Organizational Behavior - Business Email

Week 5 Citations (Blackwood, Benefits of Creating an Organizational Learning Culture, 2014) Blackwood, K. (2014, September 14). Benefits of Creating an Organizational Learning Culture. Retrieved November 18, 2020, from BIV: https://biv.com/article/2014/09/benefits-creating-organizational-learning- culture (Forbes Coaches Council, 2016) Forbes Coaches Council. (2016, November 4). 10 Effects Of Groupthink And How To Avoid Them. Retrieved November 18, 2020, from Forbes: https://www.forbes.com/sites/forbescoachescouncil/2016/11/04/10-effect- of-groupthink-and-how-to-avoid-them/?sh=607b82974cef#755e64284cef+ (Gerdeman, 2019) Gerdeman, D. (2019, January 28). Forget Cash. Here Are Better Ways to Motivate Employees. Retrieved November 18, 2020, from Harvard Business School: https://hbswk.hbs.edu/item/forget-cash-here-are- better-ways-to-motivate-employees (RSA, 2010) RSA. (2010, April 1). RSA ANIMATE: Drive: The surprising truth about what motivates us. Retrieved November 18, 2020, from https://www.youtube.com/watch?v=u6XAPnuFjJc (Saylor Academy, 2012) Saylor Academy. (2012). Chapter 10: Conflict and Negotiations. In Organizational Behavior (pp. 1-51). Saylor Foundation. Retrieved November 18, 2020, from https://learn.umgc.edu/content/enforced/522907-001135- 01-2208-OL3-7380/Organizational%20Behavior%20-%20Chapter%2010.pdf (Saylor Academy, 2012) Saylor Academy. (2012). Chapter 12: Leading People Within Organizations. In Organizational Behavior (pp. 1-53). Saylor Foundation. Retrieved November 18, 2020, from https://learn.umgc.edu/content/enforced/522907-001135-01-2208-OL3- 7380/Organizational%20Behavior%20-%20Chapter%2012.pdf (Saylor Academy, 2012) Saylor Academy. (2012). Chapter 5: Theories of Motivation. In Organizational Behavior (pp. 1-44). Saylor Foundation. Retrieved November 18, 2020, from https://learn.umgc.edu/content/enforced/522907-001135- 01-2208-OL3-7380/Organizational%20Behavior%20-%20Chapter%205.pdf (Saylor Academy, 2012) Saylor Academy. (2012). Chapter 6: Designing a Motivating Work Environment. In Organizational Behavior (pp. 1-50). Saylor Foundation. Retrieved November 18, 2020, from https://learn.umgc.edu/content/enforced/522907-001135-01-2208-OL3- 7380/Organizational%20Behavior%20-%20Chapter%206.pdf (Smith, 2013) Smith, M. K. (2013). Peter Senge and the learning organization. In The encyclopedia of pedagogy and informal education. INFED. Retrieved November 18, 2020, from https://infed.org/peter-senge-and-the- learning-organization/

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Chapter 5 Theories of Motivation

LEARNING OBJECTIVES

After reading this chapter, you should be able to do the following:

1. Understand the role of motivation in determining employee performance.

2. Classify the basic needs of employees.

3. Describe how fairness perceptions are determined and consequences of these

perceptions.

4. Understand the importance of rewards and punishments.

5. Apply motivation theories to analyze performance problems.

Motivation at Trader Joe’s People in Hawaiian T-shirts. Delicious fresh fruits and vegetables. A place

where parking is tight and aisles are tiny. A place where you will be unable to

find half the things on your list but will go home satisfied. We are, of course,

talking about Trader Joe’s, a unique grocery store headquartered in California

and located in 22 states. By selling store-brand and gourmet foods at

affordable prices, this chain created a special niche for itself. Yet the helpful

employees who stock the shelves and answer questions are definitely a key

part of what makes this store unique and helps it achieve twice the sales of

traditional supermarkets.

Shopping here is fun, and chatting with employees is a routine part of this

experience. Employees are upbeat and friendly to each other and to

customers. If you look lost, there is the definite offer of help. But somehow the

friendliness does not seem scripted. Instead, if they see you shopping for big

trays of cheese, they might casually inquire if you are having a party and then

point to other selections. If they see you chasing your toddler, they are quick to

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tie a balloon to his wrist. When you ask them if they have any cumin, they get

down on their knees to check the back of the aisle, with the attitude of helping

a guest that is visiting their home. How does a company make sure its

employees look like they enjoy being there to help others?

One of the keys to this puzzle is pay. Trader Joe’s sells cheap organic food, but

they are not “cheap” when it comes to paying their employees. Employees,

including part-timers, are among the best paid in the retail industry. Full-time

employees earn an average of $40,150 in their first year and also earn average

annual bonuses of $950 with $6,300 in retirement contributions. Store

managers’ average compensation is $132,000. With these generous benefits

and above-market wages and salaries, the company has no difficulty attracting

qualified candidates.

But money only partially explains what energizes Trader Joe’s employees.

They work with people who are friendly and upbeat. The environment is

collaborative, so that people fill in for each other and managers pick up the

slack when the need arises, including tasks like sweeping the floors. Plus, the

company promotes solely from within, making Trader Joe’s one of few places

in the retail industry where employees can satisfy their career aspirations.

Employees are evaluated every 3 months and receive feedback about their

performance.

Employees are also given autonomy on the job. They can open a product to

have the customers try it and can be honest about their feelings toward

different products. They receive on- and off-the-job training and are

intimately familiar with the products, which enables them to come up with

ideas that are taken seriously by upper management. In short, employees love

what they do, work with nice people who treat each other well, and are

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respected by the company. When employees are treated well, it is no wonder

they treat their customers well on a daily basis.

Sources: Based on information in Lewis, L. (2005). Trader Joe’s adventure.

Chicago: Dearborn Trade; McGregor, J., Salter, C., Conley, L., Haley, F., Sacks,

D., & Prospero, M. (2004). Customers first. Fast Company, 87, 79–88;

Speizer, I. (2004). Shopper’s special. Workforce Management, 83, 51–54.

What inspires employees to provide excellent service, market a company’s

products effectively, or achieve the goals set for them? Answering this

question is of utmost importance if we are to understand and manage the

work behavior of our peers, subordinates, and even supervisors. Put a

different way, if someone is not performing well, what could be the reason?

Job performance is viewed as a function of three factors and is expressed with

the equation below. [1] According to this equation, motivation, ability, and

environment are the major influences over employee performance.

Motivation is one of the forces that lead to performance. Motivation is defined

as the desire to achieve a goal or a certain performance level, leading to goal-

directed behavior. When we refer to someone as being motivated, we mean

that the person is trying hard to accomplish a certain task. Motivation is

clearly important if someone is to perform well; however, it is not

sufficient. Ability—or having the skills and knowledge required to perform the

job—is also important and is sometimes the key determinant of effectiveness.

Finally, environmental factors such as having the resources, information, and

support one needs to perform well are critical to determine performance. At

different times, one of these three factors may be the key to high performance.

For example, for an employee sweeping the floor, motivation may be the most

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important factor that determines performance. In contrast, even the most

motivated individual would not be able to successfully design a house without

the necessary talent involved in building quality homes. Being motivated is not

the same as being a high performer and is not the sole reason why people

perform well, but it is nevertheless a key influence over our performance level.

So what motivates people? Why do some employees try to reach their targets

and pursue excellence while others merely show up at work and count the

hours? As with many questions involving human beings, the answer is

anything but simple. Instead, there are several theories explaining the concept

of motivation. We will discuss motivation theories under two categories: need-

based theories and process theories.

5.1 Need-Based Theories of Motivation

LEARNING OBJECTIVES

1. Explain how employees are motivated according to Maslow’s hierarchy of needs.

2. Explain how the ERG (existence, relatedness, growth) theory addresses the

limitations of Maslow’s hierarchy.

3. Describe the differences among factors contributing to employee motivation and

how these differ from factors contributing to dissatisfaction.

4. Describe need for achievement, power, and affiliation, and identify how these

acquired needs affect work behavior.

The earliest studies of motivation involved an examination of individual

needs. Specifically, early researchers thought that employees try hard and

demonstrate goal-driven behavior in order to satisfy needs. For example, an

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employee who is always walking around the office talking to people may have

a need for companionship, and his behavior may be a way of satisfying this

need. At the time, researchers developed theories to understand what people

need. Four theories may be placed under this category: Maslow’s hierarchy of

needs, ERG theory, Herzberg’s two-factor theory, and McClelland’s acquired-

needs theory.

Maslow’s Hierarchy of Needs

Abraham Maslow is among the most prominent psychologists of the twentieth

century. His hierarchy of needs is an image familiar to most business students

and managers. The theory is based on a simple premise: Human beings have

needs that are hierarchically ranked. [1] There are some needs that are basic to

all human beings, and in their absence nothing else matters. As we satisfy

these basic needs, we start looking to satisfy higher order needs. In other

words, once a lower level need is satisfied, it no longer serves as a motivator.

Figure 5.3 Maslow’s Hierarchy of Needs

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The most basic of Maslow’s needs are physiological needs. Physiological needs

refer to the need for food, water, and other biological needs. These needs are

basic because when they are lacking, the search for them may overpower all

other urges. Imagine being very hungry. At that point, all your behavior may

be directed at finding food. Once you eat, though, the search for food ceases

and the promise of food no longer serves as a motivator. Once physiological

needs are satisfied, people tend to become concerned about safety needs. Are

they free from the threat of danger, pain, or an uncertain future? On the next

level up, social needs refer to the need to bond with other human beings, be

loved, and form lasting attachments with others. In fact, attachments, or lack

of them, are associated with our health and well-being. [2] The satisfaction of

social needs makes esteem needs more salient. Esteem need refers to the

desire to be respected by one’s peers, feel important, and be appreciated.

Finally, at the highest level of the hierarchy, the need for self-

actualization refers to “becoming all you are capable of becoming.” This need

manifests itself by the desire to acquire new skills, take on new challenges, and

behave in a way that will lead to the attainment of one’s life goals.

Maslow was a clinical psychologist, and his theory was not originally designed

for work settings. In fact, his theory was based on his observations of

individuals in clinical settings; some of the individual components of the

theory found little empirical support. One criticism relates to the order in

which the needs are ranked. It is possible to imagine that individuals who go

hungry and are in fear of their lives might retain strong bonds to others,

suggesting a different order of needs. Moreover, researchers failed to support

the arguments that once a need is satisfied it no longer serves as a motivator

and that only one need is dominant at a given time. [3]

Despite the lack of strong research support, Maslow’s theory found obvious

applications in business settings. Understanding what people need gives us

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clues to understanding them. The hierarchy is a systematic way of thinking

about the different needs employees may have at any given point and explains

different reactions they may have to similar treatment. An employee who is

trying to satisfy esteem needs may feel gratified when her supervisor praises

an accomplishment. However, another employee who is trying to satisfy social

needs may resent being praised by upper management in front of peers if the

praise sets the individual apart from the rest of the group.

How can an organization satisfy its employees’ various needs? In the long run,

physiological needs may be satisfied by the person’s paycheck, but it is

important to remember that pay may satisfy other needs such as safety and

esteem as well. Providing generous benefits that include health insurance and

company-sponsored retirement plans, as well as offering a measure of job

security, will help satisfy safety needs. Social needs may be satisfied by having

a friendly environment and providing a workplace conducive to collaboration

and communication with others. Company picnics and other social get-

togethers may also be helpful if the majority of employees are motivated

primarily by social needs (but may cause resentment if they are not and if they

have to sacrifice a Sunday afternoon for a company picnic). Providing

promotion opportunities at work, recognizing a person’s accomplishments

verbally or through more formal reward systems, and conferring job titles that

communicate to the employee that one has achieved high status within the

organization are among the ways of satisfying esteem needs. Finally, self-

actualization needs may be satisfied by the provision of development and

growth opportunities on or off the job, as well as by work that is interesting

and challenging. By making the effort to satisfy the different needs of each

employee, organizations may ensure a highly motivated workforce.

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ERG Theory

Figure 5.4

ERG theory includes existence, relatedness, and growth.

Source: Based on Alderfer, C. P. (1969). An empirical test of a new theory of

human needs. Organizational Behavior and Human Performance, 4, 142–175.

ERG theory, developed by Clayton Alderfer, is a modification of Maslow’s

hierarchy of needs. [4] Instead of the five needs that are hierarchically

organized, Alderfer proposed that basic human needs may be grouped under

three categories, namely, existence, relatedness, and growth. Existence

corresponds to Maslow’s physiological and safety needs, relatedness

corresponds to social needs, and growth refers to Maslow’s esteem and self-

actualization.

ERG theory’s main contribution to the literature is its relaxation of Maslow’s

assumptions. For example, ERG theory does not rank needs in any particular

order and explicitly recognizes that more than one need may operate at a given

time. Moreover, the theory has a “frustration-regression” hypothesis

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suggesting that individuals who are frustrated in their attempts to satisfy one

need may regress to another. For example, someone who is frustrated by the

growth opportunities in his job and progress toward career goals may regress

to relatedness need and start spending more time socializing with coworkers.

The implication of this theory is that we need to recognize the multiple needs

that may be driving individuals at a given point to understand their behavior

and properly motivate them.

Two-Factor Theory

Frederick Herzberg approached the question of motivation in a different way.

By asking individuals what satisfies them on the job and what dissatisfies

them, Herzberg came to the conclusion that aspects of the work environment

that satisfy employees are very different from aspects that dissatisfy

them. [5] Herzberg labeled factors causing dissatisfaction of workers as

“hygiene” factors because these factors were part of the context in which the

job was performed, as opposed to the job itself. Hygiene factors included

company policies, supervision, working conditions, salary, safety, and security

on the job. To illustrate, imagine that you are working in an unpleasant work

environment. Your office is too hot in the summer and too cold in the winter.

You are being harassed and mistreated. You would certainly be miserable in

such a work environment. However, if these problems were solved (your office

temperature is just right and you are not harassed at all), would you be

motivated? Most likely, you would take the situation for granted. In fact, many

factors in our work environment are things that we miss when they are absent

but take for granted if they are present.

In contrast, motivators are factors that are intrinsic to the job, such as

achievement, recognition, interesting work, increased responsibilities,

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advancement, and growth opportunities. According to Herzberg’s research,

motivators are the conditions that truly encourage employees to try harder.

Figure 5.5

The two-factor theory of motivation includes hygiene factors and motivators.

Sources: Based on Herzberg, F., Mausner, B., & Snyderman, B. (1959). The

motivation to work. New York: John Wiley and Sons; Herzberg, F. (1965).

The motivation to work among Finnish supervisors. Personnel

Psychology, 18, 393–402.

Herzberg’s research is far from being universally accepted. [6] One criticism

relates to the primary research methodology employed when arriving at

hygiene versus motivators. When people are asked why they are satisfied, they

may attribute the causes of satisfaction to themselves, whereas when

explaining what dissatisfies them, they may blame the situation. The

classification of the factors as hygiene or motivator is not that simple either.

For example, the theory views pay as a hygiene factor. However, pay may have

symbolic value by showing employees that they are being recognized for their

contributions as well as communicating that they are advancing within the

company. Similarly, the quality of supervision or the types of relationships

employees form with their supervisors may determine whether they are

assigned interesting work, whether they are recognized for their potential, and

whether they take on more responsibilities.

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Despite its limitations, the theory can be a valuable aid to managers because it

points out that improving the environment in which the job is performed goes

only so far in motivating employees. Undoubtedly, contextual factors matter

because their absence causes dissatisfaction. However, solely focusing on

hygiene factors will not be enough, and managers should also enrich jobs by

giving employees opportunities for challenging work, greater responsibilities,

advancement opportunities, and a job in which their subordinates can feel

successful.

Acquired-Needs Theory

Among the need-based approaches to motivation, David McClelland’s

acquired-needs theory is the one that has received the greatest amount of

support. According to this theory, individuals acquire three types of needs as a

result of their life experiences. These needs are the need for achievement, the

need for affiliation, and the need for power. All individuals possess a

combination of these needs, and the dominant needs are thought to drive

employee behavior.

McClelland used a unique method called the Thematic Apperception Test

(TAT) to assess the dominant need. [7] This method entails presenting research

subjects an ambiguous picture asking them to write a story based on it. Take a

look at the following picture. Who is this person? What is she doing? Why is

she doing it? The story you tell about the woman in the picture would then be

analyzed by trained experts. The idea is that the stories the photo evokes

would reflect how the mind works and what motivates the person.

If the story you come up with contains themes of success, meeting deadlines,

or coming up with brilliant ideas, you may be high in need for achievement.

Those who have high need for achievement have a strong need to be

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successful. As children, they may be praised for their hard work, which forms

the foundations of their persistence. [8] As adults, they are preoccupied with

doing things better than they did in the past. These individuals are constantly

striving to improve their performance. They relentlessly focus on goals,

particularly stretch goals that are challenging in nature. [9] They are

particularly suited to positions such as sales, where there are explicit goals,

feedback is immediately available, and their effort often leads to success. In

fact, they are more attracted to organizations that are merit-based and reward

performance rather than seniority. They also do particularly well as

entrepreneurs, scientists, and engineers. [10]

Are individuals who are high in need for achievement effective managers?

Because of their success in lower level jobs where their individual

contributions matter the most, those with high need for achievement are often

promoted to higher level positions. [11] However, a high need for achievement

has significant disadvantages in management positions. Management involves

getting work done by motivating others. When a salesperson is promoted to be

a sales manager, the job description changes from actively selling to

recruiting, motivating, and training salespeople. Those who are high in need

for achievement may view managerial activities such as coaching,

communicating, and meeting with subordinates as a waste of time and may

neglect these aspects of their jobs. Moreover, those high in need for

achievement enjoy doing things themselves and may find it difficult to

delegate any meaningful authority to their subordinates. These individuals

often micromanage, expecting others to approach tasks a particular way, and

may become overbearing bosses by expecting everyone to display high levels

of dedication.[12]

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If the story you created in relation to the picture you are analyzing contains

elements of making plans to be with friends or family, you may have a high

need for affiliation. Individuals who have a high need for affiliation want to be

liked and accepted by others. When given a choice, they prefer to interact with

others and be with friends. [13]Their emphasis on harmonious interpersonal

relationships may be an advantage in jobs and occupations requiring frequent

interpersonal interaction, such as a social worker or teacher. In managerial

positions, a high need for affiliation may again serve as a disadvantage

because these individuals tend to be overly concerned about how they are

perceived by others. They may find it difficult to perform some aspects of a

manager’s job such as giving employees critical feedback or disciplining poor

performers. Thus, the work environment may be characterized by mediocrity

and may even lead to high performers leaving the team.

Finally, if your story contains elements of getting work done by influencing

other people or desiring to make an impact on the organization, you may have

a high need for power. Those with a high need for power want to influence

others and control their environment. A need for power may in fact be a

destructive element in relationships with colleagues if it takes the form of

seeking and using power for one’s own good and prestige. However, when it

manifests itself in more altruistic forms such as changing the way things are

done so that the work environment is more positive, or negotiating more

resources for one’s department, it tends to lead to positive outcomes. In fact,

the need for power is viewed as an important trait for effectiveness in

managerial and leadership positions. [14]

McClelland’s theory of acquired needs has important implications for the

motivation of employees. Managers need to understand the dominant needs of

their employees to be able to motivate them. While people who have a high

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need for achievement may respond to goals, those with a high need for power

may attempt to gain influence over those they work with, and individuals high

in their need for affiliation may be motivated to gain the approval of their

peers and supervisors. Finally, those who have a high drive for success may

experience difficulties in managerial positions, and making them aware of

common pitfalls may increase their effectiveness.

KEY TAKEAWAY

Need-based theories describe motivated behavior as individuals’ efforts to meet

their needs. According to this perspective, the manager’s job is to identify what

people need and make the work environment a means of satisfying these needs.

Maslow’s hierarchy describes five categories of basic human needs, including

physiological, safety, social, esteem, and self-actualization needs. These needs are

hierarchically ranked, and as a lower level need is satisfied, it no longer serves as a

motivator. ERG theory is a modification of Maslow’s hierarchy, in which the five

needs are collapsed into three categories (existence, relatedness, and growth). The

theory recognizes that when employees are frustrated while attempting to satisfy

higher level needs, they may regress. The two-factor theory differentiates between

factors that make people dissatisfied on the job (hygiene factors) and factors that

truly motivate employees (motivators). Finally, acquired-needs theory argues that

individuals possess stable and dominant motives to achieve, acquire power, or

affiliate with others. The type of need that is dominant will drive behavior. Each of

these theories explains characteristics of a work environment that motivates

employees. These theories paved the way to process-based theories that explain the

mental calculations employees make to decide how to behave.

EXERCISES

1. Many managers assume that if an employee is not performing well, the reason must

be a lack of motivation. Do you think this reasoning is accurate? What is the problem

with the assumption?

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2. Review Maslow’s hierarchy of needs. Do you agree with the particular ranking of

employee needs?

3. How can an organization satisfy employee needs that are included in Maslow’s

hierarchy?

4. Which motivation theory have you found to be most useful in explaining why people

behave in a certain way? Why?

5. Review the hygiene and motivators in the two-factor theory of motivation. Do you

agree with the distinction between hygiene factors and motivators? Are there any

hygiene factors that you would consider to be motivators?

6. A friend of yours demonstrates the traits of achievement motivation: This person is

competitive, requires frequent and immediate feedback, and enjoys accomplishing

things and doing things better than she did before. She has recently been promoted

to a managerial position and seeks your advice. What would you tell her?

5.2 Process-Based Theories

LEARNING OBJECTIVES

1. Explain how employees evaluate the fairness of reward distributions.

2. Describe the three types of fairness that affect employee attitudes and behaviors.

3. List the three questions individuals consider when deciding whether to put forth

effort at work.

4. Describe how managers can use learning and reinforcement principles to motivate

employees.

A separate stream of research views motivation as something more than action

aimed at satisfying a need. Instead, process-based theories view motivation as

a rational process. Individuals analyze their environment, develop thoughts

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and feelings, and react in certain ways. Process theories attempt to explain the

thought processes of individuals who demonstrate motivated behavior. Under

this category, we will review equity theory, expectancy theory, and

reinforcement theory.

Equity Theory

Imagine that you are paid $10 an hour working as an office assistant. You have

held this job for 6 months. You are very good at what you do, you come up

with creative ways to make things easier around you, and you are a good

colleague who is willing to help others. You stay late when necessary and are

flexible if requested to change hours. Now imagine that you found out they are

hiring another employee who is going to work with you, who will hold the

same job title, and who will perform the same type of tasks. This particular

person has more advanced computer skills, but it is unclear whether these will

be used on the job. The starting pay for this person will be $14 an hour. How

would you feel? Would you be as motivated as before, going above and beyond

your duties? How would you describe what you would be feeling?

Figure 5.7

Equity is determined by comparing one’s input-outcome ratio with the input-

outcome ratio of a referent. When the two ratios are equal, equity exists.

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Source: Based on Adams, J. S. (1965). Inequity in social exchange. In L.

Berkowitz (Ed.), Advances in experimental social psychology: Vol. 2 (pp. 267–

299). New York: Academic Press.

If your reaction to this scenario is along the lines of “this would be unfair,”

your behavior may be explained using equity theory. [1] According to this

theory, individuals are motivated by a sense of fairness in their interactions.

Moreover, our sense of fairness is a result of the social comparisons we make.

Specifically, we compare our inputs and outcomes with other people’s inputs

and outcomes. We perceive fairness if we believe that the input-to-outcome

ratio we are bringing into the situation is similar to the input-to-outcome ratio

of a comparison person, or a referent. Perceptions of inequity create tension

within us and drive us to action that will reduce perceived inequity.

What Are Inputs and Outcomes?

Inputs are the contributions people feel they are making to the environment.

In the previous example, the person’s hard work; loyalty to the organization;

amount of time with the organization; and level of education, training, and

skills may have been relevant inputs. Outcomes are the perceived rewards

someone can receive from the situation. For the hourly wage employee in our

example, the $10 an hour pay rate was a core outcome. There may also be

other, more peripheral outcomes, such as acknowledgment or preferential

treatment from a manager. In the prior example, however, the person may

reason as follows: I have been working here for 6 months. I am loyal, and I

perform well (inputs). I am paid $10 an hour for this (outcomes). The new

person does not have any experience here (referent’s inputs) but will be paid

$14 an hour. This situation is unfair.

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We should emphasize that equity perceptions develop as a result of a

subjective process. Different people may look at the same situation and

perceive different levels of equity. For example, another person may look at

the same scenario and decide that the situation is fair because the newcomer

has computer skills and the company is paying extra for those skills.

Who Is the Referent?

The referent other may be a specific person as well as a category of people.

Referents should be comparable to us—otherwise the comparison is not

meaningful. It would be pointless for a student worker to compare himself to

the CEO of the company, given the differences in the nature of inputs and

outcomes. Instead, individuals may compare themselves to someone

performing similar tasks within the same organization or, in the case of a

CEO, a different organization.

Reactions to Unfairness

The theory outlines several potential reactions to perceived inequity.

Oftentimes, the situation may be dealt with perceptually by altering our

perceptions of our own or the referent’s inputs and outcomes. For example,

we may justify the situation by downplaying our own inputs (I don’t really

work very hard on this job), valuing our outcomes more highly (I am gaining

valuable work experience, so the situation is not that bad), distorting the other

person’s inputs (the new hire really is more competent than I am and deserves

to be paid more), or distorting the other person’s outcomes (she gets $14 an

hour but will have to work with a lousy manager, so the situation is not

unfair). Another option would be to have the referent increase inputs. If the

other person brings more to the situation, getting more out of the situation

would be fair. If that person can be made to work harder or work on more

complicated tasks, equity would be achieved. The person experiencing a

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perceived inequity may also reduce inputs or attempt to increase outcomes. If

the lower paid person puts forth less effort, the perceived inequity would be

reduced. Research shows that people who perceive inequity reduce their work

performance or reduce the quality of their inputs. [2] Increasing one’s

outcomes can be achieved through legitimate means such as negotiating a pay

raise. At the same time, research shows that those feeling inequity sometimes

resort to stealing to balance the scales. [3]Other options include changing the

comparison person (e.g., others doing similar work in different organizations

are paid only minimum wage) and leaving the situation by

quitting. [4] Sometimes it may be necessary to consider taking legal action as a

potential outcome of perceived inequity. For example, if an employee finds out

the main reason behind a pay gap is gender related, the person may react to

the situation by taking legal action because sex discrimination in pay is illegal

in the United States.

Table 5.1 Potential Responses to Inequity

Reactions to inequity Example

Distort perceptions

Changing one’s thinking to believe that the referent actually is more skilled than previously thought

Increase referent’s inputs Encouraging the referent to work harder

Reduce own input

Deliberately putting forth less effort at work. Reducing the quality of one’s work

Increase own outcomes

Negotiating a raise for oneself or using unethical ways of increasing rewards such as stealing from the company

Change referent Comparing oneself to someone who is worse off

Leave the Quitting one’s job

21

Reactions to inequity Example

situation

Seek legal action Suing the company or filing a complaint if the unfairness in question is under legal protection

Source: Based on research findings reported in Carrell, M. R., & Dittrich, J.

E. (1978). Equity theory: The recent literature, methodological considerations,

and new directions. Academy of Management Review, 3, 202–210; Goodman,

P. S., & Friedman, A. (1971). An examination of Adams’s theory of

inequity. Administrative Science Quarterly, 16, 271–288; Greenberg, J. (1993).

Stealing in the name of justice: Informational and interpersonal moderators of

theft reactions to underpayment inequity. Organizational Behavior and

Human Decision Processes, 54, 81–103; Schmidt, D. R., & Marwell, G. (1972).

Withdrawal and reward reallocation as responses to inequity. Journal of

Experimental Social Psychology, 8, 207–211.

Overpayment Inequity

What would you do if you felt you were over-rewarded? In other words, how

would you feel if you were the new employee in our student-worker scenario?

Originally, equity theory proposed that over-rewarded individuals would

experience guilt and would increase their effort to restore perceptions of

equity. However, research does not provide support for this argument.

Instead, it seems that individuals experience less distress as a result of being

over-rewarded. [5] It is not hard to imagine that individuals find perceptual

ways to deal with a situation like this, such as believing they have more skills

and bring more to the situation compared to the referent person. Therefore,

research does not support equity theory’s predictions with respect to people

who are overpaid. [6]

22

Individual Differences in Reactions to Inequity

So far, we have assumed that once people feel a situation is inequitable, they

will be motivated to react. However, does inequity disturb everyone equally?

Researchers have identified a personality trait that explains different reactions

to inequity and named this trait as equity sensitivity. [7] Equity-sensitive

individuals expect to maintain equitable relationships, and they experience

distress when they feel they are over-rewarded or under-rewarded. At the

same time, there are some individuals who are benevolents, those who give

without waiting to receive much in return, and entitleds, who expect to receive

substantial compensation for relatively little input. Therefore, the theory is

more useful in explaining the behavior of equity-sensitive individuals, and

organizations will need to pay particular attention to how these individuals

view their relationships.

Fairness Beyond Equity: Procedural and Interactional Justice

Equity theory looks at perceived fairness as a motivator. However, the way

equity theory defines fairness is limited to fairness of rewards. Starting in the

1970s, research on workplace fairness began taking a broader view of justice.

Equity theory deals with outcome fairness, and therefore it is considered to be

a distributive justice theory. Distributive justice refers to the degree to which

the outcomes received from the organization are perceived to be fair. Two

other types of fairness have been identified: procedural justice and

interactional justice.

Figure 5.8 Dimensions of Organizational Justice

23

Let’s assume that you just found out you are getting a promotion. Clearly, this

is an exciting outcome and comes with a pay raise, increased responsibilities,

and prestige. If you feel you deserve to be promoted, you would perceive high

distributive justice (your getting the promotion is fair). However, you later

found out upper management picked your name out of a hat! What would you

feel? You might still like the outcome but feel that the decision-making

process was unfair. If so, you are describing feelings of procedural justice.

Procedural justice refers to the degree to which fair decision-making

procedures are used to arrive at a decision. People do not care only about

reward fairness. They also expect decision-making processes to be fair. In fact,

research shows that employees care about the procedural justice of many

organizational decisions, including layoffs, employee selection, surveillance of

24

employees, performance appraisals, and pay decisions. [8]People also tend to

care more about procedural justice in situations in which they do not get the

outcome they feel they deserve. [9] If you did not get the promotion and later

discovered that management chose the candidate by picking names out of a

hat, how would you feel? This may be viewed as adding insult to injury. When

people do not get the rewards they want, they tend to hold management

responsible if procedures are not fair.[10]

Why do employees care about procedural justice? There are three potential

reasons. [11]First, people tend to believe that fairness is an end in itself and it is

the right thing to do. Second, fair processes guarantee future rewards. If your

name was picked out of a hat, you have no control over the process, and there

is no guarantee that you will get future promotions. If the procedures are fair,

you are more likely to believe that things will work out in the future. Third,

fairness communicates that the organization values its employees and cares

about their well-being.

Research has identified many ways of achieving procedural justice. For

example, giving employees advance notice before laying them off, firing them,

or disciplining them is perceived as fair. [12] Advance notice helps employees

get ready for the changes facing them or gives them an opportunity to change

their behavior before it is too late. Allowing employees voice in decision

making is also important. [13] When designing a performance-appraisal system

or implementing a reorganization, it may be a good idea to ask people for their

input because it increases perceptions of fairness. Even when it is not possible

to have employees participate, providing explanations to employees is helpful

in fostering procedural justice. [14] Finally, people expect consistency in

treatment. [15] If one person is given extra time when taking a test while

another is not, individuals would perceive decision making as unfair.

25

Now let’s imagine the moment your boss told you that you are getting a

promotion. Your manager’s exact words were, “Yes, we are giving you the

promotion. The job is so simple that we thought even you can handle it.” Now

what is your reaction? The feeling of unfairness you may now feel is explained

by interactional justice. Interactional justice refers to the degree to which

people are treated with respect, kindness, and dignity in interpersonal

interactions. We expect to be treated with dignity by our peers, supervisors,

and customers. When the opposite happens, we feel angry. Even when faced

with negative outcomes such as a pay cut, being treated with dignity and

respect serves as a buffer and alleviates our stress. [16]

OB Toolbox: Be a Fair Person!  When distributing rewards, make sure you pay attention to different

contribution levels of employees. Treating everyone equally could be unfair if

they participated and contributed at different levels. People who are more

qualified, skilled, or those who did more than others expect to receive a

greater share of rewards.

 Sometimes you may have to disregard people’s contributions to distribute

certain rewards. Some rewards or privileges may be better distributed equally

(e.g., health insurance) or based on the particular employee’s needs (such as

unpaid leave for health reasons).

 Pay attention to how you make decisions. Before making a decision, ask

people to give you their opinions if possible. Explain your decisions to people

who are affected by it. Before implementing a change, give people advance

notice. Enforce rules consistently among employees.

 Pay attention to how you talk to people. Treat others the way you want to be

treated. Be kind, courteous, and considerate of their feelings.

26

 Remember that justice is in the eye of the beholder. Even when you feel you

are being fair, others may not feel the same way, and it is their perception that

counts. Therefore, pay attention to being perceived as fair.

 People do not care only about their own justice level. They also pay attention

to how others are treated as well. Therefore, in addition to paying attention to

how specific employees feel, creating a sense of justice in the entire

organization is important.

Sources: Adapted from ideas in Colquitt, J. A. (2004). Does the justice of the

one interact with the justice of the many? Reactions to procedural justice in

teams. Journal of Applied Psychology, 89, 633–646; Cropanzano, R., Bowen,

D. E., & Gilliland, S. W. (2007). The management of organizational

justice. Academy of Management Perspectives, 21, 34–48.

Employers would benefit from paying attention to all three types of justice

perceptions. In addition to being the right thing to do, paying attention to

justice perceptions leads to outcomes companies care about. Injustice is

directly harmful to employees’ psychological health and well-being and

contributes to stress. [17] High levels of justice create higher levels of employee

commitment to organizations, and they are related to higher job performance,

higher levels of organizational citizenship (behaviors that are not part of one’s

job description but help the organization in other ways, such as speaking

positively about the company and helping others), and higher levels of

customer satisfaction. Conversely, low levels of justice lead to retaliation and

support of unionization. [18]

Expectancy Theory

According to expectancy theory, individual motivation to put forth more or

less effort is determined by a rational calculation in which individuals evaluate

27

their situation. [19]According to this theory, individuals ask themselves three

questions.

Figure 5.9 Summary of Expectancy Theory

Sources: Based on Porter, L. W., & Lawler, E. E. (1968). Managerial

attitudes and performance. Homewood, IL: Irwin; Vroom, V. H. (1964). Work

and motivation. New York: Wiley.

The first question is whether the person believes that high levels of effort will

lead to outcomes of interest, such as performance or success. This perception

is labeled expectancy. For example, do you believe that the effort you put forth

in a class is related to performing well in that class? If you do, you are more

likely to put forth effort.

The second question is the degree to which the person believes that

performance is related to subsequent outcomes, such as rewards. This

perception is labeled instrumentality. For example, do you believe that getting

a good grade in the class is related to rewards such as getting a better job, or

gaining approval from your instructor, or from your friends or parents? If you

do, you are more likely to put forth effort.

Finally, individuals are also concerned about the value of the rewards awaiting

them as a result of performance. The anticipated satisfaction that will result

from an outcome is labeled valence. For example, do you value getting a better

28

job, or gaining approval from your instructor, friends, or parents? If these

outcomes are desirable to you, your expectancy and instrumentality is high,

and you are more likely to put forth effort.

Expectancy theory is a well-accepted theory that has received a lot of research

attention.[20] It is simple and intuitive. Consider the following example. Let’s

assume that you are working in the concession stand of a movie theater. You

have been selling an average of 100 combos of popcorn and soft drinks a day.

Now your manager asks you to increase this number to 300 combos a day.

Would you be motivated to try to increase your numbers? Here is what you

may be thinking:

 Expectancy: Can I do it? If I try harder, can I really achieve this number? Is

there a link between how hard I try and whether I reach this goal or not? If

you feel that you can achieve this number if you try, you have high

expectancy.

 Instrumentality: What is in it for me? What is going to happen if I reach

300? What are the outcomes that will follow? Are they going to give me a

2% pay raise? Am I going to be named the salesperson of the month? Am I

going to receive verbal praise from my manager? If you believe that

performing well is related to certain outcomes, instrumentality is high.

 Valence: How do I feel about the outcomes in question? Do I feel that a 2%

pay raise is desirable? Do I find being named the salesperson of the month

attractive? Do I think that being praised by my manager is desirable? If

your answers are yes, valence is positive. In contrast, if you find the

outcomes undesirable (you definitely do not want to be named the

salesperson of the month because your friends would make fun of you),

valence is negative.

29

If your answers to all three questions are affirmative—you feel that you can do

it, you will get an outcome if you do it, and you value the reward—you are

more likely to be motivated to put forth more effort toward selling more

combos.

As a manager, how can you motivate employees? In fact, managers can

influence all three perceptions. [21]

Influencing Expectancy Perceptions

Employees may not believe that their effort leads to high performance for a

multitude of reasons. First, they may not have the skills, knowledge, or

abilities to successfully perform their jobs. The answer to this problem may be

training employees or hiring people who are qualified for the jobs in question.

Second, low levels of expectancy may be because employees may feel that

something other than effort predicts performance, such as political behaviors

on the part of employees. If employees believe that the work environment is

not conducive to performing well (resources are lacking or roles are unclear),

expectancy will also suffer. Therefore, clearing the path to performance and

creating an environment in which employees do not feel restricted will be

helpful. Finally, some employees may perceive little connection between their

effort and performance level because they have an external locus of control,

low self-esteem, or other personality traits that condition them to believe that

their effort will not make a difference. In such cases, providing positive

feedback and encouragement may help motivate employees.

Influencing Instrumentality Perceptions

Showing employees that their performance is rewarded is going to increase

instrumentality perceptions. Therefore, the first step in influencing

instrumentality is to connect pay and other rewards to performance using

30

bonuses, award systems, and merit pay. However, this is not always sufficient,

because people may not be aware of some of the rewards awaiting high

performers. Publicizing any contests or award programs is needed to bring

rewards to the awareness of employees. It is also important to highlight that

performance, not something else, is being rewarded. For example, if a

company has an employee of the month award that is rotated among

employees, employees are unlikely to believe that performance is being

rewarded. This type of meritless reward system may actually hamper the

motivation of the highest performing employees by eroding instrumentality.

Influencing Valence

Employees are more likely to be motivated if they find the reward to be

attractive. This process involves managers finding what their employees value.

Desirable rewards tend to be fair and satisfy different employees’ diverging

needs. Ensuring high valence involves getting to know a company’s employees.

Talking to employees and surveying them about what rewards they find

valuable are some methods to gain understanding. Finally, giving employees a

choice between multiple rewards may be a good idea to increase valence.

Figure 5.10 Ways in Which Managers Can Influence Expectancy,

Instrumentality, and Valence

31

Reinforcement Theory

Reinforcement theory is based on the work of Ivan Pavlov on behavioral

conditioning and the later work of B. F. Skinner on operant

conditioning. [22] According to reinforcement theory, behavior is a function of

its outcomes. Imagine that even though no one asked you to, you stayed late

and drafted a report. When the manager found out, she was ecstatic and took

you out to lunch and thanked you genuinely. The consequences following your

good deed were favorable, and therefore you are more likely to demonstrate

similar behaviors in the future. In other words, your taking initiative was

reinforced. Instead, if your manager had said nothing about it and everyone

ignored the sacrifice you made, you are less likely to demonstrate similar

behaviors in the future.

Reinforcement theory is based on a simple idea that may be viewed as

common sense. Beginning at infancy we learn through reinforcement. If you

have observed a small child discovering the environment, you will see

reinforcement theory in action. When the child discovers manipulating a

faucet leads to water coming out and finds this outcome pleasant, he is more

32

likely to repeat the behavior. If he burns his hand while playing with hot

water, the child is likely to stay away from the faucet in the future.

Despite the simplicity of reinforcement, how many times have you seen

positive behavior ignored, or worse, negative behavior rewarded? In many

organizations, this is a familiar scenario. People go above and beyond the call

of duty, yet their actions are ignored or criticized. People with disruptive

habits may receive no punishments because the manager is afraid of the

reaction the person will give when confronted. Problem employees may even

receive rewards such as promotions so they will be transferred to a different

location and become someone else’s problem. Moreover, it is common for

people to be rewarded for the wrong kind of behavior. Steven Kerr has labeled

this phenomenon “the folly of rewarding A while hoping for B.” [23] For

example, a company may make public statements about the importance of

quality. Yet, if they choose to reward shipments on time regardless of the

amount of defects contained in the shipments, employees are more likely to

ignore quality and focus on hurrying the delivery process. Because people

learn to repeat their behaviors based on the consequences following their prior

activities, managers will need to systematically examine the consequences of

employee behavior and make interventions when needed.

Reinforcement Interventions

Reinforcement theory describes four interventions to modify employee

behavior. Two of these are methods of increasing the frequency of desired

behaviors, while the remaining two are methods of reducing the frequency of

undesired behaviors.

Figure 5.11 Reinforcement Methods

33

Positive reinforcement is a method of increasing the desired behavior. [24]

Positive reinforcement involves making sure that behavior is met with positive

consequences. For example, praising an employee for treating a customer

respectfully is an example of positive reinforcement. If the praise immediately

follows the positive behavior, the employee will see a link between the

behavior and positive consequences and will be motivated to repeat similar

behaviors.

Negative reinforcement is also used to increase the desired behavior. Negative

reinforcement involves removal of unpleasant outcomes once desired behavior

is demonstrated. Nagging an employee to complete a report is an example of

negative reinforcement. The negative stimulus in the environment will remain

present until positive behavior is demonstrated. The problem with negative

34

reinforcement is that the negative stimulus may lead to unexpected behaviors

and may fail to stimulate the desired behavior. For example, the person may

start avoiding the manager to avoid being nagged.

Extinction is used to decrease the frequency of negative behaviors. Extinction

is the removal of rewards following negative behavior. Sometimes, negative

behaviors are demonstrated because they are being inadvertently rewarded.

For example, it has been shown that when people are rewarded for their

unethical behaviors, they tend to demonstrate higher levels of unethical

behaviors. [25] Thus, when the rewards following unwanted behaviors are

removed, the frequency of future negative behaviors may be reduced. For

example, if a coworker is forwarding unsolicited e-mail messages containing

jokes, commenting and laughing at these jokes may be encouraging the person

to keep forwarding these messages. Completely ignoring such messages may

reduce their frequency.

Punishment is another method of reducing the frequency of undesirable

behaviors. Punishment involves presenting negative consequences following

unwanted behaviors. Giving an employee a warning for consistently being late

to work is an example of punishment.

Reinforcement Schedules

In addition to types of reinforcements, researchers have focused their

attention on schedules of reinforcement as well. [26] Reinforcement is

presented on a continuous schedule if reinforcers follow all instances of

positive behavior. An example of a continuous schedule would be giving an

employee a sales commission every time he makes a sale. In many instances,

continuous schedules are impractical. For example, it would be difficult to

praise an employee every time he shows up to work on time. Fixed-

35

ratio schedules involve providing rewards every nth time the right behavior is

demonstrated. An example of this would be giving the employee a bonus for

every tenth sale he makes. Variable ratio involves providing the reinforcement

on a random pattern, such as praising the employee occasionally when the

person shows up on time. In the case of continuous schedules, behavioral

change is more temporary. Once the reward is withdrawn, the person may

stop performing the desired behavior. The most durable results occur under

variable ratios, but there is also some evidence that continuous schedules

produce higher performance than do variable schedules. [27]

OB Toolbox: Be Effective in Your Use of Discipline As a manager, sometimes you may have to discipline an employee to eliminate

unwanted behavior. Here are some tips to make this process more effective.

 Consider whether punishment is the most effective way to modify behavior.

Sometimes catching people in the act of doing good things and praising or

rewarding them is preferable to punishing negative behavior. Instead of

criticizing them for being late, consider praising them when they are on time.

Carrots may be more effective than sticks. You can also make the behavior

extinct by removing any rewards that follow undesirable behavior.

 Be sure that the punishment fits the crime. If a punishment is too harsh, both

the employee in question and coworkers who will learn about the punishment

will feel it is unfair. Unfair punishment may not change unwanted behavior.

 Be consistent in your treatment of employees. Have disciplinary procedures

and apply them in the same way to everyone. It is unfair to enforce a rule for

one particular employee but then give others a free pass.

 Document the behavior in question. If an employee is going to be disciplined,

the evidence must go beyond hearsay.

36

 Be timely with discipline. When a long period of time passes between

behavior and punishment, it is less effective in reducing undesired behavior

because the connection between the behavior and punishment is weaker.

Sources: Adapted from ideas in Ambrose, M. L., & Kulik, C. T. (1999). Old

friends, new faces: Motivation research in the 1990s. Journal of

Management, 25, 231–292; Guffey, C. J., & Helms, M. M. (2001). Effective

employee discipline: A case of the Internal Revenue Service. Public Personnel

Management, 30, 111–128.

A systematic way in which reinforcement theory principles are applied is

called Organizational Behavior Modification (or OB Mod). [28] This is a

systematic application of reinforcement theory to modify employee behaviors

in the workplace. The model consists of five stages. The process starts with

identifying the behavior that will be modified. Let’s assume that we are

interested in reducing absenteeism among employees. In step 2, we need to

measure the baseline level of absenteeism. How many times a month is a

particular employee absent? In step 3, the behavior’s antecedents and

consequences are determined. Why is this employee absent? More

importantly, what is happening when the employee is absent? If the behavior

is being unintentionally rewarded (e.g., the person is still getting paid or is

able to avoid unpleasant assignments because someone else is doing them),

we may expect these positive consequences to reinforce the absenteeism.

Instead, to reduce the frequency of absenteeism, it will be necessary to think of

financial or social incentives to follow positive behavior and negative

consequences to follow negative behavior. In step 4, an intervention is

implemented. Removing the positive consequences of negative behavior may

be an effective way of dealing with the situation, or, in persistent situations,

37

punishments may be used. Finally, in step 5 the behavior is measured

periodically and maintained.

Studies examining the effectiveness of OB Mod have been supportive of the

model in general. A review of the literature found that OB Mod interventions

resulted in 17% improvement in performance. [29] Particularly in

manufacturing settings, OB Mod was an effective way of increasing

performance, although positive effects were observed in service organizations

as well.

KEY TAKEAWAY

Process-based theories use the mental processes of employees as the key to

understanding employee motivation. According to equity theory, employees are

demotivated when they view reward distribution as unfair. Perceptions of fairness

are shaped by the comparisons they make between their inputs and outcomes with

respect to a referent’s inputs and outcomes. Following equity theory, research

identified two other types of fairness (procedural and interactional) that also affect

worker reactions and motivation. According to expectancy theory, employees are

motivated when they believe that their effort will lead to high performance

(expectancy), when they believe that their performance will lead to outcomes

(instrumentality), and when they find the outcomes following performance to be

desirable (valence). Reinforcement theory argues that behavior is a function of its

consequences. By properly tying rewards to positive behaviors, eliminating rewards

following negative behaviors, and punishing negative behaviors, leaders can increase

the frequency of desired behaviors. These three theories are particularly useful in

designing reward systems within a company.

EXERCISES

1. Your manager tells you that the best way of ensuring fairness in reward distribution

is to keep the pay a secret. How would you respond to this assertion?

38

2. When distributing bonuses or pay, how would you ensure perceptions of fairness?

3. What are the differences between procedural, interactional, and distributive justice?

List ways in which you could increase each of these justice perceptions.

4. Using examples, explain the concepts of expectancy, instrumentality, and valence.

5. Some practitioners and researchers consider OB Mod unethical because it may be

viewed as a way of manipulation. What would be your reaction to such a criticism?

5.3 The Role of Ethics and National Culture

LEARNING OBJECTIVES

1. Consider the role of motivation for ethical behavior.

2. Consider the role of national culture on motivation theories.

Motivation and Ethics

What motivates individuals to behave unethically? Motivation theories have

been applied to explain this interesting and important question. One theory

that has been particularly successful in explaining ethical behavior is

reinforcement theory. Just like any other behavior such as performance or

cooperation, ethical behavior is one that is learned as a result of the

consequences following one’s actions. For example, in an experiment

simulating the job of a sales manager, participants made a series of decisions

using a computer. Partway through the simulation, subjects were informed

that salespeople reporting to them were giving kickbacks to customers.

Subjects in this experiment were more likely to cut the kickbacks if there was a

threat of punishment to the manager. On the other hand, subjects playing the

sales manager were more likely to continue giving away the kickbacks if they

39

made a profit after providing the kickbacks. [1] In a separate study highlighting

the importance of rewards and punishments, researchers found that the

severity of expected punishment was the primary predictor of whether

subjects reported inclination to behave unethically. In addition to the severity

of the punishment, the perceived likelihood of punishment was also a major

influence of ethical behavior. [2]These findings highlight the importance of

rewards and punishments for motivating unethical behaviors.

There are many organizational situations in which individuals may do

unethical things but then experience positive consequences such as being

awarded promotions for meeting their sales quotas. For example, in many

hotels, staff members routinely receive kickbacks from restaurants or bars if

they refer customers to those locations. [3] Similarly, sales staff rewarded with

spiffs (product-specific sales incentives) may give customers advice that goes

against their own personal beliefs and in this sense act unethically. [4] As long

as unethical behavior is followed by positive consequences for the person in

question, we would expect unethical behavior to continue. Thus, in order to

minimize the occurrence of unethical behavior (and in some instances legal

problems), it seems important to examine the rewards and punishments that

follow unethical behavior and remove rewards following unethical behavior

while increasing the severity and likelihood of punishment.

Motivation Around the Globe

Motivation is a culturally bound topic. In other words, the factors that

motivate employees in different cultures may not be equivalent. The

motivation theories we cover in this chapter are likely to be culturally bound

because they were developed by Western researchers and the majority of the

research supporting each theory was conducted on Western subjects.

40

Based on the cultural context, Maslow’s hierarchy of needs may require

modification because the ranking of the needs may differ across cultures. For

example, a study conducted in 39 countries showed that financial satisfaction

was a stronger predictor of overall life satisfaction in developing nations

compared to industrialized nations. In industrialized nations, satisfaction with

esteem needs was a more powerful motivator than it was in developing

nations. [5]

People around the world value justice and fairness. However, what is

perceived as fair may be culturally dependent. Moreover, people in different

cultures may react differently to perceived unfairness. [6] For example, in

cross-cultural studies, it was found that participants in low power distance

cultures such as the United States and Germany valued voice into the process

(the opportunities for explanation and appealing a decision) more than those

in high power distance cultures such as China and Mexico. At the same time,

interactional justice was valued more by the Chinese subjects. [7] There is also

some evidence indicating that equity (rewarding employees based on their

contributions to a group) may be a culture-specific method of achieving

fairness. One study shows that Japanese subjects viewed equity as less fair and

equality-based distributions as more fair than did Australian

subjects. [8] Similarly, subjects in different cultures varied in their inclination

to distribute rewards based on subjects’ need or age, and in cultures such as

Japan and India, a person’s need may be a relevant factor in reward

distributions. [9]

KEY TAKEAWAY

Motivation theories are particularly useful for understanding why employees behave

unethically. Based on reinforcement theory, people will demonstrate higher

unethical behaviors if their unethical behaviors are followed by rewards or go

41

unpunished. Similarly, according to expectancy theory, if people believe that their

unethical actions will be rewarded with desirable outcomes, they are more likely to

demonstrate unethical behaviors. In terms of culture, some of the motivation

theories are likely to be culture-bound, whereas others may more readily apply to

other cultures. Existing research shows that what is viewed as fair or unfair tends to

be culturally defined.

EXERCISES

1. What is the connection between a company’s reward system and the level of ethical

behaviors?

2. Which of the motivation theories do you think would be more applicable to many

different cultures?

5.4 Conclusion In this chapter we have reviewed the basic motivation theories that have been

developed to explain motivated behavior. Several theories view motivated

behavior as attempts to satisfy needs. Based on this approach, managers

would benefit from understanding what people need so that the actions of

employees can be understood and managed. Other theories explain motivated

behavior using the cognitive processes of employees. Employees respond to

unfairness in their environment, they learn from the consequences of their

actions and repeat the behaviors that lead to positive results, and they are

motivated to exert effort if they see their actions will lead to outcomes that

would get them desired rewards. None of these theories are complete on their

own, but each theory provides us with a framework we can use to analyze,

interpret, and manage employee behaviors in the workplace.

42

5.5 Exercises

ETHICAL DILEMMA

Companies are interested in motivating employees: Work hard, be productive,

behave ethically—and stay healthy. Health care costs are rising, and employers are

finding that unhealthy habits such as smoking or being overweight are costing

companies big bucks.

Your company is concerned about the rising health care costs and decides to

motivate employees to adopt healthy habits. Therefore, employees are given a year

to quit smoking. If they do not quit by then, they are going to lose their jobs. New

employees will be given nicotine tests, and the company will avoid hiring new

smokers in the future. The company also wants to encourage employees to stay

healthy. For this purpose, employees will get cash incentives for weight loss. If they

do not meet the weight, cholesterol, and blood pressure standards to be issued by

the company, they will be charged extra fees for health insurance.

Is this plan ethical? Why or why not? Can you think of alternative ways to motivate

employees to adopt healthy habits?

INDIVIDUAL EXERCISE

Your company provides diversity training programs to ensure that employees realize

the importance of working with a diverse workforce, are aware of the equal

employment opportunity legislation, and are capable of addressing the challenges of

working in a multicultural workforce. Participation in these programs is mandatory,

and employees are required to take the training as many times as needed until they

pass. The training program lasts one day and is usually conducted in a nice hotel

outside the workplace. Employees are paid for the time they spend in the training

program. You realize that employees are not really motivated to perform well in this

program. During the training, they put in the minimum level of effort, and most

43

participants fail the exam given at the conclusion of the training program and then

have to retake the training.

Using expectancy and reinforcement theories, explain why they may not be

motivated to perform well in the training program. Then suggest improvements in

the program so that employees are motivated to understand the material, pass the

exam, and apply the material in the workplace.

GROUP EXERCISE

A Reward Allocation Decision

You are in charge of allocating a $12,000 bonus to a team that recently met an

important deadline. The team was in charge of designing a Web-based product for a

client. The project lasted a year. There were five people in the team. Your job is to

determine each person’s share from the bonus.

Devin: Project manager. He was instrumental in securing the client, coordinating

everyone’s effort, and managing relationships with the client. He put in a lot of extra

hours for this project. His annual salary is $80,000. He is independently wealthy,

drives an expensive car, and does not have any debt. He has worked for the company

for 5 years and worked for the project from the beginning.

Alice: Technical lead. She oversaw the technical aspects of the project. She resolved

many important technical issues. During the project, while some members worked

extra hours, she refused to stay at the office outside regular hours. However, she

was productive during regular work hours, and she was accessible via e-mail in the

evenings. Her salary is $50,000. She is a single mother and has a lot of debt. She has

worked for the company for 4 years and worked for the project for 8 months.

Erin: Graphic designer. She was in charge of the creative aspects of the project. She

experimented with many looks, and while doing that she slowed down the entire

44

team. Brice and Carrie were mad at her because of the many mistakes she made

during the project, but the look and feel of the project eventually appealed to the

client, which resulted in repeat business. Her salary is $30,000. She is single and lives

to party. She has worked for the company for 2 years and worked for this project

from the beginning.

Brice: Tester. He was in charge of finding the bugs in the project and ensuring that it

worked. He found many bugs, but he was not very aggressive in his testing. He

misunderstood many things, and many of the bugs he found were not really bugs but

his misuse of the system. He had a negative attitude toward the whole project, acted

very pessimistically regarding the likelihood of success, and demoralized the team.

His salary is $40,000. He has accumulated a large credit card debt. He has worked for

the company for 3 years and worked for the project in the last 6 months.

Carrie: Web developer. She was in charge of writing the code. She was frustrated

when Erin slowed down the entire project because of her experimentation. Carrie

was primarily responsible for meeting the project deadline because she put in a lot

of extra work hours. Her salary is $50,000. Her mother has ongoing health issues,

and Carrie needs money to help her. She worked for the company for the past year

and was involved in this project for 6 months.

1

This text was adapted by The Saylor Foundation under a Creative

Commons Attribution-NonCommercial-ShareAlike 3.0 License without

attribution as requested by the work’s original creator or licensee.

2

Chapter 6 Designing a Motivating Work Environment

LEARNING OBJECTIVES

After reading this chapter, you should be able to do the following:

1. Describe the history of job design approaches.

2. Understand how to increase the motivating potential of a job.

3. Understand why goals should be SMART.

4. Set SMART goals.

5. Give performance feedback effectively.

6. Describe individual-, team-, and organization-based incentives that can be used to

motivate the workforce.

Motivating Steel Workers at Nucor Manufacturing steel is not a glamorous job. The industry is beset by many

problems, and more than 40 steel manufacturers have filed for bankruptcy in

recent years. Most young employees do not view working at a steel mill as

their dream job. Yet, one company distinguished itself from all the rest by

remaining profitable for over 130 quarters and by providing an over 350%

return on investment to shareholders. The company is clearly doing well by

every financial metric available and is the most profitable in its industry.

How do they achieve these amazing results? For one thing, every Nucor

Corporation employee acts like an owner of the company. Employees are

encouraged to fix the things they see as wrong and have real power on their

jobs. When there is a breakdown in a plant, a supervisor does not have to ask

employees to work overtime; employees volunteer for it. In fact, the company

is famous for its decentralized structure and for pushing authority and

responsibility down to lower levels in the hierarchy. Tasks that previously

3

belonged to management are performed by line workers. Management listens

to lower level employees and routinely implements their new ideas.

The reward system in place at Nucor is also unique, and its employees may be

the highest paid steelworkers in the world. In 2005, the average Nucor

employee earned $79,000, followed by a $2,000 bonus decided by the

company’s annual earnings and $18,000 in the form of profit sharing. At the

same time, a large percentage of these earnings are based on performance.

People have the opportunity to earn a lot of money if the company is doing

well, and there is no upward limit to how much they can make. However, they

will do much worse than their counterparts in other mills if the company does

poorly. Thus, it is to everyone’s advantage to help the company perform well.

The same incentive system exists at all levels of the company. CEO pay is

clearly tied to corporate performance. The incentive system penalizes low

performers while increasing commitment to the company as well as to high

performance.

Nucor’s formula for success seems simple: Align company goals with

employee goals and give employees real power to make things happen. The

results seem to work for the company and its employees. Evidence of this

successful method is that the company has one of the lowest employee

turnover rates in the industry and remains one of the few remaining

nonunionized environments in manufacturing.

Sources: Adapted from information in Byrnes, N., & Arndt, M. (2006, May

1). The ART of motivation. Business Week, 3982, 56–62; Foust, D. (2008, April

7). The best performers of 2008. Business Week, 4078, 51–73; Jennings, J.

(2003). Ways to really motivate people: Authenticity is a huge hit with Gen X

4

and Y. The Secured Lender, 59, 62–70; Marks, S. J. (2001). Incentives that

really reward and motivate. Workforce, 80, 108–114.

What are the tools companies can use to ensure a motivated workforce? Nucor

seems to have found two very useful tools to motivate its workforce: a job

design incorporating empowerment, and a reward system that aligns company

performance with employee rewards. In this chapter, we will cover the basic

tools organizations can use to motivate workers. The tools that will be

described are based on motivation principles such as expectancy theory,

reinforcement theory, and need-based theories. Specifically, we cover

motivating employees through job design, goal setting, performance feedback,

and reward systems.

6.1 Motivating Employees Through Job Design

LEARNING OBJECTIVES

1. Learn about the history of job design approaches.

2. Consider alternatives to job specialization.

3. Identify job characteristics that increase motivating potential.

4. Learn how to empower employees.

Importance of Job Design

Many of us assume the most important motivator at work is pay. Yet, studies

point to a different factor as the major influence over worker motivation—job

design. How a job is designed has a major impact on employee motivation, job

satisfaction, commitment to an organization, absenteeism, and turnover.

5

The question of how to properly design jobs so that employees are more

productive and more satisfied has received attention from managers and

researchers since the beginning of the 20th century. We will review major

approaches to job design starting from its early history.

Scientific Management and Job Specialization

Perhaps the earliest attempt to design jobs came during the era of scientific

management. Scientific management is a philosophy based on the ideas of

Frederick Taylor as presented in his 1911 book, Principles of Scientific

Management. Taylor’s book is among the most influential books of the 20th

century; the ideas presented had a major influence over how work was

organized in the following years. Taylor was a mechanical engineer in the

manufacturing industry. He saw work being done haphazardly, with only

workers in charge. He saw the inefficiencies inherent in employees’ production

methods and argued that a manager’s job was to carefully plan the work to be

performed by employees. He also believed that scientific methods could be

used to increase productivity. As an example, Taylor found that instead of

allowing workers to use their own shovels, as was the custom at the time,

providing specially designed shovels increased productivity. Further, by

providing training and specific instructions, he was able to dramatically

reduce the number of laborers required to handle each job. [1]

Scientific management proposed a number of ideas that have been influential

in job design in the following years. An important idea was to minimize waste

by identifying the most efficient method to perform the job. Using time–

motion studies, management could determine how much time each task would

require and plan the tasks so that the job could be performed as efficiently as

possible. Therefore, standardized job performance methods were an

important element of scientific management techniques. Each job would be

6

carefully planned in advance, and employees would be paid to perform the

tasks in the way specified by management.

Furthermore, job specialization was one of the major advances of this

approach. Job specialization entails breaking down jobs into their simplest

components and assigning them to employees so that each person would

perform a select number of tasks in a repetitive manner. There are a number

of advantages to job specialization. Breaking tasks into simple components

and making them repetitive reduces the skill requirements of the jobs and

decreases the effort and cost of staffing. Training times for simple, repetitive

jobs tend to be shorter as well. On the other hand, from a motivational

perspective, these jobs are boring and repetitive and therefore associated with

negative outcomes such as absenteeism. [2] Also, job specialization is

ineffective in rapidly changing environments where employees may need to

modify their approach according to the demands of the situation. [3]

Today, Taylorism has a bad reputation, and it is often referred to as the “dark

ages” of management when employees’ social motives were ignored. Yet, it is

important to recognize the fundamental change in management mentality

brought about by Taylor’s ideas. For the first time, managers realized their

role in influencing the output levels of employees. The concept of scientific

management has had a lasting impact on how work is organized. Taylor’s work

paved the way to automation and standardization that is virtually universal in

today’s workplace. Assembly lines where each worker performs simple tasks in

a repetitive manner are a direct result of job specialization efforts. Job

specialization eventually found its way to the service industry as well. One of

the biggest innovations of the famous McDonald brothers’ first fast-food

restaurant was the application of scientific management principles to their

operations. They divided up the tasks so that one person took the orders while

7

someone else made the burgers, another person applied the condiments, and

yet another wrapped them. With this level of efficiency, customers generally

received their order within one minute. [4]

Rotation, Job Enlargement, and Enrichment

One of the early alternatives to job specialization was job

rotation. Job rotation involves moving employees from job to job at regular

intervals. When employees periodically move to different jobs, the

monotonous aspects of job specialization can be relieved. For example, Maids

International Inc., a company that provides cleaning services to households

and businesses, utilizes job rotation so that maids cleaning the kitchen in one

house would clean the bedroom in a different one. [5] Using this technique,

among others, the company is able to reduce its turnover level. In a

supermarket study, cashiers were rotated to work in different departments. As

a result of the rotation, employees’ stress levels were reduced, as measured by

their blood pressure. Moreover, they experienced less pain in their neck and

shoulders. [6]

Job rotation has a number of advantages for organizations. It is an effective

way for employees to acquire new skills and in turn for organizations to

increase the overall skill level of their employees. [7] When workers move to

different positions, they are cross-trained to perform different tasks, thereby

increasing the flexibility of managers to assign employees to different parts of

the organization when needed. In addition, job rotation is a way to transfer

knowledge between departments. [8] Rotation may also have the benefit of

reducing employee boredom, depending on the nature of the jobs the

employee is performing at a given time. From the employee standpoint,

rotation is a benefit, because they acquire new skills that keep them

marketable in the long run.

8

Is rotation used only at lower levels of an organization? Anecdotal evidence

suggests that companies successfully rotate high-level employees to train

managers and increase innovation in the company. For example, Nokia uses

rotation at all levels, such as assigning lawyers to act as country managers or

moving network engineers to handset design. This approach is thought to

bring a fresh perspective to old problems. [9] Wipro Ltd., India’s information

technology giant that employs about 80,000 workers, uses a 3-year plan to

groom future leaders of the company by rotating them through different

jobs.[10]

Job enlargement refers to expanding the tasks performed by employees to add

more variety. By giving employees several different tasks to be performed, as

opposed to limiting their activities to a small number of tasks, organizations

hope to reduce boredom and monotony as well as utilize human resources

more effectively. Job enlargement may have similar benefits to job rotation,

because it may also involve teaching employees multiple tasks. Research

indicates that when jobs are enlarged, employees view themselves as being

capable of performing a broader set of tasks. [11] There is some evidence that

job enlargement is beneficial, because it is positively related to employee

satisfaction and higher quality customer services, and it increases the chances

of catching mistakes. [12]At the same time, the effects of job enlargement may

depend on the type of enlargement. For example, job enlargement consisting

of adding tasks that are very simple in nature had negative consequences on

employee satisfaction with the job and resulted in fewer errors being caught.

Alternatively, giving employees more tasks that require them to be

knowledgeable in different areas seemed to have more positive effects. [13]

9

Job enrichment is a job redesign technique that allows workers more control

over how they perform their own tasks. This approach allows employees to

take on more responsibility. As an alternative to job specialization, companies

using job enrichment may experience positive outcomes, such as reduced

turnover, increased productivity, and reduced absences. [14] This may be

because employees who have the authority and responsibility over their work

can be more efficient, eliminate unnecessary tasks, take shortcuts, and

increase their overall performance. At the same time, there is evidence that job

enrichment may sometimes cause dissatisfaction among certain

employees. [15] The reason may be that employees who are given additional

autonomy and responsibility may expect greater levels of pay or other types of

compensation, and if this expectation is not met they may feel frustrated. One

more thing to remember is that job enrichment is not suitable for

everyone. [16] Not all employees desire to have control over how they work, and

if they do not have this desire, they may become frustrated with an enriched

job.

Job Characteristics Model

The job characteristics model is one of the most influential attempts to design

jobs with increased motivational properties. [17] Proposed by Hackman and

Oldham, the model describes five core job dimensions leading to three critical

psychological states, resulting in work-related outcomes.

Figure 6.3

10

The Job Characteristics Model has five core job dimensions.

Source: Adapted from Hackman, J. R., & Oldham, G. R. (1975).

Development of the job diagnostic survey. Journal of Applied Psychology, 60,

159–170.

Skill variety refers to the extent to which the job requires a person to utilize

multiple high-level skills. A car wash employee whose job consists of directing

customers into the automated car wash demonstrates low levels of skill

variety, whereas a car wash employee who acts as a cashier, maintains

carwash equipment, and manages the inventory of chemicals demonstrates

high skill variety.

Task identity refers to the degree to which a person is in charge of completing

an identifiable piece of work from start to finish. A Web designer who designs

parts of a Web site will have low task identity, because the work blends in with

other Web designers’ work; in the end it will be hard for any one person to

claim responsibility for the final output. The Web master who designs an

entire Web site will have high task identity.

Task significance refers to whether a person’s job substantially affects other

people’s work, health, or well-being. A janitor who cleans the floors at an office

building may find the job low in significance, thinking it is not a very

11

important job. However, janitors cleaning the floors at a hospital may see their

role as essential in helping patients get better. When they feel that their tasks

are significant, employees tend to feel that they are making an impact on their

environment, and their feelings of self-worth are boosted. [18]

Autonomy is the degree to which a person has the freedom to decide how to

perform his or her tasks. As an example, an instructor who is required to

follow a predetermined textbook, covering a given list of topics using a

specified list of classroom activities, has low autonomy. On the other hand, an

instructor who is free to choose the textbook, design the course content, and

use any relevant materials when delivering lectures has higher levels of

autonomy. Autonomy increases motivation at work, but it also has other

benefits. Giving employees autonomy at work is a key to individual as well as

company success, because autonomous employees are free to choose how to

do their jobs and therefore can be more effective. They are also less likely to

adopt a “this is not my job” approach to their work environment and instead

be proactive (do what needs to be done without waiting to be told what to do)

and creative. [19] The consequence of this resourcefulness can be higher

company performance. For example, a Cornell University study shows that

small businesses that gave employees autonomy grew four times more than

those that did not.[20] Giving employees autonomy is also a great way to train

them on the job. For example, Gucci’s CEO Robert Polet points to the level of

autonomy he was given while working at Unilever PLC as a key to his

development of leadership talents. [21] Autonomy can arise from workplace

features, such as telecommuting, company structure, organizational climate,

and leadership style. [22]

Feedback refers to the degree to which people learn how effective they are

being at work. Feedback at work may come from other people, such as

12

supervisors, peers, subordinates, and customers, or it may come from the job

itself. A salesperson who gives presentations to potential clients but is not

informed of the clients’ decisions, has low feedback at work. If this person

receives notification that a sale was made based on the presentation, feedback

will be high.

The relationship between feedback and job performance is more controversial.

In other words, the mere presence of feedback is not sufficient for employees

to feel motivated to perform better. In fact, a review of this literature shows

that in about one-third of the cases, feedback was detrimental to

performance. [23] In addition to whether feedback is present, the sign of

feedback (positive or negative), whether the person is ready to receive the

feedback, and the manner in which feedback was given will all determine

whether employees feel motivated or demotivated as a result of feedback.

According to the job characteristics model, the presence of these five core job

dimensions leads employees to experience three psychological states: They

view their work as meaningful, they feel responsible for the outcomes, and

they acquire knowledge of results. These three psychological states in turn are

related to positive outcomes such as overall job satisfaction, internal

motivation, higher performance, and lower absenteeism and

turnover. [24] Research shows that out of these three psychological states,

experienced meaningfulness is the most important for employee attitudes and

behaviors, and it is the key mechanism through which the five core job

dimensions operate.

Are all five job characteristics equally valuable for employees? Hackman and

Oldham’s model proposes that the five characteristics will not have uniform

13

effects. Instead, they proposed the following formula to calculate the

motivating potential of a given job: [25]

Equation 6.1

MPS = ((Skill Variety + Task Identity + Task Significance) ÷ 3) × Autonomy × Feedback

According to this formula, autonomy and feedback are the more important

elements in deciding motivating potential compared to skill variety, task

identity, or task significance. Moreover, note how the job characteristics

interact with each other in this model. If someone’s job is completely lacking

in autonomy (or feedback), regardless of levels of variety, identity, and

significance, the motivating potential score will be very low.

Note that the five job characteristics are not objective features of a job. Two

employees working in the same job may have very different perceptions

regarding how much skill variety, task identity, task significance, autonomy,

or feedback the job affords. In other words, motivating potential is in the eye

of the beholder. This is both good and bad news. The bad news is that even

though a manager may design a job that is supposed to motivate employees,

some employees may not find the job to be motivational. The good news is

that sometimes it is possible to increase employee motivation by helping

employees change their perspective about the job. For example, employees

laying bricks at a construction site may feel their jobs are low in significance,

but by pointing out that they are building a home for others, their perceptions

about their job may be changed.

14

Do all employees expect to have a job that has a high motivating potential?

Research has shown that the desire for the five core job characteristics is not

universal. One factor that affects how much of these characteristics people

want or need is growth need strength. Growth need strength describes the

degree to which a person has higher order needs, such as self-esteem and self-

actualization. When an employee’s expectation from his job includes such

higher order needs, employees will have high-growth need strength, whereas

those who expect their job to pay the bills and satisfy more basic needs will

have low-growth need strength. Not surprisingly, research shows that those

with high-growth need strength respond more favorably to jobs with a high

motivating potential. [26] It also seems that an employee’s career stage

influences how important the five dimensions are. For example, when

employees are new to an organization, task significance is a positive influence

over job satisfaction, but autonomy may be a negative influence. [27]

OB Toolbox: Increase the Feedback You Receive: Seek It!  If you are not receiving enough feedback on the job, it is better to seek it

instead of trying to guess how you are doing. Consider seeking regular

feedback from your boss. This also has the added benefit of signaling to the

manager that you care about your performance and want to be successful.

 Be genuine in your desire to learn. When seeking feedback, your aim should

be improving yourself as opposed to creating the impression that you are a

motivated employee. If your manager thinks that you are managing

impressions rather than genuinely trying to improve your performance,

seeking feedback may hurt you.

 Develop a good relationship with your manager. This has the benefit of

giving you more feedback in the first place. It also has the upside of making it

easier to ask direct questions about your own performance.

15

 Consider finding trustworthy peers who can share information with you

regarding your performance. Your manager is not the only helpful source of

feedback.

 Be gracious when you receive feedback. If you automatically go on the

defensive the first time you receive negative feedback, there may not be a next

time. Remember, even if receiving feedback, positive or negative, feels

uncomfortable, it is a gift. You can improve your performance using feedback,

and people giving negative feedback probably feel they are risking your good

will by being honest. Be thankful and appreciative when you receive any

feedback and do not try to convince the person that it is inaccurate (unless

there are factual mistakes).

Sources: Adapted from ideas in Jackman, J. M., & Strober, M. H. (2003,

April). Fear of feedback. Harvard Business Review, 81(4), 101–107; Wing, L.,

Xu, H., Snape, E. (2007). Feedback-seeking behavior and leader-member

exchange: Do supervisor-attributed motives matter? Academy of Management

Journal, 50, 348–363; Lee, H. E., Park, H. S., Lee, T. S., & Lee, D. W. (2007).

Relationships between LMX and subordinates' feedback-seeking

behaviors. Social Behavior & Personality: An International Journal, 35, 659–

674.

Empowerment

One of the contemporary approaches to motivating employees through job

design is empowerment. The concept of empowerment extends the idea of

autonomy. Empowerment may be defined as the removal of conditions that

make a person powerless. [28] The idea behind empowerment is that employees

have the ability to make decisions and perform their jobs effectively if

management removes certain barriers. Thus, instead of dictating roles,

companies should create an environment where employees thrive, feel

16

motivated, and have discretion to make decisions about the content and

context of their jobs. Employees who feel empowered believe that their work is

meaningful. They tend to feel that they are capable of performing their jobs

effectively, have the ability to influence how the company operates, and can

perform their jobs in any way they see fit, without close supervision and other

interference. These liberties enable employees to feel powerful. [29] In cases of

very high levels of empowerment, employees decide what tasks to perform and

how to perform them, in a sense managing themselves.

Research has distinguished between structural elements of empowerment

and felt empowerment. Structural empowerment refers to the aspects of the

work environment that give employees discretion, autonomy, and the ability

to do their jobs effectively. The idea is that the presence of certain structural

factors helps empower people, but in the end empowerment is a perception.

The following figure demonstrates the relationship between structural and felt

empowerment. For example, at Harley-Davidson Motor Company, employees

have the authority to stop the production line if they see a blemish on the

product. [30] Leadership style is another influence over experienced

empowerment. [31] If the manager is controlling, micromanaging, and bossy,

chances are that empowerment will not be possible. A company’s structure has

a role in determining empowerment as well. Factories organized around

teams, such as the Saturn plant of General Motors Corporation, can still

empower employees, despite the presence of a traditional hierarchy.[32] Access

to information is often mentioned as a key factor in empowering employees. If

employees are not given information to make an informed decision,

empowerment attempts will fail. Therefore, the relationship between access to

information and empowerment is well established. Finally, empowering

individual employees cannot occur in a bubble, but instead depends on

creating a climate of empowerment throughout the entire organization. [33]

17

Figure 6.4

The empowerment process starts with structure that leads to felt empowerment.

Source: Based on the ideas in Seibert, S. E., Silver, S. R., & Randolph, W. A.

(2004). Taking empowerment to the next level: A multiple-level model of

empowerment, performance, and satisfaction. Academy of Management

Journal, 47, 332–349; Spreitzer, G. M. (1995). Psychological empowerment

in the workplace: Dimensions, measurement, and validation. Academy of

Management Journal, 38, 1442–1465; Spreitzer, G. M. (1996). Social

structural characteristics of psychological empowerment. Academy of

Management Journal, 39, 483–504.

Empowerment of employees tends to be beneficial for organizations, because

it is related to outcomes such as employee innovativeness, managerial

effectiveness, employee commitment to the organization, customer

satisfaction, job performance, and behaviors that benefit the company and

other employees. [34] At the same time, empowerment may not necessarily be

suitable for all employees. Those individuals with low growth strength or low

18

achievement need may not benefit as strongly from empowerment. Moreover,

the idea of empowerment is not always easy to implement, because some

managers may feel threatened when subordinates are empowered. If

employees do not feel ready for empowerment, they may also worry about the

increased responsibility and accountability. Therefore, preparing employees

for empowerment by carefully selecting and training them is important to the

success of empowerment interventions.

OB Toolbox: Tips for Empowering Employees  Change the company structure so that employees have more power on their

jobs. If jobs are strongly controlled by organizational procedures or if every

little decision needs to be approved by a superior, employees are unlikely to

feel empowered. Give them discretion at work.

 Provide employees with access to information about things that affect their

work. When employees have the information they need to do their jobs well

and understand company goals, priorities, and strategy, they are in a better

position to feel empowered.

 Make sure that employees know how to perform their jobs. This involves

selecting the right people as well as investing in continued training and

development.

 Do not take away employee power. If someone makes a decision, let it stand

unless it threatens the entire company. If management undoes decisions made

by employees on a regular basis, employees will not believe in the sincerity of

the empowerment initiative.

 Instill a climate of empowerment in which managers do not routinely step in

and take over. Instead, believe in the power of employees to make the most

accurate decisions, as long as they are equipped with the relevant facts and

resources.

19

Sources: Adapted from ideas in Forrester, R. (2000). Empowerment:

Rejuvenating a potent idea. Academy of Management Executive, 14, 67–79;

Spreitzer, G. M. (1996). Social structural characteristics of psychological

empowerment. Academy of Management Journal, 39, 483–504.

KEY TAKEAWAY

Job specialization is the earliest approach to job design, originally described by the

work of Frederick Taylor. Job specialization is efficient but leads to boredom and

monotony. Early alternatives to job specialization include job rotation, job

enlargement, and job enrichment. Research shows that there are five job

components that increase the motivating potential of a job: Skill variety, task

identity, task significance, autonomy, and feedback. Finally, empowerment is a

contemporary way of motivating employees through job design. These approaches

increase worker motivation and have the potential to increase performance.

EXERCISES

1. Is job rotation primarily suitable to lower level employees, or is it possible to use it at

higher levels in the organization?

2. What is the difference between job enlargement and job enrichment? Which of

these approaches is more useful in dealing with the boredom and monotony of job

specialization?

3. Consider a job you held in the past. Analyze the job using the framework of the job

characteristics model.

4. Does a job with a high motivating potential motivate all employees? Under which

conditions is the model less successful in motivating employees?

5. How would you increase the empowerment levels of employees?

20

6.2 Motivating Employees Through Goal Setting

LEARNING OBJECTIVES

1. Describe why goal setting motivates employees.

2. Identify characteristics of a goal that make it effective.

3. Identify limitations of goals.

4. Understand how to tie individual goals to strategic goals.

Goal-Setting Theory

Goal-setting theory [1] is one of the most influential and practical theories of

motivation. In fact, in a survey of organizational behavior scholars, it has been

rated as the most important (out of 73 theories). [2] The theory has been

supported in over 1,000 studies with employees ranging from blue-collar

workers to research-and-development employees, and there is strong support

that setting goals is related to performance improvements. [3] According to one

estimate, goal setting improves performance at least 10%–25%. [4] Based on

this evidence, thousands of companies around the world are using goal setting

in some form, including Coca Cola Company, PricewaterhouseCoopers

International Ltd., Nike Inc., Intel Corporation, and Microsoft Corporation, to

name a few.

Setting SMART Goals

Are you motivated simply because you have set a goal? The mere presence of a

goal does not motivate individuals. Think about New Year’s resolutions that

you made but failed to keep. Maybe you decided that you should lose some

weight but then never put a concrete plan in action. Maybe you decided that

you would read more but didn’t. Why did your goal fail?

21

Accumulating research evidence indicates that effective goals are SMART.

A SMART goal is a goal that is specific, measurable, aggressive, realistic,

and time-bound.

Specific and Measurable

Effective goals are specific and measurable. For example, “increasing sales to a

region by 10%” is a specific goal, whereas deciding to “delight customers” is

not specific or measurable. When goals are specific, performance tends to be

higher. [5] Why? If goals are not specific and measurable, how would you know

whether you have reached the goal? A wide distribution of performance levels

could potentially be acceptable. For the same reason, “doing your best” is not

an effective goal, because it is not measurable and does not give you a specific

target.

Certain aspects of performance are easier to quantify. For example, it is

relatively easy to set specific goals for productivity, sales, number of defects, or

turnover rates. However, not everything that is easy to measure should be

measured. Moreover, some of the most important elements of someone’s

performance may not be easily quantifiable (such as employee or customer

satisfaction). So how do you set specific and measurable goals for these soft

targets? Even though some effort will be involved, metrics such as satisfaction

can and should be quantified. For example, you could design a survey for

employees and customers to track satisfaction ratings from year to year.

Aggressive

This may sound counterintuitive, but effective goals are difficult, not easy.

Aggressive goals are also called stretch goals. According to a Hay Group study,

one factor that distinguishes companies that are ranked as “Most Admired

Companies” in Fortune magazine is that they set more difficult goals. [6] People

22

with difficult goals outperform those with easier goals. [7] Why? Easy goals do

not provide a challenge. When goals are aggressive and require people to work

harder or smarter, performance tends to be dramatically higher. Research

shows that people who have a high level of self-efficacy and people who have a

high need for achievement tend to set more difficult goals for themselves. [8]

Realistic

While goals should be difficult, they should also be based in reality. In other

words, if a goal is viewed as impossible to reach, it will not have any

motivational value. In fact, setting impossible goals and then punishing people

for not reaching these goals is cruel and will demotivate employees.

Time-Bound

The goal should contain a statement regarding when the proposed

performance level will be reached. For example, “increasing sales to a region

by 10%” is not a time-bound goal, because there is no time limit. Adding a

limiter such as “by December of the current fiscal year” gives employees a

sense of time urgency.

Here is a sample SMART goal: Wal-Mart Stores Inc. recently set a goal to

eliminate 25% of the solid waste from U.S. stores by the year 2009. This goal

meets all the conditions of being SMART (as long as 25% is a difficult yet

realistic goal). [9] Even though it seems like a simple concept, in reality many

goals that are set within organizations may not be SMART. For example,

Microsoft recently conducted an audit of its goal setting and performance

review system and found that only about 40% of the goals were specific and

measurable. [10]

23

Why Do SMART Goals Motivate?

There are at least four reasons why goals motivate. [11] First, goals give us

direction. When you have a goal of reducing shipment of defective products by

5% by September, you know that you should direct your energy toward

defects. The goal tells you what to focus on. For this reason, goals should be

set carefully. Giving employees goals that are not aligned with company goals

will be a problem, because goals will direct employees' energies to a certain

end. Second, goals energize people and tell them not to stop until the goal is

accomplished. If you set goals for yourself such as “I will have a break from

reading this textbook when I finish reading this section,” you will not give up

until you reach the end of the section. Even if you feel tired along the way,

having this specific goal will urge you to move forward. Third, having a goal

provides a challenge. When people have goals and proceed to reach them, they

feel a sense of accomplishment. Finally, SMART goals urge people to think

outside the box and rethink how they are working. If the goal is not very

difficult, it only motivates people to work faster or longer. If a goal is

substantially difficult, merely working faster or longer will not get you the

results. Instead, you will need to rethink the way you usually work and devise

a creative way of working. It has been argued that this method resulted in

designers and engineers in Japan inventing the bullet train. Having a goal that

went beyond the speed capabilities of traditional trains prevented engineers

from making minor improvements and inspired them to come up with a

radically different concept. [12]

When Are Goals More Effective?

Even when goals are SMART, they are not always equally effective.

Sometimes, goal setting produces more dramatic effects compared to other

methods. At least three conditions that contribute to effectiveness have been

identified. [13]

24

Feedback

To be more effective, employees should receive feedback on the progress they

are making toward goal accomplishment. Providing employees with

quantitative figures about their sales, defects, or other metrics is useful for

feedback purposes.

Ability

Employees should have the skills, knowledge, and abilities to reach their goals.

In fact, when employees are lacking the necessary abilities, setting specific

outcome goals has been shown to lead to lower levels of

performance. [14] People are likely to feel helpless when they lack the abilities

to reach a goal, and furthermore, having specific outcome goals prevents them

from focusing on learning activities. In these situations, setting goals about

learning may be a better idea. For example, instead of setting a goal related to

increasing sales, the goal could be identifying three methods of getting better

acquainted with customers.

Goal Commitment

SMART goals are more likely to be effective if employees are committed to the

goal. [15] As a testament to the importance of goal commitment, Microsoft

actually calls employee goals “commitments.” [16] Goal commitment refers to

the degree to which a person is dedicated to reaching the goal. What makes

people dedicated or committed to a goal? It has been proposed that making

goals public may increase commitment to the goal, because it creates

accountability to peers. When individuals have a supportive and trust-based

relationship with managers, goal commitment tends to be higher. When

employees participate in goal setting, goal commitment may be higher. Last,

25

but not least, rewarding people for their goal accomplishment may increase

commitment to future goals. [17]

Are There Downsides to Goal Setting?

Figure 6.7 Potential Downsides of Goal Setting

Sources: Based on LePine, J. A. (2005). Adaptation of teams in response to

unforeseen change: Effects of goal difficulty and team composition in terms of

cognitive ability and goal orientation. Journal of Applied Psychology, 90, 1153–1167;

Locke, E. A. (2004). Linking goals to monetary incentives .Academy of Management

Executive, 18, 130–133; Pritchard, R. D., Roth, P. L., Jones, S. D., Galgay, P. J., &

Watson, M. D. (1988). Designing a goal-setting system to enhance performance: A

practical guide. Organizational Dynamics, 17, 69–78; Seijts, G. H., & Latham, G. P.

(2005). Learning versus performance goals: When should each be used?Academy of

Management Executive, 19, 124–131.

As with any management technique, there may be some downsides to goal

setting. [18] First, as mentioned earlier, setting goals for specific outcomes may

26

hamper employee performance if employees are lacking skills and abilities

needed to reach the goals. In these situations, setting goals for behaviors and

learning may be more effective than setting goals for outcomes. Second, goal

setting may prevent employees from adapting and changing their behaviors in

response to unforeseen threats. For example, one study found that when

teams had difficult goals and employees within the team had high levels of

performance expectations, teams had difficulty adapting to unforeseen

circumstances. [19] Third, goals focus employee attention on the activities that

are measured. This focus may lead to sacrificing other important elements of

performance. If goals are set for production numbers, quality may suffer. As a

result, it is important to set goals touching on all critical aspects of

performance. Finally, an aggressive pursuit of goals may lead to unethical

behaviors. If employees are rewarded for goal accomplishment but there are

no rewards for coming very close to reaching the goal, employees may be

tempted to cheat.

Ensuring Goal Alignment Through Management by Objectives (MBO)

Goals direct employee attention toward a common end. Therefore, it is crucial

for individual goals to support team goals and team goals to support company

goals. A systematic approach to ensure that individual and organizational

goals are aligned is Management by Objectives (MBO). First suggested by

Peter Drucker, [20] MBO involves the following process:

1. Setting companywide goals derived from corporate strategy

2. Determining team- and department-level goals

3. Collaboratively setting individual-level goals that are aligned with

corporate strategy

4. Developing an action plan

5. Periodically reviewing performance and revising goals

27

A review of the literature shows that 68 out of the 70 studies conducted on this

topic displayed performance gains as a result of MBO implementation. [21] It

also seems that top management commitment to the process is the key to

successful implementation of MBO programs. [22] Even though formal MBO

programs have fallen out of favor since the 1980s, the idea of linking employee

goals to corporate-wide goals is a powerful idea that benefits organizations.

KEY TAKEAWAY

Goal-setting theory is one of the most influential theories of motivation. In order to

motivate employees, goals should be SMART (specific, measurable, aggressive,

realistic, and time-bound). SMART goals motivate employees because they energize

behavior, give it direction, provide a challenge, force employees to think outside the

box, and devise new and novel methods of performing. Goals are more effective in

motivating employees when employees receive feedback on their accomplishments,

have the ability to perform, and are committed to goals. Poorly derived goals have

the downsides of hampering learning, preventing adaptability, causing a single-

minded pursuit of goals at the exclusion of other activities, and encouraging

unethical behavior. Companies tie individual goals to company goals using

management by objectives.

EXERCISES

1. Give an example of a SMART goal.

2. If a manager tells you to “sell as much as you can,” is this goal likely to be effective?

Why or why not?

3. How would you ensure that employees are committed to the goals set for them?

4. A company is interested in increasing customer loyalty. Using the MBO approach,

what would be the department- and individual-level goals supporting this

organization-wide goal?

28

5. Discuss an experience you have had with goals. Explain how goal setting affected

motivation and performance.

6.3 Motivating Employees Through Performance Appraisals

LEARNING OBJECTIVES

1. Understand why companies use performance appraisals.

2. Describe basic characteristics of performance appraisals.

3. List the characteristics of an effective performance appraisal.

4. Compare the advantages and disadvantages of relative versus absolute appraisals.

5. Learn how to conduct a performance appraisal meeting.

6. Understand the biases inherent in performance appraisals.

What Is a Performance Appraisal?

When employees have goals, they tend to be more motivated if they also

receive feedback about their progress. Feedback may occur throughout the

workday, but many organizations also have a formal, companywide process of

providing feedback to employees, called the performance appraisal. A

performance appraisal is a process in which a rater or raters evaluate the

performance of an employee. More specifically, during a performance

appraisal period, rater(s) observe, interact with, and evaluate a person’s

performance. Then, when it is time for a performance appraisal, these

observations are documented on a form. The rater usually conducts a meeting

with the employee to communicate performance feedback. During the

meeting, the employee is evaluated with respect to success in achieving last

year’s goals, and new goals are set for the next performance appraisal period.

29

Even though performance appraisals can be quite effective in motivating

employees and resolving performance problems, in reality, only a small

number of organizations use the performance appraisal process to its full

potential. In many companies, a performance appraisal takes the form of a

bureaucratic activity that is mutually despised by employees and managers.

The problems a poor appraisal process can create may be so severe that many

experts, including the founder of the total quality movement, Edward Deming,

have recommended abolishing appraisals altogether. [1] On the other hand,

creating and executing an effective appraisal system actually leads to higher

levels of trust in management. [2] Therefore, identifying ways of increasing

appraisal effectiveness is important.

Giving employees feedback is not synonymous with conducting a performance

appraisal, because employees may (and should) receive frequent feedback.

The most effective feedback immediately follows high or low performance.

Therefore, waiting for a formal process to give feedback would be misguided.

A formal appraisal is often conducted once a year, even though there are some

organizations that conduct them more frequently. For example, there are

advantages to conducting quarterly appraisals, such as allowing managers to

revise goals more quickly in the face of changing environmental

demands.[3] Conducting appraisals once a year has the advantage of being

more convenient for managers and for effectively tying performance to annual

pay raises or bonuses.

What Is the Purpose of a Performance Appraisal?

Performance appraisals can be important tools to give employees feedback

and aid in their development. Yet feedback is only one reason why companies

perform appraisals. In many companies, appraisals are used to distribute

30

rewards such as bonuses, annual pay raises, and promotions. They may also

be used to document termination of employees. Research shows that

performance appraisals tend to be viewed as more effective when companies

tie them to reward decisions and to terminate lower performers. [4] This is not

surprising in light of motivation theories such as reinforcement theory, which

indicates that behavior that is rewarded is repeated. Tying appraisal results to

rewards may lead to the perception that performance is rewarded. However, if

performance appraisal ratings are not accurate, it is possible for appraisals to

be a major cause of reward unfairness.

Who Is the Rater?

Traditionally, the rater has been the supervisor. Supervisors have more at

stake when an employee is not performing well and they have access to greater

resources that can be used to improve performance. However, relying solely

on supervisors may lead to a biased appraisal system. Many aspects of a

person’s performance may remain hidden from managers, particularly in

team-based settings or organizations where supervisors do not work in the

same physical setting as the employees. Therefore, organizations are

introducing additional raters into the system, such as peers, customers, and

subordinates. As organizations become more flat, introducing more

perspectives may provide richer feedback to employees in question.

Organizations using supervisors, peers, subordinates, and sometimes even

customers are using 360-degree feedback. In this system, feedback is gathered

from all these sources, and shared with the employee for developmental

purposes. It is important to note that 360-degree appraisals are not often used

in determining pay or promotion decisions and instead are treated as feedback

tools. Using 360-degree feedback in reward decisions may be problematic,

because individuals may avoid giving objective feedback if it means causing a

31

peer to lose a bonus. Since not all feedback will necessarily be positive, if

competition or jealousy exists among peers, some feedback may be retaliatory

and too negative. Keeping these problems in mind, organizations may benefit

from using only supervisor ratings in reward decisions and using feedback

from other sources for developmental purposes. [5]

What Makes an Effective Appraisal System?

What are the characteristics of an effective appraisal system? Research

identified at least three characteristics of appraisals that increase the

perception that they are fair. These characteristics include adequate notice,

fair hearing, and judgment based on evidence. Adequate notice involves

letting employees know what criteria will be used during the appraisal.

Unfortunately, in many companies the first time employees see the appraisal

form may be when they are being evaluated. Therefore, they may be rated low

on something they didn’t understand was part of their performance. Fair

hearing means ensuring that there is two-way communication during the

appraisal process and the employee’s side of the story is heard. Judgment

based on evidence involves documenting performance problems and using

factual evidence as opposed to personal opinions when rating performance. [6]

Absolute Rating versus Relative Ranking Appraisals

As a student, would you rather be evaluated with respect to some objective

criteria? For example, you could get an A if you correctly answer 90% of the

questions in the exam, but would get a B if you answered only 80%. We are

calling this type of appraisal an absolute rating because the grade you get

depends only on your performance with respect to the objective criteria. The

alternative to this approach is relative ranking. In this system, you would get

an A if you are one of the top 10% of the students in class, but you would get a

32

B if you are between 10% and 20%. In a relative ranking system, your rating

depends on how your objective performance (test grade) compares with the

rest of the students’ grades in your class.

If you say you would prefer an absolute rating, you are not alone. Research

shows that ranking systems are often viewed more negatively by employees.

However, many major corporations such as General Electric Company (GE),

Intel, and Yahoo! Inc. are using relative rankings and truly believe in its

advantages. For example, Jack Welch, the former CEO of General Electric,

instituted a forced ranking system at GE in which 20% of employees would be

in the top category, 70% would be in the middle, and 10% would be at the

bottom rank. Employees who are repeatedly ranked at the lowest rank would

be terminated. Relative rankings may create a culture of performance by

making it clear that low performance is not tolerated; however, there are

several downsides to rankings. First, these systems carry the danger of a

potential lawsuit. Organizations such as Ford Motor Company and Microsoft

faced lawsuits involving relative rankings, because employees who were older,

female, or minority members were systematically being ranked in the lowest

category with little justification. Second, relative rankings are also not

consistent with creating a team spirit and may create a competitive, cutthroat

environment. Enron Corporation was an organization that used relative

rankings to its detriment. Third, relative systems have limited value in giving

employees concrete feedback about what to do next year to get a better

ranking. Despite their limitations, using them for a few years may help the

organization become more performance-oriented and eliminate stagnation by

weeding out some employees with persistent performance problems. As long

as these systems fit with the company culture, are not used in a rigid manner,

and are used for a short period of time, they may be beneficial to the

organization. [7]

33

Conducting the Appraisal Meeting

A performance appraisal meeting is the most important component of a

performance appraisal. After the rater uses the company’s appraisal form to

evaluate the performance of the ratee, both sides meet to discuss positive and

negative instances of performance. Thus, the meeting serves as the key

medium through which the rater gives feedback to the ratee. The goal of

providing performance feedback is to help the ratee solve performance

problems and to motivate the employee to change behavior. Conducting this

meeting is often stressful for both parties, and training managers in providing

performance feedback may be useful to deal with the stress of the managers as

well as creating a more positive experience for both parties. [8]

In the most effective meetings, feedback is presented in a constructive

manner. Instead of criticizing the person, the focus should be on discussing

the performance problems and aiding the employee in resolving these

problems. By moving the focus of the conversation from the person to the

behaviors, employee defensiveness may be reduced. When the supervisor is

constructive, employees develop a more positive view of the appraisal system.

Another approach to increasing the effectiveness of appraisal meetings is to

increase employee participation. When employees have the opportunity to

present their side of the story, they react more positively to the appraisal

process and feel that the system is fair. Finally, supervisors should be

knowledgeable about the employee’s performance. When it becomes clear that

the person doing the evaluation has little understanding of the job being

performed by the employee, reactions tend to be more negative. [9]

OB Toolbox: Conducting an Effective Performance Appraisal Meeting

34

Before the meeting

 Ask the person to complete a self-appraisal. This is a great way of making

sure that employees become active participants in the process and get their

voice heard.

 Complete the performance appraisal form. Document your rating using many

examples. Have more examples handy.

 Avoid recency bias. Be sure that your review covers the entire year’s

performance, not just recent events.

 Handle the logistics. Be sure that you devote sufficient time to each meeting.

If you schedule appraisals back to back, you may lose your energy in later

meetings. Be sure that the physical location is conducive to a private

conversation.

During the meeting

 Be sure to recognize effective performance. Give specific praise.

 Do not start the meeting with a criticism. Starting with positive instances of

performance helps establish a better mood and shows that you recognize what

the employee is doing right.

 Give employees lots of opportunities to talk. Ask them about their greatest

accomplishments, as well as opportunities for improvement. If they touch on

an area you wanted to cover, provide your thoughts.

 Show empathy and support. Remember: your job as a manager is to help the

person solve performance problems. Identify areas where you can help.

 Set goals and create an action plan. The outcome of the meeting should be a

written agreement about what the employee will do in the near future and how

the manager will help.

After the meeting

 Continue to give the employee periodic and frequent feedback. Effective

feedback immediately follows key incidents of performance. Do not wait until

the next appraisal to discuss important issues.

35

 Follow through on the goals that were set. Provide continuous support to the

employee to help him or her achieve the goals.

Sources: Make employee appraisals more productive. (2007,

September). HR Focus,84(9), 1, 11–15; Ryan, L. (2007, January 17). Coping

with performance-review anxiety. Business Week Online, 6; Stone, D. L.

(1984). The effects of feedback sequence and expertise of the rater on

perceived feedback accuracy. Personnel Psychology, 37, 487–506; Sulkowicz,

K. (2007, September 10). Straight talk at review time. Business Week, 16.

Managing Potential Bias in Performance Appraisals

Performance appraisal is by nature a subjective event. Unless the performance

appraisal is purely relying on objective criteria such as sales, it requires one or

more human beings to observe and evaluate another and arrive at a

consensus. Raters, intentionally or unintentionally, make mistakes or exhibit

biases. These biases trickle down into the appraisal system and can affect

other decisions that are based on appraisals, such as pay and promotion.

Therefore, being aware of these tendencies is the first step to managing their

influence over the appraisal system.

Liking

A performance appraisal does not occur between strangers. The rater and

ratee have an existing relationship. If they like or dislike each other, these

feelings may bias the ratings. For example, research shows that regardless of

their objective performance levels, managers give employees they have a good

relationship with higher ratings. [10] It is possible that sometimes liking is not a

bias and a manager likes an employee because of high performance

levels. [11] Still, for some managers, liking someone may mean ignoring the

faults of the person and selectively remembering the positive things that

36

person has done. One way of dealing with this problem may be journaling. By

recording positive and negative performance incidents throughout the year for

each employee, managers may recall each employee’s performance more

accurately. [12]

Leniency

One of the common problems in appraisals is that managers give employees

ratings higher than warranted. There may be many reasons for this, such as

the desire to avoid confrontation with the employee, having a very agreeable

personality, the desire to avoid hurting the chances of the employee to get a

bonus, the desire to motivate employees by giving them high ratings, or liking

the employee as a person. Regardless of the reason, leniency is a problem

because it makes ratings relatively useless for determining raises, bonuses, or

promotions. At the same time, leniency makes it harder for employees to

change their behaviors. One way of dealing with this problem could be using

relative rankings or at least giving managers a suggested distribution. If

managers are asked to grade on a curve, they may end up being less lenient.

Moreover, making managers accountable for the ratings they give may be a

good idea. For example, if managers are evaluated based on how well they

recognize different levels of performance, they may be less tempted to be

lenient in appraisals. [13]

Stereotypes

One of the factors that create bias in appraisals is the stereotypes that raters

may have regarding the gender, race, age or another characteristic of the

person being rated. Beliefs about different groups may be generalized to the

person in question even though they may have little basis in reality. For

example, research shows that women in stereotypically male jobs were rated

lower than women in stereotypically female jobs. Similarly, attractive women

37

were rated higher if they held nonmanagement jobs, but they were rated lower

if they held management jobs. When factors that have no bearing on one’s job

performance are used to evaluate the person, employees, overall, will be

demoralized, the appraisals will lose their effectiveness, and the company may

face costly lawsuits. [14]Understanding the importance of eliminating

stereotypes from performance appraisals and training managers to accurately

observe and evaluate performance may be beneficial in limiting exposure to

this type of bias.

KEY TAKEAWAY

Performance appraisals involve observing and measuring an employee’s

performance during an appraisal period, recording these observations,

communicating results to the employee, and recognizing high performance while

devising ways of improving deficiencies. Most appraisals are conducted by the

supervisor, but there are many advantages to using 360-degree appraisals.

Appraisals that are more effective give employees adequate notice, fair hearing, and

judgment based on evidence. Some companies use relative rankings in which

employees are compared to each other, but this system is not suitable to all

companies. A performance appraisal meeting should be planned and executed

carefully, with the supervisor demonstrating empathy and supportiveness. There are

intentional and unintentional biases inherent in appraisals and being aware of them,

increasing rater accountability, and training managers may be useful in dealing with

some of them.

EXERCISES

1. What are the disadvantages of using only supervisors as the rater? What are the

disadvantages of using peers, subordinates, and customers as raters?

2. Do you believe that self-appraisals are valid? Why would it be helpful to add self-

appraisals to the appraisal process? Can you think of any downsides to using them?

38

3. Why do some managers intentionally give an employee a higher rating than

deserved? What are the disadvantages of biased ratings? How could this tendency

be prevented?

4. Some recommend that performance appraisals be abolished altogether. What do

you think about this approach? What are the downsides of eliminating appraisals

altogether?

5. If your objective is to minimize the effects of rater biases, what type of appraisal

system would you design?

6.4 Motivating Employees Through Performance Incentives

LEARNING OBJECTIVES

1. Learn the importance of financial and nonfinancial incentives to motivate

employees.

2. Understand the benefits of different types of incentive systems, such as piece rate

and merit pay.

3. Learn why nonfinancial incentives can be effective motivators.

4. Understand the tradeoffs involved in rewarding individual, group, and organizational

performance.

Performance Incentives

Perhaps the most tangible way in which companies put motivation theories

into action is by instituting incentive systems. Incentives are reward systems

that tie pay to performance. There are many incentives used by companies,

some tying pay to individual performance and some to companywide

performance. Pay-for-performance plans are very common among

39

organizations. For example, according to one estimate, 80% of all American

companies have merit pay, and the majority of Fortune 1000 companies use

incentives. [1] Using incentives to increase performance is a very old idea. For

example, Napoleon promised 12,000 francs to whoever found a way to

preserve food for the army. The winner of the prize was Nicolas Appert, who

developed a method of canning food. [2]Research shows that companies using

pay-for-performance systems actually achieve higher productivity, profits, and

customer service. These systems are more effective than praise or recognition

in increasing retention of higher performing employees by creating higher

levels of commitment to the company. [3] Moreover, employees report higher

levels of pay satisfaction under pay-for-performance systems. [4]

At the same time, many downsides of incentives exist. For example, it has

been argued that incentives may create a risk-averse environment that

diminishes creativity. This may happen if employees are rewarded for doing

things in a certain way, and taking risks may negatively affect their paycheck.

Moreover, research shows that incentives tend to focus employee energy to

goal-directed efforts, and behaviors such as helping team members or being a

good citizen of the company may be neglected. [5] Despite their limitations,

financial incentives may be considered powerful motivators if they are used

properly and if they are aligned with companywide objectives. The most

frequently used incentives are listed as follows.

Piece Rate Systems

Under piece rate incentives, employees are paid on the basis of individual

output they produce. For example, a manufacturer may pay employees based

on the number of purses sewn or number of doors installed in a day. In the

agricultural sector, fruit pickers are often paid based on the amount of fruit

they pick. These systems are suitable when employee output is easily

40

observable or quantifiable and when output is directly correlated with

employee effort. Piece rate systems are also used in white-collar jobs such as

check-proofing in banks. These plans may encourage employees to work very

fast, but may also increase the number of errors made. Therefore, rewarding

employee performance minus errors might be more effective. Today, increases

in employee monitoring technology are making it possible to correctly

measure and observe individual output. For example, technology can track the

number of tickets an employee sells or the number of customer complaints

resolved, allowing a basis for employee pay incentives. [6] Piece rate systems

can be very effective in increasing worker productivity. For example, Safelite

AutoGlass, a nationwide installer of auto glass, moved to a piece rate system

instead of paying workers by the hour. This change led to an average

productivity gain of 20% per employee. [7]

Individual Bonuses

Bonuses are one-time rewards that follow specific accomplishments of

employees. For example, an employee who reaches the quarterly goals set for

her may be rewarded with a lump sum bonus. Employee motivation resulting

from a bonus is generally related to the degree of advanced knowledge

regarding bonus specifics.

Merit Pay

In contrast to bonuses, merit pay involves giving employees a permanent pay

raise based on past performance. Often the company’s performance appraisal

system is used to determine performance levels and the employees are

awarded a raise, such as a 2% increase in pay. One potential problem with

merit pay is that employees come to expect pay increases. In companies that

give annual merit raises without a different raise for increases in cost of living,

merit pay ends up serving as a cost-of-living adjustment and creates a sense of

41

entitlement on the part of employees, with even low performers expecting

them. Thus, making merit pay more effective depends on making it truly

dependent on performance and designing a relatively objective appraisal

system.

Sales Commissions

In many companies, the paycheck of sales employees is a combination of a

base salary and commissions. Sales commissions involve rewarding sales

employees with a percentage of sales volume or profits generated. Sales

commissions should be designed carefully to be consistent with company

objectives. For example, employees who are heavily rewarded with

commissions may neglect customers who have a low probability of making a

quick purchase. If only sales volume (as opposed to profitability) is rewarded,

employees may start discounting merchandise too heavily, or start neglecting

existing customers who require a lot of attention. [8] Therefore, the blend of

straight salary and commissions needs to be managed carefully.

Awards

Some companies manage to create effective incentive systems on a small

budget while downplaying the importance of large bonuses. It is possible to

motivate employees through awards, plaques, or other symbolic methods of

recognition to the degree these methods convey sincere appreciation for

employee contributions. For example, Yum! Brands Inc., the parent company

of brands such as KFC and Pizza Hut, recognizes employees who go above and

beyond job expectations through creative awards such as the seat belt award

(a seat belt on a plaque), symbolizing the roller-coaster-like, fast-moving

nature of the industry. Other awards include things such as a plush toy shaped

like a jalapeño pepper. Hewlett-Packard Development Company LP has the

golden banana award, which came about when a manager wanted to reward

42

an employee who solved an important problem on the spot and handed him a

banana lying around the office. Later, the golden banana award became an

award bestowed on the most innovative employees. [9] Another alternative way

of recognizing employee accomplishments is awarding gift cards. These

methods are more effective if employees have a choice among alternatives

(such as between restaurants, or between a restaurant or a retailer). The

advantage of gift cards over pay is that instead of paying for life’s necessities

such as mortgage or college, employees can enjoy the gift of going out to

dinner, going on a vacation to a fun place, or acquiring a cool gadget they may

not have purchased with their own money. Thus, these awards may help create

a sense of commitment to the company by creating positive experiences that

are attributed to the company.

Team Bonuses

In situations in which employees should cooperate with each other and

isolating employee performance is more difficult, companies are increasingly

resorting to tying employee pay to team performance. For example, in 2007,

Wal-Mart gave bonuses to around 80% of their associates based on store

performance. If employees have a reasonable ability to influence their team’s

performance level, these programs may be effective.

Gainsharing

Gainsharing is a companywide program in which employees are rewarded for

performance gains compared to past performance. These gains may take the

form of reducing labor costs compared to estimates or reducing overall costs

compared to past years’ figures. These improvements are achieved through

employee suggestions and participation in management through employee

committees. For example, Premium Standard Farms LLC, a meat processing

plant, instituted a gainsharing program in which employee-initiated changes

43

in production processes led to a savings of $300,000 a month. The bonuses

were close to $1,000 per person. These programs can be successful if the

payout formula is generous, employees can truly participate in the

management of the company, and if employees are able to communicate and

execute their ideas. [10]

Profit Sharing

Profit sharing programs involve sharing a percentage of company profits with

all employees. These programs are companywide incentives and are not very

effective in tying employee pay to individual effort, because each employee will

have a limited role in influencing company profitability. At the same time,

these programs may be more effective in creating loyalty and commitment to

the company by recognizing all employees for their contributions throughout

the year.

Stock Options

A stock option gives an employee the right, but not the obligation, to purchase

company stocks at a predetermined price. For example, a company would

commit to sell company stock to employees or managers 2 years in the future

at $30 per share. If the company’s actual stock price in 2 years is $60,

employees would make a profit by exercising their options at $30 and then

selling them in the stock market. The purpose of stock options is to align

company and employee interests by making employees owners. However,

options are not very useful for this purpose, because employees tend to sell the

stock instead of holding onto it. In the past, options were given to a wide

variety of employees, including CEOs, high performers, and in some

companies all employees. For example, Starbucks Corporation was among

companies that offered stock to a large number of associates. Options remain

popular in start-up companies that find it difficult to offer competitive salaries

44

to employees. In fact, many employees in high-tech companies such as

Microsoft and Cisco Systems Inc. became millionaires by cashing in stock

options after these companies went public. In recent years, stock option use

has declined. One reason for this is the changes in options accounting. Before

2005, companies did not have to report options as an expense. After the

changes in accounting rules, it became more expensive for companies to offer

options. Moreover, options are less attractive or motivational for employees

when the stock market is going down, because the cost of exercising their

options may be higher than the market value of the shares. Because of these

and other problems, some companies started granting employees actual stock

or using other incentives. For example, PepsiCo Inc. replaced parts of the

stock options program with a cash incentive program and gave managers the

choice of getting stock options coupled with restricted stocks. [11]

KEY TAKEAWAY

Companies use a wide variety of incentives to reward performance. This is consistent

with motivation theories showing that rewarded behavior is repeated. Piece rate,

individual bonuses, merit pay, and sales commissions tie pay to individual

performance. Team bonuses are at the department level, whereas gainsharing, profit

sharing, and stock options tie pay to company performance. While these systems

may be effective, people tend to demonstrate behavior that is being rewarded and

may neglect other elements of their performance. Therefore, reward systems should

be designed carefully and should be tied to a company’s strategic objectives.

EXERCISES

1. Have you ever been rewarded under any of the incentive systems described in this

chapter? What was your experience with them?

2. What are the advantages and disadvantages of bonuses compared to merit pay?

Which one would you use if you were a manager at a company?

3. What are the advantages of using awards as opposed to cash as an incentive?

45

4. How effective are stock options in motivating employees? Why do companies offer

them?

5. Which of the incentive systems in this section do the best job of tying pay to

individual performance? Which ones do the worst job?

6.5 The Role of Ethics and National Culture

LEARNING OBJECTIVES

1. Consider the role of job design, goals, and reward systems in ethical behavior.

2. Consider the role of national culture on job design, goals, and reward systems.

Designing a Motivating Work Environment and Ethics

The design components of an organization’s internal environment, such as the

presence of goal setting, performance appraisals, and the use of incentive-

based reward systems, have a direct connection with the level of ethical or

unethical behaviors demonstrated within a company. Although a large

number of companies successfully use goal setting and rewarding employees

based on goal accomplishment, there is an unintended consequence to using

goals: Goal setting may lead to unethical behaviors on the part of employees.

When goal accomplishment is rewarded, and when rewards are desirable,

employees will have two basic options: Work hard to reach the goals, or cheat.

The connection between goal setting and unethical behaviors has been well

documented. For example, teachers rewarded for their students’ success were

more likely to cheat by giving the answers to students. Sanitation workers on

an incentive scheme were more likely to take their trucks to the landfill with

loads exceeding legal limits. [1] Salespeople working on commissions may push

46

customers to make a purchase beyond their budget. At higher levels within

companies, a CEO’s method of payment has been related to the ethical

behaviors of companies. For example, when a large percentage of a CEO pay

package consists of stock options, companies are more likely to misrepresent

the financial situation of the company, particularly when the CEO is also the

head of the board of directors. [2]

This does not mean that goal setting always causes unethical behavior. People

who behave unethically tend to constitute a small percentage of the workforce.

However, for this small percentage, goal setting and incentives act as

motivation to behave unethically. The tendency to behave unethically under

these systems also increases when goals are not met, but instead, employees

come close to reaching them, particularly when they are competing against

each other to receive the rewards. [3] There are several ways companies can

reduce the temptation to behave unethically. Specifically rewarding ethical

behavior within the company is related to lower levels of unethical

behaviors. [4] Also, instead of only rewarding people who reach a high goal and

not giving anything to those who come close, companies may consider creating

multiple levels of goals and distribute rewards corresponding to the goal that

is achieved. [5] Enforcing an ethical code of conduct and withholding rewards

from those who are not demonstrating ethical behaviors are other ways of

preventing goal setting from leading to unethical behaviors.

Designing a Motivating Work Environment Around the Globe

The effectiveness of methods such as job design, goal setting, performance

appraisals, and the use of incentives is likely to be culturally determined. For

example, research conducted in Western countries suggests that empowering

employees is an effective method of motivating them. However, not all

employees around the world respond favorably to concepts such as autonomy

47

or empowerment. For example, it has been noted that the use of self-

managing teams, a method of increasing employee empowerment in the

workplace, is difficult to execute in Mexican companies because of the

traditionally paternalistic and hierarchical nature of many Mexican

organizations. In such a context, employees may not be willing or ready to take

responsibility for individual action, while managers may be unwilling to share

real power with employees. [6] Researchers also found in a four-country study

that while employees in the United States, Mexico, and Poland responded

positively to empowerment, Indian employees were actually less satisfied

when they were empowered. [7] In other words, we may expect both greater

levels of difficulty and potentially different reactions to empowerment

depending on the cultural context.

Are all employees around the globe motivated by goal setting? Even though

there is limited research in this area, existing findings point to some

differences. For example, we know that American employees respond

negatively to goals when these goals are perceived to be extremely difficult.

However, Chinese employees actually were most motivated when the goals

were very difficult. This may be because Chinese employees believe that their

performance depends on their effort, and therefore, they are able to respond

to goals that are very difficult with very high effort. On the other hand, there is

some evidence that while specific goals motivate Western salespeople, in

China goals low in specificity were more motivational. [8]

How about performance appraisals? You may predict that concepts such as

360-degree appraisal are not suitable to all cultures. The 360-degree

appraisals require a climate of openness and social equality in the workplace.

Therefore, countries high in power distance and authoritarianism may

respond negatively to appraisal systems where lower level employees give

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performance feedback to their managers. Likewise, in cultures high in

collectivism, using peer appraisals may not be as effective, because employees

might be hesitant to give accurate performance feedback to their colleagues

with the fear that negative feedback may damage interpersonal relationships.

KEY TAKEAWAY

Goal setting and reward systems influence the level of ethics in the work

environment. When employees come close to reaching their goals but fall short, they

are more likely to behave unethically. The type of incentive system used in a

company may generate unethical behaviors. Moreover, job design, goal setting,

performance appraisals, and incentives should be designed while considering the

national culture context, because they may not be universally valid.

EXERCISES

1. Do you have any experience with goal setting leading to unethical behaviors?

2. Many observers and employees are concerned about the spread between CEO pay

and average employee pay. Is it ethical for CEOs to be paid so much more than other

employees? Under which conditions would it be unethical?

3. How would you determine whether a certain incentive scheme or a type of

performance appraisal could be transferred to a different culture?

6.6 Conclusion In this chapter, we reviewed specific methods with which companies attempt

to motivate their workforce. Designing jobs to increase their motivating

potential, empowering employees, setting goals, evaluating performance using

performance appraisals, and tying employee pay to individual, group, or

organizational performance using incentive systems are methods through

49

which motivation theories are put into action. Even though these methods

seem to have advantages, every method could have unintended consequences,

and therefore, application of each method should be planned and executed

with an eye to organizational fairness.

6.7 Exercises

ETHICAL DILEMMA

James is about to conduct a performance appraisal for Maria. Maria has exhibited

some performance problems in the past 6 months. She has been coming in late and

leaving early, and she missed two important deadlines. At the same time, she is a

very likeable and nice person who gets along well with others in the office. James

also knows that Maria has a significant amount of debt and getting a bonus after this

appraisal would really help her. James does not want to jeopardize his relationship

with her and he does not want to prevent her from getting the bonus. Therefore, he

is considering giving her a “good” rating in the appraisal. What would be your advice

to James regarding this situation?

INDIVIDUAL EXERCISE

 A call center is using the metric of average time per call when rewarding employees.

In order to keep their average time low, employees are hanging up on customers

when they think that the call will take too long to answer.

 In a department store, salespeople are rewarded based on their sales volume. The

problem is that they are giving substantial discounts and pressuring customers to

make unnecessary purchases.

50

 All employees at a factory are receiving a large bonus if there are no reported

injuries for 6 months. As a result, some employees are hiding their injuries so that

they do not cause others to lose their bonus.

What are the reasons for the negative consequences of these bonus schemes?

Modify these schemes to solve the problems.

GROUP EXERCISE

Performance Appraisal Role Play

This role play will involve three students. One student will be the supervisor and the

second will be the subordinate. The supervisor and the subordinate will conduct a

formal performance appraisal interview. The third role is of an observer who should

provide feedback to both parties regarding how they could have improved their

effectiveness.

Be sure to read only the role sheet assigned to you by your professor.

1

This text was adapted by The Saylor Foundation under a Creative

Commons Attribution-NonCommercial-ShareAlike 3.0 License without

attribution as requested by the work’s original creator or licensee.

2

Chapter 10 Conflict and Negotiations

LEARNING OBJECTIVES

After reading this chapter, you should be able to do the following:

1. Understand the different types of conflict.

2. Understand the causes of conflict.

3. Understand the consequences of conflict.

4. Understand how to manage conflict effectively.

5. Understand the stages of the negotiation process.

6. Understand how to avoid common negotiation mistakes.

7. Engage in conflict management and negotiation ethically.

8. Understand cross-cultural differences in conflict and negotiation.

Negotiation Failure: The Case of PointCast In 1997, a company called PointCast Network Inc. was the hottest start-up in

Silicon Valley. Its founder and CEO, Christopher Hassett, was “the most

famous guy on the Internet,” said Hassett’s former attorney, Allen Morgan.

Hassett was named CNet’s newsmaker of the year—an honor previously

bestowed on giants such as Bill Gates of Microsoft and Larry Ellison of Oracle.

The “push technology” that PointCast pioneered was making headlines as well

as being featured on the cover of Wired as “The Radical Future of the Media

beyond the Web.”

All the attention around PointCast motivated one of the world’s largest

communications companies—Rupert Murdoch’s News Corporation—to make

them an offer of $450 million. Negotiations were intense and lasted weeks.

With media speculation that PointCast—a company with almost no revenue—

deserved to be valued at $750 million, some people say Hassett started

3

believing the hype and with the support of his board asked for more money.

“People involved in the company thought they’d be the next Netscape. They

hung out for more,” Murdoch said. The Murdochs, instead, lowered their

initial offer to $400 million, but added incentive clauses that brought the offer

close to the original $450 million if PointCast met its financial projections.

PointCast also rejected that offer and News Corp walked away from the

bargaining table. The timing couldn’t have been worse for PointCast, as “push”

technology became old news thanks to the maturing of alternatives such as

Yahoo. By the time PointCast decided to go public in 1998, the company was

valued at half of News Corp’s last offer. Worse, the process of filing an initial

public offering (IPO) requires the company to disclose all potential dangers to

investors. PointCast’s disclosures—such as news that customers had left

because of poor performance—scared off so many investors that PointCast

ultimately withdrew its IPO. By that time Hassett had been forced out by the

board, but the company never fully recovered. In the end, PointCast was

acquired in 1999 by Idealab for $7 million. In this case, stalled negotiations

cost the firm a steep price of $443 million.

Referring to the missed opportunity, an industry expert said, “It may go down

as one of the biggest mistakes in Internet history.” According to Steve Lippin,

writing in the Wall Street Journal, “Merger professionals point to these

euphemistically called ‘social issues’—ego and corporate pride, that is—as

among the most difficult aspects of negotiating multibillion-dollar mergers

these days. Although financial issues can be vexing too, these social issues can

be deal-breakers.”

In a similar and more recent situation in 2008, Yahoo CEO Jerry Yang was

ousted by the Board of Directors following failed deals with Microsoft and

4

Google. Yang’s behavior during negotiations indicated that he wasn’t

interested in bargaining as much as playing “hard to get.” He “kept saying we

should get more money, we should get more money, and [he was] not realizing

how precarious their position was,” says high-tech analyst Rob Enderle. In

other words, even deals that look great financially can fall apart if participants

fail to pay attention to organizational behavior issues such as perception,

groupthink, and power and influence.

Sources: Arnoldy. B. (2008, November 19). Why Yahoo’s Jerry Yang stepped

down. Retrieved January 20, 2009, from the Christian Science Monitor Web

site:http://www.csmonitor.com/2008/1119/p02s01-usec.html; Auletta, K.

(1998, November 19). The last sure thing. New Yorker; Lipin, S. (1996, August

22). In many merger deals, ego and pride play big roles in which way talks

go. Wall Street Journal, Eastern edition, p. C1; Wired News Report. (1999,

May 11). PointCast fire sale. Wired. Retrieved November 14, 2008,

fromhttp://www.wired.com/techbiz/media/news/1999/05/19618.

10.1 Understanding Conflict

LEARNING OBJECTIVES

1. Define conflict.

2. Understand different types of conflict.

3. Address whether conflict is always negative.

Let’s take a closer look at these social issues such as conflict to understand

how they can derail companies and individuals alike—and what to do to

prevent such consequences from happening to you. In this chapter, you’ll see

5

that managing conflict and engaging in effective negotiation are both key for

effective organizational behavior within organizations as well as daily life.

Conflicts range from minor annoyances to outright violence. For example, one

million workers (18,000 people per week) are assaulted on the job in the

United States alone. [1] One of the major ways to avoid conflicts escalating to

these levels is through understanding the causes of conflict and developing

methods for managing potential negative outcomes. Negotiation is one of the

most effective ways to decrease conflict and will also be examined in depth in

this chapter.

Similar to how conflicts can range from minor to major, negotiations vary in

terms of their consequences. A high-stakes negotiation at work might mean

the difference between a company’s survival and its demise. On the other end

of the spectrum, we deal with minor negotiations on a regular basis, such as

negotiating with a coworker about which movie to see. Maybe you make a

concession: “OK, we’ll watch what you want but I get to pick where we eat.”

Maybe you hold tough: “I don’t want to watch anything except a comedy.”

Perhaps you even look for a third option that would mutually satisfy both

parties. Regardless of the level, conflict management and negotiation tactics

are important skills that can be learned. First, let’s take a deeper look at

conflict.

Conflict is a process that involves people disagreeing. Researchers have noted

that conflict is like the common cold. Everyone knows what it is, but

understanding its causes and how to treat it is much more challenging. [2] As

we noted earlier, conflict can range from minor disagreements to workplace

violence. In addition, there are three types of conflict that can arise within

organizations. Let’s take a look at each of them in turn.

6

Types of Conflict

Intrapersonal Conflict

Intrapersonal conflict arises within a person. For example, when you’re

uncertain about what is expected or wanted, or you have a sense of being

inadequate to perform a task, you are experiencing intrapersonal conflict.

Intrapersonal conflict can arise because of differences in roles. A manager may

want to oversee a subordinate’s work, believing that such oversight is a

necessary part of the job. The subordinate, on the other hand, may consider

such extensive oversight to be micromanagement or evidence of a lack of trust.

Role conflict, another type of intrapersonal conflict, includes having two

different job descriptions that seem mutually exclusive. This type of conflict

can arise if you’re the head of one team but also a member of another team. A

third type of intrapersonal conflict involves role ambiguity. Perhaps you’ve

been given the task of finding a trainer for a company’s business writing

training program. You may feel unsure about what kind of person to hire—a

well-known but expensive trainer or a local, unknown but low-priced trainer.

If you haven’t been given guidelines about what’s expected, you may be

wrestling with several options.

Interpersonal Conflict

Interpersonal conflict is among individuals such as coworkers, a manager and

an employee, or CEOs and their staff. For example, in 2006 the CEO of Airbus

S.A.S., Christian Streiff, resigned because of his conflict with the board of

directors over issues such as how to restructure the company. [3] This example

may reflect a well-known trend among CEOs. According to one estimate,

31.9% of CEOs resigned from their jobs because they had conflict with the

board of directors. [4] CEOs of competing companies might also have public

conflicts. In 1997, Michael Dell was asked what he would do about Apple

7

Computer. “What would I do? I’d shut it down and give the money back to

shareholders.” Ten years later, Steve Jobs, the CEO of Apple Inc., indicated he

had clearly held a grudge as he shot back at Dell in an e-mail to his employees,

stating, “Team, it turned out Michael Dell wasn’t perfect in predicting the

future. Based on today’s stock market close, Apple is worth more than

Dell.” [5] In part, their long-time disagreements stem from their differences.

Interpersonal conflict often arises because of competition, as the Dell/Apple

example shows, or because of personality or values differences. For example,

one person’s style may be to “go with the gut” on decisions, while another

person wants to make decisions based on facts. Those differences will lead to

conflict if the individuals reach different conclusions. Many companies suffer

because of interpersonal conflicts. Keeping conflicts centered around ideas

rather than individual differences is important in avoiding a conflict

escalation.

Intergroup Conflict

Intergroup conflict is conflict that takes place among different groups. Types

of groups may include different departments or divisions in a company, and

employee union and management, or competing companies that supply the

same customers. Departments may conflict over budget allocations; unions

and management may disagree over work rules; suppliers may conflict with

each other on the quality of parts. Merging two groups together can lead to

friction between the groups—especially if there are scarce resources to be

divided among the group. For example, in what has been called “the most

difficult and hard-fought labor issue in an airline merger,” Canadian Air and

Air Canada pilots were locked into years of personal and legal conflict when

the two airlines’ seniority lists were combined following the

merger. [6] Seniority is a valuable and scarce resource for pilots, because it

helps to determine who flies the newest and biggest planes, who receives the

8

best flight routes, and who is paid the most. In response to the loss of

seniority, former Canadian Air pilots picketed at shareholder meetings,

threatened to call in sick, and had ongoing conflicts with pilots from Air

Canada. The conflicts with pilots continue to this day. The history of past

conflicts among organizations and employees makes new deals challenging.

Is Conflict Always Bad?

Most people are uncomfortable with conflict, but is conflict always bad?

Conflict can be dysfunctional if it paralyzes an organization, leads to less than

optimal performance, or, in the worst case, leads to workplace violence.

Surprisingly, a moderate amount of conflict can actually be a healthy (and

necessary) part of organizational life. [7] To understand how to get to a positive

level of conflict, we need to understand its root causes, consequences, and

tools to help manage it. The impact of too much or too little conflict can

disrupt performance. If conflict is too low, then performance is low. If conflict

is too high, then performance also tends to be low. The goal is to hold conflict

levels in the middle of this range. While it might seem strange to want a

particular level of conflict, a medium level of task-related conflict is often

viewed as optimal, because it represents a situation in which a healthy debate

of ideas takes place.

Figure 10.4 The Inverted U Relationship Between Performance and Conflict

9

Task conflict can be good in certain circumstances, such as in the early stages

of decision making, because it stimulates creativity. However, it can interfere

with complex tasks in the long run. [8] Personal conflicts, such as personal

attacks, are never healthy because they cause stress and distress, which

undermines performance. The worst cases of personal conflicts can lead to

workplace bullying. At Intel Corporation, all new employees go through a 4-

hour training module to learn “constructive confrontation.” The content of the

training program includes dealing with others in a positive manner, using

facts rather than opinion to persuade others, and focusing on the problem at

hand rather than the people involved. “We don’t spend time being defensive or

taking things personally. We cut through all of that and get to the issues,”

notes a trainer from Intel University. [9] The success of the training remains

unclear, but the presence of this program indicates that Intel understands the

potentially positive effect of a moderate level of conflict. Research focusing on

effective teams across time found that they were characterized by low but

increasing levels of process conflict (how do we get things done?), low levels of

relationship conflict with a rise toward the end of the project (personal

10

disagreements among team members), and moderate levels of task conflict in

the middle of the task time line. [10]

KEY TAKEAWAY

Conflict can be a problem for individuals and organizations. There are several

different types of conflict, including intrapersonal, interpersonal, and intergroup

conflict. Moderate conflict can be a healthy and necessary part of organizational life.

EXERCISES

1. What are the types of conflicts that individuals may have at work? Which type have

you experienced the most?

2. What are some primary causes of conflict at work?

3. Explain how miscommunication might be related to a conflict at work.

10.2 Causes and Outcomes of Conflict

LEARNING OBJECTIVES

1. Understand different causes of conflict.

2. Understand jobs at risk for conflict.

3. Learn the outcomes of conflict.

There are many potential root causes of conflict at work. We’ll go over six of

them here. Remember, anything that leads to a disagreement can be a cause of

conflict. Although conflict is common to organizations, some organizations

have more than others.

Causes of Conflict

11

Organizational Structure

Conflict tends to take different forms, depending upon the organizational

structure. [1] For example, if a company uses a matrix structure as its

organizational form, it will have decisional conflict built in, because the

structure specifies that each manager report to two bosses. For example,

global company ABB Inc. is organized around a matrix structure based on the

dimensions of country and industry. This structure can lead to confusion as

the company is divided geographically into 1,200 different units and by

industry into 50 different units. [2]

Limited Resources

Resources such as money, time, and equipment are often scarce. Competition

among people or departments for limited resources is a frequent cause for

conflict. For example, cutting-edge laptops and gadgets such as a BlackBerry

or iPhone are expensive resources that may be allocated to employees on a

need-to-have basis in some companies. When a group of employees have

access to such resources while others do not, conflict may arise among

employees or between employees and management. While technical

employees may feel that these devices are crucial to their productivity,

employees with customer contact such as sales representatives may make the

point that these devices are important for them to make a good impression to

clients. Because important resources are often limited, this is one source of

conflict many companies have to live with.

Task Interdependence

Another cause of conflict is task interdependence; that is, when

accomplishment of your goal requires reliance on others to perform their

tasks. For example, if you’re tasked with creating advertising for your product,

you’re dependent on the creative team to design the words and layout, the

12

photographer or videographer to create the visuals, the media buyer to

purchase the advertising space, and so on. The completion of your goal (airing

or publishing your ad) is dependent on others.

Incompatible Goals

Sometimes conflict arises when two parties think that their goals are mutually

exclusive. Within an organization, incompatible goals often arise because of

the different ways department managers are compensated. For example, a

sales manager’s bonus may be tied to how many sales are made for the

company. As a result, the individual might be tempted to offer customers

“freebies” such as expedited delivery in order to make the sale. In contrast, a

transportation manager’s compensation may be based on how much money

the company saves on transit. In this case, the goal might be to eliminate

expedited delivery because it adds expense. The two will butt heads until the

company resolves the conflict by changing the compensation scheme. For

example, if the company assigns the bonus based on profitability of a sale, not

just the dollar amount, the cost of the expediting would be subtracted from the

value of the sale. It might still make sense to expedite the order if the sale is

large enough, in which case both parties would support it. On the other hand,

if the expediting negates the value of the sale, neither party would be in favor

of the added expense.

Personality Differences

Personality differences among coworkers are common. By understanding

some fundamental differences among the way people think and act, we can

better understand how others see the world. Knowing that these differences

are natural and normal lets us anticipate and mitigate interpersonal conflict—

it’s often not about “you” but simply a different way of seeing and behaving.

13

For example, Type A individuals have been found to have more conflicts with

their coworkers than Type B individuals. [3]

Communication Problems

Sometimes conflict arises simply out of a small, unintentional communication

problem, such as lost e-mails or dealing with people who don’t return phone

calls. Giving feedback is also a case in which the best intentions can quickly

escalate into a conflict situation. When communicating, be sure to focus on

behavior and its effects, not on the person. For example, say that Jeff always

arrives late to all your meetings. You think he has a bad attitude, but you don’t

really know what Jeff’s attitude is. You do know, however, the effect that Jeff’s

behavior has on you. You could say, “Jeff, when you come late to the meeting,

I feel like my time is wasted.” Jeff can’t argue with that statement, because it is

a fact of the impact of his behavior on you. It’s indisputable, because it is your

reality. What Jeff can say is that he did not intend such an effect, and then you

can have a discussion regarding the behavior.

In another example, the Hershey Company was engaged in talks behind closed

doors with Cadbury Schweppes about a possible merger. No information

about this deal was shared with Hershey’s major stakeholder, the Hershey

Trust. When Robert Vowler, CEO of the Hershey Trust, discovered that talks

were underway without anyone consulting the Trust, tensions between the

major stakeholders began to rise. As Hershey’s continued to underperform,

steps were taken in what is now called the “Sunday night massacre,” in which

several board members were forced to resign and Richard Lenny, Hershey’s

then current CEO, retired. [4] This example shows how a lack of

communication can lead to an escalation of conflict. Time will tell what the

lasting effects of this conflict will be, but in the short term, effective

14

communication will be the key. Now, let’s turn our attention to the outcomes

of conflict.

Outcomes of Conflict

One of the most common outcomes of conflict is that it upsets parties in the

short run. [5]However, conflict can have both positive and negative outcomes.

On the positive side, conflict can result in greater creativity or better decisions.

For example, as a result of a disagreement over a policy, a manager may learn

from an employee that newer technologies help solve problems in an

unanticipated new way.

Positive outcomes include the following:

 Consideration of a broader range of ideas, resulting in a better, stronger

idea

 Surfacing of assumptions that may be inaccurate

 Increased participation and creativity

 Clarification of individual views that build learning

 On the other hand, conflict can be dysfunctional if it is excessive or

involves personal attacks or underhanded tactics.

 Examples of negative outcomes include the following:

 Increased stress and anxiety among individuals, which decreases

productivity and satisfaction

 Feelings of being defeated and demeaned, which lowers individuals’

morale and may increase turnover

 A climate of mistrust, which hinders the teamwork and cooperation

necessary to get work done

Is Your Job at Risk for Workplace Violence?

15

You may be at increased risk for workplace violence if your job involves the

following:

 Dealing With People

o Caring for others either emotionally or physically, such as at a nursing home.

o Interacting with frustrated customers, such as with retail sales.

o Supervising others, such as being a manager.

o Denying requests others make of you, such as with customer service.

 Being in High-Risk Situations

o Dealing with valuables or exchanging money, such as in banking.

o Handling weapons, such as in law enforcement.

o Working with drugs, alcohol, or those under the influence of them, such as

bartending.

o Working nights or weekends, such as gas station attendants.

Sources: Adapted from information in LeBlanc, M. M., & Kelloway, E. K.

(2002). Predictors and outcomes of workplace violence and

aggression. Journal of Applied Psychology, 87, 444–453; National Institute

for Occupational Safety and Health. (1997). Violence in the workplace.

Retrieved November 12, 2008, fromhttp://www.cdc.gov/niosh/violfs.html;

National Institute for Occupational Safety and Health. (2006). Workplace

prevention strategies and research needs. Retrieved November 12, 2008,

from http://www.cdc.gov/niosh/docs/2006-144/.

Given these negative outcomes, how can conflict be managed so that it does

not become dysfunctional or even dangerous? We’ll explore this in the next

section.

KEY TAKEAWAY

16

Conflict has many causes, including organizational structures, limitations on

resources, task interdependence, goal incompatibility, personality differences, and

communication challenges. Outcomes of well-managed conflict include increased

participation and creativity, while negatives of poorly managed conflict include

increased stress and anxiety. Jobs that deal with people are at higher risk for conflict.

EXERCISES

1. What are some primary causes of conflict at work?

2. What are the outcomes of workplace conflict? Which types of job are the most at

risk for workplace violence? Why do you think that is?

3. What outcomes have you observed from conflict?

10.3 Conflict Management

LEARNING OBJECTIVES

1. Understand different ways to manage conflict.

2. Understand your own communication style.

3. Learn to stimulate conflict if needed.

There are a number of different ways of managing organizational conflict,

which are highlighted in this section. Conflict management refers to resolving

disagreements effectively.

Ways to Manage Conflict

Change the Structure

When structure is a cause of dysfunctional conflict, structural change can be

the solution to resolving the conflict. Consider this situation. Vanessa, the lead

17

engineer in charge of new product development, has submitted her

components list to Tom, the procurement officer, for purchasing. Tom, as

usual, has rejected two of the key components, refusing the expenditure on the

purchase.

Vanessa is furious, saying, “Every time I give you a request to buy a new part,

you fight me on it. Why can’t you ever trust my judgment and honor my

request?”

Tom counters, “You’re always choosing the newest, leading-edge parts—

they’re hard to find and expensive to purchase. I’m supposed to keep costs

down, and your requests always break my budget.”

“But when you don’t order the parts we need for a new product, you delay the

whole project,” Vanessa says.

Sharon, the business unit’s vice president, hits upon a structural solution by

stating, “From now on, both of you will be evaluated on the total cost and the

overall performance of the product. You need to work together to keep

component costs low while minimizing quality issues later on.”

If the conflict is at an intergroup level, such as between two departments, a

structural solution could be to have those two departments report to the same

executive, who could align their previously incompatible goals.

Change the Composition of the Team

If the conflict is between team members, the easiest solution may be to change

the composition of the team, separating the personalities that were at odds. In

instances in which conflict is attributed to the widely different styles, values,

18

and preferences of a small number of members, replacing some of these

members may resolve the problem. If that’s not possible because everyone’s

skills are needed on the team and substitutes aren’t available, consider a

physical layout solution. Research has shown that when known antagonists

are seated directly across from each other, the amount of conflict increases.

However, when they are seated side by side, the conflict tends to decrease. [1]

Create a Common Opposing Force

Group conflict within an organization can be mitigated by focusing attention

on a common enemy such as the competition. For example, two software

groups may be vying against each other for marketing dollars, each wanting to

maximize advertising money devoted to their product. But, by focusing

attention on a competitor company, the groups may decide to work together to

enhance the marketing effectiveness for the company as a whole. The “enemy”

need not be another company—it could be a concept, such as a recession, that

unites previously warring departments to save jobs during a downturn.

Consider Majority Rule

Sometimes a group conflict can be resolved through majority rule. That is,

group members take a vote, and the idea with the most votes is the one that

gets implemented. The majority rule approach can work if the participants feel

that the procedure is fair. It is important to keep in mind that this strategy will

become ineffective if used repeatedly with the same members typically

winning. Moreover, the approach should be used sparingly. It should follow a

healthy discussion of the issues and points of contention, not be a substitute

for that discussion.

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Problem Solve

Problem solving is a common approach to resolving conflict. In problem-

solving mode, the individuals or groups in conflict are asked to focus on the

problem, not on each other, and to uncover the root cause of the problem. This

approach recognizes the rarity of one side being completely right and the other

being completely wrong.

Conflict-Handling Styles

Individuals vary in the way that they handle conflicts. There are five common

styles of handling conflicts. These styles can be mapped onto a grid that shows

the varying degree of cooperation and assertiveness each style entails. Let us

look at each in turn.

Figure 10.6 Conflict-Handling Styles

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Avoidance

The avoiding style is uncooperative and unassertive. People exhibiting this

style seek to avoid conflict altogether by denying that it is there. They are

prone to postponing any decisions in which a conflict may arise. People using

this style may say things such as, “I don’t really care if we work this out,” or “I

don’t think there’s any problem. I feel fine about how things are.” Conflict

avoidance may be habitual to some people because of personality traits such

as the need for affiliation. While conflict avoidance may not be a significant

problem if the issue at hand is trivial, it becomes a problem when individuals

avoid confronting important issues because of a dislike for conflict or a

perceived inability to handle the other party’s reactions.

Accommodation

The accommodating style is cooperative and unassertive. In this style, the

person gives in to what the other side wants, even if it means giving up one’s

personal goals. People who use this style may fear speaking up for themselves

or they may place a higher value on the relationship, believing that disagreeing

with an idea might be hurtful to the other person. They will say things such as,

“Let’s do it your way” or “If it’s important to you, I can go along with it.”

Accommodation may be an effective strategy if the issue at hand is more

important to others compared to oneself. However, if a person perpetually

uses this style, that individual may start to see that personal interests and

well-being are neglected.

Compromise

The compromising style is a middle-ground style, in which individuals have

some desire to express their own concerns and get their way but still respect

the other person’s goals. The compromiser may say things such as, “Perhaps I

21

ought to reconsider my initial position” or “Maybe we can both agree to give in

a little.” In a compromise, each person sacrifices something valuable to them.

For example, in 2005 the luxurious Lanesborough Hotel in London advertised

incorrect nightly rates for £35, as opposed to £350. When the hotel received a

large number of online bookings at this rate, the initial reaction was to insist

that customers cancel their reservations and book at the correct rate. The

situation was about to lead to a public relations crisis. As a result, they agreed

to book the rooms at the advertised price for a maximum of three nights,

thereby limiting the damage to the hotel’s bottom line as well as its

reputation. [2]

Competition

People exhibiting a competing style want to reach their goal or get their

solution adopted regardless of what others say or how they feel. They are more

interested in getting the outcome they want as opposed to keeping the other

party happy, and they push for the deal they are interested in making.

Competition may lead to poor relationships with others if one is always

seeking to maximize their own outcomes at the expense of others’ well-being.

This approach may be effective if one has strong moral objections to the

alternatives or if the alternatives one is opposing are unethical or harmful.

Collaboration

The collaborating style is high on both assertiveness and cooperation. This is a

strategy to use for achieving the best outcome from conflict—both sides argue

for their position, supporting it with facts and rationale while listening

attentively to the other side. The objective is to find a win–win solution to the

problem in which both parties get what they want. They’ll challenge points but

not each other. They’ll emphasize problem solving and integration of each

other’s goals. For example, an employee who wants to complete an MBA

22

program may have a conflict with management when he wants to reduce his

work hours. Instead of taking opposing positions in which the employee

defends his need to pursue his career goals while the manager emphasizes the

company’s need for the employee, both parties may review alternatives to find

an integrative solution. In the end, the employee may decide to pursue the

degree while taking online classes, and the company may realize that paying

for the employee’s tuition is a worthwhile investment. This may be a win–win

solution to the problem in which no one gives up what is personally important,

and every party gains something from the exchange.

Which Style Is Best?

Like much of organizational behavior, there is no one “right way” to deal with

conflict. Much of the time it will depend on the situation. However, the

collaborative style has the potential to be highly effective in many different

situations.

We do know that most individuals have a dominant style that they tend to use

most frequently. Think of your friend who is always looking for a fight or your

coworker who always backs down from a disagreement. Successful individuals

are able to match their style to the situation. There are times when avoiding a

conflict can be a great choice. For example, if a driver cuts you off in traffic,

ignoring it and going on with your day is a good alternative to “road rage.”

However, if a colleague keeps claiming ownership of your ideas, it may be time

for a confrontation. Allowing such intellectual plagiarism to continue could

easily be more destructive to your career than confronting the individual.

Research also shows that when it comes to dealing with conflict, managers

prefer forcing, while their subordinates are more likely to engage in avoiding,

accommodating, or compromising. [3]It is also likely that individuals will

23

respond similarly to the person engaging in conflict. For example, if one

person is forcing, others are likely to respond with a forcing tactic as well.

What If You Don’t Have Enough Conflict Over Ideas?

Part of effective conflict management is knowing when proper stimulation is

necessary. Many people think that conflict is inherently bad—that it

undermines goals or shows that a group or meeting is not running smoothly.

In fact, if there is no conflict, it may mean that people are silencing themselves

and withholding their opinions. The reality is that within meaningful group

discussions there are usually varying opinions about the best course of action.

If people are suppressing their opinions, the final result may not be the best

solution. During healthy debates, people point out difficulties or weaknesses

in a proposed alternative and can work together to solve them. The key to

keeping the disagreement healthy is to keep the discussion focused on the

task, not the personalities. For example, a comment such as “Jack’s ideas have

never worked before. I doubt his current idea will be any better” is not

constructive. Instead, a comment such as “This production step uses a

degreaser that’s considered a hazardous material. Can we think of an

alternative degreaser that’s nontoxic?” is more productive. It challenges the

group to improve upon the existing idea.

Traditionally, Hewlett-Packard Development Company LP was known as a

“nice” organization. Throughout its history, HP viewed itself as a scientific

organization, and their culture valued teamwork and respect. But over time,

HP learned that you can be “nice to death.” In fact, in the 1990s, HP found it

difficult to partner with other organizations because of their culture

differences. During role plays created to help HP managers be more dynamic,

the trainers had to modify several role-plays, because participants simply said,

“That would never happen at HP,” over the smallest conflict. All this probably

24

played a role in the discomfort many felt with Carly Fiorina’s style as CEO and

the merge she orchestrated with Compaq Computer Corporation, which

ultimately caused the board of directors to fire Fiorina. On the other hand, no

one is calling HP “too nice” anymore.

OB Toolbox: How Can You Stimulate Conflict?  Encourage people to raise issues and disagree with you or the status quo

without fear of reprisal. An issue festering beneath the surface, when brought

out into the open, may turn out to be a minor issue that can be easily

addressed and resolved.

 Assign a devil’s advocate to stimulate alternative viewpoints. If a business

unit is getting stagnant, bring in new people to “shake things up.”

 Create a competition among teams, offering a bonus to the team that comes

up with the best solution to a problem. For example, have two product

development teams compete on designing a new product. Or, reward the team

that has the fewest customer complaints or achieves the highest customer

satisfaction rating.

 Build some ambiguity into the process. When individuals are free to come up

with their own ideas about how to complete a task, the outcome may be

surprising, and it allows for more healthy disagreements along the way.

KEY TAKEAWAY

Conflict management techniques include changing organizational structures to avoid

built-in conflict, changing team members, creating a common “enemy,” using

majority rules, and problem solving. Conflict management styles include

accommodating others, avoiding the conflict, collaborating, competing, and

compromising. People tend to have a dominant style. At times it makes sense to

build in some conflict over ideas if none exists.

EXERCISES

25

1. List three ways to decrease a conflict situation. What are some pros and cons of each

of these approaches?

2. Do you deal with conflict differently with friends and family than you do at work? If

so, why do you think that is?

3. What is your usual conflict-handling style at work? Do you see it as effective or

ineffective?

4. Describe a situation in which not having enough conflict can be a problem.

10.4 Negotiations

LEARNING OBJECTIVES

1. Learn the five phases of negotiation.

2. Learn negotiation strategies.

3. Avoid common mistakes in negotiations.

4. Learn about third-party negotiations.

A common way that parties deal with conflict is via negotiation. Negotiation is

a process whereby two or more parties work toward an agreement. There are

five phases of negotiation, which are described below.

The Five Phases of Negotiation

Figure 10.8 The Five Phases of Negotiation

26

Phase 1: Investigation

The first step in negotiation is the investigation, or information gathering

stage. This is a key stage that is often ignored. Surprisingly, the first place to

begin is with yourself: What are your goals for the negotiation? What do you

want to achieve? What would you concede? What would you absolutely not

concede? Leigh Steinberg, the most powerful agent in sports (he was the role

model for Tom Cruise’s character in Jerry Maguire), puts it this way: “You

need the clearest possible view of your goals. And you need to be brutally

honest with yourself about your priorities.” [1]

During the negotiation, you’ll inevitably be faced with making choices. It’s best

to know what you want, so that in the heat of the moment you’re able to make

the best decision. For example, if you’ll be negotiating for a new job, ask

yourself, “What do I value most? Is it the salary level? Working with coworkers

whom I like? Working at a prestigious company? Working in a certain

27

geographic area? Do I want a company that will groom me for future positions

or do I want to change jobs often in pursuit of new challenges?”

Phase 2: Determine Your BATNA

If you don’t know where you’re going, you will probably end up somewhere

else.

Lawrence J. Peter

One important part of the investigation and planning phase is to determine

your BATNA, which is an acronym that stands for the “best alternative to a

negotiated agreement.” Roger Fisher and William Ury coined this phrase in

their book Getting to Yes: Negotiating without Giving In.

Thinking through your BATNA is important to helping you decide whether to

accept an offer you receive during the negotiation. You need to know what

your alternatives are. If you have various alternatives, you can look at the

proposed deal more critically. Could you get a better outcome than the

proposed deal? Your BATNA will help you reject an unfavorable deal. On the

other hand, if the deal is better than another outcome you could get (that is,

better than your BATNA), then you should accept it.

Think about it in common sense terms: When you know your opponent is

desperate for a deal, you can demand much more. If it looks like they have a

lot of other options outside the negotiation, you’ll be more likely to make

concessions.

As Fisher and Ury said, “The reason you negotiate is to produce something

better than the results you can obtain without negotiating. What are those

results? What is that alternative? What is your BATNA—your Best Alternative

28

To a Negotiated Agreement? That is the standard against which any proposed

agreement should be measured.” [2]

The party with the best BATNA has the best negotiating position, so try to

improve your BATNA whenever possible by exploring possible alternatives. [3]

Going back to the example of your new job negotiation, consider your options

to the offer you receive. If your pay is lower than what you want, what

alternatives do you have? A job with another company? Looking for another

job? Going back to school? While you’re thinking about your BATNA, take

some time to think about the other party’s BATNA. Do they have an employee

who could readily replace you?

Once you’ve gotten a clear understanding of your own goals, investigate the

person you’ll be negotiating with. What does that person (or company) want?

Put yourself in the other party’s shoes. What alternatives could they have? For

example, in the job negotiations, the other side wants a good employee at a

fair price. That may lead you to do research on salary levels: What is the pay

rate for the position you’re seeking? What is the culture of the company?

Greenpeace’s goals are to safeguard the environment by getting large

companies and organizations to adopt more environmentally friendly

practices such as using fewer plastic components. Part of the background

research Greenpeace engages in involves uncovering facts. For instance,

medical device makers are using harmful PVCs as a tubing material because

PVCs are inexpensive. But are there alternatives to PVCs that are also cost-

effective? Greenpeace’s research found that yes, there are. [4] Knowing this lets

Greenpeace counter those arguments and puts Greenpeace in a stronger

position to achieve its goals.

OB Toolbox: BATNA Best Practices

29

1. Brainstorm a list of alternatives that you might conceivably take if the

negotiation doesn’t lead to a favorable outcome for you.

2. Improve on some of the more promising ideas and convert them into

actionable alternatives.

3. Identify the most beneficial alternative to be kept in reserve as a fall-back

during the negotiation.

4. Remember that your BATNA may evolve over time, so keep revising it to make

sure it is still accurate.

5. Don’t reveal your BATNA to the other party. If your BATNA turns out to be

worse than what the other party expected, their offer may go down, as

PointCast learned in the opening case.

Sources: Adapted from information in Spangler, B. (2003, June). Best

Alternative to a Negotiated Agreement (BATNA). Retrieved November 12,

2008, from http://www.beyondintractability.org/essay/batna/; Conflict

Research Consortium, University of Colorado. (1998). Limits to agreement:

Better alternatives. Retrieved November 12, 2008, from

http://www.colorado.edu/conflict/peace/problem/batna.htm; Venter, D.

(2003).What is a BATNA? Retrieved January 14, 2008, from

http://www.negotiationeurope.com/articles/batna.html.

Phase 3: Presentation

The third phase of negotiation is presentation. In this phase, you assemble the

information you’ve gathered in a way that supports your position. In a job

hiring or salary negotiation situation, for instance, you can present facts that

show what you’ve contributed to the organization in the past (or in a previous

position), which in turn demonstrates your value. Perhaps you created a blog

that brought attention to your company or got donations or funding for a

charity. Perhaps you’re a team player who brings out the best in a group.

30

Phase 4: Bargaining

During the bargaining phase, each party discusses their goals and seeks to get

an agreement. A natural part of this process is making concessions, namely,

giving up one thing to get something else in return. Making a concession is not

a sign of weakness—parties expect to give up some of their goals. Rather,

concessions demonstrate cooperativeness and help move the negotiation

toward its conclusion. Making concessions is particularly important in tense

union-management disputes, which can get bogged down by old issues.

Making a concession shows forward movement and process, and it allays

concerns about rigidity or closed-mindedness. What would a typical

concession be? Concessions are often in the areas of money, time, resources,

responsibilities, or autonomy. When negotiating for the purchase of products,

for example, you might agree to pay a higher price in exchange for getting the

products sooner. Alternatively, you could ask to pay a lower price in exchange

for giving the manufacturer more time or flexibility in when they deliver the

product.

One key to the bargaining phase is to ask questions. Don’t simply take a

statement such as “we can’t do that” at face value. Rather, try to find out why

the party has that constraint. Let’s take a look at an example. Say that you’re a

retailer and you want to buy patio furniture from a manufacturer. You want to

have the sets in time for spring sales. During the negotiations, your goal is to

get the lowest price with the earliest delivery date. The manufacturer, of

course, wants to get the highest price with the longest lead time before

delivery. As negotiations stall, you evaluate your options to decide what’s more

important: a slightly lower price or a slightly longer delivery date? You do a

quick calculation. The manufacturer has offered to deliver the products by

April 30, but you know that some of your customers make their patio furniture

31

selection early in the spring, and missing those early sales could cost you $1

million. So, you suggest that you can accept the April 30 delivery date if the

manufacturer will agree to drop the price by $1 million.

“I appreciate the offer,” the manufacturer replies, “but I can’t accommodate

such a large price cut.” Instead of leaving it at that, you ask, “I’m surprised

that a 2-month delivery would be so costly to you. Tell me more about your

manufacturing process so that I can understand why you can’t manufacture

the products in that time frame.”

“Manufacturing the products in that time frame is not the problem,” the

manufacturer replies, “but getting them shipped from Asia is what’s expensive

for us.”

When you hear that, a light bulb goes off. You know that your firm has

favorable contracts with shipping companies because of the high volume of

business the firm gives them. You make the following counteroffer: “Why

don’t we agree that my company will arrange and pay for the shipper, and you

agree to have the products ready to ship on March 30 for $10.5 million instead

of $11 million?” The manufacturer accepts the offer—the biggest expense and

constraint (the shipping) has been lifted. You, in turn, have saved money as

well. [5]

Phase 5: Closure

Closure is an important part of negotiations. At the close of a negotiation, you

and the other party have either come to an agreement on the terms, or one

party has decided that the final offer is unacceptable and therefore must be

walked away from. Most negotiators assume that if their best offer has been

rejected, there’s nothing left to do. You made your best offer and that’s the

32

best you can do. The savviest of negotiators, however, see the rejection as an

opportunity to learn. “What would it have taken for us to reach an

agreement?”

Recently, a CEO had been in negotiations with a customer. After learning the

customer decided to go with the competition, the CEO decided to inquire as to

why negotiations had fallen through. With nothing left to lose, the CEO placed

a call to the prospect’s vice president and asked why the offer had been

rejected, explaining that the answer would help improve future offerings.

Surprisingly, the VP explained the deal was given to the competitor because,

despite charging more, the competitor offered after-sales service on the

product. The CEO was taken by surprise, originally assuming that the VP was

most interested in obtaining the lowest price possible. In order accommodate

a very low price, various extras such as after-sales service had been cut from

the offer. Having learned that the VP was seeking service, not the lowest cost,

the CEO said, “Knowing what I know now, I’m confident that I could have

beaten the competitor’s bid. Would you accept a revised offer?” The VP

agreed, and a week later the CEO had a signed contract. [6]

Sometimes at the end of negotiations, it’s clear why a deal was not reached.

But if you’re confused about why a deal did not happen, consider making a

follow-up call. Even though you may not win the deal back in the end, you

might learn something that’s useful for future negotiations. What’s more, the

other party may be more willing to disclose the information if they don’t think

you’re in a “selling” mode.

Should You Negotiate for a Higher Salary? Yes! According to a survey conducted by CareerBuilder.com, 58% of hiring

managers say they leave some negotiating room when extending initial job

33

offers. The survey also found that many of the hiring managers agree to a

candidate’s request for a higher salary. “Salary negotiation has become a

growing opportunity in the job acquisition process,” says Bill Hawkins,

president and CEO of The Hawkins Company, a full-service executive search

firm with offices in Los Angeles and Atlanta. “Candidates who fail to make a

counteroffer could forfeit significant income.”

Source: Adapted from information in Reed-Woodard, M. (2007, April).

Taking money off the table. Black Enterprise, 37(9), 60–61.

Negotiation Strategies

Distributive Approach

The distributive view of negotiation is the traditional fixed-pie approach. That

is, negotiators see the situation as a pie that they have to divide between them.

Each tries to get more of the pie and “win.” For example, managers may

compete over shares of a budget. If marketing gets a 10% increase in its

budget, another department such as R&D will need to decrease its budget by

10% to offset the marketing increase. Focusing on a fixed pie is a common

mistake in negotiation, because this view limits the creative solutions possible.

Integrative Approach

A newer, more creative approach to negotiation is called

the integrative approach. In this approach, both parties look for ways to

integrate their goals under a larger umbrella. That is, they look for ways

to expand the pie, so that each party gets more. This is also called a win–win

approach. The first step of the integrative approach is to enter the negotiation

from a cooperative rather than an adversarial stance. The second step is all

about listening. Listening develops trust as each party learns what the other

34

wants and everyone involved arrives at a mutual understanding. Then, all

parties can explore ways to achieve the individual goals. The general idea is,

“If we put our heads together, we can find a solution that addresses

everybody’s needs.” Unfortunately, integrative outcomes are not the norm. A

summary of 32 experiments on negotiations found that although they could

have resulted in integrated outcomes, only 20% did so. [7] One key factor

related to finding integrated solutions is the experience of the negotiators who

were able to reach them. [8]

OB Toolbox: Seven Steps to Negotiating a Higher Salary  Step 1: Overcome your fear.

 The first step is to overcome your fears. Many people don’t even begin a salary

negotiation. We may be afraid of angering the boss or think that because we

are doing a good job, we’ll automatically be rewarded. But, just because you’re

doing a good job doesn’t mean you’ll automatically get a raise. Why? If you

don’t ask for one, the boss may believe you’re satisfied with what you’re

getting. So why should he pay you more? Imagine going into a car dealership

and being absolutely delighted with a car choice. The sticker price is $19,000.

Would you pay the dealer $23,000 just because you really like the car? Of

course not. You probably wouldn’t even offer $19,000. If the car was up for

auction, however, and another bidder offered $20,000, you’d likely increase

your offer, too.

 That’s what salary negotiation is like. Your boss may be thrilled with you but

at the same time is running a business. There’s no reason to pay an employee

more if you seem satisfied with your current salary.

 Step 2: Get the facts.

 Before you enter into the negotiation, do some background research. What are

other companies paying people in your position? Check sites such as

35

Payscale.com, salary.com, and salaryexpert.com to get a feel for the market.

Look at surveys conducted by your professional organization.

 Step 3: Build your case.

 How important are you to the organization? How have you contributed?

Perhaps you contributed by increasing sales, winning over angry customers,

getting feuding team members to cooperate, and so on. Make a list of your

contributions. Be sure to focus on the contributions that your boss values

most. Is it getting recognition for the department? Easing workload? If

another employer has shown interest in you, mention that as a fact. However,

don’t use this as a threat unless you’re prepared to take the other offer.

Mentioning interest from another employer gets the boss to think, “If I don’t

give this raise, I may lose the employee.” (By the way, if you don’t feel you

have a strong case for your raise, perhaps this isn’t the time to ask for one.)

 Step 4: Know what you want.

 Set your target salary goal based on your research and the norms of what your

organization will pay. Now ask yourself, if you don’t get this figure, would you

quit? If not, are there other alternatives besides a salary increase that you’d

consider? For example, would you accept a higher title? More vacation time?

Paid training to learn a new skill? Flexible hours?

 Step 5: Begin assertively.

 Start the discussion on a strong but friendly tone. “I think I’m worth more

than I’m being paid.” List the ways you’ve contributed to the company.

 Step 6: Don’t make the first offer.

 Let your boss name the figure. You can do this by asking, “How much of a

raise could you approve?” However, if the boss insists that you name a figure,

36

ask for the most that you can reasonably expect to get. You want to be

reasonable, but you need to allow room to make a concession. Your boss will

assume your opening number was high and will offer you less, so asking for

the actual figure you want may leave you feeling disappointed.

 If the boss opens with, “The salary range for this position is $66,000 to

78,000,” ask for the high end. If your goal was higher than that range,

challenge the range by explaining how you are an exception and why you

deserve more.

 Step 7: Listen more than talk.

 You’ll learn more by listening rather than talking. The more you listen, the

better the boss will feel about you—people tend to like and trust people who

listen to them.

 If you can’t get a raise now, get your boss to agree to one in a few months if

you meet agreed-upon objectives.

Sources: Adapted from information in Brodow, E. (2006). Negotiation boot

camp. New York: Currency/Doubleday; Nemko, M. (2007, December 31). The

general way to get a raise. U.S. News & World Report, 57.

Avoiding Common Mistakes in Negotiations

Failing to Negotiate/Accepting the First Offer

You may have heard that women typically make less money than men.

Researchers have established that about one-third of the gender differences

observed in the salaries of men and women can be traced back to differences

in starting salaries, with women making less, on average, when they start their

jobs. [9] Some people are taught to feel that negotiation is a conflict situation,

and these individuals may tend to avoid negotiations to avoid conflict.

37

Research shows that this negotiation avoidance is especially prevalent among

women. For example, one study looked at students from Carnegie-Mellon who

were getting their first job after earning a master’s degree. The study found

that only 7% of the women negotiated their offer, while men negotiated 57% of

the time. [10] The result had profound consequences. Researchers calculate that

people who routinely negotiate salary increases will earn over $1 million more

by retirement than people who accept an initial offer every time without

asking for more. [11] The good news is that it appears that it is possible to

increase negotiation efforts and confidence by training people to use effective

negotiation skills. [12]

Letting Your Ego Get in the Way

Thinking only about yourself is a common mistake, as we saw in the opening

case. People from the United States tend to fall into a self-serving bias in

which they overinflate their own worth and discount the worth of others. This

can be a disadvantage during negotiations. Instead, think about why the other

person would want to accept the deal. People aren’t likely to accept a deal that

doesn’t offer any benefit to them. Help them meet their own goals while you

achieve yours. Integrative outcomes depend on having good listening skills,

and if you are thinking only about your own needs, you may miss out on

important opportunities. Remember that a good business relationship can

only be created and maintained if both parties get a fair deal.

Having Unrealistic Expectations

Susan Podziba, a professor of mediation at Harvard and MIT, plays broker for

some of the toughest negotiations around, from public policy to marital

disputes. She takes an integrative approach in the negotiations, identifying

goals that are large enough to encompass both sides. As she puts it, “We are

38

never going to be able to sit at a table with the goal of creating peace and

harmony between fishermen and conservationists. But we can establish goals

big enough to include the key interests of each party and resolve the specific

impasse we are currently facing. Setting reasonable goals at the outset that

address each party’s concerns will decrease the tension in the room, and will

improve the chances of reaching an agreement.” [13] Those who set

unreasonable expectations are more likely to fail.

Getting Overly Emotional

Negotiations, by their very nature, are emotional. The findings regarding the

outcomes of expressing anger during negotiations are mixed. Some

researchers have found that those who express anger negotiate worse deals

than those who do not, [14] and that during online negotiations, those parties

who encountered anger were more likely to compete than those who did

not. [15] In a study of online negotiations, words such as despise,

disgusted, furious, and hate were related to a reduced chance of reaching an

agreement.[16] However, this finding may depend on individual personalities.

Research has also shown that those with more power may be more effective

when displaying anger. The weaker party may perceive the anger as potentially

signaling that the deal is falling apart and may concede items to help move

things along. [17] This holds for online negotiations as well. In a study of 355

eBay disputes in which mediation was requested by one or both of the parties,

similar results were found. Overall, anger hurts the mediation process unless

one of the parties was perceived as much more powerful than the other party,

in which case anger hastened a deal. [18] Another aspect of getting overly

emotional is forgetting that facial expressions are universal across cultures,

and when your words and facial expressions don’t match, you are less likely to

be trusted. [19]

39

Letting Past Negative Outcomes Affect the Present Ones

Research shows that negotiators who had previously experienced ineffective

negotiations were more likely to have failed negotiations in the future. Those

who were unable to negotiate some type of deal in previous negotiation

situations tended to have lower outcomes than those who had successfully

negotiated deals in the past. [20] The key to remember is that there is a

tendency to let the past repeat itself. Being aware of this tendency allows you

to overcome it. Be vigilant to examine the issues at hand and not to be overly

swayed by past experiences, especially while you are starting out as a

negotiator and have limited experiences.

Tips for Negotiation Success  Focus on agreement first. If you reach an impasse during negotiations,

sometimes the best recourse is to agree that you disagree on those topics and

then focus only on the ones that you can reach an agreement on. Summarize

what you’ve agreed on, so that everyone feels like they’re agreeing, and leave

out the points you don’t agree on. Then take up those issues again in a

different context, such as over dinner or coffee. Dealing with those issues

separately may help the negotiation process.

 Be patient. If you don’t have a deadline by which an agreement needs to be

reached, use that flexibility to your advantage. The other party may be forced

by circumstances to agree to your terms, so if you can be patient you may be

able to get the best deal.

 Whose reality? During negotiations, each side is presenting their case—their

version of reality. Whose version of reality will prevail? Leigh Steinberg offers

this example from the NFL, when he was negotiating the salary of Warren

Moon. Moon was 41 years old. That was a fact. Did that mean he was hanging

on by a thread and lucky to be employed in the first place? “Should he be

grateful for any money that the team pays him?” Steinberg posed, “Or is he a

40

quarterback who was among the league leaders in completions and attempts

last year? Is he a team leader who took a previously moribund group of

players, united them, and helped them have the best record that they’ve had in

recent years?” All those facts are true, and negotiation brings the relevant facts

to the forefront and argues their merit.

 Deadlines. Research shows that negotiators are more likely to strike a deal by

making more concessions and thinking more creatively as deadlines loom

than at any other time in the negotiation process.

 Be comfortable with silence. After you have made an offer, allow the other

party to respond. Many people become uncomfortable with silence and feel

they need to say something. Wait and listen instead.

Sources: Adapted from information in Stuhlmacher, A. F., Gillespie, T. L., &

Champagne, M. V. (1998). The impact of time pressure in negotiation: A meta-

analysis. International Journal of Conflict Management, 9, 97–116; Webber, A.

(1998, October). How to get them to show you the money. Fast Company.

Retrieved November 13, 2008 from

http://www.fastcompany.com/magazine/19/showmoney.html.

When All Else Fails: Third-Party Negotiations

Alternative Dispute Resolution

Alternative Dispute Resolution (ADR) includes mediation, arbitration, and

other ways of resolving conflicts with the help of a specially trained, neutral

third party without the need for a formal trial or hearing. [21] Many companies

find this effective in dealing with challenging problems. For example, Eastman

Kodak Company added an alternative dispute resolution panel of internal

employees to help them handle cases of perceived discrimination and

hopefully stop a conflict from escalating. [22]

41

Mediation

In mediation, an outside third party (the mediator) enters the situation with

the goal of assisting the parties in reaching an agreement. The mediator can

facilitate, suggest, and recommend. The mediator works with both parties to

reach a solution but does not represent either side. Rather, the mediator’s role

is to help the parties share feelings, air and verify facts, exchange perceptions,

and work toward agreements. Susan Podziba, a mediation expert, has helped

get groups that sometimes have a hard time seeing the other side’s point of

view to open up and talk to one another. Her work includes such groups as

pro-choice and pro-life advocates, individuals from Israel and Palestine, as

well as fishermen and environmentalists. According to the U.S. Equal

Employment Opportunity Commission, “Mediation gives the parties the

opportunity to discuss the issues raised in the charge, clear up

misunderstandings, determine the underlying interests or concerns, find areas

of agreement and, ultimately, to incorporate those areas of agreements into

resolutions. A mediator does not resolve the charge or impose a decision on

the parties. Instead, the mediator helps the parties to agree on a mutually

acceptable resolution. The mediation process is strictly confidential.” [23] One

of the advantages of mediation is that the mediator helps the parties design

their own solutions, including resolving issues that are important to both

parties, not just the ones under specific dispute. Interestingly, sometimes

mediation solves a conflict even if no resolution is reached. Here’s a quote

from Avis Ridley-Thomas, the founder and administrator of the Los Angeles

City Attorney’s Dispute Resolution Program, who explains, “Even if there is no

agreement reached in mediation, people are happy that they engaged in the

process. It often opens up the possibility for resolution in ways that people had

not anticipated.” [24] An independent survey showed 96% of all respondents

42

and 91% of all charging parties who used mediation would use it again if

offered. [25]

You Know It’s Time for a Mediator When…  The parties are unable to find a solution themselves.

 Personal differences are standing in the way of a successful solution.

 The parties have stopped talking with one another.

 Obtaining a quick resolution is important.

Sources: Adapted from information in Crawley, J. (1994). Constructive

conflict management. San Diego: Pfeiffer; Mache, K. (1990). Handbook of

dispute resolution: Alternative dispute resolution in action. London: Routledge.

Arbitration

In contrast to mediation, in which parties work with the mediator to arrive at a

solution, in arbitration the parties submit the dispute to the third-party

arbitrator. It is the arbitrator who makes the final decision. The arbitrator is a

neutral third party, but the decision made by the arbitrator is final (the

decision is called the “award”). Awards are made in writing and are binding to

the parties involved in the case. [26] Arbitration is often used in union-

management grievance conflicts.

Arbitration-Mediation

It is common to see mediation followed by arbitration. An alternative

technique is to follow the arbitration with mediation. The format of this

conflict resolution approach is to have both sides formally make their cases

before an arbitrator. The arbitrator then makes a decision and places it in a

sealed envelope. Following this, the two parties work through mediation. If

they are unable to reach an agreement on their own, the arbitration decisions

43

become binding. Researchers using this technique found that it led to

voluntary agreements between the two parties 71% of the time versus 50% for

mediation followed by arbitration. [27]

KEY TAKEAWAY

Negotiation consists of five phases that include investigation, determining your

BATNA, presentation, bargaining, and closure. Different negotiation strategies

include the distributive approach (fixed-pie approach) and the integrative approach

(expanding-the-pie approach). Research shows that some common mistakes made

during negotiations include accepting the first offer made, letting egos get in the

way, having unrealistic expectations, getting overly emotional, and letting past

negative outcomes affect the present ones. Third-party negotiators are sometimes

needed when two sides cannot agree.

EXERCISES

1. What are the negotiation phases and what goes on during each of them?

2. When negotiating, is establishing a BATNA important? Why or why not?

3. What are the third-party conflict resolution options available?

10.5 The Role of Ethics and National Culture

LEARNING OBJECTIVES

1. Consider the role of ethics in negotiation.

2. Consider the role of national culture in negotiation.

Ethics and Negotiations

Are hardball tactics OK to use? Sometimes a course of action is legal but is

questionable in terms of ethics. A good rule of thumb is that hardball tactics

44

should not be used because the negotiation is likely not to be the last time you

will interact with the other party. Therefore, finding a way to make a deal that

works for both sides is preferable. Otherwise, if you have the complete upper

hand and use it to “destroy” the other party, it’s likely that at a future date the

other party will have the upper hand and will use it to retaliate mercilessly

against you. What’s more, your reputation as a negotiator will suffer. As J.

Paul Getty said, “My father said: ‘You must never try to make all the money

that’s in a deal. Let the other fellow make some money too, because if you have

a reputation for always making all the money, you won’t have many deals.’” [1]

Ethics establish a way of doing what is right, fair, and honest. If your

counterpart feels you are being unfair or dishonest, he or she is less likely to

make any concessions—or even to negotiate with you in the first place.

Here are some tips for ethical negotiations:

 Be honest.

 Keep your promises.

 Follow the Platinum Rule. The Golden Rule tells us to treat others the way

we want to be treated. Author Tony Alessandra goes a step further with the

Platinum Rule: “Treat people the way they want to be treated.” Caring

about others enough to treat them the way they want to be treated helps

build long-term relationships based on ethics and trust. [2]

Negotiation Around the Globe

Not understanding cultural differences is another common mistake. Some

cultures have a higher or lower threshold for conflict. For example, in

countries such as Japan or Korea, the preference is for harmony (called wa in

Japan) rather than overt conflict. [3]Americans and Germans have a much

higher tolerance for conflict as a way of working through issues. In a study of

Japanese, German, and American cultures, it was found that almost half of the

45

preference for different conflict management styles was related to the country

in which participants were raised. [4]

In Japan, much like Pakistan, the tendency is not to trust what is heard from

the other party until a strong relationship is formed. Similarly, in China,

conversations start out with innocuous topics to set a mood of friendliness. [5]

This differs a great deal from American negotiators who tend to like to “get

down to business” and heavily weigh first offers as reference points that

anchor the process as both sides make demands and later offers.

There are also differences in how individuals from different cultures use

information and offers during the negotiation process. Observations show that

Japanese negotiators tend to use offers as an information exchange

process. [6] Research has found that American negotiators tend to reveal more

information than their Japanese counterparts. [7]Japanese negotiators might

learn little from a single offer, but patterns of offers over time are interpreted

and factored into their negotiations. Since Japan is a high-context culture,

information is learned from what is not said as well as from what is said.

Even the way that negotiations are viewed can differ across cultures. For

example, the Western cultures tend to think of negotiations as a business

activity rather than a social activity, but in other cultures, the first step in

negotiations is to develop a trusting relationship. Negotiators in Brazil, for

example, seriously damaged relationships when they tried to push

negotiations to continue during the Carnival festival. “The local guys took that

as a disrespectful action,” said Oscar Lopez, commercial director for

Hexaprint, S.A. De C.V. in Mexico. “It took several weeks to restore confidence

and move on.” [8]

Also keep in mind what agreement means in different cultures. For example,

in China, nodding of the head does not mean that the Chinese counterpart is

46

agreeing to what you are proposing, merely that they are listening and

following what you are saying. “Culturally, Chinese companies and workers do

not like to say no,” says a buyer at a manufacturer based in the United States.

Here’s how to overcome the problem. Instead of phrasing a question as, “Can

you do this for us?” which would put the Chinese official in an uncomfortable

position of saying no (which they likely would not do), rephrase the question

as, “How will you do this for us and when will it be done?” [9]

KEY TAKEAWAY

Being honest during negotiations, keeping your promises, and treating others as you

would like to be treated all help you negotiate ethically. Not understanding the

culture of a person or group of people you are negotiating with can be a major

mistake. Try to learn as much as you can about the culture of others involved and be

sure to clarify key points along the way. Also, keep in mind that agreement (e.g.,

nodding one’s head up and down or saying “yes, yes”) may not mean the same thing

in all cultures.

EXERCISES

1. Is the goal of negotiation to maximize your economic outcome at all costs? Why or

why not? Is it ethical to do so?

2. What are some similarities and differences in conflict management preference and

negotiation practices among different countries around the globe? Have you had any

experiences with individuals from other cultures? If so, how did it go? How might it

have gone better?

47

10.6 Conclusion Conflict can run the gamut from minor annoyances to physically violent

situations. At the same time, conflict can increase creativity and innovation, or

it can bring organizations to a grinding halt. There are many different types of

conflict, including interpersonal, intrapersonal, and intergroup. Within

organizations, there are many common situations that can spur conflict.

Certain organizational structures, such as a matrix structure, can cause any

given employee to have multiple bosses and conflicting or overwhelming

demands. A scarcity of resources for employees to complete tasks is another

common cause of organizational conflict, particularly if groups within the

organization compete over those resources. Of course, simple personality

clashes can create intrapersonal conflict in any situation. Communication

problems are also a very common source of conflict even when no actual

problem would exist otherwise. When conflict arises, it can be handled by any

number of methods, each with varying degrees of cooperation and

competitiveness. Different situations require different conflict handling

methods, and no one method is best.

Negotiations occur during many important processes, and possessing astute

negation skills can be an incredible tool. A key component to negotiations

involves having a BATNA, or “best alternative to a negotiated agreement.”

Negotiations typically move through five phases, including investigation,

determining your BATNA, presentation, bargaining, and closure. During a

negotiation, it is important not to make any number of common mistakes.

These mistakes can include accepting the first offer, letting ego get in the way,

having unrealistic expectations of the outcome of the negotiation, becoming

too emotional during the process, or being weighed down by previous failures

and letting the past repeat itself. It is important to keep in mind that many

cultures have preferential methods for handling conflict and negotiation.

48

Individuals should understand the cultural background of others to better

navigate what could otherwise become a messy situation.

10.7 Exercises

ETHICAL DILEMMA

Imagine that you are part of a bargaining team that has been engaged in

negotiations for 6 long months. One night, as you are getting ready to leave and are

gathering your things, you notice a piece of green paper on the ground near where

Devin, a member of the opposite negotiation team, was sitting just a few minutes

earlier. When you pick it up, you realize that it is a list of the ideal outcome for the

other team.

At first you are ecstatic—this is the information you need to end these negotiations!

Then you begin to recall your organizational behavior course and all those ethical

dilemmas that seemed so easy back then. What should you do? Should you use the

information for your team? I mean, why not, they were careless enough to leave it

behind? On the other hand, would that be ethical?

Thinking back to that OB course, you recall some key questions you should ask

yourself during negotiations:

 Would this be honest?

 Would this involve keeping my promises?

 Would I be following the Platinum Rule and be “treating people the way they want

to be treated?”

49

As you are pondering these questions, you also realize that this is a key decision.

There are some additional questions you should ask yourself around making ethical

decisions if you plan on using this information to help your team:

 Is this decision fair?

 Will I feel better or worse about myself after I make this decision?

 Does this decision break any organizational rules?

 Does this decision break any laws?

 How would I feel if this decision were broadcast on the news?

Just as you think you’ve made your decision, Devin from the opposing team walks

back in and asks you if you’ve seen a green piece of paper.

 What would you do?

 What are the ethical dilemmas involved?

 How would you justify your choice?

 What would be the consequences of your choice?

INDIVIDUAL EXERCISE

A Case of Listening: When Silence Is Golden [1]

Listening can be an effective tool during negotiations. William Devine was

representing a client on a land purchase. “The owner and I spent 2 hours on the

phone horse-trading contract issues, then turned to the price,” Devine explained.

“We were $100,000 apart.” The owner then said, “The price your client proposes will

leave us well short of our projections. That makes it very tough on us.” The line went

silent.

“My impulse was to say something in response to the silence, and I started to speak,

then stopped. As I hesitated, I sensed that if I said, ‘My client can pay all cash,’ or ‘It’s

still a good deal for you,’ then the owner would take my comment as an invitation to

joust, we would battle over the hundred grand, and my client would end up having

to pay some or all of that sum. The owner had not asked a question or proposed a

50

compromise, so no response was required from me at that moment. I decided to

remain silent. After what felt like days but was probably less than 30 seconds, I

heard, ‘But I guess it’s good for us [i.e., his company] to just get this deal done, so

we’ll do it.’”

Devine saved his client $100,000 by staying silent.

Questions to Think About

1. What does this case suggest about the role of silence in negotiations?

2. Have you ever had a similar experience when saying nothing paid off?

3. Are there times when silence is a bad idea? Explain your answer.

GROUP EXERCISE

Salary Negotiations

Thinking about negotiations is a lot easier than actually engaging in them. In order to

give you some practice with the information in this chapter, you will engage in a

salary negotiation.

1. To make this more meaningful, the exercise will be based on a job that you are

actually interested in. Think of a job you would like to have (either now or in the

future). Imagine you have been offered this job. The salary is OK. It is about 15%

below the market rate for this type of job, but you really want the job.

2. What will you do?

o Will you negotiate for a higher salary?

o What are the pros and cons of this choice?

3. If you’ve decided to negotiate (and we strongly suggest you do), work through the

next six steps in the OB Toolbox “Seven Steps to Negotiating a Higher Salary.” Once

you are up to step 5, let your instructor know you are ready to begin the negotiation

process.

51

1

This text was adapted by The Saylor Foundation under a Creative

Commons Attribution-NonCommercial-ShareAlike 3.0 License without

attribution as requested by the work’s original creator or licensee.

2

Chapter 12 Leading People Within Organizations

LEARNING OBJECTIVES

After reading this chapter, you should be able to do the following:

1. Define what leadership is and identify traits of effective leaders.

2. Describe behaviors that effective leaders demonstrate.

3. Specify the contexts in which various leadership styles are effective.

4. Explain the concepts of transformational, transactional, charismatic, servant, and

authentic leadership.

Opening Case: Indra Nooyi Takes the Pepsi Challenge She is among the Top 100 most influential people in Time magazine’s 2008

list. She is also number 5 in Forbes’s (2007) most influential women in the

world, number 1 in Fortune’s 50 most powerful women (2006), and number

22 in Fortune’s 25 most powerful people in business (2007). The lists go on

and on. To those familiar with her work and style, this should come as no

surprise: Even before she became the CEO of PepsiCo Inc. in 2006, she was

one of the most powerful executives at Pepsi and one of the two candidates

being groomed for the coveted CEO position. Born in Chennai, India, Nooyi

graduated from Yale’s School of Management and worked in companies such

as the Boston Consulting Group Inc., Motorola Inc., and ABB Inc. She also led

an all-girls rock band in high school, but that is a different story.

What makes her one of the top leaders in the business world today? To start

with, she has a clear vision for Pepsi, which seems to be the right vision for the

company at this point in time. Her vision is framed under the term

“performance with purpose”, which is based on two key ideas: tackling the

3

obesity epidemic by improving the nutritional status of PepsiCo products and

making PepsiCo an environmentally sustainable company. She is an

inspirational speaker and rallies people around her vision for the company.

She has the track record to show that she means what she says. She was

instrumental in Pepsi’s acquisition of the food conglomerate Quaker Oats

Company and the juice maker Tropicana Products Inc., both of which have

healthy product lines. She is bent on reducing Pepsi’s reliance on high-sugar,

high-calorie beverages, and she made sure that Pepsi removed trans fats from

all its products before its competitors. On the environmental side, she is

striving for a net zero impact on the environment. Among her priorities are

plans to reduce the plastic used in beverage bottles and find biodegradable

packaging solutions for PepsiCo products. Her vision is long-term and could

be risky for short-term earnings, but it is also timely and important.

Those who work with her feel challenged by her high performance standards

and expectation of excellence. She is not afraid to give people negative

feedback, and with humor too. She pushes people until they come up with a

solution to a problem and does not take “I don’t know” for an answer. For

example, she insisted that her team find an alternative to the expensive palm

oil and did not stop urging them forward until the alternative arrived: rice

bran oil.

Nooyi is well liked and respected because she listens to those around her, even

when they disagree with her. Her background cuts across national boundaries,

which gives her a true appreciation for diversity, and she expects those around

her to bring their values to work. In fact, when she graduated from college, she

wore a sari to a job interview at Boston Consulting, where she got the job. She

is an unusually collaborative person in the top suite of a Fortune 500

company, and she seeks help and information when she needs it. She has

4

friendships with three ex-CEOs of PepsiCo who serve as her informal advisors,

and when she was selected to the top position at PepsiCo, she made sure that

her rival for the position got a pay raise and was given influence in the

company so she did not lose him. She says that the best advice she received

was from her father, who taught her to assume that people have good

intentions. She says that expecting people to have good intentions helps her

prevent misunderstandings and show empathy for them. It seems that she is a

role model to other business leaders around the world, and PepsiCo is well

positioned to tackle the challenges the future may bring.

Sources: Adapted from information in Birger, J., Chandler, C., Fortt, J.,

Gimbel, B., Gumbel, P., et al. (2008, May 12). The best advice I ever

got. Fortune, 157(10), 70–80; Brady, D. (2007, June 11). Keeping cool in hot

water. Business Week, 4038, 49; Compton, J. (2007, October 15). Performance

with purpose. Beverage World,126(10), 32; McKay, B. (2008, May 6). Pepsi to

cut plastic used in bottles. Wall Street Journal, Eastern edition, B2; Morris, B.,

& Neering, P. A. (2008, May 3). The Pepsi challenge: Can this snack and soda

giant go healthy? CEO Indra Nooyi says yes but cola wars and corn prices will

test her leadership. Fortune, 157(4), 54–66; Schultz, H. (2008, May 12). Indra

Nooyi. Time, 171(19), 116–117; Seldman, M. (2008, June). Elevating

aspirations at PepsiCo. T+D, 62(6), 36–38; The Pepsi challenge (2006, August

19). Economist, 380(8491), 51–52.

Leadership may be defined as the act of influencing others to work toward a

goal. Leaders exist at all levels of an organization. Some leaders hold a

position of authority and may utilize the power that comes from their position,

as well as their personal power to influence others. They are

called formal leaders. In contrast, informal leaders are without a formal

position of authority within the organization but demonstrate leadership by

5

influencing others through personal forms of power. One caveat is important

here: Leaders do not rely on the use of force to influence people. Instead,

people willingly adopt the leader’s goal as their own goal. If a person is relying

on force and punishment, the person is a dictator, not a leader.

What makes leaders effective? What distinguishes people who are perceived as

leaders from those who are not perceived as leaders? More importantly, how

do we train future leaders and improve our own leadership ability? These are

important questions that have attracted scholarly attention in the past several

decades. In this chapter, we will review the history of leadership studies and

summarize the major findings relating to these important questions. Around

the world, we view leaders as at least partly responsible for their team or

company’s success and failure. Company CEOs are paid millions of dollars in

salaries and stock options with the assumption that they hold their company’s

future in their hands. In politics, education, sports, profit and nonprofit

sectors, the influence of leaders over the behaviors of individuals and

organizations is rarely questioned. When people and organizations fail,

managers and CEOs are often viewed as responsible. Some people criticize the

assumption that leadership always matters and call this belief “the romance of

leadership.” However, research evidence pointing to the importance of leaders

for organizational success is accumulating. [1]

12.1 Who Is a Leader? Trait Approaches to Leadership

LEARNING OBJECTIVES

1. Learn the position of trait approaches in the history of leadership studies.

2. Explain the traits that are associated with leadership.

6

3. Discuss the limitations of trait approaches to leadership.

The earliest approach to the study of leadership sought to identify a set of

traits that distinguished leaders from nonleaders. What were the

personality characteristics and the physical and psychological attributes of

people who are viewed as leaders? Because of the problems in

measurement of personality traits at the time, different studies used

different measures. By 1940, researchers concluded that the search for

leadership-defining traits was futile. In recent years, though, after the

advances in personality literature such as the development of the Big Five

personality framework, researchers have had more success in identifying

traits that predict leadership. [1] Most importantly, charismatic leadership,

which is among the contemporary approaches to leadership, may be viewed

as an example of a trait approach.

The traits that show relatively strong relations with leadership are

discussed below. [2]

Intelligence

General mental ability, which psychologists refer to as “g” and which is

often called “IQ” in everyday language, has been related to a person’s

emerging as a leader within a group. Specifically, people who have high mental

abilities are more likely to be viewed as leaders in their environment.[4] We

should caution, though, that intelligence is a positive but modest predictor of

leadership, and when actual intelligence is measured with paper-and-pencil

tests, its relationship to leadership is a bit weaker compared to when

intelligence is defined as the perceived intelligence of a leader. [5] In addition

to having a high IQ, effective leaders tend to have high emotional intelligence

(EQ). People with high EQ demonstrate a high level of self awareness,

7

motivation, empathy, and social skills. The psychologist who coined the

term emotional intelligence, Daniel Goleman, believes that IQ is a threshold

quality: It matters for entry- to high-level management jobs, but once you get

there, it no longer helps leaders, because most leaders already have a high IQ.

According to Goleman, what differentiates effective leaders from ineffective

ones becomes their ability to control their own emotions and understand other

people’s emotions, their internal motivation, and their social skills. [6]

Big 5 Personality Traits

Psychologists have proposed various systems for categorizing the

characteristics that make up an individual’s unique personality; one of the

most widely accepted is the “Big Five” model, which rates an individual

according to Openness to experience, Conscientiousness, Extraversion,

Agreeableness, and Neuroticism. Several of the Big Five personality traits have

been related to leadership emergence (whether someone is viewed as a leader

by others) and effectiveness. [7]

Figure 12.3 Big Five Personality Traits

8

For example, extraversion is related to leadership. Extraverts are sociable,

assertive, and energetic people. They enjoy interacting with others in their

environment and demonstrate self-confidence. Because they are both

dominant and sociable in their environment, they emerge as leaders in a wide

variety of situations. Out of all personality traits, extraversion has the

strongest relationship with both leader emergence and leader effectiveness.

This is not to say that all effective leaders are extraverts, but you are more

likely to find extraverts in leadership positions. An example of an introverted

leader is Jim Buckmaster, the CEO of Craigslist. He is known as an introvert,

and he admits to not having meetings because he does not like

them. [8]Research shows that another personality trait related to leadership

is conscientiousness. Conscientious people are organized, take initiative, and

9

demonstrate persistence in their endeavors. Conscientious people are more

likely to emerge as leaders and be effective in that role. Finally, people who

have openness to experience—those who demonstrate originality, creativity,

and are open to trying new things—tend to emerge as leaders and also be quite

effective.

Self-Esteem

Self-esteem is not one of the Big Five personality traits, but it is an important

aspect of one’s personality. The degree to which a person is at peace with

oneself and has an overall positive assessment of one’s self worth and

capabilities seem to be relevant to whether someone is viewed as a leader.

Leaders with high self-esteem support their subordinates more and, when

punishment is administered, they punish more effectively. [9] It is possible that

those with high self-esteem have greater levels of self-confidence and this

affects their image in the eyes of their followers. Self-esteem may also explain

the relationship between some physical attributes and leader emergence. For

example, research shows a strong relationship between being tall and being

viewed as a leader (as well as one’s career success over life). It is proposed that

self-esteem may be the key mechanism linking height to being viewed as a

leader, because people who are taller are also found to have higher self-esteem

and therefore may project greater levels of charisma as well as confidence to

their followers. [10]

Integrity

Research also shows that people who are effective as leaders tend to have a

moral compass and demonstrate honesty and integrity. [11] Leaders whose

integrity is questioned lose their trustworthiness, and they hurt their

company’s business along the way. For example, when it was revealed that

Whole Foods Market CEO John Mackey was using a pseudonym to make

10

negative comments online about the company’s rival Wild Oats Markets Inc.,

his actions were heavily criticized, his leadership was questioned, and the

company’s reputation was affected. [12]

Figure 12.5 Key Traits Associated With Leadership

There are also some traits that are negatively related to leader emergence and

being successful in that position. For example, agreeable people who are

modest, good natured, and avoid conflict are less likely to be perceived as

leaders. [13]

Despite problems in trait approaches, these findings can still be useful to

managers and companies. For example, knowing about leader traits helps

organizations select the right people into positions of responsibility. The key to

benefiting from the findings of trait researchers is to be aware that not all

traits are equally effective in predicting leadership potential across all

circumstances. Some organizational situations allow leader traits to make a

greater difference. [14] For example, in small, entrepreneurial organizations

11

where leaders have a lot of leeway to determine their own behavior, the type of

traits leaders have may make a difference in leadership potential. In large,

bureaucratic, and rule-bound organizations such as the government and the

military, a leader’s traits may have less to do with how the person behaves and

whether the person is a successful leader. [15] Moreover, some traits become

relevant in specific circumstances. For example, bravery is likely to be a key

characteristic in military leaders, but not necessarily in business leaders.

Scholars now conclude that instead of trying to identify a few traits that

distinguish leaders from nonleaders, it is important to identify the conditions

under which different traits affect a leader’s performance, as well as whether a

person emerges as a leader. [16]

KEY TAKEAWAY

Many studies searched for a limited set of personal attributes, or traits, which would

make someone be viewed as a leader and be successful as a leader. Some traits that

are consistently related to leadership include intelligence (both mental ability and

emotional intelligence), personality (extraversion, conscientiousness, openness to

experience, self-esteem), and integrity. The main limitation of the trait approach was

that it ignored the situation in which leadership occurred. Therefore, it is more useful

to specify the conditions under which different traits are needed.

EXERCISES

1. Think of a leader you admire. What traits does this person have? Are they consistent

with the traits discussed in this chapter? If not, why is this person effective despite

the presence of different traits?

2. Can the findings of traits approaches be used to train potential leaders? Which traits

seem easier to teach? Which are more stable?

3. How can organizations identify future leaders with a given set of traits? Which

methods would be useful for this purpose?

4. What other traits can you think of that would be relevant to leadership?

12

12.2 What Do Leaders Do? Behavioral Approaches to Leadership

LEARNING OBJECTIVES

1. Explain the behaviors that are associated with leadership.

2. Identify the three alternative decision-making styles leaders use and the conditions

under which they are more effective.

3. Discuss the limitations of behavioral approaches to leadership.

Leader Behaviors

When trait researchers became disillusioned in the 1940s, their attention

turned to studying leader behaviors. What did effective leaders actually do?

Which behaviors made them perceived as leaders? Which behaviors increased

their success? To answer these questions, researchers at Ohio State University

and the University of Michigan used many different techniques, such as

observing leaders in laboratory settings as well as surveying them. This

research stream led to the discovery of two broad categories of behaviors:

task-oriented behaviors (sometimes called initiating structure) and people-

oriented behaviors (also called consideration). Task-oriented leader

behaviors involve structuring the roles of subordinates, providing them with

instructions, and behaving in ways that will increase the performance of the

group. Task-oriented behaviors are directives given to employees to get things

done and to ensure that organizational goals are met. People-oriented leader

behaviors include showing concern for employee feelings and treating

employees with respect. People-oriented leaders genuinely care about the

well-being of their employees, and they demonstrate their concern in their

13

actions and decisions. At the time, researchers thought that these two

categories of behaviors were the keys to the puzzle of leadership. [1] However,

research did not support the argument that demonstrating both of these

behaviors would necessarily make leaders effective. [2]

When we look at the overall findings regarding these leader behaviors, it

seems that both types of behaviors, in the aggregate, are beneficial to

organizations, but for different purposes. For example, when leaders

demonstrate people-oriented behaviors, employees tend to be more satisfied

and react more positively. However, when leaders are task oriented,

productivity tends to be a bit higher. [3] Moreover, the situation in which these

behaviors are demonstrated seems to matter. In small companies, task-

oriented behaviors were found to be more effective than in large

companies. [4] There is also some evidence that very high levels of leader task-

oriented behaviors may cause burnout with employees. [5]

Leader Decision Making

Another question behavioral researchers focused on involved how leaders

actually make decisions and the influence of decision-making styles on leader

effectiveness and employee reactions. Three types of decision-making styles

were studied. In authoritarian decision making, leaders make the decision

alone without necessarily involving employees in the decision-making process.

When leaders use democratic decision making, employees participate in the

making of the decision. Finally, leaders using laissez-faire decision making

leave employees alone to make the decision. The leader provides minimum

guidance and involvement in the decision.

As with other lines of research on leadership, research did not identify one

decision-making style as the best. It seems that the effectiveness of the style

14

the leader is using depends on the circumstances. A review of the literature

shows that when leaders use more democratic or participative decision-

making styles, employees tend to be more satisfied; however, the effects on

decision quality or employee productivity are weaker. Moreover, instead of

expecting to be involved in every single decision, employees seem to care more

about the overall participativeness of the organizational climate. [6] Different

types of employees may also expect different levels of involvement. In a

research organization, scientists viewed democratic leadership most favorably

and authoritarian leadership least favorably, [7] but employees working in large

groups where opportunities for member interaction was limited preferred

authoritarian leader decision making. [8]Finally, the effectiveness of each style

seems to depend on who is using it. There are examples of effective leaders

using both authoritarian and democratic styles. At Hyundai Motor America,

high-level managers use authoritarian decision-making styles, and the

company is performing very well. [9]

The track record of the laissez-faire decision-making style is more

problematic. Research shows that this style is negatively related to employee

satisfaction with leaders and leader effectiveness. [10] Laissez-faire leaders

create high levels of ambiguity about job expectations on the part of

employees, and employees also engage in higher levels of conflict when leaders

are using the laissez-faire style. [11]

Leadership Assumptions about Human Nature Why do some managers believe that the only way to manage employees is to

force and coerce them to work while others adopt a more humane approach?

Douglas McGregor, an MIT Sloan School of Management professor, believed

that a manager’s actions toward employees were dictated by having one of two

basic sets of assumptions about employee attitudes. His two contrasting

15

categories, outlined in his 1960 book, The Human Side of Enterprise, are

known as Theory X and Theory Y.

According to McGregor, some managers subscribe to Theory X. The main

assumptions of Theory X managers are that employees are lazy, do not enjoy

working, and will avoid expending energy on work whenever possible. For a

manager, this theory suggests employees need to be forced to work through

any number of control mechanisms ranging from threats to actual

punishments. Because of the assumptions they make about human nature,

Theory X managers end up establishing rigid work environments. Theory X

also assumes employees completely lack ambition. As a result, managers must

take full responsibility for their subordinates’ actions, as these employees will

never take initiative outside of regular job duties to accomplish tasks.

In contrast, Theory Y paints a much more positive view of employees’ attitudes

and behaviors. Under Theory Y, employees are not lazy, can enjoy work, and

will put effort into furthering organizational goals. Because these managers

can assume that employees will act in the best interests of the organization

given the chance, Theory Y managers allow employees autonomy and help

them become committed to particular goals. They tend to adopt a more

supportive role, often focusing on maintaining a work environment in which

employees can be innovative and prosperous within their roles.

One way of improving our leadership style would be to become conscious

about our theories of human nature, and question the validity of our implicit

theories.

Source: McGregor, D. (1960). Human side of enterprise. New York: McGraw

Hill.

16

Limitations of Behavioral Approaches

Behavioral approaches, similar to trait approaches, fell out of favor because

they neglected the environment in which behaviors are demonstrated. The

hope of the researchers was that the identified behaviors would predict

leadership under all circumstances, but it may be unrealistic to expect that a

given set of behaviors would work under all circumstances. What makes a high

school principal effective on the job may be very different from what makes a

military leader effective, which would be different from behaviors creating

success in small or large business enterprises. It turns out that specifying the

conditions under which these behaviors are more effective may be a better

approach.

KEY TAKEAWAY

When researchers failed to identify a set of traits that would distinguish effective

from ineffective leaders, research attention turned to the study of leader behaviors.

Leaders may demonstrate task-oriented and people-oriented behaviors. Both seem

to be related to important outcomes, with task-oriented behaviors more strongly

relating to leader effectiveness and people-oriented behaviors leading to employee

satisfaction. Leaders can also make decisions using authoritarian, democratic, or

laissez-faire styles. While laissez-faire has certain downsides, there is no best style,

and the effectiveness of each style seems to vary across situations. Because of the

inconsistency of results, researchers realized the importance of the context in which

leadership occurs, which paved the way to contingency theories of leadership.

EXERCISES

1. Give an example of a leader you admire whose behavior is primarily task oriented,

and one whose behavior is primarily people oriented.

2. What are the limitations of authoritarian decision making? Under which conditions

do you think authoritarian style would be more effective?

17

3. What are the limitations of democratic decision making? Under which conditions do

you think democratic style would be more effective?

4. What are the limitations of laissez-faire decision making? Under which conditions do

you think laissez-faire style would be more effective?

5. Examine your own leadership style. Which behaviors are you more likely to

demonstrate? Which decision-making style are you more likely to use?

12.3 What Is the Role of the Context? Contingency Approaches to Leadership

LEARNING OBJECTIVES

1. Learn about the major situational conditions that determine the effectiveness of

different leadership styles.

2. Identify the conditions under which highly task-oriented and highly people-oriented

leaders can be successful based on Fiedler’s contingency theory.

3. Describe the Path-Goal theory of leadership.

4. Describe a method by which leaders can decide how democratic or authoritarian

their decision making should be.

What is the best leadership style? By now, you must have realized that this

may not be the right question to ask. Instead, a better question might be:

Under which conditions are certain leadership styles more effective? After

the disappointing results of trait and behavioral approaches, several

scholars developed leadership theories that specifically incorporated the

role of the environment. Specifically, researchers started following a

contingency approach to leadership—rather than trying to identify traits or

behaviors that would be effective under all conditions, the attention moved

18

toward specifying the situations under which different styles would be

effective.

Fiedler’s Contingency Theory

The earliest and one of the most influential contingency theories was

developed by Frederick Fiedler. [1] According to the theory, a leader’s style is

measured by a scale called Least Preferred Coworker scale (LPC). People who

are filling out this survey are asked to think of a person who is their least

preferred coworker. Then, they rate this person in terms of how friendly, nice,

and cooperative this person is. Imagine someone you did not enjoy working

with. Can you describe this person in positive terms? In other words, if you

can say that the person you hated working with was still a nice person, you

would have a high LPC score. This means that you have a people-oriented

personality, and you can separate your liking of a person from your ability to

work with that person. On the other hand, if you think that the person you

hated working with was also someone you did not like on a personal level, you

would have a low LPC score. To you, being unable to work with someone

would mean that you also dislike that person. In other words, you are a task-

oriented person.

According to Fiedler’s theory, different people can be effective in different

situations. The LPC score is akin to a personality trait and is not likely to

change. Instead, placing the right people in the right situation or changing the

situation to suit an individual is important to increase a leader’s effectiveness.

The theory predicts that in “favorable” and “unfavorable” situations, a low LPC

leader—one who has feelings of dislike for coworkers who are difficult to work

with—would be successful. When situational favorableness is medium, a high

LPC leader—one who is able to personally like coworkers who are difficult to

work with—is more likely to succeed.

19

How does Fiedler determine whether a situation is “favorable,” “medium,” or

“unfavorable”? There are three conditions creating situational favorableness:

leader-subordinate relations, position power, and task structure. If the leader

has a good relationship with most people and has high position power, and the

task at hand is structured, the situation is very favorable. When the leader has

low-quality relations with employees and has low position power, and the task

at hand it relatively unstructured, the situation is very unfavorable.

Figure 12.9 Situational Favorableness

Sources: Based on information in Fiedler, F. E. (1967). A theory of leadership

effectiveness. New York: McGraw-Hill; Fiedler, F. E. (1964). A contingency

model of leader effectiveness. In L. Berkowitz (Ed.), Advances in experimental

social psychology, vol. 1 (pp. 149–190). New York: Academic Press.

Research partially supports the predictions of Fiedler’s contingency theory. [2]

Specifically, there is more support for the theory’s predictions about when low

LPC leadership should be used, but the part about when high LPC leadership

would be more effective received less support. Even though the theory was not

supported in its entirety, it is a useful framework to think about when task-

versus people-oriented leadership may be more effective. Moreover, the theory

20

is important because of its explicit recognition of the importance of the

context of leadership.

Situational Leadership

Another contingency approach to leadership is Kenneth Blanchard and Paul

Hersey’s Situational Leadership Theory (SLT) which argues that leaders must

use different leadership styles depending on their followers’ development

level. [3] According to this model, employee readiness (defined as a

combination of their competence and commitment levels) is the key factor

determining the proper leadership style. This approach has been highly

popular with 14 million managers across 42 countries undergoing SLT

training and 70% of Fortune 500 companies employing its use. [4]

The model summarizes the level of directive and supportive behaviors that

leaders may exhibit. The model argues that to be effective, leaders must use

the right style of behaviors at the right time in each employee’s development.

It is recognized that followers are key to a leader’s success. Employees who are

at the earliest stages of developing are seen as being highly committed but

with low competence for the tasks. Thus, leaders should be highly directive

and less supportive. As the employee becomes more competent, the leader

should engage in more coaching behaviors. Supportive behaviors are

recommended once the employee is at moderate to high levels of competence.

And finally, delegating is the recommended approach for leaders dealing with

employees who are both highly committed and highly competent. While the

SLT is popular with managers, relatively easy to understand and use, and has

endured for decades, research has been mixed in its support of the basic

assumptions of the model. [5] Therefore, while it can be a useful way to think

about matching behaviors to situations, overreliance on this model, at the

exclusion of other models, is premature.

21

Table 12.1

Follower Readiness Level

Competence (Low)

Competence (Low)

Competence (Moderate to High)

Competence (High)

Commitment (High)

Commitment (Low)

Commitment (Variable)

Commitment (High)

Recommended Leader Style

Directing Behavior

Coaching Behavior

Supporting Behavior

Delegating Behavior

Situational Leadership Theory helps leaders match their style to follower

readiness levels.

Path-Goal Theory of Leadership

Robert House’s path-goal theory of leadership is based on the expectancy

theory of motivation. [6] The expectancy theory of motivation suggests that

employees are motivated when they believe—or expect—that (a) their effort

will lead to high performance, (b) their high performance will be rewarded,

and (c) the rewards they will receive are valuable to them. According to the

path-goal theory of leadership, the leader’s main job is to make sure that all

three of these conditions exist. Thus, leaders will create satisfied and high-

performing employees by making sure that employee effort leads to

performance, and their performance is rewarded by desired rewards. The

leader removes roadblocks along the way and creates an environment that

subordinates find motivational.

The theory also makes specific predictions about what type of leader behavior

will be effective under which circumstances. [7] The theory identifies four

22

leadership styles. Each of these styles can be effective, depending on the

characteristics of employees (such as their ability level, preferences, locus of

control, and achievement motivation) and characteristics of the work

environment (such as the level of role ambiguity, the degree of stress present

in the environment, and the degree to which the tasks are unpleasant).

Four Leadership Styles

Directive leaders provide specific directions to their employees. They lead

employees by clarifying role expectations, setting schedules, and making sure

that employees know what to do on a given work day. The theory predicts that

the directive style will work well when employees are experiencing role

ambiguity on the job. If people are unclear about how to go about doing their

jobs, giving them specific directions will motivate them. On the other hand, if

employees already have role clarity, and if they are performing boring,

routine, and highly structured jobs, giving them direction does not help. In

fact, it may hurt them by creating an even more restricting atmosphere.

Directive leadership is also thought to be less effective when employees have

high levels of ability. When managing professional employees with high levels

of expertise and job-specific knowledge, telling them what to do may create a

low-empowerment environment, which impairs motivation.

Supportive leaders provide emotional support to employees. They treat

employees well, care about them on a personal level, and they are

encouraging. Supportive leadership is predicted to be effective when

employees are under a lot of stress or performing boring, repetitive jobs.

When employees know exactly how to perform their jobs but their jobs are

unpleasant, supportive leadership may be more effective.

23

Participative leaders make sure that employees are involved in the making of

important decisions. Participative leadership may be more effective when

employees have high levels of ability, and when the decisions to be made are

personally relevant to them. For employees with a high internal locus of

control (those who believe that they control their own destiny), participative

leadership is a way of indirectly controlling organizational decisions, which is

likely to be appreciated.

Achievement-oriented leaders set goals for employees and encourage them to

reach their goals. Their style challenges employees and focuses their attention

on work-related goals. This style is likely to be effective when employees have

both high levels of ability and high levels of achievement motivation.

The path-goal theory of leadership has received partial but encouraging levels

of support from researchers. Because the theory is highly complicated, it has

not been fully and adequately tested. [8] The theory’s biggest contribution may

be that it highlights the importance of a leader’s ability to change styles

depending on the circumstances. Unlike Fiedler’s contingency theory, in

which the leader’s style is assumed to be fixed and only the environment can

be changed, House’s path-goal theory underlines the importance of varying

one’s style depending on the situation.

Figure 12.10 Predictions of the Path-Goal Theory Approach to Leadership

24

Sources: Based on information presented in House, R. J. (1996). Path-goal

theory of leadership: Lessons, legacy, and a reformulated theory. Leadership

Quarterly, 7, 323–352; House, R. J., & Mitchell, T. R. (1974). Path-goal theory

of leadership. Journal of Contemporary Business, 3, 81–97.

Vroom and Yetton’s Normative Decision Model

Yale School of Management Professor Victor Vroom and his colleagues Philip

Yetton and Arthur Jago developed a decision-making tool to help leaders

determine how much involvement they should seek when making decisions. [9]

The model starts by having leaders answer several key questions and working

their way through a decision tree based on their responses. Let’s try it.

Imagine that you want to help your employees lower their stress so that you

can minimize employee absenteeism. There are a number of approaches you

could take to reduce employee stress, such as offering gym memberships,

providing employee assistance programs, a nap room, and so forth.

25

Let’s refer to the model and start with the first question. As you answer each

question as high (H) or low (L), follow the corresponding path down the

funnel.

1. Decision Significance. The decision has high significance, because the

approach chosen needs to be effective at reducing employee stress for

the insurance premiums to be lowered. In other words, there is a quality

requirement to the decision. Follow the path through H.

2. Importance of Commitment. Does the leader need employee

cooperation to implement the decision? In our example, the answer is

high, because employees may simply ignore the resources if they do not

like them. Follow the path through H.

3. Leader expertise. Does the leader have all the information needed to

make a high quality decision? In our example, leader expertise is low.

You do not have information regarding what your employees need or

what kinds of stress reduction resources they would prefer. Follow the

path through L.

4. Likelihood of commitment. If the leader makes the decision alone, what

is the likelihood that the employees would accept it? Let’s assume that

the answer is low. Based on the leader’s experience with this group, they

would likely ignore the decision if the leader makes it alone. Follow the

path from L.

5. Goal alignment. Are the employee goals aligned with organizational

goals? In this instance, employee and organizational goals may be

aligned because you both want to ensure that employees are healthier.

So let’s say the alignment is high, and follow H.

6. Group expertise. Does the group have expertise in this decision-making

area? The group in question has little information about which

alternatives are costlier, or more user friendly. We’ll say group expertise

is low. Follow the path from L.

26

7. Team competence. What is the ability of this particular team to solve the

problem? Let’s imagine that this is a new team that just got together and

they have little demonstrated expertise to work together effectively. We

will answer this as low or L.

Based on the answers to the questions we gave, the normative approach

recommends consulting employees as a group. In other words, the leader may

make the decision alone after gathering information from employees and is

not advised to delegate the decision to the team or to make the decision alone.

Decision-Making Styles

 Decide. The leader makes the decision alone using available

information.

 Consult Individually. The leader obtains additional information from

group members before making the decision alone.

 Consult as a group. The leader shares the problem with group members

individually and makes the final decision alone.

 Facilitate. The leader shares information about the problem with group

members collectively, and acts as a facilitator. The leader sets the

parameters of the decision.

 Delegate. The leader lets the team make the decision.

Vroom and Yetton’s normative model is somewhat complicated, but research

results support the validity of the model. On average, leaders using the style

recommended by the model tend to make more effective decisions compared

to leaders using a style not recommended by the model. [10]

KEY TAKEAWAY

27

The contingency approaches to leadership describe the role the situation would have

in choosing the most effective leadership style. Fiedler’s contingency theory argued

that task-oriented leaders would be most effective when the situation was the most

and the least favorable, whereas people-oriented leaders would be effective when

situational favorableness was moderate. Situational Leadership Theory takes the

maturity level of followers into account. House’s path-goal theory states that the

leader’s job is to ensure that employees view their effort as leading to performance,

and to increase the belief that performance would be rewarded. For this purpose,

leaders would use directive-, supportive-, participative-, and achievement-oriented

leadership styles depending on what employees needed to feel motivated. Vroom

and Yetton’s normative model is a guide leaders can use to decide how participative

they should be given decision environment characteristics.

EXERCISES

1. Do you believe that the least preferred coworker technique is a valid method of

measuring someone’s leadership style? Why or why not?

2. Do you believe that leaders can vary their style to demonstrate directive-,

supportive-, achievement-, and participative-oriented styles with respect to different

employees? Or does each leader tend to have a personal style that he or she

regularly uses toward all employees?

3. What do you see as the limitations of the Vroom-Yetton leadership decision-making

approach?

4. Which of the leadership theories covered in this section do you think are most useful

and least useful to practicing managers? Why?

28

12.4 What’s New? Contemporary Approaches to Leadership

LEARNING OBJECTIVES

1. Learn about the difference between transformational and transactional leaders.

2. Find out about the relationship between charismatic leadership and how it relates to

leader performance.

3. Learn how to be charismatic.

4. Describe how high-quality leader-subordinate relationships develop.

5. Define servant leadership and evaluate its potential for leadership effectiveness.

6. Define authentic leadership and evaluate its potential for leadership effectiveness.

What are the leadership theories that have the greatest contributions to

offer to today’s business environment? In this section, we will review the

most recent developments in the field of leadership.

Transformational Leadership

Transformational leadership theory is a recent addition to the literature, but

more research has been conducted on this theory than all the contingency

theories combined. The theory distinguishes transformational and

transactional leaders. Transformational leaders lead employees by aligning

employee goals with the leader’s goals. Thus, employees working for

transformational leaders start focusing on the company’s well-being rather

than on what is best for them as individual employees. On the other

hand, transactional leaders ensure that employees demonstrate the right

behaviors and provide resources in exchange. [1]

Transformational leaders have four tools in their possession, which they use to

influence employees and create commitment to the company goals. [2] First,

29

transformational leaders are charismatic. Charisma refers to behaviors leaders

demonstrate that create confidence in, commitment to, and admiration for the

leader. [3] Charismatic individuals have a “magnetic” personality that is

appealing to followers. Second, transformational leaders use inspirational

motivation, or come up with a vision that is inspiring to others. Third is the

use of intellectual stimulation, which means that they challenge organizational

norms and status quo, and they encourage employees to think creatively and

work harder. Finally, they use individualized consideration, which means that

they show personal care and concern for the well-being of their followers.

Examples of transformational leaders include Steve Jobs of Apple Inc.; Lee

Iaccoca, who transformed Chrysler Motors LLC in the 1980s; and Jack Welch,

who was the CEO of General Electric Company for 20 years. Each of these

leaders is charismatic and is held responsible for the turnarounds of their

companies.

While transformational leaders rely on their charisma, persuasiveness, and

personal appeal to change and inspire their companies, transactional leaders

use three different methods. Contingent rewards mean rewarding employees

for their accomplishments. Active management by exception involves leaving

employees to do their jobs without interference, but at the same time

proactively predicting potential problems and preventing them from

occurring. Passive management by exception is similar in that it involves

leaving employees alone, but in this method the manager waits until

something goes wrong before coming to the rescue.

Which leadership style do you think is more effective, transformational or

transactional? Research shows that transformational leadership is a very

powerful influence over leader effectiveness as well as employee

satisfaction. [4] In fact, transformational leaders increase the intrinsic

30

motivation of their followers, build more effective relationships with

employees, increase performance and creativity of their followers, increase

team performance, and create higher levels of commitment to organizational

change efforts. [5]However, except for passive management by exception, the

transactional leadership styles are also effective, and they also have positive

influences over leader performance as well as employee attitudes. [6] To

maximize their effectiveness, leaders are encouraged to demonstrate both

transformational and transactional styles. They should also monitor

themselves to avoid demonstrating passive management by exception, or

leaving employees to their own devices until problems arise.

Why is transformational leadership effective? The key factor may be trust.

Trust is the belief that the leader will show integrity, fairness, and

predictability in his or her dealings with others. Research shows that when

leaders demonstrate transformational leadership behaviors, followers are

more likely to trust the leader. The tendency to trust in transactional leaders is

substantially lower. Because transformational leaders express greater levels of

concern for people’s well-being and appeal to people’s values, followers are

more likely to believe that the leader has a trustworthy character. [7]

Is transformational leadership genetic? Some people assume that charisma is

something people are born with. You either have charisma, or you don’t.

However, research does not support this idea. We must acknowledge that

there is a connection between some personality traits and charisma.

Specifically, people who have a neurotic personality tend to demonstrate lower

levels of charisma, and people who are extraverted tend to have higher levels

of charisma. However, personality explains only around 10% of the variance in

charisma. [8] A large body of research has shown that it is possible to train

31

people to increase their charisma and increase their transformational

leadership. [9]

Even if charisma can be learned, a more fundamental question remains: Is it

really needed? Charisma is only one element of transformational leadership,

and leaders can be effective without charisma. In fact, charisma has a dark

side. For every charismatic hero such as Lee Iaccoca, Steve Jobs, and Virgin

Atlantic Airways Ltd.’s Sir Richard Branson, there are charismatic

personalities who harmed their organizations or nations, such as Adoph Hitler

of Germany and Jeff Skilling of Enron Corporation. Leadership experts warn

that when organizations are in a crisis, a board of directors or hiring manager

may turn to heroes who they hope will save the organization, and sometimes

hire people who have no particular qualifications other than being perceived

as charismatic. [10]

An interesting study shows that when companies have performed well, their

CEOs are perceived as charismatic, but CEO charisma has no relation to the

future performance of a company. [11] So, what we view as someone’s charisma

may be largely because of their association with a successful company, and the

success of a company depends on a large set of factors, including industry

effects and historical performance. While it is true that charismatic leaders

may sometimes achieve great results, the search for charismatic leaders under

all circumstances may be irrational.

OB Toolbox: Be Charismatic!  Have a vision around which people can gather. When framing requests or

addressing others, instead of emphasizing short-term goals, stress the

importance of the long-term vision. When giving a message, think about the

32

overarching purpose. What is the ultimate goal? Why should people care?

What are you trying to achieve?

 Tie the vision to history. In addition to stressing the ideal future, charismatic

leaders also bring up the history and how the shared history ties to the future.

 Watch your body language. Charismatic leaders are energetic and passionate

about their ideas. This involves truly believing in your own ideas. When

talking to others, be confident, look them in the eye, and express your belief in

your ideas.

 Make sure that employees have confidence in themselves. You can achieve

this by showing that you believe in them and trust in their abilities. If they

have real reason to doubt their abilities, make sure that you address the

underlying issue, such as training and mentoring.

 Challenge the status quo. Charismatic leaders solve current problems by

radically rethinking the way things are done and suggesting alternatives that

are risky, novel, and unconventional.

Sources: Adapted from ideas in Frese, M., Beimel, S., & Schoenborg, S.

(2003). Action training for charismatic leadership: Two evaluations of studies

of a commercial training module on inspirational communication of a

vision. Personnel Psychology, 56, 671–697; Shamir, B., House, R. J., & Arthur,

M. B. (1993). The motivational effects of charismatic leadership: A self-

concept based theory. Organization Science, 4, 577–594.

Leader-Member Exchange (LMX) Theory

Leader-member exchange (LMX) theory proposes that the type of relationship

leaders have with their followers (members of the organization) is the key to

understanding how leaders influence employees. Leaders form different types

of relationships with their employees. In high-quality LMX relationships, the

leader forms a trust-based relationship with the member. The leader and

33

member like each other, help each other when needed, and respect each other.

In these relationships, the leader and the member are each ready to go above

and beyond their job descriptions to promote the other’s ability to succeed. In

contrast, in low-quality LMX relationships, the leader and the member have

lower levels of trust, liking, and respect toward each other. These relationships

do not have to involve actively disliking each other, but the leader and

member do not go beyond their formal job descriptions in their exchanges. In

other words, the member does his job, the leader provides rewards and

punishments, and the relationship does not involve high levels of loyalty or

obligation toward each other. [12]

If you have work experience, you may have witnessed the different types of

relationships managers form with their employees. In fact, many leaders end

up developing differentiated relationships with their followers. Within the

same work group, they may have in-group members who are close to them,

and out-group members who are more distant. If you have ever been in a high

LMX relationship with your manager, you may attest to the advantages of the

relationship. Research shows that high LMX members are more satisfied with

their jobs, more committed to their companies, have higher levels of clarity

about what is expected of them, and perform at a higher level. [13] Employees’

high levels of performance may not be a surprise, since they receive higher

levels of resources and help from their managers as well as more information

and guidance. If they have questions, these employees feel more comfortable

seeking feedback or information. [14]Because of all the help, support, and

guidance they receive, employees who have a good relationship with the

manager are in a better position to perform well. Given all they receive, these

employees are motivated to reciprocate to the manager, and therefore they

demonstrate higher levels of citizenship behaviors such as helping the leader

and coworkers. [15] Being in a high LMX relationship is also advantageous

34

because a high-quality relationship is a buffer against many stressors, such as

being a misfit in a company, having personality traits that do not match job

demands, and having unmet expectations. [16] The list of the benefits high LMX

employees receive is long, and it is not surprising that these employees are less

likely to leave their jobs. [17]

The problem, of course, is that not all employees have a high-quality

relationship with their leader, and those who are in the leader’s out-group may

suffer as a result. But how do you develop a high-quality relationship with

your leader? It seems that this depends on many factors. Managers can help

develop such a meaningful and trust-based relationship by treating their

employees in a fair and dignified manner. [18] They can also test to see if the

employee is trustworthy by delegating certain tasks when the employee first

starts working with the manager. [19] Employees also have an active role in

developing the relationship. Employees can put forth effort into developing a

good relationship by seeking feedback to improve their performance, being

open to learning new things on the job, and engaging in political behaviors

such as the use of flattery. [20] Interestingly, high performance does not seem to

be enough to develop a high-quality exchange. Instead, interpersonal factors

such as the similarity of personalities and a mutual liking and respect are

more powerful influences over how the relationship develops. [21] Finally, the

relationship develops differently in different types of companies, and

corporate culture matters in how leaders develop these relationships. In

performance-oriented cultures, the relevant factor seems to be how the leader

distributes rewards, whereas in people-oriented cultures, the leader treating

people with dignity is more important. [22]

Self-Assessment: Rate Your LMX

35

Answer the following questions using 1 = not at all, 2 = somewhat, 3 = fully

agree.

1. _____ I like my supervisor very much as a person.

2. _____ My supervisor is the kind of person one would like to have as a friend.

3. _____ My supervisor is a lot of fun to work with.

4. _____ My supervisor defends my work actions to a superior, even without complete knowledge of the issue in question.

5. _____ My supervisor would come to my defense if I were “attacked” by others.

6. _____ My supervisor would defend me to others in the organization if I made an honest mistake.

7. _____ I do work for my supervisor that goes beyond what is specified in my job description.

8. _____ I am willing to apply extra efforts, beyond those normally required, to further the interests of my work group.

9. _____ I do not mind working my hardest for my supervisor.

10. _____ I am impressed with my supervisor’s knowledge of his or her job.

11. _____ I respect my supervisor’s knowledge of and competence on the job.

12. _____ I admire my supervisor’s professional skills.

Scoring:

Add your score for 1, 2, 3 = _____ . This is your score on the Liking factor of

LMX.

A score of 3 to 4 indicates a low LMX in terms of liking. A score of 5 to 6

indicates an average LMX in terms of liking. A score of 7+ indicates a high LMX

in terms of liking.

36

Add your score for 4, 5, 6 = _____ . This is your score on the Loyalty factor of

LMX.

A score of 3 to 4 indicates a low LMX in terms of loyalty. A score of 5 to 6

indicates an average LMX in terms of loyalty. A score of 7+ indicates a high

LMX in terms of loyalty.

Add your score for 7, 8, 9 = _____ . This is your score on

the Contribution factor of LMX.

A score of 3 to 4 indicates a low LMX in terms of contribution. A score of 5 to 6

indicates an average LMX in terms of contribution. A score of 7+ indicates a

high LMX in terms of contribution.

Add your score for 10, 11, 12 = _____ . This is your score on the Professional

Respectfactor of LMX.

A score of 3 to 4 indicates a low LMX in terms of professional respect. A score of

5 to 6 indicates an average LMX in terms of professional respect. A score of 7+

indicates a high LMX in terms of professional respect.

Source: Adapted from Liden, R. C., & Maslyn, J. M. (1998).

Multidimensionality of leader-member exchange: An empirical assessment

through scale development. Journal of Management, 24, 43–72. Used by

permission of Sage Publications.

Should you worry if you do not have a high-quality relationship with your

manager? One problem in a low-quality exchange is that employees may not

have access to the positive work environment available to high LMX members.

Secondly, low LMX employees may feel that their situation is unfair. Even

when their objective performance does not warrant it, those who have a good

relationship with the leader tend to have positive performance

appraisals. [23] Moreover, they are more likely to be given the benefit of the

37

doubt. For example, when high LMX employees succeed, the manager is more

likely to think that they succeeded because they put forth a lot of effort and

had high abilities, whereas for low LMX members who perform objectively

well, the manager is less likely to make the same attribution. [24] In other

words, the leader may interpret the same situation differently, depending on

which employee is involved, and may reward low LMX employees less despite

equivalent performance. In short, those with a low-quality relationship with

their leader may experience a work environment that may not be supportive or

fair.

Despite its negative consequences, we cannot say that all employees want to

have a high-quality relationship with their leader. Some employees may

genuinely dislike the leader and may not value the rewards in the leader’s

possession. If the leader is not well liked in the company and is known as

abusive or unethical, being close to such a person may imply guilt by

association. For employees who have no interest in advancing their careers in

the current company (such as a student employee who is working in retail but

has no interest in retail as a career), having a low-quality exchange may afford

the opportunity to just do one’s job without having to go above and beyond the

job requirements. Finally, not all leaders are equally capable of influencing

their employees by having a good relationship with them: It also depends on

the power and influence of the leader in the company as a whole and how the

leader is treated within the organization. Leaders who are more powerful will

have more to share with their employees. [25]

What LMX theory implies for leaders is that one way of influencing employees

is through the types of relationships leaders form with their subordinates.

These relationships develop naturally through the work-related and personal

interactions between the manager and the employee. Because they occur

38

naturally, some leaders may not be aware of the power that lies in them. These

relationships have an important influence over employee attitudes and

behaviors. In the worst case, they have the potential to create an environment

characterized by favoritism and unfairness. Therefore, managers are advised

to be aware of how they build these relationships: Put forth effort in

cultivating these relationships consciously, be open to forming good

relationships with people from all backgrounds regardless of characteristics

such as sex, race, age, or disability status, and prevent these relationships

from leading to an unfair work environment.

OB Toolbox: Ideas for Improving Your Relationship With Your Manager

Having a good relationship with your manager may substantially increase your

job satisfaction, improve your ability to communicate with your manager, and

help you be successful in your job. Here are some tips to developing a high-

quality exchange.

 Create interaction opportunities with your manager. One way of doing this

would be seeking feedback from your manager with the intention of improving

your performance. Be careful though: If the manager believes that you are

seeking feedback for a different purpose, it will not help.

 People are more attracted to those who are similar to them. So find out

where your similarities lie. What does your manager like that you also like? Do

you have similar working styles? Do you have any mutual experiences?

Bringing up your commonalities in conversations may help.

 Utilize impression management tactics, but be tactful. If there are work-

related areas in which you can sincerely compliment your manager, do so. For

example, if your manager made a decision that you agree with, you may share

your support. Most people, including managers, appreciate positive feedback.

39

However, flattering your manager in non-work-related areas (such as

appearance) or using flattery in an insincere way (praising an action you do

not agree with) will only backfire and cause you to be labeled as a flatterer.

 Be a reliable employee. Managers need people they can trust. By performing

at a high level, demonstrating predictable and consistent behavior, and by

volunteering for challenging assignments, you can prove your worth.

 Be aware that relationships develop early (as early as the first week of your

working together). So be careful how you behave during the interview and

your very first days. If you rub your manager the wrong way early on, it will be

harder to recover the relationship.

Sources: Based on information presented in Colella, A., & Varma, A. (2001).

The impact of subordinate disability on leader-member exchange

relationships. Academy of Management Journal, 44, 304–315; Liden, R. C.,

Wayne, S. J., & Stilwell, D. (1993). A longitudinal study on the early

development of leader-member exchanges.Journal of Applied Psychology, 78,

662–674; Maslyn, J. M., & Uhl-Bien, M. (2001). Leader-member exchange

and its dimensions: Effects of self-effort and other’s effort on relationship

quality. Journal of Applied Psychology, 86, 697–708; Wing, L., Xu, H., &

Snape, E. (2007). Feedback-seeking behavior and leader-member exchange:

Do supervisor-attributed motives matter? Academy of Management

Journal, 50, 348–363.

Servant Leadership

The early 21st century has been marked by a series of highly publicized

corporate ethics scandals: Between 2000 and 2003 we witnessed the scandals

of Enron, WorldCom, Arthur Andersen LLP, Qwest Communications

International Inc., and Global Crossing Ltd. As corporate ethics scandals

shake investor confidence in corporations and leaders, the importance of

40

ethical leadership and keeping long-term interests of stakeholders in mind is

becoming more widely acknowledged.

Servant leadership is a leadership approach that defines the leader’s role as

serving the needs of others. According to this approach, the primary mission

of the leader is to develop employees and help them reach their goals. Servant

leaders put their employees first, understand their personal needs and desires,

empower them, and help them develop in their careers. Unlike mainstream

management approaches, the overriding objective in servant leadership is not

limited to getting employees to contribute to organizational goals. Instead,

servant leaders feel an obligation to their employees, customers, and the

external community. Employee happiness is seen as an end in itself, and

servant leaders sometimes sacrifice their own well-being to help employees

succeed. In addition to a clear focus on having a moral compass, servant

leaders are also interested in serving the community. In other words, their

efforts to help others are not restricted to company insiders, and they are

genuinely concerned about the broader community surrounding their

organization. [26] According to historian Doris Kearns Goodwin, Abraham

Lincoln was a servant leader because of his balance of social conscience,

empathy, and generosity. [27]

Even though servant leadership has some overlap with other leadership

approaches such as transformational leadership, its explicit focus on ethics,

community development, and self-sacrifice are distinct characteristics of this

leadership style. Research shows that servant leadership has a positive impact

on employee commitment, employee citizenship behaviors toward the

community (such as participating in community volunteering), and job

performance. [28] Leaders who follow the servant leadership approach create a

41

climate of fairness in their departments, which leads to higher levels of

interpersonal helping behavior. [29]

Servant leadership is a tough transition for many managers who are socialized

to put their own needs first, be driven by success, and tell people what to do.

In fact, many of today’s corporate leaders are not known for their humility!

However, leaders who have adopted this approach attest to its effectiveness.

David Wolfskehl, of Action Fast Print in New Jersey, founded his printing

company when he was 24 years old. He marks the day he started asking

employees what he can do for them as the beginning of his company’s new

culture. In the next 2 years, his company increased its productivity by 30%. [30]

OB Toolbox: Be a Servant Leader One of the influential leadership paradigms involves leaders putting others

first. This could be a hard transition for an achievement-oriented and success-

driven manager who rises to high levels. Here are some tips to achieve servant

leadership.

 Don’t ask what your employees can do for you. Think of what you can do for

them. Your job as a leader is to be of service to them. How can you relieve

their stress? Protect them from undue pressure? Pitch in to help them? Think

about creative ways of helping ease their lives.

 One of your key priorities should be to help employees reach their goals. This

involves getting to know them. Learn about who they are and what their

values and priorities are.

 Be humble. You are not supposed to have all the answers and dictate others.

One way of achieving this humbleness may be to do volunteer work.

 Be open with your employees. Ask them questions. Give them information so

that they understand what is going on in the company.

42

 Find ways of helping the external community. Giving employees

opportunities to be involved in community volunteer projects or even thinking

and strategizing about making a positive impact on the greater community

would help.

Sources: Based on information presented in Buchanan, L. (2007, May). In

praise of selflessness: Why the best leaders are servants. Inc, 29(5), 33–35;

Douglas, M. E. (2005, March). Service to others. Supervision, 66(3), 6–9;

Ramsey, R. D. (2005, October). The new buzz word. Supervision, 66(10), 3–5.

Authentic Leadership

Leaders have to be a lot of things to a lot of people. They operate within

different structures, work with different types of people, and they have to be

adaptable. At times, it may seem that a leader’s smartest strategy would be to

act as a social chameleon, changing his or her style whenever doing so seems

advantageous. But this would lose sight of the fact that effective leaders have

to stay true to themselves. The authentic leadership approach embraces this

value: Its key advice is “be yourself.” Think about it: We all have different

backgrounds, different life experiences, and different role models. These

trigger events over the course of our lifetime that shape our values,

preferences, and priorities. Instead of trying to fit into societal expectations

about what a leader should be, act like, or look like, authentic leaders derive

their strength from their own past experiences. Thus, one key characteristic of

authentic leaders is that they are self aware. They are introspective,

understand where they are coming from, and have a thorough understanding

of their own values and priorities. Secondly, they are not afraid to act the way

they are. In other words, they have high levels of personal integrity. They say

what they think. They behave in a way consistent with their values. As a result,

43

they remain true to themselves. Instead of trying to imitate other great

leaders, they find their own style in their personality and life experiences. [31]

One example of an authentic leader is Howard Schultz, the founder of

Starbucks Corporation coffeehouses. As a child, Schultz witnessed the job-

related difficulties his father experienced as a result of medical problems.

Even though he had no idea he would have his own business one day, the

desire to protect people was shaped in those years and became one of his

foremost values. When he founded Starbucks, he became an industry pioneer

by providing health insurance and retirement coverage to part-time as well as

full-time employees. [32]

Authentic leadership requires understanding oneself. Therefore, in addition to

self reflection, feedback from others is needed to gain a true understanding of

one’s behavior and its impact on others. Authentic leadership is viewed as a

potentially influential style, because employees are more likely to trust such a

leader. Moreover, working for an authentic leader is likely to lead to greater

levels of satisfaction, performance, and overall well-being on the part of

employees. [33]

KEY TAKEAWAY

Contemporary approaches to leadership include transformational leadership, leader-

member exchange, servant leadership, and authentic leadership. The

transformational leadership approach highlights the importance of leader charisma,

inspirational motivation, intellectual stimulation, and individualized consideration as

methods of influence. Its counterpart is the transactional leadership approach, in

which the leader focuses on getting employees to achieve organizational goals.

According to the leader-member exchange (LMX) approach, the unique, trust-based

relationships leaders develop with employees are the key to leadership

44

effectiveness. Recently, leadership scholars started to emphasize the importance of

serving others and adopting a customer-oriented view of leadership; another recent

focus is on the importance of being true to oneself as a leader. While each leadership

approach focuses on a different element of leadership, effective leaders will need to

change their style based on the demands of the situation, as well as utilizing their

own values and moral compass.

EXERCISES

1. What are the characteristics of transformational leaders? Are transformational

leaders more effective than transactional leaders?

2. What is charisma? What are the advantages and disadvantages of charismatic

leadership? Should organizations look for charismatic leaders when selecting

managers?

3. What are the differences (if any) between a leader having a high-quality exchange

with employees and being friends with employees?

4. What does it mean to be a servant leader? Do you know any leaders whose style

resembles servant leaders? What are the advantages of adopting such a leadership

style?

5. What does it mean to be an authentic leader? How would such a style be

developed?

12.5 The Role of Ethics and National Culture

LEARNING OBJECTIVES

1. Consider the role of leadership for ethical behavior.

2. Consider the role of national culture on leadership.

45

Leadership and Ethics

As some organizations suffer the consequences of ethical crises that put them

out of business or damage their reputations, the role of leadership as a driver

of ethical behavior is receiving a lot of scholarly attention as well as

acknowledgement in the popular press. Ethical decisions are complex and,

even to people who are motivated to do the right thing, the moral component

of a decision may not be obvious. Therefore, employees often look to role

models, influential people, and their managers for guidance in how to behave.

Unfortunately, research shows that people tend to follow leaders or other

authority figures even when doing so can put others at risk. The famous

Milgram experiments support this point. Milgram conducted experiments in

which experimental subjects were greeted by someone in a lab coat and asked

to administer electric shocks to other people who gave the wrong answer in a

learning task. In fact, the shocks were not real and the learners were actors

who expressed pain when shocks were administered. Around two-thirds of the

experimental subjects went along with the requests and administered the

shocks even after they reached what the subjects thought were dangerous

levels. In other words, people in positions of authority are influential in

driving others to ethical or unethical behaviors.[1]

It seems that when evaluating whether someone is an effective leader,

subordinates pay attention to the level of ethical behaviors the leader

demonstrates. In fact, one study indicated that the perception of being ethical

explained 10% of the variance in whether an individual was also perceived as a

leader. The level of ethical leadership was related to job satisfaction,

dedication to the leader, and a willingness to report job-related problems to

the leader. [2]

46

Leaders influence the level of ethical behaviors demonstrated in a company by

setting the tone of the organizational climate. Leaders who have high levels of

moral development create a more ethical organizational climate. [3] By acting

as a role model for ethical behavior, rewarding ethical behaviors, publicly

punishing unethical behaviors, and setting high expectations for the level of

ethics, leaders play a key role in encouraging ethical behaviors in the

workplace.

The more contemporary leadership approaches are more explicit in their

recognition that ethics is an important part of effective leadership. Servant

leadership emphasizes the importance of a large group of stakeholders,

including the external community surrounding a business. On the other hand,

authentic leaders have a moral compass, they know what is right and what is

wrong, and they have the courage to follow their convictions. Research shows

that transformational leaders tend to have higher levels of moral reasoning,

even though it is not part of the transformational leadership theory. [4] It seems

that ethical behavior is more likely to happen when (a) leaders are ethical

themselves, and (b) they create an organizational climate in which employees

understand that ethical behaviors are desired, valued, and expected.

Leadership Around the Globe

Is leadership universal? This is a critical question given the amount of

international activity in the world. Companies that have branches in different

countries often send expatriates to manage the operations. These expatriates

are people who have demonstrated leadership skills at home, but will these

same skills work in the host country? Unfortunately, this question has not yet

been fully answered. All the leadership theories that we describe in this

chapter are U.S.-based. Moreover, around 98% of all leadership research has

47

been conducted in the United States and other western nations. Thus, these

leadership theories may have underlying cultural assumptions. The United

States is an individualistic, performance-oriented culture, and the leadership

theories suitable for this culture may not necessarily be suitable to other

cultures.

People who are perceived as leaders in one society may have different traits

compared to people perceived as leaders in a different culture, because each

society has a concept of ideal leader prototypes. When we see certain

characteristics in a person, we make the attribution that this person is a

leader. For example, someone who is confident, caring, and charismatic may

be viewed as a leader because we feel that these characteristics are related to

being a leader. These leadership prototypes are societally driven and may have

a lot to do with a country’s history and its heroes.

Recently, a large group of researchers from 62 countries came together to

form a project group called Global Leadership and Organizational Behavior

Effectiveness or GLOBE. [5]This group is one of the first to examine leadership

differences around the world. Their results are encouraging, because, in

addition to identifying differences, they found similarities in leadership styles

as well. Specifically, certain leader traits seem to be universal. Around the

world, people feel that honesty, decisiveness, being trustworthy, and being fair

are related to leadership effectiveness. There is also universal agreement in

characteristics viewed as undesirable in leaders: being irritable, egocentric,

and a loner.[6] Visionary and charismatic leaders were found to be the most

influential leaders around the world, followed by team-oriented and

participative leaders. In other words, there seems to be a substantial

generalizability in some leadership styles.

48

Even though certain leader behaviors such as charismatic or supportive

leadership appear to be universal, what makes someone charismatic or

supportive may vary across nations. For example, when leaders fit the

leadership prototype, they tend to be viewed as charismatic, but in Turkey, if

they are successful but did not fit the prototype, they were still viewed as

charismatic. [7] In Western and Latin cultures, people who speak in an

emotional and excited manner may be viewed as charismatic. In Asian

cultures such as China and Japan, speaking in a monotonous voice may be

more impressive because it shows that the leader can control emotions.

Similarly, how leaders build relationships or act supportively is culturally

determined. In collectivist cultures such as Turkey or Mexico, a manager is

expected to show personal interest in employees’ lives. Visiting an employee’s

sick mother at the hospital may be a good way of showing concern. Such

behavior would be viewed as intrusive or strange in the United States or the

Netherlands. Instead, managers may show concern verbally or by lightening

the workload of the employee. [8]

There were also many leader characteristics that vary across cultures. [9] Traits

such as being autonomous, conflict avoidant, status conscious, and ambitious

were culturally dependent. For example, in France, employees do not expect

their leaders to demonstrate empathy. Leaders demonstrating self-sacrifice

are also viewed negatively, suggesting that servant leadership would be an

improper style there. In Middle Eastern cultures such as Egypt, leaders are

expected to be superior to lay people. They are supposed to have all the

answers, be confident, and authoritarian. In fact, leading like a benevolent

autocrat (someone who cares about people but acts alone) may be an

appropriate style. [10] Even within the same geography, researchers identified

substantial cultural differences. For example, in Europe, there were five

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clusters of cultures. Directness in interpersonal relationships was viewed

positively in Nordic cultures such as Finland, but negatively in Near Eastern

cultures such as Turkey. Similarly, leaders who are autonomous were viewed

positively in Germanic cultures such as Austria, but negatively in Latin

European cultures such as Portugal. [11] Finally, in some cultures, good leaders

are paternalistic. These leaders act like a parent to employees, give advice,

care for them, and get obedience and loyalty in return. [12]

Given all these differences, effective leaders should develop a sensitivity to

cultural differences and adapt their style when they work in different societies

or with people from different cultural backgrounds. It seems that flexibility is

an important trait for global leaders.

KEY TAKEAWAY

People get their cues for ethical behaviors from leaders. Therefore, leadership

characteristics and style will influence the level of ethical behaviors employees

demonstrate. Being ethical is related to being perceived as a leader, and ethical

leaders create a more satisfied workforce. More contemporary approaches such as

servant leadership and authentic leadership explicitly recognize the importance of

ethics for leadership effectiveness. Some leadership traits seem to be universal.

Visionary, team-oriented, and to a lesser extent participative leadership seem to be

the preferred styles around the world. However, traits such as how confident leaders

should be and whether they should sacrifice themselves for the good of employees

and many others are culturally dependent. Even for universal styles such as

charismatic and supportive leadership, how leaders achieve charisma and

supportiveness seems to be culturally dependent.

EXERCISES

1. What is the connection between leadership and ethical behaviors?

2. Do you believe that ethical leaders are more successful in organizations?

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3. Which of the leadership theories seem to be most applicable to other cultures?

Which ones are culturally dependent?

12.6 Conclusion In this chapter we have reviewed the most influential leadership theories.

Trait approaches identify the characteristics required to be perceived as a

leader and to be successful in the role. Intelligence, extraversion,

conscientiousness, openness to experience, and integrity seem to be

leadership traits. Behavioral approaches identify the types of behaviors leaders

demonstrate. Both trait and behavioral approaches suffered from a failure to

pay attention to the context in which leadership occurs, which led to the

development of contingency approaches. Recently, ethics became an explicit

focus of leadership theories such as servant leadership and authentic

leadership. It seems that being conscious of one’s style and making sure that

leaders demonstrate the behaviors that address employee, organizational, and

stakeholder needs are important and require flexibility on the part of leaders.

12.7 Exercises

ETHICAL DILEMMA

You are currently a department manager and Jim is your “trusted assistant.” You

have very similar working styles, and you went to the same college and worked in

the insurance industry for several years. Before working in this company, you both

worked at a different company and you have this shared history with him. You can

trust him to come to your aid, support you in your decisions, and be loyal to you.

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Because of your trust in him, you do not supervise his work closely, and you give him

a lot of leeway in how he structures his work. He sometimes chooses to work from

home, and he has flexibility in his work hours, which is unusual in the department.

Now you decided to promote him to be the assistant department manager.

However, when you shared this opinion with someone else in the department, you

realized that this could be a problem. Apparently, Jim is not liked by his colleagues in

the department and is known as an “impression manager.” Others view him as a

slacker when you are not around, and the fact that he gets the first pick in schedules

and gets the choice assignments causes a lot of frustration on the part of others.

They feel that you are playing favorites.

Discussion Questions:

1. What would you do?

2. Would you still promote him?

3. How would you address this unpleasant situation within your department?

INDIVIDUAL EXERCISE

Ideas for Developing Yourself as an Authentic Leader

Authentic leaders have high levels of self-awareness, and their behavior is driven by

their core personal values. This leadership approach recognizes the importance of

self-reflection and understanding one’s life history. Answer the following questions

while you are alone to gain a better understanding of your own core values and

authentic leadership style.

 Understand Your History

 Review your life history. What are the major events in your life? How did these

events make you the person you are right now?

 Think about your role models. Who were your role models as you were growing up?

What did you learn from your role models?

 Take Stock of Who You Are Now

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 Describe your personality. How does your personality affect your life?

 Know your strengths and weaknesses. What are they and how can you continue to

improve yourself?

 Reflect on Your Successes and Challenges

 Keep a journal. Research shows that journaling is an effective tool for self-reflection.

Write down challenges you face and solutions you used to check your progress.

 Make Integrity a Priority

 Understand your core values. What are your core values? Name three of your most

important values.

 Do an ethics check. Are you being consistent with your core values? If not, how can

you get back on track?

 Understand the Power of Words

 Words shape reality. Keep in mind that the words you use to describe people and

situations matter. For example, how might the daily reality be different if you refer

to those you manage as associates or team members rather than employees or

subordinates?

In view of your answers to the questions above, what kind of a leader would you be

if you truly acted out your values? How would people working with you respond to

such a leadership style?

GROUP EXERCISE

You are charged with hiring a manager for a fast-food restaurant. The operations

within the store are highly standardized, and employees have very specific job

descriptions. The person will be in charge of managing around 30 employees. There

is a high degree of turnover among employees, so retention will be an important

priority. Most employees who work in the restaurant are young with low levels of

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work experience, and few of them view the restaurant business as a full-time career.

The atmosphere in the restaurant has a fast pace. In this company, managers are

often promoted from within, and this position is an exception. Therefore, the

incoming manager may not expect a warm welcome from employees who were

passed over for a promotion, as well as their colleagues. Finally, the position power

of the manager will be somewhat limited because employees are unionized.

Therefore, the manager will have limited opportunities for distributing pay raises or

bonuses.

Discussion Questions

1. Identify the leadership traits and behaviors that are desirable for this position.

2. Design an approach to selecting this person. Which methods of employee selection

would you use? Why?

3. Develop interview questions to be used in hiring this manager. Your questions

should be aimed at predicting the leadership capabilities of the person in question.

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With unemployment at near historic lows in the United States, employers report that their single greatest challenge is recruiting and retaining talent. The answer for many companies is to throw money at the problem: Bonuses, incentive pay, and out-of-cycle salary increases are often seen as motivators that will entice greater effort and loyalty out of workers.

Turns out, using cash as a carrot isn’t always the best answer, according to new research by Harvard Business School Assistant Professor Ashley V. Whillans. More than 80 percent of American employees say they do not feel recognized or rewarded, despite the fact that US companies are spending more than a fifth of their budgets on wages.

What employees crave even more is to feel that their managers appreciate them and aren’t afraid to show it, not only in paycheck terms, but in other ways such as flexible work-at-home schedules, gift cards for pulling off impressive projects, or even just by saying “thank you” for a job well done.

28 JAN 2019 RESEARCH & IDEAS

Forget Cash. Here Are Better Ways to Motivate Employees by Dina Gerdeman

28 JAN 2019 | by Dina Gerdeman

In today's tight job market, employers must focus on how to attract and keep top talent. Giving away stacks of money may not always be the best incentive, warns Ashley Whillans.

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“Cash matters in people’s lives, but it’s not all that matters,” says Whillans, who researches what makes people happy. “What really matters in the workplace is helping employees feel appreciated.”

Whillans co-wrote a recent article in Compensation & Benefits Review, “Winning the War for Talent: Modern Motivational Methods for Attracting and Retaining Employees,” with Anais Thibault-Landry of the Université du Québec à Montréal and Allan Schweyer of the Incentive Research Foundation.

“WHAT REALLY MATTERS IN THE WORKPLACE IS HELPING EMPLOYEES FEEL APPRECIATED.”

Rewards that signal to employees that they did a good job and that their manager cares about them will encourage employees to want to work even harder, the research shows. “In a lot of organizations, there are no recognition programs for employees whatsoever, so employers need to catch up,” Whillans says.

Companies with strong recognition programs enjoy increased productivity, lower job turnover, and greater returns on investment than other companies in the same industries.

Whillans provides nine tips for business leaders on how best to reward their workers in ways that will bring them greater job satisfaction and motivate them to work harder.

1. When recruiting, emphasize benefits Talking up a job’s perks, such as flexible work schedules and skill training, can give companies a recruiting edge. A 2018 study that Whillans and her team conducted of more than 92,000 job ads found that the more benefits an employer described, the higher the application rates. Plus, when employers described benefits in detail, such as generous family leave policies, they pulled in more applications than firms that paid significantly more. Candidates said the “softer” rewards described in the job ads gave them the impression the company cared about its employees and was more considerate with helping workers find a healthy work-life balance—and that mattered more to them than the extra money.

2. Cash can motivate workers—in some types of work Cash rewards are best suited as a motivator for work that is measured quantitatively, Whillans says. Many studies of the service and sales industries show that cash rewards lead to increased sales and improved customer service. In the manufacturing sector, cash awards increase daily productivity levels. But money is less meaningful as a motivator in the complex creative jobs that make up most work in our modern knowledge-based society. “With most of today’s employees, you’re trying to help instill intrinsic motivation, so they feel motivated to put in more effort out of enjoyment for what they do and appreciation for their jobs, rather than feeling extrinsically motivated by cash alone.”

3. If you give cash, include a meaningful note For many employees, particularly younger generations, a job is not just a paycheck; people seek meaning in their work. Giving cash alone can feel like an empty gesture or a mere financial transaction and may not act as a strong motivator to work hard, Whillans says. It’s best to avoid merely adding a cash bonus to a worker’s paycheck; a separate bonus check stands out more as a recognition of their work. And managers should also include a sincere handwritten note explaining why the employee deserved the bonus. “If you can find a way to imbue meaning beyond the zeros in the cash reward,” says Whillans, “that same reward will go further.”

4. Reconsider performance incentives Many companies attempt to motivate employees with money and prizes as incentives for future work. Decades of research does confirm that financial incentives can boost effort and performance. But there’s a downside; when an employee’s pay is contingent on performance, they can become obsessed with money—specifically, with earning more of it. What often works better as an incentive is to turn around the timing of the reward, handing it

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out immediately after an employee excels at a particular task, rather than dangling it beforehand. “In this way, you can use timing to your advantage,” Whillans says. “And be very clear about what the worker did and why they’re receiving the reward to reinforce good behavior—because you’re hoping the worker will repeat that behavior.”

5. Consider thoughtful gifts instead of cash Sometimes cash isn’t king. A 2017 study of 600 salespeople found that when a mixed cash and prize reward program was replaced with an equivalent value all-cash package, employee effort dropped dramatically, leading to a 4.36 percent decrease in sales that cost the company millions in lost revenue, Whillans’s article says. The firm may have inadvertently demotivated salespeople who preferred prizes or discouraged workers who liked having a choice. “IN A LOT OF ORGANIZATIONS, THERE ARE NO RECOGNITION PROGRAMS FOR EMPLOYEES WHATSOEVER, SO EMPLOYERS NEED TO CATCH UP.”

People may prefer non-cash gifts because they often spend cash bonuses on basic necessities like paying rent or buying groceries, which are less memorable and enjoyable transactions than luxurious prizes like electronics or trips. It’s even better if a gift feels personalized. A manager could give an employee who enjoys fitness activities a gift card to a store that sells workout clothes, while giving another worker who is a big Red Sox fan tickets to an upcoming game. Another side benefit to prizes: workplace buzz. “People feel awkward talking about money, so they won’t talk about the $2,000 bonus they received. But if you reward someone with a nice dinner or trip, they will talk about it with their co-workers, and that can motivate everyone,” Whillans says. “Plus, that trip or dinner is more memorable and emotionally satisfying to them than just receiving cash, so it can act as a stronger motivator.”

6. Give the gift of time—and other intangible perks A Glassdoor survey Whillans and her team conducted with 115,000 employees found that providing intangible non-cash benefits, like flexible work options or the ability to choose assignments, led to much stronger job satisfaction than straightforward cash rewards. “If you allow an employee to work at home, you help employees feel like you trust them to get their work done where they want to get it done,” Whillans says. “That is enormously satisfying to them—and it motivates them to work even harder.” Also, research shows that employees who take time off are less stressed and more engaged, more creative, and more productive. Give the gift of time, not just through generous vacation policies, but in other ways. For example, figure out flexible work schedules so employees spend less time jammed in traffic. Allow work-travelers to book direct flights—even if they cost a little more than indirect trips.

7. Encourage employees to reward one another Companies can build recognition into their business practices by creating peer-to-peer recognition programs in which employees are provided monthly reward points that they can give away to colleagues for work-related wins. Employees who earn a certain number of points can redeem them for various perks, such as a restaurant gift card or an extra personal day. This is not expensive for a company to do and makes the act of appreciation in the workplace habitual and easy, Whillans says. “It also builds social connections in a workplace, which helps people feel more fulfilled at work.”

8. Make the recognition public If employees are receiving a $500 bonus, hold a workplace event to hand out checks, and invite the employees’ peers. Perhaps add a certificate of appreciation along with the check. “People are more likely to contribute posts on Wikipedia when they receive a public certificate

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of recognition,” Whillans says. “If you can create a social experience around the reward, it becomes more eventful and something an employee will remember.”

9. Sometimes a simple thank you is enough Among the happiest employees, 95 percent say that their managers are good at providing positive feedback, Whillans says. In fact, a simple, heartfelt “thank you” from a manager is often enough for employees to feel like their contributions are valued and will motivate them to try harder. To be most effective, the praise should be specific, highlighting the worker’s unique contributions. It’s a tactic that’s wildly effective, yet significantly underused in the workplace. “You don’t have to express gratitude only for things that help the company turn a profit. It could be as simple as saying ‘thank you’ for an email that allowed a project to go more smoothly,” she says.

“IF YOU CAN CREATE A SOCIAL EXPERIENCE AROUND THE REWARD, IT BECOMES MORE EVENTFUL…”

Why rewarding employees works Whillans says these types of rewards work because they tap into three strong psychological needs: Employees long for autonomy, with the freedom to choose how to do their work; they want to appear competent, armed with the skills needed to perform; and they want to feel a sense of belonging by socially connecting with colleagues in a meaningful way.

When these needs are satisfied, employees feel more motivated, engaged, and committed to their workplace—and they report fewer intentions of leaving their jobs, Whillans says.

Companies shouldn’t read the research results to mean that money is meaningless to employees. The team’s findings are contingent on the understanding that employees are paid competitive, fair salaries. Because, let’s be honest: If an employee has worked overtime for weeks on an important project, a mere “thank you” may feel hollow. Managers should try a variety of rewards and measure which ones appeal to employees and motivate them the most.

Praising employees can be a stumbling block for leaders who mistakenly believe being harsh produces stronger results or who worry they will appear soft and won’t be taken seriously. So managers should be trained in how to regularly show appreciation, Whillans says.

“Many managers feel awkward showing gratitude and shy away from it,” she says. “That’s why organizations need to make a push to help managers with this. It can make all the difference in whether a talented worker stays or goes.”

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COMMENTS

asad

I really like reading through a post that can make people think. Also, many thanks for permitting me to comment! 

Nobel

Informative and good write up. 

John Collins

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Appreciation. Ha. You had a job to go to when you woke up didn't you. That's all you need. Don't like it. Go somewhere else where you have your ego stroked.  Hey we have a guy that was given the Rookie of the year twice. Two years in a row! WOW. What a thoughtful rewards program. We go to a rewards meeting and they give awards no one even knew were being given out. Who know there is a stealth award secret reward program? Huh who'd a thought that?. Rewards here are tied to who the manager likes. We all do  the same thing. I do it behind the scences where the manager never knows but it keeps the machine rolling. I don't need a trophy for participation and I find those who who say money doesn't matter have more money than they need. I tell you what. Let's make a deal. I'll give you my trophy's, plaques, and atta boys's and a gift card to Starbucks and you give me your next  3 months payhchecks. Deal? I didn't think so. Money matters. Money pays bills. Take your certificate of appreciation to the grocery store next time you go and see what it gets you! What Polyanna world do you live in?

Roberta

John Collins, whoever you are, are a very bitter person.   Your work is clearly not appreciated.  You should look for a job that does exactly what this article is preaching.  

Brian Galonek

Good article with it's key points backed by decades of similar detailed research.  It only missed on one point.  

Gift cards are essentially cash and lack any long-term memorability.  Tangible awards and experiential awards, like travel, are the only awards that allow participants to remember for years (or even decades) that they were provided special recognition for a job well done.  The ability to attach the reward to the behavior is the recipe for turning extrinsic rewards into behavior change and muscle memory.

Kaustubh Joshi

Great article Dina. Aside from gifting time and appreciation, the companies in India are also largely looking at gifting learning opportunities to employees. This also in turn builds a sense of increased commitment and gratitude from employees as they feel invested in and of course the relevance of the learning opportunities helps them perform even better in their role with more zeal and passion. Thanking, collaborating and appreciating all three go a long way in attracting and retaining talent. Regards, Kaustubh Joshi

Ronnie

Is there somewhere here that I can see the research? Who was part of the study? I need to see demographics. If I get paid a low wage or if I’m hourly, your verbal praises and time off are not helpful when I’m trying to raise my family, buy a home, send my kids to college. I need to understand what your sample pool is. Thank you 

MsChief

Rewards shouldn’t be a substitute for fair pay or a living  wage. 

Sandra

Great article and reminder that the “little things” matter most.  As employers, we underestimate what matters most to employees and need to get back to connecting and acknowledging them inherent most basis levels.  

Tamo

Totally agree: problem is common in many organizations- when manager recognize and say that your contribution is really help for job, that’ s your opinion is valuable and essential, and simple they are happy that you are with them, it creates positive appreaciable productive working atmosphere 

Ray Ng

A manager who knows his subordinates’ hierarchy of needs and dispenses perceived, appreciated, rewards appropriately, is probably a very rare breed!  Co-workers/colleagues/subordinates going all out for you to put their lives on the line is an extremely rare God Send (or achievement).. (Close -looped, good Human Relations). Company Culture exhibited consistently “in- practice”,and executions, will also influence employees’ pride of association (or the reverse or otherwise) that may impact on their desires to stay (or “run”). These are some of the additional Motivational factors that may be relevant.

Theodros

Companys are motivated by NSR. So it does more! Shareholders are motivated by Profit. So they invest more! And money is the only thing they mesure to company success.  So why is that poor employees should not be motivated by money?  And why they require other motivations and money is not enough? My answer is most poor employees have no idea about making money and how to be happy with it. They are on delusional stage. That they are looking for meanings from what they did. In most cases are not money related.

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566 days ago

So you say "forget money, they are not looking for it." You are right! And that is the difference between rich shareholders and poor employees.

So can we not make statements from this poor guys and make it standard to the world? And instead guide them to the rich people behavior. Your brother from Africa 

GHOSTBUSTOR

Most important factor is a good manager with good leadership quality who allows employees to grow in career -& Skills

tiv

Stupid managers are the reason that employees are not motivated in workplaces.

Mobeen

Monetary rewards and no doubt appreciation is most thrust of employees  Reward Appreciate best tools

Viko

This could hold true for occassional good performers. Consistent performers are always happy and motivated with $

Dickson Niwasasira

Wonderful, this is the truth and only the truth.

EM1

It would be worth reading Daniel Pink’s DRIVE and exploring the social science, much dating back to the 1950s, on which Pink’s insights are based. You will find that managerial science has over-emphasized cash compensation much as Whillan’s work reveals. The impact is greatest when people are performing work that involves significant problem solving; unsurprisingly, routine work that is quantifiable may benefit more from direct cash compensation.  The future of work will be defined by problem solving and creativity.  A rethink of what many of us were taught about motivation in our business education is appropriate. 

Maggie

The author makes a comprehensive case for what motivates people across industries and I have found it particularly true in clinical research where appealing to employees' passion for bringing life saving or enhancing drugs to market safely and as quickly as possible is the reason most employees deal with the long hours, the lack of recognition, the lower salaries.  However, the reality in this economic climate is that many of us are trying to keep our homes from going into foreclosure, figure out how to makes ends meet at the grocery store, pharmacy and children's needs.  Cash has its' place for sure. Pay me adequately and give me a hand written thank you, noticing something I did to make a difference...that's a win-win!

Antara Mehta

Not always cash or rewards work for the employee. Freedom to explore and experiment is what they are looking at these days. The quality of workplaces matters the most rather than the incentives. Build a workplace that gives them a perfect reason to stay with peopleHum - the people platform

Vishal Soni

In my opinion and experience, remuneration is only one fifth the requirement for motivating employees and maintaining a healthy employment relationship. The other 4 key requirements include: Respect, Recognition, Responsibility and Reliability. Remuneration, Respect and Recognition are widely covered in most employee motivation related articles and are really important factors for employee motivation, however, I would like to expound on the other two factors, responsibility, and reliability:

Responsibility:  Assigning responsibility in itself can be an empowering feeling for employees, especially when it is an essential/important type of responsibility and  is being handed down by top management/employer. This act of empowerment can psychologically motivate the employee who is being entrusted with such responsibility (subject to the employee being capable of being delegated to).

Reliability: Reliability in this instance refers to being consistent. One cannot be relied upon if (s)he is not consistent. Consistency is an important requirement in the way an employer treats people or problems. An employer should not be seen as being biased in anyway, be it towards people or situations. In fact employers should exhibit a fair and consistent behaviour in order to appear reliable in the eyes their employees. This will at least ensure that lack of reliability does not become a reason for lack of motivation inemployees.

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Sally Webb

Reflect before acting - Who might you be demotivating, if a check or award is given in a public manner? Meaningful appreciation motivates everyone, as it applauds the individual who has excelled. I've rarely seen management ponder and recognize the downsides of their actions. This is a delicate dance...

Would this action cause others to lose face in service of elevating the one? If so, reassess.

Would your decision support the values of trust and meaning that attracted and kept employees – including the recipients of these checks and awards? If not, reassess.

Every sales environment is different; there is no one-size-fits-all answer. 

Kevin Hunter

This article hits the nail on the head. The most important takeaway from this article is that employee recognition needs to be in place at every company. Every company is different so there needs to a flexible program in place that can motivate a specific employee based on what is important to them should they be recognized.

Many studies consistently result in cash not being king. But that does not mean that cash does not have its place in a recognition program. The downside to cash is that it is not memorable and is often spent on necessities and not trophies. However, an extra $100 is often very meaningful to an employee for basic needs, but that "cash" reward should be in the form of a gift card.  The act of the employee receiving a physical gift card for Target or Wal-Mart, provides the employer with the added benefit of the trophy factor.  A physical representation of the accomplishment that is a reminder of a good deed done. Unfortunately, once a gift card is redeemed, the trophy is gone.  The "trophy" is the benefit that lives on as a reminder of the accomplishment that the employee was recognized for.

Employee recognition should be a multi-faceted approach with the basic underlying theme that receiving praise and gratitude, even as a simple 'thank you" or "good job" is an intrinsic need of humans that is far too often overlooked in the workplace.

John Collins

A trophy is only good for the day they give it to you. The next day my boss would say "DId you get paid for that trophy? Yes." Then what have you done for me today?  You start over at the bottom of the pile. If you live on past accomplishments, you are living in the past.

???

not good at all. should be fired.

Obaijo

Thank you for this great useful advice!

My view is that both cash and non-cash benefits motivate staff in equal measure. An employee needs cash to do most of the things, mainly in terms of expenses that non-cash cannot do since most, if not all non-cash benefits are cannot be monetized as much their values are hugely appreciated.

In case you have rent to pay or children fees to pay or you have a close relative(s) who is sick and who to some extent entirely depend on your support, I am not sure how you can convert a genuine heartfelt 'THANK YOU' appreciation from your likeable Manager following a job well-done into cash to sort out some of these immediate pressing issues that require cash to avoid distraction from your job.

All these rewards should be well balanced such that it does not appear as if the rewards systems is lopsided with emphasis either in cash or in non-cash rewards only. The entire package whether cash or non-cash benefits is very important and in most cases are forward looking which is good for the welfare and peace of mind of the staff.

You have touched on an employee spending lots of extra hours and days on a very demanding project or in some other cases spends a lot of extra time providing crucial valuable support to the organization using his or her own extra time at the expense of his or her health but which are not recognized or compensated at all either in monetary terms (overtime) or in extra day offs. Most of the talented employees working under such conditions will definitely walk out at the slightest opportunity since they will have absolutely nothing to show for putting in a little bit more valuable effort to ensure that the demanding project(s) is completed or providing the essential support to ensure valuable services are not disrupted in any way. Genuine 'THANK YOU' appreciation communications from the Manager will only pacify the employee to certain extent but not forever.

Eugene Tse

I think this advice is only useful in regards to your secondary statement, to "keep top talent", but NOT a good generality to "motivate employees" as the main title head states. 

Sorry, but cash RULES.  I think those that feel otherwise need to lose their jobs, and work at minimum wage or close to for a few years, to fully realize and come to appreciate what can be taken away.  Think about your lifestyle, and the life perks you have come to enjoy, and how much you would lose when your job gets cut.

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I think the above article would only be applicable to those in the 90th percentile for their industry, because those people would most certainly know what they're worth, and where they can go if they're underappreciated.  But for the rest of us, perhaps in the 70th to 90th percentile range, be THANKFUL you have a job in your chosen field.

I, as I'm sure amongst many others, would GLADLY switch you positions.  Take this from a guy who RARELY takes vacations, has no issue eating lunch at his desk while he continues to work, RARELY gets sick or calls in sick, and no issue pulling in the extra hours where needed.  Even on a Saturday.  And no, I'm nowhere close to a workaholic.

Take this from a guy who would love to waltz in at 7:48 or 8:32am if I felt like it, and not worry if I took 58mins for lunch, or 65mins, and revel in my cushy chair for a few minutes upon returning before I get back to work.  I would love again to leave early on a Friday "cause I felt like it", using up banked hours that I so casually earned.  Take this from a guy who currently gets NO paid vacation, days missed = no money, and if I am THREE MINUTES "late" in a day (which includes late entry and timed breaks), this quickly accumulates to escalating write-ups TO TERMINATION. 

I am far from the best, but I am damn well above average, as I'm sure many others are.  I know when I've done a good job, but I also have no issues taking criticism; there is always something to learn.  Given the time, we would all attain the same skillset, if not better, that certain whiners are saying they never get enough thanks for.  I don't need your useless gifts.  Of course I appreciate "thank you"s, but I also know what being perpetually broke actually feels like.  Knowing what it's like worrying what random crap will happen every few months, obliterate what little savings I could muster, and then whether or not I can pay my bills at that time.

EMPLOYERS, I would GLADLY take a job in my field, 5 years STRAIGHT, no thank yous needed, just ensure the projects keep coming.  Travel? No problem.  If there's anything I need, I will ask for it, and I expect the same from you.  No gift certificates, no turkey dinners, no bonuses.  Just the job and fair pay.  You guarantee the job, I will guarantee my loyalty and service.

To the whiners:  Remember that there is always someone more hungry than you, equally competent, and has no issue taking your place.  Once again, be THANKFUL you have that job, for however long you've had that for. 

Thanks for reading.

Leonardo Pumbu

Well said indeed. Money talk all the time. No matter how the author are trying to put it. Those employees who put in effort by working hard always have a plan B and a exit point. 

But anyways, I love the research. 

Regards, Leonsrdo

John Collins

AMEN! 

Andrey

Think of the Maslow Pyramid.

Sunil Ailavadi

Very Right. Patience Listening and being part of their job/ problem is the best motivator. One who is respected is Guru (Teacher) who doesn’t give money but knowledge.  At time when disparity is there needs money motivation 

Steven Leuschel

Thanks for sharing, this is great. When designing a self-implemented improvement system this article will come in handy. I especially like cash+meaningful note. Even better is for the leader to go and see along side the cash and note. Thanks again for sharing!

Christian Witt B.

I enjoyed reading this article. The power of happy employees is immense and most rewarding for companies. Employees that are recognized and valued for their work and the contribution to the overall success, are more likely to stay and will definitely perform their best. I’ve experienced it myself and have seen important changes in behaviour, motivation and levels of satisfaction. To create and maintain a happiness culture is a must in every company, and will result in loyal and most efficient contributors. 

FusionLeader2B

Thank you- our society needs more of this conversation! While cash is important, it isolates toward self. As social creatures we respond to social "tools" that "fuse" workers together around a shared purpose. Whillans' nine "tips" are consistent with this approach. I cannot think of anything that will better advance our society than a national workplace culture that actually engages workers. I offer this article for those interested in taking the conversation further: https://fusionleadership.org/featured-article-3- ways-to-inspire-your-team-in-2019-hr-com/ 

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Afaun Mandol

Great article that confirms what James Sale and his Motivational Maps have been stressing iver the past 8 years.  We are all made up of 9 different motivators but depending on who we are and what is going on in our lives - motivators are different for each individual  Offering up a one size fits all strategy never works - we are individuals and are motivated by different things.  CareerMoxi.com levearges Motivational Maps to make finding out your motivators really easy.  A boatload of accurate insight can be gained within 15 min of taking the test on line. It's great for recruiting, existing staff, and individuals.    I'm glad people are finally starting to get this,  The impact on job satisfaction, and in turn, perfomance and productivity will be huge.

Steve Carmichael

For high skilled workers in markets that are underpaid deliberately by employers using geographic cost of living as an excuse, this is a further excuse to continue! Employers in Ohio are notorious for this kind of mistreatment. Reward with cash because we can't eat praise.

Olejohn

Millennials want positive feedback,  more time for themselves, projects instead of 8 hour shifts and an employer that adds a positive mission to their bottom line.  However even Walmart gives bonuses often.

Gajan

Good read! In essence, it sound like this artivle revalidates what Daniel Pink's "Drive: The Surprising Truth About What Motivates Us" centered around - the "intrinsic reward".

w_thiha

Intrinsic motivation is one of the best practices that my positive way of reward rather than a cash gives it away. Encourage & Empower are also remarkable. 

John Carlisle

It is almost as though you have never read Alfie Kohn's classic: "Punished by Rewards" or Deming, and that you still trot out this message of manipulation as those employees are Pavlovian subjects. The responding comment make me despondent. Please reference the "many studies" that money motivates (Point 2).

Kate Talty, CCP, PMP

As a seasoned Compensation/Total Rewards professional and as an employee, I can attest (and have witnessed countless cases first hand) that cash isn't always the answer to motivate or retain employees. But, I wouldn't disregard it altogether as to "forget cash" (catchy title though), and the author also clarifies this in the article, i.e., employees must first receive fair and competitive compensation for the work they do.  Truth is, one size does not fit all, and there are countless opportunities to be creative and finding the right approach.  We are challenged to customize.  This is what's fun about the evolving field of Total Rewards.  The key is to find innovative ways to combine monetary and non-monetary means to attract, engage and motivate employees.  

Dfallah

The best way to motivate employees by focusing on leadership rather than management yet leadership is to inspire employees, engage employees, motivate employees to get the right  thing done however employees must to lead by example , lead with heart and humility that how to appreciate employees because employees like to be part of something bigger than themselves like vision involvement, share ideas and  share decision making .

Amitava

Appreciate to get appreciated!

Edmund

The power of appreciation, accountability and affirmation on a regular basis can be transformational. 

Steve

Of all people working in the United States, it's hard to believe that "complex creative jobs that make up most work in our modern knowledge-based society" as the article states is an accurate statement. These ideas are fine and likely appropriate to this group; however, to dismiss "sales, service, and manufacturing" employees is to dismiss a major portion of the workforce. The tone of the article therefore comes across as a bit out of touch with the folks reliant on a weekly paycheck.

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NickFly69745775

Would it make more sense to do a pre employment survey to see how certain employees are intrinsically motivated? Then management can cater to individual needs for their DRs and not waste valuable company respurces. 

Kim Tonetti

The incentive carrot works much better than a stick !

Sending money Is welcome, but sending employees on a trip with expenses. paid for, and making a big deal out of their accomplishments- priceless ! 

Edward

But "stacks of cash" seem to be the incentive norm for CEOs....whose salaries have ballooned from 30 times the average employee in 1975 to about 300 times today. How come it works for them but not for the little people?  

Nancy

Interesting point Edward

Marty

Because with stacks of cash comes recognition and feeling valued. As long as those things come attached, I can see why cash works as an incentive to motivate. 

John Carter

Majority of this comes from stock incentives not increase in base pay...

V for Vendetta

“ But money is less meaningful as a motivator in the complex creative jobs that make up most work in our modern knowledge-based society. “

Money Motivation from Dilbert Comic Strips.... https://dilbert.com/search_results?terms=Money+Motivation

Because many of these newer motivation researches such as Self-determination theory (SDT) are actually paid for by top 1% not based on any science at all from real scientists, and how dare you question their wisdom or propaganda to screw knowledge-based workers doing complex coding with less money.  {roll my eyes}

Iowa-Guru

Great job in highlighting all of the levers that organizations can use to further employee engagement!

lesjr27

Very true!  Thank you for sharing, the Millenial/GenZ generations are reshaping how America "goes to work."   I penned an article recently on how Employers should rethink their recruiting/retaining strategies after the 21st Government Shutdown. https://riskandinsurance.com/government-shutdown-employers-risk/ 

Marvin Gardens

I read your article, several complimentary points were made to this article, however the points made did not bring solutions to the issue or issues at hand. Yes Millennials are here and firmly entrenched into the workplace,and the NextGens appear preparing for on boarding. My question is what are the practical and available answers to this dilemma? Your perspective from themanagement of risk could be understood as the emphasis of your article. Many government entities have furloughed and not filled positions previousl yavailable. Yes employment risk now exists in public service as a response to financial and economic exposure. What I gather from both articles is adequate compensation and individualized appreciation surrounded by a meaningful and purposeful employer are those answers. Retaining and replacing existing and exiting people depends on how well we actually influence and develop each other, not necessarily how to manage each other. Didn't Bass and MacGregor Burns make these same points? and now Dan Pink heralds these points onYouTube.

Leslie

I just read the article she co-authored, and it is clear that the research she and her co-author reviewed involved almost exclusively higher-paid workers--though, puzzlingly, nowhere is this actually made explicit, as it should have been. 

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In an economy where lower-paid, lower-status workers are hurting badly, their omission from this kind of research is troubling. As is the fact that HBS is publicizing this article with the sexy headline "Forget Cash," when lower-paid, lower-status workers need cash more than ever--as the recent shutdown underscored. Could HBS (and its press office) please acknowledge them and their crucial role in the economy? 

AFC

Unrealistic, cash is king when it comes to work! In reality people have to pay taxes on significant gifts in most cases 30% or more. Benifits are part of the income and the more of them, More income!!!

Brian Stolz

Thoughtful post about what really matters with rewards.  This ties in nicely with Daniel Pink's work on why if-than comp models can be counterproductive.

11/18/2020 Peter Senge and the learning organization – infed.org:

https://infed.org/peter-senge-and-the-learning-organization/ 1/17

Peter Senge and the learning organization. Peter Senge’s vision of a learning organization as a group of people who are continually enhancing their capabilities to create what they want to create has been deeply influential. We discuss the five disciplines he sees as central to learning organizations and some issues and questions concerning the theory and practice of learning organizations.

contents: introduction · peter senge · the learning organization · systems thinking – the cornerstone of the learning organization · the core disciplines · leading the learning organization · issues and problems · conclusion · further reading and references · links

Peter M. Senge (1947- ) was named a ‘Strategist of the Century’ by the Journal of Business Strategy, one of 24 men and women who have ‘had the greatest impact on the way we conduct business today’ (September/October 1999). While he has studied how firms and organizations develop adaptive capabilities for many years at MIT (Massachusetts Institute of Technology), it was Peter Senge’s 1990 book The Fifth Discipline that brought him firmly into the limelight and popularized the concept of the ‘learning organization’. Since its publication, more than a million copies have been sold and in 1997, Harvard Business Review identified it as one of the seminal management books of the past 75 years.

On this page we explore Peter Senge’s vision of the learning organization. We will focus on the arguments in his (1990) book The Fifth Discipline as it is here we find the most complete exposition of his thinking.

Peter Senge

infed.org: education, community-building and change Peter Senge and the learning organization

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Born in 1947, Peter Senge graduated in engineering from Stanford and then went on to undertake a masters on social systems modeling at MIT (Massachusetts Institute of Technology) before completing his PhD on Management. Said to be a rather unassuming man, he is is a senior lecturer at the Massachusetts Institute of Technology. He is also founding chair of the Society for Organizational Learning (SoL). His current areas of special interest focus on decentralizing the role of leadership in organizations so as to enhance the capacity of all people to work productively toward common goals.

Peter Senge describes himself as an ‘idealistic pragmatist’. This orientation has allowed him to explore and advocate some quite ‘utopian’ and abstract ideas (especially around systems theory and the necessity of bringing human values to the workplace). At the same time he has been able to mediate these so that they can be worked on and applied by people in very different forms of organization. His areas of special interest are said to focus on decentralizing the role of leadership in organizations so as to enhance the capacity of all people to work productively toward common goals. One aspect of this is Senge’s involvement in the Society for Organizational Learning (SoL), a Cambridge- based, non-profit membership organization. Peter Senge is its chair and co-founder. SoL is part of a ‘global community of corporations, researchers, and consultants’ dedicated to discovering, integrating, and implementing ‘theories and practices for the interdependent development of people and their institutions’. One of the interesting aspects of the Center (and linked to the theme of idealistic pragmatism) has been its ability to attract corporate sponsorship to fund pilot programmes that carry within them relatively idealistic concerns.

Aside from writing The Fifth Discipline: The Art and Practice of The Learning Organization (1990), Peter Senge has also co-authored a number of other books linked to the themes first developed in The Fifth Discipline. These include The Fifth Discipline Fieldbook: Strategies and Tools for Building a Learning Organization (1994); The Dance of Change: The Challenges to Sustaining Momentum in Learning Organizations (1999) and Schools That Learn (2000).

The learning organization

According to Peter Senge (1990: 3) learning organizations are:

…organizations where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning to see the whole together.

The basic rationale for such organizations is that in situations of rapid change only those that are flexible, adaptive and productive will excel. For this to happen, it is argued,

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organizations need to ‘discover how to tap people’s commitment and capacity to learn at all levels’ (ibid.: 4).

While all people have the capacity to learn, the structures in which they have to function are often not conducive to reflection and engagement. Furthermore, people may lack the tools and guiding ideas to make sense of the situations they face. Organizations that are continually expanding their capacity to create their future require a fundamental shift of mind among their members.

When you ask people about what it is like being part of a great team, what is most striking is the meaningfulness of the experience. People talk about being part of something larger than themselves, of being connected, of being generative. It become quite clear that, for many, their experiences as part of truly great teams stand out as singular periods of life lived to the fullest. Some spend the rest of their lives looking for ways to recapture that spirit. (Senge 1990: 13)

For Peter Senge, real learning gets to the heart of what it is to be human. We become able to re-create ourselves. This applies to both individuals and organizations. Thus, for a ‘learning organization it is not enough to survive. ‘”Survival learning” or what is more often termed “adaptive learning” is important – indeed it is necessary. But for a learning organization, “adaptive learning” must be joined by “generative learning”, learning that enhances our capacity to create’ (Senge 1990:14).

The dimension that distinguishes learning from more traditional organizations is the mastery of certain basic disciplines or ‘component technologies’. The five that Peter Senge identifies are said to be converging to innovate learning organizations. They are:

Systems thinking

Personal mastery

Mental models

Building shared vision

Team learning

He adds to this recognition that people are agents, able to act upon the structures and systems of which they are a part. All the disciplines are, in this way, ‘concerned with a shift of mind from seeing parts to seeing wholes, from seeing people as helpless reactors to seeing them as active participants in shaping their reality, from reacting to the present to creating the future’ (Senge 1990: 69). It is to the disciplines that we will now turn.

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Systems thinking – the cornerstone of the learning organization

A great virtue of Peter Senge’s work is the way in which he puts systems theory to work. The Fifth Discipline provides a good introduction to the basics and uses of such theory – and the way in which it can be brought together with other theoretical devices in order to make sense of organizational questions and issues. Systemic thinking is the conceptual cornerstone (‘The Fifth Discipline’) of his approach. It is the discipline that integrates the others, fusing them into a coherent body of theory and practice (ibid.: 12). Systems theory’s ability to comprehend and address the whole, and to examine the interrelationship between the parts provides, for Peter Senge, both the incentive and the means to integrate the disciplines.

Here is not the place to go into a detailed exploration of Senge’s presentation of systems theory (I have included some links to primers below). However, it is necessary to highlight one or two elements of his argument. First, while the basic tools of systems theory are fairly straightforward they can build into sophisticated models. Peter Senge argues that one of the key problems with much that is written about, and done in the name of management, is that rather simplistic frameworks are applied to what are complex systems. We tend to focus on the parts rather than seeing the whole, and to fail to see organization as a dynamic process. Thus, the argument runs, a better appreciation of systems will lead to more appropriate action.

‘We learn best from our experience, but we never directly experience the consequences of many of our most important decisions’, Peter Senge (1990: 23) argues with regard to organizations. We tend to think that cause and effect will be relatively near to one another. Thus when faced with a problem, it is the ‘solutions’ that are close by that we focus upon. Classically we look to actions that produce improvements in a relatively short time span. However, when viewed in systems terms short-term improvements often involve very significant long-term costs. For example, cutting back on research and design can bring very quick cost savings, but can severely damage the long-term viability of anorganization. Part of the problem is the nature of the feedback we receive. Some of the feedback will be reinforcing (or amplifying) – with small changes building on themselves. ‘Whatever movement occurs is amplified, producing more movement in the same direction. A small action snowballs, with more and more and still more of the same, resembling compound interest’ (Senge 1990: 81). Thus, we may cut our advertising budgets, see the benefits in terms of cost savings, and in turn further trim spending in this area. In the short run there may be little impact on people’s demands for our goods and services, but longer term the decline in visibility may have severe penalties. An appreciation of systems will lead to recognition of the use of, and problems with, such reinforcing feedback, and also an understanding of the place of balancing (or stabilizing) feedback. (See, also Kurt Lewin on feedback). A further key aspect of systems is the extent to which they inevitably involve delays – ‘interruptions in the flow of influence

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which make the consequences of an action occur gradually’ (ibid.: 90). Peter Senge (1990: 92) concludes:

The systems viewpoint is generally oriented toward the long-term view. That’s why delays and feedback loops are so important. In the short term, you can often ignore them; they’re inconsequential. They only come back to haunt you in the long term.

Peter Senge advocates the use of ‘systems maps’ – diagrams that show the key elements of systems and how they connect. However, people often have a problem ‘seeing’ systems, and it takes work to acquire the basic building blocks of systems theory, and to apply them to your organization. On the other hand, failure to understand system dynamics can lead us into ‘cycles of blaming and self-defense: the enemy is always out there, and problems are always caused by someone else’ Bolam and Deal 1997: 27; see, also, Senge 1990: 231).

The core disciplines

Alongside systems thinking, there stand four other ‘component technologies’ or disciplines. A ‘discipline’ is viewed by Peter Senge as a series of principles and practices that we study, master and integrate into our lives. The five disciplines can be approached at one of three levels:

Practices: what you do.

Principles: guiding ideas and insights.

Essences: the state of being those with high levels of mastery in the discipline (Senge 1990: 373).

Each discipline provides a vital dimension. Each is necessary to the others if organizations are to ‘learn’.

Personal mastery. ‘Organizations learn only through individuals who learn. Individual learning does not guarantee organizational learning. But without it no organizational learning occurs’ (Senge 1990: 139). Personal mastery is the discipline of continually clarifying and deepening our personal vision, of focusing our energies, of developing patience, and of seeing reality objectively’ (ibid.: 7). It goes beyond competence and skills, although it involves them. It goes beyond spiritual opening, although it involves spiritual growth (ibid.: 141). Mastery is seen as a special kind of proficiency. It is not about dominance, but rather about calling. Vision is vocation rather than simply just a good idea.

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People with a high level of personal mastery live in a continual learning mode. They never ‘arrive’. Sometimes, language, such as the term ‘personal mastery’ creates a misleading sense of definiteness, of black and white. But personal mastery is not something you possess. It is a process. It is a lifelong discipline. People with a high level of personal mastery are acutely aware of their ignorance, their incompetence, their growth areas. And they are deeply self-confident. Paradoxical? Only for those who do not see the ‘journey is the reward’. (Senge 1990: 142)

In writing such as this we can see the appeal of Peter Senge’s vision. It has deep echoes in the concerns of writers such as M. Scott Peck (1990) and Erich Fromm (1979). The discipline entails developing personal vision; holding creative tension (managing the gap between our vision and reality); recognizing structural tensions and constraints, and our own power (or lack of it) with regard to them; a commitment to truth; and using the sub- conscious (ibid.: 147-167).

Mental models. These are ‘deeply ingrained assumptions, generalizations, or even pictures and images that influence how we understand the world and how we take action’ (Senge 1990: 8). As such they resemble what Donald A Schön talked about as a professional’s ‘repertoire’. We are often not that aware of the impact of such assumptions etc. on our behaviour – and, thus, a fundamental part of our task (as Schön would put it) is to develop the ability to <href=”#_the_reflective_practitioner”>reflect-in- and –on- action. Peter Senge is also influenced here by Schön’s collaborator on a number of projects, Chris Argyris.

The discipline of mental models starts with turning the mirror inward; learning to unearth our internal pictures of the world, to bring them to the surface and hold them rigorously to scrutiny. It also includes the ability to carry on ‘learningful’ conversations that balance inquiry and advocacy, where people expose their own thinking effectively and make that thinking open to the influence of others. (Senge 1990: 9)

If organizations are to develop a capacity to work with mental models then it will be necessary for people to learn new skills and develop new orientations, and for their to be institutional changes that foster such change. ‘Entrenched mental models… thwart changes that could come from systems thinking’ (ibid.: 203). Moving the organization in the right direction entails working to transcend the sorts of internal politics and game playing that dominate traditional organizations. In other words it means fostering openness (Senge 1990: 273-286). It also involves seeking to distribute business responsibly far more widely while retaining coordination and control. Learning organizations are localized organizations (ibid.: 287-301).

Building shared vision. Peter Senge starts from the position that if any one idea about leadership has inspired organizations for thousands of years, ‘it’s the capacity to hold a

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share picture of the future we seek to create’ (1990: 9). Such a vision has the power to be uplifting – and to encourage experimentation and innovation. Crucially, it is argued, it can also foster a sense of the long-term, something that is fundamental to the ‘fifth discipline’.

When there is a genuine vision (as opposed to the all-to-familiar ‘vision statement’), people excel and learn, not because they are told to, but because they want to. But many leaders have personal visions that never get translated into shared visions that galvanize an organization… What has been lacking is a discipline for translating vision into shared vision – not a ‘cookbook’ but a set of principles and guiding practices.

The practice of shared vision involves the skills of unearthing shared ‘pictures of the future’ that foster genuine commitment and enrolment rather than compliance. In mastering this discipline, leaders learn the counter-productiveness of trying to dictate a vision, no matter how heartfelt. (Senge 1990: 9)

Visions spread because of a reinforcing process. Increased clarity, enthusiasm and commitment rub off on others in the organization. ‘As people talk, the vision grows clearer. As it gets clearer, enthusiasm for its benefits grow’ (ibid.: 227). There are ‘limits to growth’ in this respect, but developing the sorts of mental models outlined above can significantly improve matters. Where organizations can transcend linear and grasp system thinking, there is the possibility of bringing vision to fruition.

Team learning. Such learning is viewed as ‘the process of aligning and developing the capacities of a team to create the results its members truly desire’ (Senge 1990: 236). It builds on personal mastery and shared vision – but these are not enough. People need to be able to act together. When teams learn together, Peter Senge suggests, not only can there be good results for the organization, members will grow more rapidly than could have occurred otherwise.

The discipline of team learning starts with ‘dialogue’, the capacity of members of a team to suspend assumptions and enter into a genuine ‘thinking together’. To the Greeks dia-logos meant a free-flowing if meaning through a group, allowing the group to discover insights not attainable individually…. [It] also involves learning how to recognize the patterns of interaction in teams that undermine learning. (Senge 1990: 10)

The notion of dialogue that flows through The Fifth Discipline is very heavily dependent on the work of the physicist, David Bohm (where a group ‘becomes open to the flow of a larger intelligence’, and thought is approached largely as collective phenomenon). When dialogue is joined with systems thinking, Senge argues, there is the possibility of creating a language more suited for dealing with complexity, and of focusing on deep-seated

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structural issues and forces rather than being diverted by questions of personality and leadership style. Indeed, such is the emphasis on dialogue in his work that it could almost be put alongside systems thinking as a central feature of his approach.

Leading the learning organization

Peter Senge argues that learning organizations require a new view of leadership. He sees the traditional view of leaders (as special people who set the direction, make key decisions and energize the troops as deriving from a deeply individualistic and non- systemic worldview (1990: 340). At its centre the traditional view of leadership, ‘is based on assumptions of people’s powerlessness, their lack of personal vision and inability to master the forces of change, deficits which can be remedied only by a few great leaders’ (op. cit.). Against this traditional view he sets a ‘new’ view of leadership that centres on ‘subtler and more important tasks’.

In a learning organization, leaders are designers, stewards and teachers. They are responsible for building organizations were people continually expand their capabilities to understand complexity, clarify vision, and improve shared mental models – that is they are responsible for learning…. Learning organizations will remain a ‘good idea’… until people take a stand for building such organizations. Taking this stand is the first leadership act, the start of inspiring (literally ‘to breathe life into’) the vision of the learning organization. (Senge 1990: 340)

Many of the qualities that Peter Senge discusses with regard to leading the learning organization can be found in the shared leadershipmodel (discussed elsewhere on these pages). For example, what Senge approaches as inspiration, can be approached as animation. Here we will look at the three aspects of leadership that he identifies – and link his discussion with some other writers on leadership.

Leader as designer. The functions of design are rarely visible, Peter Senge argues, yet no one has a more sweeping influence than the designer (1990: 341). The organization’s policies, strategies and ‘systems’ are key area of design, but leadership goes beyond this. Integrating the five component technologies is fundamental. However, the first task entails designing the governing ideas – the purpose, vision and core values by which people should live. Building a shared vision is crucial early on as it ‘fosters a long-term orientation and an imperative for learning’ (ibid.: 344). Other disciplines also need to be attended to, but just how they are to be approached is dependent upon the situation faced. In essence, ‘the leaders’ task is designing the learning processes whereby people throughout the organization can deal productively with the critical issues they face, and develop their mastery in the learning disciplines’ (ibid.: 345).

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Leader as steward. While the notion of leader as steward is, perhaps, most commonly associated with writers such as Peter Block (1993), Peter Senge has some interesting insights on this strand. His starting point was the ‘purpose stories’ that the managers he interviewed told about their organization. He came to realize that the managers were doing more than telling stories, they were relating the story: ‘the overarching explanation of why they do what they do, how their organization needs to evolve, and how that evolution is part of something larger’ (Senge 1990: 346). Such purpose stories provide a single set of integrating ideas that give meaning to all aspects of the leader’s work – and not unexpectedly ‘the leader develops a unique relationship to his or her own personal vision. He or she becomes a steward of the vision’ (op. cit.). One of the important things to grasp here is that stewardship involves a commitment to, and responsibility for the vision, but it does not mean that the leader owns it. It is not their possession. Leaders are stewards of the vision, their task is to manage it for the benefit of others (hence the subtitle of Block’s book – ‘Choosing service over self-interest’). Leaders learn to see their vision as part of something larger. Purpose stories evolve as they are being told, ‘in fact, they are as a result of being told’ (Senge 1990: 351). Leaders have to learn to listen to other people’s vision and to change their own where necessary. Telling the story in this way allows others to be involved and to help develop a vision that is both individual and shared.

Leader as teacher. Peter Senge starts here with Max de Pree’s (1990) injunction that the first responsibility of a leader is to define reality. While leaders may draw inspiration and spiritual reserves from their sense of stewardship, ‘much of the leverage leaders can actually exert lies in helping people achieve more accurate, more insightful and more empowering views of reality (Senge 1990: 353). Building on an existing ‘hierarchy of explanation’ leaders, Peter Senge argues, can influence people’s view of reality at four levels: events, patterns of behaviour, systemic structures and the ‘purpose story’. By and large most managers and leaders tend to focus on the first two of these levels (and under their influence organizations do likewise). Leaders in learning organizations attend to all four, ‘but focus predominantly on purpose and systemic structure. Moreover they “teach” people throughout the organization to do likewise’ (Senge 1993: 353). This allows them to see ‘the big picture’ and to appreciate the structural forces that condition behaviour. By attending to purpose, leaders can cultivate an understanding of what the organization (and its members) are seeking to become. One of the issues here is that leaders often have strengths in one or two of the areas but are unable, for example, to develop systemic understanding. A key to success is being able to conceptualize insights so that they become public knowledge, ‘open to challenge and further improvement’ (ibid.: 356).

“Leader as teacher” is not about “teaching” people how to achieve their vision. It is about fostering learning, for everyone. Such leaders help people throughout the organization develop systemic understandings. Accepting this responsibility is the antidote to one of the most common downfalls of otherwise gifted teachers – losing their commitment to the truth. (Senge 1990: 356)

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Leaders have to create and manage creative tension – especially around the gap between vision and reality. Mastery of such tension allows for a fundamental shift. It enables the leader to see the truth in changing situations.

Issues and problems

When making judgements about Peter Senge’s work, and the ideas he promotes, we need to place his contribution in context. His is not meant to be a definitive addition to the ‘academic’ literature of organizational learning. Peter Senge writes for practicing and aspiring managers and leaders. The concern is to identify how interventions can be made to turn organizations into ‘learning organizations’. Much of his, and similar theorists’ efforts, have been ‘devoted to identifying templates, which real organizations could attempt to emulate’ (Easterby-Smith and Araujo 1999: 2). In this field some of the significant contributions have been based around studies of organizational practice, others have ‘relied more on theoretical principles, such as systems dynamics or psychological learning theory, from which implications for design and implementation have been derived’ (op. cit.). Peter Senge, while making use of individual case studies, tends to the latter orientation.

The most appropriate question in respect of this contribution would seem to be whether it fosters praxis– informed, committed action on the part of those it is aimed at? This is an especially pertinent question as Peter Senge looks to promote a more holistic vision of organizations and the lives of people within them. Here we focus on three aspects. We start with the organization.

Organizational imperatives. Here the case against Peter Senge is fairly simple. We can find very few organizations that come close to the combination of characteristics that he identifies with the learning organization. Within a capitalist system his vision of companies and organizations turning wholehearted to the cultivation of the learning of their members can only come into fruition in a limited number of instances. While those in charge of organizations will usually look in some way to the long-term growth and sustainability of their enterprise, they may not focus on developing the human resources that the organization houses. The focus may well be on enhancing brand recognition and status (Klein 2001); developing intellectual capital and knowledge (Leadbeater 2000); delivering product innovation; and ensuring that production and distribution costs are kept down. As Will Hutton (1995: 8) has argued, British companies’ priorities are overwhelmingly financial. What is more, ‘the targets for profit are too high and time horizons too short’ (1995: xi). Such conditions are hardly conducive to building the sort of organization that Peter Senge proposes. Here the case against Senge is that within capitalist organizations, where the bottom line is profit, a fundamental concern with the learning and development of employees and associates is simply too idealistic.

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Yet there are some currents running in Peter Senge’s favour. The need to focus on knowledge generation within an increasingly globalized economy does bring us back in some important respects to the people who have to create intellectual capital.

Productivity and competitiveness are, by and large, a function of knowledge generation and information processing: firms and territories are organized in networks of production, management and distribution; the core economic activities are global – that is they have the capacity to work as a unit in real time, or chosen time, on a planetary scale. (Castells 2001: 52)

A failure to attend to the learning of groups and individuals in the organization spells disaster in this context. As Leadbeater (2000: 70) has argued, companies need to invest not just in new machinery to make production more efficient, but in the flow of know- how that will sustain their business. Organizations need to be good at knowledge generation, appropriation and exploitation. This process is not that easy:

Knowledge that is visible tends to be explicit, teachable, independent, detachable, it also easy for competitors to imitate. Knowledge that is intangible, tacit, less teachable, less observable, is more complex but more difficult to detach from the person who created it or the context in which it is embedded. Knowledge carried by an individual only realizes its commercial potential when it is replicated by an organization and becomes organizational knowledge. (ibid.: 71)

Here we have a very significant pressure for the fostering of ‘learning organizations’. The sort of know-how that Leadbeater is talking about here cannot be simply transmitted. It has to be engaged with, talking about and embedded in organizational structures and strategies. It has to become people’s own.

A question of sophistication and disposition. One of the biggest problems with Peter Senge’s approach is nothing to do with the theory, it’s rightness, nor the way it is presented. The issue here is that the people to whom it is addressed do not have the disposition or theoretical tools to follow it through. One clue lies in his choice of ‘disciplines’ to describe the core of his approach. As we saw a discipline is a series of principles and practices that we study, master and integrate into our lives. In other words, the approach entails significant effort on the part of the practitioner. It also entails developing quite complicated mental models, and being able to apply and adapt these to different situations – often on the hoof. Classically, the approach involves a shift from product to process (and back again). The question then becomes whether many people in organizations can handle this. All this has a direct parallel within formal education. One of the reasons that product approaches to curriculum (as exemplified in the concern for SATs tests, examination performance and school attendance) have assumed such a dominance is that alternative process approaches are much more

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difficult to do well. They may be superior – but many teachers lack the sophistication to carry them forward. There are also psychological and social barriers. As Lawrence Stenhouse put it some years ago: ‘The close examination of one’s professional performance is personally threatening; and the social climate in which teachers work generally offers little support to those who might be disposed to face that threat’ (1975: 159). We can make the same case for people in most organizations.

The process of exploring one’s performance, personality and fundamental aims in life (and this is what Peter Senge is proposing) is a daunting task for most people. To do it we need considerable support, and the motivation to carry the task through some very uncomfortable periods. It calls for the integration of different aspects of our lives and experiences. There is, here, a straightforward question concerning the vision – will people want to sign up to it? To make sense of the sorts of experiences generated and explored in a fully functioning ‘learning organization’ there needs to be ‘spiritual growth’ and the ability to locate these within some sort of framework of commitment. Thus, as employees, we are not simply asked to do our jobs and to get paid. We are also requested to join in something bigger. Many of us may just want to earn a living!

Politics and vision. Here we need to note two key problem areas. First, there is a question of how Peter Senge applies systems theory. While he introduces all sorts of broader appreciations and attends to values – his theory is not fully set in a political or moral framework. There is not a consideration of questions of social justice, democracy and exclusion. His approach largely operates at the level of organizational interests. This is would not be such a significant problem if there was a more explicit vision of the sort of society that he would like to see attained, and attention to this with regard to management and leadership. As a contrast we might turn to Peter Drucker’s (1977: 36) elegant discussion of the dimensions of management. He argued that there are three tasks – ‘equally important but essentially different’ – that face the management of every organization. These are:

To think through and define the specific purpose and mission of the institution, whether business enterprise, hospital, or university.

To make work productive and the worker achieving.

To manage social impacts and social responsibilities. (op. cit.)

He continues:

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None of our institutions exists by itself and as an end in itself. Every one is an organ of society and exists for the sake of society. Business is not exception. ‘Free enterprise’ cannot be justified as being good for business. It can only be justified as being good for society. (Drucker 1977: 40)

If Peter Senge had attempted greater connection between the notion of the ‘learning organization’ and the ‘learning society’, and paid attention to the political and social impact of organizational activity then this area of criticism would be limited to the question of the particular vision of society and human flourishing involved.

Second, there is some question with regard to political processes concerning his emphasis on dialogue and shared vision. While Peter Senge clearly recognizes the political dimensions of organizational life, there is sneaking suspicion that he may want to transcend it. In some ways there is link here with the concerns and interests of communitarian thinkers like Amitai Etzioni (1995, 1997). As Richard Sennett (1998: 143) argues with regard to political communitarianism, it ‘falsely emphasizes unity as the source of strength in a community and mistakenly fears that when conflicts arise in a community, social bonds are threatened’. Within it (and arguably aspects of Peter Senge’s vision of the learning organization) there seems, at times, to be a dislike of politics and a tendency to see danger in plurality and difference. Here there is a tension between the concern for dialogue and the interest in building a shared vision. An alternative reading is that difference is good for democratic life (and organizational life) provided that we cultivate a sense of reciprocity, and ways of working that encourage deliberation. The search is not for the sort of common good that many communitarians seek (Guttman and Thompson 1996: 92) but rather for ways in which people may share in a common life. Moral disagreement will persist – the key is whether we can learn to respect and engage with each other’s ideas, behaviours and beliefs.

Conclusion

John van Maurik (2001: 201) has suggested that Peter Senge has been ahead of his time and that his arguments are insightful and revolutionary. He goes on to say that it is a matter of regret ‘that more organizations have not taken his advice and have remained geared to the quick fix’. As we have seen there are very deep-seated reasons why this may have been the case. Beyond this, though, there is the questions of whether Senge’s vision of the learning organization and the disciplines it requires has contributed to more informed and committed action with regard to organizational life? Here we have little concrete evidence to go on. However, we can make some judgements about the possibilities of his theories and proposed practices. We could say that while there are some issues and problems with his conceptualization, at least it does carry within it some questions around what might make for human flourishing. The emphases on building a shared vision, team working, personal mastery and the development of more

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sophisticated mental models and the way he runs the notion of dialogue through these does have the potential of allowing workplaces to be more convivial and creative. The drawing together of the elements via the Fifth Discipline of systemic thinking, while not being to everyone’s taste, also allows us to approach a more holistic understanding of organizational life (although Peter Senge does himself stop short of asking some important questions in this respect). These are still substantial achievements – and when linked to his popularizing of the notion of the ‘learning organization’ – it is understandable why Peter Senge has been recognized as a key thinker.

Further reading and references

Block, P. (1993) Stewardship. Choosing service over self-interest, San Francisco: Berrett-Koehler. 264 + xxiv pages. Calls for a new way of thinking about the workplace – arguing that notions of leadership and management need replacing by that of ‘stewardship’. Organizations should replace traditional management tools of control and consistency with partnership and choice. ‘Individuals who see themselves as stewards will choose responsibility over entitlement and hold themselves accountable to those over whom they exercise power’. There is a need to choose service over self-interest.

Heifetz, R. A. (1994) Leadership Without Easy Answers, Cambridge, Mass.: Belknap Press. 348 + xi pages. Just about the best of the more recent books on leadership. Looks to bring back ethical questions to the centre of debates around leadership, and turns to the leader as educator. A particular emphasis on the exploration of leadership within authority and non-authority relationships. Good on distinguishing between technical and adaptive situations.

Senge, P. M. (1990) The Fifth Discipline. The art and practice of the learning organization, London: Random House. 424 + viii pages. A seminal and highly readable book in which Senge sets out the five ‘competent technologies’ that build and sustain learning organizations. His emphasis on systems thinking as the fifth, and cornerstone discipline allows him to develop a more holistic appreciation of organization (and the lives of people associated with them).

References

Argyris, C., & Schön, D. (1978) Organizational learning: A theory of action perspective, Reading, Mass: Addison Wesley.

Argyris, C. and Schön, D. (1996) Organizational learning II: Theory, method and practice, Reading, Mass: Addison Wesley.

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Bolman, L. G. and Deal, T. E. (1997) Reframing Organizations. Artistry, choice and leadership 2e, San Francisco: Jossey-Bass. 450 pages.

Castells, M. (2001) ‘Information technology and global capitalism’ in W. Hutton and A. Giddens (eds.) On the Edge. Living with global capitalism, London: Vintage.

DePree, M. (1990) Leadership is an Art, New York: Dell.

Drucker, P. (1977) Management, London: Pan.

Easterby-Smith, M. and Araujo, L. ‘Current debates and opportunities’ in M. Easterby- Smith, L. Araujo and J. Burgoyne (eds.) Organizational Learning and the Learning Organization, London: Sage.

Edmondson, A. and Moingeon, B. (1999) ‘Learning, trust and organizational change’ in M. Easterby-Smith, L. Araujo and J. Burgoyne (eds.) Organizational Learning and the Learning Organization, London: Sage.

Etzioni, A. (1995) The Spirit of Community. Rights responsibilities and the communitarian agenda, London: Fontana Press.

Etzioni, A. (1997) The New Golden Rule. Community and morality in a democratic society, London: Profile Books.

Finger, M. and Brand, S. B. (1999) ‘The concept of the “learning organization” applied to the transformation of the public sector’ in M. Easterby-Smith, L. Araujo and J. Burgoyne (eds.) Organizational Learning and the Learning Organization, London: Sage.

Fromm, E. (1979) To Have or To Be? London: Abacus.

Guttman, A. and Thompson, D. (1996) Democracy and Disagreement, Cambridge, Mass.: Belknap Press.

Hutton, W. (1995) The State We’re In, London: Jonathan Cape.

Klein, N. (2001) No Logo, London: Flamingo.

Leadbeater, C. (2000) Living on Thin Air. The new economy, London: Penguin.

Van Maurik, J. (2001) Writers on Leadership, London: Penguin.

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O’Neill, J. (1995) ‘On schools as learning organizations. An interview with Peter Senge’ Educational Leadership, 52(7) http://www.ascd.org/readingroom/edlead/9504/oneil.html

Peck, M. S. (1990) The Road Less Travelled, London: Arrow.

Schultz, J. R. (1999) ‘Peter Senge: Master of change’ Executive Update Online, http://www.gwsae.org/ExecutiveUpdate/1999/June_July/CoverStory2.htm

Senge, P. (1998) ‘The Practice of Innovation’, Leader to Leader 9 http://pfdf.org/leaderbooks/l2l/summer98/senge.html

Senge, P. et. al. (1994) The Fifth Discipline Fieldbook: Strategies and Tools for Building a Learning Organization

Senge, P., Kleiner, A., Roberts, C., Ross, R., Roth, G. and Smith, B. (1999) The Dance of Change: The Challenges of Sustaining Momentum in Learning Organizations, New York: Doubleday/Currency).

Senge, P., Cambron-McCabe, N. Lucas, T., Smith, B., Dutton, J. and Kleiner, A. (2000) Schools That Learn. A Fifth Discipline Fieldbook for Educators, Parents, and Everyone Who Cares About Education, New York: Doubleday/Currency

Stenhouse, L. (1975) An Introduction to Curriculum Research and Development, London: Heinemann.

Sennett, R. (1998) The Corrosion of Character. The personal consequences of work in the new capitalism, New York: Norton.

Links

Dialogue from Peter Senge’s perspective – brief, but helpful, overview by Martha Merrill

fieldbook.com – ‘home to The Fifth Discipline Fieldbook Project’ – includes material on Schools that Learn and The Dance of Change

Peter Senge resources – GWSAE online listing includes interview with Senge by Jane R. Schultz.

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A Primer on Systems Thinking & Organizational Learning – useful set of pages put together by John Shibley @ The Portland Learning Organization Group

Resources on Peter Senge’s learning organization – useful listing of resources from the Metropolitan Community College, Omaha.

sistemika – online Peter Senge resources

Society for Organizational Learning – various resources relating to Senge’s project.

Systems thinking – useful introductory article by Daniel Aronson on thinking.net.

Acknowledgement: Photograph of Peter Senge by Larry Lawfer (used with permission of SoL)

Bibliographic reference: Smith, M. K. (2001) ‘Peter Senge and the learning organization’, The encyclopedia of pedagogy and informal education. [https://infed.org/mobi/peter-senge-and-the-learning-organization/. Retrieved: insert date]

© Mark K. Smith 2001

Last Updated on April 4, 2013 by infed.org

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Human Resources & Education

Benefits of Creating an Organizational Learning Culture What is a learning culture and why is it important?

September 21, 2014, 11:00pm

By Karmen Blackwood

What is a learning culture and why is it important?

A learning culture is one with organizational values, systems and practices that support and encourage both individuals, and the organization, to increase knowledge, competence and performance levels on an ongoing basis. This, in turn, promotes continuous improvement and supports the achievement of business goals, innovation and the ability to deal with change.

Peter Senge, renowned management thought leader, faculty at MIT Sloane School of Management and author of The Fifth Discipline: The Art and Practice of the Learning Organization identified five interrelated disciplines of a learning culture:

1) Personal Mastery: personal capacity-building; encouraging personal and organizational goals to be developed and realized together.

2) Mental Models: challenging and changing our way of thinking about the world around us

3) Shared Vision: Building a shared vision and sense of collective commitment as to where we want to go as an organization and how to achieve that goal

4) Team Learning: Building a team’s capacity to learn together and develop intelligence and ability together that is greater than the sum of it individual member’s talents

5) Systems Thinking: developing the ability to see the ‘big picture’ and understanding how changes in one area of the organization affect the system as a whole – it is the overall recognition of the interdependence of, and interrelationships between, the parts of the system and how to leverage and drive change throughout the system as a whole

A true organizational learning culture enables employees to challenge the status quo, think critically, and ensures that the team doesn’t become stuck in “this is the way it has always

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been done here” thinking, and instead, creates the capacity and adaptability needed for change.

Benefits of a learning culture

There are many benefits to creating a strong organizational learning culture, including:

Efficiency gains Increased productivity Increased profit Decreased employee turnover, as employee satisfaction levels rise and loyalty and commitment is increased Raising the bar by creating a continuous improvement mindset, shared ownership for projects and shared accountability for results Developing leaders at all levels, which helps with succession planning Creating a culture of inquiry, adaptive capacity, and knowledge sharing (vs. knowledge hoarding) Enhanced ability for individuals and teams to embrace and adapt to change.

Tips for creating a sustainable organizational learning culture

A learning organization breaks-down traditional silos, and enables all areas to work together towards a common vision.

Actions you can take to create a learning culture include:

Start by evaluating where you are at your organization by conducting a self-audit or assessment of your organization – this will help you pinpoint what kind of learning culture you currently have, identify the gaps, and ascertain your organization’s readiness for change. As an organization, you should ask yourselves, where do we want to be and how will we get there?

Lead by example, and start at the top with senior leadership – make learning and development essential to your organization’s success by making it part of your strategy and culture and make it highly visible and transparent

Develop a shared strategy for your learning culture where there is shared accountability across the organization

Make learning a habitual (not optional) behaviour with all employees at all levels

Ensure there is consistency and alignment of values and behavior around learning

Encourage the sharing of learning, skills and knowledge, and encourage coaching and mentoring across the organization

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Give employees the time they need for both formal and informal learning

Develop and deploy key learning events that are directly linked to the strategic goals of the organization

Allow for recognition of individual and team learning and remember to celebrate successes

Learn from your mistakes. Instead of playing the blame game, look at what happened, why it happened, and how it could be done better and/or differently in the future, and share that learning

Debrief projects, identify key learnings and share them across the team

Organizational learning is an ongoing, dynamic process, and should become part of the organization’s DNA. A learning culture supports a community of learners, as a total organization, where everyone teaches, everyone learns, everyone shares knowledge. Individual and collective learning is encouraged and rewarded. And those companies that embrace these values will be able to gain and sustain competitive advantage over competitors who do not.

Our team at Capilano University Executive Education can support you as you develop your learning culture and can help you navigate through choices of public, open-enrolment courses and custom in-house training programs.

11/18/2020 Council Post: 10 Effects Of Groupthink And How To Avoid Them

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Leadership

POST WRITTEN BY

Forbes Coaches Council

Top business and career coaches from Forbes Coaches Council offer �rsthand insights on leadership development & careers.

10 Effects Of Groupthink And How To

Avoid Them

Nov 4, 2016, 08:00am EDT

Forbes Coaches Council COUNCIL POST | Paid Program

Groupthink occurs when a team or organization becomes so similar in their outlook that

they lose the ability to be creative in their decision making. The result is an environment

where perspectives aren't challenged. Some employees may even feel uncomfortable

offering thoughts outside "the norm," and over time, products or services may weaken

with the narrowed thinking that groupthink creates.

What are the signs that this dynamic exists in your workplace and what can you do to

avoid it? Below, 10 members of Forbes Coaches Council offer their expertise.

1. Common Responses To Stress

Deep-level similarities can help create a strong team culture, but they can also enhance the

effects of groupthink, like similar responses to stress. For example, if everyone becomes

more risk averse under pressure, your team may not seize certain opportunities.

From left to right: Ross Blankenship, Linda Watkins, Sheri Nasim, Dr. Sarah Stebbins, Ken Docherty, Karima Mariama- Arthur Esq., Michael S. Seaver, Larry Boyer, Jackie Nagel, Patrick Jinks. All photos courtesy of the individual members.

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Establishing a clear decision-making process can short-circuit these tendencies and

improve performance. - Ross Blankenship, PhD, Bespoke Partners / bp|leadership

2. Limits And Inclusion

Think you can be open-minded? We all have mental capacity limited by what we know and

the language of our specialty. This paves the way to groupthink. It feels safe and natural to

spend time with others who think the way we do, so we need to consciously choose devil's

advocates or people with their own different language, mindset and point of view for our

meetings. - Linda Watkins, Leadership for Today

3. Focusing Only On What Is Known

Too often, groups tend to focus on what is generally known rather than focus on critical

information that has not been yet explored. Learn to appreciate the power of the question

rather than the need to rush to answers. The next time you're in a group meeting, start

with, "What problem are we trying to solve?" and keep testing with, "Are we answering the

right question?" - Sheri Nasim, Center for Executive Excellence

Forbes Coaches Council is an invitation-only community for leading business and career

coaches. Do I qualify?

4. The "Corporate Nod"

According Susan Scott, author of Fierce Conversations, groupthink leads to a culture of

the 'corporate nod.' Transparent conversations are not always easy, and yet they are

necessary for organizational/personal growth. Gaining and respecting diverse opinions is

everyone's responsibility, whether in a leadership position or not. The 'corporate nod' is

avoided with authentic and 'fierce' conversations. - Dr. Sarah Stebbins, Dr. Sarah

Stebbins, C.P.C.

5. Extinction

One serious and cumulative effect of groupthink is extinction — extinction of a company,

product or service that fails to adapt to changing market dynamics or consumer needs.

One way of avoiding groupthink is to allow employees the freedom to air objections and

doubts without fear of reprisal while engaging in constructive dialogue with outside

experts. - Ken Docherty, Docherty Career Management, Inc.

6. Blind Commitments To "Best Practices"

Just because things have been done a certain way historically, doesn't mean that they

should continue to be done this way — even when everyone seems to agree that things are

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"good" as is. Businesses can avoid making blind commitments to best practices by being

open and adaptable to change, which provides safe haven for fresh perspectives to be to be

introduced and embraced by the collective. - Karima Mariama-Arthur,

Esq., WordSmithRapport

7. Lack Of Engagement

Avoiding groupthink can be as simple as constructing a cross-functional, cross-vertical

"innovation" team. By tasking them with brainstorming, planning and implementing

important projects related to your organization's strategic objectives, you will better

engage team members from all staff levels. They will feel heard, a part of the

organization's growth, and most importantly, feel appreciated. - Michael S. Seaver, Seaver

Consulting, LLC

8. Disasters

The financial crisis is a great example of groupthink within an entire industry. While there

are too many to list them all, an example is the blind trust in financial markets over

economic fundamentals in decision-making. Businesses benchmarked themselves with

each other and, like lemmings running off a cliff, found disaster. Diversity of thought and

perspective are the panacea. - Larry Boyer, Success Rockets LLC

9. Drowned-Out Voices

One common area impacted negatively by the nuances of "groupthink" arise when

brainstorming potential solutions for an initiative. The overly exuberant drown out those

who are more thoughtful and deliberate in their contributions. A more innovative

approach involves a technique called "brainwriting" that allows all ideas to be heard and

considered. - Jackie Nagel, Synnovatia

10. Over Confidence In Your Decision

Everyone supports it, so it must be right, right? One major effect of groupthink is that it

leaves a team deceived into thinking the right decision has been made. It may be the right

decision, but it often isn't because real expression has not taken place. Team leaders can

avoid this by spending more time in the question-asking phase, and not being in a hurry to

make a decision. - Patrick Jinks, The Jinks Perspective

Forbes Coaches Council

Forbes Coaches Council is an invitation-only, fee-based organization comprised of leading business

coaches and career coaches. Find out if you qualify at Forbes Councils.… Read More

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