl ict involves disagree-

ments over goals, resources, rewards,

policies, procedures, and job assignments.

Substitutes for leadership are factors in

the work setting that direct work eff orts

without the involvement of a leader.

Subsystem is a smaller component of a

larger system.

Succession plans describe how the lead-

ership transition and related fi nancial

matters will be handled.

Succession problem means the issue

of who will run the business when the

current head leaves.

Sustainability means acting in ways

that support a high quality of life for

present and future generations.

Sustainable businesses operate in ways

that meet the needs of customers while

protecting or advancing the well-being of

our natural environment.

Sustainable competitive advantage is

the ability to outperform rivals in ways

that are diffi cult or costly to imitate.

Sustainable development uses envi-

ronmental resources to support societal

needs today while also preserving and

protecting them for future generations.

Sustainable innovations or green in-

novations help reduce an organization’s

negative impact and enhance its positive

impact on the natural environment.

Sweatshops employ workers at very low

wages for long hours in poor working

conditions.

SWOT analysis examines organizational

strengths and weaknesses and environ-

mental opportunities and threats.

490 Glossary

Withdrawal behaviors occur as

temporary absenteeism and actual job

turnover.

Work processes are groups of related

tasks that collectively create a valuable

work product.

Work sampling is when applicants are

evaluated while performing actual work

tasks.

Work–life balance involves balancing

career demands with personal and family

needs.

Workforce diversity describes workers’

diff erences in terms of gender, race, age,

ethnicity, religion, sexual orientation, and

able-bodiedness.

Workplace privacy is the right to privacy

while at work.

Workplace rage is showing aggressive

behavior toward co-workers or the work

setting.

Workplace spirituality creates meaning

and shared community among organiza-

tional members.

World 3.0 is a world where nations

balance cooperation in the global

economy with national identities and

interests.

World Trade Organization member

nations agree to negotiate and resolve

disputes about tariff s and trade

restrictions.

Wrongful discharge is a doctrine giving

workers legal protections against dis-

criminatory fi rings.

X, Y, Z

Zero-based budgets allocate resources

as if each budget were brand new.

Utilitarian view holds that ethical

behavior delivers the greatest good to the

most people.

Valence is the value a person assigns to

work-related outcomes.

Validity means that scores on a selection

device have a demonstrated correlation

with future job performance.

Values are broad beliefs about what is

appropriate behavior.

Value-based management actively

develops, communicates, and enacts

shared values.

Venture capitalists make large invest-

ments in new ventures in return for an

equity stake in the business.

Vertical integration growth occurs by

acquiring upstream suppliers or down-

stream distributors.

Virtual organizations use mobile IT

to engage a shifting network of strategic

alliances.

Virtual teams or distributed teams

work together and solve problems

through computer-based interactions.

Virtuous circles occur when socially

responsible behavior improves fi nancial

performance, which leads to more

responsible behavior in the future.

Vision clarifi es the purpose of the

organization and expresses what it hopes

to be in the future.

Visionary leadership brings to the

situation a clear sense of the future and

an understanding of how to get there.

Whistleblowers expose the misdeeds of

others in organizations.

Win–lose confl ict is where one party

achieves its desires, and the other party

does not.

Win–win confl ict is where the confl ict

is resolved to everyone’s benefi t.

Transformational change results in a

major and comprehensive redirection of

the organization.

Transformational leadership is

inspirational and arouses extraordinary

eff ort and performance.

Transnational corporations are global

corporations or MNEs that operate

worldwide on a borderless basis.

Transnational strategy seeks effi cien-

cies of global operations with attention

to local markets.

Triple bottom line evaluates organiza-

tional performance on economic, social,

and environmental criteria.

Turnaround strategy tries to fi x specifi c

performance problems.

Type A personality is a person

oriented toward extreme achievement,

impatience, and perfectionism.

Uncertain environments lack so much

information that it is diffi cult to assign

probabilities to the likely outcomes of

alternatives.

Uncertainty avoidance is the degree

to which a society tolerates risk and

uncertainty.

Under-reward inequity (negative

inequity) is when an individual perceives

that rewards received are less than what

is fair for work inputs.

Unfreezing is the phase during which a

situation is prepared for change.

Unintended consequences are

unanticipated positive or negative side

eff ects that result from a decision.

Unstructured interviews are those in

which the interviewer does not work

from a formal and pre-established list of

questions that is asked of all interviewees.

Unstructured problems have ambigu-

ities and information defi ciencies.

Upside-down pyramid view of organiza-

tions shows customers at the top being

served by workers who are supported by

managers.

Endnotes

Chapter 1

Endnotes

1 James O’Toole and Edward E. Lawler III, Th e New American

Workplace (New York: Palgrave Macmillan, 2006). 2

Quote from Philip Delves Broughton, “A Compelling Vision of a

Dystopian Future for Workers and How to Avoid it,” Financial Times,

Kindle Edition (May 19, 2011). See also Lynda Gratton, Th e Shift: Th e

Future of Work Is Already Here (London: HarperCollins UK, 2011). 3

Th omas A. Stewart, Intellectual Capital: Th e Wealth of

Organizations (New York: Bantam, 1998). 4

Charles O’Reilly III and Jeff rey Pfeff er, Hidden Value: How Great

Companies Achieve Extraordinary Results with Ordinary People (Boston:

Harvard Business School Press, 2000), p. 2. 5

Dave Ulrich, “Intellectual Capital 5 Competency 1 Commitment,” Harvard Business Review (Winter 1998), pp. 15–26.

6 See Peter F. Drucker, Th e Changing World of the Executive

(New York: T.T. Times Books, 1982); Th e Profession of Management

(Cambridge, MA: Harvard Business School Press, 1997); and Francis

Horibe, Managing Knowledge Workers: New Skills and Attitudes to

Unlock the Intellectual Capital in Your Organization (New York: Wiley,

1999). 7

Daniel Pink, A Whole New Mind: Moving from the Information Age

to the Conceptual Age (New York: Riverhead Books, 2005). 8

Gary Hamel, “Gary Hamel Sees More Options . . . Fewer Grand

Visions,” Wall Street Journal, Special Advertising Section (October 6,

2009), p. Akl16. 9

See Kenichi Ohmae’s books Th e Borderless World: Power and

Strategy in the Interlinked Economy (New York: Harper, 1989); Th e End

of the Nation State (New York: Free Press, 1996); Th e Invisible Continent:

Four Strategic Imperatives of the New Economy (New York: Harper,

1999); and Th e Next Global Stage: Challenges and Opportunities in Our

Borderless World (Philadelphia: Wharton School Publishing, 2006). 10

Information from Micheline Maynard, “A Lifeline Not Made in

the USA,” New York Times (October 18, 2009): nytimes.com (accessed

April 15, 2010). 11

See Joseph E. Stiglitz, Globalization and Its Discontents (New York:

W.W. Norton, 2003); and Joseph E. Stiglitz, Making Globalization Work

(New York: W.W. Norton, 2007). 12

Michael E. Porter, Th e Competitive Advantage of Nations: With a

New Introduction (New York: Free Press, 1998). 13

See, for example, John Bussey, “Buck Up America: China Is

Getting Too Expensive,” Wall Street Journal (October 7, 2011),

pp. B1, B2. 14

“Intel’s Ambitions Bloom in Arizona Desert,” Financial Times,

Kindle Edition ( January 23, 2012). 15

Esmé E. Deprez, “Madoff Sentenced to Maximum 150 Years,”

Bloomberg BusinessWeek ( June 29, 2009): BusinessWeek.com (accessed

April 15, 2010). 16

For discussions of ethics in business and management, see Linda

K. Trevino and Katherine A. Nelson, Managing Business Ethics, 4th ed.

(Hoboken, NJ: John Wiley & Sons, 2010); and Richard DeGeorge,

Business Ethics, 7th ed. (Englewood Cliff s, NJ: Prentice-Hall, 2009).

17 Daniel Akst, “Room at the Top for Improvement,” Wall Street

Journal (October 26, 2004), p. D8; and Herb Baum and Tammy King,

Th e Transparent Leader (New York: Collins, 2005). 18

“Th e Responsible Economy: You Are Part of It,” patagonia.com

(accessed December 10, 2013). 19

Workforce 2000, Work and Workers for the 21st Century

(Indianapolis, IN: Towers Perrin/Hudson Institute, 1987); Richard W.

Judy and Carol D’Amico (eds.), Work and Workers for the 21st Century

(Indianapolis, IN: Hudson Institute, 1997). See also Richard D. Bucher,

Diversity Consciousness: Opening Our Minds to People, Cultures, and

Opportunities (Upper Saddle River, NJ: Prentice-Hall, 2000);

R. Roosevelt Th omas, “From Affi rmative Action to Affi rming Diversity,”

Harvard Business Review (March–April 1990), pp. 107–17; and Beyond

Race and Gender: Unleashing the Power of Your Total Workforce by

Managing Diversity (New York: AMACOM, 1992). 20

June Dronholz, “Hispanics Gain in Census,” Wall Street Journal

(May 10, 2006), p. A6; Phillip Toledano, “Demographics: Th e

Population Hourglass,” Fast Company (March 2006), p. 56; June

Kronholz, “Racial Identity’s Gray Area,” Wall Street Journal ( June 12,

2008), p. A10; “We’re Getting Old,” Wall Street Journal (March 26,

2009), p. D2; Les Christie, “Hispanic Population Boom Fuels Rising

U.S. Diversity,” CNNMoney: cnn.com; Betsy Towner, “Th e New Face of

501 America,” AARP Bulletin ( June 2009), p. 31; Kelly Evans, “Recession

Drives More Women in the Workforce,” Wall Street Journal (November

12, 2009), p. A21; and “Minority Report: U.S. Sees Surge in Asian,

Hispanic Populations,” Wall Street Journal (May 28–29, 2011), p. A3. 21

Information from “Women and Work: We Did It!” Economist

(December 31, 2009); Joann S. Lublin, “Female Directors: Why So

Few?” Wall Street Journal (December 27, 2011), p. B5; and, Ben Waber,

“Gender Bias by the Numbers,” Bloomberg BusinessWeek (February 3–9,

2014), pp. 8, 9. 22

“Th e Glass Precipice: Why Female Bosses Fail more often than

Male Ones,” Th e Economist, Kindle Edition (May 6, 2014). 23

Sylvia Ann Hewitt, “Cracking the Code Th at Stalls Multicultural

Professionals,” HBR Blog Network ( January 22, 2014): blogs.hbr.

org/2014/01. 24

Information from “Racism in Hiring Remains, Study Says,”

Columbus Dispatch ( January 17, 2003), p. B2; Waber, op cit. 25

Ashleigh Shelby Rosette, Geoff rey J. Leonardelli, and Katherine W.

Phillips, “Th e White Standard: Racial Bias in Leader Categorization,”

Journal of Applied Psychology, vol. 93 (2008), pp. 758–77. See also, “Race

Infl uences How Leaders Are Assessed,” Wall Street Journal ( January 3,

2012), p. B7. 26

Survey data reported in Sue Shellenbarger, “New Workplace

Equalizer: Ambition,” Wall Street Journal (March 26, 2009), p. D5. 27

Waber, op cit. 28

Judith B. Rosener, “Women Make Good Managers. So What?”

BusinessWeek (December 11, 2000), p. 24. 29

See Leslie Kwoh, “Firms Hail New Chief (of Diversity),” Wall Street

Journal ( January 5, 2012), p. B10. 30

Charles Handy, Th e Age of Unreason (Cambridge, MA: Harvard

Business School Press, 1990); also see, Charles Handy, A Business

Guru’s Portfolio Life (New York: AMACOM, 2008); and Myself and Other

Important Matters (New York: AMACOM, 2008).

491

492 Endnotes

31 See

Peter Coy, Michelle Conlin, and Moira Herbst, “Th e

Disposable Worker,” Bloomberg BusinessWeek ( January 18, 2010),

pp. 33–39. 32

See Gareille Monaghan, “Don’t Get a Job, Get a Portfolio Career,”

Sunday Times (April 26, 2009), p. 15. 33

Tom Peters, “Th e New Wired World of Work,” BusinessWeek

(August 28, 2000), pp. 172–73. 34

Quotes from “IBM vs. the Carnegie Corporation: Making the World

Work Better,” Economist, Kindle Edition (June 9, 2011); and “Corporate

Responsibility at IBM: A Foreword by IBM’s Chairman,” ibm.com/ibm/

responsibility/letter.shtml (accessed October 3, 2011). 35

Quote from Stephen Moore, “Th e Conscience of a Capitalist,” Wall

Street Journal (October 3–4, 2009), p. A11; see also wholefoods.com/

company. 36

For an overview of organizations and organization theory, see

W. Richard Scott, Organizations: Rational, Natural and Open Systems,

4th ed. (Englewood Cliff s, NJ: Prentice-Hall, 1998). 37

Information from Paul F. Nunes, Geoff rey Godbey, and H. James

Wilson, “Bet the Clock,” Wall Street Journal (October 26, 2009), p. R6;

and Steve Hamm, “Th e King of the Cloud,” Bloomberg BusinessWeek

(November 30, 2009), p. 77. 38

Includes ideas from Jay A. Conger, Winning ‘em Over: A New

Model for Managing in the Age of Persuasion (New York: Simon &

Schuster, 1998), pp. 180–81; Stewart D. Friedman, Perry Christensen,

and Jessica DeGroot, “Work and Life: Th e End of the Zero-Sum Game,”

Harvard Business Review (November–December 1998), pp. 119–29;

Chris Argyris, “Empowerment: Th e Emperor’s New Clothes,” Harvard

Business Review (May–June 1998), pp. 98–105; and John A. Byrne,

“Management by Web,” BusinessWeek (August 28, 2000), pp. 84–98.

See also emerging reports such as O’Toole and Lawler, op. cit.; Jon

Nicholson and Amanda Nairn, Th e Manager of the 21st Century: 2020

Vision (Sydney: Boston Consulting Group, 2008); and Jeff rey Pfeff er,

“Building Sustainable Organizations: Th e Human Factor,” Academy of

Management Perspectives, vol. 24 (February 2010), pp. 34–45. 39

Jeff rey Pfeff er and John F. Veiga, “Putting People First for

Organizational Success,” Academy of Management Executive, vol. 13 (May

1999), pp. 37–48; Jeff rey Pfeff er, Th e Human Equation: Building Profi ts by

Putting People First (Boston: Harvard Business School Press, 1998). 40

Henry Mintzberg, “Th e Manager’s Job: Folklore and Fact,”

Harvard Business Review, vol. 53 ( July–August 1975), p. 61. See also his

book, Th e Nature of Managerial Work (New York: Harper-Row, 1973:

HarperCollins, 1997). 41

For an example of research on corporate boards, see Marta

Geletkanycz and Brian Boyd, “CEO Outside Directorships and Firm

Performance: A Reconciliation of Agency and Embeddedness Views,”

Academy of Management Journal, vol. 54 (April 2011), pp. 335–52. 42

Ellen Byron, “P&G’s Lafl ey Sees CEOs as Link to World,” Wall

Street Journal (March 23, 2009), p. B6; and Stefan Stern, “What Exactly

Are Chief Executives For?” Financial Times (May 15, 2009). 43

For a perspective on the fi rst-level manager’s job, see Leonard

A. Schlesinger and Janice A. Klein, “Th e First-Line Supervisor: Past,

Present and Future,” in Jay W. Lorsch (ed.), Handbook of Organizational

Behavior, pp. 370–82 (Englewood Cliff s, NJ: Prentice-Hall, 1987). 44

Pfeff er, op. cit. 45

George Anders, “Overseeing More Employees—With Fewer

Managers,” Wall Street Journal (March 24, 2008), p. B6. 46

Th is running example is developed from information from

“Accountants Have Lives, Too, You Know,” BusinessWeek (February 23,

1998), pp. 88–90; Silvia Ann Hewlett and Carolyn Buck Luce, “Off -

Ramps and On-Ramps: Keeping Talented Women on the Road to

Success,” Harvard Business Review (March 2005), reprint 9491; and the

Ernst-Young website: ey.com.

47 Mintzberg (1973/1997), op. cit., p. 30.

48 See Mintzberg (1973/1997), op. cit., Henry Mintzberg, “Covert

Leadership: Th e Art of Managing Professionals,” Harvard Business

Review (November–December 1998), pp. 140–47; and Jonathan Gosling

and Henry Mintzberg, “Th e Five Minds of a Manager,” Harvard Business

Review (November 2003), pp. 1–9. 49

For research on managerial work, see Morgan W. McCall Jr.,

Ann M. Morrison, and Robert L. Hannan, Studies of Managerial Work:

Results and Methods. Technical Report #9 (Greensboro, NC: Center for

Creative Leadership, 1978), pp. 7–9. See also John P. Kotter, “What

Eff ective General Managers Really Do,” Harvard Business Review

(November–December 1982), pp. 156–57. 50

Mintzberg (1973/1997), op. cit., p. 60. 51

Scene based on Kotter, op. cit., p. 164. See also his book Th e

General Managers (New York: Free Press, 1986); and David Barry,

Catherine Durnell Crampton, and Stephen J. Carroll, “Navigating the

Garbage Can: How Agendas Help Managers Cope with Job Realities,”

Academy of Management Executive, vol. 2 (May 1997), pp. 43–56. 52

“Business Schools Get Low Marks from CEOs,” Wall Street Journal

(March 19, 2014), p. B7. 53

Robert L. Katz, “Skills of an Eff ective Administrator,” Harvard

Business Review (September–October 1974), p. 94. 54

Ibid. 55

See, for example, Melissa Korn and Joe Light, “On the Lesson

Plan: Feelings,” Wall Street Journal (May 5, 2011), p. B6; and Alina Dizik,

“Women Embrace the Skills and Strategies for a Corporate Life,”

Financial Times (September 12, 2011), p. 12. 56

See Daniel Goleman’s books, Emotional Intelligence (New York:

Bantam, 1995) and Working with Emotional Intelligence (New York:

Bantam, 1998); and his articles “What Makes a Leader,” Harvard

Business Review (November–December 1998), pp. 93–102, and

“Leadership Th at Makes a Diff erence,” Harvard Business Review

(March–April 2000), pp. 79–90; quote from p. 80. 57

See Daniel Goleman, Richard Boyatzis, and Annie McKee, Primal

Leadership: Realizing the Power of Emotional Intelligence (Boston:

Harvard Business School Press, 2002). 58

“Business Schools Get Low Marks from CEOs,” op cit. See also

Richard E. Boyatzis, “Competencies in the 21st Century,” Journal

of Management Development, vol. 27, no. 1 (2008), pp. 5–12; and

Richard Boyatzis (Guest Editor), “Competencies in the EU,” Journal of

Management Development, vol. 28 (2009), special issue. 59

Quote from Tony Wagner, Th e Global Achievement Gap: Why Even

our Best Schools Don’t Teach the New Survival Skills our Children Need

and What We Can Do About It (New York: Basic Books, 2008), pp. 14–17. 60

Suggested by and some items included from Outcome

Measurement Project, Phase I and Phase II Reports (St. Louis:

American Assembly of Collegiate Schools of Business, 1986).

Feature Notes

Opening Quote: Wayne Niemi, “Zappos Milestone: Q&A with Tony

Hsieh,” Footwear News (May 4, 2009), about.zappos.com/press-center/

media-coverage/zappos-milestone-qa-tony-hsieh.

Analysis: Information from Kate Taylor, “Why Millennials Are

Ending the 9 to 5,” FORBESWOMAN (August 23, 2013), forbes.com

(accessed September 9, 2013); Mandy Dorn and Michele Vana,

“Younger Managers Rise in the Ranks,” EY Building a Better Working

World, ey.com (accessed December 9, 2013).

Choices: Information from Reed Hastings, “How to Set Your

Employees Free,” Bloomberg BusinessWeek (April 12, 2012),

businessweek.com (accessed April 14, 2012); and Leslie Kwoh, “Go

Ahead and Take Off , for as Long as You Like,” Wall Street Journal

(October 29, 2012), p. B7.

493Endnotes

Ethics: Information from Jennifer Valentino-DeVries, “Social

Media and Bias in Hiring,” Wall Street Journal (November 21, 2013),

p. B4.

Insight: For a good discussion see Pino Audia, “A New B-School

Specialty: Self-Awareness,” Forbes (December 4, 2009), forbes.com;

and the Johari Window was originally described by Joseph Luft and

Harry Ingham, “Th e Johari Window; A Graphic Model of Interpersonal

Awareness,” Proceedings of the Western Training Laboratory in Group

Development (Los Angeles: UCLA, 1955).

Wisdom: Information and quotes from Ellen McGurt, “Fresh

Copy,” Fast Company (December 2011/January 2012), news.xerox.com

(accessed August 25, 2012); “Game Changer in Business and Tech:

Ursula Burns,” Huffi ngton Post (November 1, 2011), huffi ngtonpost.

com; and Carol Hymowitz, “Ursula Burns, CEO, Xerox,” Bloomberg

BusinessWeek (August 12–25, 2013), pp. 57–58.

Photo Essay Notes

Management&Popular Culture: Information and quotes from

Manohla Dargis, “Orphan’s Lifeline Out of Hell Could Be a Game

Show in Mumbai,” New York Times (November 12, 2008), movies.

nytimes.com; and James Christopher, “Slumdog Millionaire,” Th e Times

( January 8, 2009), entertainment, timesonline.co.uk.

Recommended Reading: Resha Saujani, Women Who Don’t Wait in

Line: Women Who Break the Mold, Lead the Way (Fort Washington, PA:

New Harvest, 2013).

Chapter 2

Endnotes

1 A thorough review and critique of the history of management

thought, including management in ancient civilizations, is provided

by Daniel A. Wren, Th e Evolution of Management Th ought, 4th ed. (New

York: Wiley, 1993). 2 Pauline Graham, Mary Parker Follett—Prophet of Management:

A Celebration of Writings from the 1920s (Boston: Harvard Business

School Press, 1995). 3 For a time line of 20th-century management ideas, see “75 Years

of Management Ideas and Practices: 1922–1997,” Harvard Business

Review, supplement (September–October 1997). 4 For a sample of this work, see Henry L. Gantt, Industrial

Leadership (Easton, MD: Hive, 1921; Hive edition published in 1974);

Henry C. Metcalfe and Lyndall Urwick (eds.), Dynamic Administration:

Th e Collected Papers of Mary Parker Follett (New York: Harper-Brothers,

1940); James D. Mooney, Th e Principles of Administration, rev. ed.

(New York: Harper-Brothers, 1947); Lyndall Urwick, Th e Elements of

Administration (New York: Harper-Brothers, 1943); and Th e Golden

Book of Management (London: N. Neame, 1956). 5 Frederick W. Taylor, Th e Principles of Scientifi c Management (New

York: W.W. Norton, 1967), originally published by Harper-Brothers in

1911. See also the biography, Robert Kanigel, Th e One Best Way (New

York: Viking, 1997). 6 For criticisms of Taylor and his work, see Charles W. Wrege

and Amedeo G. Perroni, “Taylor’s Pig-Tale: A Historical Analysis of

Frederick W. Taylor’s Pig Iron Experiments,” Academy of Management

Journal, vol. 17 (March 1974), pp. 6–27; Charles W. Wrege and Richard

M. Hodgetts, “Frederick W. Taylor’s 1899 Pig Iron Observations:

Examining Fact, Fiction and Lessons for the New Millennium,”

Academy of Management Journal, vol. 43 (2000), pp. 1283–91; and

Jill Lepore, “Not So Fast,” Th e New Yorker (October 12, 2009),

newyorker.com.

7 For a discussion of the contemporary signifi cance of Taylor’s

work, see Edwin A. Lock, “Th e Ideas of Frederick W. Taylor: An

Evaluation,” Academy of Management Review, vol. 7 (1982), p. 14. 8 Information from Raymund Flandez and Kelly K. Sports, “Tackling

the Energy Monster,” Wall Street Journal ( June 16, 2008), p. R1; and

Jennifer Levitz, “Delivery Drivers to Pick up Pace by Surrendering

Keys,” Wall Street Journal, Kindle Edition (September 16, 2011). 9 Frank B. Gilbreth, Motion Study (New York: Van Nostrand, 1911).

10 Information from Karl Taro Greenfi eld, “Taco Bell and the Golden

Age of Drive Th rough,” BusinessWeek (May 5, 2011), businessweek.com

(accessed October 30, 2013). 11

Available in English as Henri Fayol, General and Industrial

Administration (London: Pitman, 1949); subsequent discussion is

based on M. B. Brodie, Fayol on Administration (London: Pitman, 1949). 12

A. M. Henderson and Talcott Parsons (eds. and trans.), Max

Weber: Th e Th eory of Social Economic Organization (New York: Free

Press, 1947). 13

Ibid., p. 337. 14

For classic treatments of bureaucracy, see Alvin Gouldner,

Patterns of Industrial Bureaucracy (New York: Free Press, 1954); and

Robert K. Merton, Social Th eory and Social Structure (New York: Free

Press, 1957). 15

“Highlights of GAO-10-455, a Report to Congressional

Committees,” United States Government Accountability Offi ce

(April 2010), gao.gov/assets/310/303039.pdf (accessed December 22,

2013). 16

M. P. Follett, Freedom and Coordination (London: Management

Publications Trust, 1949). 17

Judith Garwood, “A Review of Dynamic Administration: Th e

Collected Papers of Mary Parker Follett,” New Management, vol. 2

(1984), pp. 61–62; eulogy from Richard C. Cabot, Encyclopedia of Social

Work, vol. 15, “Follett, Mary Parker,” p. 351. 18

Th e Hawthorne studies are described in detail in F. J.

Roethlisberger and William J. Dickson, Management and the Worker

(Cambridge, MA: Harvard University Press, 1966) and G. Homans,

Fatigue of Workers (New York: Reinhold, 1941). For an interview with

three of the participants in the relay–assembly test–room studies, see

R. G. Greenwood, A. A. Bolton, and R. A. Greenwood, “Hawthorne a

Half Century Later: Relay Assembly Participants Remember,” Journal of

Management, vol. 9 (1983), pp. 217–31. 19

The criticisms of the Hawthorne studies are detailed in Alex

Carey, “The Hawthorne Studies: A Radical Criticism,” American

Sociological Review, vol. 32 (1967), pp. 403–16; H. M. Parsons,

“What Happened at Hawthorne?” Science, vol. 183 (1974),

pp. 922–32; and B. Rice, “The Hawthorne Defect: Persistence of a

Flawed Theory,” Psychology Today, vol. 16 (1982), pp. 70–74. See

also Wren, op. cit. 20

Th is discussion of Maslow’s theory is based on Abraham H.

Maslow, Eupsychian Management (Homewood, IL: Richard D. Irwin,

1965) and Abraham H. Maslow, Motivation and Personality, 2nd ed.

(New York: Harper-Row, 1970). 21

Douglas McGregor, Th e Human Side of Enterprise (New York:

McGraw-Hill, 1960). 22

Th is notion is also discussed in terms of the “pygmalion eff ect.”

See Dov Eden, Pygmalion in Management (Lexington, MA: Lexington

Books, 1990) and Dov Eden, Dvorah Geller, and Abigail Gerwirtz,

“Implanting Pygmalion Leadership Style through Workshop Training:

Seven Field Experiments,” Leadership Quarterly, vol. 11 (2) (2000),

pp. 171–210. 23

Gary Heil, Deborah F. Stevens, and Warren G. Bennis, Douglas

McGregor on Management: Revisiting the Human Side of Enterprise

(New York: Wiley, 2000).

494 Endnotes

24 Chris Argyris, Personality and Organization (New York: Harper-

Row, 1957). 25

Stefan Stern, “Smarter Leaders Are Betting Big on Data,”

Financial Times, Kindle Edition (March 9, 2010). See also Th omas H.

Davenport, Jeanne G. Harris, and Robert Morison, Analytics at Work:

Smarter Decisions, Better Results (Cambridge, MA: Harvard Business

Press, 2010). 26

Scott Morrison, “Google Searches for Staffi ng Answers,” Wall

Street Journal (May 19, 2009), p. B1; and Dennis K. Berman, “So, What’s

Your Algorithm?” Wall Street Journal ( January 4, 2012), pp. B1, B2. 27

Th e ideas of Chester I. Bamard, Functions of the Executive

(Cambridge, MA: Harvard University Press, 1938), and Ludwig von

Bertalanff y, “Th e History and Status of General Systems Th eory,”

Academy of Management Journal, vol. 15 (1972), pp. 407–26,

contributed to the emergence of this systems perspective on

organizations. Th e systems view is further developed by Daniel Katz

and Robert L. Kahn in their classic book, Th e Social Psychology of

Organizations (New York: Wiley, 1978). For an integrated systems view

see Lane Tracy, Th e Living Organization (New York: Quorum Books,

1994). For an overview, see W. Richard Scott, Organizations: Rational,

Natural, and Open Systems, 4th ed. (Upper Saddle River, NJ: Prentice-

Hall, 1998). 28

For an overview, see Scott, op. cit., pp. 95–97. 29

See, for example, the classic studies of Tom Burns and George

M. Stalker, Th e Management of Innovation (London: Tavistock, 1961,

and republished by Oxford University Press, London, 1994) and Paul R.

Lawrence and Jay W. Lorsch, Organizations and Environment (Boston:

Division of Research, Graduate School of Business Administration,

Harvard University, 1967). 30

W. Edwards Deming, Quality, Productivity, and Competitive

Position (Cambridge, MA: MIT Press, 1982); and Rafael Aguay,

Dr. Deming: Th e American Who Taught the Japanese about Quality

(New York: Free Press, 1997). 31

See Howard S. Gitlow and Shelly J. Gitlow, Th e Deming Guide to

Quality and Competitive Position (Englewood Cliff s, NJ: Prentice-Hall,

1987). 32

See Denise M. Rousseau, “On Organizational Behavior,” BizEd

(May/June, 2008), pp. 30–31; and David G. Allen, Phillip C. Bryant, and

James A. Vardaman, “Retaining Talent: Replacing Misconceptions with

Evidence-Based Strategies,” Academy of Management Perspectives,

vol. 24 (May, 2010). 33

See Bruce G. Resnick and Timothy L. Smunt, “From Good to Great

to . . .” Academy of Management Perspectives (November 2008), pp. 6–12;

and Bruce Niendorf and Kristine Beck, “Good to Great, or Just Good?”

Academy of Management Perspectives (November 2008), pp. 13–20. 34

Jeff rey Pfeff er and Robert I. Sutton, Hard Facts, Dangerous

Half-Truths, and Total Nonsense: Profi ting from Evidence-Based

Management (Boston: Harvard Business School Press, 2006). 35

Jeff rey Pfeff er and Robert I. Sutton, “Management Half-Truths

and Nonsense,” California Management Review, vol. 48 (3) (2006),

pp. 77–100; and Jeff rey Pfeff er and Robert I. Sutton, “Evidence-Based

Management,” Harvard Business Review ( January 2006), reprint

R0601E. 36

Rob B. Viner, David Denyer, and Denise M. Rousseau,

“Evidence-Based Management: Concept Cleanup Time?” Academy

of Management Perspectives, vol. 23 (November 2009), pp. 19–28. For

debate on the concept, see the exchange between ibid. and Trish Reay,

Whitney Berta, and Melanie Kazman Kohn, “What’s the Evidence on

Evidence-Based Management?” Academy of Management Perspectives,

vol. 23 (November 2009), pp. 5–18. 37

Jeff rey Pfeff er, Th e Human Equation: Building Profi ts by Putting

People First (Boston: Harvard Business School Press, 1998); and

Charles O’Reilly III and Jeff rey Pfeff er, Hidden Value: How Great

Companies Achieve Extraordinary Results with Ordinary People

(Boston: Harvard Business School Press, 2000). 38

Ibid 39

Developed from Sara L. Rynes, Tamara L. Giluk, and Kenneth

G. Brown, “Th e Very Separate Worlds of Academic and Practitioner

Periodicals in Human Resource Management: Implications for

Evidence-Based Management,” Academy of Management Journal,

vol. 50 (October 2008), p. 986; and David G. Allen, Phillip C. Bryant,

and James M. Vardaman, “Retaining Talent: Replacing Misconceptions

with Evidence-Based Strategies,” Academy of Management Perspectives,

vol. 24 (May 2010).

Feature Notes

Analysis: Information from Jacquelyn Smith, “Th e Best Big

Companies for Work-Life Balance,” Forbes ( June 3, 2013), forbes.com

(accessed June 6, 2013).

Choices: Information from Venture Capital Dispatch, “Facebook

and Zappos’s Diff erent Views on Worker Retention,” Wall Street Journal

(October 29, 2009), wsj.com.

Ethics: Information from Spencer E. Ante and Lauren Weber,

“Memo to Workers: Th e Boss Is Watching,” Wall Street Journal (October

23, 2013), pp. B1, B6; and Spencer E. Ante and Lauren Weber, “With

Little on Law Books, Employers Have Latitude in Monitoring Workers,”

Wall Street Journal (October 23, 2013), p. B6.

Insight: See David A. Kolb, Experiential Learning: Experience as the

Source of Learning and Development (Englewood Cliff s, NJ: Prentice-

Hall, 1984); and David A. Kolb, “Experiential Learning Th eory and the

Learning Style Inventory,” Th e Academy of Management Review, vol. 6

(1981), pp. 289–96.

Wisdom: Information from “Chapter 2,” Kellogg (Winter 2004), p.

6; David Pilling, “Establishing Libraries to Help Children Gain a Love

of Books,” Financial Times (December 8, 2009); Leaving Microsoft to

Change the World (New York: HarperCollins), 2006; and David Pilling,

“Establishing Libraries to Help Gain a Love of Books,” Financial Times,

Kindle Edition (December 8, 2009).

Photo Essay Notes

Recommended Reading: Jim Collins and Morten T. Hansen, Great by

Choice: Uncertainty, Chaos, and Luck—Why Some Th rive Despite Th em

All (HarperBusiness, 2011).

Chapter 3

Endnotes

Quotes are from “Sarbanes-Oxley Essential Information,” sox-online.

com (accessed June 10, 2014); and, “HYPERLINK “employerbrief.

com/2013/10/company-ordered-to-pay-1-9-million-to-former-cfo-

for-sarbanes-oxley-act-violations/” \o “Permanent Link to Company

Ordered to Pay $1.9 Million to Former CFO for Sarbanes Oxley Act

Violations” Company Ordered to Pay $1.9 Million to Former CFO for

Sarbanes Oxley Act Violations,” employerbrief.com (accessed

June 10, 2014). 1 Christopher M. Matthews, “Judge Wants Toyota Probe to Delve

into Employees,” Wall Street Journal (March 21, 2014), p. B3. 2

Desmond Tutu, “Do More Th an Win,” Fortune (December 30,

1991), p. 59. 3

For an overview, see Linda K. Trevino and Katherine A. Nelson,

Managing Business Ethics, 3rd ed. (New York: Wiley, 2003).

495Endnotes

4 M. J. O’Fallon and K. D. Butterfi eld, “A Review of the Empirical Ethical

Decision-Making Literature: 1996–2003,” Journal of Business Ethics, vol.

59 (2005), pp. 375–413; and S. J. Vitell and E. R. Hidalgo, “Th e Impact

of Corporate Ethical Values and Enforcement of Ethical Codes on the

Perceived Importance of Ethics in Business: A Comparison of U.S. and

Spanish Managers,” Journal of Business Ethics, vol. 64 (2006), pp. 31–43. 5

D. Lyons, Ethics and the Rule of Law (Cambridge, UK: Cambridge

University Press, 1984). 6

See, for example, James Oliver Horton and Lois E. Horton, Slavery

and the Making of America (New York: Oxford University Press, 2004). 7

Trevino and Nelson, op. cit. 8

Milton Rokeach, Th e Nature of Human Values (New York: Free

Press, 1973). See also W. C. Frederick and J. Weber, “Th e Values of

Corporate Executives and Th eir Critics: An Empirical Description and

Normative Implications,” in W. C. Frederick and L. E. Preston (eds.),

Business Ethics: Research Issues and Empirical Studies (Greenwich,

CT: JAI Press, 1990). 9

Philip Delves Broughton, “MBA Students Sway Integrity for

Plagiarism,” Financial Times (May 19, 2008), p. 13. 10

Case reported in Michelle Conlin, “Cheating—Or Postmodern

Learning?” BusinessWeek (May 14, 2007), p. 42. 11

See Gerald F. Cavanagh, Dennis J. Moberg, and Manuel Velasquez,

“Th e Ethics of Organizational Politics,” Academy of Management

Review, vol. 6 (1981), pp. 363–74; Justin G. Locknecker, Joseph A.

McKinney, and Carlos W. Moore, “Egoism and Independence:

Entrepreneurial Ethics,” Organizational Dynamics (Winter 1988),

pp. 64–72; and Justin G. Locknecker, Joseph A. McKinney, and Carlos

W. Moore, “Th e Generation Gap in Business Ethics,” Business Horizons

(September–October 1989), pp. 9–14. 12

Raymond L. Hilgert, “What Ever Happened to Ethics in Business and

in Business Schools?” Th e Diary of Alpha Kappa Psi (April 1989), pp. 4–8. 13

Th e Universal Declaration of Human Rights was adopted by

General Assembly resolution 217 A (III), December 10, 1948, in the

United Nations. See un.org/Overview/rights.html. 14

Jerald Greenburg, “Organizational Justice: Yesterday, Today, and

Tomorrow,” Journal of Management, vol. 16 (1990), pp. 399–432; and

Mary A. Konovsky, “Understanding Procedural Justice and Its Impact

on Business Organizations,” Journal of Management, vol. 26 (2000),

pp. 489–511. 15

For a review see Russell Cropanzano, David E. Bown, and

Stephen W. Gilliland, “Th e Management of Organizational Justice,”

Academy of Management Perspectives (November 2007), pp. 34–48. 16

Interactional justice is described by Robert J. Bies, “Th e

Predicament of Injustice: Th e Management of Moral Outrage,” in L. L.

Cummings and B. M. Staw (eds.), Research in Organizational Behavior,

vol. 9 (Greenwich, CT: JAI Press, 1987), pp. 289–319. Th e example is

from Carol T. Kulik and Robert L. Holbrook, “Demographics in Service

Encounters: Eff ects of Racial and Gender Congruence on Perceived

Fairness,” Social Justice Research, vol. 13 (2000), pp. 375–402. 17

M. Fortin and M. R. Fellenz, “Hypocrisies of Fairness: Towards

a More Refl exive Ethical Base in Organizational Justice Research and

Practice,” Journal of Business Ethics, vol. 78 (2008), pp. 415–33; and W.

Sadurski, “Social Justice and Legal Justice,” Law and Philosophy, vol. 3

(1984), pp. 329–54. 18

Robert D. Haas, “Ethics—A Global Business Challenge,” Vital

Speeches of the Day ( June 1, 1996), pp. 506–9. 19

Th is discussion is based on Th omas Donaldson, “Values in

Tension: Ethics Away from Home,” Harvard Business Review, vol. 74

(September–October 1996), pp. 48–62. 20

Th omas Donaldson and Th omas W. Dunfee, “Towards a Unifi ed

Conception of Business Ethics: Integrative Social Contracts Th eory,”

Academy of Management Review, vol. 19 (1994), pp. 252–85.

21 Donaldson, op. cit.

22 Reported in Barbara Ley Toffl er, “Tough Choices: Managers Talk

Ethics,” New Management, vol. 4 (1987), pp. 34–39. See also Barbara Ley

Toffl er, Tough Choices: Managers Talk Ethics (New York: Wiley, 1986). 23

See, for example, Steven N. Brenner and Earl A. Mollander, “Is

the Ethics of Business Changing?” Harvard Business Review, vol. 55

( January–February 1977). 24

Survey results from Del Jones, “48% of Workers Admit to

Unethical or Illegal Acts,” USA Today (April 4, 1997), p. A1. 25

For a discussion of similar approaches see Denis Collins, Business

Ethics: How to Design and Manage Ethical Organizations (Hoboken, NJ:

John Wiley & Sons, 2012), pp. 146–47. 26

Reported in Adam Smith, “Wall Street’s Outrageous Fortunes,”

Esquire (April 1987), p. 73. See also Long Wang and J. Keith Murnighan,

“On Greed,” Th e Academy of Management Annals, vol. 5 (2011),

pp. 279–316. 27

Lawrence Kohlberg, Th e Psychology of Moral Development: Th e

Nature and Validity of Moral Stages (Essays in Moral Development,

Volume 2) (New York: HarperCollins, 1984). See also the discussion by

Linda K. Trevino, “Moral Reasoning and Business Ethics: Implications

for Research, Education, and Management,” Journal of Business Ethics,

vol. 11 (1992), pp. 445–59. 28

See Th omas M. Jones, “Ethical Decision Making by Individuals in

Organizations: An Issue Contingent Model,” Academy of Management

Review, vol. 16 (1991), pp. 366–95; Sara Morris and Robert A.

McDonald, “Th e Role of Moral Intensity in Moral Judgments: An

Empirical Investigation,” Journal of Business Ethics, vol. 14 (9) (1995),

pp. 715–26; and Tim Barnett, “Dimensions of Moral Intensity and

Ethical Decision Making: An Empirical Study,” Journal of Applied Social

Psychology, vol. 31 (2001), pp. 1038–57. 29

David M. Mayer, Samir Nurmohamed, Linda Klebe Treviño,

Debra L. Shapiro, and Marshall Schminke, “Encouraging Employees

to Report Unethical Behavior Internally: It Takes a Village,”

Organizational Behavior and Human Decision Processes, vol. 121

(2013), pp. 89–103. 30

Information on this case from William M. Carley, “Antitrust Chief

Says CEOs Should Tape All Phone Calls to Each Other,” Wall Street

Journal (February 15, 1983), p. 23; “American Air, Chief End Antitrust

Suit, Agree Not to Discuss Fares with Rivals,” Wall Street Journal (July 15,

1985), p. 4; “American Airlines Loses Its Pilot,” Economist (April 18,

1998), p. 58. 31

Situations from Alison Damast and Erin Zlomek, “Top B-School

Stories of 2011,” Bloomberg BusinessWeek (December 28, 2011):

BusinessWeek.com; and, Joe Palazzolo and Emily Glazer, “Grand Jury

Gets Evidence,” Wall Street Journal (February 13, 2012), pp. A1, A2. 32

Saul W. Gellerman, “Why ‘Good’ Managers Make Bad Ethical

Choices,” Harvard Business Review, vol. 64 ( July–August 1986),

pp. 85–90. 33

See Spencer E. Ante and Don Clark, “H-P Settles Bribery Case,”

Wall Street Journal (April 10, 2014), p. B1; and, Jeff Bennett, “GM Recall

Probe Heats Up,” Wall Street Journal (March 6, 2014), p. B1 34

Archie B. Carroll, “In Search of the Moral Manager,” Business

Horizons (March/April 2001), pp. 7–15. 35

Kohlberg, op. cit. 36

Alan L. Otten, “Ethics on the Job: Companies Alert Employees to

Potential Dilemmas,” Wall Street Journal ( July 14, 1986), p. 17; and “Th e

Business Ethics Debate,” Newsweek (May 25, 1987), p. 36. 37

Information from corporate website: gapinc.com/

communitysourcing/vendor_conduct.htm. 38

See “Whistle-Blowers on Trial,” BusinessWeek (March 24, 1997),

pp. 172–78, and “NLRB Judge Rules for Massachusetts Nurses in

Whistle-Blowing Case,” American Nurse ( January–February 1998), p. 7.

496 Endnotes

39 For a review of whistleblowing, see Marcia P. Micelli and Janet

P. Near, Blowing the Whistle (Lexington, MA: Lexington Books,

1992); see also Micelli and Near, “Whistleblowing: Reaping the

Benefits,” Academy of Management Executive, vol. 8 (August 1994),

pp. 65–72; and M. J. Gundlach, S. C. Douglas, and M. J. Martinko,

“The Decision to Blow the Whistle: A Social Information Processing

Framework,” Academy of Management Review, vol. 28, no. 1 (2003),

pp. 107–23. 40

“A Tip for Whistleblowers: Don’t,” Wall Street Journal (May 31,

2007), p. B6. 41

Mayer, et al., op cit. 42

Information from Ethics Resource Center, “Major Survey of

America’s Workers Finds Substantial Improvements in Ethics,” ethics.

org/releases/nr_20030521_nbes.html. 43

James A. Waters, “Catch 20.5: Mortality as an Organizational

Phenomenon,” Organizational Dynamics, vol. 6 (Spring 1978), pp. 3–15. 44

See Th omas Donaldson and Lee Preston, “Th e Stakeholder

Th eory of the Corporation,” Academy of Management Review, vol. 20

( January 1995), pp. 65–91. 45

Michael E. Porter and Mark R. Kramer, “Strategy & Society:

Th e Link between Competitive Advantage and Corporate Social

Responsibility,” Harvard Business Review (December 2006), Reprint

R0612D. 46

R. K. Bradley, R. Agle, and D. J. Wood, “Toward a Th eory of

Stakeholder Identifi cation and Salience: Defi ning the Principle of Who

and What Really Counts,” Academy of Management Review, vol. 22

(1997), pp. 853–86. 47

Kara Scannell, “NY Regulator Targets Individuals Behind Coporate

Wrongdoing,” Financial Times, Kindle Edition (March 10, 2014). 48

Defi nition from pgsupplier.com/en/current-suppliers/

environmental-sustainability-scorecard.shtml (accessed: May 5, 2014). 49

Alfred A. Marcus and Adam R. Fremeth, “Green Management

Matters Regardless,” Academy of Management Perspectives, vol. 23

(August, 2009), pp. 17–26. 50

Jeff rey Pfeff er, “Building Sustainable Organizations: Th e Human

Factor,” Academy of Management Perspectives, vol. 24 (February, 2010),

pp. 34–45. 51

Joe Biesecker, “What Today’s College Graduates Want: It’s Not

All about Paychecks,” Central Penn Business Journal (August 10, 2007);

and Sarah E. Needleman, “Th e Latest Offi ce Perk: Getting Paid to

Volunteer,” Wall Street Journal (April 29, 2008), p. D1. 52

Ibid. Biesecker. 53

Th e historical framework of this discussion is developed from

Keith Davis, “Th e Case for and against Business Assumption of

Social Responsibility,” Academy of Management Journal ( June 1973),

pp. 312–22; Keith Davis and William Frederick, Business and Society:

Management: Public Policy, Ethics, 5th ed. (New York: McGraw-Hill,

1984). Th e debate is also discussed by Makower, op. cit., pp. 28–33.

For further perspective on this debate see, for example, Marcus and

Fremeth, op cit., and Donald S. Siegel, “Green Management Matters

Only if It Yields More Green: An Economic/Strategic Perspective,”

Academy of Management Perspectives, vol. 23 (August, 2009), pp. 5–16. 54

Th e Friedman quotation is from Milton Friedman, Capitalism and

Freedom (Chicago: University of Chicago Press, 1962). See also Henry

G. Manne, “Milton Friedman Was Right,” Wall Street Journal (November

24, 2006), p. A12. 55

For more on this line of thinking see Aneel Kamari, “Th e Case

against Corporate Social Responsibility,” Wall Street Journal (August 23,

2010), wsj.com. 56

Th e Samuelson quotation is from Paul A. Samuelson, “Love Th at

Corporation,” Mountain Bell Magazine (Spring 1971). Both are cited in

Davis, op. cit.

57 Michael E. Porter and Mark R. Kramer, “Shared Value: How to

Reinvent Capitalism and Unleash a Wave of Innovation and Growth,”

Harvard Business Review ( January–February, 2011), pp. 62–77. 58

Ibid., p. 64. 59

See Makower, op. cit. (1994), pp. 71–75; Sandra A. Waddock

and Samuel B. Graves, “Th e Corporate Social Performance—

Financial Performance Link,” Strategic Management Journal (1997),

pp. 303–19; Michael E. Porter and Mark R. Kramer, “Strategy-

Society: Th e Link between Competitive Advantage and Corporate

Social Responsibility,” Harvard Business Review (December 2006),

pp. 78–92. 60

Information and quotes from Mara Lemos-Stein, “Talking about

Waste with P&G,” Wall Street Journal (September 13, 2011), p. R8; and

“Benefi ts Flow as Top People Join the Battle,” Financial Times, Kindle

Edition ( June 23, 2011); and, nestle.com/csv/ruraldevelopment/

responsiblesourcing (retrieved February 18, 2012); and “How to Create

a Green Supply Chain,” Financial Times, Kindle Edition (November 11,

2010). 61

Ioannis Ioannou and George Serafeim, “Th e Consequences of

Mandatory Corporate Sustainability Reporting,” HBS Working Paper

Number 11-100, Harvard Business School (March, 2011). 62

The “compliance–conviction” distinction is attributed to

Mark Goyder in Martin Waller, “Much Corporate Responsibility

Is Box-Ticking,” The Times Business ( July 8, 2003), p. 21. See also

Archie B. Carroll, “A Three-Dimensional Model of Corporate

Performance,” Academy of Management Review, vol. 4 (1979),

pp. 497–505. 63

Elizabeth Gatewood and Archie B. Carroll, “Th e Anatomy of

Corporate Social Response,” Business Horizons, vol. 24 (September–

October 1981), pp. 9–16; and Mark S. Schwartz and Archie B. Carroll,

“Corporate Social Responsibility: A Th ree Domain Approach,” Business

Ethics Quarterly, vol. 13 (2003), pp. 503–30. 64

Judith Burns, “Everything You Wanted to Know about Corporate

Governance . . . But Didn’t Know How to Ask,” Wall Street Journal

(October 27, 2003), pp. R1, R7. 65

Sarbanes-Oxley Essential Information,” sox-online.com (accessed

June 10, 2014); and, “Company Ordered to Pay $1.9 Million to Former

CFO for Sarbanes Oxley Act Violations,” employerbrief.com (accessed

June 10, 2014).

Feature Notes

Opening Quote: Kara Scannell, “NY Regulator Targets Individuals

Behind Corporate Wrongdoing,” Financial Times, Kindle Edition

(March 10, 2014).

Analysis: Manager Behavior: Information from Deloitte LLP,

“Leadership Counts: 2007 Deloitte & Touche USA Ethics & Workplace

Survey Results,” Kiplinger Business Resource Center ( June, 2007),

kiplinger.com.

Choices: Joseph Schumpeter, “Th e mommy track,” Th e Economist,

Kindle Edition (August 25, 2012); Jill Parkin, “Women at Director Level

Help to Make a Marque, Financial Times, Kindle Edition (May 22,

2012); “Gender Politics,” Th e Economist, Kindle Edition (September 7,

2012); Joann S. Lublin, “Europe’s Boards Recruit U.S. Women,” Wall

Street Journal (September 12, 2012), p. B8; James Fontanella-Khan,

“EU Scraps Board Quotas for Women,” Financial Times, Kindle Edition

(October 24, 2012); Jeff Green, “Th e Boardroom’s Still the Boys’ Room,”

Bloomberg BusinessWeek (October 29–November 4, 2012), pp. 25–26;

and, “Gender Gap Remains for Wall Street Firms,” Wall Street Journal

(December 17, 2013), p. C2.

Ethics: Information and quotes from Eric Spitznagel, “Rise Up,

Interns,” Bloomberg BusinessWeek ( June 24–30, 2013), p. 78.

497Endnotes

Insight: For more on individual character and tensions of

expediency see Charles R. Stoner and Jason S. Stoner, Building

Leaders: Paving the Path for Emerging Leaders (New York: Routledge,

2013), Chapter 2. For more on hyper-competitiveness see R. M.

Ryckman, M. Hammer, L. M. Kaczor, and J. A. Gold, “Construction of

a Hypercompetitive Attitude Scale,” Journal of Personality Assessment,

vol. 55 (1990), pp. 630–39.

Wisdom: Information and quotes from stonyfi eld.com/about-us;

stonyfi eld.com/youtube/index.jsp; Gary Hirshberg biography retrieved

from notablebiographies.com; “25 Rich Ass Greenies Who Made

Th eir Fortune Saving the Environment,” Earthfi rst.com (August 25,

2008); and “Stonyfi eld Founder Gary Hirshberg Steps Into New Role,

Selects Mission-Driven Successor Walt Freese as Stonyfi eld CEO,”

Londonderry, NH (January 12, 2012): stonyfi eld.com/about-us/

press-room; and Heather Clancy, “Icon | Gary Hirshberg,

co-founder and chairman, Stonyfi eld Farms,” Smartplanet, Issue 5

(August 26, 2013): smartplanet.com (accessed December 15, 2013).

Photo Essay Notes

Issues&Trends: Data from International Labour Organization, What

is Child Labor,” ilo.org (accessed June 10, 2014).

Popular Culture: Eric Ditzian, “Th e Social Network: Th e Reviews

are In!” mtv.com (October 1, 2010); and Ethan Smith, “ ‘Social Network’

Opens at No. 1,” Wall Street Journal (October 4, 2010), p. B5.

Recommended Reading: Information from Alan Murray, “Chicken

Soup for a Davos Soul,” Wall Street Journal ( January 17, 2013), p. A15;

and Anthony J. Sadar, “Book Review: Conscious Capitalism,” Washington

Times (March 20, 2013): washingtontimes.com (accessed March 22,

2013).

Chapter 4

Endnotes

1 Quotes from Chris Isidore and Katy Lobosco, “GM CEO Barra

‘I am Deeply Sorry’,” CNN Money (April 1, 2014): cnnmoney.com

(accessed May 20, 2014); and, Jeff Plungis and Tim Higgins, “GM to

Pay Record $35 Million Fine Over Handling of Recall,” Bloomberg News

(May 16, 2014): Bloomberg.com (accessed May 20, 2014). 2 Paul Lienert and Marilyn Th ompson, “GM Didn’t Fix Deadly

Ignition Switch Because It Would Have Cost $1 Per Car,” Reuters

(April 2, 2014): huffi ngtonpost.com (accessed May 20, 2014); and

Michael A. Fletcher, “GM Fined $35 million in Ignition-Switch Safety

Case,” Washington Post (May 16, 2014): washingtonpost.com (accessed

May 20, 2014). 3

Fletcher, op cit. 4

See, for example, Ellen Byron, “P&G Tweaks Its Products as U.S.

Shoppers Trade Down,” Wall Street Journal (September 13, 2011), pp.

14–15; and Conor Dougherty, “Young Men Suff er Worst as Economy

Staggers,” Wall Street Journal (November 7, 2011), pp. B1, B2. 5

“Th e Trade Defi cit,” Th e Economist, Kindle Edition ( January 4,

2014). 6

See Kris Maher and Bob Tita, “Caterpillar Joins ‘Onshoring’ Trend,”

Wall Street Journal (March 10, 2010), pp. B1, B7. 7

Information from John Letzing and Ian Sherr, “HTC Sues Apple

via Google,” Wall Street Journal (September 9–11, 2011), p. 22; Ian Sherr

and Jessica & Vascellaro, “Apple Hits Samsung Phone,” Wall Street

Journal (February 13, 2012), p. B1; and John Letzing, “Yahoo Th reatens

Suit vs. Facebook,” Wall Street Journal (February 29, 2012) p. B5. 8

Charles Forelle, “EU Fines Microsoft $1.35 Billion,” Wall Street

Journal (February 28, 2008), p. B2.

9 Audrey Wozniak, “Apple Pays $60 Million for iPad Name in China,”

ABC News Blogs, abcnews.go.com (accessed May 20, 2014). 10

Ibid; and Ben Worthen and Siobhan Gorman, “Google

Prepares to Stop Censoring in China,” Wall Street Journal (March 12,

2010), p. B1. 11

See “It’s Time for a Breakthrough,” Special Advertising Section,

Bloomberg BusinessWeek ( July 4–10, 2011), pp. S1–S9; and Miriam

Jordan, “White-Minority Wealth Gulf Widens,” Wall Street Journal,

Kindle Edition ( July 26, 2011). 12

See Jean M. Twenge, Stacy M. Campbell, Brian J. Hoff man, and

Charles E. Lance, “Generational Diff erence in Work Values: Leisure and

Extrinsic Values Increasing, Social and Intrinsic Values Decreasing,”

Journal of Management Online First (March 1, 2010), jom.sagepub.com. 13

See, for example, Sharon Jayson, “ ‘iGeneration’ Has No Off

Switch,” USA Today (February 10, 2010), pp. D1, D2. 14

Roger Lowenstein, “Is Any CEO Worth $189,000 per Hour?”

Bloomberg BusinessWeek (February 20–26, 2012), pp. 8, 5; Anne Baxter,

“Public College Presidents Get Big Paychecks,” Marketplace Education

(May 18, 2014), marketplace.org (accessed May 20, 2014). 15

Venessa Wong, “CEO-Worker Pay Gap,” Bloomberg BusinessWeek

(April 18, 2014): bloomberg.com (accessed May 201, 2014). 16

See Cara Pring, “100 More Social Media Statistics, 2012,”

thesocialskinny.com (accessed February 28, 2012). 17

Information from Martin Giles, “Online Social Networks Are

Changing the Way People Communicate,” Economist, Kindle Edition

(February 4, 2010). 18

Bobby White, “Th e New Workplace Rules: No Video-Watching,”

Wall Street Journal (March 4, 2008), pp. B1, B3. 19

Reported in “Surprising Attitudes toward Texting,” BizEd

(May–June, 2011), p. 72. 20

See for example, Andy Pasztor, “Pilots Cited in July Jet Crash,”

Wall Street Journal (December 9, 2013), p. A3. 21

See, for example, Martin Fackler, “Large Zone Near Japanese

Reactors to Be Off Limits,” New York Times (August 22, 2011), nytimes.com. 22

See Th omas L. Freedman, “Effi ciency Must be the Wave of the

Future,” Th e Columbus Dispatch (March 6, 2012), p. A9. 23

See ibid.; Bradfi eld Moody and Bianca Nogrady, Th e Sixty Wave: How

to Succeed in a Resource Limited World (Sydney: Random House Australia,

2012); and, Andrew Bolger, “Bond Markets Join the Green Revolution,”

Financial Times (May 20, 2014). ft.com (accessed May 20, 2014). 24

“Selling Green,” Th e Wall Street Journal (March 26, 2012), p. R8;

and, Emily Gosden, “BP Warns Gulf Spill Costs Will Exceed $42.4bn

as Compensation Costs Rise,” Th e Telegraph ( July 30, 2013). telegraph.

co.uk (accessed May 20, 2014). 25

See Th omas Donaldson and Lee Preston, “Th e Stakeholder

Th eory of the Corporation,” Academy of Management Review, vol. 20

( January 1995), pp. 65–91. 26

See Michael E. Porter, Competitive Strategy: Techniques for

Analyzing Industries and Competitors (New York: Free Press, 1980);

and Competitive Advantage: Creating and Sustaining Superior

Performance (New York: Free Press, 1986); see also Richard A. D’Aveni,

Hyper-Competition: Managing the Dynamics of Strategic Maneuvering

(New York: Free Press, 1994). 27

Michael E. Porter, “Strategy and the Internet,” Harvard Business

Review, vol. 79, no. 3 (March 2001). 28

James D. Th ompson, Organizations in Action (New York: McGraw-

Hill, 1967); and Robert B. Duncan, “Characteristics of Organizational

Environments and Perceived Environmental Uncertainty,”

Administrative Science Quarterly, vol. 17 (1972), pp. 313–27. For

discussion of the implications of uncertainty see Hugh Courtney, Jane

Kirkland, and Patrick Viguerie, “Strategy under Uncertainty,” Harvard

Business Review (November–December 1997), pp. 67–79.

498 Endnotes

Choices: Information from Charles Mitchell, Rebecca L. Ray, and

Bart van Ark, “Th e Conference Board CEO Challenge 2014: Executive

Summary.” New York: Th e Conference Board.

Insight: See “Risk,” Psychology Today (October 1, 2009),

psychologytoday.com (accessed February 3, 2010); Nathan

Washburn, “Hard Times Can Inspire Wrong Type of Risk Taking,”

knowledgenetwork.thunderbird.edu (accessed January 12, 2010); and

Sue Shellenbarger, “What Makes a Risk-Taker,” Wall Street Journal (May

22, 2013), pp. D1, D3.

Wisdom: Information and quotes from Jessica Hodgson, “Selling

and Software,” Wall Street Journal (December 17, 2009), p. A25; Steve

Hamm, “Th e King of the Cloud,” BusinessWeek (November 30, 2009),

p. 77, and “Charlie Rose Talks to Marc Benioff ,” Bloomberg

BusinessWeek (December 5–11, 2011), p. 52. See also Marc Benioff ,

Behind the Cloud: Th e Untold Story of How Salesforce.com Went from

Idea to Billion-Dollar Company and Revolutionized an Industry (San

Francisco: Jossey-Bass, 2009); and salesforce.com.

Photo Essay Notes

Management&Popular Culture: See Chipotle commercial, youtube.

com/watch?v5aMfSGt6rHos.

Chapter 5

Endnotes

1 John Aidan Byrne, “IBM now employs more workers in India than

US,” New York Post (October 5, 2013): nypost.com (accessed May 22,

2014). 2

See, for example, Dan Gearino, “Made in Th is Hemisphere,”

Columbus Dispatch ( January 11, 2010), pp. A10, A11; and David Welch,

“One Man, One Car, One World,” Bloomberg BusinessWeek ( January 25,

2010), pp. 48–49. 3

“Boeing: Faster, Faster, Faster,” Th e Economist, Kindle Edition

( January 29, 2012). 4

See, for example, Kenichi Ohmae’s books, Th e Borderless World:

Power and Strategy in the Interlinked Economy (New York: Harper,

1989); Th e End of the Nation State (New York: Free Press, 1996); and Th e

Next Global Stage: Challenges and Opportunities in Our Borderless World

(Philadelphia: Wharton School Publishing, 2006). See also Th omas L.

Friedman, Hot, Flat, and Crowded: Why We Need a Green Revolution—

and How It Can Renew America (New York: Farrar, Straus and Giroux,

2008). 5

Pankaj Ghemawat, World 3.0: Global Prosperity and How to Achieve

It (Cambridge, MA: Harvard Business Press, 2011). 6

Pietra Rivoli, Th e Travels of a T-Shirt in the Global Economy, 2nd ed.

(Hoboken, NJ: John Wiley & Sons, 2009). 7

Rosabeth Moss Kanter, World Class: Th inking Locally in the Global

Economy (New York: Simon and Schuster, 1995), preface. 8

Information from Mark Niquette, “Honda’s ‘Bold Move’ Paid Off ,”

Columbus Dispatch (November 16, 2002), pp. C1, C2; and “Marysville

Auto Plant,” ohio.honda.com. 9

Information from Mei Fong, “Chinese Refrigerator Maker Finds

U.S. Chilly,” Wall Street Journal (March 18, 2008), pp. B1, B2. 10

Quote from John A. Byrne, “Visionary vs. Visionary,” BusinessWeek

(August 28, 2000), p. 210. 11

Information from newbalance.com/corporate; and, “Nike

Strategy Leaves It Room to Run,” Wall Street Journal (March 16, 2010),

p. C10. 12

Steve Hamm, “Into Africa: Capitalism from the Ground Up,”

BusinessWeek (May 4, 2009), pp. 60–61.

29 Tom Peters, Th e Circle of Innovation (New York: Knopf, 1997).

30 See, for example, Muhammad Yunus, Creating a World without

Poverty: Social Business and the Future of Capitalism (New York:

Public Aff airs, 2008). Note that abuses of microcredit lending have

been publicized in the press, and both the microfi nance industry as

a whole and the Grameen Bank in particular have been criticized by

the Bangladesh government. Muhammad Yunus published his own

criticism of the industry and defense of the Grameen Bank model in

“Sacrifi cing Microcredit for Megaprofi ts,” New York Times ( January 14,

2011), nytimes.com. A Norwegian documentary that aired criticisms

of how Yunus and Grameen Bank handled funds has largely been

refuted, but Yunus continues to be criticized by the Bangladesh

government. 31

Gary Hamel, Leading the Revolution: How to Th rive in Turbulent

Times (Boston: Harvard Business School Press, 2002). 32

“Th e Joys and Perils of ‘Reverse Innovation,’” BusinessWeek

(October 5, 2009), p. 12; “How to Compete in a World Turned Upside

Down,” Financial Times, Kindle Edition (October 6, 2009). 33

See Clay Christensen, Th e Innovator’s Dilemma: When New

Technologies Cause Great Firms to Fail, Reprint Edition (New York:

Harper Paperbacks, 2011); and Clay Christensen, Jeff Dyer, and Hal

Gregersen, Th e Innovator’s DNA: Mastering the Five Skills of Disruptive

Innovators (Cambridge, MA: Harvard Business Press, 2011). 34

wbcsd.org. 35

Economics—Creating Environmental Capital,” Wall Street Journal

(March 8, 2010), p. R1. 36

“Indra Nooyi of PepsiCo,” View from the Top, Financial Times

(February 1, 2010), ft.com (accessed March 11, 2010). 37

Marcus and Fremeth, op. cit. 38

Defi nition from sustainablebusiness.com. 39

See Sarah Murray, “Companies Ensure Eff orts Are Not Beyond

Description,” Financial Times, Kindle Edition ( June 23, 2011). 40

David Cooperrider, “Sustainable Innovation,” BizEd ( July/August,

2008), pp. 32–38. 41

Examples from “Th e Eco Advantage: Th e Pioneers,” Inc.

(November 1, 2006); inc.com. 42

Information from Bloomberg BusinessWeek ( June 6–12, 2011),

pp. 70–74. 43

“Clean-Tech Companies: Ranking the Top Venture-Backed Firms,”

Wall Street Journal (March 8, 2010), p. R4. 44

Jeff rey Pfeff er, “Building Sustainable Organizations: Th e Human

Factor,” Academy of Management Perspectives, vol. 24 (February 2010),

pp. 34–45. 45

Quotes from ibid. 46

Information and quote from Syed Zain Al-Mahmood, Christina

Passareiello, and Preetika Rana, “Th e Global Garment Trail: From

Bangladesh to a Mall Near You,” Wall Street Journal (May 4–5, 2013),

pp. A1, A11. 47

Based on S. Budner, “Intolerance of Ambiguity as a Personality

Variable,” Journal of Personality, vol. 30, no. 1 (1962), pp. 29–50.

Feature Notes

Opening quote: Data from “Five Facts about Recycling You May Not

Know,” Th e Green Room, walmartgreenroom.com (November 14, 2013)

(accessed January 9, 2014).

Analysis: Information from Colleen McCain Nelson, “Poll: Most

Women See Bias in the Workplace,” Wall Street Journal (April 12, 2013),

p. A5; Brenda Cronin, “Women’s Wage Gap Stays Stuck in Place,”

Wall Street Journal (September 18, 2013), p. A3; Jonathan House,

“Record Number of Women in the Workplace,” Wall Street Journal

(November 18, 2013), p. A4; and Hope Yen, “Pay Gap Th ins for Young

Women,” Th e Columbus Dispatch (December 11, 2013), p. D3.

499Endnotes

35 See, for example, Patrick McGroarty, “Middle Class in Africa Set

to Boom, but Risks Remain,” Wall Street Journal (October 13, 2011),

p. A17; and “U.S. Firms in Africa Hustle to Catch Up,” Wall Street Journal

( June 6, 2011), p. A16. 36

sadc.int/about_sadc/vision.php. 37

Data from “Th e Big Mac Index: Currency Comparisons to Go,”

Th e Economist ( January 23, 2014), economist.com. 38

See Peter F. Drucker, “Th e Global Economy and the Nation-State,”

Foreign Aff airs, vol. 76 (September–October 1997), pp. 159–71. 39

“Flags of Incovenience,” Economist (May 16, 2014), Kindle Edition;

and, “Flags of Incovenience,” economist.com (accessed May 25, 2014). 40

Friedman, op. cit. (2012). 41

Information from Steve Hamm, “IBM vs. TATA: Which Is More

American?” BusinessWeek (May 5, 2008), p. 28; and Greg Farrell,

“McDonald’s Continues to Rely on European Restaurants for Growth,”

Financial Times, Kindle Edition (April 20, 2010). 42

“Sweden vs. Exxon,” Bloomberg BusinessWeek (March 5–11, 2012),

p. 91. 43

Michael Mandel, “Multinationals: Are Th ey Good for America?”

BusinessWeek (February 28, 2008), BusinessWeek.com; and, Deutsch

Welle, “Globalization Widens Wealth Gap as Advanced Economies

Outpace Developing World,” DW Top Stories (March 214, 2014), dw.de

(accessed May 22, 2014). 44

Developed from R. Hall Mason, “Confl icts between Host

Countries and Multinational Enterprise,” California Management

Review, vol. 17 (1974), pp. 6, 7. 45

Mandel, op. cit.; Engardio, op. cit. 46

See “Th e Paradox of Bangladesh,” Bloomberg BusinessWeek (May

13–19, 2013), pp. A1–A4. 47

Th omas Donaldson, “Values in Tension: Ethics Away from Home,”

Harvard Business Review, vol. 74 (September–October 1996), pp. 48–62. 48

See transparency.org. See also Blake E. Ashforth, Dennis A. Gioia,

Sandra L. Robinson, and Linda K. Trevino, “Special Topic Forum on

Corruption,” Academy of Management Review, vol. 33 ( July 2008),

p. 6701. 49

Transparency International, “Corruption Perceptions Index 2009,”

transparency.org (accessed April 23, 2010). 50

Carol Matlack, “Th e Peril and Promise of Investing in Russia,”

BusinessWeek (October 5, 2009), pp. 48–51. 51

See Dionne Searcey, “U.S. Cracks Down on Corporate Bribes,”

Wall Street Journal (May 26, 2009), pp. A1, A4. 52

John Bussey, “Th e Rule of Law Finds Its Way Abroad, However

Painfully,” Wall Street Journal ( June 24, 2011), pp. B1, B2. 53

International Labour Organization, Facts on Child Labor 2010

(Geneva, Switzerland: April 1, 2010). 54

See, for example, Jason Dean and Ting-I Tsai, “Suicides Spark

Inquiries,” Wall Street Journal (May 27, 2010), pp. B1, B7. 55

Juliette Garside, “Underage Labour Discovered in Apple’s Supply

Chain,” Th e Guardian ( January 25, 2013), theguardian.com (accessed

December 27, 2013). 56

“Th e Paradox of Bangladesh,” op. cit. 57

Shelly Banjo, “Wal-Mart Toughens Supplier Policies,” Wall Street

Journal ( January 22, 2013), pp. B1, B7; and Shelly Banjo, “Wal-Mart

Audits Reveal Bangladesh Safety Woes,” Wall Street Journal (November

18, 2013), p. B3. 58

See defi nition in Ernst & Young, Confl ict Minerals: What you need

to know about the new disclosure and reporting requirements and how

Ernst & Young can help, ey.com (accessed May 25, 2014). 59

Emily Chasan and Joel Schectman, “War and the Supply Chain,”

Wall Street Journal (May 20, 2014), p. B8; and Don Ford, “Intel Files First

Audited Confl ict Minerals Report,” Wall Street Journal (May 22, 2014):

blogs.wsj.com: (accessed May 25, 2014).

13 See “U. S. R&D Jobs Shift to Asia,” Wall Street Journal ( January 18,

2012), p. B2; and “Th omas L. Friedman, ‘Made in the World,’” New York

Times ( January 28, 2012); nytimes.com. 14

David Murphy, “A Foxconn Breakdown: Its Strengths,

Strangeness, and Scrutiny,” PC Magazine ( January 22, 2012),

pcmag.com. 15

Jessica E. Vascellaro and Own Fletcher, “Apple Navigates China

Maze,” Wall Street Journal ( January 14–15, 2012), pp. B1, B2. 16

Information and quote from “More Than a Third of Large

Manufacturers Are Considering Reshoring from China to the

U.S.,” Boston Consulting Group press release, bcg.com (April 20,

2012) (accessed May 5, 2013); “A Revolution in the Making, Wall

Street Journal ( June 11, 2013), pp. R1, R2; and, Don Lee, “After Long

Exodus, Companies Returning to U.S.,” Arizona Daily Star (May 25,

2014), p. D7. 17

Information from Michael A. Fletcher, “Ohio Profi ts from

Exports,” Columbus Dispatch (December 30, 2007), p. B3. 18

“Survey: Intellectual Property Th eft Now Accounts for 31 Percent

of Global Counterfeiting,” Gieschen Consultancy, February 25, 2005. 19

Information from “Not Exactly Counterfeit,” Fortune (April 26,

2006), money.cnn.com/magazines/fortune. 20

James K. Jackson, “Outsourcing and Insourcing Jobs in the U.S.

Economy: Based on Foreign Direct Investment Data,” Congressional

Research Offi ce ( June 21, 2013). 21

Criteria for choosing joint venture partners developed from

Anthony J. F. O’Reilly, “Establishing Successful Joint Ventures in

Developing Nations: A CEO’s Perspective,” Columbia Journal of World

Business (Spring 1988), pp. 65–71; and “Best Practices for Global

Competitiveness,” Fortune (March 30, 1998), pp. S1–S3, special

advertising section. 22

See James T. Areddy, “Danone Pulls Out of Disputed China

Venture,” Wall Street Journal (October 1, 2009), p. B1. 23

Karby Leggett, “U.S. Auto Makers Find Promise—and Peril—in

China,” Wall Street Journal ( June 19, 2003), p. B1; “Did Spark Spark a

Copycat?” BusinessWeek (February 7, 2005), p. 64; and “New Height,

New Growth,” News Release ( July 28, 2011), cheryinternational.com. 24

“Best Practices for Global Competitiveness,” Fortune (March 30,

1998), pp. S1–S3, special advertising. 25

Information from Sam Schechner and Vanessa Mock, “Google’s

Settlement in Europe Under Pressure,” Wall Street Journal (May 24-25,

2014), p. B3. 26

“Starbucks Wins Trademark Case,” Th e Economic Times,

Bangalore ( January 3, 2006), p. 8. 27

Information and quote from “Multinational Groups Shrug off

Mexican Drugs Violence,” Financial Times, Kindle Edition (July 30, 2011). 28

wto.org (accessed March 25, 2008). 29

Information and quotes from Dexter Roberts, “Closing for

Business?” Bloomberg BusinessWeek (April 5, 2010), pp. 32–37. 30

Information and quote from “WTO Takes Up U.S. Complaint

against China Patent Regime,” AFP (September 7, 2007), afp.com

(accessed March 25, 2008). 31

Pete Engardio, Geri Smith, and Jane Sasseen, “Refi ghting NAFTA,”

BusinessWeek (March 31, 2008), pp. 55–59. 32

“NAFTA at 20 Ready to Take Off Again,” Th e Economist, Kindle

Edition ( January 4, 2014). 33

Th e Economist is a good weekly source of information on Africa;

and “Embracing Africa,” BusinessWeek (December 18, 2006), p. 101. 34

See Robert Farzad, “Can Greed Save Africa?” BusinessWeek

(December 10, 2007), pp. 46–54; “Th e Big Bounce,” Bloomberg

BusinessWeek (May 17–23, 2010), pp. 48–57; and Will Connors and

Sarah Childress, “Africa’s Local Champions Begin to Spread Out,”

Wall Street Journal (May 26, 2010), p. B8.

500 Endnotes

Javidan, Peter W. Dorfman, and Vipin Gupta (eds.), Culture, Leadership

and Organizations: Th e GLOBE Study of 62 Societies (Th ousand Oaks,

CA: Sage, 2004). Further issues on Project GLOBE are developed in

George B. Graen, “In the Eye of the Beholder: Cross-Cultural Lessons

in Leadership from Project GLOBE: A Response Viewed from the Th ird

Culture Bonding (TCB) Model of Cross-Cultural Leadership,” Academy

of Management Perspectives, vol. 20 (November 2006), pp. 95–101,

and Robert J. House, Mansour Javidan, Peter W. Dorfman, and Mary

Sully de Luque, “A Failure of Scholarship: Response to George Graen’s

Critique of GLOBE,” Academy of Management Perspectives, vol. 20

(November 2006), pp. 102–14. 82

See, for example, Rosalie L. Tung and Alain Verbeke, “Beyond

Hofstede and GLOBE: Improving the Quality of Cross-Cultural Research,”

Journal of International Business Studies, vol. 41 (2010), pp. 1259–74. 83

Geert Hofstede, “Motivation, Leadership, and Organization: Do

American Th eories Apply Abroad?” Organizational Dynamics (1980),

p. 43; Geert Hofstede, “Th e Cultural Relativity of Organizational

Practices,” Journal of International Business Studies (Fall 1983), pp. 75–

89. See also Hofstede’s “Cultural Constraints in Management Th eories,”

Academy of Management Review, vol. 7 (1993), pp. 81–94. 84

Discussion based on Allan Bird, Mark Mendenhall, Michael

J. Stevens, and Gary Oddou, “Defi ning the Content Domain of

Intercultural Competence for Global Leaders,” Journal of Managerial

Psychology, vol. 25 (2010), pp. 810–28. 85

Geert Hofstede, “A Reply to Goodstein and Hunt,” Organizational

Dynamics, vol. 10 (Summer 1981), p. 68. 86

Developed from “Is Your Company Really Global?” BusinessWeek

(December 1, 1997). 87

Based on Martin J. Gannon, Understanding Global Cultures

(Th ousand Oaks, CA: Sage, 1994), Chapter 16: “American Football.”

Feature Notes

Analysis: Information from Transparency International,

“Corruption Perceptions Index 2011,” and “Bribe Payers Index (2011),”

transparency.org (accessed May 5, 2013).

Choices: Information and quotes from David Rocks and Nick Leiber,

“Made in China? Not Worth the Trouble,” Bloomberg BusinessWeek

( June 25–July 1, 2012), pp. 49–50; and “Th e End of Cheap China,” Th e

Economist (March 10, 2012), economist.com (accessed January 9,

2013); and, Don Lee, “After Long Exodus, Companies Returning to U.S.,”

Arizona Daily Star (May 25, 2014), p. D7.

Ethics: Information from Information from Raul Burgoa, “Bolivia

Seizes Control of Oil and Gas Fields,” Bangkok Post (May 3, 2006), p. B5.

Insight: Quote from Richard D. Lewis, Th e Cultural Imperative:

Global Trends in the 21st Century (Yarmouth, ME: Intercultural Press,

2002).

Wisdom: Information and quotes from Muhammad Yunus, Creating

a World without Poverty: Social Business and the Future of Capitalism

(New York: Public Aff airs, 2009); “Fighting Poverty with $30 Loans,”

USA Today (April 25, 2013), p. 11A; and David Bornstein, “Beyond

Profi ts: A Talk with Muhammad Yunus,” New York Times, opinionator.

blogs.nytimes.com (April 17, 2013) (accessed May 5, 2013).

Chapter 6

Endnotes

1 Information from Gwen Moran, “How Military Veterans Are

Finding Success in Small Business,” Entrepreneur (February 20, 2012),

entrepreneur.com (accessed January 11, 2013). See also, Ian Mount,

“Open for Business,” USAA Magazine (Summer 2012), pp. 20–24.

60 Chasan and Schectman, op. cit.

61 Ibid.; and, Ford, op. cit.

62 Examples reported in Neil Chesanow, Th e World-Class Executive

(New York: Rawson Associates, 1985). 63

For alternative defi nitions of culture, see Martin J. Gannon,

Paradoxes of Culture and Globalization (Th ousand Oaks, CA: Sage,

2008), Chapter 2. 64

P. Christopher Earley and Elaine Mosakowski, “Toward Cultural

Intelligence: Turning Cultural Diff erences into Workplace Advantage,”

Academy of Management Executive, vol. 18 (2004), pp. 151–57. 65

For a good overview of the practical issues, see Lewis, op. cit.; and

Martin J. Gannon, Understanding Global Cultures (Th ousand Oaks, CA:

Sage, 1994). 66

Developed from Jacob Eisenberg, Hyun-Jung Lee, Frank Brük,

Barbara Brenner, Marie-Th erese Claes, Jacek Mironski, and Roger Bell,

“Can Business Schools Make Students Culturally Competent? Eff ects

of Cross-Cultural Management Courses on Cultural Intelligence,”

Academy of Management Learning & Education, vol. 12 (2013),

pp. 603–21. 67

Edward T. Hall, Th e Silent Language (New York: Anchor Books, 1959). 68

Edward T. Hall, Beyond Culture (New York: Doubleday, 1976). 69

Edward T. Hall, Th e Hidden Dimension (New York: Anchor Books,

1969) and Hidden Diff erences (New York: Doubleday, 1990). 70

Ibid. 71

Michele J. Gelfand, Lisa H. Nishii, and Jana L. Raver, “On the

Nature and Importance of Cultural Tightness-Looseness,” Journal of

Applied Psychology, vol. 91 (2006), pp. 1225–44. 72

Michele J. Gelfand and 42 co-authors, “Diff erences between Tight

and Loose Cultures: A 33 Nation Study,” Science, vol. 332 (May 2011),

pp. 1100–04. 73

Geert Hofstede, Culture’s Consequences (Beverly Hills, CA: Sage,

1984), and Culture’s Consequences: Comparing Values, Behaviors,

Institutions and Organizations across Nations, 2nd ed. (Th ousand Oaks,

CA: Sage, 2001). See also Michael H. Hoppe, “An Interview with Geert

Hofstede,” Academy of Management Executive, vol. 18 (2004), pp. 75–79. 74

Geert Hofstede and Michael H. Bond, “Th e Confucius

Connection: From Cultural Roots to Economic Growth,”

Organizational Dynamics, vol. 16 (1988), pp. 4–21. 75

See Geert Hofstede, Culture and Organizations: Software of the

Mind (London: McGraw-Hill, 1991). 76

For another perspective see Harry Triandis and M. Gelfand,

“Convergent Measurement of Horizontal and Vertical Collectivism,”

Journal of Personality & Social Psychology, vol. 74 (1998), pp. 118–28. 77

Th is dimension is explained more thoroughly by Geert Hofstede

et al., Masculinity and Femininity: Th e Taboo Dimension of National

Cultures (Th ousand Oaks, CA: Sage, 1998). 78

Information for “Stay Informed” from “Th e Conundrum of the

Glass Ceiling,” Economist ( July 23, 2005), p. 634, and “Japan’s Diversity

Problem,” Wall Street Journal (October 24, 2005), pp. B1, B5. 79

See Hofstede and Bond, op. cit. 80

See, for example, Nancy Adler and Allison Gundersen,

International Dimensions of Organizational Behavior, 5th ed. (New York:

Th omson South-Western, 2008). 81

For additional cultural models and research see Fons

Trompenaars, Riding the Waves of Culture: Understanding Cultural

Diversity in Business (London: Nicholas Brealey, 1993); Harry C.

Triandis, Culture and Social Behavior (New York: McGraw-Hill,

1994); Steven H. Schwartz, “A Th eory of Cultural Values and Some

Implications for Work,” Applied Psychology: An International Review,

vol. 48 (1999), pp. 23–47; and Martin J. Gannon, Understanding Global

Cultures, 3rd ed. (Th ousand Oaks, CA: Sage, 2004). See also research

known as Project GLOBE: Robert J. House, Paul J. Hanges, Mansour

501Endnotes

23 Data from “New Census Data Reinforces the Economic Power

of Women-Owned Businesses in the U.S. Says NAWBO,” press release,

National Association of Women Business Owners ( July 15, 2010);

and Mark D. Wolfe, “Women-Owned Businesses: America’s New Job

Creation Engine,” Forbes ( January 12, 2010), forbes.com. 24

Leah Yomtovian, “Th e Funding Landscape for Minority

Entrepreneurs,” ideacrossing.org (February 16, 2011); and mbda.gov. 25

“Wanted: More Black Entrepreneurs,” Bloomberg BusinessWeek

( January 23–29, 2012), pp. 4–16. 26

Information and quote from Rieva Lesonsky, “Women Owned

Businesses Have Come a Long Way But It’s Not Far Enough,” Small

Business Trends (October 12, 2011), smallbiztrends.com. 27

David Bornstein, How to Change the World: Social Entrepreneurs

and the Power of New Ideas (Oxford, UK: Oxford University Press,

2004). 28

Sharon Shinn, “Profi t and Purpose,” BizEd (May–June, 2011),

pp. 24–31. 29

“Th e 10 Best Social Enterprises of 2009,” Fast Company (December 1,

2009), fastcompany.com/magazine (accessed April 24, 2010); and Dan

Simmons, “Keepod: Can a $7 Stick Provide Billions Computer Access?”

BBC (May 9, 2014), bbc.com (accessed May 9, 2014). 30

Examples are from Byrnes and “Growing Green Business,”

Northwestern (Winter 2007), p. 19; Byrnes, op. cit.; and Regina McEnery,

“Cancer Patients Getting the White-Glove Treatment,”Columbus Dispatch

(March 1, 2008). 31

“Advocacy: Th e Voice of Small Business,” SBA Offi ce of Advocacy

(September 2012), sba.gov/advocacy. 32

U.S. Small Business Administration website: sba.gov/advocacy/

7495/8420 (accessed October 21, 2011); Carl Bialik, “Sizing Up the

Small-Business Jobs Machine,” Wall Street Journal (October 15–16,

2011), p. A2, “Job Creators No More,” Bloomberg BusinessWeek

(February 10–16, 2014), p. 18; and “Advocacy: Th e Voice of Small

Business,” op. cit. 33

Angus Loten, “Firms Face Hurdles Overseas,” Wall Street

Journal, Kindle Edition (August 25, 2011); and, Rhonda Colvin,

“Th e Cost of Expanding Overseas,” Wall Street Journal (February 27,

2014), p. B6. 34

Charles Kenny, “Small Isn’t Beautiful,” Bloomberg BusinessWeek

(October 3–9, 2011), pp. 10–11. 35

Information reported in “Th e Rewards,” Inc. State of Small

Business (May 20–21, 2001), pp. 50–51. 36

Information from Sue Shellenbarger, “Plumbing for Joy? Be Your

Own Boss,” Wall Street Journal (September 16, 2009), pp. D1, D2. 37

Information and quotes from Steve Lohr, “Th e Rise of the

Fleet-Footed Start-Up,” New York Times (April 23, 2010),

nytimes.com. 38

Ibid. 39

See U.S. Small Business Administration website: sba.gov. 40

George Gendron, “Th e Failure Myth,” Inc. ( January 2001), p. 13. 41

Discussion based on “Th e Life Cycle of Entrepreneurial Firms,” in

Ricky Griffi n (ed.), Management, 6th ed. (New York: Houghton Miffl in,

1999), pp. 309–10; and Neil C. Churchill and Virginia L. Lewis, “Th e Five

Stages of Small Business Growth,” Harvard Business Review (May–June

1993), pp. 30–50. 42

Information and quotes from Tracy Turner, “Smooth Transition:

Th ree Sisters Take over Family’s Velvet Ice Cream Business,” Columbus

Dispatch (September 25, 2009), pp. A12, A13. 43

Data reported by Th e Family Firm Institute: ffi .org/looking/

factsfb.html. 44

Conversation from the case “Am I My Uncle’s Keeper?” by Paul

I. Karofsky (Northeastern University Center for Family Business) and

published at fambiz.com.

2 Information and quotes for these examples from Alison Damasi,

“No Job? Create One,” Bloomberg BusinessWeek (March 22 & 29, 2010),

p. 89; Laura Lorber, “Older Entrepreneurs Target Peers,” Wall Street

Journal (February 16, 2010), p. B6; and Dale Buss, “Th e Mothers of

Invention,” Wall Street Journal (February 8, 2010), p. R7. 3

Information from “Women Business Owners Receive First-Ever

Micro Loans Via the Internet,” Business Wire (August 9, 2000); Jim

Hopkins, “Non-Profi t Loan Group Takes Risks on Women in Business,”

USA Today (August 9, 2000), p. 2B; and “Women’s Group Grants First

Loans to Entrepreneurs,” Columbus Dispatch (August 10, 2000), p. B2. 4

Quote from “Working for Somebody Else Never Amounted to

Anything—Wayne Huizenga,” youngentrepreneur.com (accessed

January 22, 2010). 5

Information and quote from Chuck Green, “When Entrepreneurs

Don’t Take No for an Answer,” Wall Street Journal (April 29, 2013), p. R5. 6

Speech at the Lloyd Greif Center for Entrepreneurial Studies,

Marshall School of Business, University of Southern California, 1996. 7

Information and quotes from the corporate websites; Entrepreneur’s

Hall of Fame at 1tbn.com/halloff ame.html; “Disruptor of the Day:

Caterina Fake—Because She Had a Flickr of a Hunch about an Etsy,”

Daily Disruption (January 31, 2012), dailydisruption.com; Zack O’Malley

Greenburg, “Jay-Z’s Business Commandments” (March 16, 2011), forbes.

com; and “Shawn ‘Jay Z’ Carter,” www.BlackEntrepreneurProfi le.com

(accessed March 8, 2012); hunch.com. See also Anita Roddick, Business As

Unusual: My Entrepreneurial Journey, Profi ts with Principles (West Sussex,

England: Anita Roddick Books, 2005). 8

Quote from http://foundercollective.com/founders-Caterina-Fake. 9 Quote from Earl G. Graves, How to Succeed in Business without

Being White (New York: HarperCollins Publishers, 1998). 10

Elmer-Dewitt, Philip, “Anita the Agitator,” Time ( January 25, 1993),

pp. 52–55. 11

Quote from Jake Brown, Jay Z and the Roc-A-Fella Records

Dynasty (Phoenix: Amber Books, 2005), p. 30. 12

Examples from “America’s Best Young Entrepreneurs 2008,”

BusinessWeek (September 8, 2009), businessweek.com. 13

For the top-selling franchises, see “Top 10 Franchises for 2009,”

Entrepreneur Magazine ( January 2009), entrepreneur.com. 14

Th is list is developed from Timmons, op. cit., pp. 47–48; and

Hisrich and Peters, op. cit., pp. 67–70. 15

For a review and discussion of the entrepreneurial mind, see

Jeff ry A. Timmons, New Venture Creation: Entrepreneurship for the 21st

Century (New York: Irwin/McGraw-Hill, 1999), pp. 219–25; and “Can

Entrepreneurship Be Taught?” Wall Street Journal (March 19, 2012), p. R4. 16

See the review by Robert D. Hisrich and Michael P. Peters,

Entrepreneurship, 4th ed. (New York: Irwin/McGraw-Hill, 1998),

pp. 67–70; and Paulette Th omas, “Entrepreneurs’ Biggest Problems

and How Th ey Solve Th em,” Wall Street Journal Reports (March 17,

2003), pp. R1, R2. 17

Based on research summarized by Hisrich and Peters, op. cit.,

pp. 70–74. 18

Timothy Butler and James Waldroop, “Job Sculpting: Th e Art of

Retaining Your Best People,” Harvard Business Review (September–

October 1999), pp. 144–52. 19

Information from Jim Hopkins, “Serial Entrepreneur Strikes Again

at Age 70,” USA Today (August 15, 2000). 20

Quote from anitaroddick.com/aboutanita.php (accessed April 24,

2010). 21

Data from Paths to Entrepreneurship: New Directions for Women

in Business (New York: Catalyst, 1998), as summarized on the National

Foundation for Women Business Owners website: nfwbo.org/key.html. 22

National Foundation for Women Business Owners, Women

Business Owners of Color: Challenges and Accomplishments (1998).

502 Endnotes

“Th e Funding Landscape for Minority Entrepreneurs,” ideacrossing.org

(February 16, 2011); Silvana Ordoñez, “Minorities: Th e Force Fueling

Small-Business Growth,” CNBC (May 12, 2014), cnbc.com (accessed

May 23, 2014); and, Natalie Robehmed, “Th ere are Few Minority

Entrepreneurs, and Th ey Rarely get Funding,” Forbes (October 16,

2013), forbes.com (accessed May 24, 2014).

Choices: Information from “Crowdfunding Students: Start Me Up,”

Th e Economist ( June 15, 2013), economist.com (accessed June 20, 2013).

Ethics: Information from Jessica Shambora, “Th e Story Behind the

World’s Hottest Shoemaker,” Financial Times, Kindle Edition (March 21,

2010), toms.com; John Tozzi, “Th e Ben & Jerry’s Law: Principles before

Profi t,” Bloomberg BusinessWeek (April 26–May 2, 2010), pp. 69, 70; and

Blake Mycoskie, “Why Is Giving Back Good for Business?”

Spirit ( January, 2014), p. 51.

Insight: See also Stephen Covey, “How to Succeed in Today’s

Workplace,” USA Weekend (August 29–31, 1997), pp. 4–5.

Wisdom: Information and quotes from Susan Berfi eld, “A Startup’s

New Prescription for Eyewear,” Bloomberg BusinessWeek ( July 4–10,

2011), pp. 49–51; and warbyparker.com.

Photo Essay Notes

Issues&Trends: Etsy—Information from etsy.com; and “Space

Oddities,” Bloomberg BusinessWeek (February 13, 2012), pp. 78–79;

“Notes From Chad: 30 Million Members Strong,” Etsy News

Blog (August 7, 2013), etsy.com (accessed January 1, 2014); and

“Artisanal Capitalism,” The Economist, Kindle Edition ( January 4,

2014).

Management&Popular Culture: Shark Tank—Information from

Carolyn T. Geer, “Innovation 101,” Wall Street Journal (October 17,

2011), p. R5.

Chapter 7

Endnotes

1 Information and quotes from “Last Miner Out Hailed as a Shift

Boss Who Kept Group Alive,” news:blog.cnn.com (October 14, 2010):

and Eva Bergara, “Chilean Miners Honored in Ceremony, Football

Game,” news.yahoo.com (October 25, 2010). 2

For a good discussion see Michael S. Hopkins, Steve LaValle,

and Fred Balboni. “10 Insights: A First Look at the New Intelligent

Enterprise Survey on Winning with Data.” Sloan Management Review;

Vol. 52 (Fall 2010), pp. 22–27. 3

“UPS Says Auto Routes Will Transform Delivery,” Wall Street

Journal (October 31, 2013), p. B5. 4 Elizabeth Dwoskin, “Data Mining Th anks to Twitter,” Wall Street

Journal (October 7, 2013), pp. B1, B8. 5 Brad Stone, “Th e Secrets of Bezos: How Amazon Became the

Everything Store,” Bloomberg BusinessWeek, businessweek.com

(accessed October 10, 2013). 6

Information from Karen Berman and Joe Knight, “What Your

Employees Don’t Know Will Hurt You,” Wall Street Journal (February 27,

2012), p. R4. 7

Information on executive dashboards and quote from Jessica

Tennyman, “Dashboards Make the Corporate Drive Easier,” Financial

Times, Kindle Edition (March 21, 2012). 8

Noel M. Tichy and Warren G. Bennis, “Judgment: How Winning

Leaders Make Great Calls,” BusinessWeek (November 19, 2007),

pp. 68–72. 9

Henry Mintzberg, Th e Nature of Managerial Work (New York:

Harper Collins, 1997).

45 Survey of Small and Mid-Sized Businesses: Trends for 2000 (Arthur

Andersen, 2000). 46

Ibid. 47

Anne Field, “Business Incubators Are Growing Up,” BusinessWeek

(November 16, 2009), p. 76. 48

See sba.gov/aboutsba. For arguments pro and con on the SBA see

“Should the Small Business Administration Be Abolished?” Wall Street

Journal (March 19, 2012), p. R2. 49

Developed from William S. Sahlman, “How to Write a Great

Business Plan,” Harvard Business Review ( July–August 1997),

pp. 98–108. 50

Marcia H. Pounds, “Business Plan Sets Course for Growth,”

Columbus Dispatch (March 16, 1998), p. 9; see also the fi rm’s website:

calcustoms.com. 51

Information from Colleen DeBaise, “Why You Need a Business

Plan,” Wall Street Journal (September 27, 2009), wsj.com. 52

Standard components of business plans are described in many

text sources such as Linda Pinson and Jerry Jinnett, Anatomy of a

Business Plan: A Step-by-Step Guide to Starting Smart, Building the

Business, and Securing Your Company’s Future, 4th ed. (Dearborn Trade,

1999); and on websites such as americanexpress.com/us/

small-business, businesstown.com, and BizplanIt.com. 53

Angus Loten, “With New Law, Profi ts Take a Back Seat,” Wall

Street Journal ( January 19, 2012), wsj.com (accessed November 24,

2012); Mark Underberg, “Benefi t Corporations vs. ‘Regular’

Corporations: A Harmful Dichotomy” ( June 18, 2012), businessethics.

com (accessed November 24, 2012); and Angus Loten, “Can Firms Aim

to Do Good If It Hurts Profi ts?” Wall Street Journal (April 11, 2013),

p. B6. 54

As of this writing the B Corp is legal in 12 states and is being

considered in 20 others. For an update see Certifi ed B Corporation:

bcorporation.net. 55

“You’ve Come a Long Way Baby,” BusinessWeek Frontier ( July 10,

2000). 56

“Charley Rose Talks to . . . Yancy Strickler,” Bloomberg

BusinessWeek (March 20, 2014), p. 46. 57

See kickstarter.com, angel.com, and Spencer E. Ante and Evelyun

M. Rustli, “Breaking Down the Walls for New Angel Investors,”

Wall Street Journal (October 9, 2013), p. B1, B2. 58

See Jean Eaglesham, “Crowdfunding Eff orts Draw Suspicion,”

Wall Street Journal ( January 18, 2013), p. C1. 59

See for example, Javier Espinoza, “Th e New Rules of Capital,” Wall

Street Journal (September 30, 2013), p. R3. 60

Information from “Should Equity-Based Crowd Funding Be

Legal?” Wall Street Journal (March 19, 2012), p. R3; Angus Loten,

“Avoiding the Equity Crowd Funding,” Wall Street Journal (March 29,

2012), wsj/com; and, Ruth Simon and Angus Loten, “Frustration

Rises Over Crowdfunding Rules,” Wall Street Journal (May 1, 2014),

p. B3. 61

Adapted from Norman M. Scarborough and Th omas W.

Zimmerer, Eff ective Small Business Management, 3rd ed. (Columbus,

OH: Merrill, 1991), pp. 26–27. Used by permission.

Feature Notes

Opening Quote: “Charlie Rose Talks to Nick D’Aloisio,” Bloomberg

BusinessWeek (April 1–7, 2013), p. 40.

Analysis: Information from Data reported by Karen E. Klein,

“Minority Start Ups: A Measure of Progress,” Business Week (August 25,

2005), retrieved from businessweekonline; and press release, Minority

Business Development Agency (March 5, 2009), mbda.gov; “Minority-

Owned Business Growth & Global Reach,” U.S. Department of

Commerce MBDA, mdba.org (revised March 2011); Leah Yomtovian,

503Endnotes

27 Information from Julie Jargon and Eric Morath, “As Wage Debate

Rages, Owners Shuffl e Costs,” Wall Street Journal (April 9, 2014), pp. B1, B4. 28

For a sample of Simon’s work, see Herbert A. Simon, Administrative

Behavior (New York: Free Press, 1947); James G. March and Herbert A.

Simon, Organizations (New York: Wiley, 1958); Herbert A. Simon, Th e

New Science of Management Decision (New York: Harper, 1960). 29

Developed from conversations with Dr. Alma Acevedo of the

University of Puerto Rico at Rio Piedras, and her articles “Of Fallacies

and Curricula: A Case of Business Ethics,” Teaching Business Ethics,

vol. 5 (2001), pp. 157–70; and, “Business Ethics: An Introduction,”

Working Paper (2009). 30

See the discussion by Denis Collins, Business Ethics: How to Design

and Manage Ethical Organizations (Hoboken, NJ: John Wiley & Sons,

2012), p. 158. 31

Based on Gerald F. Cavanagh, American Business Values, 4th ed.

(Upper Saddle River, NJ: Prentice-Hall, 1998). 32

Josephson, op. cit. 33

Damel Kahneman. Th inking Fast and Slow (New York: Farrar,

Straus & Giroux. 2011). 34

Example from Roger Lowenstein. “Better Th ink Twice,” Bloomberg

BusinessWeek (October 31, November 6, 2011), pp. 98–99. Th is article is

a review of Daniel Kahneman, op cit. (2011). 35

Daniel Kahneman and Amos Tversky, “Psychology of Preferences,”

Scientifi c American, vol. 246 (1982), pp. 161–73; and Kahneman, op cit.,

2011. 36

Th is presentation is based on the discussion in Max H. Bazerman,

Judgment in Managerial Decision Making, 6th ed. (Hoboken, NJ: Wiley,

2005). 37

Barry M. Staw, “Th e Escalation of Commitment to a Course of

Action,” Academy of Management Review, vol. 6 (1981), pp. 577–87;

and Barry M. Staw and Jerry Ross, “Knowing When to Pull the Plug,”

Harvard Business Review, vol. 65 (March–April 1987), pp. 68–74. 38

For a review of research on escalating commitment see Dustin

J. Sleesman, Donald E. Conlon, Gerry McNamara, and Jonathan E.

Miles, “Cleaning Up the Big Muddy: A Meta-Analytic Review of the

Determinants of Escalation of Commitment,” Academy of Management

Journal, Vol. 55 (2012), pp. 541–562. 39

Example from Dayton Fandray, “Assumed Innocent: Hidden

and Unexamined Assumptions Can Ruin Your Day,” Continental.com/

Magazine (December 2007), p. 100. 40

See, for example, Roger von Oech’s books A Whack on the Side of the

Head (New York: Warner Books, 1983) and A Kick in the Seat of the Pants

(New York: Harper & Row, 1986); John Lehrer, “How to Be Creative,” Wall

Street Journal (March 10–11, 2012), pp. C1, C2; and John Lehrer, Imagine:

How Creativity Works (New York; Houghton Miffl in Harcourt, 2012). 41

For discussions of Big-C creativity and Little-C creativity see

James C. Kaufman and Ronald A. Beghetto, “Beyond Big and Little: Th e

Four C Model of Creativity,” Review of General Psychology, Vol. 13 (2009),

pp. 1–12. My thanks go to Dr. Erin R. Flvegge of Southeastern Missouri

State University for bringing this useful distinction to my attention. 42

Carolyn T. Geer. “Innovation 101.” Wall Street Journal (October 17,

2011). p. R5. 43

Teresa M. Amabile, “Motivating Creativity in Organizations,”

California Management Review, vol. 40 (Fall 1997), pp. 39–58. 44

See Jeff Dyer, Hal Gregersen, and Clayton M. Christensen. Th e

Innovator’s DNA: Mastering the Five Skills of Disruptive Innovators

(Cambridge, MA: Harvard Business Press 2011). 45

Developed from discussions by Edward De Bono, Lateral Th inking:

Creativity Step-by-Step (New York: HarperCollins, 1970); John S. Dacey

and Kathleen H. Lennon, Understanding Creativity (San Francisco:

Jossey-Bass, 1998); and Bettina von Stamm, Managing Innovation,

Design & Creativity (Chichester, England: Wiley, 2003).

10 Information from “What’s the Quickest Way to Board a Plane?”

CNNGo: cnn.com (September 2, 2011). 11

For a good discussion, see Watson H. Agor, Intuition in

Organizations: Leading and Managing Productively (Newbury Park, CA:

Sage, 1989); Herbert A. Simon, “Making Management Decisions: Th e

Role of Intuition and Emotion,” Academy of Management Executive, vol.

1 (1987), pp. 57–64; Orlando Behling and Norman L. Eckel, “Making

Sense Out of Intuition,” Academy of Management Executive, vol. 5

(1991), pp. 46–54. 12

See, for example, William Duggan, Strategic Intuition: Th e Creative

Spark in Human Achievement (New York: Columbia Business School,

2007). 13

Alan Deutschman, “Inside the Mind of Jeff Bezos,” Fast Company,

Issue 85 (August 2004); fastcompany.com. 14

See Susan Berfi eld, “Th e Limits of Going with Your Gut,”

BusinessWeek (December 21, 2009), p. 90. See also Michael J.

Mauboussin, Th ink Twice: Harnessing the Power of Counterintuition

(Boston: Harvard Business, 2009). 15

Daniel J. Isenberg, “How Senior Managers Th ink,”

Harvard Business Review, vol. 62 (November–December 1984),

pp. 81–90. 16

Daniel J. Isenberg, “Th e Tactics of Strategic Opportunism,”

Harvard Business Review, vol. 65 (March–April 1987), pp. 92–97. 17

Quote from Susan Carey, “Pilot ‘in Shock’ as He Landed Jet in

River,” Wall Street Journal (February 9, 2009), p. A6. 18

Based on Carl Jung’s typology as described in Donald Bowen,

“Learning and Problem-Solving: You’re Never Too Jung,” in Donald

D. Bowen, Roy J. Lewicki, Donald T. Hall, and Francine S. Hall, eds.,

Experiences in Management and Organizational Behavior, 4th ed. (New

York: Wiley, 1997), pp. 7–13; and John W. Slocum Jr., “Cognitive Style in

Learning and Problem Solving,” ibid., pp. 349–53. 19

Developed from Anna Muoio, “Where Th ere’s Smoke It Helps to

Have a Smoke Jumper,” Fast Company, vol. 33, p. 290. 20

For scholarly reviews, see Dean Tjosvold, “Eff ects of Crisis

Orientation on Managers’ Approach to Controversy in Decision

Making,” Academy of Management-Journal, vol. 27 (1984), pp. 130–38;

and Jan I. Mitroff , Paul Shrivastava, and Firdaus E. Udwadia, “Eff ective

Crisis Management,” Academy of Management Executive, vol. 1 (1987),

pp. 283–92. 21

Information and quotes from Jeff Kingston. “A Crisis Made in

Japan.” Wall Street Journal (February 6–7, 2010), pp. W1, W2: Kate

Linebaugh, Dionne Seareey, and Norihiko Shirouzu. “Secretive Culture

Led Toyota Astray.” Wall Street Journal (February 10, 2010), pp. A1,

A16; and Richard Fedlow, “Toyota Was in Denial, How About You?”

Bloomberg BusinessWeek (April 19, 2010), p. 76. 22

Richard Fedlow, “Toyota Was in Denial, How About You?”

Bloomberg BusinessWeek (April 19, 2010), p. 76. 23

Information from Paul Farhi, “Behind Domino’s Mea Culpa Ad

Campaign,” Washington Post ( January 13, 2010): washingtonpost.com,

accessed June 5, 2010; and J. Patrick Doyle, “Hard Choices,” Bloomberg

BusinessWeek (May 3–9, 2010), p. 84. 24

Information and quotes from Terry Kosdrosky and John D. Stoll,

“GM Puts Electric-Car Testing on Fast Track to 2010,” Wall Street

Journal (April 4, 2008), p. B2. 25

See George P. Huber, Managerial Decision Making (Glenview, IL:

Scott, Foresman, 1975). For a comparison, see the steps in Xerox’s

problem-solving process as described in David A. Garvin, “Building a

Learning Organization,” Harvard Business Review ( July–August 1993),

pp. 78–91; and the Josephson model for ethical decision making

described at josephsoninstitute.org. 26

Peter F. Drucker, Innovation and Entrepreneurship: Practice and

Principles (New York: Harper Row, 1985).

504 Endnotes

by Stephen R. Covey include Th e 7 Habits of Highly Eff ective People:

Powerful Lessons in Personal Change (New York: Fireside, 1990); and

Stephen R. Covey and Sandra Merrill Covey, Th e 7 Habits of Highly

Eff ective Families: Building a Beautiful Family Culture in a Turbulent

World (New York: Golden Books, 1996). 5

See Stanley Th une and Robert House, “Where Long-Range

Planning Pays Off ,” Business Horizons, vol. 13 (1970), pp. 81–87. For a

critical review of the literature, see Milton Leontiades and Ahmet Teel,

“Planning Perceptions and Planning Results,” Strategic Management

Journal, vol. 1 (1980), pp. 65–75; and J. Scott Armstrong. “Th e Value

of Formal Planning for Strategic Decisions,” Strategic Management

Journal, vol. 3 (1982), pp. 197–211. For special attention to the small

business setting, see Richard B. Robinson Jr., John A. Pearce II, George

S. Vozikis, and Timothy S. Mescon, “Th e Relationship between Stage

of Development and Small Firm Planning and Performance,” Journal of

Small Business Management, vol. 22 (1984), pp. 45–52; and Christopher

Orphen, “Th e Eff ects of Long-Range Planning on Small Business

Performance: A Further Examination,” Journal of Small Business

Management, vol. 23 (1985), pp. 16–23. For an empirical study of large

corporations, see Vasudevan Ramanujam and N. Venkataraman,

“Planning and Performance: A New Look at an Old Question,” Business

Horizons, vol. 30 (1987), pp. 19–25. 6

“McDonald’s Tech Turnaround,” Harvard Business Review

(November 2004), p. 128. 7

Information from Carol Hymowitz, “Packed Calendars Rule Over

Executives,” Wall Street Journal ( June 16, 2008), p. B1. 8

Quote from BusinessWeek (August 8, 1994), pp. 78–86. 9

See William Oncken Jr. and Donald L. Wass, “Management Time:

Who’s Got the Monkey?” Harvard Business Review, vol. 52 (September–

October 1974), pp. 75–80, and featured as an HBR classic, Harvard

Business Review (November–December 1999). 10

Dick Levin, Th e Executive’s Illustrated Primer of Long Range

Planning (Englewood Cliff s, NJ: Prentice-Hall, 1981). 11

See Elliot Jaques, Th e Form of Time (New York: Russak-Co., 1982).

For an executive commentary on his research, see Walter Kiechel III,

“How Executives Th ink,” Fortune (December 21, 1987), pp. 139–44. 12

Information from “Avoiding a Time Bomb: Sexual Harassment,”

BusinessWeek, Enterprise issue (October 13, 1997), pp. ENT20–21. 13

For a thorough review of forecasting, see J. Scott Armstrong,

Long-Range Forecasting, 2nd ed. (New York: Wiley, 1985). 14

Information and following quotes from Guy Chazan and Neil

King. “BP’s Preparedness for Major Crisis Is Questioned.” Wall Street

Journal (May 10, 2010), p. A6, and Ben Casselman and Guy Chazan.

“Disaster Plans Lacing at Deep Rigs,” Wall Street Journal. (May 18,

2010), p. A1. 15

Th e scenario-planning approach is described in Peter Schwartz,

Th e Art of the Long View (New York: Doubleday/Currency, 1991). 16

Th e scenario-planning approach is described in Peter Schwartz.

Th e Art of Long View (New York: Doubleday/Currency, 1991); and

Arie de Geus, Th e Living Company. Habits for Survival in a Turbulent

Business Environment (Boston: Harvard Business School Press. 1997). 17

See, for example, Robert C. Camp, Business Process Benchmarking

(Milwaukee: ASQ Quality Press 1994); Michael J. Spendolini, Th e

Benchmarking Book (New York: AMACOM, 1992); and Christopher E.

Bogan and Michael J. English, Benchmarking for Best Practices: Winning

through Innovative Adaptation (New York: McGraw-Hill, 1994). 18

David Kiley, “One Ford for the Whole World,” BusinessWeek

( June 15, 2009), pp. 58–59. 19

Rachel Tiplady, “Taking the Lead in Fast-Fashion,” BusinessWeek

Online (August 29, 2006); and Cecile Rohwedder and Keith Johnson,

“Pace-Setting Zara Seeks More Speed to Fight Its Rising Cheap-Chic

Rivals,” Wall Street Journal (February 20, 2008), pp. B1, B6.

46 Josephson, op. cit.

47 Information from Stephen H. Wildstrom, “Video iPod, I Love

You,” BusinessWeek (November 7, 2005), p. 20; “Voices of Innovation,”

BusinessWeek (December 12, 2005), p. 22. 48

Developed from Donald Bowen, “Learning and Problem-Solving:

You’re Never Too Jung,” in Donald D. Bowen, Roy J. Lewicki, Donald

T. Hall, and Francine S. Hall (eds.), Experiences in Management and

Organizational Behavior, 4th ed. (New York: Wiley, 1997), pp. 7–13; and

John W. Slocum Jr., “Cognitive Style in Learning and Problem Solving,”

ibid., pp. 349–53. 49

Adapted from “Lost at Sea: A Consensus-Seeking Task,” in the

1975 Handbook for Group Facilitators. Used with permission of

University Associates, Inc. 50

See “Asking for a Raise? Avoid Round Numbers,” Wall Street

Journal (May 29, 2013), p. B10.

Feature Notes

Opening Quote: “Last Miner Out Hailed as a Shift Boss Who Kept

Group Alive,” news.blog.cnn.com (October 14, 2010).

Analysis: Information and quotes from Michael S. Hopkins,

Steve LaValle, and Fred Balboni, “10 Insights: First Look at the New

Intelligent Enterprise Survey on Winning with Data” and, Nina

Kruschwitz and Rebecca Shockley, “10 Data Points: Information and

Analytics at Work,” Sloan Management Review, Vol. 52 (Fall, 2010),

pp. 22–27 and pp. 28–31; and Melissa Korn and Shara Tibken,

“Business Schools Plan Leap into Data,” Wall Street Journal, Kindle

edition (August 4, 2010).

Choices: Information and quotes from Claire Suddath, “Work-

from-Home Truths, Half-Truths, and Myths,” Bloomberg BusinessWeek

(March 4–10, 2013), p. 75; and, Rick Hampson, “Boss vs. You: Th e

Work-from-Home Tug of War,” USA Today (March 13, 2013), pp. 2, 2A.

Ethics: Information from Economist, vol. 379, no. 8482 ( June 17,

2006), pp. 65–66, 2p, 1c.

Insight: Quotes from Situation from Carol Hymowitz, “Middle

Managers Are Unsung Heroes on Corporate Stage,” Wall Street Journal

(September 19, 2005), p. B1; and, Ram Charan, “Six Personality Traits

of a Leader,” career-advice.monster.com/leadership-skills (retrieved

August 6, 2008).

Wisdom: Information and quote from David A. Price, “From Dorm

Room to Wal-Mart,” Wall Street Journal (March 11, 2009), p. A13; “Huddler.

com Interview with CEO and Founder Tom Szaky,” greenhome.huddler.

com/wiki/terracycle; and Tom Szaky, Revolution in a Bottle (Knoxville,

TN: Portfolio Trade, 2009).

Photo Essay Notes

Issues&Trends: Video games—Information from Robert Lee Hotz,

“When Gaming Is Good for You,” Wall Street Journal (March 6, 2012),

pp. D1, D2.

Chapter 8

Endnotes

1 “What are the Top Five Risks the World Faces in 2014?” K@W

( January 17, 2014): knowledge.wharton.upennn.edu (accessed

January 22, 2014). 2

Eaton Corporation Annual Report, 1985. 3

Paul Ingrassia, “Th e Right Stuff ,” Wall Street Journal (April 18,

2005), p. D5. 4

Quote from Stephen Covey and Roger Merrill, “New Ways to Get

Organized at Work,” USA Weekend (February 6–8, 1998), p. 18. Books

505Endnotes

Insight: Data from “Hurry Up and Decide,” BusinessWeek (May 14,

2001), p. 16; and BusinessWeek ( June 23, 2008), p. 56.

Wisdom: Information and quotes from Information and quotes

from the Associated Press, “Oprah Opens School for Girls in S. Africa,”

“Lavish Leadership Academy Aims to Give Impoverished Chance to

Succeed,” MSNBC.com (January 2, 2007); “Oprah Winfrey Leadership

Academy for Girls—South Africa Celebrates Its Offi cial Opening,”

oprah.com/about; Jed Dreben, “Oprah Winfrey: ‘I Don’t Regret’

Opening School,” people.com (December 12, 2007); and, “Gibson

Foundation Builds Relationship with Oprah Winfrey Leadership

Academy to Support Music Education,” news release (April 14, 2009),

gibson.com (accessed January 26, 2010).

Photo Essay Notes

Issues&Trends: Quotes from Douglas Belkin, “Should a College

Student Pick a Major Based on Possible Future Salaries?” Wall Street

Journal (March 17, 2014), p. R7.

Recommended Reading: Information and quotes from Philip Delves

Broughton, “Th e Shift: Th e Work,” Financial Times, Kindle edition

(May 19, 2011). See also Lynda Gratton, Th e Shift: Th e Future of Work Is

Already Here (London: HarperCollins UK, 2011).

Chapter 9

Endnotes

1 Information from “Is Nike’s Flyknit the Swoosh of the future?”

Bloomberg Business Week (March 19–25, 2012), pp. 31, 32. 2

Ben Popken, “Target estimates breach aff ected up to 110 million,”

NBC News ( January 10, 2014): nbcnews.com (accessed January 14, 2014). 3

“Th e Renewal Factor: Friendly Fact, Congenial Controls,”

BusinessWeek (September 14, 1987), p. 105. 4

Rob Cross and Lloyd Baird, “Technology Is Not Enough:

Improving Performance by Building Institutional Memory,” Sloan

Management Review (Spring 2000), p. 73. 5

Based on discussion by Harold Koontz and Cyril O’Donnell,

Essentials of Management (New York: McGraw-Hill, 1974), pp. 362–65;