How Do Multinational Companies Manage Employees in Other Countries?

C H A P T E R 9 Social Networks FIGURE 9.1 Social networks are the patterned structure of relationships among people.

© 2010 Jupiterimages Corporation

W H A T ’ S I N I T F O R M E ?

Reading this chapter will help you do the following:

1. Understand the social network vocabulary. 2. Know why social networks and networking are valuable. 3. Know some of the ethical considerations related to social network analysis. 4. Understand the difference between personal, operational, and strategic social networks. 5. Map your own social network and understand its implications.

Most management textbooks do not cover the subject of social networks. This is an unfortunate oversight. Social

networks can be considered “the invisible organization”—they are the pathways through which communication

and resources flow and how work actually gets done. We include this chapter on social networks in the organizing

section of the book because, like organizational design, the management of social networks is important in the

planning-organizing-leading-controlling (P-O-L-C) framework. An organization chart might communicate who

reports to whom, but it is ultimately the internal (within organization) and external (ties between members of the

organization and people outside the organization such as suppliers or customers) social networks that really

explain productivity (or impediments to productivity).

FIGURE 9.2 The P-O-L-C Framework

You are probably already active in social networks through such Web communities as MySpace, Facebook, and

LinkedIn. However, these sites are really only the tip of the iceberg when it comes to the role of social networks in

management. Networks provide managers with three unique advantages: (1) access to information and

knowledge, (2) access to diverse skill sets, and (3) power. While managers see these advantages at work every day,

they might not pause to consider how their networks regulate them. In this chapter, you will learn about the role

and importance of social networks, and social network analysis, in the organizing facet of the P-O-L-C framework.

You will also have an opportunity to map and evaluate your own social network, and answer questions about its

effectiveness for you personally and professionally.

1. CASE IN POINT: NETWORKING POWERS RELATIONSHIPS

© Thinkstock

Networking has the potential to open doors and create possibilities for jobs and partnerships. Networking es- tablishes connections between individuals and access to information that one might not normally have access to. Reaching out to strangers can be an intimidating and nerve-racking experience. In business, the more cent- ral you are, the more power you have. Creating connections and ties to other people affords you the oppor- tunity for power and the ability to more closely control your future, so while at times networking might feel awkward and uncomfortable, it is a necessary and important part of establishing and maintaining a career.

Online social networking sites play an important role in this networking process for individuals both profes- sionally and personally. With 1,200 employees in 2010, Facebook has 350 million users around the world, and LinkedIn has over 60 million members in over 200 countries. A new member joins LinkedIn every second, and about half of the members are outside the United States. These online sites have created new opportunities

228 PRINCIPLES OF MANAGEMENT

for networking and allow individuals to branch out beyond their normal world of industry, school, and busi- ness. The key is to avoid costly missteps as employers have begun to search online for information about pro- spective and current employees. In 2009, 8% of companies reported that they had fired an employee for mis- use of social media.

Many of these online sites have become a tool for business. For example, LinkedIn targets working profession- als and provides them a way to maintain lists of business connections and to use those connections to gain in- troduction to people using mutual contacts. Unlike other social networking sites, LinkedIn is almost entirely used by professionals. The power of social networking flows in both directions. Employers can screen applic- ants through their online accounts and recruiters more than ever are using these sites to view background in- formation, individual skill sets, and employment history, which can be cross-referenced with submitted applic- ations. Job seekers can review the profiles of those at top management firms and search for mutual contacts. LinkedIn also provides statistics about firms, which can be useful information for individuals looking at poten- tial employers.

Networking is about building your brand and managing relationships. Using social networks as a vehicle to market one’s self and make professional connections is becoming increasingly common, as well as using loose ties or connections through others to open doors and land jobs. In an increasingly high-tech and digital world, it is important to be aware and conscience of the digital footprint that we create. But with careful cultivation these online networks can present many opportunities.

Case written by Carlene Reynolds, Talya Bauer, and Berrin Erdogan to accompany Carpenter, M., Bauer, T., & Erdogan, B. (2009). Principles of management (1st ed.). New York: Flat World Knowledge. Based on information from Hof, R. (2008, October 28). Facebook in a suit: LinkedIn launches applications platform. BusinessWeek. Retrieved March 23, 2010, from http://www.businessweek.com/the_thread/techbeat/archives/2008/10/ linkedin_launch.html; Horswill, A. (2009). How to get a job online using social networking. The Courier Mail. Retrieved March 23, 2010, from LexisNexis Academic database; Lavenda, D. (2010, March 10). 10 tips for safe and effective social networking. Fast Company. Retrieved March 23, 2010, from http://www.fastcompany.com/1577857/10-tips-for-safe-and-effective-social-networking; How to use social networking sites for marketing and PR. (2008, December 24). AllBusiness. Retrieved April 23, 2010, from http://www.allbusiness.com/marketing-advertising/public-relations/11674037-1.html; Ostrow, A. (2009, August). Facebook fired: 8% of US companies have sacked social media miscreants. Mashable. Retrieved March 30, 2010, from http://mashable.com/2009/08/10/social-media-misuse.

D I S C U S S I O N Q U E S T I O N S

1. If social networks are an essential element of the organizing facet of the P-O-L-C framework, should employers track the use of LinkedIn or Facebook among their employees? Why or why not?

2. How is online networking different from or similar to in-person networking? Please describe your experience with both.

3. What are the downfalls and benefits of social networking?

4. In what ways are indirect ties as powerful and important as direct ties?

5. To what extent have you built your own brand? Is this something that you have ever considered before?

2. AN INTRODUCTION TO THE LEXICON OF SOCIAL NETWORKS

L E A R N I N G O B J E C T I V E S

1. Be able to define a social network. 2. Understand the key dimensions of social networks. 3. Identify various types of social networks.

This section draws on extensive social network research to help you understand the managerial implic- ations of that body of knowledge. Social networks often complement or compete with such aspects of organizations as formal organization structure (think “org chart”), work processes (think “job descrip- tion”), human resource practices, leadership style, and organization culture. This is particularly prob- lematic in knowledge-intensive settings where management is counting on collaboration among em- ployees with different types of expertise. People rely heavily on their networks of relationships to find information and solve problems—one of the most consistent findings in the social science literature is that who you know often has a great deal to do with what you come to know.[1] Yet both practical

CHAPTER 9 SOCIAL NETWORKS 229

social network

A patterned set of relationships between two or more people.

actors

The individuals, groups, organizations, or supraorganizations that comprise the network.

sociogram

A diagram of points and lines used to represent relations among network actors.

social capital

The resources available in and through personal and business networks.

experience and scholarly research indicate significant difficulty in getting people with different expert- ise, backgrounds, and problem-solving styles to integrate their unique perspectives effectively.[2] From a manager’s standpoint, simply moving boxes on an organizational chart is not sufficient to ensure effective collaboration among workers.

2.1 What Is a Social Network? If you were asked for a definition of a social network, your intuition would probably provide you with a pretty close answer. A social network can be characterized as a patterned set of relationships between two or more people—or, as they are called in the social science literature, actors. It can be depicted in a sociogram, as shown in the following figure. The term “actors” is broader, as it includes all possible types of information/knowledge processing entities: the individuals, groups, organizations, or supraor- ganizations that constitute the network.[3] For instance, all of the people named in the figure are actors, but you could also consider each work group or department as an actor if you were concerned with the interaction among these groups rather than with the interaction within the groups or among individu- als. The characteristics of a social network also are the determinants of social capital, that is, the re- sources—such as ideas, information, money, trust—available in and through personal and business networks. You can have social capital, as can organizations. However, since social capital is based on relationships, no single person can claim ownership of it, but it is important and manageable.

FIGURE 9.4 Sociogram: A Simple Social Network

230 PRINCIPLES OF MANAGEMENT

social network analysis

Mapping and measuring of relationships and flows among network actors.

network tie

The connection between actors.

node

The point, often another individual or actor, where two other actors are connected.

direct ties

Ties where a single link spans actors.

indirect ties

Where connections exist between actors, but where the connection spans more than one link.

FIGURE 9.6

Actor Kevin Bacon founded sixdegrees.org to help charities network and share resources.

Source: http://en.wikipedia.org/wiki/

Image:Kevinbacongfdl.PNG

network size

The number of actors in the network.

Social Network Analysis and the Quality of Work Interactions

The mapping and measuring of relationships and flows among people, groups, organizations, com- puters, Web sites, and other actors is called social network analysis (SNA), which we will discuss in greater detail later in the chapter. Each connection, or relationship, between actors is known as a net- work tie, while each actor, or point on the network, is referred to as a node. In the previous figure, Thomas is a node and his connections to Albert, Eric, Martha, and others are network ties. Direct ties are those in which a single link spans two actors; indirect ties are where connections exist between actors, but only through other actors (hence, indirect ties). You can see that Thomas has four direct ties and is indirectly tied to everyone in the network. Conceptually, you probably have indirect ties to everyone on the planet but that does not necessarily mean they come to mind as part of your social network.

FIGURE 9.5 Example of a Social Network Based on Information Ties

Network size would be the number of actors. Though you might be interested in the count of all net- work members, you also might want to know how many people are one, two, or three links away. Long before computer networking was invented, psychologists Jeffrey Travers and Stanley Milgram conduc- ted a low-tech experiment that looked directly at this question.[4] They asked how many links might be necessary to get an envelope from one randomly chosen person to another randomly chosen person in the United States. They found that, on average, there were six links—or “degrees of separa- tion”—between any two people randomly drawn from the U.S. population (at the time) of 250 million. Flipping the numbers around, Travers and Milgram then estimated that each individual had a potential network of 3,000 to 10,000 people. You may be familiar with this larger body of work in terms of “how many degrees of separation are you from Kevin Bacon?” or the notion of the “six degrees of separation.”

CHAPTER 9 SOCIAL NETWORKS 231

centrality

The degree to which an actor has the most unique links to other actors in the network.

density

The degree to which there are overlapping linkages among the actors in a network.

communication network

The informal structure of an organization as represented in ongoing patterns of interaction, either in general or with respect to a given issue.

information network

Shows who goes to whom for advice on work-related matters.

problem-solving network

Indicates who goes to whom to engage in dialogue that helps people solve problems at work.

knowledge network

Captures who is aware of whose knowledge and expertise.

access network

Shows who has access to whose knowledge and expertise.

Social Network Characteristics

The extent to which a given actor is in the middle of the network is referred to as centrality (i.e., net- work centrality), though the definition of “middle” can vary from who has the most ties, to who is the unique connection between two other groups. Centrality is good because it puts the actor in a position to gather information, and to serve as broker between the parties that are connected via that actor.

Another basic network indicator is density, which essentially reflects how many people in a net- work are connected (usually directly) to each other. You can imagine that there are a number of pos- sible network configurations based simply on permutations of network size, centrality, and density. For instance, you can have a large or tiny network, be central or peripheral in the network, and have a dense or sprawling network. Each of these structures has implications for how the network might serve its various actors.

The tie between actors can be directional or bidirectional (i.e., reciprocal flows between actors); similarly, a network can be described as social, personal, professional, informational, and so on, de- pending on what is of most interest.

A Sampling of Social Network Types

As a manager, you might be interested in your employees’ (1) communication network, (2) informa- tion network, (3) problem-solving network, (4) knowledge network, or (5) access network.[5] A com- munication network is the informal structure of an organization as represented in ongoing patterns of interaction, either in general or with respect to a given issue. For instance, people on the same office floor may periodically congregate in the break room or by the soda machine and engage in informal communication. For this reason, some descriptions of social networks focus on the informal network. That is, the pattern of interactions among employees that aren’t a direct consequence of the organiza- tion chart, job descriptions, and so on.

An information network shows who goes to whom for advice on work-related matters. For ex- ample, if you have a question about filling out a form, or answering a customer’s question, who do you regularly seek out for answers? A problem-solving network indicates who goes to whom to engage in dialogue that helps people solve problems at work. For instance, “whenever this machine breaks down I know I can turn to Pat for help.” A knowledge network captures who is aware of whose knowledge and skills, and an access network shows who has access to whose knowledge and expertise.

The example with Pat is also a knowledge network because it appears that you understand that Pat has the needed knowledge, and there is no barrier impeding your access to Pat. However, if the organ- ization had rules telling you that you needed to talk to Pat’s boss before getting assistance from Pat, then the knowledge network and access network would look different. You can imagine that each of these types of networks might reveal a different structure, depending on the question—for example, the linkages would be different across iterations of the figure. You can see that information is flowing back and forth between different actors in the network. However, it does not appear that information is flowing directly between all network members—for instance, the sales and marketing, finance, and op- erations staff do not communicate directly with each other. However, if you were to combine the staff from those functions in the same office space, you would likely create a new communication network, which in turn could change the information ties of all the members.

232 PRINCIPLES OF MANAGEMENT

activity

Gauges how active an actor is in a network.

control

Gauges how much control an actor has over the flow of information in a network.

access

Tells you how easily a person in the network can get the resources that he or she needs to be successful in the organization.

influence

A stakeholder’s relative power over and within an organization.

power

A stakeholder’s ability to get things done.

More recent work in social network research has also considered the way that individuals interact, as well as their potential impact on network relationships.[6] Five key dimensions of work quality can also be taken into account with social networks: (1) activity, (2) control, (3) access, (4) influence, and (5) power. Activity gauges how active a person is in the network. For example, an individual may be in the network, but actually do little to affect what is going on. Control gauges how much control a per- son has over the flow of information. Centrality is obviously one indicator of control, but there may be other determinants of control such as intelligence, personality, or even a particular skill set. In highly technical fields, for example, one individual (a node) can make a big difference on information flow, even if he or she is situated in a fairly open and balanced network. Access tells you how easily a person in the network can get the resources that he or she needs to be successful in the organization. How many steps, for instance, are they away from those individuals or units that are most instrumental for their success? Influence and power are different but related characteristics. Influence shows how much potential influence a person wields in the network, while power tells you how able they are to get things done. You may be interested in other dimensions of work quality, so feel free to experiment with them in SNA.

K E Y T A K E A W A Y

Social networks are the invisible structure in organizations—they capture the actual pathways of how informa- tion flows and how work is done. Network size, centrality, and density were identified as key features of social networks, and you have a general understanding of at least five types of social networks: communication, in- formation, problem solving, knowledge, and access.

E X E R C I S E S

1. What is a social network?

2. What is social network analysis?

3. Why is network size important?

4. Why is network centrality important?

5. Why is network density important?

6. What are some key types of social networks?

3. HOW MANAGERS CAN USE SOCIAL NETWORKS TO CREATE VALUE

L E A R N I N G O B J E C T I V E S

1. Understand the roles of reciprocity, exchange, and similarity. 2. See how social networks create value in career management. 3. See how social networks create value in and across organizations.

You probably have an intuitive sense of how and why social networks are valuable for you, personally and professionally. The successful 2008 U.S. presidential campaign of Barack Obama provides a dra- matic example of how individuals can benefit when they understand and apply the principles and power of social networking.[7] In this section, we discuss three fundamental principles of social network theory, then help you see how social networks create value in your career and within and across organizations.

CHAPTER 9 SOCIAL NETWORKS 233

FIGURE 9.7

The principles of reciprocity, exchange, and similarity underlie the way managers create value through social networks.

© 2010 Jupiterimages Corporation

principle of reciprocity

The principle that actors in a network are more likely to reciprocate favors.

principle of exchange

The principle that network exchange is more likely when you have access to unique resources.

principle of similarity

The principle that network ties are more likely to form among similar, rather than dissimilar, actors.

strong tie

A tie that exists among actors who know each other well and engage in regular exchange.

weak tie

A tie that exists among actors who do not know one another well and engage in infrequent exchange.

3.1 Reciprocity, Exchange, and Similarity Across all social networks, performance depends on the degree to which three fundamental principles are accounted for.[8] The first is the principle of reciprocity, which simply refers to the degree to which you trade favors with others. With the principle of reciprocity, managers have the ability to get things done by providing services to others in exchange for the services they require. For instance, you are more likely to get assistance with a problem from a colleague at work when you have helped him or her out in the past. Although the quid pro quo may not be immediate, over time managers will receive only in proportion to what they give. Unless the exchanges are roughly equivalent over time, hard feel- ings or distrust will result. In organizations, few transactions are one-shot deals. Most are ongoing trades of “favors.” Therefore, two outcomes are important: success in achieving the objective and suc- cess in improving the relationship such that the next exchange will be more productive.

The second principle is the principle of exchange. Like the reciprocity principle, it refers to “trading favors,” but it is different in this way: the principle of exchange proposes that there may be greater opportunity for trading favors when the actors are different from one another. In fact, accord- ing to network theory, “difference” is what makes network ties useful in that such difference increases the likelihood that each party brings a complementary resource to the table. Going back to our example where you sought out assistance from a colleague, you probably needed that assistance because that person brought a different skill set, knowledge, or other resources to bear on the problem. That is, since you were different, the value of exchange was greater.

The third principle is the principle of similarity. Psychologists studying human behavior have observed that relationships, and therefore network ties, tend to develop spontaneously between people with common backgrounds, values, and interests. Similarity, to the extent that your network is com- posed only of like-minded folks, also makes it more likely that an individual may be dependent on a handful of people with common interests.

Why is it important to understand these three principles? As a manager, you will find your net- work useful to the extent that you can balance the effects of the three principles. Because of similarity, it is easier to build networks with those with whom you have various things in common, though this sim- ilarity makes the network less useful if you need new ideas or other resources not in the current group. A critical mistake is to become overly dependent on one person or on only a few network relationships. Not only can those relationships sour but also the manager’s usefulness to others depends critically on his or her other connections. Those people most likely to be attractive potential protégés, for example, will also be likely to have alternative contacts and sponsors available to them.

Similarity also means that you have to work harder to build strong exchange networks, since their formation is not spontaneous. Most personal networks are highly clustered—that is, your friends are likely to be friends with one another as well. And, if you made those friends by introducing yourself to them, the chances are high that their experiences and perspectives echo your own. Because ideas gener- ated within this type of network circulate among the same people with shared views, a potential winner can wither away and die if no one in the group has what it takes to bring that idea to fruition. But what if someone within that cluster knows someone else who belongs to a whole different group? That con- nection, formed by an information broker, can expose your idea to a new world, filled with fresh op- portunities for success. Diversity makes the difference.

Finally, for reciprocity to work, you have to be willing and able to trade or reciprocate favors, and this means that you might need access to other people or resources outside the current network. For example, you may have to build relationships with other individuals such that you can use them to help you contribute to your existing network ties.

3.2 Social Networks and Careers We owe our knowledge about the relationship between social network characteristics and finding a job to Stanford sociologist Mark Granovetter. In a groundbreaking study, Granovetter found that job seekers are more likely to find a job through weak ties than through strong ties.[9] He demonstrated that while job hunters use social connections to find work, they don’t use close friends. Rather, survey respondents said they found jobs through acquaintances: old college friends, former colleagues, people they saw only occasionally or just happened to run into at the right moment. New information, about jobs or anything else, rarely comes from your close friends, because they tend to know the same things and people you do. Strong ties, as you might expect, exist among individuals who know one another well and engage in relatively frequent, ongoing resource exchanges. Weak ties, in contrast, exist among individuals who know one another, at least by reputation, but who do not engage in a regular exchange of resources. In fact, Granovetter showed that those who relied on weak ties to get a job fared better in the market in terms of higher pay, higher occupational status, greater job satisfaction, and longer job tenure. While much in the world has changed since Granovetter’s 1974 research, subsequent

234 PRINCIPLES OF MANAGEMENT

bridging tie

A tie that provides nonredundant information and resources.

studies continue to affirm his basic findings on the consequences of social network structure.[10] As you might expect, for weak ties to be effective though, there must be some basis for affinity between the in- directly connected individuals, but this affinity can simply be having the same birth month or high school or college alma mater.

FIGURE 9.8 The Value of Weak Ties

The value of weak ties is highly counterintuitive; we tend to think of relationships being more valuable when we have strong ties to others. However, if you think about it, the value of a weak tie lies in the fact that it is typically a bridging tie, that is, a tie that provides nonredundant information and resources. In the case of a job search, the weak tie serves as a strong bridge. “Social Networking as a Career-Build- ing Strategy” suggests some personal strategies you might consider with your own social networks.

Social Networking as a Career-Building Strategy

Penelope Trunk, author of “The Brazen Careerist” column and blog (blog.penelopetrunk.com), views job hunt- ing not as an event but as a lifestyle. She advises that in today’s business environment, people change jobs so often that they need to keep their eye on the market even if they just started a new job. In her view, “the people who control their destiny most effectively leave their job when they find a better one, not when they are tossed out because of layoffs or reorganizations.” This also means that social networking should be a cent- ral element in any job-search strategy. And because many jobs are filled by knowing someone who knows about an open position, Trunk argues that it’s more important to network than it is to read the want ads. Trunk evokes the principle of reciprocity when she says, “building a network is adding value to lots of peoples’ lives so that they, in turn, will want to add value to yours.” Another useful strategy is to network proactively rather than reacting to concerns about your present job or news of a possible opening. By being proactive, you will increase your chances of being in the right place at the right time.

Career networking opportunities are plentiful; regardless of where you live, you can use the Internet to read blogs, subscribe to e-mail newsletters, and make friends on social networking sites. When you consider the principle of exchange, you realize that your networking possibilities are not limited to people in your chosen field—you can actually gain more by networking with those in related fields, or even in jobs far removed from yours. With the exchange principle in mind, even residents of sparsely populated rural areas can network with their neighbors a few miles down the road.

Adapted from Trunk, P. (2008, March 1). Take control of your career destiny. Wisconsin State Journal, B1.

Use LinkedIn to Find a Job—or Have a Job Find You

LinkedIn (http://www.LinkedIn.com) is the largest online network of experienced professionals from around the world, representing 150 industries. Other business networking sites include Plaxo.com, Ryze.com, and Xing.com (primarily Europe and China). Here are eight effective networking job-hunting tactics to employ with LinkedIn (or with any networking site):

< Create a Profile. Create a detailed profile on LinkedIn, including employment (current and past), education, industry, and Web sites.

< Consider a Photo. You can add a photo (a headshot is recommended or upload a larger photo and edit it) to your LinkedIn profile. Note that it must be a small photo—no larger than 80 × 80 pixels.

< Keywords and Skills. Include all your resume keywords and skills in your profile, so your profile will be found.

CHAPTER 9 SOCIAL NETWORKS 235

Dunbar’s number

Named after anthropologist Robin Dunbar, Dunbar’s number is the conceptual upper limit of 150 ties in a network if ties are to be effectively maintained.

FIGURE 9.9

Mark Zuckerberg, cofounder of Facebook, helped to bring social networking to 90 million users.

Source:

http://commons.wikimedia.org/wiki/

Image:Zuckerberg2.jpg

< Build Your Network. Connect with other members and build your network. The more connections you have, the more opportunities you have, with one caveat, “Connect to people you know and trust or have a business relationship with, no need to go crazy and connect with everyone.”

< Get Recommendations. Recommendations from people you have worked with carry a lot of weight. < Search Jobs. Use the job search section to find job listings. < Use Answers. The Answers section of LinkedIn is a good way to increase your visibility. Respond to

questions, and ask a question if you need information or assistance.

< Stay Connected. Use LinkedIn Mobile (m.linkedin.com) to view profiles, invite new connections, and access to LinkedIn Answers from your phone.

But No More Than 150 Ties!

It is important to note here a factor called Dunbar’s number. That is, there is some natural upper limit to the size of network you can effectively maintain, even with online tools like Facebook and LinkedIn. The existence of an upper boundary makes sense if you think about it—each contact you add to your network will likely require some amount of time to sustain. In 1993, Oxford anthropologist Robin Dunbar theorized that “this limit is a direct function of relative neocortex size [your brain’s cen- ter of higher brain functions], and that this in turn limits group size…the limit imposed by neocortical processing capacity is simply on the number of individuals with whom a stable inter-personal relation- ship can be maintained.”[11] On the periphery, the number also includes past colleagues such as high school friends with whom a person would want to get reacquainted if they met again.

Making Invisible Work Visible

In 2002, organizations researchers Rob Cross, Steve Borghatti, and Andrew Parker published the res- ults of their study of the social networking characteristics of 23 Fortune 500 firms.[12] These researchers were concerned that traditional analysis of organizational structure might miss the true way that critic- al work was being done in modern firms—that is, they theorized that social networks, and not the structure presented on the organization chart, might be a better indicator of the flow of knowledge, in- formation, and other vital strategic resources in the organization. One goal of their research was to bet- ter define scenarios where conducting a social network analysis would likely yield sufficient benefit to justify the investment of time and energy on the part of the organization.

Cross and colleagues found that SNA was particularly valuable as a diagnostic tool for managers attempting to promote collaboration and knowledge sharing in important networks. Specifically, they found SNA uniquely effective in:

< Promoting effective collaboration within a strategically important group. < Supporting critical junctures in networks that cross functional, hierarchical, or geographic

boundaries. < Ensuring integration within groups following strategic restructuring initiatives.

Connect and Develop

Consumer product giant Procter & Gamble (P&G) pioneered the idea of connect and develop, which refers to developing new products and services through a vast social network spanning parts of P&G and many other external organizations. Like many companies, P&G historically relied on internal cap- abilities and those of a network of trusted suppliers to invent, develop, and deliver new products and services to the market. It did not actively seek to connect with potential external partners. Similarly, the P&G products, technologies and know-how it developed were used almost solely for the manufacture and sale of P&G’s core products. Beyond this, P&G seldom licensed them to other companies.

However, around 2003 P&G woke up to the fact that, in the areas in which its does business, there are millions of scientists, engineers, and other companies globally. Why not collaborate with them? P&G now embraces open innovation, and it calls this approach “Connect + Develop.” It even has a Web site with Connect + Develop as its address (http://www.pgconnectdevelop.com). This open in- novation network at P&G works both ways—inbound and outbound—and encompasses everything from trademarks to packaging, marketing models to engineering, and business services to design.

On the inbound side, P&G is aggressively looking for solutions for its needs, but also will consider any innovation—packaging, design, marketing models, research methods, engineering, and techno- logy—that would improve its products and services. On the outbound side, P&G has a number of as- sets available for license: trademarks, technologies, engineering solutions, business services, market re- search methods and models, and more.

236 PRINCIPLES OF MANAGEMENT

As of 2005, P&G’s Connect + Develop strategy had already resulted in more than 1,000 active agreements. Types of innovations vary widely, as do the sources and business models. P&G is inter- ested in all types of high-quality, on-strategy business partners, from individual inventors or entrepren- eurs to smaller companies and those listed in the FORTUNE 500—even competitors. Inbound or out, know-how or new products, examples of success are as diverse as P&G’s product categories. Some of these stories are shown in “P&G Connect + Develop Success Stories.”

P&G Connect + Develop Success Stories

Bringing Technology Into P&G

Olay Regenerist

How a small French company became part of P&G Beauty’s $2 billion brand

A few years ago, the folks in P&G’s skin care organization were looking both internally and externally for anti- wrinkle technology options for next-generation Olay products. At a technical conference in Europe, P&G first learned of a new peptide technology that wound up being a key component used in the blockbuster product, Olay Regenerist.

The technology was developed by a small cosmetics company in France. They not only developed the pep- tide but also the in vitro and clinical data that convinced P&G to evaluate this material. After they shared some of their work at a conference attended by P&G’s skin-care researchers, they accepted an invitation for their technologists to visit P&G and present their entire set of data on the antiwrinkle effects of the new peptide. This company now continues to collaborate with P&G on new technology upstream identification and further upstream P&G projects.

Taking Technology Out of P&G

Calsura

Not all calcium is created equal.

When P&G was in the juice business, it discovered Calsura, a more absorbable calcium that helps build stronger bones faster, and keeps them stronger for life. The addition of Calsura calcium makes any food or drink a great source of the daily calcium needed for building stronger bones faster in kids, and keeping bones stronger throughout adulthood; Calsura is proven to be 30% more absorbable than regular calcium. Today, P&G licenses the Calsura technology to several companies.

University Collaboration

University of Cincinnati Live Well Collaborative

Collaborating with a university in a new way

P&G has partnered with the prestigious design school at the University of Cincinnati to develop products spe- cifically for consumers over age 50. Using design labs, university students and P&G researchers collaborate to study the unique needs of the over-50 consumer. The goal is to develop and commercialize products that are designed for this consumer bracket.

Adapted from http://www.pg.com (retrieved June 4, 2008).

The Innovation Network

Strategy consultant McKinsey & Company points to recent academic research that finds differences in individual creativity and intelligence matter far less for organizational innovation than connections and networks. That is, networked employees can realize their innovations and make them catch on more quickly than nonnetworked employees can.[13]

On the basis of what was found by Cross and colleagues across many large firms, within P&G in particular, and in their own research, McKinsey has observed four important steps in the innovation network process.[14] These four critical steps in designing, implementing, and managing an innovation network are summarized in the following figure.

CHAPTER 9 SOCIAL NETWORKS 237

FIGURE 9.10 Managing the Innovation Network

Adapted from http://www.mckinseyquarterly.com (retrieved

June 4, 2008).

The first step, connect, involves the identification of key people in the organization with an innovation mind-set. Such individuals are not wed to the status quo and are comfortable with change and uncertainty. It is important to involve individuals with different backgrounds and approaches to innovation. For instance, some individuals are great at generating ideas while others may be better at researching and validating them. This group of individuals would then be defined as a network. The second step, set boundaries and engage, is where the network’s goals and objectives are defined. It is important to make it clear how the network’s goals and objectives will contribute to the organization’s goals and larger strategy, mission, and vision. Time frames and desired target outcomes are stated as well.

In the third step, support and govern, the leadership structure for the network is decided on, along with any protocols for meeting, sharing ideas, and decision making. With these process guidelines in place, the network members can then make sure that they have identified the resources necessary to conduct their work. This includes gain- ing sponsorship and buy-in from other parts of the organization, including upper man- agement. Finally, the fourth step involves managing and tracking. This last step covers a spectrum of needs, ranging from how network members will be recognized and rewar- ded for their contributions, the agreement about process-tracking criteria, and some guidelines on how new members join the network and others leave.

As mentioned in the connect stage of developing an innovation network, you can fine-tune the network’s goals by identifying the appropriate mix and balance of em- ployees. Innovation networks, like cross-functional teams, require different skills and attitudes. In McKinsey’s experience, they include combinations of several archetypes.

Which one are you? < Idea generators prefer to come up with ideas, believe that asking the right questions is more

important than having the right answers, and are willing to take risks on high-profile experiments.

< Researchers mine data to find patterns, which they use as a source of new ideas. They are the most likely members of the network to seek consumer insights and to regard such insights as a primary input.

< Experts value proficiency in a single domain and relish opportunities to get things done. < Producers orchestrate the activities of the network. Others come to them for new ideas or to get

things done. They are also the most likely members of the network to be making connections across teams and groups.

K E Y T A K E A W A Y

This section showed how social networks create value. We started by introducing the social network theory concepts of reciprocity, exchange, and similarity. We then discussed using social networks as a vehicle for ad- vancing your own career. The section concluded by explaining how social networks create value in and across organizations, with specific examples of making invisible work visible, Procter & Gamble’s Connect + Develop, and McKinsey’s “innovation network” concept.

E X E R C I S E S

1. What does the social network concept of reciprocity mean, and what are its pros and cons?

2. What does the social network concept of exchange mean, and what are its pros and cons?

3. What does the social network concept of similarity mean, and what are its pros and cons?

4. How do social networks create value in a career management setting?

5. How do social networks create value in an organizational setting?

6. What are some ways that an organization can manage the social network to be more innovative?

238 PRINCIPLES OF MANAGEMENT

social network analysis

Mapping and measuring of relationships and flows among network actors.

FIGURE 9.11

Ethics are not simply a matter of the law; they are a prescription for doing good.

© 2010 Jupiterimages Corporation

4. ETHICAL CONSIDERATIONS WITH SOCIAL NETWORK ANALYSIS

L E A R N I N G O B J E C T I V E S

1. Understanding the ethics of social network analysis. 2. Developing a toolkit for managing the ethical issues. 3. Suggest why ignoring social networks may be unethical.

4.1 What Is Social Network Analysis? Before delving into the ethical issues, let’s revisit social network analysis. Social networking is built on the idea that there is a determinable structure to how people know each other, whether directly or in- directly. Notions such as six degrees of separation—that everyone on earth is separated from everyone else by no more than six intermediate personal relationships—have popularized the idea that people can be (however unknowingly) connected through common associates. As we mentioned at the begin- ning of this chapter, social network analysis (SNA) is the mapping and measuring of relationships and flows between people, groups, organizations, computers, Web sites, and other information/know- ledge processing entities. This can be done with paper and pencil surveys, software programs, and even comparing e-mail and phone logs, but the desired output is essentially the same. Social networks are the invisible organization. That is, they are the actual organization behind the printed organization chart.

4.2 Ethical Implications Application of the principles behind P-O-L-C should help managers lead their organizations to bigger and better things, and social networks are a key ingredient in the “organizing” component.[15] So, what harm can there be if a manager uses SNA to uncover the invisible structure in their organization? Three top ethical concerns are (1) violation of privacy, (2) psychological harm, and (3) harm to indi- vidual standing. Let’s look at each of these three ethical concerns in turn.

Violation of Privacy

Managers typically use surveys (sometimes with the aid of consultants) to capture and map the struc- ture of a social network. If each employee has consented to the survey, then the manager is on much more solid ground. Care must be taken, however, that participants are aware of the survey’s objectives and applications. Recall that a network diagram reflects a pattern or relationship among people, such that survey participants will actually be reporting, by definition, on what other individuals are doing. For instance, if a communication network in your organization is being mapped, you might be asked who you initiate communication with and who initiates it with you. You might also be asked for some indication of communication frequency. So, even if you agreed to complete the survey, the other people that you identify as part of your network may have not.

Surveys are not the only basis for mapping social networks. Indeed, think about the network that might be reflected by the contacts on your cell phone or e-mail lists. Given technology today this data could be readily converted into a social network map showing who corresponded with whom and the length of such correspondence. Moreover, with content coding software, even the content of the e- mails could be coded. This type of social network mapping has more obvious ethical implications be- cause participants of the map may never know that they are actually being mapped!

In both the survey-based and electronic mapping approaches, you might keep the identities of in- dividuals confidential, thereby protecting their privacy. However, it may be possible to guess the names of individuals by virtue of their location in the network. For example, if a certain type of information can only originate with one part of an organization, it might be pretty obvious to inside observers how such information flowed internally and externally. Similarly, “organizations are typically quite small, so that even a small number of attributes can uniquely identify individuals.”[16] Second, demographic in- formation on each person is often available in the human resources database or is common knowledge because everyone knows everyone else. Even if the outcome of such informal information flows is pos- itive, the actual communication may be prohibited internally by organizational rules and procedures.

CHAPTER 9 SOCIAL NETWORKS 239

For example, you are likely familiar with the way Post-its were developed at 3M through internal entre- preneurial actions—at the time, however, some of those actions were not an explicit part of 3M’s rules and procedures (though, fortunately for 3M, its “bootlegging policy” gave the inventors an opportunity to explore market options for the adhesive that did not stick).[17]

Harm to Individual Standing

The two remaining ethical issues are somewhat related. As you can imagine from the previous ex- amples, violation of privacy might lead to unforeseen, and possibly unwarranted, disciplinary action. This would harm an individual’s standing. For instance, if a social network map revealed that one indi- vidual or an entire department is the bottleneck for information flowing from one part of the organiza- tion to another, action might be taken against that individual or members of the department. It may truly be the case that this person or department is a roadblock to progress; but it may just as likely be the case that managers on one side or the other (in terms of social network) of the apparent bottleneck are not very good at delegating or eliciting information. Similarly, the organization may just be trying to run too much through one particular individual in the network. What one views as an indication of individual incompetency may, in fact, be a need for training or the addition of staff to move the in- formation more effectively.

The possible harm to individual standing should be noted if 3M had used a social network map to understand the roots of its Post-it homerun and had internal policies prohibiting the use of time and money on nonapproved projects. If a network survey revealed that 3M’s breakthrough was caused by rogue employees—that is, employees who were not following the rules about new product development and so on—the individual credited with that innovation might have been reprimanded or fired. This, of course, was not the case in 3M, but you can imagine how organizational policies meant to foster intern- al efficiencies might prohibit an individual from contravening them, regardless of the benefits of the eventual outcome.

Finally, the purpose of the network analysis may be to identify areas of the firm that just aren’t crit- ical to its mission, vision, and strategy. As social network researchers Steve Borgatti and Jose-Luis Mo- lina note, “This introduces dangers for the respondents because management may make job or person- nel changes (e.g., firing non-central workers) based on the network analysis. In fact, in the case of a consulting engagement, this may be the explicit purpose of the research, at least from the point of view of management.”[18] Obviously, one of the roles of management is to determine the efficient and effect- ive allocation of resources. SNA can be a useful tool in this determination, but the purpose of the ana- lysis should be made clear to participants from the outset.

Psychological Harm

This third area can be subtle, but it is very important as well. Psychological harm might arise when in- formation is used in a way that manipulates the behavior of individuals. For instance, managers are likely to develop maps of social networks because their managers believe that there might be better ways of planning, organizing, leading, and controlling. As Borgatti and Molina point out, however, SNA in this context is explicitly part of a transformation process in which the group is shown data about itself, such as network diagrams, and asked to react to it. Experience suggests that this technique serves as a powerful catalyst for change. “It is dangerous, however, because of the powerful emotions it engenders in a group setting and this can put the researcher in the position of practicing therapy without a license.”[19]

4.3 A Framework for Managing the Ethical Issues of SNA Now that you understand some of the ethical issues arising from SNA you are in a better position to anticipate and manage them. Of course, we should refresh your memory on the general ethical decision-making guidelines before delving into more SNA-specific ones. In brief, the following are the six steps:[20]

1. Assess the situation. What are you being asked to do? Is it illegal? Is it unethical? Who might be harmed?

2. Identify the stakeholders and consider the situation from their point of view. For example, consider the point of view of the company’s employees, top management, stockholders, customers, suppliers, and community.

3. Consider the alternatives you have available to you and how they affect the stakeholders. These include:

3.1. consequences

240 PRINCIPLES OF MANAGEMENT

3.2. duties, rights, and principles 3.3. implications for personal integrity and character

4. Consider the effects of your actions. How does the action make you feel about yourself? How would you feel if your actions were reported tomorrow in the Wall Street Journal (or your daily newspaper)? How would you explain your actions to your mother or to your 10-year-old child?

5. Make a decision. This might involve going to your boss or to a neutral third party (such as an ombudsman or ethics committee). Know your values and your limits. If the company does nothing to rectify the situation, do you want to continue working for the company?

6. Monitor outcomes. Track what actually happens and compare it to what you expected. Beyond these general guidelines, there are three specific ways that you might manage SNA related eth- ical concerns. These are (1) full disclosure, (2) anonymization and opt-out options, and (3) participant training and feedback. Let’s look at each of these in turn.

First, you might consider some way of applying the notion of informed consent to the participants of an exercise that maps the organization’s social networks. This means that each person included in the mapping process would be told the purpose of the exercise, along with what the outcome would look like. We provide an example disclosure form where they would also be apprised of the possible risks. For instance, one SNA informed consent form includes the following paragraph:

Risks and costs Since management will see the results of this study, there is a chance that someone in management could consider your set of communication contacts to be inappropriate for someone in your position, and could think less of you. Please note, however, that the researchers have obtained a signed agreement from management stipulating that the data will be used for improving communication in the company and will not be used in an evaluative way.[21]

Second, managers can consider different ways of making the process anonymous or giving indi- viduals the option to opt-out of the mapping process. For example, department-level network informa- tion could be presented instead of individual-level information. Where it is impossible to protect the privacy wishes of one individual, then an op-out option is the only way to protect their privacy, though this will clearly affect the accuracy of the SNA. If an individual opts out, this should mean that their name appears nowhere on the social network diagram (even if they are identified by another individual as being part of their social network). For instance, in the sample map, you can see that the map would be very disjointed if John and Holly opted out of the SNA.

CHAPTER 9 SOCIAL NETWORKS 241

FIGURE 9.12 A Social Network Survey Participant Disclosure Form

Source: Reproduced with permission of Borghatti, S. P., & Molina, J.-L. (2005). Toward ethical guidelines for network research in organizations. Social

Networks, 27, 107–117.

Finally, managers can consider the application of SNA in conjunction with a larger employee develop- ment program where participants are taught about social network analysis and then their results are debriefed with them one on one. Where there are still concerns for privacy, individuals can map their own social networks and then act on them personally. It is management’s responsibility to steward the organization’s resources in a way that is consistent with the mission and vision. In that sense, SNA is a valuable tool for understanding how the organization’s work actually gets done. However, because it is such a powerful and revealing tool, managers must be thoughtful in its ethical application.

4.4 The Ethical Argument in Favor of Managing Social Networks We close this section with some discussion of why it might actually be unethical to neglect the organiz- ation’s social network. Be sensitive to the ethical issues surrounding the management of social net- works, but that does not mean leaving social network relationships to chance. For instance, if you know that your department would be more productive if person A and person B were connected, as a

242 PRINCIPLES OF MANAGEMENT

manager wouldn’t you want to make that connection happen? In many firms, individuals are paid based on performance, so this connection might not only increase the department’s performance, but its personal incomes as well.

The broader issue is that social networks exist and that the social capital they provide is an import- ant and powerful vehicle for getting work done. That means that the ethical manager should not neg- lect them. Wayne Baker, author of Achieving success through Social Capital, puts it this way:

“The ethics of social capital [i.e., social network relationships] requires that we all recognize our moral duty to consciously manage relationships. No one can evade this duty—not managing relationships is managing them. The only choice is how to manage networks of relationships. To be an effective networker, we can’t directly pursue the benefits of networks, or focus on what we can get from our networks. In practice, using social capital means putting our networks into action and service for others. The great paradox is that by contributing to others, you are helped in return, often far in excess of what anyone would expect or predict.”[22]

K E Y T A K E A W A Y

Now that you have a better understanding of social networks and SNA you need to understand some of the ethical implications of the application of such knowledge. You learned that SNA gives rise to concerns about privacy, harm to individual standing, and psychological harm. You were reminded that the general ethical decision-making framework applies to your use of SNA, but you also learned some specific approaches to managing SNA-related ethical issues. Finally, you were presented with arguments about why neglect of an or- ganization’s social network also can have negative ethical implications.

E X E R C I S E S

1. What is social network analysis?

2. Why should managers be concerned about the ethical implications of social network analysis?

3. What might be some of the unforeseen consequences of SNA for you as an employee?

4. How would the privacy of employees be affected even if they are not directly surveyed as part of the SNA?

5. What steps can you take to improve the ethical bases for conducting SNA?

6. Why might it be unethical for managers to neglect the organization’s social networks?

5. PERSONAL, OPERATIONAL, AND STRATEGIC NETWORKS

L E A R N I N G O B J E C T I V E S

1. See networks as something you can, and need to, manage. 2. Know about different network forms—personal, operational, and strategic. 3. Understand some of the actions you need to take to move your network forward.

This section draws heavily on recent research by Herminia Ibarra, Brian Uzzi, and others, to help you understand the different forms that social networks can take. Ibarra and Uzzi have been studying the social networks and social networking tactics and strategies of managers for more than 20 years and are considered thought-leaders in the field.[23] Their most recent work suggests that strong, useful net- works don’t just happen at the watercooler. They have to be carefully constructed.

CHAPTER 9 SOCIAL NETWORKS 243

FIGURE 9.13

Social networks can serve personal, operational, or strategic purposes.

© 2010 Jupiterimages Corporation

personal network

One’s circle of casual acquaintances.

What separates successful managers from the rest of the pack? Networking: creating a fabric of personal contacts to provide the support, feedback, and resources needed to get things done. Yet many managers avoid networking. Some think they don’t have time for it. Others disdain it as manipulative. To succeed as a manager, Ibarra recommends building three types of networks:

< Personal—kindred spirits outside your organization who can help you with personal advancement.

< Operational—people you need to accomplish your assigned, routine tasks. < Strategic—people outside your control who will enable you to reach key organizational

objectives. These networks, their purpose, and how to build network membership, are summarized in “Personal, Operational, and Strategic Networks.” Most importantly, Ibarra’s work suggests that leaders need to possess all three types of networks, and not just one or two. Let’s take a look at each one of these networks.

TABLE 9.1 Personal, Operational, and Strategic Networks

The purpose of this network is to…

If you want to find network members, try…

Personal network

exchange important referrals and needed outside information; develop professional skills through coaching and mentoring

participating in alumni groups, clubs, professional associations, and personal interest communities.

Operational network

get your work done, and get it done efficiently.

identifying individuals who can block or support a project.

Strategic network

figure out future priorities and challenges; get stakeholder support for them.

identifying lateral and vertical relationships with other functional and business unit managers—people outside your immediate control—who can help you determine how your role and contribution fit into the overall picture.

5.1 Personal Networks

“Personal networks are largely external, made up of discretionary links to people outside the workplace with whom we have something in common. As a result, what makes a personal network powerful is its referral potential. According to the famous six degrees of separation principle, our personal contacts are valuable to the extent that they help us reach, in as few connections as possible, the far-off person who has the information we need.”[24]

Personal networking engages kindred spirits from outside an organization in an indi- vidual’s efforts to learn and find opportunities for personal advancement. Personal networks are one’s circle of casual acquaintances, typically composed of people out- side of the company you work for. Before you have a job in a particular company, many of your network ties are personal, oriented toward current interests and future poten- tial interests. Key contacts are typically discretionary—that is, it is not always clear who is most relevant.

Most personal networks are highly clustered—that is, your friends are likely to be friends with one another as well. And, if you made those friends by introducing your- self to them (as opposed to being introduced by a mutual acquaintance), the chances are high that their experiences and perspectives echo your own. Ideas generated within a personal network typically circulate among the same people with shared views. This creates the risk that a potential winning idea can go unexploited if no one in the group has what it takes to bring that idea to fruition.

But what if someone within that cluster knows someone else who belongs to a whole different group? That connection, formed by an information broker, can expose your idea to a new world, filled with fresh opportunities for success. Diversity and breadth, that is, reaching out to contacts who can make referrals, makes the difference.

Through professional associations, alumni groups, clubs, and personal interest communities, managers gain new perspectives that allow them to advance in their careers. This is what we mean by personal networking.

While personal networks are important, particularly to the extent that they provide you with valu- able resources and access to needed resources, the challenge is to convert them into network resources

244 PRINCIPLES OF MANAGEMENT

operational network

The portion of an actor’s network that is geared toward doing assigned tasks more effectively.

strategic network

The portion of an actor’s network that provides the ability to marshal information, support, and resources from one sector of a network to achieve results in another.

that also help with operational and strategic needs. Too often, however, those individuals in the per- sonal network just aren’t the right types of ties to be beneficial operationally or strategically, which is why you need to look at broadening your network to address operating and strategic needs.

5.2 Operational Networks

“All managers need to build good working relationships with the people who can help them do their jobs. The number and breadth of people involved can be impressive—such operational networks include not only direct reports and superiors but also peers within an operational unit, other internal players with the power to block or support a project, and key outsiders such as suppliers, distributors, and customers. The purpose of this type of networking is to ensure coordination and cooperation among people who have to know and trust one another in order to accomplish their immediate tasks…Either you’re necessary to the job and helping to get it done, or you’re not.”[25]

On the basis of a close study of 30 emerging leaders, Ibarra and Hunter found that operational net- working was geared toward doing one’s assigned tasks more effectively. It involves cultivating stronger relationships with colleagues whose membership in the network is clear; their roles define them as stakeholders. The previous quote provides you with a good working definition of operational net- work: “Either you’re necessary to the job and helping get it done, or you’re not.” That is, anyone who satisfies this criterion should be considered part of your operational network.

So, now you have two networking bases covered. At least you know how to identify the gaps in your personal and operational network. Your personal network provides access to external resources and referrals; your operational network helps you get the work done. Thus, most operational network- ing occurs within an organization, and ties are determined in large part by routine, short-term de- mands. Relationships formed with outsiders, such as board members, customers, and regulators, are directly task-related and tend to be bounded and constrained by demands determined at a higher level. But as a manager moves into a leadership role, his or her network must reorient itself externally and to- ward the future. This is the role played by strategic networking.

5.3 Strategic Networks

“Making a successful leadership transition requires a shift from the confines of a clearly defined operational network…It is a challenge to make the leap from a lifetime of functional contributions and hands-on control to the ambiguous process of building and working through networks. Leaders must accept that networking is one of the most important requirements of their new leadership roles and continue to allocate enough time and effort to see it pay off.”[26]

Whereas an operational network is fairly narrowly focused, with the locus of contacts formed around specific objectives, a strategic network necessarily involves lateral and vertical ties to stakeholders in- side and outside of the firm. As Ibarra and Hunter found in their research, strategic networking is the ability to marshal information, support, and resources from one sector of a network to achieve res- ults in another. Pushed to its logical limit, the basis of this difference is that effective leaders are highly dependent on others to get things done. The irony here is that the individuals in your network, who are the lifeline for building up the big picture, are also individuals who are likely to be outside of your im- mediate control. While this may seem obvious, it is often difficult to transition from a purely opera- tional network to a strategic one, either due to simple time constraints (strategic networking takes time, often without immediate or obvious benefits) or because of negative personal attitudes toward strategic networking (for instance, “that’s too political and goes against my values”).

5.4 Making It Happen Networks create value, but networking takes real work. Beyond that obvious point, accept that net- working is one of the most important requirements of a leadership role. To overcome any qualms about it, identify a person you respect who networks effectively and ethically. Observe how he or she

CHAPTER 9 SOCIAL NETWORKS 245

uses networks to accomplish goals. You probably will also have to reallocate your time. This means be- coming a master at the art of delegation, to liberate time you can then spend on cultivating networks.

Building a network obviously means that you need to establish connections. Create reasons for in- teracting with people outside your function or organization; for instance, by taking advantage of social interests to set the stage for addressing strategic concerns. Ibarra and Hunter found that personal net- working will not help a manager through the leadership transition unless he or she learns how to bring those connections to bear on organizational strategy. In “Guy Kawasaki’s Guide to Networking through LinkedIn,” you are introduced to a number of network growth strategies using that powerful Web-based tool.

Finally, remind yourself that networking requires you to apply the principle of reciprocity. That is, give and take continually—though a useful mantra in networking is “give, give, give.” Don’t wait until you really need something badly to ask for a favor from a network member. Instead, take every oppor- tunity to give to—and receive from—people in your networks, regardless of whether you need help.

Guy Kawasaki’s Guide to Networking Through LinkedIn

LinkedIn (http://www.Linkedin.com) is the top business social networking site. With more than 30 million members by the end of 2008, its membership dwarfs that of the second-largest business networking site, Plaxo. LinkedIn is an online network of experienced professionals from around the world representing 150 in- dustries.[27] Yet, it’s still a tool that is underutilized, so entrepreneur Guy Kawasaki compiled a list of ways to in- crease the value of LinkedIn.[28] Some of Kawasaki’s key points are summarized here that can help you develop the strategic side of your social network (though it will help you with job searches as well):

Increase your visibility. By adding connections, you increase the likelihood that people will see your profile first when they’re searching for someone to hire or do business with. In addition to appearing at the top of search results, people would much rather work with people who their friends know and trust.

Improve your connectability. Most new users put only their current company in their profile. By doing so, they severely limit their ability to connect with people. You should fill out your profile like it’s a resume, so include past companies, education, affiliations, and activities. You can also include a link to your profile as part of an e- mail signature. The added benefit is that the link enables people to see all your credentials.

Perform blind, “reverse,” and company reference checks. Use LinkedIn’s reference check tool to input a com- pany name and the years the person worked at the company to search for references. Your search will find the people who worked at the company during the same time period. Since references provided by a candidate will generally be glowing, this is a good way to get more balanced data.

Make your interview go more smoothly. You can use LinkedIn to find the people that you’re meeting. Know- ing that you went to the same school, play hockey, or share acquaintances is a lot better than an awkward si- lence after, “I’m doing fine, thank you.”

Gauge the health of a company. Perform an advanced search for company name and uncheck the “Current Companies Only” box. This will enable you to scrutinize the rate of turnover and whether key people are abandoning ship. Former employees usually give more candid opinions about a company’s prospects than someone who’s still on board.

K E Y T A K E A W A Y

In this section, you were introduced to a different slant on social networks—a slant that helps you manage your networks based on where you might be in an organization. Personal networks are important and tend to follow you everywhere. In this section, we stressed the access-to-information and referral benefits of personal networks. Operational networks are those that help you get your immediate work done, and if the key stake- holders in the work process aren’t already in your operational network, then you have some network rework in order. Finally, strategic networks are those that involved a much broader stakeholder group and typically in- volved individuals who are out of your direct control. One key takeaway from this section is that effective lead- ers are effective networkers, and you will need to figure out the style of networking that works for you as you move higher in an organization.

246 PRINCIPLES OF MANAGEMENT

social networking

Systems that allow members of a specific site to learn about other members’ skills, talents, knowledge, or preferences.

FIGURE 9.14

You can map your social network to understand its structure.

© 2010 Jupiterimages Corporation

career network

Shows who helps an actor progress in their career.

E X E R C I S E S

1. What characterizes a personal social network?

2. What benefits do members of a personal social network provide to each other?

3. What characterizes an operational social network?

4. What is a simple rule of thumb for determining if someone should be in your operational network?

5. What characterizes a strategic social network?

6. What two barriers interfere with the development of strategic networks?

6. MAPPING AND YOUR OWN SOCIAL NETWORK

L E A R N I N G O B J E C T I V E S

1. Understand what is involved in social network analysis. 2. Be able to analyze your own social network. 3. Be able to identify the gaps in your network and develop a plan to fill those gaps.

As you have already learned, the mapping and measuring of relationships and flows between people, groups, organizations, computers, Web sites, and other information/knowledge processing entities is called social network analysis. Social network analysis is not the same thing as networking, where net- working is the activities you might engage in to build your social network. In this section, you will learn the basics of mapping your own social network. It will give you a sense of the size of your network, along with some other useful characteristics to work with such as density.

6.1 Step One: What Purpose Should the Network Serve? There are a number of possible purposes for a social network.[29] As a manager, you are probably most concerned with these six.[30] First, a communication network is the in- formal structure of an organization as represented in ongoing patterns of interaction, either in general or with respect to a given issue. Second, an information network shows who goes to whom for advice on work-related matters. Third, a problem-solving network indicates who goes to whom to engage in dialogue that helps people solve problems at work. Fourth, a knowledge network captures who is aware of whose know- ledge and skills, and an access network (fifth) shows who has access to whose know- ledge and expertise. The sixth and final purpose is a career network, which reflects those individuals in your network who are likely to be helpful in your search for a new job or quest for a promotion. Given that you are reading a principles of management book, a career network may be the most interesting to you.

6.2 Step Two: Who Are Your Contacts and What Is Your Relationship with Them? Let’s assume that we are mapping your career network. A career network is simply those individuals who might be instrumental in helping you secure a new job or promotion. You can simply draft out a list of names, using names or just initials, but the goal is to develop a fairly complete list. The list can be as long or as short as you want to make it, though keep in mind that there is probably a limit to how effectively you can maintain a large network where you expect each relationship to be strong and meaningful, or at least one where the contact would probably respond to your request for assistance. Managers with 15 years of experience might list 30 to 50 names, while a college student might list 15 to 25 names. These are just averages, though, and individuals can be much higher or lower, depending on their situation.

The following three questions are sometimes useful in drafting out this initial list. 1. If you look back over the last two to three years, who are the people with whom you have

discussed important school or work matters? This may have been for bouncing around ideas for

CHAPTER 9 SOCIAL NETWORKS 247

important projects, getting support or cooperation for your initiatives, evaluating opportunities, or any other matters of importance to you.

2. What people have been most helpful and useful in accomplishing your job, in a work, school, or volunteer setting? Consider people who have provided leads, made introductions, offered advice in your decision making, or provided resources.

3. Who has directly influenced your career? List those people who have contributed most significantly to your professional development and career advancement during the past two to three years.

Now that you have your list, briefly categorize the names based on (1) the strength of your relationship (very close, close, not very close, distant) and (2) who they are and where they come from. For this second facet, you might want to consider the following:

Total no. of ties _______ No. Ties % of Total

1. Your senior (higher up in your or another organization) _____ _____

2. Your peer (at your level in your or another organization) _____ _____

3. Your junior (below you in your or another organization) _____ _____

4. From a different functional or product area _____ _____

5. From a different business unit or office in your firm _____ _____

6. From a different firm _____ _____

7. The same gender as you are _____ _____

8. Members of the same racial or ethnic group as you are _____ _____

9. The same nationality as you are _____ _____

You will come back to this information after the next step, but you already have a better picture of your network just after this second step. For instance, you know how many people are in this network, and the relative presence of different types of network members.

6.3 Step Three: Who Knows Whom? Computing Network Density Transfer your list of names to a grid like the one shown in the Sample Network Grid. Be sure to note your relationship with them, in terms ranging from very close to distant. To complete the grid you place a check in the box where one individual knows another. For instance, in this exhibit, Mary knows Zachary, Wesley, and Gerry.

FIGURE 9.15 Sample Network Grid

248 PRINCIPLES OF MANAGEMENT

Computing Network Density

Once you have finished check-marking who knows whom, compute the density of your network using the following:

a. Total number of people in your network To follow our example, N = 10 (i.e., there are 10 names)

N = __10_

b. Maximum Density (i.e., if everyone in your network knew each other). Our maximum density is (10 × 9) ÷ 2 = 45

[N × (N - 1)] ÷ 2 = M

M = __45_

c. Total number of checkmarks on your network grid (i.e., the number of relationships among people in your network).

In our example, C = 19.

C = __19_

d. Density of Your Network. Our D = 19 ÷ 45 = .42 C ÷ M = D

D = __.42_

In our example, if our calculations are correct, the density of this network is .42. If each person in this network knew every other person, then the density would be 1.0; if no one knew one another, outside of the person whose network this was, then the density would be 0.0. In our example, the network density is close to the middle, which means that about fewer than half the people have common net- work ties, while a little more than half have unique relationships. You might also want to run this cal- culation for a subset of the ties based on whether they are very strong, distant, and so on. If you do use a subset, though, then remember to use that number as your starting point (N = no. very close ties, for instance).

What Is a Good Number?

There is little research to tell us exactly how big (or small) or how dense (or sparse) the ideal network should be, although there are some facts to consider. Remember Dunbar’s number from earlier in the chapter? Some studies have suggested an upper limit of 150 network ties, but, again, that is a pretty big number if you also characterize those ties as “very close.” It is perhaps more reasonable if a few are very close and the rest are spread out in the “close” to “distant” categories. If you have a network of 15 to 20 people whose names come to mind quickly, that is probably a useful size, particularly if your network density is around the middle. Remember, you just set up a network where you were sort of the center point, and each member of your network, even if he/she is peripheral to yours, is the center of his/her own network.

A good number for density is between .40 and .60—that is, some people know one another, and some do not. The advantage of having people in your network who know one another is that they are likely to communicate more frequently and provide a set of shared relationships that you can use to move information, ideas, and other resources forward. Also, if any one of your network members, who knows no one else in the network, leaves the network for some reason, you will no longer have access to the stuff he or she provided for you.

You also want a number of unique ties though, since those relationships provide you access to unique information, resources, and ideas. Because of the network theory principles of reciprocity and exchange your network is likely to be more responsive when you have helped others in the network (reciprocate favors), and such reciprocation is most likely when you have access to unique resources (the exchange principle).

6.4 Step Four: Assess and Take Action Let’s take a look at the information you now have about your network. From step 2 you have the size of your network, and the percentage of ties that break out by relationship (very strong to distant) and characteristics (company, demographics, and so on). From step 3 you have the density of your net- work, and that helps shed additional light on the information generated in step 2.

This puts you in a pretty good position. If you think your network is too small, you have a way to identify the gaps in your network that, if filled, would both grow your network and fill those key gaps. If density is too high, then the pathway is similar as well. If you think that you have a great network already, then you can validate this with the information generated in steps 2 and 3. In all likelihood, you will see opportunities to shore up gaps and develop strategies for doing so.

Here are some pointers from effective managers on how to make sure your network is creating value for you:

< When entering a new position, effective managers identify the people on whom they depend for getting things done and focus their energies on cultivating relationships with those people.

CHAPTER 9 SOCIAL NETWORKS 249

< Effective managers consider others as potential allies, even when they may appear to be adversaries. They develop awareness of key goals and resources valued by the potential ally and attempt to find areas of mutual benefit.

< Relationships with people who are dissimilar on multiple dimensions (e.g., a senior manager in another division) are the most difficult to cultivate and therefore require the most explicit strategies.

< Effective managers tend to be keenly aware of their personal preferences and interaction styles for developing their networks. For example, those who are not comfortable with extracurricular socializing may make extra time for informal conversations at work.

K E Y T A K E A W A Y

You now have a good understanding of how to analyze the basic characteristics of your social network or that of another individual. In this section you were introduced to a pencil-and-paper approach to social network analysis, though you can also use electronic forms that map more complex relationships, and perhaps show how multiple networks are tied (or not tied) together. This section closed with showing you how to bolster the value created by your social network.

E X E R C I S E S

1. How might social network analysis help you find a new job?

2. What are the basis steps in social network analysis?

3. What information do you need to analyze your social network?

4. Why is the size of your network important?

5. Why is the density of your network important?

6. What can you do to create value through your social network?

250 PRINCIPLES OF MANAGEMENT

1.

2.

3.

4.

5.

6.

7.

8. 9.

10. 11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

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22. 23.

24.

25.

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27.

28. 29.

30.

ENDNOTES

An excellent review of this literature is found in Kilduff, M., & Tsai, W. (2004). Social networks and organizations. Beverly Hills, CA; Sage.

It is one problem to learn or act on knowledge with others who think like you (such as in a community of practice); however, it is an entirely different problem to do this in diverse social contexts, such as cross-functional teams, where people often do not share a common vision, language, metrics of performance, or even understanding of the problem. For example, sociologists have demonstrated how correct information can have little or no effect on critical decision processes. Vaughn, D. (1996). The Chal- lenger launch decision: Risky technology, culture and deviance at NASA. Chicago: University of Chicago Press. Further, organizational theorists have shown that a per- son’s knowledge can be role constrained. March, J., & Olsen, J. (1975). The uncertainty of the past: Organizational learning under ambiguity. European Journal of Political Re- search, 3, 147–171.

Granovetter, M. (1985). Economic action and social structure: The problem of em- beddedness. American Journal of Sociology, 91, 481–510; Granovetter, M. (1995). Get- ting a job: A study of contacts and careers (2nd ed.). Chicago: University of Chicago Press.

Travers, J., & Milgram, S. (1969). An experimental study in the small world problem. Sociometry, 32(4), 425–443.

These dimensions, and their specific definitions, are taken from Cross, R., Borgatti, S., & Parker, A. (2002). Making invisible work visible California Management Review, 44(2), 25–46.

Bavelas, A. (1950). Communication patterns in task-oriented groups. Journal of Acous- tical Society of America, 22, 725–730; Leavitt, H. (1951). Some effects of certain com- munication patterns on group performance. Journal of Abnormal and Social Psycho- logy, 46, 38–50; Shaw, M. (1964). Communication networks. In L. Berkowitz (Ed.), Ad- vances in experimental social psychology. New York: Academic Press.

Cox, C. (2008, October 7). Retrieved November 13, 2008, from http://blog.styleapple.com/ styleapple-creative-design-blog-the-place-where-creative-pros-flex-their-muscles/ bid/5866/Arguably-The-Most-Effective-Branding-Campaign-Ever.

Kilduff, M., & Tsai, W. (2004). Social networks and organizations. Beverly Hills, CA; Sage.

Granovetter, M. (1974). Getting a job: A study of contacts and careers (2nd ed.). Chicago: University of Chicago Press.

Goleman. D. (2006). Social intelligence. New York: Bantam.

Bialik, C. (2007, November 16). Sorry, you may have gone over your limit of network friends. Wall Street Journal.

Cross, R., Borgatti, S., & Parker, A. (2002). Making invisible work visible. California Man- agement Review, 44(2), 25–46.

Fleming, L., & Marx, M. (2006). Managing creativity in small worlds. California Manage- ment Review, 48(4), 6–27.

How companies approach innovation: A McKinsey global survey. (2007). McKinsey Quarterly.

We have adapted these ethical concerns from Borgatti, S. P., & Molina, J.-L. (2003). Ethical and strategic issues in organizational network analysis. Journal of Applied Be- havioral Science, 39(3), 337–349, and Borghatti, S. P., & Molina, J.-L. (2005) Toward eth- ical guidelines for network research in organizations. Social Networks, 27, 107–117.

Borghatti, S. P., & Molina, J.-L. (2005). Toward ethical guidelines for network research in organizations. Social Networks, 27, 107–117.

To foster creativity, 3M encourages technical staff members to spend up to 15% of their time on projects of their own choosing. Also known as the “bootlegging” policy, the 15% rule has been the catalyst for some of 3M’s most famous products, such as Scotch Tape and—of course—Post-it notes. Retrieved November 17, 2008, from http://solutions.3m.com/wps/portal/3M/en_HK/post-it/index/ post-it_past_present/history/ the_whole_story?PC_7_RJH9U523086C5023CPSB8R18O2_assetType=MMM_Article&PC_7_RJH9U523086C5023CPSB8R18O2_assetId=1180595718358&PC_7_RJH9U523086C5023CPSB8R18O2_univid=1180595718358.

Borghatti, S. P., & Molina, J.-L. (2005). Toward ethical guidelines for network research in organizations. Social Networks, 27, 107–117.

Borghatti, S. P., & Molina, J.-L. (2005). Toward ethical guidelines for network research in organizations. Social Networks, 27, 107–117 (quote on p. 114).

Hartman, L., & DesJardins, J. (2008). Business ethics: Decision-making for personal integ- rity and social responsibility. New York: McGraw-Hill.

Borghatti, S. P., & Molina, J.-L. (2005). Toward ethical guidelines for network research in organizations. Social Networks, 27, 107–117.

Baker, W. (2000). Achieving success through social capital. San Francisco: Jossey-Bass.

Ibarra, H., & Hunter, M. (2007, January). How leaders build and use networks. Harvard Business Review, 40–47. Ibarra, H. (2006). Career Change. In J. H. Greenhaus & G. A. Cal- lanan (Eds.), The encyclopedia of career development, 7782. Beverly Hills, CA; Sage.

Ibarra, H., & Hunter, M. (2007, January). How leaders create and use networks, Harvard Business Review, 2–8 (quote, 5).

Ibarra, H., & Hunter, M. (2007, January). How leaders create and use networks, Harvard Business Review, 2–8 (quote, 3).

Ibarra, H., & Hunter, M. (2007, January). How leaders create and use networks, Harvard Business Review, 2–8 (quote, 6).

Retrieved June 4, 2008, from http://www.linkedin.com/ static?key=company_info&trk=hb_ft_abtli.

Retrieved June 4, 2008, from http://blog.guykawasaki.com.

The first author, Mason A. Carpenter, has been using social networking mapping in his classes for the past 15 years. This particular mapping tool has evolved over that time and is inspired by the larger body of social network research. There is no magic to this particular grid tool, and you are welcome to use and adapt it as the need arises. This grid simply asks students to identify who might be helpful in their net- work, the nature of their relationship with these individuals, and which members know each other.

Cross, R., Borgatti, S., & Parker, A. (2002). Making invisible work visible. California Man- agement Review, 44(2), 25–46.

CHAPTER 9 SOCIAL NETWORKS 251

252 PRINCIPLES OF MANAGEMENT

C H A P T E R 1 0 Leading People and Organizations FIGURE 10.1 Leaders give their followers direction. Leaders are key players in determining the success or failure of coordinated tasks and organizational initiatives.

© 2010 Jupiterimages Corporation

W H A T ’ S I N I T F O R M E ?

Reading this chapter will help you 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.

5. Develop your own leadership skills.

FIGURE 10.2 The P-O-L-C Framework

leadership

The act of influencing others toward a goal.

formal leaders

Those who hold a position of authority and may utilize the power that comes from their position, as well as their personal power to influence others.

informal leaders

Those without a formal position of authority within the organization but demonstrate leadership by influencing those around them through personal forms of power.

Perhaps this is obvious, but leadership is the first of five facets constituting a manager’s leading function in the P-O-

L-C framework. 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 use 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 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 their 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’s or company’s success and failure.

Company chief executive officers (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, and profit and

nonprofit sectors, 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]

1. CASE IN POINT: INDRA NOOYI DRAWS ON VISION AND VALUES TO LEAD

Source: Used by permission of PepsiCo Incorporated.

254 PRINCIPLES OF MANAGEMENT

She is among the top 100 most influential people according to Time magazine’s 2008 list. She has also ranked number 4 in Forbes’s “Most Influential Women in the World” (2010), number 1 in Fortune’s “50 Most Powerful Women” (2006 through 2009), 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. (NYSE: PEP) in 2006, she was one of the most powerful executives at PepsiCo 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 PepsiCo, 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 obesity epidemic by im- proving the nutritional status of PepsiCo products and making PepsiCo an environmentally sustainable com- pany. She is an inspirational speaker and rallies people around her vision for the company. She has the track re- cord to show that she means what she says. She was instrumental in PepsiCo’s acquisition of the food con- glomerate Quaker Oats Company and the juice maker Tropicana Products Inc., both of which have healthy product lines. She is bent on reducing PepsiCo’s reliance on high-sugar, high-calorie beverages, and she made sure that PepsiCo 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 alternat- ive 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 ex- pects 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 friend- ships 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. Nooyi notes 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.

Case written by Berrin Erdogan and Talya Bauer to accompany Carpenter, M., Bauer, T., & Erdogan, B. (2009). Principles of management (1st ed.). New York: Flat World Knowledge. Based on information from Birger, J., Chandler, C., Frott, 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. BusinessWeek. Retrieved April 30, 2010, from http://www.businessweek.com/magazine/content/07_24/b4038067.htm; 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, p. 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. Retrieved April 30, 2010, from http://www.economist.com/business-finance/ displaystory.cfm?story_id=7803615.

D I S C U S S I O N Q U E S T I O N S

1. How might a leader like Nooyi influence PepsiCo’s use of P-O-L-C tools beyond her obvious role in the leadership dimension?

2. Do you think Indra Nooyi’s vision of “performance with purpose” has been effective? Why or why not?

3. How does charisma relate to leadership? Do you think the CEO of PepsiCo possesses this characteristic?

4. What makes Indra Nooyi so successful at her job? Is it her level of authority, or is it something else?

5. What do the types of advisors that Indra Nooyi relies on tell you about her values?

6. How much passion does Indra Nooyi seem to bring to her role as CEO of PepsiCo?

CHAPTER 10 LEADING PEOPLE AND ORGANIZATIONS 255

2. WHO IS A LEADER? TRAIT APPROACHES TO LEADERSHIP

L E A R N I N G O B J E C T I V E S

1. Learn the position of trait approaches in the history of leadership studies. 2. Explain the traits that are associated with leadership. 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 lead- ers from nonleaders. What were the personality characteristics and physical and psychological attrib- utes 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 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.[2] 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 as follows:[3]

2.1 Intelligence General mental ability, which psychologists refer to as “g” and which is often called IQ in everyday lan- guage, 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. In addition to having high IQ, effective leaders tend to have high emotional intelligence (EQ). People with high EQ demonstrate a high level of self-awareness, 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 high IQ. According to Goleman, what differentiates effective leaders from ineffect- ive ones becomes their ability to control their own emotions and understand other people’s emotions, their internal motivation, and their social skills.[5] Many observers believe that Carly Fiorina, the ousted CEO of HP, demonstrated high levels of intelligence but low levels of empathy for the people around her, which led to an overreliance on numbers while ignoring the human cost of her decisions.[6]

256 PRINCIPLES OF MANAGEMENT

FIGURE 10.5

Steve Ballmer, CEO of Microsoft, is an extraverted leader. For example, to celebrate Microsoft’s 25th anniversary, Ballmer enthusiastically popped out of the anniversary cake to surprise the audience.

Source: http://en.wikipedia.org/wiki/

Image:Steve_ballmer_2007_outdoors2.jpg

FIGURE 10.4 Big Five Personality Traits

Source: Goldberg, L. R. (1990). An alternative “description of personality”: The big-five factor structure. Journal of Personality & Social Psychology, 59,

1216–1229.

Psychologists have proposed various systems for categorizing the characteristics that make up an indi- vidual’s unique personality; one of the most widely accepted is the Big Five model, which rates an indi- vidual according to openness to experience, conscientiousness, extraversion, agreeableness, and Neur- oticism. Several of the Big Five personality traits have been related to leadership emergence (whether someone is viewed as a leader by others) and leadership effectiveness.

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. Be- cause they are both dominant and sociable in their environment, they emerge as leaders in a wide vari- ety of situations. Out of all personality traits, extraversion has the strongest relationship to both leader emergence and leader effectiveness. Research shows that conscientious people are also more likely to be leaders. This is not to say that all effective leaders are extraverts, but you are more likely to find extra- verts 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.[7]

Another personality trait related to leadership is conscientiousness. Conscientious people are or- ganized, take initiative, and demonstrate persistence in their endeavors. Conscientious people are more likely to emerge as leaders and be effective as leaders. Finally, people who have openness to experi- ence—those who demonstrate originality, creativity, and are open to trying new things—tend to emerge as leaders and tend to be effective as leaders.

2.2 Self-Esteem Self-esteem is not one of the Big Five personality traits, but it is an important aspect of one’s personal- ity. The degree to which people are at peace with themselves and have an overall positive assessment of their self-worth and capabilities seems to be relevant to whether they will be viewed as a leader. Leaders with high self-esteem support their subordinates more, and when punishment needs to be admin- istered, they punish more effectively.[8] 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 ex- plain the relationship between some physical attributes and emerging as a leader. For example, research shows a strong relationship between height 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 to the connection of height with leadership,

CHAPTER 10 LEADING PEOPLE AND ORGANIZATIONS 257

FIGURE 10.7

Condoleezza Rice had different responsibilities as the provost of Stanford University compared with her role as secretary of state for the United States. Do you think these differences affected her behavior as a leader?

Source: http://en.wikipedia.org/wiki/

Image:Condoleezza_Rice_cropped.jpg

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.[9]

2.3 Integrity

FIGURE 10.6 Traits Associated with Leadership

Research also shows that people who are effective as leaders tend to have a moral compass and demon- strate honesty and integrity.[10] 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 CEO John Mackey was using a pseudonym to make negative comments online about the company’s rival Wild Oats, his actions were heavily criticized, his leadership was questioned, and the company’s reputation was affected.[11]

There are also some traits that are negatively related to emerging as a leader and being successful as a leader. For example, agreeable people who are modest, good natured, and avoid conflict are less likely to be perceived as leaders.[12] 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.[13] For example, in small, entrepreneurial organizations where leaders have a lot of leeway to determine their own behavi- or, 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.[14] 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 condi- tions under which different traits affect a leader’s performance, as well as whether a person emerges as a leader.[15]

258 PRINCIPLES OF MANAGEMENT

task-oriented leader behaviors

Behaviors involving structuring the roles of subordinates, providing them with instructions and behaving in ways that will increase the performance of the group. (Also called initiating structure.)

people-oriented leader behaviors

Behaviors that include showing concern for employee feelings and treating employees with respect. (Also called consideration.)

K E Y T A K E A W A Y

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 are consistently related to leadership, such as 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 situ- ation in which leadership occurred. Therefore, it is more useful to specify the conditions under which different traits are needed.

E X E R C I S E S

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 trait 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?

3. WHAT DO LEADERS DO? BEHAVIORAL APPROACHES TO LEADERSHIP

L E A R N I N G O B J E C T I V E S

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.

When the trait researchers became disillusioned in 1940s, their attention turned to studying leader be- haviors. What did effective leaders actually do? Which behaviors helped them to be perceived as lead- ers? Which behaviors increased their success?

3.1 Leader Behaviors In order to understand behaviors of effective leaders, researchers at Ohio State University and 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 behavi- ors (also called consideration). Task-oriented leader behaviors involve structuring the roles of sub- ordinates, 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 en- sure 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 actions and de- cisions. At the time, researchers thought that these two categories of behaviors were the keys to the puzzle of leadership.[16] However, research did not support the argument that demonstrating both of these behaviors would necessarily make leaders effective.[17]

CHAPTER 10 LEADING PEOPLE AND ORGANIZATIONS 259

authoritarian decision making

When leaders make the decision alone without necessarily involving employees in the decision-making process.

democratic decision making

Making choices among alternative courses of action, including inaction.

laissez-faire decision making

When leaders leave employees alone to make the decision. The leader provides minimum guidance and involvement in the decision.

FIGURE 10.8

Behavioral approaches to leadership showed that task-oriented and people-oriented behaviors are two key aspects of leadership.

© 2010 Jupiterimages Corporation

When we look at the overall findings regarding these leader behaviors, it seems that both types of beha- viors, 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.[18] Moreover, the situation in which these behaviors are demonstrated seems to matter. In small companies, task-ori- ented behaviors were found to be more effective than in large companies.[19] There is also some evid- ence that working under a leader with very high levels of task-oriented behaviors may cause burnout on the part of employees.[20]

3.2 Leader Decision Making Another question behavioral researchers focused on was 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 one. It seems that the effectiveness of the style the leader is using depends on the circum- stances. A review of the literature shows that when leaders use more democratic decision-making styles, employees tend to be more satisfied, but 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.[21] Different types of em- ployees may also expect different levels of involvement. In a study conducted in a research organiza- tion, scientists viewed democratic leadership most favorably and authoritarian leadership least favor- ably,[22] but employees working in large groups where opportunities for member interaction was lim- ited preferred authoritarian leader decision making.[23]

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. For example, Larry Page and Sergey Brin at Google are known for their democratic decision-making styles. At Hyundai USA, high-level managers use authoritarian decision-making styles, and the company is performing well.[24]

260 PRINCIPLES OF MANAGEMENT

FIGURE 10.9

Google cofounders Larry Page and Sergey Brin (shown here) are known for their democratic decision-making styles.

Source: http://commons.wikimedia.org/wiki/

Image:Sergey_Brin,_Web_2.0_Conference.jpg

The track record of the laissez-faire decision-making style is more problematic. Re- search shows that this style is negatively related to employee satisfaction with leaders and leader effectiveness.[25] 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.[26]

3.3 Limitations of Behavioral Approaches Behavioral approaches, similar to trait approaches, fell out of favor because they neg- lected the environment in which behaviors are demonstrated. The hope of the research- ers 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, 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.

K E Y T A K E A W A Y

When researchers failed to identify a set of traits that would distinguish effective from ineffective leaders, re- search 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. Be- cause 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.

E X E R C I S E S

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?

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?

CHAPTER 10 LEADING PEOPLE AND ORGANIZATIONS 261

4. WHAT IS THE ROLE OF THE CONTEXT? CONTINGENCY APPROACHES TO LEADERSHIP

L E A R N I N G O B J E C T I V E S

1. Learn about the major situational conditions that determine the effectiveness of different lead- ership 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. Discuss the main premises of 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 the right question to ask. Instead, a better question might be: under which conditions are different 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. Researchers started fol- lowing a contingency approach to leadership—rather than trying to identify traits or behaviors that would be effective under all conditions, the attention moved toward specifying the situations under which different styles would be effective.

4.1 Fiedler’s Contingency Theory The earliest and one of the most influential contingency theories was developed by Frederick Fiedler.[27] According to the theory, a leader’s style is measured by a scale called Least Preferred Co- worker (LPC) scale. 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 pos- itive terms? In other words, if you can say that the person you hated working with was still a nice per- son, 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. However, 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 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 favorable- ness 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.

How does Fiedler determine whether a situation is favorable, medium, or unfavorable? There are three conditions creating situational favorableness: (1) leader-subordinate relations, (2) position power, and (3) task structure. If the leader has a good relationship with most people, has high position power, and the task is structured, the situation is very favorable. When the leader has low-quality rela- tions with employees, has low position power, and the task is relatively unstructured, the situation is very unfavorable.

Research partially supports the predictions of Fiedler’s contingency theory.[28] 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-ori- ented leadership may be more effective. Moreover, the theory is important because of its explicit recog- nition of the importance of the context of leadership.

262 PRINCIPLES OF MANAGEMENT

FIGURE 10.10 Situational Favorableness

Source: Based on information in Fiedler, F. (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.

4.2 Situational Leadership Another contingency approach to leadership is Kenneth Blanchard and Paul Hersey’s Situational Lead- ership Theory (SLT) which argues that leaders must use different leadership styles depending on their followers’ development level.[29] According to this model, employee readiness (defined as a combina- tion 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.[30]

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 compet- ence for the tasks. Thus, leaders should be highly directive and less supportive. As the employee be- comes 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, delegat- ing 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.[31] Therefore, while it can be a useful way to think about matching behaviors to situations, over- reliance on this model, at the exclusion of other models, is premature.

TABLE 10.1 Situational Leadership Theory helps leaders match their style to follower readiness levels.

Competence (Low)

Competence (Low)

Competence (Moderate to High)

Competence (High)

Follower Readiness Level

Commitment (High)

Commitment (Low)

Commitment (Variable) Commitment (High)

Recommended Leader Style

Directing Behavior

Coaching Behavior

Supporting Behavior Delegating Behavior

4.3 Path-Goal Theory of Leadership Robert House’s path-goal theory of leadership is based on the expectancy theory of motivation.[32] Ex- pectancy theory of motivation suggests that employees are motivated when they believe—or ex- pect—that (1) their effort will lead to high performance, (2) their high performance will be rewarded, and (3) the rewards they will receive are valuable to them. According to the path-goal theory of leader- ship, the leader’s main job is to make sure that all three of these conditions exist. Thus, leaders will cre- ate satisfied and high-performing employees by making sure that employee effort leads to performance,

CHAPTER 10 LEADING PEOPLE AND ORGANIZATIONS 263

path-goal theory of leadership

Theory stating that a leader’s main job is to motivate employees with the beliefs that (1) their effort will lead to high performance, (2) their high performance will be rewarded, and (3) the rewards they will receive are valuable to them.

directive leaders

Those leaders who provide specific directions to their employees.

supportive leaders

Those leaders who provide emotional support to employees.

participative leaders

Those leaders who make sure that employees are involved in making important decisions.

achievement-oriented leaders

Those leaders who set goals for employees and encourage them to reach their goals.

and their performance is rewarded. The leader removes roadblocks along the way and creates an envir- onment that subordinates find motivational.

The theory also makes specific predictions about what type of leader behavior will be effective un- der which circumstances.[33] The theory identifies four leadership styles. Each of these styles can be effective, depending on the characteristics of employees (such as their ability level, preferences, locus of control, achievement motivation) and characteristics of the work environment (such as the level of role ambiguity, the degree of stress present in the environment, the degree to which the tasks are unpleasant).

Four Leadership Styles

Path-goal theory of leadership identifies four styles leaders may adopt. 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 workday. 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. However, 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 em- ployees 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 are encouraging. Supportive leadership is predicted to be effective when employees are under a lot of stress or when they are performing boring and repetitive jobs. When employees know exactly how to perform their jobs but their jobs are unpleasant, supportive leadership may also be effective.

Participative leaders make sure that employees are involved in making 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 who have a high internal locus of control, or the belief that they can control their own destinies, participative leadership gives employees a way of indirectly controlling organizational decisions, which will be appreciated.

FIGURE 10.11

© The New Yorker Collection 1972 J. B. Handelsman from cartoonbank.com. All Rights Reserved.

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.

264 PRINCIPLES OF MANAGEMENT

FIGURE 10.12 Predictions of Path-Goal Theory

Source: On the basis of 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.

The path-goal theory of leadership has received partial but encouraging levels of support from re- searchers. Because the theory is highly complicated, it has not been fully and adequately tested.[34] 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.

4.4 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.[35] The model starts by having leaders answer several key questions and work- ing their way through a funnel based on their responses.

Let’s try it. Imagine that you want to help your employees lower their stress so that you can min- imize employee absenteeism. There are a number of approaches you could take to reduce employee stress, such as offering gym memberships, providing employee assistance programs, establishing a nap room, and so forth. Let’s refer to the model and start with the first question. As you answer each ques- tion 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.

CHAPTER 10 LEADING PEOPLE AND ORGANIZATIONS 265

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.

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 em- ployees 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 with no input from the team members.

266 PRINCIPLES OF MANAGEMENT

FIGURE 10.13

Vroom and Yetton’s leadership decision tree shows leaders which styles will be most effective in different situations.

Used by permission from Victor H. Vroom.

Vroom and Yetton’s 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 de- cisions compared with leaders using a style not recommended by the model.[36]

CHAPTER 10 LEADING PEOPLE AND ORGANIZATIONS 267

transformational leaders

Those leaders who lead employees by aligning employee goals with the leader’s goals.

transactional leaders

Those leaders who ensure that employees demonstrate the right behaviors because the leader provides resources in exchange.

K E Y T A K E A W A Y

The contingency approaches to leadership describe the role the situation would play in choosing the most effective leadership style. Fiedler’s contingency theory argued that task-oriented leaders would be most effect- ive when the situation was the most and the least favorable, whereas relationship-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 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 decision model is a guide leaders can use to decide how participative they should be given decision environment characteristics.

E X E R C I S E S

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- oriented and participative 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?

5. CONTEMPORARY APPROACHES TO LEADERSHIP

L E A R N I N G O B J E C T I V E S

1. Learn about the difference between transformational and transactional leaders. 2. Find out about charismatic leadership and how it relates to leader performance. 3. Describe how high-quality leader-subordinate relationships develop. 4. Define servant leadership and evaluate its potential for leadership effectiveness. 5. Define authentic leadership and evaluate its potential for leadership effectiveness.

What leadership theories make the greatest contributions to today’s business environment? In this sec- tion, we will review the most recent developments in the field of leadership.

5.1 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 between 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 employ- ees. However, transactional leaders ensure that employees demonstrate the right behaviors because the leader provides resources in exchange.[37]

268 PRINCIPLES OF MANAGEMENT

charisma

Behaviors leaders demonstrate that create confidence, commitment, and admiration to the leader.

inspirational motivation

When leaders come up with a vision that is inspiring to others.

intellectual stimulation

When leaders challenge organizational norms and status quo and encourage employees to think creatively and work harder.

individualized consideration

When leaders show personal care and concern for the well-being of their followers.

contingent rewards

Rewarding employees for their accomplishments.

active management by exception

Leaving employees alone but at the same time proactively predicting potential problems and preventing them from occurring.

passive management by exception

Leaving employees alone but then coming to the rescue if anything goes wrong.

trust

The belief that the other party will show integrity, fairness, and predictability in one’s actions toward the other.

Transformational leaders have four tools in their possession, which they use to influence employ- ees and create commitment to the company goals.[38] First, transformational leaders are charismatic. Charisma refers to behaviors leaders demonstrate that inspire confidence, commitment, and admira- tion toward the leader.[39] Charismatic individuals have a “magnetic” personality that is appealing to followers. Leaders such as Barack Obama, John F. Kennedy, Ronald Reagan, Mahatma Gandhi, Mustafa Kemal Ataturk (founder of the Republic of Turkey), and Winston Churchill are viewed as cha- rismatic. 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 chal- lenge 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 business leaders in- clude Steve Jobs of Apple; Lee Iacocca, who transformed Chrysler in the 1980s; and Jack Welch, who was the CEO of General Electric for 20 years. Each of these leaders is charismatic and is held respons- ible 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 other methods. Contingent re- wards 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 pre- dicting potential problems and preventing them from occurring. Passive management by excep- tion 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 powerful influence over leader effectiveness as well as em- ployee satisfaction.[40] In fact, transformational leaders increase the intrinsic motivation of their follow- ers, build more effective relationships with employees, increase performance and creativity of their fol- lowers, increase team performance, and create higher levels of commitment to organizational change efforts.[41] 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 at- titudes.[42] To maximize their effectiveness, leaders are encouraged to demonstrate both transforma- tional 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 more 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. Re- search 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.[43]

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. Specific- ally, 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.[44] A large body of research has shown that it is possible to train people to increase their charisma and increase their transformational leadership.[45]

CHAPTER 10 LEADING PEOPLE AND ORGANIZATIONS 269

FIGURE 10.14

Mustafa Kemal Ataturk, the founder of Turkish Republic and its first president, is known as a charismatic leader. He is widely admired and respected in Turkey and around the world. His picture appears in all schools, state buildings, denominations of Turkish lira, and in many people’s homes in Turkey.

Source:

http://commons.wikimedia.org/wiki/

File:Ataturk_and_flag_of_Turkey.jpg

high-quality LMX relationship

A high-quality, trust-based relationship between a leader and a follower.

low-quality LMX relationship

A situation where the leader and the employee have lower levels of trust, liking, and respect toward each other.

Even if charisma may be teachable, a more fundamental question remains: is it really needed? Cha- risma 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 Iacocca, Steve Jobs, and Vir- gin’s Sir Richard Branson, there are charismatic personalities who harmed their organizations or na- tions, such as Adolph Hitler of Germany and Jeff Skilling of Enron. 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 other particular qualifications out- side of perceived charisma.[46]

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.[47] 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 per- formance. While it is true that charismatic leaders may sometimes achieve great results, the search for charismatic leaders under all circumstances may be irrational.

5.2 Leader-Member Exchange 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 relation- ships, the leader forms a trust-based relationship with the member. The leader and member like each other, help each other when needed, and respect one another. In these relationships, the leader and the member are both 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 or her job, the leader provides rewards and punish- ments, and the relationship does not involve high levels of loyalty or obligation toward each other.[48]

FIGURE 10.15 Factors Contributing to the Development of a High-Quality Leader-Member Exchange and Its Consequences

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-quality LMX relation- ship with your manager, you may attest to its advantages. Research shows that high-quality LMX mem- bers 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.[49] Their high levels of performance may not be a surprise because they may 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.[50] Because of all the help, support, and guidance they receive, those 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.[51] Being in a high-quality LMX relationship is also advantageous 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.[52] The list of benefits high-quality LMX employees re- ceive is long, and it is not surprising that these employees are less likely to leave their jobs.[53]

The problem, of course, is that not all employees have a high-quality relationship, and those who are in the leader’s out-group may suffer as a result. But how do you end up developing such a high- quality relationship with the leader? That seems to depend on many factors. Managers can help devel- op such a high-quality and trust-based relationship by treating their employees in a fair and dignified manner.[54] They can also test to see whether the employee is trustworthy by delegating certain tasks

270 PRINCIPLES OF MANAGEMENT

when the employee first starts working with the manager.[55] Employees also have an active role in de- veloping the relationship. Employees can seek feedback to improve their performance, be open to learning new things on the job, and engage in political behaviors such as flattery.[56]

Interestingly, high performance on the employee’s part does not seem to be enough to develop a high-quality exchange with the leader. Instead, interpersonal factors such as personality similarity and liking are more powerful influences over how the relationship develops.[57] Finally, the relationship de- velopment occurs in a slightly different manner in different types of companies; corporate culture mat- ters in how leaders develop these relationships. In performance-oriented cultures, how the leader dis- tributes rewards seem to be the relevant factor, whereas in people-oriented cultures, whether the leader treats people with dignity is more relevant.[58]

Should you worry if you do not have a high-quality relationship with your manager? One problem in a low-quality exchange is that you may not have access to the positive work environment available to the high-quality LMX members. Second, 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 receive positive performance appraisals.[59] Moreover, they are more likely to be giv- en the benefit of the doubt. For example, when they succeed, the manager is more likely to think that they succeeded because they put forth a lot of effort and they had high abilities, whereas for low LMX members who perform objectively well, the manager is less likely to think so.[60] In other words, the leader may interpret the same situation differently, depending on which employee is involved and may reward low LMX employees less even when they are performing well. In short, those with a low-quality relationship with the leader may experience a work environment that may not be very supportive or fair.

Despite its negative consequences, we cannot say that all employees want to have a high-quality re- lationship with the leader. Some employees may genuinely dislike the leader and may not value the re- wards 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 oppor- tunity to just do one’s job without having to go above and beyond these job requirements. Finally, not all leaders are equally capable of influencing their employees by having a good relationship with their employees: It also depends on the power and influence of the leader in the overall company and how the leader himself or herself is treated within the company. Leaders who are more powerful will have more to share with employees who are close to them.[61]

What LMX theory implies for leaders is that one way of influencing employees is through the types of relationships leaders form with their employees. These relationships develop naturally because of the work-related and personal interactions between the manager and the employee. Because they occur 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 a negative work environment characterized by favoritism and unfairness. Therefore, man- agers 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 to people from all backgrounds re- gardless of their permanent characteristics such as sex, race, age, or disability status; and prevent these relationships from leading to an unfair work environment.

CHAPTER 10 LEADING PEOPLE AND ORGANIZATIONS 271

servant leadership

A leadership approach which defines the leader’s role as serving the needs of others.

Self-Assessment: Rate Your LMX

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/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-quality LMX in terms of liking.

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-quality 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-quality LMX in terms of contribution.

Add your score for 10, 11, 12 = _____ This is your score on the Professional Respect factor 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-quality 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.

5.3 Servant Leadership The early 21st century has been marked by a series of highly publicized corporate ethics scandals: between 2000 and 2003, we witnessed Enron, WorldCom, Arthur Andersen, Qwest, and Global Cross- ing shake investor confidence in corporations and leaders. The importance of ethical leadership and keeping long-term interests of stakeholders in mind is becoming more widely acknowledged.

Servant leadership approach 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 over- riding objective in servant leadership is not necessarily getting employees to contribute to organiza- tional 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 com- pass, 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 company.[62] According to historian Doris Kearns Goodwin, Abraham Lincoln was a servant leader because of his balance of social conscience, empathy, and generosity. [63]

Even though servant leadership has some overlap with other leadership approaches such as trans- formational leadership, its explicit focus on ethics, community development, and self-sacrifice are

272 PRINCIPLES OF MANAGEMENT

authentic leadership approach

Effective leaders who stay true to themselves.

FIGURE 10.16

An example of an authentic leader is Howard Schultz, the founder of Starbucks coffeehouses. Witnessing his father losing jobs because of medical problems, he became passionate about a company’s need to care for its employees.

Source: http://upload.wikimedia.org/wikipedia/commons/

archive/a/ae/20081006001508!Howard-Schultz-

Starbucks.jpg

distinct characteristics of this leadership style. Research shows that servant leadership has a positive effect on employee commitment, employee citizenship behaviors toward the community (such as parti- cipating in community volunteering), and job performance.[64] Leaders who follow the servant leader- ship approach create a climate of fairness in their departments, which leads to higher levels of interper- sonal helping behavior.[65]

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 effect- iveness. David Wolfskehl, of Action Fast Print in New Jersey, founded his printing company when he was 24. 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 two years, his company increased its productivity by 30%.[66]

5.4 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 ad- vantageous. 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 try- ing to fit into societal expectations about what a leader should be like, 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. Second, 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—they practice what they preach. Instead of trying to imitate other great leaders, they find their style in their own personality and life experiences.[67]

One example of an authentic leader is Howard Schultz, the founder of Starbucks coffeehouses. As a child, Schultz witnessed the job-related difficulties his father experienced because 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 in providing health insurance and retirement coverage to part-time as well as full- time employees.[68]

Authentic leadership requires understanding oneself. Therefore, in addition to self-reflection, feedback from others is needed to gain a true understanding of one’s be- havior and effect on others. Authentic leadership is viewed as a potentially influential style because employees are more likely to trust such a leader. Moreover, working for authentic leaders is likely to lead to greater levels of satisfaction, performance, and overall well-being on the part of employees.[69] Best-selling author Jim Collins studied companies that had, in his opinion, gone from good to great, and he found they had one thing in common.[70] All of these companies had what he calls Level 5 leaders who build organizations through their personal humility and professional will. He notes that Level 5 leaders are modest and understated. In many ways, they can be seen as truly au- thentic leaders.

CHAPTER 10 LEADING PEOPLE AND ORGANIZATIONS 273

FIGURE 10.17

The CEO of PepsiCo, Indra Nooyi, is a leader who demonstrates passion for her vision and energizes those around her toward her vision for the company and causes she believes in.

Source: http://en.wikipedia.org/wiki/Image:Indra_Nooyi

_-_World_Economic_Forum_Annual

_Meeting_Davos_2008.jpg

K E Y T A K E A W A Y

Contemporary approaches to leadership include transformational leadership, leader-member exchange, ser- vant leadership, and authentic leadership. The transformational leadership approach highlights the import- ance 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 leader-member exchange (LMX) approach, the unique, trust-based relationships leaders develop with employees is the key to leadership effectiveness. Recently, leadership scholars started to emphasize the importance of serving others and adopting a customer- oriented view in 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 using their own values and moral compass.

E X E R C I S E S

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?

6. DEVELOPING YOUR LEADERSHIP SKILLS

L E A R N I N G O B J E C T I V E S

1. Develop your charismatic leadership. 2. Learn how to be a servant leader. 3. Follow a process to develop your own authentic leadership.

In this section, we will give you tips to help you develop your charismatic, servant, and authentic leadership skills. Each of these contemporary approaches to leadership is be- lieved to be related to employee attitudes and a healthy work environment.

6.1 Develop Your Charismatic Leadership Skills Charismatic individuals have a “magnetic” personality that is appealing to followers. While many people assume that charisma is inborn, it is possible to improve your cha- risma by following these suggestions:[71]

Have a vision around which people can gather. When framing requests or address- ing to others, instead of emphasizing short-term goals, stress the importance of the long-term vision. When giving a message, think about the 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 lead- ers 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, you may want to look 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 their abilities. If they have real reason to doubt their abilities, make sure that you help them address the underlying issue, such as through training and mentoring.

274 PRINCIPLES OF MANAGEMENT

FIGURE 10.18

The various theories of leadership covered in this chapter highlight the interrelationships among the facets of the leading functions. In particular, leadership, decision making, and motivation are very closely linked. Leadership skills span the other P-O-L-C functions as well.

© 2010 Jupiterimages Corporation

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.

6.2 Develop Your Servant Leadership Skills 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.[72]

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 help- ing ease their lives.

One of your key priorities should be to help employees reach their goals. This in- volves getting to know them. Learn about who they are and what their values and pri- orities are.

Be humble. You are not supposed to have all the answers and dictate to 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.

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.

6.3 Develop Your Authentic Leadership Skills 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. Address the following questions 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

< 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 how you will surmount them; periodically review your entries 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?

CHAPTER 10 LEADING PEOPLE AND ORGANIZATIONS 275

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?

K E Y T A K E A W A Y

The various leadership styles have their pros and cons. It is valuable to be able to assess them in light of your situation and your personal style. Authenticity has become recognized as being important regardless of the other leadership styles one uses. Anyone can be an authentic leader if he or she develops those skills. There is no time like the present to start!

E X E R C I S E S

1. What is the connection between leadership and ethics?

2. Do you believe that ethical leaders are more successful in organizations?

3. Have you ever had an authentic leader? What did this person do that made you consider him or her to be authentic? How effective was his or her leadership?

276 PRINCIPLES OF MANAGEMENT

1.

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C H A P T E R 1 1 Decision Making FIGURE 11.1 Effective decision making helps you put the right pieces together.

© 2010 Jupiterimages Corporation

W H A T ’ S I N I T F O R M E ?

Reading this chapter will help you do the following:

1. Understand what decision making is. 2. Know key causes of faulty decision making. 3. Compare and contrast individual and group decision making. 4. Understand how to develop your own personal decision-making skills.

FIGURE 11.2 The P-O-L-C Framework

While leadership is a combination of many things, your characterization of particular leaders and their leadership

effectiveness is often a reflection of the decisions that they have made or not made. In this chapter, you’ll learn that

while decisions are made every day within organizations, the process does not always go as well as it could.

Understanding how decisions are made, how they can be biased, and how to make the decision-making process

run smoothly will help you to be a more effective manager. But first, let’s define decision making.

1. CASE IN POINT: BERNARD EBBERS CREATES BIASED DECISION MAKING AT WORLDCOM

Source: U.S. National Communications System.

You could argue that Bernard Ebbers, of the now defunct WorldCom, created a culture of poor decision mak- ing. As CEO, Ebbers avoided internal company conflict at all costs, and he ultimately avoided the reality that WorldCom, once the dominant company in the telecommunications industry, was in serious economic trouble. Notorious for his temper, employees were reluctant to present Ebbers with company information that he didn’t like. A 2002 Economist article describes Ebbers as “parochial, stubborn, preoccupied with penny- pinching.…Mr. Ebbers was a difficult man to work for.” Under Ebbers, WorldCom’s $9 billion accounting fraud grew in order to avoid facing its worsening economic reality.

WorldCom’s roots stem from a Mississippi telecom company called LDDS where Ebbers was CEO. Growing to over 80,000 employees through multiple acquisitions of other telecom businesses, WorldCom became the overwhelming industry leader. However, many of WorldCom’s executives had worked with Ebbers since his start as CEO 2 decades before. Ebbers, who was regularly seen in cowboy boots and a 10-gallon hat, led his close-knit staff in a “shoot from the hip” style. He was resistant to new technology and famously refused to use e-mail to communicate with his employees. A well-known company mantra was “That’s the way we did it at LDDS.” Ebbers lead WorldCom through over 60 acquisitions over a period of 15 years. He grew annual reven- ues from $1 million in 1984 to over $17 billion in 1998. However, Ebbers had little regard for long-term plans and avoided making larger strategic decisions as his company accumulated increasing debt.

As WorldCom acquired new companies, its accounting procedures, computer systems, and customer service issues became increasingly more complex, and industry experts note that WorldCom struggled to keep up with the growth. Company employees who tried to bring initial problems to Ebbers’s attention were discour- aged; Ebbers made it clear he only wanted to hear good news and then based decisions on this good news. This avoidance of factoring in potential problems during decision making created a company culture that de- manded success at all costs. That ultimately included falsifying financial reports. For example, former employ- ees admitted to registering “rolling revenue” to inflate earnings, recording a single sale multiple times. Another 2002 Economist article reports that this and other dishonest techniques were “endemic in the sales hierarchy of WorldCom.…Increasing reported revenues came above all else.”

Despite efforts to inflate the books, WorldCom’s stock prices dramatically declined, and Ebbers left the com- pany in 2002 after pressure from WorldCom’s board of directors. What came to light after his departure, however, highlighted the significant problems he avoided confronting. Under new CEO John Sidgmore, in- ternal auditor Cynthia Cooper uncovered multiple instances of financial dishonesty and illegal activity over- seen by CFO Scott Sullivan, a close confidant of Ebbers. A 2002 Wall Street Journal article reports, “As she pur- sued the trail of fraud, Ms. Cooper time and again was obstructed by fellow employees, some of whom disap- proved of WorldCom’s accounting methods but were unwilling to contradict their bosses or thwart the com- pany’s goals.”

280 PRINCIPLES OF MANAGEMENT

decision making

Making choices among alternative courses of action, including inaction.

Ultimately Cooper’s investigation revealed the fraud that took place under Sullivan and Ebbers. Sullivan later admitted to having booked $3.8 billion of costs as capital expenditures and that five quarters’ worth of profits should have been recorded as losses. Ebbers’s refusal to honestly face the harsh economic truth for WorldCom was ultimately highlighted to be a source of WorldCom’s financial problems. In 2005, he was found guilty of fraud, conspiracy, and filing false documentation. WorldCom was purchased for $7.6 billion and subsequently integrated into Verizon (NYSE: VE) in 2006, and Ebbers began serving a 25-year jail sentence in 2005.

Case written by Amy Wester, Talya Bauer, and Berrin Erdogan to accompany Carpenter, M., Bauer, T., & Erdogan, B. (2009). Principles of management (1st ed.). New York: Flat World Knowledge. Based on information from Markham, J. W. (2006). A financial history of modern U.S. corporate scandals: From Enron to reform. New York: M. E. Sharpe Inc.; Pulliam, S., & Solomon, D. (2002, October 30). Uncooking the books. Wall Street Journal, Eastern edition. Retrieved April 4, 2010, from http://proquest.umi.com.proxy.lib.pdx.edu/pqdweb?RQT=318&mid=7510&S=1270430724&lientId=11319&Inst =PROD&Name=PQD&Type=PQD; The big lie: Inside the rise and fraud of WorldCom. (2005). CNBC. Retrieved April 4, 2010, from http://www.hulu.com/ watch/46528/cnbc-originals-the-big-lie#s-p9-so-i0; When something is rotten: The best defence against “infectious greed” is a healthy corporate culture. (2002, July 25). Economist. Retrieved April 4, 2010, from http://www.economist.com; Yesterday’s man: WorldCom’s Bernie Ebbers typified the lionised chief executive. Now he is an ex-lion. (2002, May 2). Economist. Retrieved April 4, 2010, from http://www.economist.com.

D I S C U S S I O N Q U E S T I O N S

1. Decision making is a key component of the leading facet of the P-O-L-C framework. What decision-making traps might WorldCom’s board have succumbed to? Why might the concept of groupthink be especially relevant to boards?

2. What potential causes of poor decision making existed at WorldCom during Bernard Ebbers’ administration?

3. What might have happened if Ebbers had been prone to a different conflict-handling style, such as compromise or collaboration?

4. How did having a small “inner circle” of leadership affect the decision-making culture at WorldCom?

5. What key decisions did Cynthia Cooper make?

6. What responsibility did the board of directors have to detect and confront the decision-making problems at WorldCom?

2. UNDERSTANDING DECISION MAKING

L E A R N I N G O B J E C T I V E S

1. Define decision making. 2. Understand different types of decisions.

2.1 What Is Decision Making? Decision making refers to making choices among alternative courses of action—which may also in- clude inaction. While it can be argued that management is decision making, half of the decisions made by managers within organizations fail.[1] Therefore, increasing effectiveness in decision making is an important part of maximizing your effectiveness at work. This chapter will help you understand how to make decisions alone or in a group while avoiding common decision-making traps.

Individuals throughout organizations use the information they gather to make a wide range of de- cisions. These decisions may affect the lives of others and change the course of an organization. For ex- ample, the decisions made by executives and consulting firms for Enron ultimately resulted in a $60 billion loss for investors, thousands of employees without jobs, and the loss of all employee retirement funds. But Sherron Watkins, a former Enron employee and now-famous whistleblower, uncovered the accounting problems and tried to enact change. Similarly, the decisions made by firms to trade in mortgage-backed securities is having negative consequences for the entire U.S. economy. Each of these people made a decision, and each person, as well as others, is now living with the consequences of his or her decisions.

CHAPTER 11 DECISION MAKING 281

programmed decisions

Decisions that occur frequently enough that we develop an automated response to them.

decision rules

Automated responses used to make programmed decisions.

Because many decisions involve an ethical component, one of the most important considerations in management is whether the decisions you are making as an employee or manager are ethical. Here are some basic questions you can ask yourself to assess the ethics of a decision.[2]

< 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 was broadcast on the news?

2.2 Types of Decisions Despite the far-reaching nature of the decisions in the previous example, not all decisions have major consequences or even require a lot of thought. For example, before you come to class, you make simple and habitual decisions such as what to wear, what to eat, and which route to take as you go to and from home and school. You probably do not spend much time on these mundane decisions. These types of straightforward decisions are termed programmed decisions; these are decisions that occur fre- quently enough that we develop an automated response to them. The automated response we use to make these decisions is called the decision rule. For example, many restaurants face customer com- plaints as a routine part of doing business. Because this is a recurring problem for restaurants, it may be regarded as a programmed decision. To deal with this problem, the restaurant might have a policy stat- ing that every time they receive a valid customer complaint, the customer should receive a free dessert, which represents a decision rule. Making strategic, tactical, and operational decisions is an integral part of the planning function in the P-O-L-C (planning-organizing-leading-controlling) model.

FIGURE 11.4

© The New Yorker Collection 2002 Leo Cullum from cartoonbank.com. All Rights Reserved.

282 PRINCIPLES OF MANAGEMENT

nonprogrammed decisions

Unique, nonroutine, and important decisions that require conscious thinking, information gathering, and careful consideration of alternatives.

FIGURE 11.5

To ensure consistency around the globe such as at this St. Petersburg, Russia, location, McDonald’s trains all restaurant managers (over 65,000 so far) at Hamburger University where they take the equivalent of two years of college courses and learn how to make decisions. The curriculum is taught in 28 languages.

Source: http://upload.wikimedia.org/

wikipedia/commons/a/a2/

McDonalds_in_St_Petersburg_2004.JPG

However, decisions that are unique and important require conscious thinking, information gathering, and careful consideration of alternatives. These are called nonprogrammed decisions. For example, in 2005, McDonald’s became aware of a need to respond to growing customer concerns regarding foods high in fat and calories. This is a nonprogrammed decision because for several decades, custom- ers of fast-food restaurants were more concerned with the taste and price of the food, rather than the healthiness. In response, McDonald’s decided to offer healthier alternatives, such as substituting apple slices in Happy Meals for French fries and discontinuing the use of trans fats. A crisis situation also constitutes a nonprogrammed decision for companies. For example, the leadership of Nutrorim was fa- cing a tough decision. They had recently introduced a new product, ChargeUp with Lipitrene, an im- proved version of their popular sports drink powder, ChargeUp. But a phone call came from a state health department to inform them that several cases of gastrointestinal distress had been reported after people consumed the new product. Nutrorim decided to recall ChargeUp with Lipitrene immediately. Two weeks later, it became clear that the gastrointestinal problems were unrelated to ChargeUp with Lipitrene. However, the damage to the brand and to the balance sheets was already done. This unfortu- nate decision caused Nutrorim to rethink the way decisions were made under pressure so that they now gather information to make informed choices even when time is of the essence.[3]

Decision making can also be classified into three categories based on the level at which they occur. Strategic decisions set the course of organization. Tactical decisions are decisions about how things will get done. Finally, operational decisions are decisions that employees make each day to run the organiz- ation. For example, remember the restaurant that routinely offers a free dessert when a customer com- plaint is received. The owner of the restaurant made a strategic decision to have great customer service. The manager of the restaurant implemented the free dessert policy as a way to handle customer com- plaints, which is a tactical decision. And, the servers at the restaurant are making individual decisions each day evaluating whether each customer complaint received is legitimate to warrant a free dessert.

FIGURE 11.6 Decisions Commonly Made within Organizations

CHAPTER 11 DECISION MAKING 283

rational decision-making model

A decision making model which describes the series of steps that decision makers should consider if their goal is to maximize their outcome.

FIGURE 11.7

Using the rational decision-making model to make major purchases can help avoid making poor choices.

© 2010 Jupiterimages Corporation

In this chapter, we are going to discuss different decision-making models designed to understand and evaluate the effectiveness of nonprogrammed decisions. We will cover four decision-making ap- proaches starting with the rational decision-making model, moving to the bounded rationality decision-making model, the intuitive decision-making model, and ending with the creative decision- making model.

2.3 Making Rational Decisions The rational decision-making model describes a series of steps that decision makers should con- sider if their goal is to maximize the quality of their outcomes. In other words, if you want to make sure you make the best choice, going through the formal steps of the rational decision-making model may make sense.

Let’s imagine that your old, clunky car has broken down and you have enough money saved for a substantial down payment on a new car. It is the first major purchase of your life, and you want to make the right choice. The first step, therefore, has already been completed—we know that you want to buy a new car. Next, in step 2, you’ll need to decide which factors are important to you. How many passengers do you want to accommodate? How important is fuel economy to you? Is safety a major concern? You only have a certain amount of money saved, and you don’t want to take on too much debt, so price range is an important factor as well. If you know you want to have room for at least five adults, get at least 20 miles per gallon, drive a car with a strong safety rating, not spend more than $22,000 on the purchase, and like how it looks, you’ve identified the decision criteria. All of the poten- tial options for purchasing your car will be evaluated against these criteria.

Before we can move too much further, you need to decide how important each factor is to your decision in step 3. If each is equally important, then there is no need to weight them, but if you know that price and gas mileage are key factors, you might weight them heavily and keep the other criteria with medium importance. Step 4 re- quires you to generate all alternatives about your options. Then, in step 5, you need to use this information to evaluate each alternative against the criteria you have estab- lished. You choose the best alternative (step 6) and you go out and buy your new car (step 7).

Of course, the outcome of this decision will be related to the next decision made; that is where the evaluation in step 8 comes in. For example, if you purchase a car but have nothing but problems with it, you are unlikely to consider the same make and model in purchasing another car the next time!

284 PRINCIPLES OF MANAGEMENT

FIGURE 11.8 Steps in the Rational Decision-Making Model

While decision makers can get off track during any of these steps, research shows that limiting the search for alternatives in the fourth step can be the most challenging and lead to failure. In fact, one re- searcher found that no alternative generation occurred in 85% of the decisions studied.[4] Conversely, successful managers are clear about what they want at the outset of the decision-making process, set objectives for others to respond to, carry out an unrestricted search for solutions, get key people to par- ticipate, and avoid using their power to push their perspective.[5]

The rational decision-making model has important lessons for decision makers. First, when mak- ing a decision you may want to make sure that you establish your decision criteria before you search for all alternatives. This would prevent you from liking one option too much and setting your criteria accordingly. For example, let’s say you started browsing for cars before you decided your decision cri- teria. You may come across a car that you think really reflects your sense of style and make an emotion- al bond with the car. Then, because of your love for this car, you may say to yourself that the fuel eco- nomy of the car and the innovative braking system are the most important criteria. After purchasing it, you may realize that the car is too small for all of your friends to ride in the back seat when you and your brother are sitting in front, which was something you should have thought about! Setting criteria before you search for alternatives may prevent you from making such mistakes. Another advantage of the rational model is that it urges decision makers to generate all alternatives instead of only a few. By generating a large number of alternatives that cover a wide range of possibilities, you are likely to make a more effective decision in which you do not need to sacrifice one criterion for the sake of another.

Despite all its benefits, you may have noticed that this decision-making model involves a number of unrealistic assumptions. It assumes that people understand what decision is to be made, that they know all their available choices, that they have no perceptual biases, and that they want to make optim- al decisions. Nobel Prize–winning economist Herbert Simon observed that while the rational decision- making model may be a helpful tool for working through problems, it doesn’t represent how decisions are frequently made within organizations. In fact, Simon argued that it didn’t even come close!

Think about how you make important decisions in your life. Our guess is that you rarely sit down and complete all eight steps in the rational decision-making model. For example, this model proposed that we should search for all possible alternatives before making a decision, but this can be time

CHAPTER 11 DECISION MAKING 285

analysis paralysis

A decision-making process where more and more time is spent on gathering information and thinking about it but no decisions actually get made.

bounded rationality model

A model that recognizes the limitations of decision-making processes. According to this model, individuals knowingly limit their options to a manageable set and choose the best alternative without conducting an exhaustive search for alternatives.

satisficing

Accepting the first alternative that meets minimum criteria.

intuitive decision-making model

Arriving at decisions without conscious reasoning. The model argues that in a given situation, experts making decisions scan the environment for cues to recognize patterns.

creativity

The generation of new ideas.

consuming and individuals are often under time pressure to make decisions. Moreover, even if we had access to all the information, it could be challenging to compare the pros and cons of each alternative and rank them according to our preferences. Anyone who has recently purchased a new laptop com- puter or cell phone can attest to the challenge of sorting through the different strengths and limitations of each brand, model, and plans offered for support and arriving at the solution that best meets their needs.

In fact, the availability of too much information can lead to analysis paralysis, where more and more time is spent on gathering information and thinking about it, but no decisions actually get made. A senior executive at Hewlett-Packard admits that his company suffered from this spiral of analyzing things for too long to the point where data gathering led to “not making decisions, instead of us mak- ing decisions.”[6] Moreover, you may not always be interested in reaching an optimal decision. For ex- ample, if you are looking to purchase a house, you may be willing and able to invest a great deal of time and energy to find your dream house, but if you are looking for an apartment to rent for the academic year, you may be willing to take the first one that meets your criteria of being clean, close to campus, and within your price range.

2.4 Making “Good Enough” Decisions The bounded rationality model of decision making recognizes the limitations of our decision-mak- ing processes. According to this model, individuals knowingly limit their options to a manageable set and choose the best alternative without conducting an exhaustive search for alternatives. An important part of the bounded rationality approach is the tendency to satisfice, which refers to accepting the first alternative that meets your minimum criteria. For example, many college graduates do not conduct a national or international search for potential job openings; instead, they focus their search on a limited geographic area and tend to accept the first offer in their chosen area, even if it may not be the ideal job situation. Satisficing is similar to rational decision making, but it differs in that rather than choosing the best choice and maximizing the potential outcome, the decision maker saves time and effort by ac- cepting the first alternative that meets the minimum threshold.

2.5 Making Intuitive Decisions The intuitive decision-making model has emerged as an important decision-making model. It refers to arriving at decisions without conscious reasoning. Eighty-nine percent of managers surveyed admitted to using intuition to make decisions at least sometimes, and 59% said they used intuition of- ten.[7] When we recognize that managers often need to make decisions under challenging circum- stances with time pressures, constraints, a great deal of uncertainty, highly visible and high-stakes out- comes, and within changing conditions, it makes sense that they would not have the time to formally work through all the steps of the rational decision-making model. Yet when CEOs, financial analysts, and healthcare workers are asked about the critical decisions they make, seldom do they attribute suc- cess to luck. To an outside observer, it may seem like they are making guesses as to the course of action to take, but it turns out that they are systematically making decisions using a different model than was earlier suspected. Research on life-or-death decisions made by fire chiefs, pilots, and nurses finds that these experts do not choose among a list of well-thought-out alternatives. They don’t decide between two or three options and choose the best one. Instead, they consider only one option at a time. The intuitive decision-making model argues that, in a given situation, experts making decisions scan the environment for cues to recognize patterns.[8] Once a pattern is recognized, they can play a potential course of action through to its outcome based on their prior experience. Due to training, experience, and knowledge, these decision makers have an idea of how well a given solution may work. If they run through the mental model and find that the solution will not work, they alter the solution and retest it before setting it into action. If it still is not deemed a workable solution, it is discarded as an option and a new idea is tested until a workable solution is found. Once a viable course of action is identified, the decision maker puts the solution into motion. The key point is that only one choice is considered at a time. Novices are not able to make effective decisions this way because they do not have enough prior experience to draw upon.

2.6 Making Creative Decisions In addition to the rational decision making, bounded rationality models, and intuitive decision mak- ing, creative decision making is a vital part of being an effective decision maker. Creativity is the gen- eration of new, imaginative ideas. With the flattening of organizations and intense competition among organizations, individuals and organizations are driven to be creative in decisions ranging from cutting

286 PRINCIPLES OF MANAGEMENT

problem identification

The step in which the need for problem solving becomes apparent.

immersion

The step where the decision maker thinks about the problem consciously and gathers information.

incubation

The step when the decision maker sets the problem aside and does not think about it for a while.

illumination

The insight moment, when the solution to the problem becomes apparent.

verification and application

The stage when the decision maker consciously verifies the feasibility of the solution and implements the decision.

fluency

The number of ideas a person is able to generate.

flexibility

How different the ideas are from one another. If decision makers are able to generate several unique solutions to a problem, they are high on flexibility.

originality

How unique a person’s ideas are.

costs to creating new ways of doing business. Please note that, while creativity is the first step in the in- novation process, creativity and innovation are not the same thing. Innovation begins with creative ideas, but it also involves realistic planning and follow-through.

The five steps to creative decision making are similar to the previous decision-making models in some keys ways. All of the models include problem identification, which is the step in which the need for problem solving becomes apparent. If you do not recognize that you have a problem, it is im- possible to solve it. Immersion is the step in which the decision maker thinks about the problem con- sciously and gathers information. A key to success in creative decision making is having or acquiring expertise in the area being studied. Then, incubation occurs. During incubation, the individual sets the problem aside and does not think about it for a while. At this time, the brain is actually working on the problem unconsciously. Then comes illumination or the insight moment, when the solution to the problem becomes apparent to the person, usually when it is least expected. This is the “eureka” mo- ment similar to what happened to the ancient Greek inventor Archimedes, who found a solution to the problem he was working on while he was taking a bath. Finally, the verification and application stage happens when the decision maker consciously verifies the feasibility of the solution and imple- ments the decision.

A NASA scientist describes his decision-making process leading to a creative outcome as follows: He had been trying to figure out a better way to de-ice planes to make the process faster and safer. After recognizing the problem, he had immersed himself in the literature to understand all the options, and he worked on the problem for months trying to figure out a solution. It was not until he was sitting outside of a McDonald’s restaurant with his grandchildren that it dawned on him. The golden arches of the “M” of the McDonald’s logo inspired his solution: he would design the de-icer as a series of M’s![9] This represented the illumination stage. After he tested and verified his creative solution, he was done with that problem except to reflect on the outcome and process.

FIGURE 11.9 The Creative Decision-Making Process

How Do You Know If Your Decision-Making Process Is Creative?

Researchers focus on three factors to evaluate the level of creativity in the decision-making process. Fluency refers to the number of ideas a person is able to generate. Flexibility refers to how different the ideas are from one another. If you are able to generate several distinct solutions to a problem, your decision-making process is high on flexibility. Originality refers to an idea’s uniqueness. You might say that Reed Hastings, founder and CEO of Netflix, is a pretty creative person. His decision-making process shows at least two elements of creativity. We do not exactly know how many ideas he had over the course of his career, but his ideas are fairly different from one another. After teaching math in Africa with the Peace Corps, Hastings was accepted at Stanford University, where he earned a master’s degree in computer science. Soon after starting work at a software company, he invented a successful debugging tool, which led to his founding the computer troubleshooting company Pure Software in 1991. After a merger and the subsequent sale of the resulting company in 1997, Hastings founded Netflix, which revolutionized the DVD rental business through online rentals with no late fees. In 2007, Hastings was elected to Microsoft’s board of directors. As you can see, his ideas are high in originality and flexibility. [10]

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brainstorming

A process of generating ideas that follows a set of guidelines, which includes no criticism of ideas during the process, the idea that no suggestion is too crazy, and building on other ideas (piggybacking).

idea quotas

A set number of ideas a group must reach before they are done with brainstorming.

wildstorming

A variation of brainstorming where the group focuses on ideas that are impossible and then imagines what would need to happen to make them possible.

FIGURE 11.10 Dimensions of Creativity

Some experts have proposed that creativity occurs as an interaction among three factors: (1) people’s personality traits (openness to experience, risk taking), (2) their attributes (expertise, imagination, mo- tivation), and (3) the context (encouragement from others, time pressure, and physical structures).[11] For example, research shows that individuals who are open to experience, are less conscientious, more self-accepting, and more impulsive, tend to be more creative.[12]

There are many techniques available that enhance and improve creativity. Linus Pauling, the No- bel prize winner who popularized the idea that vitamin C could help build the immunity system, said, “The best way to have a good idea is to have a lot of ideas.” One popular way to generate ideas is to use brainstorming. Brainstorming is a group process of generated ideas that follows a set of guidelines that include no criticism of ideas during the brainstorming process, the idea that no suggestion is too crazy, and building on other ideas (piggybacking). Research shows that the quantity of ideas actually leads to better idea quality in the end, so setting high idea quotas where the group must reach a set number of ideas before they are done, is recommended to avoid process loss and to maximize the effectiveness of brainstorming. Another unique aspect of brainstorming is that the more people are in- cluded in brainstorming, the better the decision outcome will be because the variety of backgrounds and approaches give the group more to draw from. A variation of brainstorming is wildstorming where the group focuses on ideas that are impossible and then imagines what would need to happen to make them possible.[13]

2.7 Ideas for Enhancing Organizational Creativity We have seen that organizational creativity is vital to organizations. Here are some guidelines for en- hancing organizational creativity within teams.[14]

Team Composition (Organizing/Leading)

< Diversify your team to give them more inputs to build on and more opportunities to create functional conflict while avoiding personal conflict.

< Change group membership to stimulate new ideas and new interaction patterns. < Leaderless teams can allow teams freedom to create without trying to please anyone up front.

Team Process (Leading)

< Engage in brainstorming to generate ideas—remember to set a high goal for the number of ideas the group should come up with, encourage wild ideas, and take brainwriting breaks.

< Use the nominal group technique in person or electronically to avoid some common group process pitfalls. Consider anonymous feedback as well.

< Use analogies to envision problems and solutions.

Leadership (Leading)

< Challenge teams so that they are engaged but not overwhelmed. < Let people decide how to achieve goals, rather than telling them what goals to achieve.

288 PRINCIPLES OF MANAGEMENT

< Support and celebrate creativity even when it leads to a mistake. But set up processes to learn from mistakes as well.

< Model creative behavior.

Culture (Organizing)

< Institute organizational memory so that individuals do not spend time on routine tasks. < Build a physical space conducive to creativity that is playful and humorous—this is a place where

ideas can thrive. < Incorporate creative behavior into the performance appraisal process.

And finally, avoiding groupthink can be an important skill to learn.[15] The four different decision-making models—rational, bounded rationality, intuitive, and creat-

ive—vary in terms of how experienced or motivated a decision maker is to make a choice. Choosing the right approach will make you more effective at work and improve your ability to carry out all the P- O-L-C functions.

FIGURE 11.11

Which decision-making model should I use?

K E Y T A K E A W A Y

Decision making is choosing among alternative courses of action, including inaction. There are different types of decisions, ranging from automatic, programmed decisions to more intensive nonprogrammed decisions. Structured decision-making processes include rational decision making, bounded rationality, intuitive, and cre- ative decision making. Each of these can be useful, depending on the circumstances and the problem that needs to be solved.

CHAPTER 11 DECISION MAKING 289

overconfidence bias

When individuals overestimate their ability to predict future events.

hindsight bias

The opposite of overconfidence bias as it occurs when a person, looking at the past, judges that a mistake that was made should have been recognized as a mistake at the time.

E X E R C I S E S

1. What do you see as the main difference between a successful and an unsuccessful decision? How much does luck versus skill have to do with it? How much time needs to pass to answer the first question?

2. Research has shown that over half of the decisions made within organizations fail. Does this surprise you? Why or why not?

3. Have you used the rational decision-making model to make a decision? What was the context? How well did the model work?

4. Share an example of a decision where you used satisficing. Were you happy with the outcome? Why or why not? When would you be most likely to engage in satisficing?

5. Do you think intuition is respected as a decision-making style? Do you think it should be? Why or why not?

3. FAULTY DECISION MAKING

L E A R N I N G O B J E C T I V E S

1. Understand overconfidence bias and how to avoid it. 2. Understand hindsight bias and how to avoid it. 3. Understand anchoring and how to avoid it. 4. Understand framing bias and how to avoid it. 5. Understand escalation of commitment and how to avoid it.

No matter which model you use, you need to know and avoid the decision-making traps that exist. Daniel Kahnemann (another Nobel prize winner) and Amos Tversky spent decades studying how people make decisions. They found that individuals are influenced by overconfidence bias, hindsight bias, anchoring bias, framing bias, and escalation of commitment.

3.1 Potential Challenges to Decision Making

Overconfidence Bias

Overconfidence bias occurs when individuals overestimate their ability to predict future events. Many people exhibit signs of overconfidence. For example, 82% of the drivers surveyed feel they are in the top 30% of safe drivers, 86% of students at the Harvard Business School say they are better looking than their peers, and doctors consistently overestimate their ability to detect problems.[16] Much like a friend who is always 100% sure he can pick the winners of this week’s football games despite evidence to the contrary, these individuals are suffering from overconfidence bias. People who purchase lottery tickets as a way to make money are probably suffering from overconfidence bias. It is three times more likely for a person driving 10 miles to buy a lottery ticket to be killed in a car accident than to win the jackpot.[17] To avoid this bias, take the time to stop and ask yourself whether you are being realistic in your judgments.

Hindsight Bias

Hindsight bias is the opposite of overconfidence bias, as it occurs when looking backward in time where mistakes made seem obvious after they have already occurred. In other words, after a surprising event occurred, many individuals are likely to think that they already knew this was going to happen. This may be because they are selectively reconstructing the events. Hindsight bias becomes a problem especially when judging someone else’s decisions. For example, let’s say a company driver hears the en- gine making unusual sounds before starting her morning routine. Being familiar with this car in partic- ular, the driver may conclude that the probability of a serious problem is small and continue to drive the car. During the day, the car malfunctions, stranding her away from the office. It would be easy to criticize her decision to continue to drive the car because, in hindsight, the noises heard in the morning would make us believe that she should have known something was wrong and she should have taken the car in for service. However, the driver may have heard similar sounds before with no consequences, so based on the information available to her at the time, she may have made a reasonable choice.

290 PRINCIPLES OF MANAGEMENT

anchoring

The tendency for individuals to rely too heavily on a single piece of information.

framing bias

The tendency of decision makers to be influenced by the way that problems are framed.

FIGURE 11.12

Source: Short, J., Bauer, T. N., Simon, L., & Ketchen, D.

(2009). Atlas Black, Managing to Succeed. New York: Flat

World Knowledge. Reprinted by permission.

escalation of commitment

When individuals continue on a failing course of action after information reveals this may be a poor path to follow.

Therefore, it is important for decision makers to remember this bias before passing judgments on other people’s actions.

Anchoring

Anchoring refers to the tendency for individuals to rely too heavily on a single piece of information. Job seekers often fall into this trap by focusing on a desired salary while ignoring other aspects of the job offer such as additional benefits, fit with the job, and working environment. Similarly, but more dramatically, lives were lost in the Great Bear Wilderness Disaster when the coroner declared all five passengers of a small plane dead within five minutes of arriving at the accident scene, which halted the search effort for potential survivors, when, in fact, the next day two survivors walked out of the forest. How could a mistake like this have been made? One theory is that decision biases played a large role in this serious error; anchoring on the fact that the plane had been consumed by flames led the coroner to call off the search for any possible survivors.[18]

Framing Bias

Framing bias refers to the tendency of decision makers to be influenced by the way that a situation or problem is presented. For example, when making a purchase, customers find it easier to let go of a dis- count as opposed to accepting a surcharge, even though they both might cost the person the same amount of money. Similarly, customers tend to prefer a statement such as “85% lean beef” as opposed to “15% fat”![19] It is important to be aware of this tendency because, depending on how a problem is presented to us, we might choose an alternative that is disadvantageous simply because of how it is framed.

Escalation of Commitment

Escalation of commitment occurs when individuals continue on a failing course of action after information reveals this may be a poor path to follow. It is sometimes called sunk costs fallacy because the continuation is often based on the idea that one has already invested in this course of action. For example, imagine a person purchases a used car that turns out to need another repair every few weeks. An effective way of dealing with this situation might be to sell the car without incurring further losses, donate the car, or drive it without repairing it until it falls apart. However, many people spend hours of their time and hundreds, even thousands of dollars repairing the car in the hopes that they will justify their initial investment in buying the car.

A classic example of escalation of commitment from the corporate world may be Motorola’s Iridium project. In 1980s, the phone coverage around the world was weak—it could take hours of dealing with a chain of telephone operators in several different countries to get a call through from, say, Cleveland to Calcutta. Thus, there was a real need within the business community to improve phone access around the world. Motorola envisioned solving this problem using 66 low-orbiting satellites, en- abling users to place a direct call to any location around the world. At the time of idea development, the project was technologically advanced, sophisticated, and made finan- cial sense. Motorola spun off Iridium as a separate company in 1991. It took researchers 15 years to develop the product from idea to market release. However, in the 1990s, the landscape for cell phone technology was dramatically different from the 1980s, and the widespread cell phone coverage around the world eliminated a large base of the projec- ted customer base for Iridium. Had they been paying attention to these developments, the decision makers would probably have abandoned the project at some point in the early 1990s. Instead, they re- leased the Iridium phone to the market in 1998. The phone cost $3,000 and it was literally the size of a brick. Moreover, it was not possible to use the phone in moving cars or inside buildings! Not surpris- ingly, the launch was a failure and Iridium filed for bankruptcy in 1999.[20] The company was ulti- mately purchased for $25 million by a group of investors (whereas it cost the company $5 billion to de- velop its product), scaled down its operations, and modified it for use by the Department of Defense to connect soldiers in remote areas not served by landlines or cell phones.

Why does escalation of commitment occur? There may be many reasons, but two are particularly important. First, decision makers may not want to admit that they were wrong. This may be because of personal pride or being afraid of the consequences of such an admission. Second, decision makers may incorrectly believe that spending more time and energy might somehow help them recover their losses. Effective decision makers avoid escalation of commitment by distinguishing between when persistence may actually pay off versus when persistence might mean escalation of commitment. To avoid escala- tion of commitment, you might consider having strict turning back points. For example, you might de- termine up front that you will not spend more than $500 trying to repair the car and will sell the car

CHAPTER 11 DECISION MAKING 291

when you reach that point. You might also consider assigning separate decision makers for the initial buying and subsequent selling decisions. Periodical evaluations of an initially sound decision to see whether the decision still makes sense is also another way of preventing escalation of commitment. This becomes particularly important in projects such as the Iridium where the initial decision is not immediately implemented but instead needs to go through a lengthy development process. In such cases, it becomes important to assess the soundness of the initial decision periodically in the face of changing market conditions. Finally, creating an organizational climate where individuals do not fear admitting that their initial decision no longer makes economic sense would go a long way in prevent- ing escalation of commitment, as it could lower the regret the decision maker may experience.[21]

FIGURE 11.13

Motorola released the Iridium phone to the market in 1998. The phone cost $3,000 and was literally the size of a brick. This phone now resides at the Smithsonian Air and Space Museum in Dulles, Virginia.

Source: http://upload.wikimedia.org/wikipedia/commons/b/b0/Iridium_phone.jpg

So far we have focused on how individuals make decisions and how to avoid decision traps. Next we shift our focus to the group level. There are many similarities and many differences between individual and group decision making. There are many factors that influence group dynamics and also affect the group decision-making process. We will discuss some of them in the next section.

K E Y T A K E A W A Y

Understanding decision-making traps can help you avoid and manage them. Overconfidence bias can cause you to ignore obvious information. Hindsight bias can similarly cause a person to incorrectly believe in their ability to predict events. Anchoring and framing biases show the importance of the way problems or alternat- ives are presented in influencing one’s decision. Escalation of commitment demonstrates how individuals’ de- sire for consistency, or to avoid admitting a mistake, can cause them to continue to invest in a decision that is not prudent.

E X E R C I S E S

1. Describe a time when you fell into one of the decision-making traps. How did you come to realize that you had made a poor decision?

2. How can you avoid escalation of commitment?

3. Share an example of anchoring.

4. Which of the traps seems the most dangerous for decision makers and why?

292 PRINCIPLES OF MANAGEMENT

social loafing

The tendency of individuals to put in less effort when working in a group context.

groupthink

A group pressure phenomenon that increases the risk of the group making flawed decisions by allowing reductions in mental efficiency, reality testing, and moral judgment.

4. DECISION MAKING IN GROUPS

L E A R N I N G O B J E C T I V E S

1. Understand the pros and cons of individual and group decision making. 2. Learn to recognize the signs of groupthink. 3. Recognize different tools and techniques for making better decisions.

4.1 When It Comes to Decision Making, Are Two Heads Better Than One? When it comes to decision making, are two heads better than one? The answer to this question de- pends on several factors. Group decision making has the advantages of drawing from the experiences and perspectives of a larger number of individuals. Hence, they have the potential to be more creative and lead to a more effective decision. In fact, groups may sometimes achieve results beyond what they could have done as individuals. Groups also make the task more enjoyable for members in question. Finally, when the decision is made by a group rather than a single individual, implementation of the decision will be easier because group members will be invested in the decision. If the group is diverse, better decisions may be made because different group members may have different ideas based on their background and experiences. Research shows that for top management teams, groups that debate is- sues and that are diverse make decisions that are more comprehensive and better for the bottom line in terms of profitability and sales.[22]

Despite its popularity within organizations, group decision making suffers from a number of dis- advantages. We know that groups rarely outperform their best member.[23] While groups have the po- tential to arrive at an effective decision, they often suffer from process losses. For example, groups may suffer from coordination problems. Anyone who has worked with a team of individuals on a project can attest to the difficulty of coordinating members’ work or even coordinating everyone’s presence in a team meeting. Furthermore, groups can suffer from social loafing, or the tendency of some mem- bers to put forth less effort while working within a group. Groups may also suffer from groupthink, the tendency to avoid critical evaluation of ideas the group favors. Finally, group decision making takes a longer time compared with individual decision making, given that all members need to discuss their thoughts regarding different alternatives.

Thus, whether an individual or a group decision is preferable will depend on the specifics of the situation. For example, if there is an emergency and a decision needs to be made quickly, individual de- cision making might be preferred. Individual decision making may also be appropriate if the individual in question has all the information needed to make the decision and if implementation problems are not expected. However, if one person does not have all the information and skills needed to make the decision, if implementing the decision will be difficult without the involvement of those who will be affected by the decision, and if time urgency is more modest, then decision making by a group may be more effective.

CHAPTER 11 DECISION MAKING 293

FIGURE 11.14 Advantages and Disadvantages of Different Levels of Decision Making

4.2 Groupthink Have you ever been in a decision-making group that you felt was heading in the wrong direction, but you didn’t speak up and say so? If so, you have already been a victim of groupthink. Groupthink is a group pressure phenomenon that increases the risk of the group making flawed decisions by leading to reduced mental efficiency, reality testing, and moral judgment. Groupthink is characterized by eight symptoms that include:[24]

1. Illusion of invulnerability shared by most or all of the group members that creates excessive optimism and encourages them to take extreme risks.

2. Collective rationalizations where members downplay negative information or warnings that might cause them to reconsider their assumptions.

3. An unquestioned belief in the group’s inherent morality that may incline members to ignore ethical or moral consequences of their actions.

4. Stereotyped views of out-groups are seen when groups discount rivals’ abilities to make effective responses.

5. Direct pressure on any member who expresses strong arguments against any of the group’s stereotypes, illusions, or commitments.

6. Self-censorship when members of the group minimize their own doubts and counterarguments. 7. Illusions of unanimity based on self-censorship and direct pressure on the group; the lack of

dissent is viewed as unanimity. 8. The emergence of self-appointed mindguards where one or more members protect the group from

information that runs counter to the group’s assumptions and course of action.

294 PRINCIPLES OF MANAGEMENT

FIGURE 11.15

Avoiding groupthink can be a matter of life or death. In January 1986, the space shuttle Challenger exploded 73 seconds after liftoff, killing all seven astronauts aboard. The decision to launch Challenger that day, despite problems with mechanical components of the vehicle and unfavorable weather conditions, is cited as an example of groupthink.

Source: http://en.wikipedia.org/wiki/

Image:Challenger_flight_51-l_crew.jpg

Nominal Group Technique

A technique designed to help with group decision making by ensuring that all members participate fully.

Delphi Technique

A group process that uses written responses to a series of questionnaires instead of physically bringing individuals together to make a decision.

While research on groupthink has not confirmed all of the theory, groups do tend to suffer from symptoms of groupthink when they are large and when the group is cohes- ive because the members like each other.[25] The assumption is that the more frequently a group displays one or more of the eight symptoms, the worse the quality of their de- cisions will be.

However, if your group is cohesive, it is not necessarily doomed to engage in groupthink.

Recommendations for Avoiding Groupthink

Groups Should:

< Discuss the symptoms of groupthink and how to avoid them. < Assign a rotating devil’s advocate to every meeting. < Invite experts or qualified colleagues who are not part of the core decision-

making group to attend meetings, and get reactions from outsiders on a regular basis and share these with the group.

< Encourage a culture of difference where different ideas are valued. < Debate the ethical implications of the decisions and potential solutions being

considered.

Individuals Should:

< Monitor their own behavior for signs of groupthink and modify behavior if needed.

< Check themselves for self-censorship. < Carefully avoid mindguard behaviors. < Avoid putting pressure on other group members to conform. < Remind members of the ground rules for avoiding groupthink if they get off track.

Group Leaders Should:

< Break the group into two subgroups from time to time. < Have more than one group work on the same problem if time and resources allow it. This makes

sense for highly critical decisions. < Remain impartial and refrain from stating preferences at the outset of decisions. < Set a tone of encouraging critical evaluations throughout deliberations. < Create an anonymous feedback channel where all group members can contribute to if desired.

4.3 Tools and Techniques for Making Better Decisions Nominal Group Technique (NGT) was developed to help with group decision making by ensuring that all members participate fully. NGT is not a technique to be used at all meetings routinely. Rather, it is used to structure group meetings when members are grappling with problem solving or idea gener- ation. It follows four steps.[26] First, each member of the group engages in a period of independently and silently writing down ideas. Second, the group goes in order around the room to gather all the ideas that were generated. This goes on until all the ideas are shared. Third, a discussion takes place around each idea and members ask for and give clarification and make evaluative statements. Finally, individuals vote for their favorite ideas by using either ranking or rating techniques. Following the four-step NGT helps to ensure that all members participate fully and avoids group decision-making problems such as groupthink.

Delphi Technique is unique because it is a group process using written responses to a series of questionnaires instead of physically bringing individuals together to make a decision. The first ques- tionnaire asks individuals to respond to a broad question, such as stating the problem, outlining object- ives, or proposing solutions. Each subsequent questionnaire is built from the information gathered in the previous one. The process ends when the group reaches a consensus. Facilitators can decide wheth- er to keep responses anonymous. This process is often used to generate best practices from experts. For example, Purdue University professor Michael Campion used this process when he was editor of the research journal Personnel Psychology and wanted to determine the qualities that distinguished a good research article. Using the Delphi Technique, he was able to gather responses from hundreds of top

CHAPTER 11 DECISION MAKING 295

majority rule

A decision-making rule where each member of the group is given a single vote and the option that receives the greatest number of votes is selected.

consensus

A decision-making rule that groups may use when the goal is to gain support for an idea or plan of action. This decision-making rule is inclusive, participatory, cooperative, and democratic.

group decision support systems

Interactive computer-based systems that are able to combine communication and decision technologies to help groups make better decisions.

knowledge management systems

Systems for managing knowledge in organizations, supporting creation, capture, storage, and dissemination of information.

researchers from around the world without ever having to leave his office and distill them into a check- list of criteria that he could use to evaluate articles submitted to the journal.[27]

Majority rule refers to a decision-making rule where each member of the group is given a single vote, and the option that receives the greatest number of votes is selected. This technique has remained popular, perhaps because of its simplicity, speed, ease of use, and representational fairness. Research also supports majority rule as an effective decision-making technique.[28] However, those who did not vote in favor of the decision will be less likely to support it.

Consensus is another decision-making rule that groups may use when the goal is to gain support for an idea or plan of action. While consensus tends to take longer in the first place, it may make sense when support is needed to enact the plan. The process works by discussing the issues, generating a pro- posal, calling for consensus, and discussing any concerns. If concerns still exist, the proposal is mod- ified to accommodate them. These steps are repeated until consensus is reached. Thus, this decision- making rule is inclusive, participatory, cooperative, and democratic. Research shows that consensus can lead to better accuracy,[29] and it helps members feel greater satisfaction with decisions[30] and to have greater acceptance. However, groups take longer with this approach and groups that cannot reach consensus become frustrated.[31]

Group decision support systems (GDSS) are interactive computer-based systems that are able to combine communication and decision technologies to help groups make better decisions. Organiza- tions know that having effective knowledge management systems to share information is import- ant. Research shows that a GDSS can actually improve the output of group collaborative work through higher information sharing.[32] Organizations know that having effective knowledge management sys- tems to share information is important, and their spending reflects this reality. According to a 2002 art- icle, businesses invested $2.7 billion into new systems in 2002 and projections were for this number to double every five years. As the popularity of these systems grows, they risk becoming counterproduct- ive. Humans can only process so many ideas and information at one time. As virtual meetings grow larger, it is reasonable to assume that information overload can occur and good ideas will fall through the cracks, essentially recreating a problem that the GDSS was intended to solve that is to make sure every idea is heard. Another problem is the system possibly becoming too complicated. If the systems evolve to a point of uncomfortable complexity, it has recreated the problem of the bully pulpit and shy- ness. Those who understand the interface will control the narrative of the discussion, while those who are less savvy will only be along for the ride.[33] Lastly, many of these programs fail to take into account the factor of human psychology. These systems could make employees more reluctant to share inform- ation due to lack of control, lack of immediate feedback, the fear of “flaming” or harsher than normal criticism, and the desire to have original information hence more power.[34]

296 PRINCIPLES OF MANAGEMENT

FIGURE 11.16

Healthy communication and trust are key elements to effective group decision making.

© 2010 Jupiterimages Corporation

decision trees

Diagrams where answers to yes or no questions lead decision makers to address additional questions until they reach the end of the tree.

Decision trees are diagrams in which answers to yes or no questions lead decision makers to ad- dress additional questions until they reach the end of the tree. Decision trees are helpful in avoiding er- rors such as framing bias.[35] Decision trees tend to be helpful in guiding the decision maker to a prede- termined alternative and ensuring consistency of decision making—that is, every time certain condi- tions are present, the decision maker will follow one course of action as opposed to others if the de- cision is made using a decision tree.

FIGURE 11.17

Using decision trees can improve investment decisions by optimizing them for maximum payoff. A decision tree consists of three types of nodes. Decision nodes are commonly represented by squares. Chance nodes are represented by circles. End nodes are represented by triangles.

Source: http://upload.wikimedia.org/wikipedia/en/9/93/Investment_decision_Insight.png

K E Y T A K E A W A Y

There are trade-offs between making decisions alone and within a group. Groups have greater diversity of ex- periences and ideas than individuals, but they also have potential process losses such as groupthink. Group- think can be avoided by recognizing the eight symptoms discussed. Finally, there are a variety of tools and techniques available for helping to make more effective decisions in groups, including the Nominal Group Technique, Delphi Technique, majority rule, consensus, GDSS, and decision trees. Understanding the link between managing teams and making decisions is an important aspect of a manager’s leading function.

E X E R C I S E S

1. Do you prefer to make decisions in a group or alone? What are the main reasons for your preference?

2. Have you been in a group that used the brainstorming technique? Was it an effective tool for coming up with creative ideas? Please share examples.

3. Have you been in a group that experienced groupthink? If so, how did you deal with it?

4. Which of the decision making tools discussed in this chapter (NGT, Delphi, etc.) have you used? How effective were they?

CHAPTER 11 DECISION MAKING 297

5. DEVELOPING YOUR PERSONAL DECISION-MAKING SKILLS

L E A R N I N G O B J E C T I V E S

1. Understand what you can do to avoid making poor decisions. 2. Learn what a project premortem is.

5.1 Perform a Project “Premortem” to Fix Problems Before They Happen Doctors routinely perform postmortems to understand what went wrong with a patient who has died. The idea is for everyone to learn from the unfortunate outcome so that future patients will not meet a similar fate. But, what if you could avoid a horrible outcome before it happened by identifying project risks proactively—before your project derails? Research suggests that the simple exercise of imagining what could go wrong with a given decision can increase your ability to identify reasons for future suc- cesses or failures by 30%.[36] A “premortem” is a way to imagine and to avoid what might go wrong be- fore spending a cent or having to change course along the way.[37]

Gary Klein, an expert on decision making in fast-paced, uncertain, complex, and critical environ- ments, recommends that decision makers follow this six-step premortem process to increase their chances of success.

1. A planning team comes up with an outline of a plan, such as the launching of a new product. 2. Either the existing group or a unique group is then told to imagine looking into a crystal ball and

seeing that the new product failed miserably. They then write down all the reasons they can imagine that might have led to this failure.

3. Each team member shares items from their list until all the potential problems have been identified.

4. The list is reviewed for additional ideas. 5. The issues are sorted into categories in the search for themes. 6. The plan should then be revised to correct the flaws and avoid these potential problems.

The premortem technique allows groups to truly delve into “what if” scenarios. For example, in a premortem session at a Fortune 50 company, an executive imagined that a potential billion-dollar en- vironmental sustainability project might fail because the CEO had retired.

K E Y T A K E A W A Y

There are a number of ways to learn about decision making that can help make you more effective. If the de- cision is important, conduct a premortem to anticipate what might go wrong. When a decision is going to in- volve others, be proactive in getting them to buy in before the decision is made. Individuals and groups can suffer from decision-making traps and process losses. Understanding that you can spot and avoid these traps is important in helping to make you a more effective manager.

E X E R C I S E S

1. How might you use the premortem technique to be more effective within groups at school or work?

2. Imagine that your good friend is starting a new job next week as a manager. What recommendations would you give your friend to be successful with decision making at work?

298 PRINCIPLES OF MANAGEMENT

1.

2.

3. 4.

5.

6.

7.

8.

9. 10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24. 25.

26.

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28.

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30.

31.

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33.

34.

35.

36.

37.

ENDNOTES

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Adapted from ideas contained in Blanchard, K., & Peale, N. V. (1988). The power of eth- ical management. New York: William Morrow.

Garvin, D. A. (2006, January). All the wrong moves. Harvard Business Review, 18–23.

Nutt, P. C. (1994). Types of organizational decision processes. Administrative Science Quarterly, 29, 414–550.

Nutt, P. C. (1998). Surprising but true: Half the decisions in organizations fail. Academy of Management Executive, 13, 75–90.

Zell, D. M., Glassman, A. M., & Duron, S. A. (2007). Strategic management in turbulent times: The short and glorious history of accelerated decision making at Hewlett- Packard. Organizational Dynamics, 36, 93–104.

Burke, L. A., & Miller, M. K. (1999). Taking the mystery out of intuitive decision making. Academy of Management Executive, 13, 91–98.

Breen, B. (2000, August), “What’s your intuition?” Fast Company, 290; Klein, G. (2003). Intuition at work. New York: Doubleday; Salas, E., & Klein, G. (2001). Linking expertise and naturalistic decision making. Mahwah, NJ: Lawrence Erlbaum.

Interview by author Talya Bauer at Ames Research Center, Mountain View, CA, 1990.

Conlin, M. (2007, September 14). Netflix: Recruiting and retaining the best talent. Business Week Online. Retrieved March 1, 2008, from http://www.businessweek.com/ managing/content/sep2007/ca20070913_564868.htm?campaign_id=rss_null.

Amabile, T. M. (1988). A model of creativity and innovation in organizations. In B. M. Staw & L. L. Cummings (Eds.), Research in Organizational Behavior, 10 123–167 Green- wich, CT: JAI Press; Amabile, T. M., Conti, R., Coon, H., Lazenby, J., & Herron, M. (1996). Assessing the work environment for creativity. Academy of Management Journal, 39, 1154–1184; Ford, C. M., & Gioia, D. A. (2000). Factors influencing creativity in the do- main of managerial decision making. Journal of Management, 26, 705–732; Tierney, P., Farmer, S. M., & Graen, G. B. (1999). An examination of leadership and employee cre- ativity: The relevance of traits and relationships. Personnel Psychology, 52, 591–620; Woodman, R. W., Sawyer, J. E., & Griffin, R. W. (1993). Toward a theory of organization- al creativity. Academy of Management Review, 18, 293–321.

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Adapted from ideas in Amabile, T. M. (1998). How to kill creativity. Harvard Business Review, 76, 76–87; Gundry, L. K., Kickul, J. R., & Prather, C. W. (1994). Building the creat- ive organization. Organizational Dynamics, 22, 22–37; Keith, N., & Frese, M. (2008). Effectiveness of error management training: A meta-analysis. Journal of Applied Psy- chology, 93, 59–69; Pearsall, M. J., Ellis, A. P. J., & Evans, J. M. (2008). Unlocking the effects of gender faultlines on team creativity: Is activation the key? Journal of Applied Psychology, 93, 225–234; Thompson, L. (2003). Improving the creativity of organiza- tional work groups. Academy of Management Executive, 17, 96–109.

Adapted and expanded from “Six recommendations for avoiding Groupthink” in Janis, I. L. (1972). Victims of groupthink. New York: Houghton Mifflin; Whyte, G. (1991). Decision failures: Why they occur and how to prevent them. Academy of Manage- ment Executive, 5, 23–31.

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Becker, W. S. (2007). Missed opportunities: The Great Bear Wilderness Disaster. Organ- izational Dynamics, 36, 363–376.

Li, S., Sun, Y., & Wang, Y. (2007). 50% off or buy one get one free? Frame preference as a function of consumable nature in dairy products. Journal of Social Psychology, 147, 413–421.

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Wong, K. F. E., & Kwong, J. Y. Y. (2007). The role of anticipated regret in escalation of commitment. Journal of Applied Psychology, 92, 545–554.

Simons, T., Pelled, L. H., & Smith, K. A. (1999). Making use of difference: Diversity, de- bate, decision comprehensiveness in top management teams. Academy of Manage- ment Journal, 42, 662–673.

Miner, F. C. (1984). Group versus individual decision making: An investigation of per- formance measures, decision strategies, and process losses/gains. Organizational Be- havior and Human Performance, 33, 112–124.

Janis, I. L. (1972). Victims of groupthink. New York: Houghton Mifflin.

Esser, J. K. (1998). Alive and well after 25 years: A review of groupthink research. Or- ganizational Behavior and Human Decision Processes, 73, 116–141; Mullen, B., Anthony, T., Salas, E., & Driskell, J. E. (1994). Group cohesiveness and quality of decision making: An integration of tests of the groupthink hypothesis. Small Group Research, 25, 189–204.

Delbecq, A. L., Van de Ven, A. H., & Gustafson, D. H. (1975). Group techniques for pro- gram planning: A guide to nominal group and Delphi processes. Glenview, IL: Scott, Foresman.

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Hastie, R., & Kameda, T. (2005). The robust beauty of majority rules in group decisions. Psychological Review, 112, 494–508.

Roch, S. G. (2007). Why convene rater teams: An investigation of the benfits of anti- cipated discussion, consensus, and rater motivation. Organizational Behavior and Hu- man Decision Processes, 104, 14–29.

Mohammed, S., & Ringseis, E. (2001). Cognitive diversity and consensus in group de- cision making: The role of inputs, processes, and outcomes. Organizational Behavior and Human Decision Processes, 85, 310–335.

Peterson, R. (1999). Can you have too much of a good thing? The limits of voice for improving satisfaction with leaders. Personality and Social Psychology, 25, 313–324.

Lam, S. S. K., & Schaubroeck, J. (2000). Improving group decisions by better pooling information: A comparative advantage of group decision support systems. Journal of Applied Psychology, 85, 565–573.

Nunamaker, J. F., Jr., Dennis, A. R., Valacich, J. S., Vogel, D. R., George, J. F. (1991, July). Electronic meetings to support group work. Communications of the ACM, 34(7), 40–61.

Babock, P. (2004, May). Shedding light on knowledge management. HR Magazine, pp. 47–50.

Wright, G., & Goodwin, P. (2002). Eliminating a framing bias by using simple instruc- tions to “think harder” and respondents with managerial experience: Comment on “breaking the frame.” Strategic Management Journal, 23, 1059–1067.

Mitchell, D. J., Russo, J., & Pennington, N. (1989). Back to the future: Temporal per- spective in the explanation of events. Journal of Behaviorial Decision Making, 2, 25–38.

Breen, B. (2000, August). What’s your intuition? Fast Company, 290; Klein, G. (September 2007). Performing a project premortem. Harvard Business Review, 18–19; Klein, G. (2003). The power of intuition: How to use your gut feelings to make better de- cisions at work. New York: Random House; Pliske, R., McCloskey, M., & Klein, G. (2001). Decision skills training: Facilitating learning from experience. In E. Salas & G. Klein (Eds.), Linking expertise and naturalistic decision making 37–53. Mahwah, NJ: Lawrence Erlbaum.

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C H A P T E R 1 2 Communication in Organizations FIGURE 12.1 A sender’s choice of communication channel affects the quality of what is actually understood by the receiver.

© 2010 Jupiterimages Corporation

W H A T ’ S I N I T F O R M E ?

Reading this chapter will help you do the following:

1. Define communication and understand the communication process. 2. Understand and overcome barriers to effective communication. 3. Compare and contrast different types of communication. 4. Compare and contrast different communication channels. 5. Develop your own communication skills.

FIGURE 12.2 The P-O-L-C Framework

1. CASE IN POINT: EDWARD JONES COMMUNICATES CARING

© Thinkstock

Because of the economic turmoil that most financial institutions find themselves in today, it might come as a surprise that an individual investment company came in at number 2 on Fortune magazine’s “100 Best Com- panies to Work For” list in 2010, behind software giant SAS Institute Inc. Edward Jones Investments (a limited partnership company) was originally founded in St. Louis, Missouri, where its headquarters remain today. With more than 10,000 offices across the United States and Canada, they are able to serve nearly 7 million investors. This is the 10th year Edward Jones has made the Best Companies list. In addition, Edward Jones ranked highest with client satisfaction among full-service investment firms, according to an annual survey released by J. D. Power and Associates in 2009. How has Edward Jones maintained this favorable reputation in the eyes of both its employees and its customers?

It begins with the perks offered, including profit sharing and telecommuting. But if you ask the company’s CEO, Tim Kirley, he will likely tell you that it goes beyond the financial incentives, and at the heart of it is the culture of honest communication that he adamantly promotes. Kirley works with senior managers and team members in what makes up an open floor plan and always tries to maintain his approachability. Examples of this include direct communication, letters to staff and video, and Internet-posted talks. In addition, regular meetings are held to celebrate achievements and reinforce the firm’s ethos. Staff surveys are frequently ad- ministered and feedback is widely taken into consideration so that the 10,000 employees feel heard and respected.

According to Fortune’s managing editor, Hank Gilman, “The most important considerations for this year’s list were hiring and the ways in which companies are helping their employees weather the recession.” Edward Jones was able to persevere through the trauma of the recent financial crisis with no layoffs and an 8% one- year job growth. While a salary freeze was enacted, profit sharing continued. Kirley insists that the best ap- proach to the recent economic downturn is to remain honest with his employees even when the news he is delivering is not what they want to hear.

Edward Jones was established in 1922 by Edward D. Jones Sr., and long ago, the company recognized the im- portance of a satisfied workforce and how that has the ability to translate into customer satisfaction and long- term growth. The company’s internal policy of open communication seems to carry over to how advisors value their relationship with individual customers. Investors are most likely to contact their advisor by directly visiting them at a local branch or by picking up the phone and calling them. Edward Jones’s managing part- ner, Jim Weddle, explains it best himself: “We are able to stay focused on the long-term because we are a part- nership and we know who we are and what we do. When you respect the people who work here, you take care of them—not just in the good times, but in the difficult times as well.”

Case written by Carlene Reynolds, Talya Bauer, and Berrin Erdogan to accompany Carpenter, M., Bauer, T., & Erdogan, B. (2009). Principles of management (1st ed.). New York: Flat World Knowledge. Based on information from 100 best companies to work for. (2010, February 8). Fortune. Retrieved February 2, 2010, from http://money.cnn.com/magazines/fortune/bestcompanies/2010/full_list; St. Louis firms make Fortune’s best workplaces. (2009, January 22). St. Louis Business Journal. Retrieved February 3, 2010, from http://www.bizjournals.com/stlouis/stories/2009/01/19/ daily40.html; Rodrigues, N., & Clayton, C. (2009). A positive difference in the office and the world. Sunday Times, pp. 10, 11. Retrieved from LexisNexis Academic database; Lawlor, A. (2008, March 13). Edward Jones is one to work for. Sunday Times, Financial Adviser. Retrieved February 2, 2010, from LexisNexis Academic database; Keeping clients happy. (2009, August 1). Registered Rep. Retrieved February 2, 2010, from http://registeredrep.com/ planner-ria-practice/finance-keeping-clients-happy-0801

302 PRINCIPLES OF MANAGEMENT

D I S C U S S I O N Q U E S T I O N S

1. Communication is a key part of the leading facet of the P-O-L-C framework. What other things could Edward Jones do to increase its effectiveness in the area of communications?

2. As an organization, what qualities do you think Edward Jones looks for when hiring new financial advisors? How do you think that affects its culture over time?

3. With its success in North America, why do you think Edward Jones has not expanded across the Pacific or Atlantic Oceans?

4. How has technology enabled Edward Jones to become more effective at communicating with its employees and customers?

5. What types of customer service policies do think Edward Jones has in place? How do these relate to its culture over time?

2. UNDERSTANDING COMMUNICATION

L E A R N I N G O B J E C T I V E S

1. Define communication. 2. Understand the communication process.

Communication supports each of a manager’s P-O-L-C functions. The ability to effectively commu- nicate is a necessary condition for successfully planning, organizing, leading, and controlling. Commu- nication is vital to organizations—it’s how we coordinate actions and achieve goals. It is defined in the Merriam-Webster’s dictionary as “a process by which information is exchanged between individuals through a common system of symbols, signs, or behavior.”[1] We know that 50%–90% of a manager’s time is spent communicating[2] and that communication ability is related to a manager’s perform- ance.[3] In most work environments, a miscommunication is an annoyance—it can interrupt workflow by causing delays and interpersonal strife. And in some work arenas, like operating rooms and airplane cockpits, communication can be a matter of life and death.

So, just how prevalent is the problem of miscommunication in the workplace? You may be sur- prised to learn that the relationship between miscommunication and negative outcomes is strong. A re- cent NASA study suggests that deficient interpersonal communication was a causal factor in approxim- ately 70%–80% of aviation accidents over a 20-year period.[4]

Poor communication can also lead to lawsuits. For example, you might think that malpractice suits are filed against doctors based on the outcome of their treatments alone. But a 1997 study of malprac- tice suits found that a primary influence on whether a doctor is sued is that doctor’s communication style. While the combination of a bad outcome and patient unhappiness can quickly lead to litigation, a warm, personal communication style leads to greater patient satisfaction. And satisfied patients are less likely to sue.[5]

CHAPTER 12 COMMUNICATION IN ORGANIZATIONS 303

FIGURE 12.4

Success on complicated missions at NASA depends on strong communication.

Source: http://en.wikipedia.org/wiki/Image:Orion_briefing_model.jpg

For leaders and organizations, poor communication costs money and wastes time. One study found that 14% of each workweek is wasted on poor communication.[6] In contrast, effective communication is an asset for organizations and individuals alike. Effective communication skills, for example, are an asset for job seekers. A recent study of recruiters at 85 business schools ranked communication and in- terpersonal skills as the highest skills they were looking for, with 89% of the recruiters saying they were important.[7] Good communication can also help a company retain its star employees. Surveys find that when employees think their organizations do a good job of keeping them informed about matters that affect them and they have ready access to the information they need to do their jobs, they are more sat- isfied with their employers.[8] So, can good communication increase a company’s market value? The answer seems to be yes. “When you foster ongoing communications internally, you will have more sat- isfied employees who will be better equipped to effectively communicate with your customers,” says Susan Meisinger, President/CEO of the Society for Human Resource Management, citing research findings that for organizations that are able to improve their communication integrity, their market value increases by as much as 7.1%.[9] We will explore the definition and benefits of effective commu- nication in our next section.

304 PRINCIPLES OF MANAGEMENT

FIGURE 12.5

Lee Iacocca, past president and CEO of Chrysler until his retirement in 1992, said, “You can have brilliant ideas, but if you can’t get them across, your ideas won’t get you anywhere.”

Source: http://en.wikipedia.org/wiki/

Lee_Iacocca

encoding

The translation of ideas into words.

medium

The way that a Sender’s Message is conveyed.

receiver

The person who a Message is intended to reach.

decoding

The process of assigning meaning to a received Message.

2.1 The Communication Process Communication fulfills three main functions within an organization: (1) transmitting information, (2) coordinating effort, and (3) sharing emotions and feelings. All these functions are vital to a successful organization. Transmitting information is vital to an organization’s ability to function. Coordinating effort within the organization helps people work toward the same goals. Sharing emotions and feelings bonds teams and unites people in times of celebration and crisis. Effective communication helps people grasp issues, build rapport with coworkers, and achieve consensus. So, how can we communicate effectively? The first step is to understand the communication process.

We all exchange information with others countless times a day, by phone, e-mail, printed word, and of course, in person. Let’s take a moment to see how a typical communication works using the Pro- cess Model of Communication as a guide.

FIGURE 12.6 The Process Model of Communication

A Sender, such as a boss, coworker, or customer, originates the Message with a thought. For example, the boss’s thought could be: “Get more printer toner cartridges!”

The Sender encodes the Message, translating the idea into words. The boss may communicate this thought by saying, “Hey you guys, we need to order more printer

toner cartridges.” The medium of this encoded Message may be spoken words, written words, or signs. The receiver is the person who receives the Message. The Receiver decodes the Message by assigning meaning to the words. In this example, our Receiver, Bill, has a to-do list a mile long. “The boss must know how much

work I already have.” the Receiver thinks. Bill’s mind translates his boss’s Message as, “Could you order some printer toner cartridges, in addition to everything else I asked you to do this week…if you can find the time?”

CHAPTER 12 COMMUNICATION IN ORGANIZATIONS 305

noise

Anything that interferes with or distorts the Message being transformed.

The meaning that the Receiver assigns may not be the meaning that the Sender intended because of such factors as noise. Noise is anything that interferes with or distorts the Message being trans- formed. Noise can be external in the environment (such as distractions) or it can be within the Receiv- er. For example, the Receiver may be highly nervous and unable to pay attention to the Message. Noise can even occur within the Sender: the Sender may be unwilling to take the time to convey an accurate Message or the words she chooses can be ambiguous and prone to misinterpretation.

Picture the next scene. The place: a staff meeting. The time: a few days later. The boss believes her Message has been received.

“Are the printer toner cartridges here yet?” she asks. “You never said it was a rush job!” the Receiver protests. “But!” “But!” Miscommunications like these happen in the workplace every day. We’ve seen that miscommunic-

ation does occur in the workplace. But how does a miscommunication happen? It helps to think of the communication process. The series of arrows pointing the way from the Sender to the Receiver and back again can, and often do, fall short of their target.

K E Y T A K E A W A Y

Communication is vital to organizations. Poor communication is prevalent and can have serious repercussions. Communication fulfills three functions within organizations: transmitting information, coordinating, and shar- ing emotions and feelings. Noise can disrupt or distort communication.

E X E R C I S E S

1. Where have you seen the communication process break down—at work? At school? At home?

2. Explain how miscommunication might be related to an accident at work.

3. Give an example of noise during the communication process.

306 PRINCIPLES OF MANAGEMENT

filtering

The distortion or withholding of information to manage a person’s reactions.

selective perception

The personal filtering of what we see and hear to suit our own needs.

3. COMMUNICATION BARRIERS

L E A R N I N G O B J E C T I V E S

1. Understand different ways that the communication process can be sidetracked. 2. Understand the problem of poor listening and how to promote active listening.

3.1 Barriers to Effective Communication Communicating can be more of a challenge than you think, when you realize the many things that can stand in the way of effective communication. These include filtering, selective perception, information overload, emotional disconnects, lack of source familiarity or credibility, workplace gossip, semantics, gender differences, differences in meaning between Sender and Receiver, and biased language. Let’s ex- amine each of these barriers.

Filtering

Filtering is the distortion or withholding of information to manage a person’s reactions. Some ex- amples of filtering include a manager who keeps her division’s poor sales figures from her boss, the vice president, fearing that the bad news will make him angry. The old saying, “Don’t shoot the messenger!” illustrates the tendency of Receivers (in this case, the vice president) to vent their negative response to unwanted Messages on the Sender. A gatekeeper (the vice president’s assistant, perhaps) who doesn’t pass along a complete Message is also filtering. The vice president may delete the e-mail announcing the quarter’s sales figures before reading it, blocking the Message before it arrives.

As you can see, filtering prevents members of an organization from getting a complete picture of the way things are. To maximize your chances of sending and receiving effective communications, it’s helpful to deliver a Message in multiple ways and to seek information from multiple sources. In this way, the effect of any one person’s filtering the Message will be diminished.

Since people tend to filter bad news more during upward communication, it is also helpful to re- member that those below you in an organization may be wary of sharing bad news. One way to defuse the tendency to filter is to reward employees who clearly convey information upward, regardless of whether the news is good and bad.

Here are some of the criteria that individuals may use when deciding whether to filter a Message or pass it on:

< Past experience: Was the Sender rewarded for passing along news of this kind in the past, or was she criticized?

< Knowledge, perception of the speaker: Has the Receiver’s direct superior made it clear that “no news is good news?”

< Emotional state, involvement with the topic, level of attention: Does the Sender’s fear of failure or criticism prevent him from conveying the Message? Is the topic within his realm of expertise, increasing his confidence in his ability to decode it, or is he out of his comfort zone when it comes to evaluating the Message’s significance? Are personal concerns impacting his ability to judge the Message’s value?

Once again, filtering can lead to miscommunications in business. Each listener translates the Message into his or her own words, creating his or her own version of what was said.[10]

Selective Perception

Selective perception refers to filtering what we see and hear to suit our own needs. This process is of- ten unconscious. Small things can command our attention when we’re visiting a new place—a new city or a new company. Over time, however, we begin to make assumptions about the way things are on the basis of our past experience. Often, much of this process is unconscious. “We simply are bombarded with too much stimuli every day to pay equal attention to everything so we pick and choose according to our own needs.”[11] Selective perception is a time-saver, a necessary tool in a complex culture. But it can also lead to mistakes.

Think back to the earlier example conversation between Bill, who was asked to order more toner cartridges, and his boss. Since Bill found his boss’s to-do list to be unreasonably demanding, he

CHAPTER 12 COMMUNICATION IN ORGANIZATIONS 307

FIGURE 12.7

A field study found that managers can expect, on average, to do only three minutes of uninterrupted work on any one task before being interrupted by an incoming e-mail, instant message, phone call, coworker, or other distraction.

© 2010 Jupiterimages Corporation

information overload

This occurs when the information processing demands on an individual’s time to perform interactions and internal calculations exceed the supply or capacity of time available for such processing.

grapevine

The informal gossip network within a given organization.

assumed the request could wait. (How else could he do everything else on the list?) The boss, assuming that Bill had heard the urgency in her request, assumed that Bill would place the order before returning to the other tasks on her list.

Both members of this organization were using selective perception to evaluate the communication. Bill’s perception was that the task of ordering could wait. The boss’s perception was that her time frame was clear, though unstated. When two selective perceptions collide, a misunderstanding occurs.

Information Overload

Information overload can be defined as “occurring when the information processing demands on an individual’s time to perform interactions and internal calculations ex- ceed the supply or capacity of time available for such processing.”[12] Messages reach us in countless ways every day. Some are societal—advertisements that we may hear or see in the course of our day. Others are professional—e-mails, and memos, voice mails, and conversations from our colleagues. Others are personal—messages and conversa- tions from our loved ones and friends.

Add these together and it’s easy to see how we may be receiving more information than we can take in. This state of imbalance is known as information overload. Experts note that information overload is “A symptom of the high-tech age, which is too much information for one human being to absorb in an expanding world of people and tech- nology. It comes from all sources including TV, newspapers, and magazines as well as wanted and unwanted regular mail, e-mail and faxes. It has been exacerbated enorm- ously because of the formidable number of results obtained from Web search en- gines.”[13] Other research shows that working in such fragmented fashion has a sig- nificant negative effect on efficiency, creativity, and mental acuity.[14]

Going back to our example of Bill. Let’s say he’s in his cubicle on the phone with a supplier. While he’s talking, he hears the chime of e-mail alerting him to an important message from his boss. He’s scanning through it quickly, while still on the phone, when a coworker pokes his head around the cubicle corner to remind Bill that he’s late for a

staff meeting. The supplier on the other end of the phone line has just given Bill a choice among the products and delivery dates he requested. Bill realizes he missed hearing the first two options, but he doesn’t have time to ask the supplier to repeat them all or to try reconnecting to place the order at a later time. He chooses the third option—at least he heard that one, he reasons, and it seemed fair. How good was Bill’s decision amid all the information he was processing at the same time?

Emotional disconnects

Emotional disconnects happen when the Sender or the Receiver is upset, whether about the subject at hand or about some unrelated incident that may have happened earlier. An effective communication requires a Sender and a Receiver who are open to speaking and listening to one another, despite pos- sible differences in opinion or personality. One or both parties may have to put their emotions aside to achieve the goal of communicating clearly. A Receiver who is emotionally upset tends to ignore or dis- tort what the Sender is saying. A Sender who is emotionally upset may be unable to present ideas or feelings effectively.

Lack of Source Credibility

Lack of source familiarity or credibility can derail communications, especially when humor is in- volved. Have you ever told a joke that fell flat? You and the Receiver lacked the common context that could have made it funny. (Or yes, it could have just been a lousy joke.) Sarcasm and irony are subtle, and potentially hurtful, commodities in business. It’s best to keep these types of communications out of the workplace as their benefits are limited, and their potential dangers are great. Lack of familiarity with the Sender can lead to misinterpreting humor, especially in less-rich information channels like e- mail. For example, an e-mail from Jill that ends with, “Men, like hens, should boil in vats of oil,” could be interpreted as antimale if the Receiver didn’t know that Jill has a penchant for rhyme and likes to en- tertain coworkers by making up amusing sayings.

Similarly, if the Sender lacks credibility or is untrustworthy, the Message will not get through. Re- ceivers may be suspicious of the Sender’s motivations (“Why am I being told this?”). Likewise, if the Sender has communicated erroneous information in the past, or has created false emergencies, his cur- rent Message may be filtered.

Workplace gossip, also known as the grapevine, is a lifeline for many employees seeking informa- tion about their company.[15] Researchers agree that the grapevine is an inevitable part of organization- al life. Research finds that 70% of all organizational communication occurs at the grapevine level.[16]

308 PRINCIPLES OF MANAGEMENT

semantics

The meanings of words and the study of meaning in communication.

jargon

A specific set of acronyms or words unique to a specific group or profession.

Employees trust their peers as a source of Messages, but the grapevine’s informal structure can be a barrier to effective communication from the managerial point of view. Its grassroots structure gives it greater credibility in the minds of employees than information delivered through official channels, even when that information is false.

Some downsides of the office grapevine are that gossip offers politically minded insiders a powerful tool for disseminating communication (and self-promoting miscommunications) within an organiza- tion. In addition, the grapevine lacks a specific Sender, which can create a sense of distrust among em- ployees—who is at the root of the gossip network? When the news is volatile, suspicions may arise as to the person or persons behind the Message. Managers who understand the grapevine’s power can use it to send and receive Messages of their own. They also decrease the grapevine’s power by sending official Messages quickly and accurately, should big news arise.

Semantics

Semantics is the study of meaning in communication. Words can mean different things to different people, or they might not mean anything to another person. For example, companies often have their own acronyms and buzzwords (called business jargon) that are clear to them but impenetrable to out- siders. For example, at IBM, GBS is focusing on BPTS, using expertise acquired from the PwC purchase (which had to be sold to avoid conflicts of interest in light of SOX) to fend other BPO providers and in- roads by the Bangalore tiger. Does this make sense to you? If not, here’s the translation: IBM’s Global Business Services (GBS) division is focusing on offering companies Business Process Transformation Services (BPTS), using the expertise it acquired from purchasing the management consulting and tech- nology services arm of PricewaterhouseCoopers (PwC), which had to sell the division because of the Sarbanes-Oxley Act (SOX, enacted in response to the major accounting scandals like the Enron). The added management expertise puts it above business process outsourcing (BPO) vendors who focus more on automating processes rather than transforming and improving them. Chief among these BPO competitors is Wipro, often called the “Bangalore tiger” because of its geographic origin and aggressive growth.

Given the amount of Messages we send and receive every day, it makes sense that humans try to find shortcuts—a way to communicate things in code. In business, this code is known as jargon. Jar- gon is the language of specialized terms used by a group or profession. It is common shorthand among experts and if used sensibly can be a quick and efficient way of communicating. Most jargon consists of unfamiliar terms, abstract words, nonexistent words, acronyms, and abbreviations, with an occasional euphemism thrown in for good measure. Every profession, trade, and organization has its own special- ized terms.[17] At first glance, jargon seems like a good thing—a quicker way to send an effective com- munication, the way text message abbreviations can send common messages in a shorter, yet under- standable way. But that’s not always how things happen. Jargon can be an obstacle to effective commu- nication, causing listeners to tune out or fostering ill-feeling between partners in a conversation. When jargon rules the day, the Message can get obscured.

A key question to ask before using jargon is, “Who is the Receiver of my Message?” If you are a specialist speaking to another specialist in your area, jargon may be the best way to send a message while forging a professional bond—similar to the way best friends can communicate in code. For ex- ample, an information technology (IT) systems analyst communicating with another IT employee may use jargon as a way of sharing information in a way that reinforces the pair’s shared knowledge. But that same conversation should be held in standard English, free of jargon, when communicating with staff members outside the IT group.

Online Follow-Up

Here is a Web site of 80 buzz words in business:

http://www.amanet.org/movingahead/editorial2002_2003/nov03_80buzzwords.htm

and a discussion of why slang is a problem:

http://sbinfocanada.about.com/od/speakforsuccesscourse/a/speechlesson5.htm.

Gender Differences

Gender differences in communication have been documented by a number of experts, including lin- guistics professor Deborah Tannen in her best-selling book You Just Don’t Understand: Women and Men in Conversation.[18] Men and women work together every day. But their different styles of com- munication can sometimes work against them. Generally speaking, women like to ask questions before starting a project, while men tend to “jump right in.” A male manager who’s unaware of how many wo- men communicate their readiness to work may misperceive a ready employee as not ready.

CHAPTER 12 COMMUNICATION IN ORGANIZATIONS 309

Another difference that has been noticed is that men often speak in sports metaphors, while many women use their home as a starting place for analogies. Women who believe men are “only talking about the game” may be missing out on a chance to participate in a division’s strategy and opportunit- ies for teamwork and “rallying the troops” for success.[19]

“It is important to promote the best possible communication between men and women in the workplace,” notes gender policy adviser Dee Norton, who provided the above example. “As we move between the male and female cultures, we sometimes have to change how we behave (speak the lan- guage of the other gender) to gain the best results from the situation. Clearly, successful organizations of the future are going to have leaders and team members who understand, respect and apply the rules of gender culture appropriately.”[20]

Being aware of these gender differences can be the first step in learning to work with them, as op- posed to around them. For example, keep in mind that men tend to focus more on competition, data, and orders in their communications, while women tend to focus more on cooperation, intuition, and requests. Both styles can be effective in the right situations, but understanding the differences is a first step in avoiding misunderstandings based on them.

Differences in meaning often exist between the Sender and Receiver. “Mean what you say, and say what you mean.” It’s an easy thing to say. But in business, what do those words mean? Different words mean different things to different people. Age, education, and cultural background are all factors that influence how a person interprets words. The less we consider our audience, the greater our chances of miscommunication will be. When communication occurs in the cross-cultural context, extra caution is needed given that different words will be interpreted differently across cultures and different cultures have different norms regarding nonverbal communication. Eliminating jargon is one way of ensuring that our words will convey real-world concepts to others. Speaking to our audience, as opposed to about ourselves, is another. Nonverbal Messages can also have different meanings.

310 PRINCIPLES OF MANAGEMENT

TABLE 12.1 Gestures Around the Globe

FIGURE 12.8

1. “V” for victory. Use this gesture with caution! While in North America it signs victory or peace, in England and Australia it means something closer to “take this!”

FIGURE 12.9

2. The “OK” gesture. While in North America it means things are going well, in France it means a person is thought to be worthless, in Japan it refers to money, and in Brazil, Russia, and Germany it means something really not appropriate for the workplace.

FIGURE 12.10

3. The “thumbs up” means one in Germany, five in Japan, but a good job in North America. This can lead to confusion.

FIGURE 12.11

4. “Hook ‘em horns.” This University of Texas rallying call looks like the horns of a bull. However, in Italy it means you are being tricked, while in Brazil and Venezuela it means you are warding off evil.

FIGURE 12.12

5. Waving your hand. In much of Europe waving your hand indicates a disagreement. However, in North America it is routinely used as a way to signal greetings or to get someone’s attention.

Adapted from information in Axtell, R. E. (1998). Gestures: The do’s and taboos of body language around the world. New York: John Wiley.

Managers who speak about “long-term goals and profits” to a staff that has received scant raises may find their core Message (“You’re doing a great job—and that benefits the folks in charge!”) has infuri- ated the group they hoped to inspire. Instead, managers who recognize the “contributions” of their staff and confirm that this work is contributing to company goals in ways “that will benefit the source of our success—our employees as well as executives,” will find their core Message (“You’re doing a great job—we really value your work”) is received as opposed to being misinterpreted.

Biased language can offend or stereotype others on the basis of their personal or group affiliation. The figure below provides a list of words that have the potential to be offensive in the left-hand column. The right-hand column provides more neutral words that you can use instead.[21]

CHAPTER 12 COMMUNICATION IN ORGANIZATIONS 311

FIGURE 12.13 Avoiding Biased Language

Effective communication is clear, factual, and goal-oriented. It is also respectful. Referring to a person by one adjective (a brain, a diabetic, an invalid) reduces that person to that one characteristic. Language that belittles or stereotypes a person poisons the communication process. Language that insults an in- dividual or group based on age, ethnicity, sexual preference, or political beliefs violates public and private standards of decency, ranging from civil rights to corporate regulations.

The effort to create a neutral set of terms to refer to heritage and preferences has resulted in a de- bate over the nature of “political correctness.” Proponents of political correctness see it as a way to de- fuse the volatile nature of words that stereotyped groups and individuals in the past. Critics of political correctness see its vocabulary as stilted and needlessly cautious.

Many companies offer new employees written guides on standards of speech and conduct. These guides, augmented by common sense and courtesy, are solid starting points for effective, respectful workplace communication. Tips for appropriate workplace speech include but are not limited to

< Alternating the use of “he” and “she” when referring to people in general. < Relying on human resources–generated guidelines. < Remembering that terms that feel respectful or comfortable to us may not be comfortable or

respectful to others.

3.2 Poor Listening and Active Listening Former Chrysler CEO Lee Iacocca lamented, “I only wish I could find an institute that teaches people how to listen. After all, a good manager needs to listen at least as much as he needs to talk.”[22] Research shows that listening skills are related to promotions.[23] A Sender may strive to deliver a Message clearly. But the Receiver’s ability to listen effectively is equally vital to effective communication. The av- erage worker spends 55% of her workdays listening. Managers listen up to 70% each day. But listening doesn’t lead to understanding in every case. Listening takes practice, skill, and concentration.

According to University of San Diego professor Phillip Hunsaker, “The consequences of poor listening are lower employee productivity, missed sales, unhappy customers, and billions of dollars of increased cost and lost profits. Poor listening is a factor in low employee morale and increased turnover because employees do not feel their managers listen to their needs, suggestions, or complaints.”[24] Clearly, if you hope to have a successful career in management, it behooves you to learn to be a good listener.

Alan Gulick, a Starbucks spokesperson, puts better listening to work in pursuit of better profits. If every Starbucks employee misheard one $10 order each day, he calculates, their errors would cost the company a billion dollars annually. To teach its employees to listen, Starbucks created a code that helps employees taking orders hear the size, flavor, and use of milk or decaf coffee. The person making the drink echoes the order aloud.

How can you improve your listening skills? The Roman philosopher Cicero said, “Silence is one of the great arts of conversation.” How often have we been in conversation with someone else where we are not really listening but itching to convey our portion? This behavior is known as “rehearsing.” It suggests the Receiver has no intention of considering the Sender’s Message and intends to respond to

312 PRINCIPLES OF MANAGEMENT

active listening

Giving full attention to what other people are saying.

an earlier point instead. Clearly, rehearsing is an impediment to the communication process. Effective communication relies on another kind of listening: active listening.

Active listening can be defined as giving full attention to what other people are saying, taking time to understand the points being made, asking questions as appropriate, and not interrupting at in- appropriate times.[25] Active listening creates a real-time relationship between the Sender and the Re- ceiver by acknowledging the content and receipt of a Message. As we’ve seen in the Starbucks example, repeating and confirming a Message’s content offers a way to confirm that the correct content is flow- ing between colleagues. The process creates a bond between coworkers while increasing the flow and accuracy of messaging.

Carl Rogers, founder of the “person-centered” approach to psychology, formulated five rules for active listening:

1. Listen for message content 2. Listen for feelings 3. Respond to feelings 4. Note all cues 5. Paraphrase and restate

The good news is that listening is a skill that can be learned.[26] The first step is to decide that we want to listen. Casting aside distractions, such as by reducing background or internal noise, is critical. The Receiver takes in the Sender’s Message silently, without speaking. Second, throughout the conversa- tion, show the speaker that you’re listening. You can do this nonverbally by nodding your head and keeping your attention focused on the speaker. You can also do it verbally, by saying things like, “Yes,” “That’s interesting,” or other such verbal cues. As you’re listening, pay attention to the Sender’s body language for additional cues about how they’re feeling. Interestingly, silence plays a major role in active listening. During active listening, we are trying to understand what has been said, and in silence, we can consider the implications. We can’t consider information and reply to it at the same time. That’s where the power of silence comes into play. Finally, if anything is not clear to you, ask questions. Confirm that you’ve heard the message accurately, by repeating back a crucial piece like, “Great, I’ll see you at 2 p.m. in my office.” At the end of the conversation, a “thank you” from both parties is an op- tional but highly effective way of acknowledging each other’s teamwork.

In summary, active listening creates a more dynamic relationship between a Receiver and a Sender. It strengthens personal investment in the information being shared. It also forges healthy working relationships among colleagues by making Speakers and Listeners equally valued members of the communication process.

K E Y T A K E A W A Y

Many barriers to effective communication exist. Examples include filtering, selective perception, information overload, emotional disconnects, lack of source familiarity or credibility, workplace gossip, semantics, gender differences, differences in meaning between Sender and Receiver, and biased language. The Receiver can en- hance the probability of effective communication by engaging in active listening, which involves (1) giving one’s full attention to the Sender and (2) checking for understanding by repeating the essence of the Message back to the Sender.

E X E R C I S E S

1. Most people are poor listeners. Do you agree or disagree with this statement? Please support your position.

2. Please share an example of how differences in shared meaning have affected you.

3. Give an example of selective perception.

4. Do you use jargon at or in your classes? If so, do you think it helps or hampers communication? Why or why not?

5. In your experience, how is silence used in communication? How does your experience compare with the recommended use of silence in active listening?

CHAPTER 12 COMMUNICATION IN ORGANIZATIONS 313

crucial conversations

Discussions where the stakes are high, opinions vary, and emotions run strong.

4. DIFFERENT TYPES OF COMMUNICATION

L E A R N I N G O B J E C T I V E S

1. Understand the features and advantages of verbal communication. 2. Understand the features and advantages of written communication. 3. Understand the features of nonverbal communication and how it interacts with verbal and

written communications.

Communication can be categorized into three basic types: (1) verbal communication, in which you listen to a person to understand their meaning; (2) written communication, in which you read their meaning; and (3) nonverbal communication, in which you observe a person and infer meaning. Each has its own advantages, disadvantages, and even pitfalls.

4.1 Verbal Communication Verbal communications in business take place over the phone or in person. The medium of the Mes- sage is oral. Let’s return to our printer cartridge example. This time, the Message is being conveyed from the Sender (the Manager) to the Receiver (an employee named Bill) by telephone. We’ve already seen how the Manager’s request to Bill (“We need to buy more printer toner cartridges”) can go awry. Now let’s look at how the same Message can travel successfully from Sender to Receiver.

Manager (speaking on the phone): “Good morning, Bill!” (By using the employee’s name, the manager is establishing a clear, personal link to the Receiver.) Manager: “Your division’s numbers are looking great.” (The Manager’s recognition of Bill’s role in a winning team further personalizes and emotionalizes

the conversation.) Manager: “Our next step is to order more printer toner cartridges. Could you place an order for

1,000 printer toner cartridges with Jones Computer Supplies? Our budget for this purchase is $30,000, and the cartridges need to be here by Wednesday afternoon.”

(The Manager breaks down the task into several steps. Each step consists of a specific task, time frame, quantity, or goal.)

Bill: “Sure thing! I’ll call Jones Computer Supplies and order 1,000 more printer toner cartridges, not exceeding a total of $30,000, to be here by Wednesday afternoon.”

(Bill, who is good at active listening, repeats what he has heard. This is the Feedback portion of the communication, and verbal communication has the advantage of offering opportunities for immediate feedback. Feedback helps Bill to recognize any confusion he may have had hearing the manager’s Mes- sage. Feedback also helps the manager to tell whether she has communicated the Message correctly.)

Storytelling

Storytelling has been shown to be an effective form of verbal communication; it serves an important organizational function by helping to construct common meanings for individuals within the organiza- tion. Stories can help clarify key values and help demonstrate how things are done within an organiza- tion, and story frequency, strength, and tone are related to higher organizational commitment.[27] The quality of the stories entrepreneurs tell is related to their ability to secure capital for their firms.[28] Stor- ies can serve to reinforce and perpetuate an organization’s culture, part of the organizing P-O-L-C function.

Crucial Conversations

While the process may be the same, high-stakes communications require more planning, reflection, and skill than normal day-to-day interactions at work. Examples of high-stakes communication events include asking for a raise or presenting a business plan to a venture capitalist. In addition to these events, there are also many times in our professional lives when we have crucial conversa- tions—discussions where not only the stakes are high but also where opinions vary and emotions run strong.[29] One of the most consistent recommendations from communications experts is to work to- ward using “and” instead of “but” as you communicate under these circumstances. In addition, be aware of your communication style and practice flexibility; it is under stressful situations that commu- nication styles can become the most rigid.

314 PRINCIPLES OF MANAGEMENT

FIGURE 12.14

Communication mediums have come a long way since Alexander Graham Bell’s original telephone.

Source: http://en.wikipedia.org/wiki/

image:cnam-img_0564.jpg

4.2 Written Communication In contrast to verbal communications, written business communications are printed messages. Examples of written communications include memos, proposals, e-mails, letters, training manuals, and operating policies. They may be printed on paper, handwritten, or appear on the screen. Normally, a verbal communication takes place in real time. Written communication, by contrast, can be construc- ted over a longer period of time. Written communication is often asynchronous (occurring at different times). That is, the Sender can write a Message that the Receiver can read at any time, unlike a conver- sation that is carried on in real time. A written communication can also be read by many people (such as all employees in a department or all customers). It’s a “one-to-many” communication, as opposed to a one-to-one verbal conversation. There are exceptions, of course: a voicemail is an oral Message that is asynchronous. Conference calls and speeches are oral one-to-many communications, and e-mails may have only one recipient or many.

Most jobs involve some degree of writing. According to the National Commission on Writing, 67% of salaried employees in large American companies and professional state employees have some writing responsibility. Half of responding companies reported that they take writing into consideration when hiring professional employees, and 91% always take writing into account when hiring (for any position, not just professional-level ones).[30]

Luckily, it is possible to learn to write clearly. Here are some tips on writing well. Thomas Jefferson summed up the rules of writing well with this idea “Don’t use two words when one will do.” One of the oldest myths in business is that writing more will make us sound more important; in fact, the opposite is true. Leaders who can communicate simply and clearly project a stronger image than those who write a lot but say nothing.

4.3 Nonverbal Communication What you say is a vital part of any communication. But what you don’t say can be even more import- ant. Research also shows that 55% of in-person communication comes from nonverbal cues like facial expressions, body stance, and tone of voice. According to one study, only 7% of a Receiver’s compre- hension of a Message is based on the Sender’s actual words; 38% is based on paralanguage (the tone, pace, and volume of speech), and 55% is based on nonverbal cues (body language).[31]

Research shows that nonverbal cues can also affect whether you get a job offer. Judges examining videotapes of actual applicants were able to assess the social skills of job candidates with the sound turned off. They watched the rate of gesturing, time spent talking, and formality of dress to determine which candidates would be the most successful socially on the job.[32] For this reason, it is important to consider how we appear in business as well as what we say. The muscles of our faces convey our emo- tions. We can send a silent message without saying a word. A change in facial expression can change our emotional state. Before an interview, for example, if we focus on feeling confident, our face will convey that confidence to an interviewer. Adopting a smile (even if we’re feeling stressed) can reduce the body’s stress levels.

To be effective communicators, we need to align our body language, appearance, and tone with the words we’re trying to convey. Research shows that when individuals are lying, they are more likely to blink more frequently, shift their weight, and shrug.[33]

Listen Up and Learn More!

To learn more about facial language from facial recognition expert Patrician McCarthy as she speaks with Seni- or Editor Suzanne Woolley at Business Week, view the online interview at http://feedroom.businessweek.com/ index.jsp?fr_chl=1e2ee1e43e4a5402a862f79a7941fa625f5b0744.

Another element of nonverbal communication is tone. A different tone can change the perceived meaning of a message. Table 12.2 demonstrates how clearly this can be true, whether in verbal or writ- ten communication. If we simply read these words without the added emphasis, we would be left to wonder, but the emphasis shows us how the tone conveys a great deal of information. Now you can see how changing one’s tone of voice or writing can incite or defuse a misunderstanding.

CHAPTER 12 COMMUNICATION IN ORGANIZATIONS 315

TABLE 12.2 Don’t Use That Tone with Me! Changing your tone can dramatically change your meaning.

Placement of the emphasis What it means

I did not tell John you were late. Someone else told John you were late.

I did not tell John you were late. This did not happen.

I did not tell John you were late. I may have implied it.

I did not tell John you were late. But maybe I told Sharon and José.

I did not tell John you were late. I was talking about someone else.

I did not tell John you were late. I told him you still are late.

I did not tell John you were late. I told him you were attending another meeting.

Source: Based on ideas in Kiely, M. (1993, October). When “no” means “yes.” Marketing, 7–9.

For an example of the importance of nonverbal communication, imagine that you’re a customer inter- ested in opening a new bank account. At one bank, the bank officer is dressed neatly. She looks you in the eye when she speaks. Her tone is friendly. Her words are easy to understand, yet she sounds profes- sional. “Thank you for considering Bank of the East Coast. We appreciate this opportunity and would love to explore ways that we can work together to help your business grow,” she says with a friendly smile.

At the second bank, the bank officer’s tie is stained. He looks over your head and down at his desk as he speaks. He shifts in his seat and fidgets with his hands. His words say, “Thank you for considering Bank of the West Coast. We appreciate this opportunity and would love to explore ways that we can work together to help your business grow,” but he mumbles, and his voice conveys no enthusiasm or warmth.

Which bank would you choose? The speaker’s body language must match his or her words. If a Sender’s words and body language

don’t match—if a Sender smiles while telling a sad tale, for example—the mismatch between verbal and nonverbal cues can cause a Receiver to actively dislike the Sender.

Here are a few examples of nonverbal cues that can support or detract from a Sender’s Message.

Body Language

A simple rule of thumb is that simplicity, directness, and warmth convey sincerity. And sincerity is key to effective communication. A firm handshake, given with a warm, dry hand, is a great way to establish trust. A weak, clammy handshake conveys a lack of trustworthiness. Gnawing one’s lip conveys uncer- tainty. A direct smile conveys confidence.

Eye Contact

In business, the style and duration of eye contact considered appropriate vary greatly across cultures. In the United States, looking someone in the eye (for about a second) is considered a sign of trustworthiness.

Facial Expressions

The human face can produce thousands of different expressions. These expressions have been decoded by experts as corresponding to hundreds of different emotional states.[34] Our faces convey basic in- formation to the outside world. Happiness is associated with an upturned mouth and slightly closed eyes; fear with an open mouth and wide-eyed stare. Flitting (“shifty”) eyes and pursed lips convey a lack of trustworthiness. The effect of facial expressions in conversation is instantaneous. Our brains may register them as “a feeling” about someone’s character.

Posture

The position of our body relative to a chair or another person is another powerful silent messenger that conveys interest, aloofness, professionalism—or lack thereof. Head up, back straight (but not rigid) im- plies an upright character. In interview situations, experts advise mirroring an interviewer’s tendency to lean in and settle back in her seat. The subtle repetition of the other person’s posture conveys that we are listening and responding.

316 PRINCIPLES OF MANAGEMENT

Touch

The meaning of a simple touch differs between individuals, genders, and cultures. In Mexico, when do- ing business, men may find themselves being grasped on the arm by another man. To pull away is seen as rude. In Indonesia, to touch anyone on the head or touch anything with one’s foot is considered highly offensive. In the Far East, according to business etiquette writer Nazir Daud, “it is considered impolite for a woman to shake a man’s hand.”[35] Americans, as we have noted, place great value in a firm handshake. But handshaking as a competitive sport (“the bone-crusher”) can come off as need- lessly aggressive, at home and abroad.

Space

Anthropologist Edward T. Hall coined the term proxemics to denote the different kinds of distance that occur between people. These distances vary between cultures. The figure below outlines the basic prox- emics of everyday life and their meaning:[36]

FIGURE 12.15 Interpersonal Distances

Standing too far away from a colleague (such as a public speaking distance of more than seven feet) or too close to a colleague (intimate distance for embracing) can thwart an effective verbal communica- tion in business.

K E Y T A K E A W A Y

Types of communication include verbal, written, and nonverbal. Verbal communications have the advantage of immediate feedback, are best for conveying emotions, and can involve storytelling and crucial conversa- tions. Written communications have the advantage of asynchronicity, of reaching many readers, and are best for conveying information. Both verbal and written communications convey nonverbal messages through tone; verbal communications are also colored by body language, eye contact, facial expression, posture, touch, and space.

E X E R C I S E S

1. When you see a memo or e-mail full of typos, poor grammar, or incomplete sentences, how do you react? Does it affect your perception of the Sender? Why or why not?

2. How aware of your own body language are you? Has your body language ever gotten you into trouble when you were communicating with someone?

3. If the meaning behind verbal communication is only 7% words, what does this imply for written communication?

CHAPTER 12 COMMUNICATION IN ORGANIZATIONS 317

5. COMMUNICATION CHANNELS

L E A R N I N G O B J E C T I V E S

1. Understand how communication channels affect communication. 2. Recognize different communication directions within organizations.

The channel, or medium, used to communicate a message affects how accurately the message will be received. Verbal, written, and nonverbal communications have different strengths and weaknesses. In business, the decision to communicate verbally or in written form can be a powerful one. In addition, a smart manager is aware of the nonverbal messages conveyed by either type of communication—as noted earlier, only 7% of verbal communication comes from the words themselves.

5.1 Information Richness Channels vary in their information richness. Information-rich channels convey more nonverbal in- formation. As you may be able to guess from our earlier discussion of verbal and written communica- tions, verbal communications are richer than written ones. Research shows that effective managers tend to use more information-rich communication channels than less effective managers.[37] The figure below illustrates the information richness of different information channels.

FIGURE 12.16 Information Richness

Source: Adapted from information in Daft, R. L., & Lenge, R. H. (1984). Information richness: A new approach to managerial behavior and

organizational design. In B. Staw & L. Cummings (Eds.), Research in organizational behavior (Vol. 6, pp. 191–233). Greenwich, CT: JAI Press; and

Lengel, R. H., & Daft, D. L. (1988). The selection of communication media as an executive skill. Academy of Management Executive, 11, 225–232.

Like face-to-face and telephone conversation, videoconferencing has high information richness be- cause Receivers and Senders can see or hear beyond just the words—they can see the Sender’s body language or hear the tone of their voice. Handheld devices, blogs, and written letters and memos offer medium-rich channels because they convey words and pictures/photos. Formal written documents, such as legal documents, and spreadsheets, such as the division’s budget, convey the least richness be- cause the format is often rigid and standardized. As a result, nuance is lost.

318 PRINCIPLES OF MANAGEMENT

In business, the decision to communicate verbally or in written form can be powerful. In addition, a smart manager is aware of the nonverbal messages conveyed by either type of communication—as noted earlier, only 7% of a verbal communication comes from the words themselves.

When determining whether to communicate verbally or in writing, ask yourself: Do I want to con- vey facts or feelings? Verbal communications are a better way to convey feelings. Written communica- tions do a better job of conveying facts.

Picture a manager making a speech to a team of 20 employees. The manager is speaking at a nor- mal pace. The employees appear interested. But how much information is being transmitted? Not as much as the speaker believes! Humans listen much faster than they speak. The average public speaker communicates at a speed of about 125 words a minute. And that pace sounds fine to the audience. (In fact, anything faster than that probably would sound weird. To put that figure in perspective, someone having an excited conversation speaks at about 150 words a minute.) On the basis of these numbers, we could assume that the employees have more than enough time to take in each word the manager deliv- ers. And that’s the problem. The average person in the audience can hear 400–500 words a minute.[38] The audience has more than enough time to hear. As a result, they will each be processing many thoughts of their own, on totally different subjects, while the manager is speaking. As this example demonstrates, oral communication is an inherently flawed medium for conveying specific facts. Listen- ers’ minds wander! It’s nothing personal—in fact, it’s totally physical. In business, once we understand this fact, we can make more intelligent communication choices based on the kind of information we want to convey.

The key to effective communication is to match the communication channel with the goal of the communication.[39] For example, written media may be a better choice when the Sender wants a record of the content, has less urgency for a response, is physically separated from the Receiver, doesn’t re- quire a lot of feedback from the Receiver, or the Message is complicated and may take some time to un- derstand. Oral communication, however, makes more sense when the Sender is conveying a sensitive or emotional Message, needs feedback immediately, and does not need a permanent record of the con- versation. Use the guide provided for deciding when to use written versus verbal communication.

FIGURE 12.17 Guide for When to Use Written Versus Verbal Communication

5.2 Business Use of E-Mail The growth of e-mail has been spectacular, but it has also created challenges in managing information and an ever-increasing speed of doing business. Over 100 million adults in the United States use e-mail regularly (at least once a day).[40] Internet users around the world send an estimated 60 billion e-mails every day, and many of those are spam or scam attempts.[41] That makes e-mail the second most popu- lar medium of communication worldwide, second only to voice. A 2005 study estimated that less than 1% of all written human communications even reached paper—and we can imagine that this percent- age has gone down even further since then.[42] To combat the overuse of e-mail, companies such as In- tel have even instituted “no e-mail Fridays” where all communication is done via other communication channels. Learning to be more effective in your e-mail communications is an important skill. To learn more, check out the business e-mail do’s and don’ts.

CHAPTER 12 COMMUNICATION IN ORGANIZATIONS 319

Business E-Mail Do’s and Don’ts

1. DON’T send or forward chain e-mails.

2. DON’T put anything in an e-mail that you don’t want the world to see.

3. DON’T write a Message in capital letters—this is the equivalent of SHOUTING.

4. DON’T routinely “cc” everyone all the time. Reducing inbox clutter is a great way to increase communication.

5. DON’T hit Send until you spell-check your e-mail.

6. DO use a subject line that summarizes your Message, adjusting it as the Message changes over time.

7. DO make your request in the first line of your e-mail. (And if that’s all you need to say, stop there!)

8. DO end your e-mail with a brief sign-off such as, “Thank you,” followed by your name and contact information.

9. DO think of a work e-mail as a binding communication.

10. DO let others know if you’ve received an e-mail in error.

Source: Adapted from information in Leland, K., & Bailey, K. (2000). Customer service for dummies. New York: Wi- ley; Information Technology Services (1997). Top 10 email dos and top ten email don’ts. Retrieved July 1, 2008, from the University of Illinois at Chicago Medical Center Web site: http://www.uic.edu/hsc/uicmc/its/ customers/email-tips.htm; Kawasaki, G. (2006, February 3). The effective emailer. Retrieved July 1, 2008, from How to Change the World Web site: http://blog.guykawasaki.com/2006/02/the_effective_e.html.

An important, although often ignored, rule when communicating emotional information is that e- mail’s lack of richness can be your loss. As we saw in the chart above, e-mail is a medium-rich channel. It can convey facts quickly. But when it comes to emotion, e-mail’s flaws make it far less desirable a choice than oral communication—the 55% of nonverbal cues that make a conversation comprehens- ible to a listener are missing. E-mail readers don’t pick up on sarcasm and other tonal aspects of writing as much as the writer believes they will, researchers note in a recent study.[43]

The Sender may believe she has included these emotional signifiers in her Message. But, with words alone, those signifiers are not there. This gap between the form and content of e-mail inspired the rise of emoticons—symbols that offer clues to the emotional side of the words in each Message. Generally speaking, however, emoticons are not considered professional in business communication.

You might feel uncomfortable conveying an emotionally laden message verbally, especially when the message contains unwanted news. Sending an e-mail to your staff that there will be no bonuses this year may seem easier than breaking the bad news face-to-face, but that doesn’t mean that e-mail is an effective or appropriate way to deliver this kind of news. When the Message is emotional, the Sender should use verbal communication. Indeed, a good rule of thumb is that the more emotionally laden messages require more thought in the choice of channel and how they are communicated.

5.3 Direction of Communication Within Organizations Information can move horizontally, from a Sender to a Receiver, as we’ve seen. It can also move vertic- ally, down from top management or up from the front line. Information can also move diagonally between and among levels of an organization, such as a Message from a customer service representative up to a manager in the manufacturing department, or a Message from the chief financial officer sent down to all department heads.

320 PRINCIPLES OF MANAGEMENT

FIGURE 12.18

Communication flows in many different directions within an organization.

There is a chance for these arrows to go awry, of course. As Mihaly Csikszentmihalyi, author of best- selling books such as Flow, has noted, “In large organizations the dilution of information as it passes up and down the hierarchy, and horizontally across departments, can undermine the effort to focus on common goals.” Managers need to keep this in mind when they make organization design decisions as part of the organizing function.

The organizational status of the Sender can affect the Receiver’s attentiveness to the Message. For example, consider: A senior manager sends a memo to a production supervisor. The supervisor, who has a lower status within the organization, is likely to pay close attention to the Message. The same in- formation, conveyed in the opposite direction, however, might not get the attention it deserves. The Message would be filtered by the senior manager’s perception of priorities and urgencies.

Requests are just one kind of communication in business. Other communications, both verbal or written, may seek, give, or exchange information. Research shows that frequent communications with one’s supervisor is related to better job performance ratings and overall organizational performance.[44] Research also shows that lateral communication done between peers can influence important organiza- tional outcomes such as turnover.[45]

CHAPTER 12 COMMUNICATION IN ORGANIZATIONS 321

FIGURE 12.19 Who Managers Spend Time Communicating with at Work

Source: Adapted from information in Luthans, F., & Larsen, J. K. (1986). How managers really communicate. Human Relations, 39, 161–178.

5.4 External Communications External communications deliver specific business messages to individuals outside an organization. They may announce changes in staff or strategy, earnings, and more. The goal of an external commu- nication is to create a specific Message that the Receiver will understand and share with others. Examples of external communications include the following:

Press Releases

Public relations professionals create external communications about a client’s product, services or practices for specific Receivers. These Receivers, it is hoped, will share the Message with others. In time, as the Message is passed along, it should appear to be independent of The Sender, creating the illusion of an independently generated consumer trend, public opinion, and so on.

The Message of a public relations effort may be b2b (business to business), b2c (business to con- sumer), or media related. The Message can take different forms. Press releases try to convey a news- worthy message, real or manufactured. It may be constructed like a news item, inviting editors or re- porters to reprint the Message in part, or as a whole, with or without acknowledgment of the Sender’s identity. Public relations campaigns create Messages over time, through contests, special events, trade shows, and media interviews in addition to press releases.

Ads

Advertising places external business Messages before target Receivers through media buys. A media buy is a fee that is paid to a television network, Web site, or magazine by an advertiser for an on-air, site, or publication ad. The fee is based on the perceived value of the audience who watches, reads, or frequents the space where the ad will appear.

In recent years, Receivers have begun to filter advertiser’s Messages, a phenomenon that is per- ceived to be the result of the large amount of ads the average person sees each day and a growing level of consumer wariness of paid Messaging. Advertisers, in turn, are trying to create alternative forms of advertising that Receivers won’t filter. The advertorial is one example of an external communication that combines the look of an article with the focused Message of an ad. Product placements in videos, movies, and games are other ways that advertisers strive to reach Receivers with commercial Messages.

Web Pages

A Web page’s external communication can combine elements of public relations, advertising, and edit- orial content, reaching Receivers on multiple levels and in multiple ways. Banner ads, blogs, and

322 PRINCIPLES OF MANAGEMENT

advertiser-driven “click-through” areas are just a few of the elements that allow a business to deliver a Message to a Receiver online. The perceived flexibility of online communications can impart a less formal (and, therefore, more believable) quality to an external communication. A Message relayed in a daily blog post will reach a Receiver differently than if it is delivered in an annual report, for example. The popularity and power of blogs is growing, with 11% of Fortune 500 companies having official blogs (up from 4% in 2005). In fact, blogs have become so important to some companies as Coca-Cola, Kodak, and Marriott that they have created official positions within their organizations titled “Chief Blogging Officer.”[46]

The “real-time” quality of Web communications may appeal to Receivers who might filter out a traditional ad and public relations message because of its “prefab” quality. Despite their “spontaneous” feel, many online pages can be revisited in perpetuity. For this reason, clear and accurate external com- munications are as vital for online use as they are in traditional media.

Customer Communications

Customer communications can include letters, catalogs, direct mail, e-mails, text messages, and tele- marketing messages. Some Receivers automatically filter bulk messages like these. Others will be re- ceptive. The key to a successful external communication to customers is to convey a business message in a personally compelling way—dramatic news, a money-saving coupon, and so forth.

K E Y T A K E A W A Y

Different communication channels are more or less effective at transmitting different kinds of information. Some types of communication are information rich while others are medium rich. In addition, communica- tions flow in different directions within organizations. A major internal communication channel is e-mail, which is convenient but needs to be handled carefuly. External communication channels include PR/press re- leases, ads, Web pages, and customer communications such as letters and catalogs.

E X E R C I S E S

1. How could you use your knowledge of communication richness to be more effective in your own communications?

2. What are the three biggest advantages and disadvantages you see regarding technology and communications?

3. Explain the difference between internal and external communications in an organization, giving examples of each.

CHAPTER 12 COMMUNICATION IN ORGANIZATIONS 323

FIGURE 12.20

Communication can be formal or informal as seen here.

© 2010 Jupiterimages Corporation

6. DEVELOPING YOUR PERSONAL COMMUNICATION SKILLS

L E A R N I N G O B J E C T I V E S

1. Learn how to improve your own listening habits. 2. Learn how to handle personal communications in a career-friendly manner. 3. Learn what communication freezers are and how to avoid them.

By being sensitive to the errors outlined in this chapter and adopting active listening skills, you may in- crease your communication effectiveness, increasing your ability to carry out the managerial functions of planning, organizing, leading, and controlling. The following are additional tools for helping you in- crease your communication effectiveness.

Ten Ways to Improve Your Listening Habits

1. Start by stopping. Take a moment to inhale and exhale quietly before you begin to listen. Your job as a listener is to receive information openly and accurately.

2. Don’t worry about what you’ll say when the time comes. Silence can be a beautiful thing. 3. Join the Sender’s team. When she pauses, summarize what you believe she has said. “What I’m hearing

is that we need to focus on marketing as well as sales. Is that correct?” Be attentive to physical as well as verbal communications. “I hear you saying that we should focus on marketing. But the way you’re shaking your head tells me the idea may not really appeal to you—is that right?”

4. Don’t multitask while listening. Listening is a full-time job. It’s tempting to multitask when you and the Sender are in different places, but doing that is counterproductive. The human mind can only focus on one thing at a time. Listening with only half your brain increases the chances that you’ll have questions later, requiring more of the Speaker’s time. (And when the speaker is in the same room, multitasking signals a disinterest that is considered rude.)

5. Try to empathize with the Sender’s point of view. You don’t have to agree; but can you find common ground?

6. Confused? Ask questions. There’s nothing wrong with admitting you haven’t understood the Sender’s point. You may even help the Sender clarify the Message.

7. Establish eye contact. Making eye contact with the speaker (if appropriate for the culture) is important. 8. What is the goal of this communication? Ask yourself this question at different points during the

communication to keep the information flow on track. Be polite. Differences in opinion can be the starting point of consensus.

9. It’s great to be surprised. Listen with an open mind, not just for what you want to hear. 10. Pay attention to what is not said. Does the Sender’s body language seem to contradict her Message? If

so, clarification may be in order.

Adapted from information in Barrett, D. J. (2006). Leadership communication. New York: McGraw-Hill/Irwin; Improving verbal skills. Retrieved July 2, 2008, from http://www.itstime.com/aug97.htm; Ten tips: Active Listening from Communication at work. (2007, June 4). Retrieved July 2, 2008, from http://communication.atwork-network.com/2007/06/04/ten-tips-active-listening.

6.1 Career-Friendly Communications Communication can occur without your even realizing it. Consider the following: Is your e-mail name professional? The typical convention for business e-mail contains some form of your name. While an e-mail name like “LazyGirl” or “DeathMonkey” may be fine for chatting online with your friends, they may send the wrong signal to individuals you e-mail such as professors and prospective employers.

< Is your outgoing voice mail greeting professional? If not, change it. Faculty and prospective recruiters will draw certain conclusions if, upon calling you, they hear a message that screams, “Party, party, party!”

324 PRINCIPLES OF MANAGEMENT

< Do you have a “private” social networking Web site on MySpace.com, Facebook.com, or Xanga.com? If so, consider what it says about you to employers or clients. If it is information you wouldn’t share at work, it probably shouldn’t be there.

< Googled yourself lately? If not, you probably should. Potential employers have begun searching the Web as part of background checking and you should be aware of what’s out there about you.

6.2 Communication Freezers Communication freezers put an end to effective communication by making the Receiver feel judged or defensive. Typical communication stoppers include critizing, blaming, ordering, judging, or shaming the other person. The following are some examples of things to avoid saying:[47]

1. Telling people what to do: < “You must…” < “You cannot…”

2. Threatening with “or else” implied: < “You had better…” < “If you don’t…”

3. Making suggestions or telling other people what they ought to do: < “You should…” < “It’s your responsibility to…”

4. Attempting to educate the other person: < “Let me give you the facts.” < “Experience tells us that…”

5. Judging the other person negatively: < “You’re not thinking straight.” < “You’re wrong.”

6. Giving insincere praise: < “You have so much potential.” < “I know you can do better than this.”

7. Psychoanalyzing the other person: < “You’re jealous.” < “You have problems with authority.”

8. Making light of the other person’s problems by generalizing: < “Things will get better.” < “Behind every cloud is a silver lining.”

9. Asking excessive or inappropriate questions: < “Why did you do that?” < “Who has influenced you?”

10. Making light of the problem by kidding: < “Think about the positive side.” < “You think you’ve got problems!”

K E Y T A K E A W A Y

By practicing the skills associated with active listening, you can become more effective in your personal and professional relationships. Managing your online communications appropriately can also help you avoid ca- reer pitfalls. Finally, be aware of the types of remarks that freeze communication and try not to use them.

CHAPTER 12 COMMUNICATION IN ORGANIZATIONS 325

E X E R C I S E S

1. How can you assess if you are engaging in active listening?

2. How does it feel when someone does not seem to be listening to you?

3. Some companies have MySpace pages where employees can mingle and share ideas and information. Do you think this practice is a good idea? Why or why not?

4. What advice would you give to someone who is going to become a first time manager in terms of communication?

326 PRINCIPLES OF MANAGEMENT

1.

2.

3.

4.

5.

6.

7.

8.

9.

10. 11.

12.

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22. 23.

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31. 32.

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36. 37.

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328 PRINCIPLES OF MANAGEMENT