Basic Elements of Individual Behavior in Organizations Chapter 9

·
Chapter Introduction

· 9-1

Understanding Individuals in Organizations

· 9-1a

The Psychological Contract

· 9-1b

The Person–Job Fit

· 9-1c

The Nature of Individual Differences

· 9-2

Personality and Individual Behavior

· 9-2a

The “Big Five” Personality Traits

· 9-2b

The Myers–Briggs Framework

· 9-2c

Other Personality Traits at Work

· 9-2d

Emotional Intelligence

· 9-3

Attitudes and Individual Behavior

· 9-3a

Work-Related Attitudes

· 9-3b

Affect and Mood in Organizations

· 9-4

Perception and Individual Behavior

· 9-4a

Basic Perceptual Processes

· 9-4b

Perception and Attribution

· 9-5

Stress and Individual Behavior

· 9-5a

Causes and Consequences of Stress

· 9-5b

Managing Stress

· 9-6

Creativity in Organizations

· 9-6a

The Creative Individual

· 9-6b

The Creative Process

· 9-6c

Enhancing Creativity in Organizations

· 9-7

Types of Workplace Behavior

· 9-7a

Performance Behaviors

· 9-7b

Withdrawal Behaviors

· 9-7c

Organizational Citizenship

· 9-7d

Dysfunctional Behaviors

·
Chapter Review

·
Summary of Learning Outcomes and Key Points

·
Discussion Questions

·
Experiential Exercise

·
Building Effective Time Management Skills

·
Management at Work

·
You Make the Call: Engaging with the Company Garbage

Chapter Introduction

Learning Outcomes

After studying this chapter, you should be able to:

· 1Explain the nature of the individual–organization relationship.

· 2Define personality and describe personality attributes that affect behavior in organizations.

· 3Discuss individual attitudes in organizations and how they affect behavior.

· 4Describe basic perceptual processes and the role of attributions in organizations.

· 5Discuss the causes and consequences of stress, and describe how it can be managed.

· 6Describe creativity and its role in organizations.

· 7Explain how workplace behaviors can directly or indirectly influence organizational effectiveness.

Management in Action

Engaging with the Company Garbage

“Once you’ve seen your garbage up close, it’s hard to ignore it.”

—Sustainability consultant Shira E. Norman

In order to demonstrate the impact of waste to employees, Burt’s Bee, a maker of natural personal-care products, launched an unusual campaign. For two weeks members of its green team sifted through company garbage and piled it all in the parking lot for everyone to see. The piles of garbage provided a vivid illustration of how much waste the company and its employees were generating. Especially dramatic was seeing how much of the garbage consisted of recyclable material.

Larry Powell/ Shutterstock.com

A few years ago Burt’s Bees, a maker of natural personal-care products, found to its dismay that it was creating 40 tons of waste every month. Two years later, the company had reduced that amount to 10 tons through a rigorous program of recycling and compositing. It was a start, but at that point, reports CEO John Replogle, “we were stuck and needed to reinvigorate the effort again.” The company’s green team—a group of volunteer employees who oversee efforts to improve the workplace environment—came up with an employee-oriented trash-appreciation exercise. They stockpiled two weeks’ worth of company garbage and dumped it in the parking lot. More than 300 employees then donned hazmat suits and waded through the refuse heap to find everything that should have been recycled and everything that could be recycled if there were someplace to send it.

As a result, Burt’s was able to cut waste in half and save $25,000 a year in hauling expenses. “We found money in the dumpster,” says Replogle. “We’ve turned our waste stream from a cost center into a profit center.” More importantly, adds Replogle, “seeing all that trash in the parking lot translated into a collective ‘aha moment,’ and we all realized we could do a better job at recycling.” In the wake of the dumpster-diving exercise, employee-recycling compliance jumped from 80 percent to 98 percent. “Now,” reports Replogle, “we have a shared ethos of taking responsibility.”

Burt’s isn’t the only company that’s turned dumpster diving into business as usual. Bentley Prince Street, a commercial carpet maker, has been plumbing its garbage on a monthly basis for more than 15 years. Department-based teams of 20 employees sift through the trash for about 15 minutes looking for recyclable or reusable items. So far, the company has not only saved $50,000 a year in waste hauling but also earns about $150,000 annually from the sales of recyclables to companies that have commercial uses for them.

“The monetary savings,” says sustainability director Judy Pike, “are an important aspect of our program, but equally important is. … educating our employees about recycling and sustainability.” Bentley Prince Street coordinates its employee sustainability efforts through its QUEST initiative (for Quality Utilizing Employee Suggestions and Teamwork), a program through which employee teams determine ways of eliminating waste. Since 1996, QUEST has reduced the firm’s water intake by 52 percent, its energy use by 40 percent, its greenhouse emissions by 48 percent, and its waste sent to landfill by 97 percent.

The sustainability success of companies like Burt’s Bees and Bentley Prince Street isn’t entirely surprising to Hunter Lovins, president of Natural Capital Solutions, a nonprofit specializing in innovations in environmental practices and economic sustainability. “Let’s track the logic,” she suggests: “Taking care of your workforce, particularly by engaging them in implementing a corporate commitment to sustainability, will drive greater productivity and thus greater profitability.”

Lovins’s logic tracks as follows. She starts from the premise that satisfied employees are more productive employees, citing studies reporting that unsatisfied workers currently cost the U.S. economy $300 billion per year. Lovins then proceeds to argue that the most satisfied employees are those who are given the opportunity to “make progress in meaningful work.” What constitutes “meaningful work”? For that matter, what constitutes “progress”? Lovins suggests that a good measure of both is the extent to which employees put forth discretionary effort—the level above minimum requirements that people could put forth if they wanted to. “People who believe their jobs are meaningful,” says Lovins, “channel their discretionary effort into their work,” such as volunteering to dive into dumpsters or serve on waste-elimination teams.

Lovins also believes that work that involves employees in companywide sustainability efforts is “meaningful” to a lot of Americans. “The American workforce,” she contends,

no longer views work solely as a means to a paycheck. To many people, especially the younger generation, their job is an integral part of their lifestyle.… Ninety-two percent of Millennials say that they want to work for a socially responsible company.… [one] study.… found that 96 percent of Generation Y respondents are highly concerned about the environment and expect that employers will take steps towards becoming more sustainable.

More and more of these people may be able to find the kind of “meaningful” jobs they want because more and more employers are integrating sustainability programs into their overall business strategies. For many of them, the key to success in the initiative is aligning sustainability goals with broader business goals.

As Burt’s Bees puts it, “sustainability is built into our business because it’s so good for our business.… Our sustainability journey has helped to power our growth into a household brand.” A recent Gallup survey reported that highly “engaged organizations” returned 3.9 times the earnings-per-share growth rate of companies that rated low on engagement. A year later, a survey by Hewitt and Associates, a global human resources consulting firm, found that companies with high levels of employee engagement boasted shareholder return 19 percent above average, while those with lower levels were 44 percent below average. The same study identified social and environmental responsibility as a key factor in driving employee engagement.

How do companies foster employee engagement, particularly when it comes to sustainability programs? First of all, it helps to be genuinely committed to sustainability. A study of employees in the food-processing industry found that “employees’ level of organizational commitment is influenced by their perception of their firm’s environmental sustainability.” More specifically, says Suzanne Tilleman of the University of Montana, engagement is higher when a company turns out a high percentage of organic products and exhibits a collectivistic identity orientation—that is, emphasizes companywide contributions to a greater good.

Secondly, organizational commitment is greater when a company fosters a combination of top-down leadership and bottom-up empowerment in its sustainability practices. At Burt’s Bees, for example, if a department fails to pass certain tests for proper recycling, chronic abusers must go through remedial training with the CEO himself. “I’ll sit with them and pick through the trash to teach them where everything needs to go,” says John Replogle. “It’s important because my bonus is tied to [our goal of zero waste], and so is everyone else’s.” Obviously, Replogle and his management also set such strategic goals as making Burt’s Bees a zero-waste company by 2020.

At the same time, the company depends on frontline employees for such ideas as cleaning industrial containers with steam rather than water—an insight that cut water usage for the task by 90 percent. In return, in addition to bonuses tied to companywide sustainability performance, employees receive such “Eco-benefits” as cash compensation for biking or carpooling to work and buying high-efficiency or hybrid vehicles. Then, of course, there are those paid days for volunteering for activities like dumpster diving. Such activities, says Harvard’s Bobbi Thomasin, “are smart initiatives for showing your people that sustainability is truly important to the organization’s central mission.” Besides, adds sustainability consultant Shira E. Norman, “once you’ve seen your garbage up close, it’s hard to ignore it.” 

The relationships between people and their employers are growing increasingly complex. Many employees, like those who work at Burt’s Bees, are engaged with their work and have relatively healthy and constructive relationships with their organization and other employees in that organization. But there are many other people who reflect different profiles—they come to work and go through the motions without ever really doing more than what is necessary. Indeed, myriad different and unique characteristics reside in each and every employee (and employer). These affect how they feel about the organization, how they will alter their future attitudes about the firm, and how they perform their jobs. These characteristics reflect the basic elements of individual behavior in organizations.

This chapter describes several of these basic elements and is the first of five chapters designed to develop a more complete perspective on the leading function of management. In the first section, we investigate the psychological nature of individuals in organizations. The following section introduces the concept of personality and discusses several important personality attributes that can influence behavior in organizations. We then examine individual attitudes and their role in organizations. The role of stress in the workplace is then discussed, followed by a discussion of individual creativity. Finally, we describe a number of basic individual behaviors that are important to organizations.

Understanding Individuals in Organizations

A good starting point in understanding human behavior in the workplace is to develop a perspective on the basic nature of the relationship between individuals and organizations. The psychological contract and person–job fit help provide this perspective. It is also useful to gain an appreciation of the nature of individual differences.

9-1aThe Psychological Contract

Most people have a basic understanding of a contract. Whenever we buy a house or sell a car, for example, both buyer and seller sign a contract that specifies the terms of the agreement. A psychological contract is similar in some ways to a standard legal contract but is less formal and well defined. In particular, a 
psychological contract
 is the overall set of expectations held by an individual with respect to what he or she will contribute to the organization and what the organization will provide in return. Thus, a psychological contract is not written on paper, nor are all its terms explicitly negotiated.

A psychological contract refers to the expectations held by an individual regarding what she or he will contribute to the organization and what the organization will provide in return. This manager and subordinate are reviewing the subordinate’s goals for the upcoming year and what rewards are most likely to be provided if those goals are met. These agreements are a part of the psychological contract.

Adam Gregor/ Shutterstock.com

The essential nature of a psychological contract is illustrated in Figure 9.1. The individual makes a variety of 
contributions
 to the organization—effort, skills, ability, time, loyalty, and so forth. These contributions presumably satisfy various needs and requirements of the organization. In other words, because the organization may have hired the person because of her skills, it is reasonable for the organization to expect that she will subsequently display and use those skills in the performance of her job.

Figure 9.1The Psychological Contract

Psychological contracts are the basic assumptions that individuals have about their relationships with their organization. Such contracts are defined in terms of contributions by the individual relative to inducements from the organization.

In return for these contributions, the organization provides 
inducements
 to the individual. Some inducements, like pay and benefits, are tangible rewards. Others, like job security and recognition, are more intangible. Just as the contributions available from the individual must satisfy the needs of the organization, the inducements offered by the organization must serve the needs of the individual. So, if a person accepts employment with an organization because she thinks she will earn an attractive salary and have an opportunity to advance, she will subsequently expect that those rewards will actually be forthcoming.

If both the individual and the organization perceive that the psychological contract is fair and equitable, they will be satisfied with the relationship and will likely continue it. On the other hand, if either party sees an imbalance or inequity in the contract, it may initiate a change. For example, suppose the manager who hires a new employee suggests that if he works hard and does a good job he can reasonably expect to get a promotion and pay raise in a year. If a year passes and nothing happens, the employee might start to feel that the contract has been violated and, in response, formally request a pay raise and promotion, start to decrease his contributed effort, or look for a better job elsewhere. Similarly, if the organization feels that the new employee isn’t performing at the level expected it might request that the individual improve his skills through training, transfer the person to another job, or terminate the person’s employment altogether.

A basic challenge faced by the organization, then, is to manage psychological contracts. The organization must ensure that it is getting value from its employees. At the same time, it must be sure that it is providing employees with appropriate inducements. If the organization is underpaying its employees for their contributions, for example, they may perform poorly or leave for better jobs elsewhere. On the other hand, if they are being overpaid relative to their contributions, the organization is incurring unnecessary costs.

9-1bThe Person–Job Fit

One important element of managing psychological contracts is managing the 
person–job fit
—the extent to which the contributions made by the individual match the inducements offered by the organization. In theory, each employee has a specific set of needs that she wants to be fulfilled and a set of job-related behaviors and abilities to contribute. Thus, if the organization can take perfect advantage of those behaviors and abilities and exactly fulfill his needs, it will have achieved a perfect person–job fit.

Person–job fit is the extent to which the contributions made by an individual match the inducements offered by the organization. This utility workers is trimming tree branches so they won’t interfere with electrical power lines. Some people would find a job such as this interesting and rewarding, while others would be uncomfortable working under these conditions. These feelings contribute to person–job fit.

Randy Miramontez/ Shutterstock.com

Of course, such a precise level of person–job fit is seldom achieved. There are several reasons for this. For one thing, organizational selection procedures are imperfect. Organizations can make approximations of employee skill levels when making hiring decisions and can improve them through training. But even simple performance dimensions are often hard to measure in objective and valid ways.

Another reason for imprecise person–job fits is that both people and organizations change. An individual who finds a new job stimulating and exciting may find the same job boring and monotonous after a few years of performing it. And, when the organization adopts new technology, it has changed the skills it needs from its employees. Still another reason for imprecision in the person–job fit is that each individual is unique. Measuring skills and performance is difficult enough. Assessing needs, attitudes, and personality is far more complex. Each of these individual differences serves to make matching individuals with jobs a difficult and complex process.

Person–job fit may change for a variety of reasons. For example, people change over time, as do jobs. New technology can also affect person–job fit. This manager, for example, is trying to master a new operating system his firm has adopted and is having trouble understanding it. While his confusion may be short-lived, more significant technological changes can lead to major problems with person–job fit.

iStock.com/Kalulu

9-1cThe Nature of Individual Differences

Individual differences
 are personal attributes that vary from one person to another. Individual differences may be physical, psychological, or emotional. Taken together, all the individual differences that characterize any specific person serve to make that individual unique from everyone else. Much of the remainder of this chapter is devoted to individual differences. Before proceeding, however, we must also note the importance of the situation in assessing the behavior of individuals.

Are specific differences that characterize a given individual good or bad? Do they contribute to or detract from performance? The answer, of course, is that it depends on the circumstances. One person may be very dissatisfied, withdrawn, and negative in one job setting but very satisfied, outgoing, and positive in another. Working conditions, coworkers, and leadership are all important factors.

Thus, whenever an organization attempts to assess or account for individual differences among its employees, it must also be sure to consider the situation in which behavior occurs. Individuals who are satisfied or productive workers in one context may prove to be dissatisfied or unproductive workers in another context. Attempting to consider both individual differences and contributions in relation to inducements and contexts, then, is a major challenge for organizations as they attempt to establish effective psychological contracts with their employees and achieve optimal fits between people and jobs.

9-2Personality and Individual Behavior

Personality traits represent some of the most fundamental individual differences in organizations. 
Personality
 is the relatively stable set of psychological and behavioral attributes that distinguish one person from another. Managers should strive to understand basic personality attributes and the ways they can affect people’s behavior in organizational situations, not to mention their perceptions of and attitudes toward the organization.

Agreeableness—a person’s ability to get along with others–is one of the “Big Five” personality traits. This man would appear to be very agreeable, given his happy and positive display of emotions.

Pressmaster/ Shutterstock.com

9-2aThe “Big Five” Personality Traits

Psychologists have identified literally thousands of personality traits and dimensions that differentiate one person from another. But, in recent years, researchers have identified five fundamental personality traits that are especially relevant to organizations. Because these five traits are so important and because they have been the focus of a lot of research specific to work settings, they are now commonly referred to as the 
“Big Five” personality traits
, which are illustrated in Figure 9.2.

Figure 9.2The “Big Five” Model of Personality

The Big Five personality model represents an increasingly accepted framework for understanding personality traits in organizational settings. In general, experts tend to agree that personality traits toward the left end of each dimension, as illustrated in this figure, are more positive in organizational settings, whereas traits closer to the right are less positive.

Agreeableness
 refers to a person’s ability to get along with others. A high level of agreeableness in people causes them to be relatively gentle, cooperative, forgiving, understanding, and good-natured in their dealings with others. Those with lower agreeableness can be relatively more irritable, short-tempered, uncooperative, and generally antagonistic toward other people.

Although research has not yet fully investigated the effects of agreeableness, it would seem likely that highly agreeable people will be better able to develop good working relationships with coworkers, subordinates, and higher-level managers than less agreeable people. This same pattern might also extend to relationships with customers, suppliers, and other key organizational constituents.

Conscientiousness refers to the person’s ability to manage multiple tasks and to consistently meet deadlines. People who have higher levels of conscientiousness are likely to be more organized, systematic, careful, thorough, responsible, and self-disciplined as they work to accomplish tasks and meet goals. Others, however, tend to take on more tasks than they can manage and, as a result, are somewhat more disorganized, careless, and irresponsible, as well as less thorough and self-disciplined. Research has found that more conscientious people tend to be higher performers than less conscientious people across a variety of different jobs. This pattern seems logical, of course, because more conscientious people will take their jobs seriously and will approach the performance of their jobs in highly responsible fashions.

The third of the Big Five personality dimensions is 
neuroticism
. People who are relatively less neurotic will be relatively poised, calm, resilient, and secure and experience less anxiety and stress. But people who are relatively more neurotic will be more excitable, insecure, reactive, and subject to extreme mood swings. They are also prone to be anxious and exhibit signs of vulnerability. People who are less neurotic might be expected to better handle job stress, pressure, and tension. Their stability might also lead them to be seen as more reliable than their less stable counterparts.

Extraversion
 refers to a person’s comfort level with relationships. People who are called extraverts are somewhat more sociable, talkative, assertive, and open to establishing new relationships. But introverts are somewhat less sociable, talkative, assertive, and open to establishing new relationships. Research suggests that extraverts tend to be higher overall job performers than introverts and that they are also more likely to be attracted to jobs based on personal relationships, such as sales and marketing positions. Introverts, on the other hand, may perform better on tasks that are not relationship dependent.

Finally, 
openness
 refers to a person’s rigidity of beliefs and range of interests. People with higher levels of openness are willing to listen to new ideas and to change their own ideas, beliefs, and attitudes as a result of new information. They also tend to have a wider range of interests and to be curious, imaginative, and creative. On the other hand, people with lower levels of openness tend to be less receptive to new ideas and be less willing to change their minds. Further, they tend to have fewer and narrower interests and to be less curious and creative. People with more openness might be expected to be better performers, owing to their flexibility and the likelihood that they will be better accepted by others in the organization. Openness may also encompass an individual’s willingness to accept change. For example, people with high levels of openness may be more receptive to change, whereas people with low levels of openness may be more likely to resist change.

The Big Five framework continues to attract the attention of both researchers and managers. The potential value of this framework is that it encompasses an integrated set of traits that appear to be valid predictors of certain behaviors in certain situations. Thus managers who can develop both an understanding of the framework and the ability to assess these traits in their employees will be in a good position to understand how and why employees behave as they do. On the other hand, managers must also be careful not to overestimate their ability to assess the Big Five traits in others. Even assessments using the most rigorous and valid measures, for instance, are still likely to be somewhat imprecise. Another limitation of the Big Five framework is that it is based primarily on research conducted in the United States. As a result, there are unanswered questions as to how accurately it applies to workers in other cultures. And, even within the United States, a variety of other factors and traits are also likely to affect behavior in organizations.

9-2bThe Myers–Briggs Framework

Another interesting approach to understanding personalities in organizations is the Myers–Briggs framework. This framework, based on the classic work of Carl Jung, differentiates people in terms of four general dimensions. These are defined as follows:

· Extraversion (E) versus introversion (I). Extraverts get their energy from being around other people, whereas introverts are worn out by others and need solitude to recharge their energy.

· Sensing (S) versus intuition (N). The sensing type prefers concrete things, whereas intuitives prefer abstract concepts.

· Thinking (T) versus feeling (F). Thinking individuals base their decisions more on logic and reason, whereas feeling individuals base their decisions more on feelings and emotions.

· Judging (J) versus perceiving (P). People who are the judging type enjoy completion or being finished, whereas perceiving types enjoy the process and open-ended situations.

To use this framework, people complete an assessment questionnaire designed to measure their personality on each dimension. Higher or lower scores in each of the dimensions are used to classify people into 1 of 16 different personality categories.

The Myers–Briggs Type Indicator (MBTI) is one popular questionnaire that some organizations use to assess personality types. Indeed, it is among the most popular selection instruments used today, with approximately 2 million people taking it each year. Research suggests that the MBTI is a useful method for determining communication styles and interaction preferences. In terms of personality attributes, however, questions exist about the validity and the reliability of the MBTI.

9-2cOther Personality Traits at Work

Besides the Big Five and the Myers–Briggs framework, there are several other personality traits that influence behavior in organizations. Among the most important are locus of control, self-efficacy, authoritarianism, Machiavellianism, self-esteem, and risk propensity.

Locus of control
 is the extent to which people believe that their behavior has a real effect on what happens to them. Some people, for example, believe that, if they work hard, they will achieve their goals. They also may believe that people who fail do so because they lack ability or motivation. People who believe that individuals are in control of their lives are said to have an internal locus of control. Other people think that fate, chance, luck, or other people’s behavior determines what happens to them. For example, an employee who fails to get a pay raise may attribute that failure to a politically motivated boss or just bad luck, rather than to his or her own lack of skills or poor performance record. People who think that forces beyond their control dictate what happens to them are said to have an external locus of control.

Self-efficacy
 is a related but subtly different personality characteristic. It refers to a person’s beliefs about his or her capabilities to perform a task. People with high self-efficacy believe that they can perform well on a specific task, whereas people with low self-efficacy tend to doubt their ability to perform a specific task. Although self-assessments of ability contribute to self-efficacy, so, too, does the individual’s personality. Some people simply have more self-confidence than do others. This belief in their ability to perform a task effectively results in their being more self-assured and more able to focus their attention on performance.

Another important personality characteristic is 
authoritarianism
, the extent to which an individual believes that power and status differences are appropriate within hierarchical social systems like organizations. For example, a person who is highly authoritarian may accept directives or orders from someone with more authority purely because the other person is “the boss.” On the other hand, although a person who is not highly authoritarian may still carry out appropriate and reasonable directives from the boss, he or she is also more likely to question things, express disagreement with the boss, and even refuse to carry out orders if they are for some reason objectionable. A highly authoritarian manager may be autocratic and demanding, and highly authoritarian subordinates will be more likely to accept this behavior from their leader. On the other hand, a less authoritarian manager may allow subordinates a bigger role in making decisions, and less authoritarian subordinates will respond positively to this behavior.

This employee is explaining to his boss why he deserves a promotion. His high level of self-efficacy is serving him well in this conversation because he is able to highlight his strengths and point to his positive contributions to the latest project.

Pressmaster/ Shutterstock.com

Machiavellianism
 is another personality trait that affects behavior in organizations. This concept is named after Niccolò Machiavelli, a sixteenth-century Italian political philosopher. In his book entitled The Prince, Machiavelli explained how the nobility could more easily gain and use power. Machiavellianism is now used to describe behavior directed at gaining power and controlling the behavior of others. Research suggests that Machiavellianism is a personality trait that varies from person to person. More Machiavellian individuals tend to be rational and nonemotional, may be willing to lie to attain their personal goals, may put little weight on loyalty and friendship, and may enjoy manipulating others’ behavior. Less Machiavellian individuals are more emotional, are less willing to lie to succeed, value loyalty and friendship highly, and get little personal pleasure from manipulating others.

Self-esteem
 is the extent to which a person believes that she is a worthwhile and deserving individual. A person with high self-esteem is more likely to seek high-status jobs, be more confident in her ability to achieve higher levels of performance, and derive greater intrinsic satisfaction from her accomplishments. In contrast, a person with less self-esteem may be more content to remain in a lower-level job, be less confident of his ability, and focus more on extrinsic rewards. Among the major personality dimensions, self-esteem is the one that has been most widely studied in other countries. Although more research is clearly needed, the published evidence suggests that self-esteem as a personality trait does indeed exist in a variety of countries and that its role in organizations is reasonably important across different cultures.

Risk propensity
 is the degree to which an individual is willing to take chances and make risky decisions. A manager with a high risk propensity, for example, might be expected to experiment with new ideas and gamble on new products. She might also lead the organization in new and different directions. This manager might also be a catalyst for innovation. On the other hand, the same individual might also jeopardize the continued well-being of the organization if the risky decisions prove to be bad ones. A manager with low risk propensity might lead to a stagnant and overly conservative organization or help the organization successfully weather turbulent and unpredictable times by maintaining stability and calm. Thus the potential consequences of risk propensity to an organization are heavily dependent on that organization’s environment.

9-2dEmotional Intelligence

The concept of 
emotional intelligence (EQ)
 has become popular in recent years and provides some interesting insights into personality. EQ refers to the extent to which people are self-aware, manage their emotions effectively, motivate themselves, express appropriate empathy for others, and possess social skills. These various dimensions can be described as follows:

· Self-awareness. This is the basis for the other components. It refers to a person’s capacity for being aware of how they are feeling. In general, more self-awareness allows people to more effectively guide their own lives and behaviors.

· Managing emotions. This refers to a person’s capacities to balance anxiety, fear, and anger so that they do not overly interfere with getting things accomplished.

· Motivating oneself. This refers to a person’s ability to remain optimistic and to continue striving in the face of setbacks, barriers, and failure.

· Empathy. This refers to a person’s ability to understand how others are feeling, even without being explicitly told.

· Social skill. This refers to a person’s ability to get along with others and to establish positive relationships.

Preliminary research suggests that people with high EQs may perform better than others, especially in jobs that require a high degree of interpersonal interaction and that involve influencing or directing the work of others. Moreover, EQ appears to be something that is not biologically based but can be developed with proper training and education.

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9-3Attitudes and Individual Behavior

Another important element of individual behavior in organizations is 
attitudes
—complexes of beliefs and feelings that people have about specific ideas, situations, or other people. Attitudes are important because they are the mechanism through which most people express their feelings. An employee’s statement that he feels underpaid by the organization reflects his feelings about his pay. Similarly, when a manager says that she likes the new advertising campaign, she is expressing her feelings about the organization’s marketing efforts.

Attitudes are complexes of beliefs and feelings that people have about specific ideas, situations, or people. This woman has just had a damaged package delivered to her door. She is unhappy with the delivery company for damaging the package and is expressing her feelings to the delivery company representative. She most likely now has a negative attitude toward this delivery company.

Andrey_Popov/ Shutterstock.com

Attitudes generally have three components. The affective component of an attitude reflects feelings and emotions an individual has toward a situation. The cognitive component is derived from knowledge an individual has about a situation. It is important to note, however, that this knowledge may be incomplete or inaccurate and is subject to individual perceptions (something we discuss more fully later). Thus one person might “know” that a certain political candidate is better than another, whereas someone else might “know” just the opposite. Finally, the intentional component of an attitude reflects how an individual expects to behave toward or in the situation.

To illustrate these three components, consider the case of a manager who places an order for some supplies for his organization from a new office supply firm. Suppose many of the items he orders are out of stock, others are overpriced, and still others arrive damaged. When he calls someone at the supply firm for assistance, he is treated rudely and gets disconnected before his claim is resolved. When asked how he feels about the new office supply firm, he might respond, “I don’t like that company [affective component]. They are the worst office supply firm I’ve ever dealt with [cognitive component]. I’ll never do business with them again [intentional component].”

People try to maintain consistency among the three components of their attitudes as well as among all their attitudes. However, circumstances sometimes arise that lead to conflicts. The conflict individuals may experience among their own attitudes is called 
cognitive dissonance
. Say, for example, that an individual who has vowed never to work for a big, impersonal corporation intends instead to open her own business and be her own boss. Unfortunately, a series of financial setbacks leads her to have no choice but to take a job with a large company and work for someone else. Thus cognitive dissonance occurs: The affective and cognitive components of the individual’s attitude conflict with intended behavior. To reduce cognitive dissonance, which is usually an uncomfortable experience for most people, the individual might tell herself that the situation is only temporary and that she can go back out on her own in the near future. Or she might revise her cognitions and decide that working for a large company is more pleasant than she had expected.

9-3aWork-Related Attitudes

People in organizations form attitudes about many different things. For example, employees are likely to have attitudes about their salary, working conditions, promotion possibilities, their boss, employee benefits, the food in the company cafeteria, and the color of the company softball team uniforms. Of course, some of these attitudes are more important than others. Especially important attitudes are job satisfaction or dissatisfaction and organizational commitment.

Job Satisfaction or Dissatisfaction

Job satisfaction or dissatisfaction
 is an attitude that reflects the extent to which an individual is gratified by or fulfilled in his or her work. Extensive research conducted on job satisfaction has indicated that personal factors, such as an individual’s needs and aspirations, determine this attitude, along with group and organizational factors, such as relationships with coworkers and supervisors, working conditions, work policies, and compensation.

A satisfied employee also tends to be absent less often, to make positive contributions, and to stay with the organization. In contrast, a dissatisfied employee may be absent more often, may experience stress that disrupts coworkers, and may be continually looking for another job. Contrary to what many managers believe, however, high levels of job satisfaction do not always lead to higher levels of performance.

Organizational Commitment

Organizational commitment
 is an attitude that reflects an individual’s identification with and attachment to the organization itself. A person with a high level of commitment is likely to see herself as a true member of the organization (e.g., referring to the organization in personal terms like “We make high-quality products”), to overlook minor sources of dissatisfaction with the organization, and to see herself remaining a member of the organization. In contrast, a person with less organizational commitment is more likely to see himself as an outsider (e.g., referring to the organization in less personal terms like “They don’t pay their employees very well”), to express more dissatisfaction about things, and to not see himself as a long-term member of the organization. Although job satisfaction and organizational commitment would seem to be related (and are, in most instances), there are times when a person may be very satisfied with his job but less committed to his employer. For instance, NBA All-Star Kevin Durant was satisfied playing for the Oklahoma Thunder but still chose to leave his employer to join the Golden State Warriors. Likewise, there may be times when a person may be less satisfied with her job but remain highly committed to the organization itself.

Research also suggests that commitment strengthens with an individual’s age, years with the organization, sense of job security, and participation in decision making. Employees who feel committed to an organization have highly reliable habits, plan a long tenure with the organization, and muster more effort in performance. Although there are few definitive things that organizations can do to create or promote commitment, there are a few specific guidelines available. For one thing, if the organization treats its employees fairly and provides reasonable rewards and job security, those employees will more likely be satisfied and committed. Allowing employees to have a say in how things are done can also promote all three attitudes.

9-3bAffect and Mood in Organizations

Recent research findings have also focused new attention on the affective component of attitudes. Recall from our earlier discussion that the affective component of an attitude reflects our feelings and emotions. Although managers once believed that emotion and feelings varied among people from day to day, research now suggests that although some short-term fluctuation does indeed occur, there are also underlying stable predispositions toward fairly constant and predictable moods and emotional states.

Some people, for example, tend to have a higher degree of 
positive affectivity
, which means that they are relatively upbeat and optimistic, have an overall sense of well-being, and usually see things in a positive light. Thus they always seem to be in a good mood. It’s even been proposed that positive affectivity may also play a role in entrepreneurial success. Other people, those with more 
negative affectivity
, are just the opposite. They are generally downbeat and pessimistic, and they usually see things in a negative way. Thus they seem to be in a bad mood most of the time.

Of course, as noted above, there can be short-term variations among even the most extreme types. People with a lot of positive affectivity, for example, may still be in a bad mood if they have just received some bad news—such as being passed over for a promotion, getting extremely negative performance feedback, or being laid off or fired. Similarly, those with negative affectivity may still be in a good mood—at least for a short time—if they have just been promoted, have received very positive performance feedback, or had other good things befall them. After the initial impact of these events wears off, however, those with positive affectivity will generally return to their normal positive mood, whereas those with negative affectivity will gravitate back to their normal bad mood.

9-4Perception and Individual Behavior

As noted earlier, an important element of an attitude is the individual’s perception of the object about which the attitude is formed. Because perception also plays a role in a variety of other workplace behaviors, managers should have a general understanding of basic perceptual processes. The role of attributions is also important.

9-4aBasic Perceptual Processes

Perception
 is the set of processes by which an individual becomes aware of and interprets information about the environment. As shown in Figure 9.3, basic perceptual processes that are particularly relevant to organizations are selective perception and stereotyping.

Figure 9.3Perceptual Processes

Two of the most basic perceptual processes are selective perception and stereotyping. As shown here, selective perception occurs when we screen out information (represented by the–symbols) that causes us discomfort or that contradicts our beliefs. Stereotyping occurs when we categorize or label people on the basis of a single attribute, illustrated here by color.

Selective perception is the process of screening out information that we are uncomfortable with or that contradicts our beliefs. If this manager already has a negative opinion of this worker, he will now become even more negative. But if his assessment has been positive, he may overlook this current incident.

Big Cheese Photo LLC/Alamy Stock Photo

Selective Perception

Selective perception
 is the process of screening out information that we are uncomfortable with or that contradicts our beliefs. For example, suppose a manager is exceptionally fond of a particular worker. The manager has a very positive attitude about the worker and thinks he is a top performer. One day the manager notices that the worker seems to be goofing off. Selective perception may cause the manager to quickly forget what he observed. Similarly, suppose a manager has formed a very negative image of a particular worker. She thinks this worker is a poor performer and never does a good job. When she happens to observe an example of high performance from the worker, she may not remember it for very long. In one sense, selective perception is beneficial because it allows us to disregard minor bits of information. Of course, this holds true only if our basic perception is accurate. If selective perception causes us to ignore important information, however, it can become quite detrimental.

Stereotyping

Stereotyping
 is the process of categorizing or labeling people on the basis of a single attribute. Common attributes from which people often stereotype are race, gender, and age. Of course, stereotypes along these lines are inaccurate and can be harmful. For example, suppose a manager forms the stereotype that women can perform only certain tasks and that men are best suited for other tasks. To the extent that this affects the manager’s hiring practices, the manager is

· (1)

costing the organization valuable talent for both sets of jobs,

· (2)

violating federal law, and

· (3)

behaving unethically.

On the other hand, certain forms of stereotyping can be useful and efficient. Suppose, for example, that a manager believes that communication skills are important for a particular job and that speech communication majors tend to have exceptionally good communication skills. As a result, whenever he interviews candidates for jobs, he pays especially close attention to speech communication majors. To the extent that communication skills truly predict job performance and that majoring in speech communication does indeed provide those skills, this form of stereotyping can be efficient.

9-4bPerception and Attribution

Perception is also closely linked with another process called 
attribution
, which is a mechanism through which we observe behavior and then tend to attribute causes to it. The behavior that is observed may be our own or that of others. For example, suppose someone comes to realize that she is working fewer hours than before, that she talks less about her work, and that she calls in sick more frequently. She might conclude from this that she must have become disenchanted with her job and subsequently decide to quit. Thus she observed her own behavior, attributed a cause to it, and developed what she thought was a consistent response.

More common is attributing cause to the behavior of others. For example, if the manager of the individual described earlier has observed the same behavior, he might form exactly the same attribution. On the other hand, he might instead decide that she has a serious illness, that he is pushing her too hard, that she is experiencing too much stress, that she has a drug problem, or that she is having family problems.

The basic framework around which we form attributions is consensus (the extent to which other people in the same situation behave the same way), consistency (the extent to which the same person behaves in the same way at different times), and distinctiveness (the extent to which the same person behaves in the same way in other situations). For example, suppose a manager observes that an employee is late for a meeting. The manager might further realize that he is the only one who is late (low consensus), recall that he is often late for other meetings (high consistency), and subsequently realize that he is sometimes late for work and returning from lunch (low distinctiveness). This pattern of attributions might cause the manager to decide that the individual’s behavior is something that should be changed. As a result, the manager might meet with the subordinate and establish some punitive consequences for future tardiness.

9-5Stress and Individual Behavior

Another important element of behavior in organizations is 
stress
—an individual’s response to a strong stimulus called a stressor. Stress generally follows a cycle referred to as the 
General Adaptation Syndrome (GAS)

 shown in Figure 9.4. According to this view, when an individual first encounters a stressor, the GAS is initiated, and stage 1, alarm, is activated. He may feel panic, wonder how to cope, and feel helpless. For example, suppose a manager is told to prepare a detailed evaluation of a plan by his firm to buy one of its competitors by tomorrow. His first reaction may be “How will I ever get this done in 24 hours?”

Figure 9.4The General Adaptation Syndrome

The GAS represents the normal process by which we react to stressful events. At stage 1—alarm—we feel panic and alarm, and our level of resistance to stress drops. Stage 2—resistance—represents our efforts to confront and control the stressful circumstance. If we fail, we may eventually reach stage 3—exhaustion—and just give up or quit.

If the stressor is too intense, the individual may feel unable to cope and never really try to respond to its demands. In most cases, however, after a short period of alarm, the individual gathers some strength and starts to resist the negative effects of the stressor. For example, the manager with the evaluation to write may calm down, call home to say he is working late, roll up his sleeves, order out for coffee and a sandwich, and get to work. Thus, at stage 2 of the GAS, the person is resisting the effects of the stressor and trying to deal with it.

In many cases, the resistance phase may actually end the GAS. If the manager is able to complete the evaluation earlier than expected, he may drop it in his briefcase, smile to himself, and head home tired but satisfied. On the other hand, prolonged exposure to a stressor without resolution may bring on stage 3 of the GAS—exhaustion. At this stage, the individual literally gives up and can no longer resist the stressor. The manager, for example, might fall asleep at his desk at 3:00 a.m. and never finish the evaluation.

We should also note that stress is not all bad. In the absence of stress, we may experience lethargy and stagnation. An optimal level of stress, on the other hand, can result in motivation and excitement. Too much stress, though, can have negative consequences. It is also important to understand that stress can be caused by “good” as well as “bad” things. Excessive pressure, unreasonable demands on our time, and bad news can all cause stress. But even receiving a bonus and then having to decide what to do with the money can be stressful. So, too, can receiving a promotion, gaining recognition, and similar positive things.

Stress is a person’s response to a strong stimulus. This woman is behind on a major project (a strong stimulus). Her response (stress) is anxiety and worry over her ability to get the project completed.

2xSamara.com/ Shutterstock.com

One important line of thinking about stress focuses on 
Type A
 and 
Type B
 personalities. Type A individuals are extremely competitive, are very devoted to work, and have a strong sense of time urgency. They are likely to be aggressive, impatient, and very work oriented. They have a lot of drive and want to accomplish as much as possible as quickly as possible. Type B individuals are less competitive, are less devoted to work, and have a weaker sense of time urgency. Such individuals are less likely to experience conflict with other people and more likely to have a balanced, relaxed approach to life. They are able to work at a constant pace without time urgency. Type B people are not necessarily more or less successful than Type A people. But they are less likely to experience stress.

9-5aCauses and Consequences of Stress

Stress is obviously not a simple phenomenon. As listed in Figure 9.5, several different things can cause stress. Note that this list includes only work-related conditions. We should keep in mind that stress can also be the result of personal circumstances.

Figure 9.5Causes of Work Stress

There are several causes of work stress in organizations. Four general sets of organizational stressors are task demands, physical demands, role demands, and interpersonal demands.

Causes of Stress

Work-related stressors fall into one of four categories—task, physical, role, and interpersonal demands. Task demands are associated with the task itself. Some occupations are inherently more stressful than others. Having to make fast decisions, decisions with less than complete information, or decisions that have relatively serious consequences are some of the things that can make some jobs stressful. The jobs of brain surgeon, airline pilot, and stockbroker tend to be relatively more stressful than the jobs of general practitioner, baggage handler, and office receptionist. Although a general practitioner makes important decisions, she is also likely to have time to make a considered diagnosis and fully explore a number of different treatments. But, during brain surgery, the surgeon must make decisions quickly while realizing that the wrong one may endanger her patient’s life.

Physical demands are stressors associated with the job setting. Working outdoors in extremely hot or cold temperatures, or even in an improperly heated or cooled office, can lead to stress. Likewise, jobs that have rotating work shifts make it difficult for people to have stable sleep patterns. A poorly designed office, which makes it difficult for people to have privacy or promotes too little social interaction, can result in stress, as can poor lighting and inadequate work surfaces. Even more severe are actual threats to health. Examples are jobs such as coal mining, poultry processing, and toxic waste handling. Similarly, some jobs carry risks associated with higher incident rates of violence, such as those at risk of armed robberies including law enforcement officers, taxi drivers, and convenience store clerks.

Role demands can also cause stress. (Roles are discussed more fully in Chapter 13.) A role is a set of expected behaviors associated with a position in a group or organization. Stress can result from either role conflict or role ambiguity that people can experience in groups. For example, an employee who is feeling pressure from her boss to work longer hours or to travel more, while also being asked by her family for more time at home, will almost certainly experience stress as a result of role conflict. Similarly, a new employee experiencing role ambiguity because of poor orientation and training practices by the organization will also suffer from stress. Excessive meetings and mobile communication devices that keep people connected to their jobs are also potential sources of stress. Although the attention about job cuts and layoffs during economic downturns focus on the stress experienced by those losing their jobs (and appropriately so), it’s also the case that many of the managers imposing the layoffs also experience stress.

Interpersonal demands are stressors associated with relationships that confront people in organizations. For example, group pressures regarding restriction of output and norm conformity can lead to stress. Leadership styles may also cause stress. An employee who feels a strong need to participate in decision making may feel stress if his boss refuses to allow participation. And individuals with conflicting personalities may experience stress if required to work too closely together. For example, a person with an internal locus of control might be frustrated when working with someone who prefers to wait and just let things happen.

Consequences of Stress

As noted earlier, the results of stress may be positive or negative. The negative consequences may be behavioral, psychological, or medical. Behaviorally, for example, stress may lead to detrimental or harmful actions, such as smoking, alcohol or drug abuse, and overeating. Other stress-induced behaviors are accident proneness, violence toward self or others, and appetite disorders. Substance abuse is also a potential consequence.

As you can see from our “World of Difference” feature, stress can also result in psychological consequences. These can interfere with an individual’s mental health and well-being. Problems include sleep disturbances, depression, family problems, and sexual dysfunction. Managers are especially prone to sleep disturbances when they experience stress at work. Medical consequences of stress affect an individual’s physiological well-being. Heart disease and stroke have been linked to stress, as have headaches, backaches, ulcers and related disorders, and skin conditions such as acne and hives.

Individual stress also has direct consequences for businesses. For an operating employee, stress may translate into poor-quality work and lower productivity. For a manager, it may mean faulty decision making and disruptions in working relationships. Withdrawal behaviors can also result from stress. People who are having difficulties with stress in their jobs are more likely to call in sick or to leave their positions. More subtle forms of withdrawal may also occur. A manager may start missing deadlines, for example, or taking longer lunch breaks. Employees may also withdraw by developing feelings of indifference. The irritation displayed by people under great stress can make them difficult to get along with. Job satisfaction, morale, and commitment can all suffer as a result of excessive levels of stress. So, too, can motivation to perform.

A World of Difference

The Color of Stress

Audrey Murrell, an African-American woman, remembers subtle forms of discrimination when she was in school. White classmates, for example, excluded her from study groups and asserted an implicit privilege of using classroom materials before she was allowed a turn. “You’re left with this feeling of ‘Is it me or is it them?’” says Murrell. “You know it’s them, but it’s hard to prove because it’s not obvious discrimination.” As Murrell learned, however, it takes a toll nevertheless, particularly on the emotional, mental, and even physical health of the young people who suffer from it.

As associate professor of business administration and psychology at the University of Pittsburgh’s Joseph M. Katz Graduate School of Business, Murrell is also well aware that the same patterns of discrimination often follow African Americans from the classroom to the workplace. “It can lead to a lot of self-doubt and lack of confidence,” she says. “Then you’re likely to see withdrawal and detaching oneself from the job, which leads to internal bitterness and anger.… Bias and the way it affects our physical and emotional state has very real consequences.”

One of those consequences is stress. African Americans are at higher risk than whites for such conditions as cardiovascular disease and diabetes, and research suggests a connection between differences in the prevalence of such diseases and stress—particularly, stress resulting from racial discrimination. According to the American Psychological Association, perceived discrimination—the perception that one has experienced discrimination because of one’s race or ethnicity—contributes to high blood pressure and diabetes, such unhealthy behaviors as smoking and alcohol/substance abuse, and mental health disorders among African Americans and other minorities.

Specifically, perceived discrimination is a key factor in what’s known as chronic stress—that is, long-term stress that results from lingering feelings of despair or hopelessness. When it comes to the workplace, some researchers also distinguish between formal and interpersonal discrimination. According to Sabat, Lindsey, and King (2014), formal discrimination usually occurs as “formal job discrimination” against individuals in such HR processes as “selection, retention, promotion or termination.”

On the other hand, interpersonal discrimination occurs in situations that aren’t directly related to such “employment outcomes” as being hired or fired. Rather, it occurs in various interpersonal interactions that may be brief or infrequent. It runs the gamut from social distancing (e.g., declining to engage in conversation, ignoring requests for help) to outright threat or harassment. Sabat, Lindsey, and King found that “interpersonal discrimination can lead to high levels of workplace stress due to the fact that it is a more chronic and pervasive form of discrimination than formal discrimination.”

In short, racial discrimination and chronic stress go hand in hand. On top of everything else, the situation is even worse for women of color like Audrey Murrell and Philomena Essed, a social psychologist who introduced the concept of gendered racism to describe the form of double discrimination—”genderism” plus “racism”—faced by minority women not only in the workplace but in the basic activities of everyday life. Following up on Essed’s theory, one team of researchers concluded that “experiences associated with concurrent racism and sexism are substantial sources of stress [among minority women], increasing risk for psychological distress, disorder, and ultimately, thoughts of suicide.”

References: Michelle K. Massie, “The Stress of Workplace Discrimination,” http://career-advice.monster.com, accessed on March 10, 2017; American Psychological Association, “Fact Sheet: Disparities and Health,” www.apa.org, accessed on March 10, 2017; Isaac Sabat, Alex Lindsey, and Eden King, “Antecedents, Outcomes, Prevention and Coping Strategies for Lesbian, Gay, and Bisexual Stress,” The Role of Demographics in Occupational Stress and Well-Being, ed. Pamela L. Perrewé, Christopher C. Rosen, and Jonathon R. B. Halbesleben (Bingley, UK: Emerald Group, 2014), pp. 173–198; American Psychological Association, “Interpersonal Racism: Conceptualization,” Health Psychology, 2015, www.health-pysch.org, accessed on February 18, 2015; Brea L. Perry, Erin L. Pullen, and Carrie B. Oser, “Too Much of a Good Thing? Psychosocial Resources, Gendered Racism, and Suicidal Ideation among Low Socioeconomic Status African American Women,” Social Psychology Quarterly, 2012, Vol. 75, No. 4, pp. 334–359, www.asanet.org, accessed on March 10, 2017.

Another consequence of stress is 
burnout
—a feeling of exhaustion that may develop when someone experiences too much stress for an extended period of time. Burnout results in constant fatigue, frustration, and helplessness. Increased rigidity follows, as do a loss of self-confidence and psychological withdrawal. The individual dreads going to work, often puts in longer hours but gets less accomplished than before, and exhibits mental and physical exhaustion. Because of the damaging effects of burnout, some firms are taking steps to help avoid it. For example, British Airways provides all of its employees with training designed to help them recognize the symptoms of burnout and develop strategies for avoiding it.

9-5bManaging Stress

Given the potential consequences of stress, it follows that both people and organizations should be concerned about how to limit its more damaging effects. Numerous ideas and approaches have been developed to help manage stress. Some are strategies for individuals; others are strategies for organizations.

One way people manage stress is through exercise. People who exercise regularly feel less tension and stress, are more self-confident, and feel more optimistic. Their better physical condition also makes them less susceptible to many common illnesses. People who do not exercise regularly, on the other hand, tend to feel more stress and are more likely to be depressed. They are also more likely to have heart attacks. And, because of their physical condition, they are more likely to contract illnesses.

Another method people use to manage stress is relaxation. Relaxation allows individuals to adapt to, and therefore better deal with, their stress. Relaxation comes in many forms, such as taking regular vacations. A recent study found that people’s attitudes toward a variety of workplace characteristics improved significantly following a vacation. People can also learn to relax while on the job. For example, some experts recommend that people take regular rest breaks during their normal workday.

People can also use time management to control stress. The idea behind time management is that many daily pressures can be reduced or eliminated if individuals do a better job of managing time. One approach to time management is to make a list every morning of the things to be done that day. The items on the list are then grouped into three categories: critical activities that must be performed, important activities that should be performed, and optional or trivial things that can be delegated or postponed. The individual then performs the items on the list in their order of importance.

Finally, people can manage stress through support groups. A support group can be as simple as a group of family members or friends to enjoy leisure time with. Going out after work with a couple of coworkers to a basketball game or a movie, for example, can help relieve stress built up during the day. Family and friends can help people cope with stress on an ongoing basis and during times of crisis. For example, an employee who has just learned that she did not get the promotion she has been working toward for months may find it helpful to have a good friend to lean on, talk to, or vent to. People may also make use of more elaborate and formal support groups. Community centers or churches, for example, may sponsor support groups for people who have recently gone through a divorce, the death of a loved one, or some other tragedy.

Organizations are also beginning to realize that they should be involved in helping employees cope with stress. One argument for this is that because the business may be at least partially responsible for stress, it should also help relieve it. Another is that stress-related insurance claims by employees can cost the organization considerable sums of money. Still another is that workers experiencing lower levels of detrimental stress will be able to function more effectively. AT&T offers a series of seminars and workshops to help its employees cope with the stress they face in their jobs. The firm was prompted to develop these seminars for all three of the reasons noted above.

A wellness stress program is a special part of the organization specifically created to help deal with stress. Organizations have adopted stress management programs, health promotion programs, and other kinds of programs for this purpose. The AT&T seminar program noted earlier is similar to this idea, but true wellness programs are ongoing activities that have a number of different components. They commonly include exercise-related activities as well as classroom instruction programs dealing with smoking cessation, weight reduction, and general stress management.

Some companies are developing their own programs or using existing programs of this type. Apple and Google, for example, both provide gyms for their employees at most of their facilities. Other firms negotiate discounted health club membership rates with local establishments. For the instructional part of the program, the organization can again either sponsor its own training or perhaps jointly sponsor seminars with a local YMCA, civic organization, or church. Organization-based fitness programs facilitate employee exercise, a very positive consideration, but such programs are also quite costly. Still, more and more companies are developing fitness programs for employees. Similarly, some companies are offering their employees periodic sabbaticals—extended breaks from work that presumably allow people to get revitalized and reenergized. Intel and McDonald’s are among the firms offering the benefit.

9-6Creativity in Organizations

Creativity is yet another important component of individual behavior in organizations. 
Creativity
 is the ability of an individual to generate new ideas or to conceive of new perspectives on existing ideas. What makes a person creative? How do people become creative? How does the creative process work? Although experts can’t provide complete answers to these questions, examining a few general patterns can help us understand the general sources of individual creativity within organizations. “Tech Watch” will introduce some of these ideas for you.

Wolfgang Amadeus Mozart is acknowledged as one of the most creative musical composers of all time. He began composing at the age of five and could play both violin and keyboard. Both of his parents were musicians, and they both motivated him to work in the music field and provided a nurturing family to support his passion.

Everett Historical/ Shutterstock.com

Tech Watch

Picture a Better Mousetrap

Twenty-five-year-old Kevin Systrom had all the credentials for becoming a high-tech entrepreneur in Silicon Valley—a degree from Stanford, an internship at Twitter, and some job experience at Google. Foursquare, a mobile networking app that lets users keep friends posted on their whereabouts, had just launched, and Systrom decided that he could create a product to compete in the same lucrative space.

He called his app Burbn (he likes bourbon whiskey), which let users “check in” to locations, plan meetings with friends, post pictures, and earn points for hanging around in groups. He brought on a cofounder, a 25-year-old Brazilian-born engineer named Mike Krieger, and in March 2010, the partners set about finding enough money to take on Foursquare, which was already rumored to be worth $100–150 million despite boasting barely a million users. This step in the process, however, turned out to be more frustrating than Systrom and Krieger had bargained for. “Burbn was well liked and had a few passionate daily actives,” recalls Krieger, “but it wasn’t exactly setting the world on fire. Our attempts at explaining what we were building was often met with blank stares, and we peaked at around 1,000 users.”

“We realized the check-in part was a little complicated, but people loved the photo part,” says Systrom; unfortunately, however, the whole product “wasn’t cool enough” to challenge the market leader (in June 24, 2011, Foursquare raised $50 million on a valuation of $600 million). Whether or not Systrom and Krieger had the makings of a better mousetrap, nobody was beating a path to their door. In fact, David Burkus, author of The Myths of Creativity: The Truth about How Innovative Companies Generate Great Ideas, would probably say that Burbn had succumbed to a variation of the “Moustrap Myth.” According to Burkus, that myth—if you build a better mousetrap, the world will beat a path to your door—”is really bad advice. We expect a celebration when our product launches or our new work is on display, but this is often not the case.… The world’s most common reaction to a new idea isn’t to beat a path to our door. It’s typically to.… ignore the idea.”

Creativity, observes Burkus, has an even tougher time in organizational contexts. “The truth is,” he writes, “that companies reject the great ideas of their people all the time.… Most companies don’t suffer from an idea-generation issue; they suffer from an idea-recognition issue.” This organizational habit of mind may also reflect a psychological habit of mind among individuals—namely, a reluctance to embrace risk and innovation.

Fortunately, as we saw in Chapter 5, entrepreneurs like Kevin Systrom and Mike Krieger tend to have a greater tolerance for risk and, as Burkus suggests, a better sense of idea recognition, especially when it comes to matching a new product with an emerging market. One day in July 2010, reports Krieger, we realized that

it was time to try something different—why don’t we take the photo updates from Burbn and make them into their own product?.… In retrospect, Instagram may seem “obvious”.… but products are defined by a series of decisions and assumptions, and our combination of being photos-first and public-by-default would prove to be a combination that solved an unmet need.

The new idea—Instagram—launched in October 2010, and less than two years later, Facebook bought it for $1 billion.

References: Eric Markowitz, “How Instagram Grew from Foursquare Knock-Off to $1 Billion Photo Empire,” Inc., April 10, 2012, www.inc.com, accessed on March 10, 2017; Mike Krieger, “How Instagram Worked,” Backchannel, October 20, 2014, http://medium.com, accessed on March 10, 2017; Megan Garber, “Instagram Was First Called ‘Burbn,’” The Atlantic, July 2, 2014, www.theatlantic.com, accessed on March 10, 2017; David Burkus, “The Myths of Creativity: Building a Better Mousetrap” (book excerpt), Fast Company, September 12, 2013, www.fastcompany.com, accessed on March 10, 2017; and Paul Sohn, “Interview with David Burkus: The Myths of Creativity,” Salt & Light, November 10, 2013, http://paulsohn.org, accessed on March 10, 2017.

9-6aThe Creative Individual

Numerous researchers have focused their efforts on attempting to describe the common attributes of creative individuals. These attributes generally fall into three categories: background experiences, personal traits, and cognitive abilities.

Background Experiences and Creativity

Researchers have observed that many creative individuals were raised in environments in which creativity was nurtured. Mozart was raised in a family of musicians and began composing and performing music at age six. Pierre and Marie Curie, great scientists in their own right, also raised a daughter, Irene, who won the Nobel Prize in chemistry. Thomas Edison’s creativity was nurtured by his mother. However, people with background experiences very different from theirs have also been creative. Frederick Douglass was born into slavery in Tuckahoe, Maryland, and had very limited opportunities for education. Nonetheless, his powerful oratory and creative thinking helped lead to the Thirteenth Amendment to the U.S. Constitution, which outlawed slavery in the United States.

Personal Traits and Creativity

Certain personal traits have also been linked to creativity in individuals. The traits shared by most creative people are openness, an attraction to complexity, high levels of energy, independence and autonomy, strong self-confidence, and a strong belief that one is, in fact, creative. Individuals who possess these traits are more likely to be creative than those who do not have them.

Cognitive Abilities and Creativity

Cognitive abilities are an individual’s power to think intelligently and to analyze situations and data effectively. Intelligence may be a precondition for individual creativity—although most creative people are highly intelligent, not all intelligent people are necessarily creative. Creativity is also linked with the ability to think divergently and convergently. Divergent thinking is a skill that allows people to see differences among situations, phenomena, or events. Convergent thinking is a skill that allows people to see similarities among situations, phenomena, or events. Creative people are generally very skilled at both divergent and convergent thinking.

Interestingly, Japanese managers have come to question their own creative abilities. The concern is that their emphasis on group harmony may have stifled individual initiative and hampered the development of individual creativity. As a result, many Japanese firms, including Omron Corporation, Fuji Photo, and Shimizu Corporation, have training programs intended to boost the creativity of their employees.

9-6bThe Creative Process

Although creative people often report that ideas seem to come to them “in a flash,” individual creative activity actually tends to progress through a series of stages. Not all creative activity has to follow these four stages, but much of it does.

Preparation

The creative process normally begins with a period of preparation. To make a creative contribution to business management or business services, individuals must usually receive formal training and education in business. Formal education and training are usually the most efficient ways of becoming familiar with this vast amount of research and knowledge. This is one reason for the strong demand for undergraduate- and master’s-level business education.

Formal business education can be an effective way for an individual to get “up to speed” and begin making creative contributions quickly. Experiences that managers have on the job after their formal training has finished can also contribute to the creative process. In an important sense, the education and training of creative people never really end. They continue as long as people remain interested in the world and curious about the way things work. Bruce Roth earned a PhD in chemistry and then spent years working in the pharmaceutical industry learning more and more about chemical compounds and how they work in human beings.

Incubation

The second phase of the creative process is incubation—a period of less intense conscious concentration during which the knowledge and ideas acquired during preparation mature and develop. A curious aspect of incubation is that it is often helped along by pauses in concentrated rational thought. Some creative people rely on physical activity such as jogging or swimming to provide a break from thinking. Others may read or listen to music. Sometimes sleep may even supply the needed pause. Bruce Roth eventually joined Warner–Lambert,an up-and-coming drug company, to help develop medication to lower cholesterol. In his spare time, Roth read mystery novels and hiked in the mountains. He later acknowledged that this was when he did his best thinking. Similarly, Jeff Bezos, founder and CEO of Amazon, sets aside one day a week with no scheduled appointments or meetings and uses this time to allow ideas to incubate.

Insight

Usually occurring after preparation and incubation, insight is a spontaneous breakthrough in which the creative person achieves a new understanding of some problem or situation. Insight represents a coming together of all the scattered thoughts and ideas that were maturing during incubation. It may occur suddenly or develop slowly over time. Insight can be triggered by some external event, such as a new experience or an encounter with new data, which forces the individual to think about old issues and problems in new ways, or it can be a completely internal event in which patterns of thought finally coalesce in ways that generate new understanding. One day Bruce Roth was reviewing some data from some earlier studies that had found the new drug under development to be no more effective than other drugs already available. But this time he saw some statistical relationships that had not been identified previously. He knew then that he had a major breakthrough on his hands.

Lipitor, a cholesterol-fighting drug, is one of the most successful pharmaceutical innovations in history. The scientist who first demonstrated the potential effectiveness of Lipitor was fully engaged in the creative process during the development and testing of the drug.

PAUL J. RICHARDS/AFP/Getty Images/Newscom

Verification

Once an insight has occurred, verification determines the validity or truthfulness of the insight. For many creative ideas, verification includes scientific experiments to determine whether the insight actually leads to the results expected. Verification may also include the development of a product or service prototype. A prototype is one product or a very small number of products built just to see if the ideas behind this new product actually work. Product prototypes are rarely sold to the public but are very valuable in verifying the insights developed in the creative process. Once the new product or service is developed, verification in the marketplace is the ultimate test of the creative idea behind it. Bruce Roth and his colleagues set to work testing the new drug compound and eventually won FDA approval. Warner–Lambert was taken over by Pfizer and the drug, Lipitor, has become the largest-selling pharmaceutical in history, generating more than more than $1 billion a year.

9-6cEnhancing Creativity in Organizations

Managers who wish to enhance and promote creativity in their organizations can do so in a variety of ways. One important method for enhancing creativity is to make it a part of the organization’s culture, often through explicit goals. Firms that truly want to stress creativity, like Apple, Google, 3M, and Rubbermaid, for example, state goals that some percentage of future revenues are to be gained from new products. This clearly communicates that creativity and innovation are valued.

A few years ago Best Buy picked four groups of salespeople in their twenties and early thirties and asked them to spend ten weeks living together in a Los Angeles apartment complex (with expenses paid by the company and still earning their normal pay). Their job was to sit around and brainstorm new business ideas that could be rolled out quickly and cheaply. Apple also uses an interesting model to find prospect for creative ideas. Employees in R&D are given a problem statement. A random word generator then presents them with a word. The employee has to think about some way that the random word can be associated with the problem.

Another important part of enhancing creativity is to reward creative successes, while being careful not to punish creative failures. Many ideas that seem worthwhile on paper fail to pan out in reality. If the first person to come up with an idea that fails is fired or otherwise punished, others in the organization will become more cautious in their own work. And, as a result, fewer creative ideas will emerge.

9-7Types of Workplace Behavior

Now that we have looked closely at how individual differences can influence behavior in organizations, let’s turn our attention to what we actually mean by workplace behavior. 
Workplace behavior
 is a pattern of action by the members of an organization that directly or indirectly influences organizational effectiveness. Important workplace behaviors include performance and productivity, absenteeism and turnover, and organizational citizenship. Unfortunately, a variety of dysfunctional behaviors can also occur in organizational settings.

9-7aPerformance Behaviors

Performance behaviors
 are the total set of work-related behaviors that the organization expects the individual to display. Thus they derive from the psychological contract. For some jobs, performance behaviors can be narrowly defined and easily measured. For example, an assembly-line worker who sits by a moving conveyor and attaches parts to a product as it passes by has relatively few performance behaviors. He or she is expected to remain at the workstation and correctly attach the parts. Performance can often be assessed quantitatively by counting the percentage of parts correctly attached.

For many other jobs, however, performance behaviors are more diverse and much more difficult to assess. For example, consider the case of a research and development scientist at Merck. The scientist works in a lab trying to find new scientific breakthroughs that have commercial potential. The scientist must apply knowledge learned in graduate school with experience gained from previous research. Intuition and creativity are also important elements. And the desired breakthrough may take months or even years to accomplish. As we discussed in Chapter 8, organizations rely on a number of different methods for evaluating performance. The key, of course, is to match the evaluation mechanism with the job being performed.

9-7bWithdrawal Behaviors

Another important type of work-related behavior is that which results in withdrawal—absenteeism and turnover. 
Absenteeism
 occurs when an individual does not show up for work. The cause may be legitimate (illness, jury duty, death in the family, and so forth) or feigned (reported as legitimate but actually just an excuse to stay home). When an employee is absent, his or her work does not get done at all, or a substitute must be hired to do it. In either case, the quantity or quality of actual output is likely to suffer. Obviously, some absenteeism is expected. The key concern of organizations is to minimize feigned absenteeism and to reduce legitimate absences as much as possible. High absenteeism may be a symptom of other problems as well, such as job dissatisfaction and low morale.

Turnover occurs when people quit their jobs. An organization usually incurs costs in replacing individuals who have quit, but if turnover involves especially productive people, it is even more costly. Turnover seems to result from a number of factors, including aspects of the job, the organization, the individual, the labor market, and family influences. In general, a poor person–job fit is also a likely cause of turnover. Periods of cutbacks and layoffs produce high levels of unemployment that, in turn, reduce employee-driven turnover because fewer jobs are available. But when employers are hiring and there are many open jobs, turnover may naturally increase as people seek better opportunities, higher pay, and so forth.

Efforts to directly manage turnover are frequently fraught with difficulty, even in organizations that concentrate on rewarding good performers. Of course, some turnover is inevitable, and in some cases it may even be desirable. For example, if the organization is trying to cut costs by reducing its staff, having people voluntarily choose to leave is preferable to having to terminate their jobs. And, if the people who choose to leave are low performers or express high levels of job dissatisfaction, the organization may also benefit from turnover.

9-7cOrganizational Citizenship

Organizational citizenship
 is the behavior of individuals that makes a positive overall contribution to the organization. Consider, for example, an employee who does work that is acceptable in terms of both quantity and quality. However, she refuses to work overtime, will not help newcomers learn the ropes, and is generally unwilling to make any contribution to the organization beyond the strict performance of her job. Although this person may be seen as a good performer, she is not likely to be seen as a good organizational citizen.

Another employee may exhibit a comparable level of performance. In addition, however, he will always work late when the boss asks him to, takes time to help newcomers learn their way around, and is perceived as being helpful and committed to the organization’s success. Although his level of performance may be seen as equal to that of the first worker, he is also likely to be seen as a better organizational citizen.

The determinant of organizational citizenship behaviors is likely to be a complex mosaic of individual, social, and organizational variables. For example, the personality, attitudes, and needs of the individual will have to be consistent with citizenship behaviors. Similarly, the social context in which the individual works, or work group, will need to facilitate and promote such behaviors (we discuss group dynamics in Chapter 13). And the organization itself, especially its culture, must be capable of promoting, recognizing, and rewarding these types of behaviors if they are to be maintained. Although the study of organizational citizenship is still in its infancy, preliminary research suggests that it may play a powerful role in organizational effectiveness.

9-7dDysfunctional Behaviors

Some work-related behaviors are dysfunctional in nature. 
Dysfunctional behaviors
 are those that detract from, rather than contribute to, organizational performance. Two of the more common ones, absenteeism and turnover, were discussed earlier. But other forms of dysfunctional behavior may be even more costly for an organization. Theft and sabotage, for example, result in direct financial costs for an organization. Sexual and racial harassment also cost an organization, both indirectly (by lowering morale, producing fear, and driving off valuable employees) and directly (through financial liability if the organization responds inappropriately). So, too, can politicized behavior, intentionally misleading others in the organization, spreading malicious rumors, and similar activities. Incivility and rudeness can result in conflict and damage to morale and the organization’s culture. Workplace violence is also a concern in many organizations. Violence by disgruntled workers or former workers results in dozens of deaths and injuries each year.

Chapter Review

Summary of Learning Outcomes and Key Points

1. Explain the nature of the individual–organization relationship.

· A basic framework that can be used to facilitate this understanding is the psychological contract—the set of expectations held by people with respect to what they will contribute to the organization and what they expect to get in return.

· Organizations strive to achieve an optimal person–job fit, but this process is complicated by the existence of individual differences.

2. Define personality and describe personality attributes that affect behavior in organizations.

· Personality is the relatively stable set of psychological and behavioral attributes that distinguish one person from another.

· The “Big Five” personality traits are:

· Agreeableness

· Conscientiousness

· Neuroticism

· Extraversion

· Openness

· The Myers–Briggs framework can also be a useful mechanism for understanding personality.

· Other important traits are:

· Locus of control

· Self-efficacy

· Authoritarianism

· Machiavellianism

· Self-esteem

· Risk propensity

· EQ, a fairly new concept, may provide additional insights into personality.

3. Discuss individual attitudes in organizations and how they affect behavior.

· Attitudes are based on emotion, knowledge, and intended behavior.

· Whereas personality is relatively stable, some attitudes can be formed and changed easily. Others are more constant.

· Job satisfaction or dissatisfaction and organizational commitment are important work-related attitudes.

4. Describe basic perceptual processes and the role of attributions in organizations.

· Perception is the set of processes by which an individual becomes aware of and interprets information about the environment.

· Basic perceptual processes include selective perception and stereotyping.

· Perception and attribution are also closely related.

5. Discuss the causes and consequences of stress and describe how it can be managed.

· Stress is an individual’s response to a strong stimulus.

· The GAS outlines the basic stress process.

· Stress can be caused by task, physical, role, and interpersonal demands.

· Consequences of stress include organizational and individual outcomes, as well as burnout.

· Several things can be done to manage stress.

6. Describe creativity and its role in organizations.

· Creativity is the capacity to generate new ideas.

· Creative people tend to have certain profiles of background experiences, personal traits, and cognitive abilities.

· The creative process itself includes preparation, incubation, insight, and verification.

7. Explain how workplace behaviors can directly or indirectly influence organizational effectiveness.

· Workplace behavior is a pattern of action by the members of an organization that directly or indirectly influences organizational effectiveness.

· Performance behaviors are the set of work-related behaviors that the organization expects the individual to display to fulfill the psychological contract.

· Basic withdrawal behaviors are absenteeism and turnover.

· Organizational citizenship refers to behavior that makes a positive overall contribution to the organization.

· Dysfunctional behaviors can be very harmful to an organization.

Chapter Review

Discussion Questions

Questions for Review

1. What is a psychological contract? List the things that might be included in individual contributions. List the things that might be included in organizational inducements.

2. Describe the three components of attitudes and tell how the components are related. What is cognitive dissonance? How do individuals resolve cognitive dissonance?

3. Identify and discuss the steps in the creative process. What can an organization do to increase employees’ creativity?

4. Identify and describe several important workplace behaviors.

Questions for Analysis

1. Organizations are increasing their use of personality tests to screen job applicants. What are the advantages and disadvantages of this approach? What can managers do to avoid some of the potential pitfalls?

2. As a manager, how can you tell that an employee is experiencing job satisfaction? How can you tell that employees are highly committed to the organization? If a worker is not satisfied, what can a manager do to improve satisfaction? What can a manager do to improve organizational commitment?

3. Managers cannot pay equal attention to every piece of information, so selective perception is a fact of life. How does selective perception help managers? How does it create difficulties for them? How can managers increase their “good” selective perception and decrease the “bad”?

4. Write the psychological contract you have in this class. In other words, what do you contribute, and what inducements are available? Ask your professor to tell the class about the psychological contract that he or she intended to establish with the students in your class. How does the professor’s intended contract compare with the one you wrote? If there are differences, why do you think the differences exist? Share your ideas with the class.

5. Assume that you are going to hire three new employees for the department store you manage. One will sell shoes, one will manage the toy department, and one will work in the stockroom. Identify the basic characteristics you want in each of the people to achieve a good person–job fit.

Chapter Review

Experiential Exercise

Stress Test

Job-related stress is very common in organizations—almost everyone experiences stress some of the time. Stress can also occur in nonwork settings, such as school or family life. While a moderate level of stress can have positive effects, too much stress can lead to physical and mental health problems, absenteeism and turnover, low productivity and morale, and eventually burnout.

Investigate the demands of your management class to assess the extent of factors that increase stress, writing down your answers individually. Discuss your perceptions with a small group of classmates. Then as a group, suggest changes that would make your class less stressing.

1. Step 1

Working alone, assess the task demands associated with your management class. In this category, include items such as the extent to which you are fully informed and can therefore make informed decisions. Also consider the time pressure and the possible consequences of your actions.

Assess the physical demands associated with your management class. In this category, include items such as the location and facilities available in the classroom. Also include lighting, heating, ventilation, seating, amount of space, flexibility of the space, and so on. Assess the role demands associated with your management class. In this category, consider the role you play as a student. Do you understand what is expected of you in this role? Are you comfortable in this role? Does your role as a student conflict with any of the other important roles that you play?

Assess the interpersonal demands associated with your management class. In this category, consider your relationships with the instructor and your fellow students. Any personality conflicts or pressure to conform to group norms would tend to increase stress.

2. Step 2

In a small group, discuss your answers. Try to recognize patterns of similarities and differences. Then discuss changes that could be made that would reduce stress. Be sure to consider changes that could be made by your institution or department, by your instructor, and by the students.

3. Step 3

Discuss your conclusions with the class and your instructor

Chapter Review

Building Effective Time Management Skills

Exercise Overview

Time management skills refer to the ability to prioritize tasks, to work efficiently, and to delegate appropriately. Among other reasons, they’re important because poor time management skills may result in stress. This exercise shows you how effective time management skills can help reduce stress.

Exercise Background

List several of the major events or expectations that tend to be stressful for you. Common stressors include school (classes and exams), work (finances and schedules), and personal circumstances (friends, romance, and family). Try to be as specific as possible, and try to identify at least ten different stressors.

Exercise Task

Using your list, do each of the following:

1. Evaluate the extent to which poor time management skills on your part play a role in the way each stressor affects you. Do exams cause stress, for example, because you tend to put off studying?

2. For each stressor that’s affected by your time management habits, develop a strategy for using your time more efficiently.

3. Note the interrelationships among different kinds of stressors to see if they revolve around time-related problems. For example, financial pressures may cause you to work, and work may interfere with school. Can you manage any of these interrelationships more effectively by managing your time more effectively?

4. How do you typically manage the stress in your life? Can you manage stress in a more time-effective manner?

Chapter Review

Management at Work

Can’t Get No Job Satisfaction?

“For the most part, the employer contract is dead.”

—Rebecca Ray, Executive VP, Knowledge Organization, The Conference Board

News flash: American workers aren’t happy with rec-room ping pong tables and free massages. Or, to be a little more precise: Such perks aren’t enough to make them satisfied with their jobs. According to Gallup’s most recent State of the American Workplace Report, a mere 30 percent of U.S. workers are “engaged” in their work. That’s up from 28 percent from 2010, but it doesn’t amount to much, especially when you consider that more than half of all workers (52 percent) show up every morning but have very little interest in what they do all day. What’s worse, the 18 percent that’s left are actively disengaged—which means, says Gallup CEO Jim Clifton, that “they roam the halls spreading discontent.” According to the report, those actively disengaged employees cost the U.S. economy $550 billion a year in lost productivity.

Admittedly, younger workers tend to find workplace perks, such as Google’s nap pods and onsite roller-hockey rink, more attractive than their older counterparts. “They’re often looking for things they can brag about to their peers,” explains Bob Nelson, author of 1,501 Ways to Reward Employees. But if the boss is a jerk or tasks aren’t stimulating, cautions Nelson, “perks aren’t going to fix it. You may keep [younger workers] for a while, but at some point, they’re going to leave.”

Nelson’s opinion would seem to be confirmed by another major survey. According to The Conference Board Job Satisfaction most recent report, while satisfaction among workers aged 25 to 34 came in at 50.5 percent, only 37.8 percent of workers under 25 years were satisfied with their jobs—down from 46 percent in 2012 and about 60 percent 20 years earlier. Baby boomers, observes The Conference Board’s Linda Barrington, “will compose a quarter of the U.S. workforce [by 2020], and since 1987 we’ve watched them increasingly losing faith in the workplace.” Nelson reports that younger workers tend to leave jobs after about a year, compared to 4.4 years for older employees, and John Gibbons, another Conference Board researcher, notes that 22 percent of all respondents to the survey don’t expect to be in their current jobs for more than a year. “These data,” he concludes, “throw up a red flag because widespread job dissatisfaction” and the resulting turnover “can impact enterprise-level success.” Recent studies indicate, for example, than it can cost an employer from 16 percent to 213 percent of average annual salary to replace every employee who leaves a company.

How do workers become dissatisfied, and what happens when they do? Danielle Lee Novack of Penn State University has created an instructive scenario that we’ve simplified to fit the needs of our case:

A woman named Megan has coordinated the onstage portions of dance competitions for three years. From January through June, Megan has to travel to different competition venues, including three weekends per month. This demanding half year is offset by the other six-month period, when her schedule is much more relaxed. Because she likes what she does, she’s willing to deal with the unusual schedule, especially as her manager has assured her that, should something important come up on a weekend, she’ll try to accommodate Megan. Her manager has recognized her excellent work in each of her three years, and Megan is satisfied with her job responsibilities, coworkers, and salary.

Megan learns in December that her best friend is getting married in June and asks her boss for the wedding weekend off. Despite her promises, her manager refuses to accommodate Megan. Needless to say, Megan is frustrated. As it happens, she’s also bothered by her manager’s tendency to micromanage subordinates and feels that she has no freedom to make any key decisions on her own. Besides, everything has to be approved before Megan can act on any of her own initiatives—a situation that’s already cost her two promotional partnerships that she’d worked personally to develop. Not only did she receive no recognition for her efforts, but she missed out on two bonuses. Finally, because the company is small and Megan already works directly under a high-ranking manager, she feels that there’s no chance for her to advance or take on new responsibilities in the future.

Before long, Megan is resentful about giving up weekends, about her manager’s habit of controlling every aspect of every project, and about the feeling that there’s little point in trying to excel if she’s merely going to be doing the same thing over and over again. In short, Megan is dissatisfied with her job, and she’s thinking about finding another one.

A review of both surveys shows that the sources of Megan’s dissatisfaction are pretty much the same as those cited by most dissatisfied American workers. At first glance, for example, some people may find it surprising that her pay doesn’t figure into Megan’s current discontent, but The Conference Board survey found that employees are happier with pay scales than they were in 2005–2007 (at least “marginally”).

Not everybody, however, is equally “satisfied” with his or her income. Not surprisingly, The Conference Board says that 64 percent of people earning more than $125,000 are satisfied with their jobs, as are 57.6 percent of those with incomes between $75,000 and $100,000. However, only 24.4 percent of those earning under $15,000 could say the same thing. In the shrinking middle—where Megan no doubt falls—only 32 percent of those making $15,000–35,000 and 45 percent of those making $35,000–75,000 are satisfied.

Danielle Kurtzleben, however, a former business and economics reporter for U.S. News and World Report, observes a contradiction between two survey findings:

· (1)

that “growth in employee compensation has fallen off sharply since the 1980s and 1990s”; and

· (2)

that workers are “not much less satisfied today with their wages than they were 25 years ago.”

Workers, she cautions, may be more satisfied with wages than with total compensation, noting that the deepest levels of dissatisfaction between 1987 and 2013 is in such compensation-related areas as health coverage and sick-leave policies.

In fact, worker satisfaction with compensation plans are at a ten-year low—primarily because such compensation benefits as pension, 401(k), and health plans are fast disappearing. “For the most part,” says The Conference Board’s Rebecca Ray, “the employer contract is dead.” It’s a serious matter, she adds, because such benefits have long served to cement long-term employer–employee relationships.

So, according to the Gallup and Conference Board reports, what aspects of their jobs are most workers most dissatisfied with? As it happens, the two areas that received the lowest scores are consistent, whether directly or indirectly, with the sources of Megan’s dissatisfaction: According to The Conference Board, only 23.8 percent of workers are satisfied with their employers’ promotion policies and only 24.2 percent with their bonus plans. Conversely, the most important drivers of satisfaction include growth potential, recognition, and satisfaction with one’s supervisor. It may also be interesting to note that although such areas as promotion policies and bonus plans are typically more important to men, women are significantly less satisfied than men on both counts.

At bottom, the results of both surveys are somewhat paradoxical—and perhaps even misleading. The apparent good news is that, at 47.7 percent, overall job satisfaction in 2013 was up from 47.3 percent in 2012. Obviously, that’s very little, and the bad news is that both figures are meaningful only in the context of a 42.6 percent level in 2010—the lowest level ever. The worse news is that recent levels of job satisfaction represent a significant drop from 61.1 percent in 1987, the first year in which The Conference Board began tracking the phenomenon.

Case Questions

1. What about you? If you’re employed, are you (relatively) satisfied or dissatisfied with your job? If you’re not working (or haven’t yet held down a job), focus on the areas in which you’re satisfied or dissatisfied with what you are doing (e.g., going to school).

Next is a table listing 22 factors in job satisfaction in order of importance to the U.S. workers surveyed by The Conference Board. Create your own list of factors in order of their importance to you at this stage of your life. Be prepared to discuss the differences between your list and (1) the list below and (2) the lists drawn up by various classmates.

1. Growth potential

2. Communication channels

3. Recognition

4. Performance reviews

5. Interest in work

6. Workload

7. Work/life balance

8. Supervisor

9. Physical environment

10. Promotion policy

11. Quality of equipment

12. Wages

13. Training

14. People at work

15. Family leave

16. Flextime

17. Bonus

18. Sick days

19. Vacation

20. Pension

21. Health coverage

22. Commute

2. What about Megan? First, draw up a list of job-dissatisfaction factors for Megan. Second, regard the following as applicable to Megan’s situation:

. She likes the type of work she does and has good relationships with coworkers.

. More than a few of her coworkers are also frustrated by the company’s tight supervision and demanding work schedule.

. She is a cheerful and positive person.

. She performs well and gets positive feedback because she looks for solutions to problems rather than dwelling on the negative aspects of things.

What do you think Megan should do? If you think that she should find another job, be prepared to explain why you think it’s the best move. If you think that she should try to resolve her frustrations before looking for another job, explain the points that she should try to get across in conversations with her boss.

· Ilya Pozin, founder of the web-design company Ciplex and contributor to Inc. and Forbes magazines (and self-confessed “terrible manager”), puts “The Boss Sucks” at the top of his list of “The Top 10 Reasons People Hate Their Jobs.” “Do you micromanage?” he asks. “Are you a bad communicator? If you have unhappy employees,” Pozin advises, the first thing you should look at is your management habits. The next thing to do is actually talk to your employees to get to the bottom of the problem. Brushing off unhappy employees will damage your company. Get to the bottom of their troubles before you lose a valuable employee.

Would it be fair to apply this criticism to Megan’s manager? What aspects of it apply to her and which do not? Assuming that she has an inkling of Megan’s dissatisfaction, how would you advise her to respond to each area of Megan’s frustration?

Finally, where did you put “The Boss Sucks” on your list of job-dissatisfaction factors in Question 1? Does Pozin’s criticism apply to the boss with whom you are or were dissatisfied? What advice would you offer this boss (assuming, of course, that you were in a position to do so)?

· Gad Levanon, an economist who coauthored The Conference Board report, writes the following:

Based on macro trends—including a significantly tighter labor market, slowing productivity growth, and more business investment—worker satisfaction should be on the rise. But job dissatisfaction may remain entrenched until we see improvements in worker compensation, which has grown abysmally in recent years despite historically high corporate profits.

Levanon is expressing an opinion and making a related prediction. Explain his opinion and his prediction in your own words. Do you agree or disagree with this opinion and prediction? In particular, do you expect things to get better economically? Whether you answer yes or no, how do you see your prospects for getting a job that you’re satisfied with?

Case References

Kelli B. Grant, “Americans Hate Their Jobs, Even with Perks,” USA Today, June 30, 2013, www.usatoday.com, accessed on March 10, 2017; The Conference Board, “U.S. Workers More Satisfied? Just Barely” (press release), June 18, 2014, www.conference-board.org, accessed on March 10, 2017; Lauren Weber, “U.S. Workers Can’t Get No (Job) Satisfaction,” Wall Street Journal, http://blogs.wsj.com, accessed on March 10, 2017; Christina Merhar, “Employee Retention—The Real Cost of Losing an Employee,” Zane Benefits, www.zanebenefits.com, accessed on March 10, 2017; Danielle Kurtzleben, “Five Reasons US Workers Hate Their Jobs More than They Used to,” www.vox.com, accessed on March 10, 2017; and Gad Levanon, “New Job Satisfaction Report from The Conference Board,” Human Capital Exchange (The Conference Board), June 18, 2014, https://hcexchange.conference-board.org, accessed on March 10, 2017.

Chapter Review

You Make the Call: Engaging with the Company Garbage

1. What about you? Millennials and Generation Y refer to the same thing—generally speaking, people born between the early 1980s and early 2000s. Does this range of birth years include you? Whether it does or doesn’t, how would you characterize your personal attitude toward sustainability, especially in the workplace? How does your attitude toward sustainability reflect your attitudes toward such matters as the country’s economic future and your own?

2. Hunter Lovins defines employee engagement as “the goal of creating supportive, collaborative, and rewarding work environments.” Compare her understanding of employee engagement with the principle of organizational commitment as it’s characterized in the text. In what sense is developing employee engagement intended to go a step beyond fostering organizational commitment in workplace attitudes?

Lovins also talks about employee integration, by which she means a company’s goal of “integrating its sustainability strategies into employee job descriptions and employees’ everyday jobs.” In your opinion, what sort of policies and practices would be important in achieving employee integration over and above employee engagement?

3. “Again, what about you? Consider the definition of employee engagement in Question 2. Do you think that you’d be responsive to an employer’s efforts to engage you in your job? What kind of values—in terms of both company objectives and employee rewards—would be most likely to engage you? Where would sustainability rank among those values? Or do you think that other factors would probably weigh more heavily in your attitude toward your job? What might they be?

4. Some experts report that employee engagement “has become the new Holy Grail for many organizations,” or that it “has long been the Holy Grail for creating thriving and successful organizations.” Robert A. Cooke, however, believes that achieving and optimizing employee engagement is more complicated than it may seem. Cooke, who’s CEO of Human Synergistics International, a consultancy specializing in organizational culture and leadership and group and individual behavior, charges that

the human capital consulting industry continues to sell the idea that a few sips from the Holy Grail of employee engagement will magically transform organizations and heal whatever ails them. While this is a good start, companies should go beyond this and get to the root of their organizational ills by using a true organizational culture survey to define, activate, and reinforce the behaviors that drive the right kind of engagement and optimize organizational performance.

· Review our discussion of organization culture in Chapter 2. Discuss the pros and cons of Cooke’s statement that “truly understanding how to optimize performance in your organization requires understanding your culture.”

Managing Employee Motivation and Performance Chapter 10

· Chapter Introduction

· 10-1
The Nature of Motivation

· 10-2
Content Perspectives on Motivation

· 10-2a
The Needs Hierarchy Approach

· 10-2b
The Two-Factor Theory

· 10-2c
Individual Human Needs

· 10-3
Process Perspectives on Motivation

· 10-3a
Expectancy Theory

· 10-3b
Equity Theory

· 10-3c
Goal-Setting Theory

· 10-4
Reinforcement Perspectives on Motivation

· 10-4a
Kinds of Reinforcement in Organizations

· 10-4b
Providing Reinforcement in Organizations

· 10-5
Popular Motivational Strategies

· 10-5a
Empowerment and Participation

· 10-5b
Alternative Forms of Work Arrangements

· 10-6
Using Reward Systems to Motivate Performance

· 10-6a
Merit Reward Systems

· 10-6b
Incentive Reward Systems

· 10-6c
Team and Group Incentive Reward Systems

· 10-6d
Executive Compensation

· 10-6e
New Approaches to Performance-Based Rewards

· Chapter Review

· Summary of Learning Outcomes and Key Points

· Discussion Questions

· Experiential Exercise

· Building Effective Decision-Making Skills

· Management at Work

· You Make the Call: Let the Games Begin

Chapter Introduction

Learning Outcomes

After studying this chapter, you should be able to:

· 1Characterize the nature of motivation, including its importance and basic historical perspectives.

· 2Identify and describe the major content perspectives on motivation.

· 3Identify and describe the major process perspectives on motivation.

· 4Describe reinforcement perspectives on motivation.

· 5Identify and describe popular motivational strategies.

· 6Describe the role of organizational reward systems in motivation.

Management in Action

Let the Games Begin

“It gives 350 employees a megaphone to stream our content to all of their social networks.”

—Corinne Sklar, chief marketing officer, Bluewolf

Social media impacts business in many different ways. One major issue is the simple fact that many workers today integrate social media into their everyday lives while employers often seek to limit employee access to social media during normal work hours. Bluewolf, a New York-based consulting company, encourages its employees to engage with social media, in part to show case their expertise to potential clients and customers.

10 FACE/ Shutterstock.com

Bluewolf, a New York-based global consulting agency, specializes in cloud integration—providing application programs with which business clients can manage data stored in the “cloud” (i.e., the network of servers known as the Internet). Naturally, one of the firm’s chief marketing strategies is informing potential clients about such services as “Cloud Governance”—a suite of tools for helping clients get the most value out of cloud-shared data. Obviously, Bluewolf’s sales pitch focuses on its ability to provide highly specialized knowledge, and the company is well aware of the fact that no one has a better understanding of that knowledge than the employees who apply it on a daily basis. In addition, Bluewolf has long been convinced that social media is an effective channel of communication with clients (as well as other stakeholders outside the company).

So, a few years ago, when a marketing team of about 20 people was shouldering the burden of social-media promotion, Bluewolf determined to harness the expertise of the rest of the company’s human resources (some 350 people) in the development and promotion of its services. In fact, the goal was to get employees to share their knowledge with coworkers as well as clients. “Internally,” says former social programs manager Natasha Oxenburgh, “we looked at how we could get all of our subject-matter experts sharing their knowledge so we could access it to solve [our] business challenges faster. From an external marketing perspective, we asked how we could unlock this knowledge and thought leadership to get it in front of our clients.”

Bluewolf already encouraged employees to participate on social networks such as Facebook, Twitter, and LinkedIn, as well as the company’s internal social network, called Salesforce Chatter. The logical strategy, then, called for motivating employees throughout the company to use social media as a means of showcasing the expertise that they brought to Bluewolf’s service offerings. “In light of the social media revolution,” recalls marketing manager Ross Warnlof, the “question arose: ‘How could we turn this diverse.… organization into a unified group of social collaborators?’”

“The answer,” says Warnlof, “was gamification.” Bluewolf teamed with fellow cloud-services provider Bunchball, which specializes in software for designing online games. Bunchball software is geared primarily for enterprise gamification—the use of games to improve customer loyalty and engagement. What Bluewolf wanted, however, was a program designed chiefly for social gamification—the use of games to enhance certain social behaviors, especially sharing. In other words, Bluewolf wanted to motivate employees to practice enhanced sharing behaviors in order to achieve a twofold goal:

1. To improve internal collaboration by means of social media

2. To increase the participation of employees as advocates for the company among external users of its social media

Why gamification? Because gamification, despite the term itself, is not really about games. It’s all about identifying certain behaviors and changing them in order to meet certain goals. The process begins before the game playing does—namely, when an organization examines a set of behaviors and tries to determine how they’re actually being applied in an organization. Once the games themselves have been rolled out, they perform a twofold function:

1. They measure certain interactions entailed by the behaviors in question.

2. They provide “players”—the people who perform those behaviors—with immediate feedback on the way their performance is achieving certain organizational goals.

In the case of Bluewolf, the set of behaviors revolved around employees’ use of social media, and the organizational goals centered on employees’ expertise-sharing activities.

How does gamification work at Bluewolf? As a preliminary step, the marketing team surveyed employees to find out a few basic facts:

· How active they were on major social networks?

· What factors prevented them from being more active?

· How they felt about building their “personal brands” through social networks.

Survey responses told the team that employees needed to know more about the possibilities of social media. Consequently, the first part of Bluewolf’s three-part #GoingSocial program was designed as a portal through which employees could find tips and videos on how to get started in using social media. “The tips,” says Oxenburgh, “explain who [employees] should follow, what groups to join, which content to share.” Slide presentations explain “what’s in it for them and how to do it” on such social platforms as Pinterest, Facebook, LinkedIn, Salesforce, Chatter, and Google+.

The second part of #GoingSocial is a custom-designed feature called “Pack Profiles” (as in wolf pack) on which employees publish information about themselves (company affiliations and clients) and their social-media activities (most recent Twitter and blog posts and white papers). Profiles are available not only internally but to outside users as well—the point, after all, is to showcase employee expertise for current and potential clients. “This is how employees manage their public profiles,” explains Oxenburgh, who adds that “it gives them a platform on which to build their own brand”—that is, to “package” or to “market” themselves. Oxenburgh admits that “consulting firms aren’t necessarily open” to personal branding, which is a preferred strategy of job seekers, “but we’re not worried about employees being poached; we’re about creating a workplace where people want to be.”

The third part of #GoingSocial is where the games come in. Basically, this part of the program gamifies the process of maintaining “Pack Profiles” by encouraging employees to perform behaviors consistent with the organization’s goals. The game function of the system is run by program called Nitro, which Bunchball developed for Salesforce, a platform developed for customer relationship management.

Bluewolf employees can earn badges and points for a range of social-media activities, such as sharing information with colleagues on Salesforce Chatter or sharing knowledge with external users, either by posting content on Twitter, Facebook, or LinkedIn or by contributing to the company blog. Employees who accrue enough points can cash them in for tangible rewards, including tickets to industry conferences, flight upgrades, and lunch with the CEO. By shopping at the online rewards store, they can redeem points for limited-edition Patagonia gear and other Bluewolf-branded merchandise.

“It used to be a struggle to get a couple of blogs out of people,” says Oxenburgh, but 10 months after #GoingSocial launched, traffic on the company’s blog had increased threefold and traffic on its website by 68 percent. “After three years of continual innovation,” adds Warnlof, “the program is still facilitating collaboration across the organization to drive business results.” Activity on Chatter, for example, is up by 57 percent, social traffic to the website by 45 percent, and social traffic to blogs by 80 percent. “If you think about the content and how this affects us,” says Bluewolf’s chief marketing officer Corinne Sklar, “it gives 350 employees a megaphone to stream our content to all of their social networks.”

As the business world gets increasingly complex, so too are the challenges in motivating people to perform in various ways. For example, 20 years ago no one would have guessed that a business would one day be trying to motivate its employees to use social media more often, yet that is exactly what Bluewolf is trying to do. Regardless of the context, though, much of what managers today worry about is employee motivation, the subject of this chapter. We first examine the nature of employee motivation and then explore the major perspectives on motivation. Newly emerging approaches are then discussed. We conclude with a description of rewards and their role in motivation.

10-1The Nature of Motivation

Motivation
 is the set of forces that cause people to behave in certain ways. On any given day, an employee may choose to work as hard as possible at a job, work just hard enough to avoid a reprimand, or do as little as possible. The goal for the manager is to maximize the likelihood of the first behavior and minimize the likelihood of the last. This goal becomes all the more important when we understand how important motivation is in the workplace.

Individual performance is generally determined by three things: motivation (the desire to do the job), ability (the capability to do the job), and the work environment (the resources needed to do the job). If an employee lacks ability, the manager can provide training or replace the worker. If there is a resource problem, the manager can correct it. But, if motivation is the problem, the task for the manager is more challenging. Individual behavior is a complex phenomenon, and the manager may be hard pressed to figure out the precise nature of the problem and how to solve it. Thus motivation is important because of its significance as a determinant of performance and because of its intangible character.

The motivation framework in Figure 10.1 is a good starting point for understanding how motivated behavior occurs. The motivation process begins with a need deficiency. For example, when a worker feels that she is underpaid, she experiences a need for more income. In response, the worker searches for ways to satisfy the need, such as working harder to try to earn a raise or seeking a new job. Next she chooses an option to pursue. After carrying out the chosen option—working harder and putting in more hours for a reasonable period of time, for example—she then evaluates her success. If her hard work resulted in a pay raise, she probably feels good about things and will continue to work hard. But, if no raise has been provided, she is likely to try another option.

Frederick Taylor, an early management pioneer, advocated an incentive pay system that would pay workers a set amount of money for each unit of output they produced. One of his earliest projects was studying the craft of brick laying, developing the most efficient steps to perform this job, teaching workers his method, and then paying them based on the number of bricks they laid each hour.

A. R. Coster/Getty Images

Figure 10.1The Motivation Framework

The motivation process progresses through a series of discrete steps. Content, process, and reinforcement perspectives on motivation address different parts of this process.

10-2Content Perspectives on Motivation

Content perspectives on motivation deal with the first part of the motivation process—needs and need deficiencies. More specifically, 
content perspectives
 address the question “What factors in the workplace motivate people?” Labor leaders often argue that workers can be motivated by more pay, shorter working hours, and improved working conditions. Meanwhile, some experts suggest that motivation can be more effectively enhanced by providing employees with more autonomy and greater responsibility. Both of these views represent content views of motivation. The former asserts that motivation is a function of pay, working hours, and working conditions while the latter suggests that autonomy and responsibility are the causes of motivation. Two well-known content perspectives on motivation are the needs hierarchy and the two-factor theory.

In contrast to the traditional approach, the human relations approach suggests that social process are of paramount importance in employee motivation. Hence, these employees, who appear to like each other and enjoy working together, should presumably be motivated to perform at a high level.

Syda Productions/ Shutterstock.com

10-2aThe Needs Hierarchy Approach

The needs hierarchy approach has been advanced by several theorists. Needs hierarchies assume that people have different needs and that these needs can be arranged in a hierarchy of importance. Maslow’s hierarchy of needs is the best known.

Abraham Maslow, a human relationist, argued that people are motivated to satisfy five need levels. 
Maslow’s hierarchy of needs
 is shown in Figure 10.2. At the bottom, or base, of the hierarchy are the physiological needs—things such as food, sex, and air, which represent basic issues of survival and biological function. In organizations, physiological needs are generally satisfied by adequate wages and the work environment itself, which provides restrooms, adequate lighting, comfortable temperatures, and ventilation.

Figure 10.2Maslow’s Hierarchy of Needs

Maslow’s hierarchy suggests that human needs can be classified into five categories and that these categories can be arranged in a hierarchy of importance. A manager should understand that an employee may not be satisfied with only a salary and benefits; he or she may also need challenging job opportunities to experience self-growth and satisfaction.

Source: Adapted from Abraham H. Maslow, “A Theory of Human Motivation,” Psychology Review, 1943, Vol. 50, pp. 370–396.

Next are the security needs for a secure physical and emotional environment. Examples are the desire for housing and clothing and the need to be free from worry about money and job security. These needs can be satisfied in the workplace by reasonable job continuity (no layoffs), an effective grievance system (to protect against arbitrary supervisory actions), and an adequate insurance and retirement benefit package (for security against illness and provision of income in later life). Even today, however, depressed industries and economic decline can put people out of work and restore the primacy of security needs.

Belongingness needs relate to social processes. They include the need for love and companionship and the need to be accepted by one’s peers. These needs are satisfied for most people by family and community relationships outside of work and by friendships on the job. A manager can help satisfy these needs by allowing social interaction and by making employees feel like part of a team or work group.

Abraham Maslow suggests that esteem needs play an important role in employee motivation. Esteem needs include the desire to be recognized and respected by others. One avenue for satisfying esteem needs for some individuals is a large and impressive office such as this one.

alexandre zveiger/ Shutterstock.com

Esteem needs actually comprise two different sets of needs: the need for a positive self-image and self-respect and the need for recognition and respect from others. A manager can help address these needs by providing a variety of extrinsic symbols of accomplishment, such as job titles, nice offices, and similar rewards as appropriate. At a more intrinsic level, the manager can provide challenging job assignments and opportunities for the employee to feel a sense of accomplishment.

At the top of the hierarchy are the self-actualization needs. These involve realizing one’s potential for continued growth and individual development. The self-actualization needs are perhaps the most difficult for a manager to address. In fact, it can be argued that these needs must be met entirely from within the individual. But a manager can help by promoting a culture wherein self-actualization is possible. For instance, a manager could give employees a chance to participate in making decisions about their work and the opportunity to learn new things.

Maslow suggested that the five need categories constitute a hierarchy. An individual is motivated first and foremost to satisfy physiological needs. As long as they remain unsatisfied, the individual is motivated to fulfill only them. When satisfaction of physiological needs is achieved, they cease to act as primary motivational factors, and the individual moves “up” the hierarchy and becomes concerned with security needs. This process continues until the individual reaches the self-actualization level. Maslow’s concept of the needs hierarchy has a certain intuitive logic and many people assume that it is valid. But research has revealed certain shortcomings and defects in the theory. For instance, some studies have found that five levels of need are not always present and that the order of the levels is not always the same. In addition, people from different cultures are likely to have different need categories and hierarchies.

10-2bThe Two-Factor Theory

Another popular content perspective is the 
two-factor theory of motivation
. FrederickHerzberg developed his theory by interviewing a group of accountants and engineers. He asked them to recall occasions when they had been satisfied and motivated and occasions when they had been dissatisfied and unmotivated. Surprisingly, he found that different sets of factors were associated with satisfaction and with dissatisfaction—that is, a person might identify “low pay” as causing dissatisfaction but would not necessarily mention “high pay” as a cause of satisfaction. Instead, different factors—such as recognition or accomplishment—were cited as causing satisfaction and motivation.

This finding led Herzberg to conclude that the traditional view of job satisfaction was incomplete. That view assumed that satisfaction and dissatisfaction are at opposite ends of a single continuum. People might be satisfied, dissatisfied, or somewhere in between. But Herzberg’s interviews had identified two different dimensions altogether: one ranging from satisfaction to no satisfaction and the other ranging from dissatisfaction to no dissatisfaction. This perspective, along with several examples of factors that affect each continuum, is shown in Figure 10.3. Note that the factors influencing the satisfaction continuum—called motivation factors—are related specifically to the work content. The factors presumed to cause dissatisfaction—called hygiene factors—are related to the work environment.

Figure 10.3The Two-Factor Theory of Motivation

The two-factor theory suggests that job satisfaction has two dimensions. A manager who tries to motivate an employee using only hygiene factors, such as pay and good working conditions, will likely not succeed. To motivate employees and produce a high level of satisfaction, managers must also offer factors such as responsibility and the opportunity for advancement (motivation factors).

Based on these findings, Herzberg argued that there are two stages in the process of motivating employees. First, managers must ensure that the hygiene factors are not deficient. Pay and security must be appropriate, working conditions must be safe, technical supervision must be acceptable, and so on. By providing hygiene factors at an appropriate level, managers do not stimulate motivation but merely ensure that employees are “not dissatisfied.” Employees whom managers attempt to “satisfy” through hygiene factors alone will usually do just enough to get by. Thus managers should proceed to stage 2—giving employees the opportunity to experience motivation factors such as achievement and recognition. The result is predicted to be a high level of satisfaction and motivation. Herzberg also went a step further than most other theorists and described exactly how to use the two-factor theory in the workplace. Specifically, he recommended job enrichment, as discussed in Chapter 6. He argued that jobs should be redesigned to provide higher levels of the motivation factors.

Although still used by some managers, Herzberg’s two-factor theory is not without its critics. One criticism is that the findings in Herzberg’s initial interviews are subject to different explanations. Another charge is that his sample was not representative of the general population and that subsequent research often failed to uphold the theory. At present, Herzberg’s theory is not held in high esteem by researchers in the field. The theory has had a major impact on managers, however, and has played a key role in increasing their awareness of motivation and its importance in the workplace.

10-2cIndividual Human Needs

In addition to these theories, research has also focused on various specific individual human needs that are important in organizations. The three most important individual needs, sometimes referred to as manifest needs, are achievement, affiliation, and power.

The 
need for achievement
, the best known of the three, is the desire to accomplish a goal or task more effectively than in the past. People with a high need for achievement have a desire to assume personal responsibility, a tendency to set moderately difficult goals, a desire for specific and immediate feedback, and a preoccupation with their task. David C. McClelland, the psychologist who first identified this need, argued that only about 10 percent of the U.S. population has a high need for achievement. In contrast, almost 25 percent of the workers in Japan have a high need for achievement.

The need for achievement is the desire to accomplish a goal or task more effectively than in the past. This woman’s need for achievement has motivated her to perform at the highest level possible, and her efforts are being recognized by her boss and acknowledged by her colleagues.

wavebreakmedia/ Shutterstock.Com

The 
need for affiliation
 is less well understood. Like Maslow’s belongingness need, the need for affiliation is a desire for human companionship and acceptance. People with a strong need for affiliation are likely to prefer (and perform better in) a job that entails a lot of social interaction and offers opportunities to make friends. One recent survey found that workers with one or more good friends at work are much more likely to be committed to their work. American Airlines, for instance, allows flight attendants to form their own teams. Those who participate tend to form teams with their friends.

The 
need for power
 is the desire to be influential in a group and to control one’s environment. Research has shown that people with a strong need for power are likely to be superior performers, have good attendance records, and occupy supervisory positions. The need for power has also received considerable attention as an important ingredient in managerial success. One study found that managers as a group tend to have a stronger power motive than the general population and that successful managers tend to have stronger power motives than less successful managers. The need for power might explain why Mark Hurd, the former CEO of Hewlett-Packard, recently took advantage of his power and role as head of the company. Hurd was forced to resign after a sexual harassment claim by a female contractor alleging that Hurd had used corporate funds for personal gains in attempts to woo her. The former CEO had submitted personal receipts ranging from $1,000 to $20,000 over a two-year period.

10-3Process Perspectives on Motivation

Process perspectives are concerned with how motivation occurs. Rather than attempting to identify what motivates people, 
process perspectives
 focus on why people choose certain behaviors to satisfy their needs and how they feel after they have experienced the results of those behaviors. Three useful process perspectives on motivation are the expectancy, equity, and goal-setting theories.

10-3aExpectancy Theory

Expectancy theory
 suggests that motivation depends on two things—how much we want something and how likely we think we are to get it. Assume that you are approaching graduation and looking for your first full-time job. You see online that Ford Motor Company is seeking a new vice president with a starting salary of $2,000,000 per year. Even though you might want the job, you will not apply because you realize that you have little chance of getting it. You also find a job posting for someone to scrape bubble gum from underneath theater seats for a starting wage of $8 an hour. Even though you could probably get this job, you do not apply because you do not want it. Then you see a posting for an entry-level management trainee position at a company where you would like to work, in a great location, with job requirements that fit your qualifications, and with a starting salary of $65,000 (a little above average for your major). You are likely to apply for this job because you probably want it and because you think you have a reasonable chance of getting it.

Expectancy theory rests on four basic assumptions. First, it assumes that behavior is determined by a combination of forces in the individual and in the environment. Second, it assumes that people make decisions about their own behavior in organizations. Third, it assumes that different people have different types of needs, desires, and goals. Fourth, it assumes that people make choices from among alternative plans of behavior, based on their perceptions of the extent to which a given behavior will lead to desired outcomes.

Figure 10.4 summarizes the basic expectancy model. The model suggests that motivation leads to effort and that effort, combined with employee ability and environmental factors, results in performance. Performance, in turn, leads to various outcomes, each of which has an associated value, called its valence. The most important parts of the expectancy model cannot be shown in the figure, however. These are the individual’s expectation that effort will lead to high performance, that performance will lead to outcomes, and that each outcome will have some kind of value.

Figure 10.4The Expectancy Model of Motivation

The expectancy model of motivation is a complex but relatively accurate portrayal of how motivation occurs. According to this model, a manager must understand what employees want (such as pay, promotions, or status) to begin to motivate them.

Effort-to-Performance Expectancy

The 
effort-to-performance expectancy
 is the individual’s perception of the probability that effort will lead to high performance. When the individual believes that effort will lead directly to high performance, expectancy will be quite strong (close to 1.00). When the individual believes that effort and performance are unrelated, expectancy is very weak (close to 0). The belief that effort is somewhat but not strongly related to performance carries with it a moderate expectancy (somewhere between 0 and 1.00).

Performance-to-Outcome Expectancy

The 
performance-to-outcome expectancy
 is the individual’s perception that performance will lead to a specific outcome. For example, the individual who believes that high performance will result in a pay raise has a high expectancy (approaching 1.00). The individual who believes that high performance may lead to a pay raise has a moderate expectancy (between 1.00 and 0). The individual who believes that performance has no relationship to rewards has a low expectancy (close to 0).

Outcomes and Valences

Expectancy theory recognizes that an individual’s behavior results in a variety of 
outcomes
, or consequences, in an organizational setting. A high performer, for example, may get bigger pay raises, faster promotions, and more praise from the boss. On the other hand, she may also be subject to more stress and incur resentment from coworkers. Each of these outcomes also has an associated value or 
valence
—an index of how much an individual values a particular outcome. If the individual wants the outcome, its valence is positive; if the individual does not want the outcome, its valence is negative; and if the individual is indifferent to the outcome, its valence is zero.

It is this part of expectancy theory that goes beyond the content perspectives on motivation. Different people have different needs, and they will try to satisfy these needs in different ways. For an employee who has a high need for achievement and a low need for affiliation, the pay raise and promotions cited above as outcomes of high performance might have positive valences, the praise and resentment zero valences, and the stress a negative valence. For a different employee, with a low need for achievement and a high need for affiliation, the pay raise, promotions, and praise might all have positive valences, whereas both resentment and stress could have negative valences.

For motivated behavior to occur, three conditions must be met. First, the effort-to-performance must be greater than 0 (the individual must believe that if effort is expended, high performance will result). The performance-to-outcome expectancy must also be greater than 0 (the individual must believe that if high performance is achieved, certain outcomes will follow). And the sum of the valences for the outcomes must be greater than 0. (One or more outcomes may have negative valences if they are more than offset by the positive valences of other outcomes. For example, the attractiveness of a pay raise, a promotion, and praise from the boss may outweigh the unattractiveness of more stress and resentment from coworkers.) Expectancy theory suggests that when these conditions are met, the individual is motivated to expend effort.

Starbucks credits its unique stock ownership program with helping to maintain a dedicated and motivated workforce. Based on the fundamental concepts of expectancy theory, Starbucks employees earn stock as a function of their seniority and performance. Thus their hard work helps them earn shares of ownership in the company.

The Porter–Lawler Extension

An interesting extension of expectancy theory was developed by Porter and Lawler. Recall from Chapter 1 that the human relationists assumed that employee satisfaction causes good performance. We also noted that research has not always supported such a relationship. Porter and Lawler suggested that there may indeed be a relationship between satisfaction and performance but that it goes in the opposite direction—thatis, high performance may lead to high satisfaction. Figure 10.5 summarizes Porter and Lawler’s logic. This view suggests that performance results in rewards for an individual. Some of these are extrinsic (such as pay and promotions), while others are intrinsic (such as self-esteem and accomplishment). The individual evaluates the equity, or fairness, of the rewards relative to the effort expended and the level of performance attained. If the rewards are perceived to be equitable, the individual is satisfied.

Figure 10.5The Porter–Lawler Extension of Expectancy Theory

The Porter–Lawler extension of expectancy theory suggests that if performance results in equitable rewards, people will be more satisfied. Thus performance can lead to satisfaction. Managers must therefore be sure that any system of motivation includes rewards that are fair, or equitable, for all.

Source: “The Effect of Performance on Job Satisfaction,” Industrial Relations, p. 23, Edward E. Lawler III and Lyman W. Porter. © 1967. Reproduced with permission of John Wiley & Sons Ltd.

10-3bEquity Theory

After needs have stimulated the motivation process and people pursue behaviors that are expected to satisfy those needs, they tend to assess the fairness, or equity, of the outcomes that result from those behaviors. 
Equity theory
 contends that people are motivated to seek social equity in the rewards they receive for performance. Equity is an individual’s belief that the treatment he or she is receiving is fair relative to the treatment received by others. According to equity theory, outcomes from a job include pay, recognition, promotions, social relationships, and intrinsic rewards. To get these rewards, the individual contributes inputs to the job, such as time, experience, effort, education, and loyalty. The theory suggests that people view their outcomes and inputs in the form of a ratio and then compare it to someone else’s ratio. This other “person” may be a specific individual or some sort of group average or composite. The process of comparison looks like this:

10-3cGoal-Setting Theory

The goal-setting theory of motivation assumes that behavior is a result of conscious goals and intentions. Therefore, by setting goals for people in the organization, a manager should be able to influence their behavior. Given this premise, the challenge is to develop a thorough understanding of the processes by which people set goals and then work to reach them. In the original version of goal-setting theory, two specific goal characteristics—goal difficulty and goal specificity—were expected to shape performance.

Goal Difficulty

Goal difficulty is the extent to which a goal is challenging and requires effort. If people work to achieve goals, it is reasonable to assume that they will work harder to achieve more difficult goals. But a goal must not be so difficult that it is unattainable. If a new manager asks her sales force to increase sales by 300 percent, the group may become disillusioned. A more realistic but still difficult goal—perhaps a 30 percent increase—would be a better incentive. A substantial body of research supports the importance of goal difficulty. In one study, for example, managers at Weyerhauser set difficult goals for truck drivers hauling loads of timber from cutting sites to wood yards. Over a nine-month period, the drivers increased the quantity of wood they delivered by an amount that would have required $250,000 worth of new trucks at the previous per-truck average load.

Goal Specificity

Goal specificity is the clarity and precision of the goal. A goal of “increasing productivity” is not very specific, while a goal of “increasing productivity by 3 percent in the next six months” is quite specific. Some goals, such as those involving costs, output, profitability, and growth, are readily amenable to specificity. Other goals, however, such as improving employee job satisfaction, morale, company image and reputation, ethics, and socially responsible behavior, may be much harder to state in specific terms. Like difficulty, specificity has been shown to be consistently related to performance. The study of timber truck drivers mentioned earlier, for example, also examined goal specificity. The initial loads the truck drivers were carrying were found to be 60 percent of the maximum weight each truck could haul. The managers set a new goal for drivers of 94 percent, which the drivers were soon able to reach. Thus the goal was both specific and difficult.

Because the theory attracted so much widespread interest and research support from researchers and managers alike, an expanded model of the goal-setting process was eventually proposed. The expanded model, shown in Figure 10.6, attempts to capture more fully the complexities of goal setting in organizations.

Figure 10.6The Expanded Goal-Setting Theory of Motivation

One of the most important emerging theories of motivation is goal-setting theory. This theory suggests that goal difficulty, specificity, acceptance, and commitment combine to determine an individual’s goal-directed effort. This effort, when complemented by appropriate organizational support and individual abilities and traits, results in performance. Finally, performance is seen as leading to intrinsic and extrinsic rewards that, in turn, result in employee satisfaction.

Source: Reprinted from Organizational Dynamics, Autumn 1979, Gary P. Latham and Edwin A. Locke, A Motivational Technique That Works, p. 79, © 1979, with permission from Elsevier.

The expanded theory argues that goal-directed effort is a function of four goal attributes: difficulty and specificity, as already discussed, and acceptance and commitment. Goal acceptance is the extent to which a person accepts a goal as his or her own. Goal commitment is the extent to which he or she is personally interested in reaching the goal. The manager who vows to take whatever steps are necessary to cut costs by 10 percent has made a commitment to achieve the goal. Factors that can foster goal acceptance and commitment include participating in the goal-setting process, making goals challenging but realistic, and believing that goal achievement will lead to valued rewards.

The interaction of goal-directed effort, organizational support, and individual abilities and traits determines actual performance. Organizational support is whatever the organization does to help or hinder performance. Positive support might mean making available adequate information and a sufficient supply of raw materials; negative support might mean failing to fix damaged equipment. Individual abilities and traits are the skills and other personal characteristics necessary for doing a job. As a result of performance, a person receives various intrinsic and extrinsic rewards, which in turn influence satisfaction. Note that the latter stages of this model are quite similar to the Porter–Lawler expectancy model discussed earlier.

10-4Reinforcement Perspectives on Motivation

A third element of the motivational process addresses why some behaviors are maintained over time and why other behaviors change. As we have seen, content perspectives deal with needs, whereas process perspectives explain why people choose various behaviors to satisfy needs and how they evaluate the equity of the rewards they get for those behaviors. Reinforcement perspectives explain the role of those rewards as they cause behavior to change or remain the same over time. Specifically, 
reinforcement theory
 argues that behavior that results in rewarding consequences is likely to be repeated, whereas behavior that results in punishing consequences is less likely to be repeated. The “Leading the Way” feature highlights an interesting perspective on reinforcement.

Leading the Way

To Reward, or to Punish?.… That Is the Question

Suppose you are the general manager of a supermarket and you’ve just finished a department-by-department year-end review of your managers’ performance. Every department—meats, dairy, seafood, deli, bakery, and so forth—has performed up to or beyond expectations. All except one: Produce fell 12 percent short of your forecast. You decide to reward all your managers with healthy bonuses except for your produce manager. In other words, you plan to use punishment in order to motivate your produce manager and positive reinforcement to motivate all of your other managers. You congratulate yourself for having reached a fair and logical decision.

According to Daniel Kahneman, a psychologist who won the Nobel Prize in economics for his work on behavioral and decision-making models, your decision is probably not fair (at least not altogether), and it’s certainly not logical—at least not when the reality of the situation is taken into consideration. Here’s how Kahneman sees your two-pronged decision-making model:

· Manager’s department performs well → You reward manager → Department continues to perform well

· Manager’s department performs poorly → You punish manager → Department performs better

The key to Kahneman’s perspective is called regression to the mean—the principle that, from one performance measurement to the next, the change in performance will be toward the overall average level of performance. Say, for example, that you’re a par golfer and that par for your course is 72. If you shoot 68 in one round, your next round will probably be in the direction of 72—not necessarily 72 exactly, which is your average, or 76, which would bring you exactly back to a two-round average of 72. Technically, regression to the mean is a law and not a rule: You could shoot a second round of 70 or even 67, but most of the time, your second-round score won’t be as good as your first-round score.

Why does regression to the mean occur? Because a complex combination of factors usually determines any outcome. And because this combination is complex, it’s not likely that the same combination will repeat itself the next time you measure the outcome. Which brings us back to your produce manager: It’s not likely that his managerial performance was the sole (or even necessarily the primary) factor in his department’s poor performance. Other factors might include variations in competition, economic and market conditions, and decisions made by managers above him—all of which are largely random and which will undoubtedly be different from one performance measurement to the next.

Now that you understand a little about the reality of regression to the mean, compare your decision-making model to a model that reflects reality:

· Manager’s department performs well → Department probably does not perform as well

· Manager’s department performs poorly → Department probably performs better

Your reinforcement decision will probably have little or nothing to do with next year’s outcome in any of your store’s departments. And you’ve probably been unfair to your produce manager. Kahneman isn’t inclined to be overly critical of your mistaken belief that you’ve made a logical, fair, and effective decision: “It’s very difficult for people to detect their own errors,” he admits. “You’re too busy making a mistake to detect it at the same time.” He does, however, reserve the right to be pessimistic: “The failure to recognize the import of regression,” he warns,

can have pernicious consequences.… We normally reinforce others when their behavior is good and punish them when their behavior is bad. By regression alone [however], they are most likely to improve after being punished and most likely to deteriorate after being rewarded. Consequently, we are exposed to a lifetime schedule in which we are most often rewarded for punishing others and punished for rewarding [them].

References: Bryan Burke, “Fighter Pilots and Firing Coaches,” Advanced NFL Stats, www.advancednflstats.com, accessed on April 1, 2017; David Hall, “Daniel Kahneman Interview,” New Zealand Listener, www.listener.co.nz, accessed on April 1, 2017; Steve Miller, “We’re Not Very Good Statisticians,” Information Management, www.information-management.com, accessed on April 1, 2017; Galen Strawson, “Thinking, Fast and Slow by Daniel Kahneman—Review,” The Guardian, www.guardian.co.uk, accessed on April 1, 2017; and Judgment under Uncertainty: Heuristics and Biases, ed. Daniel Kahneman, Paul Slovic, and Amos Tversky (Cambridge, UK: Cambridge University Press, 1982), https://books.google.com, accessed on April 1, 2017.

10-4aKinds of Reinforcement in Organizations

There are four basic kinds of reinforcement that can result from behavior—positive reinforcement, avoidance, punishment, and extinction. Two of these strengthen or maintain behavior, whereas the other two weaken or decrease behavior.

Positive reinforcement, one method of strengthening behavior, is a reward or a positive outcome after a desired behavior is performed. When a manager observes an employee doing an especially good job and offers praise to that employee, the praise serves to positively reinforce the behavior of good work. Other positive reinforcers in organizations include pay raises, promotions, and awards. Employees who work at General Electric’s customer service center receive clothing, sporting goods, and even all-expenses-paid vacations as rewards for outstanding performance.

Positive reinforcement is a reward or other desired outcome. This employee is getting praise and a pat on the back from his boss for finishing an important project. Both serve as positive reinforcement.

Dmytro Zinkevych/ Shutterstock.com

The other method of strengthening desired behavior is through 
avoidance
. An employee may come to work on time to avoid a reprimand. In this instance, the employee is motivated to perform the behavior of punctuality to avoid an unpleasant consequence that is likely to follow tardiness.

Punishment
 is used by some managers to weaken undesired behaviors. When an employee is loafing, coming to work late, doing poor work, or interfering with the work of others, the manager might resort to reprimands, discipline, or fines. The logic is that the unpleasant consequence will reduce the likelihood that the employee will choose that particular behavior again. Given the counterproductive side effects of punishment (such as resentment and hostility), it is often advisable to use the other kinds of reinforcement if at all possible. 
Extinction
 can also be used to weaken behavior, especially behavior that has previously been rewarded. Suppose an employee tells an offensive joke and the boss laughs before realizing that others might be offended. The laughter reinforces the behavior and the employee may continue to tell offensive jokes. By simply ignoring this behavior in the future and not reinforcing it, the boss may be able to cause the behavior to subside and eventually become “extinct.”

10-4bProviding Reinforcement in Organizations

Not only is the kind of reinforcement important but also so is when or how often it occurs. Various strategies are possible for providing reinforcement. The 
fixed-interval schedule
 provides reinforcement at fixed intervals of time, regardless of behavior. A good example of this schedule is the weekly or monthly paycheck. This method provides the least incentive for good work, however, because employees know they will be paid regularly regardless of their efforts. A 
variable-interval schedule
 also uses time as the basis for reinforcement, but the time interval varies from one reinforcement to the next. This schedule is appropriate for praise or other rewards based on visits or inspections. When employees do not know when the boss is going to drop by, they tend to maintain a reasonably high level of effort all the time.

A 
fixed-ratio schedule
 gives reinforcement after a fixed number of behaviors, regardless of the time that elapses between behaviors. This results in an even higher level of effort. For example, United Airlines and Citi offer a co-branded Mastercard. The card is promoted at kiosks in many large airports. Individuals working at these kiosks get a small bonus for every tenth application returned from their kiosk. Under this arrangement, motivation will be relatively high because each application gets the person closer to the next bonus. The 
variable-ratio schedule
, the most powerful schedule in terms of maintaining desired behaviors, varies the number of behaviors needed for each reinforcement. A supervisor who praises an employee for her second order, the seventh order after that, the ninth after that, then the fifth, and then the third is using a variable-ratio schedule. The employee is motivated to increase the frequency of the desired behavior because each demonstration of performance increases the probability of receiving a reward. Of course, a variable-ratio schedule is difficult (if not impossible) to use for formal rewards such as pay because it would be too complicated to keep track of who was rewarded when.

Managers wanting to explicitly use reinforcement theory to motivate their employees generally do so with a technique called 
organizational behavior modification (OB Mod)
. An OB Mod program starts by specifying behaviors that are to be increased (such as producing more units) or decreased (such as coming to work late). These target behaviors are then tied to specific forms or kinds of reinforcement. Although many organizations (such as Procter & Gamble and Ford) have used OB Mod, the best-known application was at Emery Air Freight (now a part of UPS). Management felt that the containers used to consolidate small shipments into fewer, larger shipments were not being packed efficiently. Through a system of self-monitored feedback and rewards, Emery increased container usage from 45 percent to 95 percent and saved over $3 million during the first three years of the program.

10-5Popular Motivational Strategies

Although the various theories discussed thus far provide a solid explanation for motivation and motivated behaviors, managers must still apply these theories by using various strategies and techniques. Among the more widely used motivational strategies today are empowerment and participation and alternative forms of work arrangements. Various forms of performance-based reward systems, discussed in the next section, also reflect efforts to boost motivation and performance.

10-5aEmpowerment and Participation

Empowerment and participation represent important methods that managers can use to enhance employee motivation. 
Empowerment
 is the process of enabling workers to set their own work goals, make decisions, and solve problems within their sphere of responsibility and authority. 
Participation
 is the process of giving employees a voice in making decisions about their own work. Empowerment, therefore, is a somewhat broader concept that promotes participation in a wide variety of areas, including but not limited to work itself, work context, and work environment.

Participation and empowerment are popular strategies for improving employee motivation. This manager is giving his team autonomy to make an important decision–that is, he is empowering them.

Monkey Business Images/ Shutterstock.com

The role of participation and empowerment in motivation can be expressed in terms of both content perspectives and expectancy theory. Employees who participate in decision making may be more committed to executing decisions properly. Furthermore, the successful process of making a decision, executing it, and then seeing the positive consequences can help satisfy a person’s need for achievement, provide recognition and responsibility, and enhance self-esteem. Simply being asked to participate in organizational decision making may also enhance an employee’s self-esteem. In addition, participation should also help clarify expectancies. That is, by participating in decision making, employees may better understand the linkage between their performance and the rewards they want most.

10-5bAlternative Forms of Work Arrangements

Many organizations today are also providing employees with a variety of alternative work arrangements. These alternative arrangements are generally intended to enhance employee motivation and performance by providing employees with greater flexibility in how and when they work. Among the more popular alternative work arrangements are variable work schedules, flexible work schedules, job sharing, and telecommuting.

Variable Work Schedules

Although there are many exceptions, of course, the traditional work schedule starts at 8:00 or 9:00 in the morning and ends at 5:00 in the evening, five days a week (of course, many managers work additional hours outside of these times). Unfortunately, this schedule makes it difficult to attend to routine personal business—going to the bank, seeing a doctor or dentist for a routine checkup, having a parent–teacher conference, getting an automobile serviced, and so forth. At a surface level, then, employees locked into this sort of arrangement may find it necessary to take a sick day or a vacation day to handle these activities. At a more unconscious level, some people may also feel powerless and constrained by their job schedule and develop resentment and frustration.

To help counter these problems, some businesses have adopted a 
compressed work schedule
, working a full 40-hour week in fewer than the traditional five days. One approach involves working ten hours a day for four days, leaving an extra day off. Another alternative is for employees to work slightly less than ten hours a day but to complete the 40 hours by lunchtime on Friday. And a few firms have tried having employees work 12 hours a day for three days, followed by four days off. Organizations that have used these forms of compressed workweeks include Chevron, BP, Mondelēz, and Philip Morris. One problem with this schedule is that when employees put in too much time in a single day, they tend to get tired and perform at a lower level later in the day.

A recent scheduling innovation being used by some organizations is what they call a “nine-eighty” schedule. Under this arrangement, an employee works a traditional schedule one week and a compressed schedule the next, getting every other Friday off. In other words, they work 80 hours (the equivalent of two weeks of full-time work) in nine days. By alternating the regular and compressed schedules across half of its workforce, the organization can be fully staffed at all times, while still giving employees two extra full days off each month. Shell Oil, Chevron, and BP Chemicals are two of the firms that currently use this schedule.

Flexible Work Schedules

Another popular alternative work arrangement is 
flexible work schedules
, sometimes called flextime. Flextime gives employees more personal control over the times they work. The workday is broken down into two categories: flexible time and core time. All employees must be at their workstation during core time, but they can choose their own schedules during flexible time. For instance, one employee may choose to start work early in the morning and leave in midafternoon, another to start in the late morning and work until late afternoon, and still another to start early in the morning, take a long lunch break, and work until late afternoon. Organizations that use the flexible work schedule method for arranging work include Hewlett-Packard, Microsoft, and Texas Instruments.

Job Sharing

Yet another potentially useful alternative work arrangement is job sharing. In 
job sharing
, two part-time employees share one full-time job. One person may perform the job from 8:00 a.m. to noon and the other from 1:00 p.m. to 5:00 p.m. Job sharing may be desirable for people who want to work only part time or when job markets are tight. For its part, the organization can accommodate the preferences of a broader range of employees and may benefit from the talents of more people.

Telecommuting is becoming more and more common and can often help enhance employee commitment and motivation. This man is spending his morning working from home. He has served breakfast to his daughter and is now discussing a work issue with a colleague. The flexibility afforded to him by his employer helps him function more effectively as both a parent and an employee.

© iofoto/ Shutterstock.com

Telecommuting

An increasingly popular approach to alternative work arrangements is 
telecommuting
—allowing employees to spend part of their time working offsite, usually at home. By using various forms of digital communication, many employees can maintain close contact with their organization and still get just as much—or even more—work done at home as if they were in their office.

The increased power and sophistication of modern communication technology are making telecommuting easier and easier. One recent study found that 50 percent of the U.S. workforce (75 million workers) is in jobs that allow for partial or complete telecommuting. Nearly half of AT&T’s employees have received mobile and remote access technologies that provide them with the flexibility to work from various locations. Nearly 82 percent of Intel’s employees are regular telecommuters, and 85 percent of Cisco’s employees work remotely. Cisco estimates that telecommuting has saved the company over $277 in productivity.

10-6Using Reward Systems to Motivate Performance

Aside from these types of motivational strategies, an organization’s reward system is its most basic tool for managing employee motivation. An organizational 
reward system
 is the formal and informal mechanisms by which employee performance is defined, evaluated, and rewarded. Rewards that are tied specifically to performance, of course, have the greatest potential for enhancing both motivation and actual performance. But managing rewards and motivation is not always as easy as it might first seem.

Performance-based rewards play a number of roles and address a variety of purposes in organizations. The major purposes involve the relationship of rewards to motivation and to performance. Specifically, organizations want employees to perform at relatively high levels and need to make it worth their effort to do so. When rewards are associated with higher levels of performance, employees will presumably be motivated to work harder to achieve those awards. At that point, their own self-interests coincide with the organization’s interests. Performance-based rewards are also relevant regarding other employee behaviors, such as retention and citizenship.

10-6aMerit Reward Systems

Merit reward systems are one of the most fundamental forms of performance-based rewards. 
Merit pay
 generally refers to pay awarded to employees on the basis of the relative value of their contributions to the organization. Employees who make greater contributions are given higher pay than those who make lesser contributions. 
Merit pay plan
, then, are compensation plans that formally base at least some meaningful portion of compensation on merit.

The most general form of merit pay plan is to provide annual salary increases to individuals in the organization based on their relative merit. Merit, in turn, is usually determined or defined based on the individual’s performance and overall contributions to the organization. For example, an organization using such a traditional merit pay plan might instruct its supervisors to give all their employees an average pay raise of, say, 4 percent. But the individual supervisor may be further instructed to differentiate among high, average, and low performers. Under a simple system, for example, a manager might give the top 20 percent of her employees a 7 percent pay raise, the middle 60 percent a 5 percent or average pay raise, and the bottom 20 percent a 3 percent pay raise.

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10-6bIncentive Reward Systems

Incentive reward systems are among the oldest forms of performance-based rewards. For example, some companies were using individual piece-rate incentive plans over 100 years ago. Under a 
piece-rate incentive plan
, the organization pays an employee a certain amount of money for every unit he or she produces. For example, an employee might be paid $5 for every dozen units of products that are successfully completed. But such simplistic systems fail to account for facts such as minimum wage levels and rely very heavily on the assumptions that performance is totally under an individual’s control and that the individual employee does a single task continuously throughout his or her work time. As a result, most organizations today that try to use incentive compensation systems use more sophisticated methodologies.

Doing Business on Planet Earth

M(otivation) p(er) G(allon)

Drivers for private truck fleets log about 20,000 miles a year. They drive 82 percent of all medium- and heavy-duty vehicles in the United States and account for 52 percent of the total miles traveled by commercial motor vehicles (CMVs). “The way these employees drive,” says veteran industry journalist Mike Antich, “can either increase or decrease fuel economy and greenhouse gas emissions. If you change driving behavior,” Antich argues, “you have a direct impact on the amount of fuel consumed and the amount of emissions produced. Even small increases in mpg” can make a big difference, and Antich points out that fuel-conscious fleet managers have reported up to 30 percent reductions in fuel consumption by changing driver behavior.”

How? By motivating drivers to comply with company sustainability policies. Unfortunately, of course, it’s not that simple. Most drivers, according to Antich, “want to do the right thing but don’t see sustainability as part of their job responsibilities. In fact, the No. 1 reason corporate sustainability programs are not ‘sustainable’ is driver noncompliance. A successful sustainability initiative,” says Antich, “requires developing programs that motivate employees to comply.” He goes on to argue that effective motivational programs often involve gainsharing—programs designed to share company cost savings with employees.

Again, however, implementing the solution isn’t quite as easy as identifying it. Traditionally, observes Antich, gainsharing involves financial incentives, but he admits that “in today’s cost-constrained business environment, offering financial incentives [may not be] a realistic option.” Consequently, many firms have found that individual recognition can be an effective alternative to financial incentives: “Repeatedly,” says Antich, “respondents to employee surveys rate ‘individual recognition’ as a key factor that motivates them to want to excel or achieve corporate objectives.”

Both scientific studies and the experiences of various companies show that the importance of employee recognition—including financial rewards—should not be underestimated in sustainability efforts, primarily because the importance of individual behavior should not be underestimated. According to a report by Jones Lang LaSalle (JLL), a professional-services and investment-management company, many companies with active efficiency programs are finding that further improvements in sustainability can be achieved only by turning to the people who are responsible for implementing those programs. “The low-hanging fruit has been plucked,” JLL’s Michael Jordan advises clients. “You now need the participation of humans.”

Nussbaum Transportation, for example, has developed a software program called Driver Excelerator, which collects and analyzes fuel-related data from various sources, including electronic control devices for capturing miles per gallon (mpg) numbers. Using the resulting data, managers award points to drivers of the 230-truck fleet for beating the company’s mpg goal. If, for instance, a driver achieves an average quarterly mpg of 8.5 against a goal of 6.5, he or she receives 200 points, which are allotted according to a three-tier system: Bronze pays $0.50 per point, Silver $5.00 per point, and Gold $8.00 per point. Some drivers in the Gold tier earn an extra $1,600 every three months.

Illinois-based Nussbaum was careful to reject an “all-or-nothing” system in which drivers received a bonus for meeting a target and nothing for falling short. “Our experience,” says HR Director Jeremy Stickling, “shows that that’s a big de-motivator” because drivers who miss out tend to blame external circumstances such as weather or load weights. In fact, Nussbaum plans to make mileage-based performance rewards a bigger portion of drivers’ base-pay rate. The idea is for drivers to get higher monthly checks instead of big quarterly bonus checks. “Guys want their money now,” notes Stickling.

References: Mike Antich, “Using ‘Gainsharing’ to Achieve Sustainability Goals,” Automotive Fleet, www.automotive-fleet.com, accessed on March 10, 2017; Jones Lang LaSalle, “Employee Sustainability Engagement,” 2014, www.joneslanglasalle.com, accessed on March 10, 2017; American Transportation Research Institute, “The Role of Truck Drivers in Sustainability,” 2012, http://atri-online.org, accessed on March 10, 2017; and Aaron Huff, “Performance-Based Pay, Part 1: The Science of Scoring Drivers,” Commercial Carrier Journal, December 18, 2013, www.ccjdigital.com, accessed on March 10, 2017.

Incentive Pay Plans

Generally speaking, individual incentive plans reward individual performance on a real-time basis. In other words, rather than increasing a person’s base salary at the end of the year, an individual instead receives some level of financial reward in conjunction with demonstrated outstanding performance in close proximity to when that performance occurred. Individual incentive systems are most likely to be used in cases in which performance can be objectively assessed in terms of number of units of output or similar measures, rather than on a subjective assessment of performance by a superior.

Some variations of piece-rate systems are still fairly popular. Although many of these still resemble the early plans in most ways, a well-known piece-rate system at Lincoln Electric illustrates how an organization can adapt the traditional model to achieve better results. For years, Lincoln’s employees were paid individual incentive payments based on their performance. However, the amount of money shared (or the incentive pool) was based on the company’s profitability. There was also a well-organized system whereby employees could make suggestions for increasing productivity. There was motivation to do this because the employees received one-third of the profits (another third went to the stockholders, and the last share was retained for improvements and seed money). Thus the pool for incentive payments was determined by profitability, and an employee’s share of this pool was a function of his or her base pay and rated performance based on the piece-rate system. Lincoln Electric was most famous, however, because of the stories (which were apparently typical) of production workers’ receiving a year-end bonus payment that equaled their yearly base pay. In recent years, Lincoln has partially abandoned its famous system for business reasons, but it still serves as a benchmark for other companies seeking innovative piece-rate pay systems.

Perhaps the most common form of individual incentive is sales commissions that are paid to people engaged in sales work. For example, sales representatives for consumer products firms and retail sales agents may be compensated under this type of commission system. In general, the person might receive a percentage of the total volume of attained sales as his or her commission for a period of time. Some sales jobs are based entirely on commission, while others use a combination of base minimum salary with additional commission as an incentive. Notice that these plans put a considerable amount of the salespersons’ earnings “at risk.” In other words, although organizations often have drawing accounts to allow the salespeople to have income during lean periods (they then “owe” this money back to the organization), if they do not perform well, they will not be paid much. The portion of salary based on commission is simply not guaranteed and is paid only if sales reach some target level.

Sales commissions are among the most common forms of incentive pay plans. This retail sales person, for example, earns a base hourly wage. However, she also earns additional income based on the total volume of sales she generates each week. So, she is incentivized to sell as much merchandise as possible because doing so increases her own pay.

Robert Kneschke/ Shutterstock.com

Other Forms of Incentive

Occasionally organizations may also use other forms of incentives to motivate people. For example, a nonmonetary incentive, such as additional time off or a special perk, might be a useful incentive. For example, a company might establish a sales contest in which the sales group that attains the highest level of sales increase over a specified period of time will receive an extra week of paid vacation, perhaps even at an arranged place, such as a beach resort or a ski lodge.

A major advantage of incentives relative to merit systems is that incentives are typically a one-time reward and do not accumulate by becoming part of the individual’s base salary. Stated differently, an individual whose outstanding performance entitles him or her to a financial incentive gets the incentive only one time, based on that level of performance. If the individual’s performance begins to erode in the future, then the individual may receive a lesser incentive or perhaps no incentive in the future. As a consequence, his or her base salary remains the same or is perhaps increased at a relatively moderate pace; he or she receives one-time incentive rewards as recognition for exemplary performance. A recent survey suggests that more companies are indeed shifting incentive compensation to the form of annual bonuses. For instance, in 2017, 64 percent of large U.S. companies provided individual incentive bonuses and almost one-third of those not providing bonuses indicated they were considering doing so in the future.

Furthermore, because these plans, by their very nature, focus on one-time events, it is much easier for the organization to change the focus of the incentive plan. At a simple level, for example, an organization can set up an incentive plan for selling one product during one quarter, but then shift the incentive to a different product the next quarter, as the situation requires.

10-6cTeam and Group Incentive Reward Systems

The merit compensation and incentive compensation systems described in the preceding sections deal primarily with performance-based reward arrangements for individuals. There also exists a different set of performance-based reward programs that are targeted for teams and groups. These programs are particularly important for managers to understand today, given the widespread trends toward team- and group-based methods of work and organizations.

Common Team and Group Reward Systems

There are two commonly used types of team and group reward systems. One type is called gainsharing. 
Gainsharing programs
 are designed to share the cost savings from productivity improvements with employees. The underlying assumption of gainsharing is that employees and the employer have the same goals and thus should appropriately share in incremental economic gains.

In general, organizations that use gainsharing start by measuring team- or group-level productivity. It is important that this measure be valid and reliable and that it truly reflects current levels of performance by the team or group. The team or work group itself is then given the charge of attempting to lower costs or otherwise improve productivity through any measures that its members develop and its manager approves. Resulting cost savings or productivity gains that the team or group is able to achieve are then quantified and translated into dollar values. A predetermined formula is then used to allocate these dollar savings between the employer and the employees themselves. A typical formula for distributing gainsharing savings is to provide 25 percent to the employees and 75 percent to the company.

One specific type of gainsharing plan is an approach called the Scanlon plan. This approach was developed by Joseph Scanlon in 1927. The 
Scanlon plan
 has the same basic strategy as gainsharing plans, in that teams or groups of employees are encouraged to suggest strategies for reducing costs. However, the distribution of these gains is usually tilted much more heavily toward employees, with employees usually receiving between two-thirds and three-fourths of the total cost savings that the plan achieves. Furthermore, the distribution of cost savings resulting from the plan is given not just to the team or group that suggested and developed the ideas but across the entire organization.

Other Types of Team and Group Rewards

Although gainsharing and Scanlon-type plans are among the most popular group incentive reward systems, there are other systems that are also used by some organizations. Some companies, for example, have begun to use true incentives at the team or group level. Just as with individual incentives, team or group incentives tie rewards directly to performance increases. And, like individual incentives, team or group incentives are paid as they are earned rather than being added to employees’ base salary. The incentives are distributed at the team or group level, however, rather than at the individual level. In some cases, the distribution may be based on the existing salary of each employee, with incentive bonuses being given on a proportionate basis. In other settings, each member of the team or group receives the same incentive pay.

Some companies also use nonmonetary rewards at the team or group level—most commonly in the form of prizes and awards. For example, a company might designate the particular team in a plant or subunit of the company that achieves the highest level of productivity increase, the highest level of reported customer satisfaction, or a similar index of performance. The reward itself might take the form of additional time off, as described earlier in this chapter, or a tangible award, such as a trophy or plaque. In any event, the idea is that the reward is at the team level and serves as recognition of exemplary performance by the entire team.

There are also other kinds of team or group level incentives that go beyond the contributions of a specific work group. These are generally organization-wide kinds of incentives. One long-standing method for this approach is profit sharing. In a profit-sharing approach, at the end of the year, some portion of the company’s profits is paid into a profit-sharing pool that is then distributed to all employees. Either this amount is distributed at that time, or it is put into an escrow account and payment is deferred until the employee retires.

Employee stock ownership plans (ESOPs) also represent a group-level reward system that some companies use. Under the ESOP, employees are gradually given a major stake in ownership of a corporation. The typical form of this plan involves the company’s taking out a loan, which is then used to buy a portion of its own stock in the open market. Over time, company profits are then used to pay off this loan. Employees, in turn, receive a claim on ownership of some portion of the stock held by the company, based on their seniority and perhaps on their performance. Eventually, each individual becomes an owner of the company.

10-6dExecutive Compensation

The top-level executives of most companies have separate compensation programs and plans. These are intended to reward these executives for their performance and for the performance of the organization.

Standard Forms of Executive Compensation

Most senior executives receive their compensation in two forms. One form is a base salary. As with the base salary of any staff member or professional member of an organization, the base salary of an executive is a guaranteed amount of money that the individual will be paid. For example, Mondelēz CEO Irene Rosenfeld earns $1,500,000 in base salary.

Above and beyond this base salary, however, most executives also receive one or more forms of incentive pay. The traditional method of incentive pay for executives is in the form of bonuses. Bonuses, in turn, are usually determined by the performance of the organization. Thus, at the end of the year, some portion of a corporation’s profits may be diverted into a bonus pool. Senior executives then receive a bonus expressed as a percentage of this bonus pool. The CEO and president are obviously likely to get a larger percentage bonus than a vice president. The exact distribution of the bonus pool is usually specified ahead of time in the individual’s employment contract. Some organizations intentionally leave the distribution unspecified, so that the board of directors has the flexibility to give larger rewards to those individuals deemed to be most deserving. Mondelēz’s Irene Rosenfeld has received a cash bonus of about $4.2 million each of the last three years.

Special Forms of Executive Compensation

Beyond base salary and bonuses, some executives receive other kinds of compensation as well. A form of executive compensation that has received a lot of attention in recent years has been various kinds of stock options. A 
stock option plan
 is established to give senior managers the option to buy company stock in the future at a predetermined fixed price. The basic idea underlying stock option plans is that if the executives contribute to higher levels of organizational performance, then the company stock should increase in value. Then the executive will be able to purchase the stock at the predetermined price, which theoretically should be lower than its future market price. The difference then becomes profit for the individual. Mondelēz awarded Irene Rosenfeld stock options with a potential value of $9.7 million in 2016.

Stock options continue to grow in popularity as a means of compensating top managers. Options are seen as a means of aligning the interests of the manager with those of the stockholders, and given that they do not cost the organization much (other than some possible dilution of stock values), they will probably be even more popular in the future. In fact, a study by KPMG indicates that for senior management whose salary exceeds $250,000, stock options represent the largest share of the salary mix (relative to salary and other incentives). Furthermore, when we consider all of top management (annual salary over $750,000), stock options comprise a full 60 percent of their total compensation. And the KPMG report indicates that even among exempt employees at the $35,000-a-year level, stock options represent 13 percent of total compensation.

Top executives often get perquisites, or “perks,” in addition to their salary, bonuses, and stock options. Access to corporate planes is a common perk in some companies.

Tom Kuest – Fotograf/ Shutterstock.com

But events in recent years have raised serious questions about the use of stock options as incentives for executives. For example, several executives at Enron allegedly withheld critical financial information from the markets, cashed in their stock options (while Enron stock was trading at $80 a share), and then watched as the financial information was made public and the stock fell to less than $1 a share. Of course, these actions (if proven) are illegal, but they raise questions in the public’s mind about the role of stock options and about the way organizations treat stock options from an accounting perspective. Most organizations have not treated stock options as liabilities, even though, when exercised, they are exactly that. There is concern that by not carrying stock options as liabilities, organizations may be overstating the value of the company, which, of course, can help raise the stock price. Another concern with options is that executives may be tempted to make decisions that provide a short-term boost in stock prices to benefit themselves but that actually hurt the company in the long run. Finally, when stock prices drop unexpectedly executives may find that their options are worthless, if the price of the stock falls below the option price.

Aside from stock option plans, other kinds of executive compensation are also used by some companies. Among the more popular are perquisites such as memberships in private clubs, access to company recreational facilities, and similar considerations. Some organizations also make available to senior executives low- or no-interest loans. These are often given to new executives whom the company is hiring from other companies and serve as an incentive for the individual to leave his or her current job to join a new organization. Mondelēz’s Irene Rosenfeld received slightly more than $150,000 in other compensation during 2016 for things such as perks and payment of life insurance.

Criticisms of Executive Compensation

In recent years, executive compensation has come under fire for a variety of reasons. One major reason is that the levels of executive compensation attained by some managers simply seem too large for the average shareholder to understand. It is common, for instance, for a senior executive of a major corporation to earn total income from his or her job in a given year of well in excess of $1 million, and many CEOs earn far more than this. Thus, just as the typical person has difficulty comprehending the astronomical salaries paid to some movie stars and sports stars, so, too, would the average person be hard pressed to explain the high salaries paid to some senior executives.

Compounding the problem created by perceptions of executive compensation is the fact that there often seems to be little or no relationship between the performance of the organization and the compensation paid to its senior executives. Certainly, if an organization is performing at an especially high level and its stock price is increasing consistently, then most observers would agree that the senior executives responsible for this growth should be entitled to substantial rewards. However, it is more difficult to understand a case in which executives are paid large salaries and other forms of rewards when their company is performing at only a marginal level, yet this is fairly common today.

Finally, we should note that the gap between the earnings of the CEO and the earnings of a typical employee is also frequently very large, and the size of the gap has been increasing in the United States. In 1980 the typical CEO earned 42 times the earnings of an ordinary worker; by 1990 this ratio had increased to 85 times the earnings of an ordinary worker; in 2013 the ratio was 354 times the earnings of a typical worker. In Japan, on the other hand, the CEO-to-worker pay ratio is 67 times; in Germany, the ratio is 147 times.

10-6eNew Approaches to Performance-Based Rewards

Some organizations have started to recognize that they can leverage the value of the incentives that they offer to their employees and to groups in their organization by allowing those individuals and groups to have a say in how rewards are distributed. For example, at the extreme, a company could go so far as to grant salary increase budgets to work groups and then allow the members of those groups themselves to determine how the rewards are going to be allocated among the various members of the group. This strategy would appear to hold considerable promise if everyone understands the performance arrangements that exist in the work group and if everyone is committed to being fair and equitable. Unfortunately, it can also create problems if people in a group feel that rewards are not being distributed fairly.

Organizations are also getting increasingly innovative in their incentive programs. For example, some now offer stock options to all their employees, rather than just top executives. In addition, some firms are looking into ways to purely individualize reward systems. For instance, a firm might offer one employee a paid three-month sabbatical every two years in exchange for a 20 percent reduction in salary. Another employee in the same firm might be offered a 10 percent salary increase in exchange for a 5 percent reduction in company contributions to the person’s retirement account. Corning, General Electric, and Microsoft are among the firms closely studying this option.

Regardless of the method used, however, it is also important that managers in an organization effectively communicate what rewards are being distributed and the basis for that distribution. In other words, if incentives are being distributed on the basis of perceived individual contributions to the organization, then members of the organization should be informed of that fact. This will presumably better enable them to understand the basis on which pay increases and other incentives and performance-based rewards have been distributed.

Chapter Review

Summary of Learning Outcomes and Key Points

1. Characterize the nature of motivation, including its importance and basic historical perspectives.

· Motivation is the set of forces that cause people to behave in certain ways.

· Motivation is an important consideration for managers because it, along with ability and environmental factors, determines individual performance.

2. Identify and describe the major content perspectives on motivation.

· Content perspectives on motivation are concerned with what factors cause motivation.

· Popular content theories include Maslow’s hierarchy of needs and Herzberg’s two-factor theory.

· Other important needs are the needs for achievement, affiliation, and power.

3. Identify and describe the major process perspectives on motivation.

· Process perspectives on motivation deal with how motivation occurs.

· Expectancy theory suggests that people are motivated to perform if they believe that their effort will result in high performance, that this performance will lead to rewards, and that the positive aspects of the outcomes outweigh the negative aspects.

· Equity theory is based on the premise that people are motivated to achieve and maintain social equity.

· Goal-setting theory assumes people are motivated by goals that are challenging and specific.

4. Describe reinforcement perspectives on motivation.

· The reinforcement perspective focuses on how motivation is maintained.

· Its basic assumption is that behavior that results in rewarding consequences is likely to be repeated, whereas behavior resulting in negative consequences is less likely to be repeated.

· Reinforcement contingencies can be arranged in the form of positive reinforcement, avoidance, punishment, and extinction, and they can be provided on fixed-interval, variable-interval, fixed-ratio, or variable-ratio schedules.

5. Identify and describe popular motivational strategies.

· Managers use a variety of motivational strategies derived from the various theories of motivation.

· Common strategies include empowerment and participation and alternative forms of work arrangements, such as variable work schedules, flexible work schedules, and telecommuting.

6. Describe the role of organizational reward systems in motivation.

· Reward systems also play a key role in motivating employee performance.

· Popular methods include merit reward systems, incentive reward systems, and team and group incentive reward systems.

· Executive compensation is also intended to serve as motivation for senior managers but has currently come under close scrutiny and criticism.

Chapter Review

Discussion Questions

Questions for Review

1. Summarize Maslow’s hierarchy of needs and the two-factor theory. In what ways are they similar and in what ways are they different?

2. Compare and contrast content, process, and reinforcement perspectives on motivation.

3. Using equity theory as a framework, explain how a person can experience inequity because he or she is paid too much. What are the potential outcomes of this situation?

4. Explain how goal-setting theory works. How is goal setting different from merely asking a worker to “do your best”?

5. Describe some new forms of working arrangements. How do these alternative arrangements increase motivation?

Chapter Review

Experiential Exercise

Motivation at Bluefield

Bob works for a fast-growing manufacturer of cosmetics at their oldest plant in Bluefield, West Virginia. Bob has an MBA from State University and began his career at Bluefield in the Human Resource Department. He got his first big chance when the company, facing increased problems with the local minority community, put Bob in charge of a new affirmative action program. Bob is proud of his success in that position. His supervisors were also impressed and promoted him to the position of Manager of Machine Operations. He managed a workforce of 74 employees through 7 supervisors. He’s held this job for only one year.

There is a new program to revitalize operations at Bluefield. Bob, because of his earlier success, has been assigned the task of developing a motivation plan for his seven subordinate supervisors. Bob needs to review the personnel files and try to identify the needs or motivators for each supervisor. To provide a working framework for the study, Bob decides to use both Maslow’s hierarchy of needs and Herzberg’s two-factor theory, as shown on the Need/Motivation Worksheet given later in the chapter.

Bob divides the worksheet into three sections:

· (1)

Maslow’s needs,

· (2)

motivation factors, and

· (3)

hygiene factors.

In each category, he plans to rank the appropriate items for each supervisor, using a 1 for the top ranking, a 2 for the second ranking, and so on.

Instructions

1. Read the following personnel files. In addition to other data, each profile contains a supervisor’s performance measure (PM). This is a score assigned by a computer-based productivity program developed by industrial engineering. The program uses a variety of cost and output figures to calculate a PM for each supervisor on a scale ranging from 0 (representing very poor performance) to 100 (nearly perfect performance).

2. Then, as a small group, use the following Need/Motivation Worksheet to rank the relative importance of each of the motivators for each supervisor. Rank within groups—1 to 5 for Maslow’s needs, then 1 to 5 for motivation factors, and then 1 to 6 for hygiene factors.

3. Present your group findings to the class and discuss.

Bluefield Plant Supervisor Profiles

JOHN MILLER is the senior supervisor with 21 years of seniority. He is 60 years old and has only a sixth-grade education. His most recent PM score is 50, which is lower than it used to be. John’s past appraisals suggest that he has done an average job in the past, and Bob thinks his performance is still average and is sorry to see John’s performance declining. His peers are convinced that John is too old to cut the mustard. Bob thinks that John has the easiest job in the group. John is a widower who spends a lot of time at his cabin by the lake. His current salary is $45,000.

MOHAMMAD NAJEED is 52 with 16 years with the firm. His PM is 70 and his salary is $38,000. Mohammad is a high school graduate, and his wife is quite wealthy. Bob believes that Mohammad has the best overall experience in the group and is a very capable supervisor, although his peers rank him average, the same as his past evaluations. Mohammad supervises a group that has about average responsibilities.

TANIKA FORESTER is 36 with 10 years of seniority. She has a B.S. in management, a PM of 80, and a salary of $31,000. Bob feels she has one of the easier jobs and is doing only a so–so job. He is surprised to find that her earlier appraisals have been very good, an evaluation shared by her peers. Tanika’s husband was killed in a car accident, and she has three dependent children.

TOM WILSON is 44 with 1 year with the company. Tom has a high school diploma, a PM of 50, and a salary of $28,000. Tom has the hardest group to supervise, but his earlier appraisals have only been average, an opinion shared by Tom’s peers. Bob agrees that Tom’s performance is average and is concerned that it might get worse as Tom seems to be having too many personal problems lately.

SIDNEY BENTON is 35 and has 8 years of seniority, a PM of 80, and a salary of $26,000. Sidney has a B.S. in industrial technology and is enrolled in state’s night MBA program. Sidney has a difficult job, requiring specialized skills, and he would be very hard to replace. Bob believes Sidney to be a top supervisor, an opinion shared by his peers. But Bob is troubled by past appraisals that vary from outstanding to poor.

LI TRAN is 32 with 5 years at the plant, a PM of only 30, and a salary of $22,000. She is a high school dropout who quit school to have her first child. She is a single parent with four children and works very hard to support them. Li represents one of the affirmative action promotions that Bob arranged when he was the Affirmative Action Officer, and he is disappointed to find that her past and present appraisals are quite poor. Although her present job is perceived to require average skill, her peers consider her to be an incompetent troublemaker who constantly complains about the need for more affirmative action efforts at the plant.

LUIS FUENTES is 26, has only 2 years with the company, a PM of only 20, and a salary of $19,000. He dropped out of school to take care of his sick mother and two younger sisters. Bob hired Luis as part of the affirmative action program. Luis’s first appraisal was low, but Bob believes that was because he was in a job requiring too much experience. So Bob moved him to a job with more average demands. Bob thinks that Luis is doing a bit better in the new job and, in time, will be a good supervisor. Peer evaluations are somewhat mixed but above average.

Need/Motivation Worksheet

(In each category rank the appropriate items for each supervisor. , , etc.)

Need/Factor	John Miller	Mohammed Najeed	Tanika Forester	Tom Wilson	Sidney Benton	Li Tran	Luis Fuentes
Maslow’s Needs
Physiological
Security
Belongingness
Esteem
Self-actualization
Motivation Factors
Achievement
Recognition
Work itself
Responsibility
Advancement/growth
Hygiene Factors
Supervision
Working conditions
Interpersonal
Pay
Security
Policy and administration

Adapted from Morable, Exercises in Management, to accompany Griffin, Management, 8th edition.

edition.

Chapter Review

Building Effective Decision-Making Skills

Exercise Overview

Decision-making skills refer to the ability to recognize and define problems and opportunities correctly and then to select an appropriate course of action for solving problems or capitalizing on opportunities. This exercise allows you to build your decision-making skills while applying goal-setting theory to the task of planning your career.

Exercise Background

Lee Iacocca started his career at Ford in 1946 in an entry-level engineering job. By 1960, he was a vice president and in charge of the group that designed the Mustang, and ten years later, he was a president of the firm. After being fired from Ford in 1978, he then became a president at Chrysler and eventually rose to the CEO spot, a job he held until he retired in 1992. What’s really remarkable about Iacocca’s career arc—at least the upward trajectory—is the fact that he apparently had it all planned out, even before he finished college.

The story goes that, while he was still an undergraduate, Iacocca wrote out a list of all the positions that he’d like to hold during his career. Number one was “engineer at an auto maker,” followed by all the career steps that he planned to take until he was a CEO. He also included a timetable for his climb up the corporate ladder. Then he put his list on a three-by-five-inch card that he folded and stowed in his wallet, and we’re told that every time he took out that card and looked at it, he gained fresh confidence and drive. He apparently reached the top several years ahead of schedule, but otherwise he followed his career path and timetable faithfully.

As you can see, Iacocca used goal-setting theory to motivate himself, and there’s no reason why you can’t do the same.

Exercise Task

1. Consider the position that you’d like to hold at the peak of your career. It may be CEO, owner of a chain of clothing stores, partner in a law or accounting firm, or president of a university. Then again, it may be something less lofty. Whatever it is, write it down.

2. Now describe a career path that will lead you toward that goal. It may help to work “backward”—that is, starting with your final position and working backward in time to some entry-level job. If you aren’t sure about the career path that will lead to your ultimate goal, do some research. Talk to someone in your selected career field, ask an instructor who teaches in it, or go online. The website of the American Institute of Certified Public Accountants, for example, has a section on “Career Resources,” which includes information about career paths and position descriptions for accounting.

3. Write down each step in your path on a card or a sheet of paper.

4. If, like Lee Iacocca, you were to carry this piece of paper with you and refer to it often as you pursued your career goals, do you think it would help you achieve them? Why or why not?

Chapter Review

Management at Work

Engaged to Be Motivated

“I don’t mind people throwing darts at higher ed, but it doesn’t have to take the blame for everything.”

—Philip D. Gardner, director, Michigan State University

Collegiate Employment Research Institute

Fact 1: If you graduate from college, you’re more likely to get a full-time job than if you hadn’t. Fact 2: If you graduate from college, you’ll probably enjoy higher lifetime earnings than if you hadn’t. Fact 3: If you graduate from college, you’re less likely to be engaged in your work than if you hadn’t.

That’s right—less likely. To be fair, Fact 3 doesn’t reflect much of a difference: According to a Gallup survey released in 2013, only 28.3 percent of graduates are “involved in and enthusiastic about” their work, compared to 32.7 percent of people who didn’t go beyond high school. Even so, Brandon Busteed of Gallup Education finds the survey results “really stunning. Given that what we all expect out of college is something better,” he explains, “you’d think that college graduates are way more engaged in careers than everybody else.”

Does the apparent problem lie with colleges or with workplaces? Not surprisingly, the answer is both. Let’s start with colleges. First of all, it doesn’t appear to make any difference what kind of college a person went to—large or small, public or private, prestigious or mid-tier public: The percentages not only of those engaged at work but of those “thriving” in all areas of personal “well-being” are roughly the same (with graduates of for-profit schools faring not quite as well).

It would appear, then, that colleges of all types are failing to provide the kind of experiences that result in high levels of workplace engagement. Have you, for example, encountered a professor who cared about you personally, got you excited about learning, or encouraged you to pursue your dreams? If so, you have been “emotionally supported,” and your odds of being engaged at work (and of thriving in your well-being) have probably doubled. Have you had a job or internship that let you apply what you’ve been learning in college, worked on any projects that took a semester or more to complete, or been involved in extracurricular activities? If you’ve had the advantage of these forms of “experiential and deep learning,” you’re also twice as likely to be engaged and thriving. Unfortunately, only 14 percent of graduates could answer yes to the first set of criteria and only 6 percent to the second set. As for all six experiences, a mere 3 percent said yes. On individual measures, although 63 percent said that a teacher had fired them up about a subject, only 32 percent had ever worked on a long-term project, and only 22 percent had found mentors who encouraged them.

“It’s literally about higher education in general,” suggests Busteed. “There’s something about the process and the experience that’s preventing graduates from getting to a place where they’re doing what they’re best at.” Busteed suspects that, without strong mentorship, college students fail to set clear career paths, and as a result, too many of them fall into one of two traps:

1. getting stuck in jobs for which they’re overqualified, or

2. resorting to such “fall-back” career paths as law school and investment banking.

“I think we’re kind of caught up in preconceived notions of what success should look like,” says Busteed, “and it’s landing a lot of college graduates in the wrong place.” Some educators agree. “The particular value of [the Gallup] survey,” says Harold V. Hartley III, senior VP of the Counsel of Independent Colleges, “is that it looks at outcomes that are different from the outcomes that we typically look at—like did you get a job, what’s your salary, and those kinds of things.”

Not surprisingly, however, many educators are unconvinced that colleges should bear the brunt of the survey’s findings. “There’s kind of a half-empty, half-full story here,” says Alexander McCormick, director of the National Survey of Student Engagement. He points out, for instance, that the survey classifies 55 percent of the respondents as “not engaged” and argues that although these people are not emotionally connected to their workplaces, neither are they dissatisfied with them. Philip D. Gardner, director of Michigan State University’s Collegiate Employment Research Institute, adds that the Gallup survey fails to account for differences in individual goals and goal-oriented behavior. Highly educated people, he observes, don’t settle into jobs as quickly as most people, and younger workers are less likely to consider work critical to their identities or well-being.

Mark Schneider, VP of the American Institutes for Research, a nonprofit organization that conducts social-science and behavioral research, contends that the Gallup survey reveals interesting correlations (between, for example, college and workplace experiences) but falls short in providing any causative explanations. Take, for example, a graduate who reports the following correlation: She had an internship at college and is engaged in her work. What if this graduate was personally motivated to find the internship and is engaged in her work because she brings the same level of personal motivation to her job? The Gallup survey suggests that there is a cause-and-effect relationship between the college experience (the internship) and the workplace experience (engagement). The conclusion, however, does not necessarily follow because personal motivation may be the most significant factor in both experiences.

A critical question, it would seem, remains unaddressed: Which motivational behavior came first—acting on personal motivation (such as seeking the experience of the internship) or acting on learned motivation (such as applying the lessons learned through the internship to the postgraduation workplace)? Even Busteed admits that the survey’s results may suffer from a “chicken-and-egg problem.”

Which brings us to the implications of the survey results for business. As we’ve already seen, the survey is ultimately as much concerned with productivity and motivation in the workplace as with workplace preparation in college. According to Busteed, the survey’s findings provide “a formula for something that alters life and career trajectory.… It’s all actionable, by way of who we hire and how we incentivize and reward.” The report thus suggests that colleges should do a better job of preparing students to get jobs in workplaces in which they’ll be engaged—that is, in which they’ll be working at something that they’re good at and like for organizations that care about their work.

Philip Gardner, for one, thinks that the problem reflects workplace experiences as much as higher-education experiences. “I don’t mind people throwing darts at higher ed, but it doesn’t have to take the blame for everything,” he says, and many researchers and consultants feel that employers should focus more clearly on the personal motivation that each individual brings to the workplace. According to The Fortune Group, for instance, which provides personal-development training for businesses, “motivation is internal and personal. Within each person, there has to be that drive or will to succeed, and if it’s not there, no one can synthetically put it there.”

If a company wants to increase “motivation and engagement in the workplace,” says the consultancy, it must “create a climate or an environment in which people’s natural abilities and internal motivations are allowed to come to the fore.” In fact, The Fortune Group operates on the assumption that “employees don’t perform because someone or something interferes with their desire or ability to perform.” Task interference, for example, “could be something the employee doesn’t have, such as proper resources, tools, or training.” Another form of interference, consequence imbalance, occurs when employees are “doing the right things but aren’t getting recognition for it.” Like task interference, it should be classified as “mismanagement” because it “creates an imbalance that interferes with people’s desire and/or ability to perform.”

Case Questions

1. Consider each of the following perspectives on motivation: needs hierarchy, two-factor theory, expectancy theory, equity theory, and goal-setting theory. How does each of these perspectives depend upon learned motivation? On personal motivation?

2. What about you? Which form of motivation—learned motivation or personal motivation—has played a greater role in your pursuit of your goals, whether in school, at work, or in both areas? Given this assessment of your own experience with motivation, which of the motivational perspectives listed in Question 1 is most likely to help you in your work life? Whatever your answers to these questions, be sure to give examples from your own experience.

3. The theory that too few students get the help they need in setting clear career paths suggests that colleges should provide more career counseling. However, according to the National Survey of Student Engagement, only 43 percent of college seniors talked very often or often about career plans with a faculty member or adviser; 39 percent did sometimes, and 17 percent never did. How about you? Have you sought career advice or counseling from resources available at your school? Do you plan to? Have you sought advice elsewhere? If so, where elsewhere and why elsewhere?

4. The Gallup survey measured levels of engagement by asking respondents whether they agreed or disagreed with several statements about postgraduation work experiences. Here are six of those statements:

· I have opportunities to learn and grow.

· My opinions seem to count.

· I have the opportunity to do what I do best every day.

· I have the tools and resources I need to do my job.

· My supervisor encourages my development.

· I know what is expected of me.

List these six statements in their order of importance to you as probable factors in your satisfaction with a job. Be prepared to discuss your priorities.

[Note: One of these statements proved to be the strongest predictor of workplace engagement among all of the statements in the survey. Your instructor can tell you which one it is after you’ve drawn up and discussed your list.]

Case References

Julie Ray and Stephanie Kafka, “Life in College Matters for Life after College,” Gallup Inc., May 6, 2014, www.gallup.com, accessed on March 10, 2017; Allie Grasgreen, “College Grads Less Engaged in Work than Those with Less Education, Survey Finds,” Inside Higher Ed, July 18, 2013, www.insidehighered.com, accessed on March 10, 2017; Ry Rivard, “Gallup Surveys Graduates to Gauge Whether and Why College Is Good for Well-Being,” Inside Higher Ed, May 6, 2014, www.insidehighered.com, accessed on March 10, 2017; Scott Carlson, “A Caring Professor May Be Key in How a Graduate Thrives,” Chronicle of Higher Education, May 6, 2014, http://chronicle.com, accessed on March 10, 2017; Grasgreen, “Gallup-Purdue Study Will Measure Graduates’ Quality of Life Outcomes,” Inside Higher Ed, December 17, 2013, www.insidehighered.com, accessed on March 10, 2017; The Fortune Group, “How to Motivate Employees in the Workplace,” 2015, www.fortunegroup.com, accessed on March 10, 2017.

Chapter Review

You Make the Call: Let the Games Begin

1. Consider each of the following perspectives on motivation: needs hierarchy, two-factor theory, and reinforcement theory? How would each of these perspectives contribute to an understanding of why gamification appears to work as a motivational strategy?

Note that all but one of these perspectives fall into the content category. What about process perspectives—expectancy theory, equity theory, and goal-setting theory? Answering the same question with regard to process perspectives would probably prove a little more difficult. Why? In other words, explain what this exercise might tell us about some basic differences between content and process perspectives?

2. Consider gamification in terms of incentive reward systems. In what sense, for instance, can a gamification system be regarded as an incentive reward system, whether as an incentive pay plan or as some other form of incentive? What, if any advantages does it have over the various types of incentive reward systems mentioned in the text? What disadvantages does it share?

3. What advantages does a gamification system offer over?

4. The following table lists two categories of motivation that could be offered to people participating in gaming activities:

Extrinsic Motivation	Intrinsic Motivation
Earning money	Receiving recognition
Earning points/badges/trophies	Attaining a sense of personal achievement
Earning prizes	Earning responsibility
Overcoming penalties	Earning power
Succeeding in quests	Having fun
Advancing on progress bars	Gaining mastery

· Extrinsic motivation occurs when we’re motivated to perform a behavior or engage in an activity in order to earn a reward or avoid a punishment.

· Intrinsic motivation occurs when we’re motivated to perform a behavior or engage in an activity because it’s personally rewarding.

How about you? If your workplace launched a gamification program with rewards similar to those offered by Bluewolf, would you say that you’re more likely to be motivated by extrinsic or intrinsic rewards? What extrinsic rewards are you currently working for? What intrinsic rewards?

5. In his list of tips for companies considering gamification, one professional in the motivational field includes the following: “Don’t use money as a motivator. Introducing money automatically makes the activity about money—other motivations, such as taking pride in a job well done or collaborating as part of a team, are set aside.”

Certain versions of motivational theory based on needs support this contention. Some researchers, for example, say that extrinsic rewards thwart intrinsic motivation because we perceive them as external means of controlling our behavior. Intrinsic rewards, they argue, satisfy our psychological needs for competence and recognition because they provide us—and others—with information about our levels of performance.

What do you think? Does your personal experience suggest that this line of thinking is accurate? Do you think of extrinsic rewards as a means of controlling your behavior? How important is feedback about your level of performance? How about recognition for your level of performance? Under what circumstances do you tend to find intrinsic motivation satisfying? Under what circumstances is intrinsic motivation not enough to satisfy you?

Week 6 reading

Leadership and Influence Processes chapter 11

· Chapter Introduction

· 11-1
The Nature of Leadership

· 11-1a
The Meaning of Leadership

· 11-1b
Leadership and Management

· 11-1c
Leadership and Power

· 11-2
Generic Approaches to Leadership

· 11-2a
Leadership Traits

· 11-2b
Leadership Behaviors

· 11-3
Situational Approaches to Leadership

· 11-3a
LPC Theory

· 11-3b
Path-Goal Theory

· 11-3c
Vroom’s Decision Tree Approach

· 11-3d
The LMX Approach

· 11-4
Related Approaches to Leadership

· 11-4a
Substitutes for Leadership

· 11-4b
Charismatic Leadership

· 11-4c
Transformational Leadership

· 11-5
Emerging Approaches to Leadership

· 11-5a
Strategic Leadership

· 11-5b
Cross-Cultural Leadership

· 11-5c
Ethical Leadership

· 11-6
Political Behavior in Organizations

· 11-6a
Common Political Behaviors

· 11-6b
Impression Management

· 11-6c
Managing Political Behavior

· Chapter Review

· Summary of Learning Outcomes and Key Points

· Discussion Questions

· Experiential Exercise

· Building Effective Interpersonal Skills

· Management at Work

· You Make the Call: Leaders of Oil Repute

Chapter Introduction

Learning Outcome

After studying this chapter, you should be able to:

· 1Describe the nature of leadership and relate leadership to management.

· 2Discuss and evaluate the two generic approaches to leadership.

· 3Identify and describe the major situational approaches to leadership.

· 4Identify and describe three related approaches to leadership.

· 5Describe three emerging approaches to leadership.

· 6Discuss political behavior in organizations and how it can be managed.

Management in Action

Leaders of Oil Repute

“Reputationally, and in every other way, we will be judged by the quality, intensity, speed, and efficacy of our response.”

—Former BP Chief Executive Tony Hayward

It may come as no surprise that, generally speaking, most oil companies don’t have very good reputations. Take BP, the world’s sixth-largest oil and gas company. In April 2010, an explosion at its Deepwater Horizon offshore rig poured 300 million gallons of oil into the Gulf of Mexico, polluting 68,000 square miles of open water and devastating economies along 1,100 miles of coastline from Louisiana to Florida. Two months later, BP chief executive Tony Hayward pledged that “we will not rest until we make this right… . Reputationally, and in every other way,” he acknowledged, “we will be judged by the quality, intensity, speed, and efficacy of our response.”

Mary Barra is the first woman to lead a major automobile company. She was appointed CEO of General Motors when it was facing a major crisis and effectively led the company through that crisis. She is now consistently recognized as one of the best CEOs in America.

Tribune Content Agency LLC/Alamy Stock Photo

He was right about the second part of that statement. Within a year of the spill, BP ranked number 59 in Reputation Quotient® on a Harris Poll list of “The 60 Most Visible Companies among the General Public.” As a matter of fact, BP was “reputationally” handicapped even before the Gulf disaster. In 2005, an explosion at a Texas refinery killed 15 workers and cost BP $87 million in fines for failing to address safety violations (and a total of $2 billion in compensation damages and lost profits). A year later, when a pipeline leak in Alaska shut down one of the nation’s largest oilfields, BP was assessed $20 million in fines. A lawyer for the U.S. Environmental Protection Agency (EPA) called BP “a recurring environmental criminal.”

It is ironic that, in 2000, Hayward’s predecessor, John Browne, had launched a massive rebranding campaign called “Beyond Petroleum.” BP didn’t say exactly what “Beyond Petroleum” meant, but when coupled with the company’s new logo—a bright green, yellow, and white sunburst—it was undoubtedly meant to suggest that BP was an oil company with a high regard for the planet and a commitment to a future of alternative energy sources. “Our reputation, and therefore our future as a business,” declared Browne, “depends on each of us, everywhere, every day, taking personal responsibility for the conduct of BP’s business.” Critics, however, were skeptical. Some characterized the initiative as “greenwashing,” and the global environmental organization Greenpeace gave Browne an award for “Best Impression of an Environmentalist.” U.S. Senator Diane Feinstein admits that, until the incidents in Texas and Alaska, she had been fooled: “I thought finally there was an oil company that has a sense of conscience. I no longer think that.”

How had BP managed to make things even worse, “reputationally” speaking, in the wake of Deepwater Horizon? Mostly by putting its energy into legal maneuvering to avoid liability and responsibility instead of goodwill building. First, BP challenged the ruling of federal judge Carl Barbier that it had made “profit-driven decisions” amounting to “gross negligence” before the oil spill. It also disputed the government’s estimate of the amount of oil spilled into the Gulf and then appealed Barbier’s compromise figure. In December 2014, after a two-year legal battle, the U.S. Supreme Court upheld two lower-court rulings that BP had to abide by an agreement to settle cleanup and damage claims determined by a court-appointed administrator. In February 2015, when Barbier finally ruled that BP should pay the maximum fine of $4,300 per barrel (for a total of $9.57 billion), BP challenged the EPA’s authority to set the fine and announced that “we are considering all of our legal options.”

Citing a poll in which 70 percent of Americans agreed that BP should be fined the maximum amount allowed by law, one Louisiana environmentalist declared that “Americans aren’t fooled by…. five years of shenanigans to drag out this court case.” It was time, added an EPA official, for BP to “step out of the shadow of lawyers, quit spinning and arguing, and just accept full responsibility.”

At this point, it may or may not come as a surprise that, according to a poll conducted by the global consulting firm McKinsey & Co., “senior executives in the energy industry” surpass top managers in most other industries when it comes to “taking an active approach to managing sustainability.” Their motivations may reflect bottom-line concerns—McKinsey cites “the potential for regulation and increasing natural-resource constraints”—but their approach to sustainability (and to social responsibility in general) reflects a higher level of commitment.

According to McKinsey, for example, companies are “most engaged with sustainability if…. sustainability is a top-three priority in their CEOs’ agendas [and] is formally embedded in their business practices.” Among energy executives, 31 percent list sustainability as a top-three priority (versus 22 percent overall), and 6 percent report that it’s number one (versus 3 percent). Forty-three percent of energy executives say that sustainability is built into their business practices (versus 29 percent). “Except among energy companies,” adds McKinsey, “reporting practices are relatively poor, considering the impact of sustainability on business [and]….the role of sustainability in reputation-building efforts.”

At the same time, however, 55 percent of corporate leaders report that investing in sustainability helps their companies to build reputation, and 36 percent identify reputation building as the number-one reason for investing in sustainability. A report by Ernst & Young (EY), a global professional-services firm, identifies reputation among critical corporate assets that are constantly at risk (placing it in the same class as business continuity and the right to operate). More and more, says EY, “the corporate sustainability conversation” has thus turned to “risk reduction and mitigation,” especially corporate policy in disclosing sustainability-related risks to investors and other stakeholders. According to EY, the best measure of corporate disclosure policy is “top management’s engagement” in the process. “In order for sustainability to be part and parcel of a company’s risk management plan,” adds strategic communications specialist Leon Kaye, “buy-in has to start at the top, board- and executive-level,” where such strategies are formulated.

Finally, research conducted by MIT Sloan Management Review and The Boston Consulting Group shows that leadership from the top is crucial among companies which “perceive sustainability issues as significant and thoroughly address them”: 70 percent of these firms reported that sustainability is “permanently on their top-management agenda,” as compared to only 39 percent of firms overall. Using criteria that include both “sustainability strategy” and “leadership commitment,” the study distinguished between “Walkers”—”companies that ‘walk the talk’ by identifying and addressing significant sustainability concerns”—and “Talkers” (those who do so “to a far lesser degree”). Among Walkers, 70 percent identified sustainability as “a permanent item on their company’s senior management to-do list,” as opposed to only 24 percent of Talkers. Two-thirds of Walkers reported strong support from corporate leaders, and 68 percent identified senior management as “the greatest influence on sustainability endeavors.”

According to Edward Lawler III, director of the University of Southern California’s Center for Effective Organizations, the MIT Sloan report shows that “taking sustainability into account…. requires a management reset…. This is only likely to occur if the organization’s leadership believes that sustainable performance is critical and that achieving it can only be accomplished with a management approach that focuses on it.”

This chapter examines leadership in organizations and looks at both effective leaders and less effective ones (like Tony Hayward). We start by characterizing the nature of leadership and trace through the three major approaches to studying leadership—traits, behaviors, and situations. After examining other perspectives on leadership, we conclude by describing another approach to influencing others—political behavior in organizations.

11-1The Nature of Leadership

In Chapter 10, we described various models and perspectives on employee motivation. From the manager’s standpoint, trying to motivate people is an attempt to influence their behavior. In many ways, leadership, too, is an attempt to influence the behavior of others. In this section, we first define leadership, then differentiate it from management, and conclude by relating it to power.

11-1aThe Meaning of Leadership

Leadership
 is both a process and a property. As a process—focusing on what leaders actually do—leadership is the use of noncoercive influence to shape the group’s or organization’s goals, motivate behavior toward the achievement of those goals, and help define group or organizational culture. As a property, leadership is the set of characteristics attributed to individuals who are perceived to be leaders. Thus 
leaders
 are

· (1)

people who can influence the behaviors of others without having to rely on force, or

· (2)

people whom others accept as leaders.

11-1bLeadership and Management

From these definitions, it should be clear that leadership and management are related, but they are also not exactly the same. That is, a given individual can be a manager, a leader, both, or neither. Some of the basic distinctions between the two are summarized by John Kotter in Table 11.1. In the first column of the table are four elements that differentiate leadership from management. The other two columns show how each element differs when considered from a management and from a leadership point of view. For example, when executing plans, managers focus on monitoring results, comparing them with goals, and correcting deviations. In contrast, the leader focuses on energizing people to overcome bureaucratic hurdles to reach goals.

Table 11.1

Distinctions between Management and Leadership

Management and leadership are related, but distinct, constructs. Managers and leaders differ in how they create an agenda, develop a rationale for achieving the agenda, and execute plans, and in the types of outcomes they achieve.

Activity	Management	Leadership
Creating an agenda	Planning and budgeting: Establishing detailed steps and timetables for achieving needed results, and allocating the resources necessary to make those needed results happen	Establishing direction: Developing a vision of the future, often the distant future, and strategies for producing the changes needed to achieve that vision
Developing a human network for achieving the agenda	Organizing and staffing: Establishing some structure for accomplishing plan requirements, staffing that structure with individuals, delegating responsibility and authority for carrying out the plan, providing policies and procedures to help guide people, and creating methods or systems to monitor implementation	Aligning people: Communicating the direction by words and deeds to everyone whose cooperation may be needed to influence the creation of teams and coalitions that understand the visions and strategies and accept their validity
Executing plans	Controlling and problem solving: Monitoring results versus planning in some detail, identifying deviations, and then planning and organizing to solve these problems	Motivating and inspiring: Energizing people to overcome major political, bureaucratic, and resource barriers by satisfying very basic, but often unfulfilled, human needs
Outcomes	Produces a degree of predictability and order and has the potential to produce consistently major results expected by various stakeholders (e.g., for customers, always being on time; or, for stockholders, being on budget)	Produces change, often to a dramatic degree, and has the potential to produce extremely useful change (e.g., new products that customers want, or new approaches to labor relations that help make a firm more competitive)

Source: Reprinted with the permission of Free Press, a Division of Simon & Schuster, Inc., from A Force for Change: How Leadership Differs from Management by John P. Kotter. Copyright © 1990 by John P. Kotter, Inc. All rights reserved.

Organizations need both effective management and strong leadership if they are to be successful. Our “Leading the Way” feature explores this point in more detail. Leadership is necessary to create change, and management is necessary to achieve orderly results. Management in conjunction with leadership can produce orderly change, and leadership in conjunction with management can keep the organization properly aligned with its environment. Indeed, perhaps part of the reason that executive compensation has soared in recent years is the belief that management and leadership skills reflect a critical but rare combination that can lead to organizational success.

Leading the Way

Underdevelopment in the Nonprofit Sector

A recent study by the consulting firm McKinsey & Co. reveals a curious lack of managerial confidence among leaders of social-sector nonprofits. Only 32 percent, for example, consider themselves “strong” in innovating and implementing organizational strategies. Less than a quarter rate themselves strong on collaboration, and only 20 percent think that they’re strong when it comes to surrounding themselves with talented management teams. Even fewer (18 percent) have much confidence that they can achieve the outcomes that they want to achieve.

“The findings,” say the authors of the report, “suggest that chronic underinvestment in leadership development within the U.S. social sector, accompanied by 25 percent growth in the number of nonprofit organizations in the past decade, has opened a gap between demands on leaders and their ability to meet those needs.” Leadership development refers to any program designed to enhance individual and organizational leadership competence. Such programs are fairly common in the for-profit sector but much rarer in among nonprofits, which allocate less than 1 percent of annual funding to the task of developing leaders. According to a survey conducted by the Bridgespan Group, a management-consulting firm for nonprofits and philanthropies, only 36 percent of nonprofit leaders say that they’re held responsible for leadership development, and only 30 percent are responsible for setting goals for leadership development. While 50 percent report that employees are evaluated for potential as well as performance, just 29 percent have programs for developing individual potential. Only 30 percent have any plans for dealing with a projected leadership deficit in their sector.

That deficit, says Robin Noah, who provides consultant, coaching, and professional-training services to nonprofits, is a product of “both constrained supply and increasing demand.” According to the most recent available data, for instance, the number of nonprofits in the United States grew by 25 percent between 2005 and 2015, while the number of for-profits grew by a mere 0.5 percent. During the Great Recession of 2007–2009, while for-profit employment and wages dropped by 8.4 percent and 8 percent, respectively, nonprofit employment went up by 4 percent and wages by 6.5 percent. Noah points out that, judging from a trend begun in 2006, the need for senior managers at nonprofits averaged almost 80,000 per year by 2016.

“There’s an urgent need for qualified leaders,” says Van Evans, a researcher at Indiana University’s Center of Philanthropy, “because the sector is expanding while current leaders are retiring…. “There is [also] a sense of urgency…. to get people with philanthropy and management skills,” he adds, because overreliance on untrained senior staff “can undermine the credibility and depress the professionalism of the sector.”

A follow-up Bridgespan study identified several areas in which nonprofits should focus their leadership-development efforts: engaging senior leaders in the process, forecasting future needs, and monitoring development programs. “Organizations that are doing well,” reports coauthor Preeta Nayak, “make leadership development a part of their everyday business and continuously maintain a vision for what future needs might be…. Nonprofit leaders,” she adds, “are not satisfied and realize that there is a gap,” but when asked to identify the sources of their dissatisfaction, most answered “time, money, and resource constraint.”

References: Laura Callinan et al., “What Social-Sector Leaders Need to Succeed,” Insights and Publications www.mckinsey.com, accessed on April 10, 2017; The Bridgespan Group, The Nonprofit Sector’s Leadership Deficit www.bridgespan.org, accessed on April 10, 2017; Thomas Betar, “Nonprofit Sector in Need of Qualified Leaders amidst Change,” Desert News (Salt Lake City), August 5, 2012, www.deseretnews.com, accessed on April 10, 2017; Mark Athitakis, “A Crisis of Confidence in Nonprofit Leadership,” Associations Now, December 15, 2014, http://associationsnow.com, accessed on April 10, 2017; Robin Noah, “The Nonprofit Sector’s Leadership Deficit,” Executive Coaches of Orange County, November 3, 2014, http://ecofoc.org, accessed on April 10, 2017; and The Bridgespan Group, “Nonprofit Leaders Admit to ‘Falling Short’ on Developing Future Leaders, According to New Bridgespan” (press release), HR.com, May 29, 2012, www.hr.co

11-1cLeadership and Power

To fully understand leadership, it is necessary to understand 
power
—the ability to affect the behavior of others. One can have power without actually using it. For example, a football coach has the power to bench a player who is not performing up to par. The coach seldom has to use this power because players recognize that the power exists and work hard to keep their starting positions. Managers and leaders do often have to actually use power but should do so only in ways that are ethical and appropriate. In organizational settings, there are usually five kinds of power: legitimate, reward, coercive, referent, and expert power.

Legitimate Power

Legitimate power
 is power granted through the organizational hierarchy—it is the power defined by the organization to be accorded to people occupying a particular position. A manager can assign tasks to a subordinate, and a subordinate who refuses to do them can be sanctioned. Such outcomes stem from the manager’s legitimate power as defined and vested in him or her by the organization. Legitimate power, then, is essentially the same as authority. All managers have legitimate power over their subordinates. The mere possession of legitimate power, however, does not by itself make someone a leader. Some subordinates follow only directives that are strictly within the letter of organizational rules and policies. If asked to do something not in their job descriptions, they refuse or do a poor job. The manager of such employees is exercising authority but not leadership.

Reward Power

Reward power
 is the power to give or withhold rewards. Rewards that a manager may control include salary increases, bonuses, promotion recommendations, praise, recognition, and interesting job assignments. In general, the greater the number of rewards a manager controls and the more important the rewards are to subordinates, the greater is the manager’s reward power. If the subordinate sees as valuable only the formal organizational rewards provided by the manager, then the manager is not a leader. If the subordinate also wants and appreciates the manager’s informal rewards, such as praise, gratitude, and recognition, then the manager may also be exercising leadership.

Coercive Power

Coercive power
 is the power to force compliance by means of psychological, emotional, or physical threat. In the past, physical coercion in organizations was relatively common. In most organizations today, however, coercion is limited to verbal and written reprimands, disciplinary layoffs, fines, demotion, and termination. Some managers occasionally go so far as to use verbal abuse, humiliation, and psychological coercion in an attempt to manipulate subordinates. (Of course, most people would agree that these are not appropriate managerial behaviors.) The more punitive the elements under a manager’s control and the more important they are to subordinates, the more coercive power the manager possesses. On the other hand, the more a manager uses coercive power, the more likely he is to provoke resentment and hostility and the less likely he is to be seen as a leader. Charlie Ergen, founder and former CEO of Dish Network, often used coercive power. One former Dish executive said that Ergen got his way by “Pounding people into submission.” For instance, he required long hours, provided few paid holidays, routinely yelled at employees, and commonly berated people in meetings who disagreed with him.

Coercive power is the power to force compliance by means of psychological, emotional, or physical threat. This manager is using coercive power by yelling at his assistant. While this may produce immediate results, in the long run it will breed resentment and lead to low morale and turnover.

Blaj Gabriel/ Shutterstock.com

Referent Power

Compared with legitimate, reward, and coercive power, which are relatively concrete and grounded in objective facets of organizational life, 
referent power
 is relatively abstract. It is based on identification, imitation, loyalty, or charisma. Followers may react favorably because they identify in some way with a leader, who may be like them in personality, background, or attitudes. In other situations, followers might choose to imitate a leader with referent power by wearing the same kind of clothes, working the same hours, or espousing the same management philosophy. Referent power may also take the form of charisma, an intangible attribute of the leader that inspires loyalty and enthusiasm. Thus a manager might have referent power, but it is more likely to be associated with leadership.

Expert power is derived from information or expertise. This manager is showing his colleagues how to interpret some complex statistical analyses. At this point, at least, he has expert power.

Goodluz/ Shutterstock.com

Expert Power

Expert power
 is derived from information or expertise. A manager who knows how to interact with an eccentric but important customer, a scientist who is capable of achieving an important technical breakthrough that no other company has dreamed of, and an administrative assistant who knows how to unravel bureaucratic red tape all have expert power over anyone who needs that information. The more important the information and the fewer the people who have access to it, the greater is the degree of expert power possessed by any one individual. In general, people who are both leaders and managers tend to have a lot of expert power.

11-2Generic Approaches to Leadership

Early approaches to the study of leadership adopted what might be called a universal or generic perspective. Specifically, they assumed that there was one set of answers to the leadership puzzle. One generic approach focused on leadership traits, and the other looked at leadership behavior.

11-2aLeadership Traits

The first organized approach to studying leadership analyzed the personal, psychological, and physical traits of strong leaders. The trait approach assumed that some basic trait or set of traits existed that differentiated leaders from nonleaders. If those traits could be defined, experts argued, potential leaders could be identified based on the extent to which they did or did not have those traits. Researchers thought that leadership traits might include intelligence, assertiveness, above-average height, good vocabulary, attractiveness, self-confidence, and similar attributes.

During the first half of the twentieth century, hundreds of studies were conducted in an attempt to identify important leadership traits. For the most part, the results of the studies were disappointing. For every set of leaders who possessed a common trait, a long list of exceptions was also found, and the list of suggested traits soon grew so long that it had little practical value. Alternative explanations usually existed even for relationships between traits and leadership that initially appeared valid. For example, it was observed that many leaders have good communication skills and are assertive. Rather than those traits being the cause of leadership, however, successful leaders may begin to display those traits after they have achieved a leadership position.

Although most researchers gave up trying to identify traits as predictors of leadership ability, many people still explicitly or implicitly adopt a trait orientation. For example, politicians are all too often elected on the basis of personal appearance, public-speaking ability, or charisma and an aura of self-confidence. In addition, honesty and integrity may very well be fundamental leadership traits that do serve an important purpose. Intelligence also seems to play a meaningful role in leadership.

11-2bLeadership Behaviors

Motivated by their lack of success in identifying useful leadership traits, researchers soon began to investigate other variables, especially the behaviors or actions of leaders. The new hypothesis was that effective leaders somehow behaved differently than less effective leaders. Thus the goal was to develop a fuller understanding of leadership behaviors.

Abraham Lincoln is considered to have been a great leader. Part of this image came from how effectively he made decisions and led the United States during the Civil War. But some people also (erroneously) attributed his leadership to the fact that he was very tall–a physical trait.

Library of Congress Prints and Photographs Division[LC-USZ62-8812]

Michigan Studies

Researchers at the University of Michigan, led by Rensis Likert, began studying leadership in the late 1940s. Based on extensive interviews with both leaders (managers) and followers (subordinates), this research identified two common forms of leader behavior: job centered and employee centered. Managers using 
job-centered leader behavior
 pay close attention to subordinates’ work, explain work procedures, and are keenly interested in performance. Managers using 
employee-centered leader behavior
 are interested in developing a cohesive work group and ensuring that employees are satisfied with their jobs. Their primary concern is the welfare of subordinates. The two styles of leader behavior were presumed to be at the ends of a single continuum. Although this suggests that leaders may be extremely job centered, extremely employee centered, or somewhere in between, Likert studied only the two end styles for contrast. He argued that employee-centered leader behavior generally tends to be more effective.

Ohio State Studies

At about the same time that Likert was beginning his leadership studies at the University of Michigan, a group of researchers at Ohio State University began studying leadership. The extensive questionnaire surveys conducted during the Ohio State studies also suggested that there are two basic leader behaviors or styles: initiating-structure behavior and consideration behavior. When using 
initiating-structure behavior
, the leader clearly defines the leader–subordinate role so that everyone knows what is expected, establishes formal lines of communication, and determines how tasks will be performed. Leaders using 
consideration behavior
 show concern for subordinates and attempt to establish a warm, friendly, and supportive climate. The behaviors identified at Ohio State are similar to those described at Michigan, but there are important differences. One major difference is that the Ohio State researchers did not interpret leader behavior as being one-dimensional; each behavior was assumed to be independent of the other. Presumably, then, a leader could exhibit varying levels of initiating structure and at the same time varying levels of consideration.

At first, the Ohio State researchers thought that leaders who exhibit high levels of both behaviors would tend to be more effective than other leaders. A study at International Harvester (now Navistar International), however, suggested a more complicated pattern. The researchers found that employees of supervisors who ranked high on initiating structure were high performers but expressed low levels of satisfaction and had a higher absence rate. Conversely, employees of supervisors who ranked high on consideration had low performance ratings but high levels of satisfaction and few absences from work. Later research isolated other variables that make consistent prediction difficult and determined that situational influences also occurred. (This body of research is discussed in “Situational Approaches to Leadership.”)

Job-centered leader behavior focuses on jobs and work procedures. This manager is exhibiting job-centered behavior as he demonstrates how to perform a task to one of his workers.

Goodluz/ Shutterstock.com

Managerial Grid

Another behavioral approach to leadership is the Managerial Grid. The Managerial Grid provides a means for evaluating leadership styles and then training managers to move toward an ideal style of behavior. The Managerial Grid is shown in Figure 11.1. The horizontal axis represents 
concern for production
 (similar to job-centered and initiating-structure behaviors), and the vertical axis represents 
concern for people
 (similar to employee-centered and consideration behaviors). Note the five extremes of managerial behavior: the 1,1 manager (impoverished management), who exhibits minimal concern for both production and people; the 9,1 manager (authority-compliance), who is highly concerned about production but exhibits little concern for people; the 1,9 manager (country club management), who has exactly opposite concerns from the 9,1 manager; the 5,5 manager (middle-of-the-road management), who maintains adequate concern for both people and production; and the 9,9 manager (team management), who exhibits maximum concern for both people and production.

Figure 11.1The Managerial Grid

The Managerial Grid® is a method of evaluating leadership styles. The overall objective of an organization using the Grid® is to train its managers using organization development techniques so that they are simultaneously more concerned for both people and production (the 9,9 style on the Grid®).

Source: Robert R. Blake and Anne Adams McCanse, Leadership Dilemmas—Grid Solutions (Houston, TX: Gulf Publishing Company, 1997), p. 29. (Formerly Robert R. Blake and Jane S. Mouton, The Managerial Grid.) © 1997 by Grid International, Inc. Reproduced by permission of the owners.

According to this approach, the ideal style of managerial behavior is 9,9. There is a six-phase program to assist managers in achieving this style of behavior. Westinghouse, Tenneco, the FAA, Equicor, and other companies have used the Managerial Grid with self-reported success. However, there is little published scientific evidence regarding its true effectiveness.

The leader-behavior theories have played an important role in the development of contemporary thinking about leadership. In particular, they urge us not to be preoccupied with who leaders are (the trait approach) but to concentrate on what leaders do (their behaviors). Unfortunately, these theories also make universal generic prescriptions about what constitutes effective leadership. However, when we are dealing with complex social systems composed of complex individuals, few, if any, relationships are consistently predictable, and certainly no formulas for success are infallible. Yet the behavior theorists tried to identify consistent relationships between leader behaviors and employee responses in the hope of finding a dependable prescription for effective leadership. As we might expect, they often failed. Other approaches to understanding leadership were therefore needed. The catalyst for these new approaches was the realization that although interpersonal and task-oriented dimensions might be useful for describing the behavior of leaders, they were not useful for predicting or prescribing it. The next step in the evolution of leadership theory was the creation of situational models.

11-3Situational Approaches to Leadership

Situational models assume that appropriate leader behavior varies from one situation to another. The goal of a situational theory, then, is to identify key situational factors and to specify how they interact to determine appropriate leader behavior. For example, when entrepreneurs like Walt Disney and Sam Walton started their businesses they used whatever style of leadership came naturally to them. But as their businesses grew into large corporations they no doubt had to change how they led people. Likewise, leaders almost certainly have to change their approach when the economic pendulum swings from growth and prosperity to decline and stagnation. In the following sections, we describe four of the most important and widely accepted situational theories of leadership: the least-preferred coworker (LPC) theory, the path-goal theory, Vroom’s decision tree approach, and the leader–member exchange (LMX) approach.

11-3aLPC Theory

The 
LPC theory
, developed by Fred Fiedler, was the first truly situational theory of leadership. Beginning with a combined trait and behavioral approach, Fiedler identified two styles of leadership: task oriented (analogous to job-centered and initiating-structure behaviors) and relationship oriented (similar to employee-centered and consideration behaviors). He went beyond the earlier behavioral approaches by arguing that the style of behavior is a reflection of the leader’s personality and that most personalities fall into one of his two categories—task oriented or relationship oriented by nature. Fiedler measured leadership style by means of a controversial questionnaire called the 
LPC measure
. To use the measure, a manager or leader is asked to describe the specific person with whom he or she is able to work least well—the LPC—by filling in a set of 16 scales anchored at each end by a positive or negative adjective. For example, 3 of the 16 scales are as follows:

The leader’s LPC score is then calculated by adding up the numbers below the line checked on each scale. Note in these three examples that the higher numbers are associated with positive qualities (helpful, relaxed, and interesting), whereas the negative qualities (frustrating, tense, and boring) have low point values. A high total score is assumed to reflect a relationship orientation on the part of the leader, and a low score a task orientation on the leader’s part. The LPC measure is controversial because researchers disagree about its validity. Some question exactly what an LPC measure reflects and whether the score is an index of behavior, personality, or some other factor.

Favorableness of the Situation

The underlying assumption of situational models of leadership is that appropriate leader behavior varies from one situation to another. According to Fiedler, the key situational factor is the favorableness of the situation from the leader’s point of view. This factor is determined by leader–member relations, task structure, and position power. Leader–member relations refer to the nature of the relationship between the leader and the work group. If the leader and the group have a high degree of mutual trust, respect, and confidence, and if they like one another, relations are assumed to be good. If there is little trust, respect, or confidence, and if they do not like one another, relations are poor. Naturally, good relations are more favorable.

Task structure is the degree to which the group’s task is well defined. The task is structured when it is routine, easily understood, and unambiguous and when the group has standard procedures and precedents to rely on. An unstructured task is nonroutine, ambiguous, and complex, with no standard procedures or precedents. High structure is assumed to be more favorable for the leader, whereas low structure is less favorable. For example, if the task is unstructured the leader will have to play a major role in guiding and directing the group’s work. If the task is structured, the leader will not have to get so involved and can devote time to other nonsupervisory activities.

Task structure–the degree to which tasks are clear and well-defined–plays a role in how favorable or unfavorable the situation is for the leader. This job, which involves tracking inventory by scanning bar codes, is relatively structured. Because of this structure, once employees learn their jobs the leader does not need to focus too much on continuing to explain how to do those jobs.

wavebreakmedia/ Shutterstock.com

Position power is the power vested in the leader’s position. If the leader has the power to assign work and to reward (and punish) employees, position power is assumed to be strong. But, if the leader must get job assignments approved by someone else and does not administer rewards (and punishment), position power is weak, and it is more difficult to accomplish goals. From the leader’s point of view, strong position power is clearly preferable to weak position power. However, position power is not as important as task structure and leader–member relations.

Favorableness and Leader Style

Fiedler and his associates conducted numerous studies linking the favorableness of various situations to leader style and the effectiveness of the group. The results of these studies—and the overall framework of the theory—are shown in Figure 11.2. To interpret the model, look first at the situational factors at the top of the figure. Good or bad leader–member relations, high or low task structure, and strong or weak leader position power can be combined to yield six unique situations. For example, good leader–member relations, high task structure, and strong leader position power (at the far left) are presumed to define the most favorable situation; bad leader–member relations, low task structure, and weak leader power (at the far right) are the least favorable situation. The other combinations reflect intermediate levels of favorableness.

Figure 11.2The Least-Preferred Coworker Theory of Leadership

Fiedler’s LPC theory of leadership suggests that appropriate leader behavior varies as a function of the favorableness of the situation. Favorableness, in turn, is defined by task structure, leader–member relations, and the leader’s position power. According to the LPC theory, the most and least favorable situations call for task-oriented leadership, whereas moderately favorable situations suggest the need for relationship-oriented leadership.

Below each set of situations are shown the degree of favorableness and the form of leader behavior found to be most strongly associated with effective group performance for those situations. When the situation is most and least favorable, Fiedler found that a task-oriented leader is most effective. When the situation is only moderately favorable, a relationship-oriented leader is predicted to be most effective.

Flexibility of Leader Style

Fiedler argued that, for any given individual, leader style is essentially fixed and cannot easily be changed—leaders cannot change their behavior to fit a particular situation because it is linked to their particular personality traits. Thus, when a leader’s style and the situation do not match, Fiedler argued that the situation should be changed to fit the leader’s style. When leader–member relations are good, task structure low, and position power weak, the leader style that is most likely to be effective is relationship oriented. If the leader is task oriented, a mismatch exists. According to Fiedler, the leader can make the elements of the situation more congruent by structuring the task (by developing guidelines and procedures, for instance) and increasing power (by requesting additional authority or by other means).

Fiedler’s LPC theory has been criticized on the grounds that it is not always supported by research, that his findings are subject to other interpretations, that the LPC measure lacks validity, and that his assumptions about the inflexibility of leader behavior are unrealistic. However, Fiedler’s theory was one of the first to adopt a situational perspective on leadership. It has also helped many managers recognize the important situational factors they must contend with, and it has fostered additional thinking about the situational nature of leadership. Moreover, in recent years, Fiedler has attempted to address some of the concerns about his theory by revising it and adding additional elements such as cognitive resources.

Main content

11-3bPath-Goal Theory

The 
path-goal theory
 of leadership—associated most closely with Martin Evans and Robert House—is a direct extension of the expectancy theory of motivation discussed in Chapter 10. Recall that the primary components of expectancy theory included the likelihood of attaining various outcomes and the value associated with those outcomes. The path-goal theory of leadership suggests that the primary functions of a leader are to make valued or desired rewards available in the workplace and to clarify for the subordinate the kinds of behavior that will lead to goal accomplishment and valued rewards—that is, the leader should clarify the paths to goal attainment.

Leader Behavior

The most fully developed version of path-goal theory identifies four kinds of leader behavior. Directive leader behavior lets subordinates know what is expected of them, gives guidance and direction, and schedules work. Supportive leader behavior is being friendly and approachable, showing concern for subordinate welfare, and treating members as equals. Participative leader behavior includes consulting with subordinates, soliciting suggestions, and allowing participation in decision making. Achievement-oriented leader behavior means setting challenging goals, expecting subordinates to perform at high levels, encouraging subordinates, and showing confidence in subordinates’ abilities.

In contrast to Fiedler’s theory, path-goal theory assumes that leaders can change their style or behavior to meet the demands of a particular situation. For example, when encountering a new group of subordinates and a new project, the leader may be directive in establishing work procedures and in outlining what needs to be done. Next, the leader may adopt supportive behavior to foster group cohesiveness and a positive climate. As the group becomes familiar with the task and as new problems are encountered, the leader may exhibit participative behavior to enhance group members’ motivation. Finally, achievement-oriented behavior may be used to encourage continued high performance.

Situational Factors

Like other situational theories of leadership, path-goal theory suggests that the appropriate leader style depends on situational factors. Path-goal theory focuses on the situational factors of the personal characteristics of subordinates and environmental characteristics of the workplace.

Important personal characteristics include the subordinates’ perception of their own abilities and their locus of control. If people perceive that they are lacking in abilities, they may prefer directive leadership to help them understand path-goal relationships better. If they perceive themselves to have a lot of abilities, employees may resent directive leadership. Locus of control is a personality trait. People who have an internal locus of control believe that what happens to them is a function of their own efforts and behavior. Those who have an external locus of control assume that fate, luck, or “the system” determines what happens to them. A person with an internal locus of control may prefer participative leadership, whereas a person with an external locus of control may prefer directive leadership. Managers can do little or nothing to influence the personal characteristics of subordinates, but they can shape the environment to take advantage of these personal characteristics by, for example, providing rewards and structuring tasks.

Environmental characteristics include factors outside the subordinates’ control. Task structure is one such factor. When structure is high, directive leadership is less effective than when structure is low. Subordinates do not usually need their boss to continually tell them how to do an extremely routine job. The formal authority system is another important environmental characteristic. Again, the higher the degree of formality, the less directive is the leader behavior that will be accepted by subordinates. The nature of the work group also affects appropriate leader behavior. When the work group provides the employee with social support and satisfaction, supportive leader behavior is less critical. When social support and satisfaction cannot be derived from the group, the worker may look to the leader for this support.

The basic path-goal framework as illustrated in Figure 11.3 shows that different leader behaviors affect subordinates’ motivation to perform. Personal and environmental characteristics are seen as defining which behaviors lead to which outcomes. The path-goal theory of leadership is a dynamic and incomplete model. The original intent was to state the theory in general terms so that future research could explore a variety of interrelationships and modify the theory. Research that has been done suggests that the path-goal theory is a reasonably good description of the leadership process and that future investigations along these lines should enable us to discover more about the link between leadership and motivation.

Figure 11.3The Path-Goal Framework

The path-goal theory of leadership suggests that managers can use four types of leader behavior to clarify subordinates’ paths to goal attainment. Both personal characteristics of the subordinate and environmental characteristics within the organization must be taken into account when determining which style of leadership will work best for a particular situation.

11-3cVroom’s Decision Tree Approach

The third major contemporary approach to leadership is 
Vroom’s decision tree approach
. The earliest version of this model was proposed by Victor Vroom and Philip Yetton and later revised and expanded by Vroom and Arthur Jago. Most recently, Vroom has developed yet another refinement of the original model. Like the path-goal theory, this approach attempts to prescribe a leadership style appropriate to a given situation. It also assumes that the same leader may display different leadership styles. But Vroom’s approach concerns itself with only a single aspect of leader behavior: subordinate participation in decision making.

Vroom’s decision tree approach focuses on helping leaders decide how much participation to encourage among subordinates when a decision is being made. This leader is actively seeking input from the team in making a decision.

Pressmaster/ Shutterstock.com

Basic Premises

Vroom’s decision tree approach assumes that the degree to which subordinates should be encouraged to participate in decision making depends on the characteristics of the situation. In other words, no one decision-making process is best for all situations. After evaluating a variety of problem attributes (characteristics of the problem or decision), the leader determines an appropriate decision style that specifies the amount of subordinate participation.

Vroom’s current formulation suggests that managers use one of two different decision trees. To do so, the manager first assesses the situation in terms of several factors. This assessment involves determining whether the given factor is high or low for the decision that is to be made. For instance, the first factor is decision significance. If the decision is extremely important and may have a major impact on the organization (such as choosing a location for a new plant), its significance is high. But, if the decision is routine and its consequences are not terribly important (selecting a color for the firm’s softball team uniforms), its significance is low.

This assessment guides the manager through the paths of the decision tree to a recommended course of action. One decision tree is to be used when the manager is interested primarily in making the decision as quickly as possible; the other is to be used when time is less critical and the manager is interested in helping subordinates to improve and develop their own decision-making skills.

The two decision trees are shown in Figure 11.4 and Figure 11.5. The problem attributes (situational factors) are arranged along the top of the decision tree. To use the model, the decision maker starts at the left side of the diagram and assesses the first problem attribute (decision significance). The answer determines the path to the second node on the decision tree, where the next attribute (importance of commitment) is assessed. This process continues until a terminal node is reached. In this way, the manager identifies an effective decision-making style for the situation.

Figure 11.4Vroom’s Time-Driven Decision Tree

This matrix is recommended for situations where time is of the highest importance in making a decision. The matrix operates like a funnel. You start at the left with a specific decision problem in mind. The column headings denote situational factors that may or may not be present in that problem. You progress by selecting high or low (H or L) for each relevant situational factor. Proceed down the funnel, judging only those situational factors for which a judgment is called, until you reach the recommended process.

Source: Reprinted from Victor H. Vroom, “Leadership and the Decision-Making Process,” in Organizational Dynamics, Vol. 28, No. 4, pp. 82–94. Copyright 2000, with permission from Elsevier.

Figure 11.5Vroom’s Development-Driven Decision Tree

This matrix is to be used when the leader is more interested in developing employees than in making the decision as quickly as possible. Just as with the time-driven tree shown in Figure 11.4, the leader assesses up to seven situational factors. These factors, in turn, funnel the leader to a recommended process for making the decision.

Source: Reprinted from Victor H. Vroom, “Leadership and the Decision-Making Process,” Organizational Dynamics, Vol. 28, No. 4, pp. 82–94. Copyright 2000, with permission from Elsevier.

Decision-Making Styles

The various decision-making styles reflected at the ends of the tree branches represent different levels of subordinate participation that the manager should attempt to adopt in a given situation. The five styles are defined as follows:

· Decide. The manager makes the decision alone and then announces or “sells” it to the group.

· Consult (individually). The manager presents the program to group members individually, obtains their suggestions, and then makes the decision.

· Consult (group). The manager presents the problem to group members at a meeting, gets their suggestions, and then makes the decision.

· Facilitate. The manager presents the problem to the group at a meeting, defines the problem and its boundaries, and then facilitates group member discussion as they make the decision.

· Delegate. The manager allows the group to define for itself the exact nature and parameters of the problem and then to develop a solution.

Vroom’s decision tree approach represents a very focused but quite complex perspective on leadership. To compensate for this difficulty, Vroom has developed elaborate expert system software to help managers assess a situation accurately and quickly and then to make an appropriate decision regarding employee participation. Many firms, including Halliburton Company, Litton Industries, and Borland International, have provided their managers with training in how to use the various versions of this model.

Evaluation and Implications

Because Vroom’s current approach is relatively new, it has not been fully scientifically tested. The original model and its subsequent refinement, however, attracted a great deal of attention and were generally supported by research. For example, there is some support for the idea that individuals who make decisions consistent with the predictions of the model are more effective than those who make decisions inconsistent with it. The model, therefore, appears to be a tool that managers can apply with some confidence in deciding how much subordinates should participate in the decision-making process.

11-3dThe LMX Approach

Because leadership is such an important area, managers and researchers continue to study it. As a result, new ideas, theories, and perspectives are continuously being developed. The 
LMX model
 of leadership, conceived by George Graen and Fred Dansereau, stresses the importance of variable relationships between supervisors and each of their subordinates. Each superior–subordinate pair is referred to as a vertical dyad. The model differs from earlier approaches in that it focuses on the differential relationship that leaders often establish with different subordinates. Figure 11.6 shows the basic concepts of the LMX theory.

Figure 11.6The Leader–Member Exchange Model

The LMX model suggests that leaders form unique independent relationships with each of their subordinates. As illustrated here, a key factor in the nature of this relationship is whether the individual subordinate is in the leader’s out-group or in-group.

The model suggests that supervisors establish a special relationship with a small number of trusted subordinates, referred to as the in-group. The in-group usually receives special duties requiring responsibility and autonomy; they may also receive special privileges. Subordinates who are not a part of this group are called the out-group, and they receive less of the supervisor’s time and attention. Note in Figure 11.6 that the leader has a dyadic, or one-to-one, relationship with each of the five subordinates.

Early in his or her interaction with a given subordinate, the supervisor initiates either an in-group or an out-group relationship. It is not clear how a leader selects members of the in-group, but the decision may be based on personal compatibility and subordinates’ competence. Research has confirmed the existence of in-groups and out-groups. In addition, studies generally have found that in-group members have a higher level of performance and satisfaction than do out-group members.

11-4Related Approaches to Leadership

Because of its importance to organizational effectiveness, leadership continues to be the focus of a great deal of research and theory building. New approaches that have attracted much attention are the concepts of substitutes for leadership and transformational leadership.

11-4aSubstitutes for Leadership

The concept of 
substitutes for leadership
 was developed because existing leadership models and theories do not account for situations in which leadership is not needed. They simply try to specify what kind of leader behavior is appropriate. The substitutes concept, however, identifies situations in which leader behaviors are neutralized or replaced by characteristics of the subordinate, the task, and the organization. For example, when a patient is delivered to a hospital emergency room, the professionals on duty do not wait to be told what to do by a leader. Nurses, doctors, and attendants all go into action without waiting for directive or supportive leader behavior from the emergency room supervisor.

Characteristics of the subordinate that may serve to neutralize leader behavior include ability, experience, need for independence, professional orientation, and indifference toward organizational rewards. For example, employees with a high level of ability and experience may not need to be told what to do. Similarly, a subordinate’s strong need for independence may render leader behavior ineffective. Task characteristics that may substitute for leadership include routineness, the availability of feedback, and intrinsic satisfaction. When the job is routine and simple, the subordinate may not need direction. When the task is challenging and intrinsically satisfying, the subordinate may not need or want social support from a leader.

Substitutes for leadership are things that neutralize or replace the need for formal leadership. The professionalism and training of these emergency medical technicians, for example, allows them to respond and carry out their responsibilities without waiting for someone to tell them what to do.

Monkey Business Images/ Shutterstock.com

Organizational characteristics that may substitute for leadership include formalization, group cohesion, inflexibility, and a rigid reward structure. Leadership may not be necessary when policies and practices are formal and inflexible, for example. Similarly, a rigid reward system may rob the leader of reward power and thereby decrease the importance of the role. Preliminary research has provided support for the concept of substitutes for leadership.

11-4bCharismatic Leadership

The concept of 
charismatic leadership
, like trait theories, assumes that charisma is an individual characteristic of the leader. 
Charisma
 is a form of interpersonal attraction that inspires support and acceptance. All else being equal, then, someone with charisma is more likely to be able to influence others than someone without charisma. For example, a highly charismatic supervisor will be more successful in influencing subordinate behavior than a supervisor who lacks charisma. Thus influence is again a fundamental element of this perspective.

Robert House first proposed a theory of charismatic leadership based on research findings from a variety of social science disciplines. His theory suggests that charismatic leaders are likely to have a lot of self-confidence, a firm conviction in their beliefs and ideals, and a strong need to influence people. They also tend to communicate high expectations about follower performance and express confidence in followers. Mark Cuban, owner of the Dallas Mavericks and participant on Shark Tank, is a good example of a charismatic leader. Even though he has made his share of mistakes and generally is regarded as only an “average” manager, many people view him as larger than life.

There are three elements of charismatic leadership in organizations that most experts acknowledge today. First, the leader needs to be able to envision the future, set high expectations, and model behaviors consistent with meeting those expectations. Next, the charismatic leader must be able to energize others through a demonstration of personal excitement, personal confidence, and patterns of success. And, finally, the charismatic leader enables others by supporting them, empathizing with them, and expressing confidence in them.

Charismatic leadership ideas are quite popular among managers today and are the subject of numerous books and articles. Unfortunately, few studies have attempted to specifically test the meaning and impact of charismatic leadership. There are also lingering ethical issues about charismatic leadership that trouble some people. For instance, President Barack Obama was a charismatic leader. But some of his critics argued that this very charisma caused his supporters to overlook his flaws and to minimize some of his mistakes. In contrast, President George W. Bush did not possess a high level of charisma, and this may have enabled some critics to magnify his shortcomings.

11-4cTransformational Leadership

Another recent perspective on leadership has been called by a number of labels: charismatic leadership, inspirational leadership, symbolic leadership, and transformational leadership. We use the term 
transformational leadership
 and define it as leadership that goes beyond ordinary expectations by transmitting a sense of mission, stimulating learning experiences, and inspiring new ways of thinking. Because of rapid change and turbulent environments, transformational leaders are increasingly being seen as vital to the success of business.

A widely circulated article in the popular press identified seven keys to successful leadership: trusting one’s subordinates, developing a vision, keeping cool, encouraging risk, being an expert, inviting dissent, and simplifying things. Although this list was the result of a simplistic survey of the leadership literature, it is nevertheless consistent with the premises underlying transformational leadership. So, too, are recent examples cited as effective leadership. Take the case of Mary Barra, CEO of General Motors. She took the helm of the auto giant just as the company was facing a global crisis due to its cover-up of a faulty ignition switch problem. She deftly led the company through the crisis, pledged an era of new corporate transparency, boosted product quality, cut costs, and stabilized troubled labor relations. In short, she has led—and continues to lead—General Motors through a truly major corporate transformation.

11-5Emerging Approaches to Leadership

Recently, three potentially very important new approaches to leadership have emerged. One is called strategic leadership; the others deal with cross-cultural leadership and ethical leadership.

11-5aStrategic Leadership

Strategic leadership is a new concept that explicitly relates leadership to the role of top management. We define 
strategic leadership
 as the capability to understand the complexities of both the organization and its environment and to lead change in the organization to achieve and maintain a superior alignment between the organization and its environment. This definition reflects an integration of the leadership concepts covered in this chapter with our discussion of strategic management in Chapter 3. Its board of directors, of course, is a key element in any firm’s strategic leadership.

To be effective in this role, a manager needs to have a thorough and complete understanding of the organization—its history, its culture, its strengths, and its weaknesses. In addition, the leader needs a firm grasp of the organization’s environment. This understanding must encompass current conditions and circumstances as well as significant trends and issues on the horizon. The strategic leader also needs to recognize how the firm is currently aligned with its environment—where it relates effectively and where it relates less effectively with that environment. Finally, looking at environmental trends and issues, the strategic leader works to improve both the current alignment and the future alignment.

Since taking the reins at Apple following the death of Steve Jobs, Tim Cook has been systematically changing the firm’s organization design by rearranging functions and reassigning top managers. Jeffrey Immelt (CEO of General Electric), Hector Ruiz (CEO of Advanced Micro Devices), John Chambers (former CEO of Cisco), Michael Dell (founder and CEO of Dell Computer), and Irene Rosenfeld (CEO of Mondelēz International) are generally seen as strong strategic leaders. On the other hand, Ken Lewis (former CEO of Bank of America) and Mike Jeffries (former CEO of Abercrombie & Fitch) have recently been cited as less effective strategic leaders.

11-5bCross-Cultural Leadership

Another new approach to leadership is based on cross-cultural issues. In this context, culture is used as a broad concept to encompass both international differences and diversity-based differences within one culture. For instance, when a Japanese firm sends an executive to head the firm’s operations in the United States, that person will need to become acclimated to the cultural differences that exist between the two countries and to change his or her leadership style accordingly. Japan is generally characterized by collectivism (the view that the group is more important than any individual within the group), whereas the United States is based more on individualism (the belief that individuals are more important than the group). The Japanese executive, then, will find it necessary to recognize the importance of individual contributions and rewards, as well as the differences in individual and group roles, which exist in Japanese and U.S. businesses.

Similarly, cross-cultural factors play a growing role in organizations as their workforces become more and more diverse. Most leadership research, for instance, has been conducted on samples or case studies involving white male leaders (until several years ago, most business leaders were white males). But as more females, African Americans, and Latinos achieve leadership positions, it may be necessary to reassess how applicable current theories and models of leadership are when applied to an increasingly diverse pool of leaders. “A World of Difference” looks at some of these issues in more detail.

A World of Difference

High Tech Does the Math

The good news is that, when it comes to reporting on workforce diversity, tech companies have opted for transparency. Google, for example, recently posted a blog providing detailed information on the gender and ethnic makeup of its entire staff. “We’ve always been reluctant to publish numbers about the diversity of our workforce,” admitted Laszlo Bock, senior VP of People Operations. “We now realize that we were wrong and that it’s time to be candid about the issues.” Over the next few months, several other tech companies, including Twitter, eBay, LinkedIn, Yahoo, Apple, Microsoft, and Intel, also published their demographic data.

11-5cEthical Leadership

Many people assume that top managers are ethical people. But in the wake of major corporate scandals, faith in top managers can be shaken. Perhaps now more than ever, high standards of ethical conduct are being held up as a prerequisite for effective leadership. More specifically, top managers are being called on to maintain high ethical standards for their own conduct, to exhibit ethical behavior unfailingly, and to hold others in their organization to the same standards.

The behaviors of top leaders are being scrutinized more than ever, and those responsible for hiring new leaders for a business are looking more and more closely at the background of those being considered. And the emerging pressures for stronger corporate governance models are likely to further increase commitment to selecting only those individuals with high ethical standards and to holding them more accountable than in the past for both their actions and the consequences of those actions.

11-6Political Behavior in Organizations

Another common influence on behavior is politics and political behavior. 
Political behavior
 describes activities carried out for the specific purpose of acquiring, developing, and using power and other resources to obtain one’s preferred outcomes. Political behavior may be undertaken by managers dealing with their subordinates, subordinates dealing with their managers, and managers and subordinates dealing with others at the same level. In other words, it may be directed upward, downward, or laterally. Decisions ranging from where to locate a new distribution center to where to put the office coffee maker are subject to political action. In any situation, individuals may engage in political behavior to further their own ends, to protect themselves from others, to further goals they sincerely believe to be in the organization’s best interests, or simply to acquire and exercise power. And power may be sought by individuals, by groups of individuals, or by groups of groups.

Although political behavior is difficult to study because of its sensitive nature, one early survey found that many managers believed that politics influenced salary and hiring decisions in their firm. Many also believed that the incidence of political behavior was greater at the upper levels of their organization and lesser at the lower levels. More than half of the respondents felt that organizational politics was bad, unfair, unhealthy, and irrational, but most suggested that successful executives have to be good politicians and be political to get ahead.

11-6aCommon Political Behaviors

Research has identified four basic forms of political behavior widely practiced in organizations. One form is inducement, which occurs when a manager offers to give something to someone else in return for that individual’s support. For example, a product manager might suggest to another product manager that she will put in a good word with his boss if he supports a new marketing plan that she has developed. By most accounts, former WorldCom CEO Bernard Ebbers made frequent use of this tactic to retain his leadership position in the company. For example, he allowed board members to use the corporate jet whenever they wanted and invested heavily in their pet projects.

A second tactic is persuasion, which relies on both emotion and logic. An operations manager wanting to construct a new plant on a certain site might persuade others to support his goal on grounds that are objective and logical (e.g., it is less expensive and taxes are lower) as well as subjective and personal. Ebbers also used this approach. For instance, when one board member attempted to remove him from his position, he worked behind the scenes to persuade the majority of board members to allow him to stay on.

A third political behavior involves the creation of an obligation. For example, one manager might support a recommendation made by another manager for a new advertising campaign. Although he might really have no opinion on the new campaign, he might think that by going along, he is incurring a debt from the other manager and will be able to “call in” that debt when he wants to get something done and needs additional support. Ebbers loaned WorldCom board members money, for example, but then forgave the loans in exchange for their continued support.

Coercion, a fourth political behavior, is the use of force to get one’s way. For example, a manager may threaten to withhold support, rewards, or other resources as a way to influence someone else. This, too, was a common tactic used by Ebbers. He reportedly belittled any board member who dared question him, for example. In the words of one former director, “Ebbers treated you like a prince—as long as you never forgot who was king.”

11-6bImpression Management

Impression management is a subtle form of political behavior that deserves special mention. 
Impression management
 is a direct and intentional effort by someone to enhance his or her image in the eyes of others. People engage in impression management for a variety of reasons. For one thing, they may do so to further their own careers. By making themselves look good, they think they are more likely to receive rewards, to be given attractive job assignments, and to receive promotions. They may also engage in impression management to boost their self-esteem. When people have a solid image in an organization, others make them aware of it through compliments, respect, and so forth. Still another reason why people use impression management is in an effort to acquire more power and hence more control.

Impression management is a direct and intentional effort to enhance how others see us. While there is nothing wrong with wanting to look good and present ourselves in a positive manner, of course, some people take impression management too far and create unrealistic or false impressions.

g-stockstudio/ Shutterstock.com

People attempt to manage how others perceive them through a variety of mechanisms. Appearance is one of the first things that people think of. Hence, a person motivated by impression management will pay close attention to choice of attire, selection of language, and use of manners and body posture. People interested in impression management are also likely to jockey for association only with successful projects. By being assigned to high-profile projects led by highly successful managers, a person can begin to link his or her own name with such projects in the minds of others.

Sometimes people too strongly motivated by impression management become obsessed with it and may resort to dishonest or unethical means. For example, some people have been known to take credit for others’ work in an effort to make themselves look better. People have also been known to exaggerate or even falsify their personal accomplishments in an effort to build an enhanced image. For instance, one Silicon Valley entrepreneur noted, “Every time I turn around, there is someone sticking their head in my office reminding me what they are doing for me.”

Coercion is sometimes used in organizations to pressure people to do something they might not want to do. This manager, for example, is pressuring one of her colleagues to support a recommendation she is making to their boss. He is clearly reluctant to comply, but she is pushing aggressively to get her way.

Michael Crockett Photography/Stone/Getty Images

11-6cManaging Political Behavior

By its very nature, political behavior is tricky to approach in a rational and systematic way. But managers can handle political behavior so that it does not do excessive damage. First, managers should be aware that, even if their actions are not politically motivated, others may assume that they are. Second, by providing subordinates with autonomy, responsibility, challenge, and feedback, managers reduce the likelihood of political behavior by subordinates. Third, managers should avoid using power if they want to avoid charges of political motivation. Fourth, managers should get disagreements out in the open so that subordinates will have less opportunity for political behavior through using conflict for their own purposes. Finally, managers should avoid covert activities. Behind-the-scenes activities give the impression of political intent, even if none really exists. Other guidelines include clearly communicating the bases and processes for performance evaluation, tying rewards directly to performance, and minimizing competition among managers for resources.

Of course, these guidelines are much easier to list than they are to implement. The well-informed manager should not assume that political behavior does not exist or, even worse, attempt to eliminate it by issuing orders or commands. Instead, the manager must recognize that political behavior exists in virtually all organizations and that it cannot be ignored or stamped out. It can, however, be managed in such a way that it will seldom inflict serious damage on the organization. It may even play a useful role in some situations. For example, a manager may be able to use his or her political influence to stimulate a greater sense of social responsibility or to heighten awareness of the ethical implications of a decision.

Chapter Review

Summary of Learning Outcomes and Key Points

· 1Describe the nature of leadership and relate leadership to management.

· •

As a process, leadership is the use of noncoercive influence to shape the group’s or organization’s goals, motivate behavior toward the achievement of those goals, and help define group or organization culture.

· •

As a property, leadership is the set of characteristics attributed to those who are perceived to be leaders.

· •

Leadership and management are often related but are also different.

· •

Managers and leaders use legitimate, reward, coercive, referent, and expert power.

· 2Discuss and evaluate the two generic approaches to leadership.

· •

The trait approach to leadership assumed that some basic trait or set of traits differentiated leaders from nonleaders.

· •

The leadership behavior approach to leadership assumed that the behavior of effective leaders was somehow different from the behavior of nonleaders.

· •

Research at the University of Michigan and Ohio State University identified two basic forms of leadership behavior—one concentrating on work and performance and the other concentrating on employee welfare and support.

· •

The Managerial Grid attempts to train managers to exhibit high levels of both forms of behavior.

· 3Identify and describe the major situational approaches to leadership.

· •

Situational approaches to leadership recognize that appropriate forms of leadership behavior are not universally applicable and attempt to specify situations in which various behaviors are appropriate.

· •

The LPC theory suggests that a leader’s behavior should be either task oriented or relationship oriented, depending on the favorableness of the situation.

· •

The path-goal theory suggests that directive, supportive, participative, or achievement-oriented leader behaviors may be appropriate, depending on the personal characteristics of subordinates and the environment.

· •

Vroom’s decision tree approach maintains that leaders should vary the extent to which they allow subordinates to participate in making decisions as a function of problem attributes.

· •

The LMX model focuses on individual relationships between leaders and followers and on in-group versus out-group considerations.

· 4Identify and describe three related approaches to leadership.

· •

Related leadership perspectives are as follows:

· •

The concept of substitutes for leadership

· •

Charismatic leadership

· •

The role of transformational leadership in organizations

·
5Describe three emerging approaches to leadership.

· •

Emerging approaches include the following:

· •

Strategic leadership

· •

Cross-cultural leadership

· •

Ethical leadership

· 6Discuss political behavior in organizations and how it can be managed.

· •

Political behavior is another influence process frequently used in organizations.

· •

Impression management, one especially important form of political behavior, is a direct and intentional effort by someone to enhance his or her image in the eyes of others.

· •

Managers can take steps to limit the effects of political behavior.

Chapter Review

Discussion Questions

Questions for Review

1. What activities do managers perform? What activities do leaders perform? Do organizations need both managers and leaders? Why or why not?

2. What are the two generic approaches to leadership? What can managers today learn from these approaches?

3. What are the situational approaches to leadership? Briefly describe each and compare and contrast their findings.

4. Describe the subordinate’s characteristics, leader behaviors, and environmental characteristics used in path-goal theory. How do these factors combine to influence motivation?

5. In your own words, define political behavior. Describe four political tactics and give an example of each.

Questions for Analysis

1. Even though the trait approach to leadership has no empirical support, it is still widely used. In your opinion, why is this so? In what ways is the use of the trait approach helpful to those who use it? In what ways is it harmful to those who use it?

2. The behavioral theories of leadership claim that an individual’s leadership style is fixed. Do you agree or disagree? Give examples to support your position. The behavioral theories also claim that the ideal style is the same in every situation. Do you agree or disagree? Again, give examples.

3. Consider the following list of leadership situations. For each situation, describe in detail the kinds of power the leader has. If the leader were the same but the situation changed—for example, if you thought of the president as the head of his family rather than of the military—would your answers change? Why?

· The president of the United States is commander in chief of the U.S. military.

· An airline pilot is in charge of a particular flight.

· Fans look up to a movie star.

· Your teacher is the head of your class.

4. Think about a decision that would affect you as a student. Use Vroom’s decision tree approach to decide whether the administrator making that decision should involve students in the decision. Which parts of the model seem most important in making that decision? Why?

5. Describe a time when you or someone you know was part of an in-group or an out-group. What was the relationship between each of the groups and the leader? What was the relationship between the members of the two different groups? What was the outcome of the situation for the leader? For the members of the two groups? For the organization?

Chapter Review

Experiential Exercise

The Leadership/Management Interview Experiment

Purpose: Leadership and management are in some ways the same, but more often they are different. This exercise offers you an opportunity to develop a conceptual framework for leadership and management.

Introduction: Most management behaviors and leadership behaviors are a product of individual work experience, so each leader/manager tends to have a unique leadership/management style. Analyzing leadership/ management styles, comparing such styles, and relating them to different organizational contexts are often rewarding experiences in learning.

Instructions: Fact Finding and Execution of the Experiment

1. Develop a list of questions related to issues you have studied in this chapter that you want to ask a practicing manager and leader during a face-to-face interview. Prior to the actual interview, submit your list of questions to your instructor for approval.

2. Arrange to interview a practicing manager and a practicing leader. For purposes of this assignment, a manager or leader is a person whose job priority involves supervising the work of other people. The leader/manager may work in a business or in a public or private agency.

3. Interview at least one manager and at least one leader, using the questions you developed. Take good notes on their comments and on your own observations. Do not take more than one hour of each leader or manager’s time.

Oral Report

Prepare an oral report using the questions here and your interview information. Complete the following report after the interview. (Attach a copy of your interview questions.)

The Leadership/Management Interview Experiment Report

1. How did you locate the leader(s) and manager(s) you interviewed? Describe your initial contacts.

2. Describe the level and responsibilities of your leader(s) and manager(s). Do not supply names—their responses should be anonymous.

3. Describe the interview settings. How long did the interview last?

4. In what ways were the leaders/managers similar or in agreement about issues?

5. What were some of the major differences between the leaders/managers and between the ways in which they approached their jobs?

6. In what ways would the managers agree or disagree with ideas presented in this course?

7. Describe and evaluate your own interviewing style and skills.

8. How did your managers feel about having been interviewed? How do you know that?

Chapter Review

Building Effective Interpersonal Skills

Exercise Overview

Interpersonal skills refer to your ability to communicate with, understand, and motivate both individuals and groups. This exercise asks you to examine the ways in your attitudes toward work relationships reflect your political behavior in the workplace.

Exercise Task

Following is a series of 20 statements. To what extent does each statement describe your use—actual or planned—of the described behavior when you’re on the job? To address this question, rate your response to each statement according to the following scale:

1	2	3	4	5
Rarely	Occasionally	Usually
	1.	I use personal contacts to get jobs and promotions.
	2.	I try to find out what’s going on in every organizational department.
	3.	I dress the same way as the people in power and develop the same interests (e.g., watch or play sports, or join the same clubs).
	4.	I purposely seek contacts and network with higher-level managers.
	5.	If upper management offered me a raise and promotion requiring me to move to a new location, I’d say yes even if I didn’t want to move.
	6.	I get along with everyone, even people regarded as difficult to get along with.
	7.	I try to make people feel important by complimenting them.
	8.	I do favors for other people and ask for favors in return; and I thank people, often sending thank-you notes.
	9.	I work at developing a good working relationship with my supervisor.
	10.	I ask my supervisor and other people for advice.
	11.	When someone opposes me, I still work to maintain a positive working relationship with that person.
	12.	I’m courteous, positive, and pleasant in my relationships with other people.
	13.	When my supervisor makes a mistake, I never point it out publicly.
	14.	I’m more cooperative (I compromise) than competitive (I try to get my own way).
	15.	I tell the truth.
	16.	I avoid saying negative things about my supervisor or other people behind their backs.
	17.	I work at getting people to know me by name and face by continually introducing myself.
	18.	I ask satisfied customers and other people familiar with my work to let my supervisor know how good a job I’m doing.
	19.	I try to win contests and get prizes, pins, and other awards.
	20.	I send notices of my accomplishments to higher-level managers and such outlets as company newsletters.

Scoring

1. Add up the 20 numbers in the blanks before all the questions. Your total will range between 20 and 100. This number reflects your overall political behavior: The higher your score, the greater your political behavior.

2. Record your score here and on the scale below:

3. Now you want to determine your use of political power in four different areas (e.g., learning organizational culture or being a team player). To do this, add up your numbers for each of the following sets of questions, and then divide by 5. You will then have your average score for each area:

1. Learning the organizational culture and getting to know the power players:

Questions 1–5 total divided by 5 = ______

2. Developing good working relationships, especially with your boss:

Questions 6–12 total divided by 5 =______

3. Being a loyal, honest team player:

Questions 13–16 total divided by 5 = ______

4. Gaining recognition:

Questions 17–20 total divided by 5 = ______

The higher your average score for each set of questions, the greater your use of political power in that area. Do you rate about the same in each area, or do you rate more highly in some areas more than others? Discuss your findings with some of your classmates and develop an interpretation of the pattern of results you and they have identified for yourselves.

Source: From Lussier/Achua, Leadership, 4E. © 2010 Cengage Learning.

Chapter Review

Management at Work

A Critique of Practical Leadership

“Defining the company’s purpose is a leader’s—and only a leader’s—responsibility.”

—Arkadi Kuhlmann, former CEO of ING Direct

ING Direct Canada was launched in 1997 by veteran Canadian banker Arkadi Kuhlmann as a subsidiary of ING Groep NV, a global financial-services corporation headquartered in the Netherlands. It was the first test of a new direct banking business model featuring no-frills, high-rate savings accounts that could be accessed online only. Doing away with the costs entailed by a network of branches, ING Direct depended instead on a small network of ING Direct Cafes as face-to-face contact points. The motto was “Sip, surf and save”: You could hang out over a specialty coffee and use the free Internet and Wi-Fi services, or you could get help from a bank representative to open a savings account paying 4 percent interest—at least twice as much as anything offered by Canada’s biggest banks.

Kuhlmann developed the ING Direct strategy, assembled the leadership team, and served as CEO from 1997 to 2000 (being “reelected” annually by a vote of the company’s employees). The bank broke even in just four years and was well on its way to becoming, by 2008, Canada’s largest direct bank. An initial investment of US$50 million had been turned into total assets of US$23 billion. And where was Kuhlmann by this time? In 2000, he left to launch ING Direct USA, taking his strategy, his executive team, and his ideas about leadership with him. The new bank hit breakeven after just two years, and after just six, it had become the largest online bank in the much bigger U.S. market, with $92.2 billion in assets.

For Kuhlmann, the opportunity to manage ING Direct Canada provided a perfect situation in which to put his ideas about leadership into action. First and foremost, the bank was founded to launch an innovative business model and, in the process, to disrupt the savings end of the banking industry. As it happens, Kuhlmann already believed that “culture-based leadership is necessary in order to adopt innovative business strategies and to unleash the power of disruptive ideas.” He was also convinced that “culture-based leadership” had become the most promising approach to launching and operating a company in the contemporary business environment.

According to Kuhlmann, the critical factor in today’s business environment is the simple but pervasive fact of change. Nowadays, he says, the forces of competitive pressure change directions more or less constantly and with relatively little warning. As a result,

companies’ life cycles are getting shorter…. Businesses are successful and not successful over shorter lifetimes…. So the world is getting…. more short-cycled, but at the same time, we keep hoping for the silver bullet. You want that one spark in the party, that one hit in the company, that one person to stand up and grab it all, and it’s tougher than ever before.

As Kuhlmann sees it, a new company has to hit the ground running with a strategy to innovate and disrupt: If it doesn’t, it risks finding itself in a market that’s entered yet another cycle—one in which competitors are already innovating its planned innovation.

So how does a company start out—and stay—innovative and disruptive? The key, says Kuhlmann, is identifying a “cause”: “A successful company,” he argues, “must have a cause that is bigger and broader than the organization itself.” What, for example, was the “cause” that Kuhlmann identified for ING Direct? “When we started the bank in 2000,” he recalls, “it was a time when instant gratification and spending without regard for one’s ability to pay back the money had enveloped America. It was a recipe for disaster, and we believed that the right thing to do was to set off on a crusade to lead Americans back to the old-fashioned values and saving.” Having established a cause, a successful leader must ensure that it’s embodied in the company’s “vision,” which, for Kuhlmann, means what the company intends to do in order “to make a difference” and “make things better,” at least in the environment in which it does business. “An effective vision,” he maintains, “has to be one that shakes up the status quo and starts a revolution.”

All of this is not as abstract as it may seem. “When we started the company,” explains Kuhlmann, “we wanted to start with a big idea. Let’s go back to some roots and fundamental values: self-reliance, independence, having a grub stake.” At the same time, the “big idea” had to be “important and clear” to the new company’s prospective customers, and at ING Direct, says Kuhlmann, “that idea was leading Americans back to savings. We saw that there was too much spending going on. Credit cards had become the opium of consumerism. Let’s encourage people to save, we decided, and that has been our mission.”

What’s the difference between vision and mission? According to Kuhlmann, “vision is aspirational, and mission is how you hold yourself accountable. Our vision was to lead Americans back to saving. Our mission was to simplify financial products.” Being accountable, then, means “walking the talk,” as Kuhlmann likes to say—in other words, delivering the actual products that will make things better for targeted customers. Thus the product strategy at ING Direct—both for designing and delivering products—focused on simplicity: “Simplifying financial products,” explains Kuhlmann,

was our tactic for helping people save their money…. Our model was…. a high-volume, low-margin business. We would target the people…. who we thought needed a better value proposition—that is, more affordable savings. We could offer significantly higher rates if we removed costs from our model. Branches are usually a huge cost…. so we didn’t have branches and could pass on the savings to our customers. All our services are provided over the telephone and the Internet. We also opened up several ING Cafes to underscore the idea that opening an account should be as easy as buying a cup of coffee.

None of this, Kuhlmann is quick to point out, is feasible without the right kind of leadership—that is, “culture-driven leadership.” A company’s leader, he argues, “must come up with the mission statement him- or herself. Defining the company’s purpose is a leader’s—and only a leader’s—responsibility…. The leader must embody the company’s cause, and that includes being responsible for defining it.” A successful leader strives to be “a person devoted to a cause [rather] than a manager running a company…. He or she must be identified with the cause.”

In turn, a leader must see to it that the cause is the driving force behind the company’s culture—the set of values that helps employees understand what it wants to do and how it goes about accomplishing its goals. If a leader doesn’t take responsibility for the company’s culture, says Kuhlmann, it “gets created on its own. Or you can direct it in a certain way…. I believe you need to direct the culture—and let the culture direct the business.”

Kuhlmann also thinks that directing the culture is the best way to attract and keep committed employees in an age in which career cycles, like environmental cycles, are shorter. Today, he says, “people that are successful and stay ahead are those that gravitate to a culture that is meaningful for them. They’re on a mission. It’s not a job.” Companies can no longer count on employees to perform their jobs simply out of “corporate loyalty and trust…. I think right now,” says Kuhlmann, “the only reason you would follow me—the only reason—is that I would voice the attributes of the culture in a way that you would say, ‘Yes, that’s meaningful to me. I’m connected to that.’”

Case Questions

1. First, review the definition and discussion of “The Organization’s Culture” in Chapter 2. Then address the following question: What effect is a company’s culture likely to have on the efforts of management to practice each of the following approaches to leadership: LPC theory, path-goal theory, the decision tree approach, and the LMX model?

2. “The way we look at leaders,” says Arkadi Kuhlmann, “has changed, and who we follow has become ever more situational.” According to one researcher, situational leadership

evolved from a task-oriented versus people-oriented continuum…. representing the extent that the leader focuses on the required tasks or focuses on relations with followers…. Task-oriented leaders define roles for followers, give definite instructions, create organizational patterns, and establish formal communication channels. In contrast, relation-oriented leaders practice concern for others, attempt to reduce emotional conflicts, seek harmonious relations, and regulate equal participation. 

First, use this definition of situational leadership to get a sharper focus on the discussion of the topic in the text (“Situational Approaches to Leadership”). Then explain how Kuhlmann’s concept of “culture-driven leadership” can be understood within the context of situational approaches to leadership.

1. The same researcher writes that the transformational leader

convinces his followers to transcend their self-interest for the sake of the organization, while elevating “the followers’ level of need on Maslow’s hierarchy from lower-level concerns for safety and security to higher-level needs for achievement and self-actualization.”… Over time, four components of transformational leadership emerged: idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration.

2. First, review the section in the text on “Transformational Leadership” and, if necessary, the discussion in Chapter 10 of “Maslow’s Hierarchy of Needs.” Then explain how Kuhlmann’s concept of “culture-driven leadership” can be understood within the context of the transformational approach to leadership.

3. What about you? In 2011, Kuhlmann published a book entitled Rock Then Roll: The Secrets of Culture-Driven Leadership, which gathers some ideas on management collected over more than a decade at ING Direct. “The book,” he says, “is really for a younger audience—people who are really looking around and trying to figure out how to make a difference.” He adds that

a lot of younger people who join us, starting at the entry level at ING Direct, are not totally motivated by money. It’s amazing what percentage say, “Wait a minute, I’m committing time. I’m investing my time, and that means a lot to me.” They have a little different focus. If you roll back the calendar a couple of decades, it was all about, “How much money am I going to make?” There are still some people like that, but it’s amazing how many people really think about the fact that they’re investing time.

4. Kuhlmann implies a spectrum of attitudes toward work life running from “How much money am I going to make?” on the one end to “I’m investing time and that means a lot to me” on the other end. Where would you put yourself on this spectrum? Have you pretty much been at the same place for your adult life, or has your attitude shifted to some degree? In any case, explain how you currently feel about the issue that Kuhlmann raises.

Case References

Markus Venzin, Building an International Financial Services Firm: How Successful Companies Design and Execute Cross-Border Strategies (New York: Oxford University Press, 2009), https://books.google.com, accessed on April 10, 2017; Jeanne Liedtke, Robert Rosen, and Robert Wiltbank, The Catalyst: How You Can Become an Extraordinary Growth Leader (New York: Doubleday, 2009), https://books.google.com, accessed on April 10, 2017; Adrian Ryan, Beating Low Cost Competition: How Premium Brands Can Respond to Cut-Price Rivals (Hoboken, NJ: John Wiley & Sons, 2009), https://books.google.com, accessed on April 10, 2017; Arkadi Kuhlmann, “Culture-Driven Leadership,” Ivey Business Journal, March/April 2010, http://iveybusinessjournal.com, accessed on April 10, 2017; Chris Barth, “Corporate Culture for the Protest Generation,” Forbes, December 12, 2011, www.forbes.com, accessed on April 10, 2017; and Robert Reiss, “Creating a New Kind of Savings Bank,” Forbes, December 1, 2009, www.forbes.com, accessed on April 10, 2017.

Chapter Review

You Make the Call: Leaders of Oil Repute

1. Carefully review the definition of leadership as a process in the text. Discuss the failure of BP’s response to the Deepwater Horizon disaster as a failure of the company’s leaders to manage the leadership process. You may want to refer to Table 11.1, “Distinctions between Management and Leadership,” particularly the column labeled “Leadership.”

2. According to the MIT Sloan-Boston Consulting Group study, Walkers focus heavily on both sustainability strategy and leadership commitment: “Creating a sustainability strategy,” says the report, “is a hallmark of Walkers…. Making sustainability a top-management agenda item is also critical.”

Review the definitions of strategy, strategic management, and effective strategies in Chapter 3. Referring to these definitions, explain why sustainability strategy and leadership commitment go hand in hand in an organization’s sustainability efforts.

3. A former CEO of a major American corporation has the following to say about BP and the Deepwater Horizon disaster:

In the aftershock, the world watched BP and its chief executive, Tony Hayward, make blunder after blunder while crude continued to gush…. BP’s talk about caring for the environment was for naught, as its actions failed to match its message…. Recently, a BP-sponsored Gulf Coast tourism TV campaign has implied that everything is back to normal. No doubt, substantial reparative progress has been made. But does the latest ad make you feel any better about the offender?

Let’s assume that you’ve been asked to sit on a panel of randomly selected American consumers convened by BP. The company wants to find out what people like you think about its actions in the wake of Deepwater Horizon. How would you answer the question posed at the end of the quote above? How would you explain your response?

4. “At this point,” says Edward Lawler III,

it’s hard to be optimistic about companies engaging in the type of redesign that is needed in order for them to become sustainably effective…. There probably will be some companies that change because their CEOs and senior managers feel it’s the right thing to do, but unfortunately they are likely to be the exceptions, not the norm. It is likely that in the foreseeable future, sustainability will continue to get some attention in corporations, but it will not be a major focus or a top priority, and as a result corporations will not have a more positive social and environmental impact.

How about you? Do you agree or disagree? Explain why you are optimistic or pessimistic.

WEEK 7 READING

Communication in Organizations Chapter 12

· Chapter Introduction

· 12-1
Communication and the Manager’s Job

· 12-1a
A Definition of Communication

· 12-1b
Characteristics of Useful Information

· 12-1c
The Communication Process

· 12-2
Forms of Communication in Organizations

· 12-2a
Interpersonal Communication

· 12-2b
Communication in Networks and Work Teams

· 12-2c
Organizational Communication

· 12-3
Informal Communication in Organizations

· 12-3a
The Grapevine

· 12-3b
Management by Wandering Around

· 12-3c
Nonverbal Communication

· 12-4
Managing Organizational Communication

· 12-4a
Barriers to Communication

· 12-4b
Improving Communication Effectiveness

· Chapter Review

· Summary of Learning Outcomes and Key Points

· Discussion Questions

· Experiential Exercise

· Building Effective Interpersonal Skills

· Management at Work

· You Make the Call: Socializing

Chapter Introduction

Learning Outcomes

After studying this chapter, you should be able to:

· 1Describe the role and importance of communication in the manager’s job.

· 2Identify the basic forms of communication in organizations.

· 3Describe the role of digital communication in organizations.

· 4Discuss informal communication, including its various forms and types.

· 5Describe how the communication process can be managed to recognize and overcome barriers.

Management in Action

Socializing

“Having nearly 50,000 people all on the same page and moving in the same direction is quite important to me.”

—Bruce Broussard, CEO of Humana

Humana, a health insurer based in Louisville, Kentucky, recently decided that it needed to improve internal communications. In particular, the company wanted to facilitate information sharing among departments, but because the process would by definition cut across existing organizational boundaries, the team charged with implementing the system decided to proceed cautiously. They started by installing a new social network service called Yammer in order to build an internal communications network. At the time, Jeff Ross was working with Humana’s Enterprise Innovation team. “We wanted to experiment with the idea of enterprise social networking in general,” he recalls, “and see if there was something useful in it.”

Humana is a large health insurer based in Louisville, Kentucky. Humana uses a number of forward-thinking methods to enhance internal communication among its thousands of employees.

AP Images/Rodrigo Pena

“We let it grow virally for about a year,” adds Ross, and when it proved popular among company employees, the team decided to go forward with a full-fledged enterprise social network (ESN), which is basically an online social network for use in a business context. First, however, they had to sell top management on the idea of an ESN. “At that point,” Ross explains, “we were hierarchical, very traditional, top-down. We needed to connect without going through a lot of hoopla.” Not surprisingly, the team’s chief selling point was the value of an ESN in addressing specific business issues. Fortunately, says Ross, both the issues and the value of an ESN were pretty clear: “We knew that we needed a way to communicate more quickly across business areas to help reduce the duplication of effort that occurs when different departments pursue the same things, such as purchasing, developing products, training, and so forth. We wanted a way to speed up that direct communication across business areas.”

Once upper management had bought into the idea, Ross and his team had to select an ESN provider. Naturally, they focused on platforms that would provide a required feature set, including applications for discussions, topic groups, and private messaging. By the end of 2009, they had settled on Socialcast, which, rebranded as “Buzz,” was launched in 2010. By 2013, nearly 30,000 of Humana’s 50,000 employees were active users. They had created more than 1,200 groups, both business and nonbusiness related, and were generating 6,000 to 7,000 posts per week.

“We have two official purposes for Buzz,” reports Ross, who’s now community manager for Enterprise Social Media. “The first one is to help us accomplish our business objectives, and the second one is to help us establish positive interpersonal relationships around areas of mutual interest.” As for the application of the ESN to business objectives, Ross says that “it’s up to individuals, teams, and departments to determine how best to use Buzz to accomplish their own business purposes.” In practice, he adds, “Buzz provides a ‘water-cooler-conversation’ experience across the enterprise. Employees use it to avoid long time-wasting email chains, and new employees can use it to engage rapidly and to accelerate their integration into the company culture. Buzz is also used for ideation to increase efficiencies” (i.e., for brainstorming about ways to save money).

Buzz has proved to be especially useful in facilitating Q&A and feedback from companywide events that Humana calls “Buzz Town Halls.” Every quarter, for example, CEO Bruce Broussard hosts a Leadership Meeting for more than 5,000 company managers. A simultaneous Socialcast Town Hall is available to 40,000 employees, who can assess the presentations and post questions that Broussard addresses directly. In a practical sense, says Ross, the value of Socialcast events “is that the Q&A is captured, archived, and available for people to go back at a later date and review.” As CEO, Broussard also sees a bigger picture in which the company’s strategic objectives are in sync with the activities of the people responsible for achieving them. Asked in one meeting about the cost of the company’s ESN, Broussard replied that he didn’t know exactly, “but I know that having nearly 50,000 people all on the same page and moving in the same direction is quite important to me.”

The CEO is also a regular contributor to a popular topic group dedicated to health and wellness. According to Ross, Broussard, a veteran triathlete, “is very active in terms of conversing about physical fitness, which is important to our company since we’re in the health industry. For example, when he’s running or biking, he uploads photos and shares his sports activities. Sometimes his conversations are business related, while some are more personal, health-oriented kinds of encouragement.”

Broussard’s presence on Buzz does more than “humanize” the CEO and furnish him with workplace credibility: It not only reinforces his key role in the development of the company’s culture but also anchors his strategy of sharing the company’s culture and mission with the 13.8 million people that Humana insures. Broussard believes that both the health care and health-insurance industries are becoming more consumer oriented. “The discussion,” he says, is changing from “worrying about how people are being treated to how you can keep them healthier…. We believe our role in the insurance industry is to shift perceptions and move beyond being simply a provider to empowering our members and helping them live healthy, active, and rewarding lives.”

By “members” Broussard means both Humana’s employees and its customers. In late 2012, for example, the company launched its “Humana Hope Campaign” with an introductory Town Hall event. Employees were asked to post personal goals for improving their health—physical, emotional, spiritual, or financial—in the coming year. They were also asked to designate individuals to hold them to their goals, typically people outside Humana. Consequently, the campaign helped the company get its story out by means of an external social media campaign. “It was something that resonated,” recalls Humana social media strategist Chuck Stephens. “We had people all over the country sending us updates and photos and commenting on their marathon completions or before-and-after photos of weight loss.”

Similarly, a program called “HumanaVitality” started out on Buzz as an in-house game in which employees could earn points and rewards for participating in a variety of wellness activities. Then in 2011, Humana partnered with Discovery Holdings, a South Africa-based provider of health and wellness services, to create a subsidiary called HumanaVitality, which offers a wellness-rewards program to 1.5 million individual and corporate policyholders. Originally offered through an online app, HumanaVitality went mobile in 2014, with such features as health assessments, health-related competitions, and personalized goal setting available on iOS and Android devices.

Obviously, Humana’s social media strategy calls for the integration of internal and external communications. In 2011, Jeff Ross moved the newly launched Buzz ESN from its original home in the IT department to the Digital Marketing Group, which already handled external social media, thus putting both areas of the company’s social media in the hands of a single team. He remains convinced, however, that maintaining an ESN needs a “community manager”—that is, someone with a job like his. -“Somebody’s got to own that baby,” he argues, “and be driven to increase awareness and the telling of success stories…. It’s not something you tack on to a full time job. It deserves its own role.”

Organizations today are continually looking for ways to improve communication among their employees, customers, and other stakeholders. Many, like Humana, are looking to social media platforms and digital technology to take the next step in the evolution of communication. But communication has always been a vital part of managerial work. Indeed, managers around the world agree that communication is one of their most important tasks. It is important for them to communicate with others in order to convey their vision and goals for the organization. And it’s important for others to communicate with them so that they will better understand what is going on in their environment and how they and their organization can become more effective.

This chapter discusses communication, one of the most basic forms of interaction among people. We begin by examining communication in the context of the manager’s job. We then identify and discuss forms of interpersonal, group, and organizational communication. After discussing informal means of communication, we describe how organizational communication can be effectively managed.

12-1Communication and the Manager’s Job

A typical day for a manager includes doing desk work, attending scheduled meetings, making and receiving phone calls, reading and answering correspondence (both print and electronic), attending unscheduled meetings, and making tours. Most of these activities involve communication. In fact, managers usually spend most of their time on some form of communication. Communication always involves two or more people, so other behavioral processes, such as motivation, leadership, and group and team interactions, all come into play. Top executives must handle communication effectively if they are to be true leaders.

Communication and effective communication are not necessarily the same thing. This man is reading a document, so communication is taking place. At the same time, though, his expression suggests that the communication may not be effective. He may not understand the message, for instance, or he may be angered or confused by it.

Andrey_Popov/ Shutterstock.com

12-1aA Definition of Communication

Imagine three managers working in a large office complex. The first is all alone but is nevertheless yelling for an assistant to come help. No one can hear him, but he continues to yell. The second is talking on a cell phone to a subordinate, but a poor network connection causes the subordinate to misunderstand some important numbers being provided by the manager. As a result, the subordinate sends 1,500 crates of eggs to 150 Fifth Street, when he should have sent 150 crates of eggs to 1500 Fifteenth Street. The third manager is talking in her office with a subordinate who clearly hears and understands what is being said. Each of these managers is attempting to communicate, but with different results.

Communication
 is the process of transmitting information from one person to another. Did any of our three managers communicate? The last did, and the first did not. How about the second? In fact, she did communicate. She transmitted information, and information was received. The problem was that the message transmitted and the message received were not the same. The words spoken by the manager were distorted by static and noise. 
Effective communication
, then, is the process of sending a message in such a way that the message received is as close in meaning as possible to the message intended. Although the second manager engaged in communication, it was not effective.

A key element in effective communication is differentiating between data and information. 
Data
 are raw figures and facts reflecting a single aspect of reality. The facts that a plant has 35 machines, that each machine is capable of producing 1,000 units of output per day, that current and projected future demand for the units is 30,000 per day, and that workers sufficiently skilled to run the machines make $20 an hour are data. 
Information
, meanwhile, is data presented in a way or form that has meaning. Combining and summarizing the four pieces of data given above provide information: The plant has excess capacity and is therefore incurring unnecessary costs. Information has meaning to a manager and provides a basis for action. The plant manager might use the information and decide to sell four machines (perhaps keeping one as a backup) and transfer five operators to other jobs.

12-1bCharacteristics of Useful Information

What characteristics make the difference between information that is useful and information that is not useful? In general, information is useful if it is accurate, timely, complete, and relevant.

Accurate

For information to be of real value to a manager, it must be 
accurate information
. Accuracy means that the information must provide a valid and reliable reflection of reality. The Deepwater Horizon oil spill in the Gulf of Mexico was the result of decisions made on the basis of inaccurate information. Engineers relied on flawed test results when they made the decision to drill for oil in an unstable area. Had they conducted more thorough tests and obtained more accurate information they would have better recognized the potential consequences of the instability and not initiated drilling at that location.

Timely

Information also needs to be 
timely
. Timeliness does not necessarily mean speediness; it means only that information needs to be available in time for appropriate managerial action. What constitutes timeliness is a function of the situation facing the manager. When Marriott was gathering information for a new hotel project, managers allowed themselves a six-month period for data collection. They felt this would give them an opportunity to do a good job of getting the information they needed while not delaying things too much. In contrast, Marriott’s reservation and accounting systems can provide a manager today with last night’s occupancy level at any Marriott facility. United Airlines once filed for bankruptcy protection while it restructured its finances. Several years later, an error led a South Florida newspaper to post an old story about the earlier filing on its website in a way that made it appear as a current event. The resulting panic among investors caused United Airlines’ shares to drop from $12.50 a share to less than $3 a share before the error was caught and corrected.

Complete

Information must tell a complete story for it to be useful to a manager. If it is less than 
complete information
, the manager is likely to get an inaccurate or distorted picture of reality. For example, managers at Kroger used to think that house-brand products were more profitable than national brands because they yielded higher unit profits. On the basis of this information, they gave house brands a great deal of shelf space and centered promotional activities around them. As Kroger’s managers became more sophisticated in understanding their information, however, they realized that national brands were actually more profitable over time because they sold many more units than house brands during any given period of time. Hence, although a store might sell 10 cans of Kroger coffee in a day, with a profit of 50 cents per can (total profit of $5), it would sell 15 cans of Maxwell House with a profit of 40 cents per can (total profit of $6) and 10 vacuum bags of Starbucks coffee with a profit of $1 per bag (total profit of $10). With this more complete picture, managers could do a better job of selecting the right mix of Kroger, Maxwell House, and Starbucks coffee to display and promote.

Relevant

Finally, information must be relevant if it is to be useful to managers. 
Relevant information
, like timely information, is defined according to the needs and circumstances of a particular manager. Operations managers need information on costs and productivity, human resource managers need information on hiring needs and turnover rates, and marketing managers need information on sales projections and advertising rates. As Walmart contemplates countries as possible expansion opportunities, it gathers information about local regulations, customs, and so forth. But the information about any given country is not as relevant before a decision is made to enter that market than it is after the firm has made a decision to enter the market.

12-1cThe Communication Process

Figure 12.1 illustrates how communication generally takes place between people. The process of communication begins when one person (the sender) wants to transmit a fact, idea, opinion, or other information to someone else (the receiver). This fact, idea, or opinion has meaning to the sender, whether it is simple and concrete or complex and abstract.

Figure 12.1The Communication Process

As the figure shows, noise can disrupt the communication process at any step. Managers must therefore understand that a conversation in the next office, a printer out of paper, and the receiver’s smartphone being out of service may all thwart the manager’s best attempts to communicate.

Communication is often a cyclical process involving information passing back and forth between participants. These colleagues are discussing information as they work to solve a problem. They both appear to be actively engaged in the process.

Monkey Business Images/ Shutterstock.com

The next step is to encode the meaning into a form appropriate to the situation. The encoding might take the form of words, facial expressions, gestures, emojis, or even artistic expressions and physical actions. After the message has been encoded, it is transmitted through the appropriate channel or medium. The channel by which this encoded message is being transmitted to you is the digital or printed page. Common channels in organizations include meetings, e-mails, memos, letters, reports, and phone calls. After the message is received, it is decoded back into a form that has meaning for the receiver. As noted earlier, the consistency of this meaning can vary dramatically. In many cases, the meaning prompts a response, and the cycle is continued when a new message is sent by the same steps back to the original sender.

“Noise” may disrupt communication anywhere along the way. Noise can be the sound of someone coughing, a loud truck driving by, or two people talking close at hand. It can also include disruptions such as a letter lost in the mail, a dropped cell phone call, an e-mail misrouted or infected with a virus, or one of the participants in a conversation being called away before the communication process is completed.

12-2Forms of Communication in Organizations

Managers need to understand several kinds of communication that are common in organizations today. These include interpersonal communication, communication in networks and work teams, organizational communication, and digital communication.

12-2aInterpersonal Communication

Interpersonal communication generally takes one of two forms: oral and written. As we will see, each has clear strengths and weaknesses.

Oral Communication

Oral communication
 takes place in conversations, group discussions, phone calls, and other situations in which the spoken word is used to express meaning. One study (conducted before the advent of e-mail) demonstrated the importance of oral communication by finding that most managers spent between 50 and 90 percent of their time talking to people. Oral communication is so prevalent for several reasons. The primary advantage of oral communication is that it promotes prompt feedback and interchange in the form of verbal questions or agreement, facial expressions, and gestures. Oral communication is also easy (all the sender needs to do is talk), and it can be done with little preparation (though careful preparation is advisable in certain situations). The sender does not need pencil and paper, a computer, or other equipment. In another survey, 55 percent of the executives sampled felt that their own written communication skills were fair or poor, so they chose oral communication to avoid embarrassment!

However, oral communication also has drawbacks. It may suffer from problems of inaccuracy if the speaker chooses the wrong words to convey meaning or leaves out pertinent details, if noise disrupts the process, or if the receiver forgets part of the message. In a two-way discussion, there is seldom time for a thoughtful, considered response or for introducing many new facts, and there is no permanent record of what has been said. In addition, although most managers are comfortable talking to people individually or in small groups, fewer enjoy speaking to larger audiences.

Written Communication

“Putting it in writing” in a letter, report, memorandum, handwritten note, or e-mail can solve many of the problems inherent in oral communication. Nevertheless, and perhaps surprisingly, 
written communication
 is not as common as one might imagine, nor is it a mode of communication much respected by managers. One sample of managers indicated that only 13 percent of the printed mail they received was of immediate use to them. Over 80 percent of the managers who responded to another survey indicated that the written communication they received was of fair or poor quality.

The biggest single drawback of traditional forms of written communication is that they inhibit feedback and interchange. When one manager sends another manager a letter, it must be written or dictated, keyboarded, mailed, received, routed, opened, and read. If there is a misunderstanding, it may take several days for it to be recognized, let alone rectified. Although the use of e-mail, texts, or instant messaging is, of course, much faster, both sender and receiver must still have access to a computer or smartphone, and the receiver must open and read the message for it to actually be received. A phone call could settle the whole matter in just a few minutes. Thus written communication often inhibits feedback and interchange and is usually more difficult and time consuming than oral communication.

Of course, written communication offers some advantages. It is often quite accurate and provides a permanent record of the exchange. The sender can take the time to collect and assimilate the information and can draft and revise it before it is transmitted. The receiver can take the time to read it carefully and can refer to it repeatedly, as needed. For these reasons, written communication is generally preferable when important details are involved. At times it is important to one or both parties to have a written record available as evidence of exactly what took place.

Choosing the Right Form

Which form of interpersonal communication should the manager use? The best medium will be determined by the situation. Oral communication or e-mail or text may be preferred when the message is personal, nonroutine, and brief. More formal written communication is usually best when the message is more impersonal, routine, and longer. And, given the prominent role that e-mails have played in several recent court cases, managers should always use discretion when sending messages electronically. For example, private e-mails made public during legal proceedings have played major roles in litigation involving Enron, Tyco, Morgan Stanley, Wells Fargo, and Volkswagen.

The manager can also combine media to capitalize on the advantages of each. For example, a quick phone call or e-mail to set up a meeting is easy and gets an immediate response. Following up the call with a reminder e-mail or handwritten note helps ensure that the recipient will remember the meeting, and it provides a record of the meeting having been called. Digital communication, discussed more fully later in this chapter, blurs the differences between oral and written communication and can also help each be more effective.

12-2bCommunication in Networks and Work Teams

Although communication among team members in an organization is clearly interpersonal in nature, substantial research also focuses specifically on how people in networks and work teams communicate with one another. A 
communication network
 is the pattern through which the members of a group or team communicate. Researchers studying group dynamics have discovered several typical networks in groups and teams consisting of three, four, and five members. Representative networks among members of five-member teams are shown in Figure 12.2.

Figure 12.2Types of Communication Networks

Research on communication networks has identified five basic networks for five-person teams. These networks vary in terms of information flow, position of the leader, and effectiveness for different types of tasks. Managers might strive to create centralized networks when group tasks are simple and routine. Alternatively, managers can foster decentralized groups when group tasks are complex and nonroutine.

In the wheel pattern, all communication flows through one central person, who is probably the group’s leader. In a sense, the wheel is the most centralized network because one person receives and disseminates all information. The Y pattern is slightly less centralized—two people are close to the center. The chain offers a more even flow of information among members, although two people (the ones at each end) interact with only one other person. This path is closed in the circle pattern. Finally, the all-channel network, the most decentralized, allows a free flow of information among all group members. Everyone participates equally, and the group’s leader, if there is one, is not likely to have excessive power.

Research conducted on networks suggests some interesting connections between the type of network and group performance. For example, when the group’s task is relatively simple and routine, centralized networks tend to perform with greatest efficiency and accuracy. The dominant leader facilitates performance by coordinating the flow of information. When a group of accounting clerks is logging incoming invoices and distributing them for payment, for example, one centralized leader can coordinate things efficiently. When the task is complex and nonroutine, such as making a major decision about organizational strategy, decentralized networks tend to be most effective because open channels of communication permit more interaction and a more efficient sharing of relevant information. Managers should recognize the effects of communication networks on group and organizational performance and should try to structure networks appropriately.

12-2cOrganizational Communication

Still other forms of communication in organizations are those that flow among and between organizational units or groups. Each of these involves oral or written communication, but each also extends to broad patterns of communication across the organization. As shown in Figure 12.3, two of these forms of communication follow vertical and horizontal linkages in the organization.

Figure 12.3Formal Communication in Organizations

Formal communication in organizations follows official reporting relationships or prescribed channels. For example, vertical communication, shown here with solid lines, flows between levels in the organization and involves subordinates and their managers. Horizontal communication, shown with dashed lines, flows between people at the same level and is usually used to facilitate coordination.

Vertical Communication

Vertical communication
 is communication that flows up and down the organization, usually along formal reporting lines—that is, it is the communication that takes place between managers and their superiors and subordinates. Vertical communication may involve only two people, or it may flow through several different organizational levels.

A lot of communication in organizations is vertical–passing up and down the hierarchy between people at different levels. This manager is explaining a new project to her team. As she discusses what the team will be doing and answers questions from her team members vertical communication is taking place.

Monkey Business Images/ Shutterstock.com

Upward communication consists of messages from subordinates to superiors. This flow is usually from subordinates to their direct superior, then to that person’s direct superior, and so on up the hierarchy. Occasionally, a message might bypass a particular superior. The typical content of upward communication is requests, information that the lower-level manager thinks is of importance to the higher-level manager, responses to requests from the higher-level manager, suggestions, complaints, and financial information. Research has shown that upward communication is more subject to distortion than downward communication. Subordinates are likely to withhold or distort information that makes them look bad. The greater the degree of difference in status between superior and subordinate and the greater the degree of distrust, the more likely the subordinate is to suppress or distort information. For example, subordinates might choose to withhold information about problems from their boss if they think the news will make him angry and if they think they can solve the problem themselves without his knowledge.

Downward communication occurs when information flows down the hierarchy from superiors to subordinates. The typical content of these messages is directives on how something is to be done, the assignment of new responsibilities, performance feedback, and general information that the higher-level manager thinks will be of value to the lower-level manager. Vertical communication can and usually should be two-way in nature. In other words, give-and-take communication with active feedback is generally likely to be more effective than one-way communication.

Horizontal Communication

Whereas vertical communication involves a superior and a subordinate, 
horizontal communication
 involves colleagues and peers at the same level of the organization. For example, an operations manager might communicate to a marketing manager that inventory levels are running low and that projected delivery dates should be extended by two weeks. Horizontal communication probably occurs more among managers than among non-managers.

This type of communication serves a number of purposes. It facilitates coordination among interdependent units. For example, a manager at Texas Instruments was once researching the strategies of Japanese semiconductor firms in Europe. He found a great deal of information that was relevant to his assignment. He also uncovered some additional information that was potentially important to another department, so he passed it along to a colleague in that department, who used it to improve his own operations. Horizontal communication can also be used for joint problem solving, as when two plant managers at Northrop Grumman got together to work out a new method to improve productivity. Finally, horizontal communication plays a major role in work teams with members drawn from several departments.

Digital Communication

A great deal of organizational communication today relies on digital communication technology. 
Information technology (IT)
 consists of the resources used by an organization to manage information that it needs to carry out its mission. IT may consist of computers, computer networks, telephones, scanners, smartphones, and other pieces of hardware. In addition, IT involves software that facilitates the system’s ability to manage information in a way that is useful for managers. Both formal information systems and personal information technology have reshaped how managers communicate with one another.

Digital communication has fundamentally changed how people communicate. These two colleagues, for example, are literally on opposite sides of the world from each other but are able to carry on a conversation just as easily as if they were in the same room.

Blend Images/ Shutterstock.com

Information Systems

Advances in IT have made it increasingly easy for managers to use many different kinds of information systems. In this section, we discuss the most common kinds of information systems used by businesses today.

Transaction-processing systems (TPSs)
 are applications of information processing for basic day-to-day business transactions. Customer order taking by online retailers, approval of claims at insurance companies, receipt and confirmation of reservations by airlines, payroll processing and bill payment at almost every company—all are routine business processes. Typically, the TPS for first-level (operational) activities is well defined, with predetermined data requirements, and follows the same steps to complete all transactions in the system.

Systems for knowledge workers and office applications support the activities of both knowledge workers and employees in clerical positions. They provide assistance for data processing and other office activities, including the creation of communications documents. Like other departments, the information systems (IS) department includes both knowledge workers and data workers. Systems for operations and data workers make sure that the right programs are run in the correct sequence, and they monitor equipment to ensure that it is operating properly. Many organizations also have employees who enter data into the system for processing. Knowledge-level and office systems are also increasingly widespread. The widespread availability of text processing, document imaging, desktop publishing, computer-aided design, simulation modeling, and similar tools has increased the productivity of both knowledge and office workers. Desktop publishing combines graphics and word-processing text to publish professional-quality print and web documents. Document-imaging systems can scan paper documents and images, convert them into digital form, store them, retrieve them, manipulate them, and/or transmit them to workstations throughout the network, all without generating any additional paper.

Management information systems (MISs)
 support an organization’s managers by providing daily reports, schedules, plans, and budgets. Each manager’s information activities vary according to his or her functional area (say, accounting or marketing) and management level. Whereas midlevel managers focus mostly on internal activities and information, higher-level managers are also engaged in external activities. Middle managers, the largest MIS user group, need networked information to plan upcoming activities such as personnel training, materials movements, and cash flows. They also need to know the current status of the jobs and projects being carried out in their department: What stage is it at now? When will it be finished? Is there an opening so we can start the next job? Many of a firm’s MISs—cash flow, sales, production scheduling, and shipping—are indispensable in helping managers find answers to such questions.

Decision support systems (DSSs)
 are interactive systems that locate and present information needed to support the decision-making process. Whereas some DSSs are devoted to specific problems, others serve more general purposes, allowing managers to analyze different types of problems. Thus a firm that often faces decisions on plant capacity, for example, may have a capacity DSS: The manager inputs data on anticipated levels of sales, working capital, and customer delivery requirements. Then the DSS’s built-in transaction processors manipulate the data and make recommendations on the best levels of plant capacity for each future time period. In contrast, a general-purpose system, such as a marketing DSS, might respond to a variety of marketing-related problems. It may be programmed to handle “What if … ?” questions, such as “When is the best time to introduce a new product if my main competitor introduces one in 3 months, our new product has an 18-month expected life, demand is seasonal with a peak in autumn, and my goal is to gain the largest possible market share?” The DSS can help managers make decisions for which predetermined solutions are unknown by using sophisticated modeling tools and data analysis.

An 
executive support system (ESS)
 is a quick-reference, easy-access application of information systems specially designed for instant access by upper-level managers. ESSs are designed to assist with executive-level decisions and problems, ranging from “What lines of business should we be in five years from now?” to “Based on forecasted developments in digital technologies, to what extent should our firm be globalized in five years? In ten years?” The ESS also uses a wide range of both internal information and external sources, such as industry reports, global economic forecasts, and reports on competitors’ capabilities. Because most senior-level managers do not usually possess advanced computer skills, they prefer systems that are easily accessible and adaptable. Accordingly, ESSs are not designed to address only specific, predetermined problems. Instead, they allow the user some flexibility in attacking a variety of problem situations. They are easily accessible by means of simple keyboard strokes or even voice commands.

Artificial intelligence (AI)
 can be defined as the construction of computer systems, both hardware and software, to imitate human behavior—in other words, systems that perform physical tasks, use thought processes, and learn. In developing AI systems, knowledge workers (business specialists, modelers, and IT experts) try to design computer-based systems capable of reasoning, so that computers, instead of people, can perform certain business activities. One simple example is a credit evaluation system that decides which loan applicants are creditworthy and which ones are risky and then composes acceptance and rejection letters accordingly. One special form of AI, the expert system, is designed to imitate the thought processes of human experts in a particular field. Expert systems incorporate the rules that an expert applies to specific types of problems, such as the judgments a physician makes in diagnosing illnesses. In effect, expert systems supply everyday users with “instant expertise.” A system called maintenance operations center advisor (MOCA), by imitating the thought processes of a maintenance manager, schedules routine maintenance for American Airlines’ entire fleet.

Intranets
, or private Internet networks, are accessible only to employees via entry through electronic firewalls. Firewalls are used to limit access to an intranet. Ford’s intranet connects over 100,000 workstations in Asia, Europe, and the United States to thousands of Ford websites containing private information on Ford activities in production, engineering, distribution, and marketing. Sharing such information has helped reduce the lead time for getting models into production from 36 to 24 months. Ford’s latest project in improving customer service through internal information sharing is called manufacturing on demand. Now, for example, the Mustang that required 50 days’ delivery time in 1996 is available in less than 2 weeks. The savings to Ford, of course, will be billions of dollars in inventory and fixed costs.

Extranets
 allow outsiders limited access to a firm’s intranet. The most common application allows buyers to enter the seller’s system to see which products are available for sale and delivery, thus providing product availability information quickly to outside buyers. Industrial suppliers, too, are often linked into their customers’ intranets so that they can see planned production schedules and make supplies ready as needed for customers’ upcoming operations.

Personal Digital Technology

In recent years, the nature of organizational communication has changed dramatically, mainly because of breakthroughs in personal digital communication technology, and the future promises even more change. It has become common, for instance, to have teleconferences in which managers stay at their own location (such as offices in different cities) but are seen on screens as they “meet.” A manager in New York can keyboard a letter or memorandum at her personal computer, point and click with a mouse, and have it delivered to hundreds or even thousands of colleagues around the world in a matter of seconds. Highly detailed information can be retrieved with ease from large electronic databanks. This has given rise to a new version of an old work arrangement—the cottage industry. In a cottage industry, people work at home (in their “cottage”) and periodically bring the products of their labors in to the company. Telecommuting is the label given to a new digital cottage industry. In telecommuting, people work at home on their computers and communicate with colleagues and coworkers using digital media.

Personal digital technology continues to change the way people communicate. Take this unusual image, for example. Tourists in northern Israel can ride Wi-Fi–outfitted donkeys and use iPads or similar devices to see biblical reenactments as they ride through Old Testament landscapes. Visitors can then like, share, or snap their experiences instantly to their friends around the world.

AP Images/Ariel Schalit

Smartphones have made it even easier for managers to communicate with one another. Most now use such phones to make calls while commuting to and from work and carry them in their pockets so that they can receive calls throughout the day. In addition, of course, they can also send and receive documents and other information. And related personal computing devices such as the iPad are revolutionizing how people communicate with one another. Wi-fi technology is further extending the impact of these devices.

Psychologists, however, are beginning to associate some problems with these communication advances. For one thing, managers who are seldom in their “real” office are likely to fall behind in what’s going on in their organization and to be victimized by organizational politics because they are not present to keep in touch. They drop out of the organizational grapevine and miss out on much of the informal communication that takes place. Moreover, the use of digital communication at the expense of face-to-face meetings and conversations makes it hard to build a strong culture, develop solid working relationships, and create a mutually supportive atmosphere of trust and cooperativeness. Finally, digital communication is opening up new avenues for dysfunctional employee behavior, such as sharing inappropriate materials with others. For example, a few years ago the New York Times fired almost 10 percent of its workers at one of its branch offices for sending inappropriate e-mails at work. Other perils of digital communication are explored in our “Tech Watch” feature.

Tech Watch

Thinking (and Talking) on Your Feet

A couple of years ago, MIT psychologist Sherry Turkle contributed an opinion piece to the New York Times. In Turkle’s opinion, “we live in a technological universe in which…. we have sacrificed conversation for mere connection,” and it’s a habit fraught with psychological and philosophical pitfalls. “We are tempted to think,” she argues, “that our little sips of online connection add up to a big gulp of real conversation. But they don’t.” Why? Because “human relationships are rich; they’re messy and demanding. We have learned the habit of cleaning them up with technology. And the move from conversation to connection is part of this [habit].”

Unfortunately, Turkle contends, it’s a habit by which “we shortchange ourselves.” For one thing, we tend to forget the fact that relationships with other people are inherently complicated matters. “Face-to-face conversation,” explains Turkle,

unfolds slowly. It teaches patience. When we communicate on our digital devices, we learn different habits. As we ramp up the volume and velocity of online connections, we start to expect faster answers. To get these, we ask one another simpler questions; we dumb down our communications, even on the most important matters.

In a practical sense, these new habits fail to engage one of the most significant factors in effective interpersonal communication: the willingness to listen. By its very nature, for example, conversation demands responsiveness to the messages—verbal and nonverbal—being sent by another person. We must constantly adjust to the fluidity—the “messiness”—of conversational give and take, and Turkle observes that because conversation requires us to respond to “tone and nuance,” we must also “see things from another’s point of view.” As conversations “tend to play out in person,” adds journalist Megan Garber, “they are messy—full of pauses and interruptions and topic changes and assorted awkwardness. But the messiness is what allows for true exchange. It gives participants the time—and, just as important, the permission—to think and react and glean insights.”

According to Paul Barnwell, responding to nuance and tone is a habit—and a skill—that we can ill afford to lose. Barnwell, who teaches digital media at a high school specializing in communications and media, wanders if “there is any 21st-century skill more important than being able to sustain a confident, coherent conversation.” Unfortunately, he notes,

kids spend hours each day engaging with ideas and one another through screens, but rarely do they have an opportunity to truly hone their interpersonal communication skills…. Students’ reliance on screens for communication is detracting—and distracting—from their engagement in real-time talk.

For example, says Barnwell,

when it’s time to negotiate pay raises and discuss projects with employers, students will have to exude a thoughtful presence and demonstrate the ability to think on their feet. But if the majority of their conversations are based on fragments pinballed back and forth through a screen, how will they develop the ability to truly communicate in person?

Donna Lubrano, of the Newbury College School of Business Management, agrees. More and more businesses, she says, are becoming frustrated by entry-level employees who “lack the ability to speak to customers and present ideas, as well as the communication skills to work in the team environment…. In terms of verbal communication,” she adds, “too many students cannot think on their feet.”

References: Sherry Turkle, “The Flight from Conversation,” New York Times, April 21, 2012, www.nytimes.com, accessed on April 24, 2017; Megan Garber, “Saving the Lost Art of Conversation,” The Atlantic, January–February 2014, www.theatlantic.com, accessed on April 24, 2017; Paul Barnwell, “My Students Don’t Know How to Have a Conversation,” The Atlantic, April 2014, www.theatlantic.com, accessed on April 24, 2017; and Jamar Ramos, “Communication Breakdown: Interpersonal Skills in the Digital Age,” WorldWideLearn, May 21, 2014, www.worldwidelearn.com, accessed on April 24, 2017.

12-3Informal Communication in Organizations

The forms of organizational communication discussed in the previous section all represent planned and relatively formal communication mechanisms. However, in many cases some of the communication that takes place in an organization transcends these formal channels and instead follows any of several informal methods. Figure 12.4 illustrates numerous examples of informal communication. Common forms of informal communication in organizations include the grapevine, management by wandering around, and nonverbal communication.

Figure 12.4Informal Communication in Organizations

Informal communication in organizations may or may not follow official reporting relationships or prescribed channels. It may cross different levels and different departments or work units, and it may or may not have anything to do with official organizational business.

12-3aThe Grapevine

The 
grapevine
 is an informal communication network that can permeate an entire organization. Grapevines are found in all organizations except the very smallest, but they do not always follow the same patterns as, nor do they necessarily coincide with, formal channels of authority and communication. Research has identified several kinds of grapevines. The two most common are illustrated in Figure 12.5. The gossip chain occurs when one person spreads the message to many other people. Each one, in turn, may either keep the information confidential or pass it on to others. The gossip chain is likely to carry personal information. The other common grapevine is the cluster chain, in which one person passes the information to a selected few individuals. Some of the receivers pass the information to a few other individuals; the rest keep it to themselves.

Figure 12.5Common Grapevine Chains Found in Organizations

The two most common grapevine chains in organizations are the gossip chain (in which one person communicates messages to many others) and the cluster chain (in which many people pass messages to a few others).

Source: From Keith Davis and John W. Newstrom, Human Behavior at Work: Organizational Behavior, 8th ed., 1989. © 1989 The McGraw-Hill Companies, Inc. Reprinted with permission.

There is some disagreement about the accuracy of the information carried by the grapevine, but research has often found it to be fairly accurate, especially when the information is based on fact rather than speculation. One study found that the grapevine may be between 75 and 95 percent accurate. That same study also found that informal communication is increasing in many organizations for two basic reasons. One contributing factor is the recent increase in merger, acquisition, and takeover activity. Because such activity can greatly affect the people within an organization, it follows that they may spend more time talking about it. The second contributing factor is that as more and more corporations move facilities from inner cities to suburbs, employees tend to talk less and less to others outside the organization and more and more to one another.

Attempts to eliminate the grapevine are fruitless, but fortunately the manager does have some control over it. By maintaining open channels of communication and responding vigorously to inaccurate information, the manager can minimize the damage the grapevine can do. The grapevine can actually be an asset. By learning who the key people in the grapevine are, for example, the manager can partially control the information they receive and use the grapevine to sound out employee reactions to new ideas, such as a change in human resource policies or benefit packages. The manager can also get valuable information from the grapevine and use it to improve decision making.

Gossip and the grapevine are a natural part of organizational life. These two people are exchanging secrets. Their conversation may be personal or work-related. It might also be positive and constructive or negative and destructive. Managers need to know that they cannot eliminate gossip but can minimize its dysfunctional consequences by maintaining open and effective formal communication channels.

Lighthunter/ Shutterstock.com

Social media such as Twitter and Facebook often mimic the traditional grapevine. Messages can be formatted quickly and transmitted rapidly to thousands of other people. Of course, there may also be accuracy issues if the original messages are ill informed or contain incorrect information. Most experts today suggest that firms develop a social media strategy, and many businesses have done so to at least some extent.

12-3bManagement by Wandering Around

Another popular form of informal communication is called, interestingly enough, 
management by wandering around
. The basic idea is that some managers keep in touch with what is going on by wandering around and talking with people—immediate subordinates, subordinates far down the organizational hierarchy, delivery people, customers, or anyone else who is involved with the company in some way. Arne Sorenson, CEO of Marriott, for example, frequently visits the kitchens, loading docks, and custodial work areas whenever he tours a Marriott hotel. He claims that, by talking with employees throughout the hotel, he gets new ideas and has a better feel for the entire company. And, when Delta Air Lines CEO Edward Bastian flies, he makes a point of talking to flight attendants and other passengers to gain continuous insights into how the business can be run more effectively.

Management by wandering around can be an effective method for managers to communicate with customers and others in the organization. This hotel manager, for instance, is having an impromptu conversation with the hotel restaurant chef. There is a good chance that they will both learn things from their conversation.

ESB Professional/ Shutterstock.com

A related form of organizational communication that really has no specific term is the informal interchange that takes place outside the normal work setting. Employees attending the company picnic, playing on the company softball team, or taking fishing trips together will almost always spend part of their time talking about work. For example, Texas Instruments (TI) engineers at TI’s Lewisville, Texas, facility often frequent a local bar in town after work. On any given evening, they talk about the Dallas Cowboys, the newest government contract received by the company, the weather, their boss, the company’s stock price, local politics, and problems at work. There is no set agenda, and the key topics of discussion vary from group to group and from day to day. Still, the social gatherings serve an important role. They promote a strong culture and enhance understanding of how the organization works.

12-3cNonverbal Communication

Nonverbal communication
 is a communication exchange that does not use words or uses words to carry more meaning than the strict definition of the words themselves. Nonverbal communication is a powerful but little-understood form of communication in organizations. It often relies on facial expressions, body movements, physical contact, and gestures. One study found that as much as 55 percent of the content of a message is transmitted by facial expressions and body posture and that another 38 percent derives from inflection and tone. Words themselves account for only 7 percent of the content of the message.

Nonverbal communication often relies on body language–facial expression, posture, gestures, and so forth. This man, for example, is conveying through his crossed arms and demeanor that he is unhappy or impatient.

InesBazdar/ Shutterstock.com

Research has identified three kinds of nonverbal communication practiced by managers—images, settings, and body language. In this context, images are the kinds of words people elect to use. “Damn the torpedoes, full speed ahead” and “Even though there are some potential hazards, we should proceed with this course of action” may convey the same meaning. Yet the person who uses the first expression may be perceived as a maverick, a courageous hero, an individualist, or a reckless and foolhardy adventurer. The person who uses the second might be described as aggressive, forceful, diligent, or narrow minded and resistant to change. In short, our choice of words conveys much more than just the strict meaning of the words themselves.

The setting for communication also plays a major role in nonverbal communication. Boundaries, familiarity, the home turf, and other elements of the setting are all important. Much has been written about the symbols of power in organizations. The size and location of an office, the kinds of furniture in the office, and the accessibility of the person in the office all communicate useful information. For example, when H. Ross Perot ran Electronic Data Systems (EDS), he positioned his desk so that it is always between him and a visitor. This signaled that he was in charge. When he wanted a less formal dialogue, he moved around to the front of the desk and sat beside his visitor. Michael Dell of Dell Computer, in contrast, has his desk facing a side window so that, when he turns around to greet a visitor, there is never anything between them.

In addition to smiling, eye contact is another important form of nonverbal communication. An unwillingness to maintain eye contact, for instance, may signal that an individual is hiding information or is being untruthful. Prolonged eye contact, meanwhile, can have several different meanings. These two executives are locked in a tough negotiation and may be using eye contact to establish that each feels strongly about their position and may not be open to compromise.

© Wavebreakmedia/ Shutterstock.com

A third form of nonverbal communication is body language. The distance we stand from someone as we speak has meaning. In the United States, standing very close to someone you are talking to generally signals either familiarity or aggression. The English and Germans stand farther apart than Americans when talking, whereas the Arabs, Japanese, and Mexicans stand closer together. Eye contact is another effective means of nonverbal communication. For example, prolonged eye contact might suggest either hostility or romantic interest. Other kinds of body language include body and hand movement, pauses in speech, and mode of dress.

The manager should be aware of the importance of nonverbal communication and recognize its potential impact. Giving an employee good news about a reward with the wrong nonverbal cues can destroy the reinforcement value of the reward. Likewise, reprimanding an employee but providing inconsistent nonverbal cues can limit the effectiveness of the sanctions. The tone of the message, where and how the message is delivered, facial expressions, and gestures can all amplify or weaken the message or change the message altogether. E-mails and other digital communication may be misinterpreted based on actual content, so some people use emojis to reinforce the notion that the message is “happy” or “sad.”

12-4Managing Organizational Communication

In view of the importance and pervasiveness of communication in organizations, it is vital for managers to understand how to manage the communication process. Managers should understand how to maximize the potential benefits of communication and minimize the potential problems. We begin our discussion of communication management by considering the factors that might disrupt effective communication and how to deal with them.

12-4aBarriers to Communication

Several factors may disrupt the communication process or serve as barriers to effective communication. As shown in Table 12.1, these may be divided into two classes: individual barriers and organizational barriers.

Table 12.1

Barriers to Effective Communication

Individual Barriers	Organizational Barriers
Conflicting or inconsistent signals	Semantics
Credibility about the subject	Status or power differences
Reluctance to communicate	Different perceptions
Poor listening skills	Noise
Predispositions about the subject	Overload
	Language differences

Individual Barriers

Several individual barriers may disrupt effective communication. One common problem is conflicting or inconsistent signals. A manager is sending conflicting signals when she says on Monday that things should be done one way, but then prescribes an entirely different procedure on Wednesday. Inconsistent signals are being sent by a manager who says that he has an “open-door” policy and wants his subordinates to drop by, but then keeps his door closed and becomes irritated whenever someone stops in.

Numerous barriers can disrupt effective communication. Some of these barriers involve individual characteristics and processes. Others are functions of the organizational context in which communication is taking place.

Another barrier is lack of credibility. Credibility problems arise when the sender is not considered a reliable source of information. He may not be trusted or may not be perceived as knowledgeable about the subject at hand. When a politician is caught withholding information or when a manager makes a series of bad decisions, the extent to which he or she will be listened to and believed thereafter diminishes. In extreme cases, people may talk about something they obviously know little or nothing about.

Some people are simply reluctant to initiate a communication exchange. This reluctance may occur for a variety of reasons. A manager may be reluctant to tell subordinates about an impending budget cut because he knows they will be unhappy about it. Likewise, a subordinate may be reluctant to transmit information upward for fear of reprisal or because it is felt that such an effort would be futile.

Poor listening habits can be a major barrier to effective communication. Some people are simply poor listeners. When someone is talking to them, they may be daydreaming, looking around, reading, texting, or listening to another conversation. Because they are not concentrating on what is being said, they may not comprehend part or all of the message. They may even think that they really are paying attention, only to realize later that they cannot remember parts of the conversation.

Receivers may also bring certain predispositions to the communication process. They may already have their minds made up, firmly set in a certain way. For example, a manager may have heard that his new boss is unpleasant and hard to work with. When she calls him in for an introductory meeting, he may go into that meeting predisposed to dislike her and discount what she has to say.

Organizational Barriers

Other barriers to effective communication involve the organizational context in which the communication occurs. Semantics problems arise when words have different meanings for different people. Words and phrases such as profit, increased output, and return on investment may have positive meanings for managers and shareholders but less positive meanings for employees and union officials.

Communication problems may also arise when people of different power or status try to communicate with each other. The company president may discount a suggestion from an operating employee, thinking, “How can someone at that level help me run my business?” Or, when the president goes out to inspect a new plant, workers may be reluctant to offer suggestions because of their lower status. The marketing vice president may have more power than the human resource vice president and consequently may not pay much attention to a staffing report submitted by the human resource department.

There are many ways that communication effectiveness can be improved. One of the most powerful ways to be a better communicator is by being a good listener. The man on the left is paying close attention and carefully listening to his colleague on the right. As a result, their conversation will likely end with productive results.

Pressmaster/ Shutterstock.com

If people perceive a situation differently, they may have difficulty communicating with one another. When two managers observe that a third manager has not spent much time in her office lately, one may believe that she has been to several important meetings, and the other may think she is “hiding out.” If they need to talk about her in some official capacity, problems may arise because one has a positive impression and the other a negative impression.

Environmental factors may also disrupt effective communication. As mentioned earlier in this chapter, noise may affect communication in many ways. Similarly, overload may be a problem when the receiver is being sent more information than he or she can effectively handle. For more than a decade, many managers have reported getting so many messages each day as to sometimes feel overwhelmed. As a result, many senior executives have two e-mail accounts: One is their “public” account that is actually monitored by a subordinate who only passes along truly important messages, and the other is a “private” account available only to a few critical contacts. And, when the manager gives a subordinate many jobs on which to work and at the same time the subordinate is being told by family and friends to do other things, overload may result and communication effectiveness diminishes. An HR executive at Aviva Investors once intended to send an e-mail to a single individual informing him that he was fired but the e-mail ended up going to all 1,300 of the firm’s employees!

Finally, as businesses become more and more global, different languages can create problems. To counter this problem, some firms are adopting an “official language.” For example, when the German chemical firm Hoechst merged with the French firm Rhone-Poulenc, the new company adopted English as its official language. Indeed, English is generally considered to be the standard business language in most parts of the world.

12-4bImproving Communication Effectiveness

Considering how many factors can disrupt communication, it is fortunate that managers can resort to several techniques for improving communication effectiveness. As shown in Table 12.2, these techniques include both individual and organizational skills.

Table 12.2

Overcoming Barriers to Communication

Individual Skills	Organizational Skills
Develop good listening skills	Follow up
Encourage two-way communication	Regulate information flows
Be aware of language and meaning	Understand the richness of media
Maintain credibility
Be sensitive to the receiver’s perspective
Be sensitive to the sender’s perspective

Individual Skills

The single most important individual skill for improving communication effectiveness is being a good listener. Our “Leading the Way” feature provides additional insights into the importance of listening. Being a good listener requires that the individual be prepared to listen, not interrupt the speaker, concentrate on both the words and the meaning being conveyed, be patient, and ask questions as appropriate. Avoiding checking e-mail or texts when someone is talking is also a wise idea. So important are good listening skills that companies such as Delta, IBM, and Boeing conduct programs to train their managers to be better listeners. Figure 12.6 illustrates the characteristics of poor listeners versus good listeners.

Figure 12.6More and Less Effective Listening Skills

Effective listening skills are a vital part of communication in organizations. There are several barriers that can contribute to poor listening skills by individuals in organizations. Fortunately, there are also several practices for improving listening skills.

Because communication is so important, managers have developed several methods of overcoming barriers to effective communication. Some of these methods involve individual skills, whereas others are based on organizational skills.

In addition to being a good listener, several other individual skills can promote effective communication. Feedback, one of the most important, is facilitated by two-way communication. Two-way communication allows the receiver to ask questions, request clarification, and express opinions that let the sender know whether he or she has been understood. In general, the more complicated the message, the more useful two-way communication is. In addition, the sender should be aware of the meanings that different receivers might attach to various words. For example, when addressing stockholders, a manager might use the word profits often (because most stockholders, of course, see profits in a positive light). When addressing labor leaders, however, she may choose to use profits less often (since those individuals might see excessive profit as coming at the expense of employee welfare).

Furthermore, the sender should try to maintain credibility. This can be accomplished by not pretending to be an expert when one is not, by “doing one’s homework” and checking facts, and by otherwise being as accurate and honest as possible. The sender should also try to be sensitive to the receiver’s perspective. A manager who must tell a subordinate that she has not been recommended for a promotion should recognize that the subordinate will be frustrated and unhappy. Therefore, the content of the message and its method of delivery should be chosen accordingly. The manager should be primed to accept a reasonable degree of hostility and bitterness without getting angry in return.

Leading the Way

In Communication We Trust

When James E. Rogers was CEO of the energy company Cinergy, he held regular “listening sessions” in which, among other things, he sought feedback about his own performance, even asking employees at one session to grade him on a scale of A to F. When fewer than half of his employees gave him an A, Rogers started asking open-ended questions about his performance. Ironically, the area in which the most employees suggested improvement was “internal communications.”

According to the authors of Talk, Inc.: How Trusted Leaders Use Conversation to Power Their Organizations, what Rogers’s employees wanted was more “intimacy” in “organizational conversation.” “Where conversational intimacy prevails,” explain Boris Groysberg of the Harvard Business School and communications consultant Michael Slind,

those with decision-making authority seek and earn the trust (and hence the careful attention) of those who work under that authority. They do so by cultivating the art of listening to people at all levels of the organization and by learning to speak with employees directly and authentically.

The key factor in conversational intimacy, say Groysberg and Slind, is trust: “Where there is no trust,” they argue, “there can be no intimacy…. No one will dive into a heartfelt exchange of views with someone who seems to have a hidden agenda or a hostile manner.” Research shows that it’s a point well taken: One study found that fewer than half of workers trust senior managers and only 28 percent consider them a credible source of information.

The need for leaders to cultivate trust, says management expert Peter Drucker, accounts for a notable shift in contemporary leadership practice: Organizations, he explains, “are no longer built on force but on trust.” He hastens to add that “trust does not necessarily mean that people like each other. It means they understand one another.” In today’s workplace, says Drucker, a leader’s effectiveness in meeting organizational goals depends upon making optimum use of employees’ knowledge about the work that’s being done (and about how to improve it). Thus “the first secret of effectiveness is to understand the people you work with so that you can make use of their strengths.” Communication, therefore, must be a medium of understanding, and it must support the mutual understanding of each party to the conversation.

Groysberg and Slind agree. “The sound of one person talking,” they point out, “is obviously not a conversation.” Organizational conversation means that “leaders talk with employees and not just to them.” It thus requires interactivity as well as intimacy, and employees must have “the institutional support they need to speak up and (where appropriate) talk back.”

Not surprisingly, James Rogers is a good case in point. “I think that, as the years have gone on,” says Rogers,

I’ve really honed my ability to listen and understand everybody’s story and to help them build a story around their capabilities—a story that plays to their strengths…. At the end of the day, [employees] have to trust…. that you wouldn’t be asking them to do this unless you had confidence in them. They have to trust that you see something in them that they may not see completely in themselves.

References: Boris Groysberg and Michael Slind, “Leadership Is a Conversation,” Harvard Business Review, June 2012, https://hbr.org, accessed on April 24, 2017; Kellie Cummings, “Trust, Communication, and Leadership: The Three Laws of Influence,” American Society for Training & Development, April 9, 2013, www.td.org, accessed on April 24, 2017; Stephen M. R. Covey, “How the Best Leaders Build Trust,” Leadership Now, 2009, www.leadershipnow.com, accessed on April 24, 2017; and Adam Bryant, “The C.E.O. as General (and Scout),” New York Times, October 10, 2009, www.nytimes.com, accessed on April 24, 2017.

Finally, the receiver should also try to be sensitive to the sender’s point of view. Suppose that a manager has just received some bad news—for example, that his position is being eliminated next year. Others should understand that he may be disappointed, angry, or even depressed for a while. Thus they might make a special effort not to take too much offense if he snaps at them, and they might look for signals that he needs someone to talk to.

Organizational Skills

Three useful organizational skills can also enhance communication effectiveness for both the sender and the receiver—following up, regulating information flow, and understanding the richness of different media. Following up simply involves checking at a later time to be sure that a message has been received and understood. After a manager e-mails a report to a colleague, she might call a few days later to ask whether the colleague has had an opportunity to review it or has any questions about it.

Regulating information flow means that the sender or receiver takes steps to ensure that overload does not occur. For the sender, this could mean not passing too much information through the system at one time. For the receiver, it might mean calling attention to the fact that he is being asked to do too many things at once. Many managers limit the influx of information by periodically weeding out the list of journals and routine reports they receive, or they train their assistant to screen phone calls and visitors. Indeed, some executives now get so much e-mail that they have it routed to an assistant. That person reviews the e-mails, discards those that are not useful (such as spam), responds to those that are routine, and passes on to the executive only those that require his or her personal attention.

Both parties should also understand the richness associated with different media. When a manager is going to lay off a subordinate temporarily, the message should be delivered in person. A face-to-face channel of communication gives the manager an opportunity to explain the situation and answer questions. When the purpose of the message is to grant a pay increase, written communication may be appropriate because it can be more objective and precise. The manager could then follow up the written notice with personal congratulations.

Chapter Review

Summary of Learning Outcomes and Key Points

· 1Describe the role and importance of communication in the manager’s job.

· •

Communication is the process of transmitting information from one person to another.

· •

Effective communication is the process of sending a message in such a way that the message received is as close in meaning as possible to the message intended.

· •

For information to be useful, it must be accurate, timely, complete, and relevant.

· •

The communication process consists of a sender encoding meaning and transmitting it to one or more receivers, who receive the message and decode it into meaning.

· •

In two-way communication, the process continues with the roles reversed.

· •

Noise can disrupt any part of the overall process.

· 2Identify the basic forms of communication in organizations.

· •

Interpersonal communication focuses on communication among a small number of people.

· •

Two important forms of interpersonal communication, oral and written, offer both unique advantages and disadvantages.

· •

The manager should weigh the pros and cons of each when choosing a medium for communication.

· •

Communication networks are recurring patterns of communication among members of a group or work team.

· •

Vertical communication between superiors and subordinates may flow upward or downward.

· •

Horizontal communication involves peers and colleagues at the same level in the organization.

· 3Describe the role of digital communication in organizations.

· •

There are several basic levels of information systems:

· •

Transaction-processing systems (TPSs)

· •

Systems for various types of workers

· •

Basic management information systems (MISs)

· •

Decision support systems (DSSs) and executive support systems (ESSs)

· •

Artificial intelligence (AI), including expert systems

· •

Intranets and extranets are also growing in popularity.

· •

Electronic communication is having a profound effect on managerial and organizational communication.

·
4Discuss informal communication, including its various forms and types.

· •

The grapevine is the informal communication network among people in an organization.

· •

Management by wandering around is also a popular informal method of communication.

· •

Nonverbal communication is expressed through images, settings, and body language.

· 5Describe how the communication process can be managed to recognize and overcome barriers.

· •

Managing the communication process entails recognizing the barriers to effective communication and understanding how to overcome them.

· •

Barriers can be identified at both the individual and organizational levels.

· •

Likewise, both individual and organizational skills can be used to overcome these barriers.

Chapter Review

Discussion Questions

Questions for Review

1. Describe the difference between communication and effective communication. How can a sender verify that a communication was effective? How can a receiver verify that a communication was effective?

2. Which form of interpersonal communication is best for long-term retention? Why? Which form is best for getting across subtle nuances of meaning? Why?

3. What are the similarities and differences of oral and written communication? What kinds of situations call for the use of oral methods? What situations call for written communication?

4. What forms of digital communication do you use regularly?

5. Describe the individual and organizational barriers to effective communication. For each barrier, describe one action that a manager could take to reduce the problems caused by that barrier.

Questions for Analysis

1. At what points in the communication process can problems occur? Give examples of how noise can interfere with the communication process. What can managers do to reduce problems and noise?

2. How are digital communication devices (cell phones, e-mail, and websites) affecting the communication process? Describe both the advantages and the disadvantages of these three devices over traditional communication methods, such as face-to-face conversations, written notes, and phone calls.

3. What forms of communication have you experienced today? What form of communication is involved in a face-to-face conversation with a friend? A phone call from a customer? A traffic light or crossing signal? A picture of a cigarette in a circle with a slash across it? An area around machinery defined by a yellow line painted on the floor?

4. Keep track of your own activities over the course of a few hours of leisure time to determine what forms of communication you encounter. Which forms were most common? If you had been tracking your communications while at work, how would the list be different? Explain why the differences occur.

5. For each of the following situations, tell which form of communication you would use. Then ask the same question to someone who has been in the workforce for at least 10 years. For any differences that occur, ask the worker to explain why his or her choice is better than yours. Do you agree with his or her assessment? Why or why not?

· Describing complex changes in how health care benefits are calculated and administered to every employee of a large firm

· Asking your boss a quick question about how she wants something done

· Telling customers that a new two-for-one promotion is available at your store

· Reprimanding an employee for excessive absences on the job

· Reminding workers that no smoking is allowed in your facility

Chapter Review

Experiential Exercise

Nonverbal Nonverbal Communication in Groups

Purpose: The role of nonverbal communication in organizations can be just as important as oral or written communication, but is often overlooked. This activity will make you more aware of the power of nonverbal communication and give you some practice in using it.

Instructions:

Step 1: Your instructor will break your class into groups of about 20. Change your seat as needed until the group members are sitting fairly close and facing each other. Count the exact number of members and agree upon the count as a group.

Step 2: Count out loud, one at a time, from 1 up to the total number of group members. The group must do this without discussion or planning about who will say each number. Members may not use any verbal or physical signals; for example, no pointing, nodding, or touching. Each member must say exactly one number, and no number may be repeated. No two people may speak simultaneously.

Step 3: If any of the rules are violated, begin the task again from the number 1. Continue until the group successfully completes the task. Then answer the follow-up questions.

Follow-Up Questions

1. What methods of communication did you use to determine who would say each number? How effective was this method?

2. How did the group arrive at this method? For example, did the group try several methods before settling on one?

3. What does this exercise demonstrate to you about the power of nonverbal communication?

4. Can you think of examples of situations that you have experienced in which nonverbal communication played an important role?

5. Can you think of examples of situations that could occur in business organizations in which nonverbal communication might play an important role?

Chapter Review

Building Effective Interpersonal Skills

Exercise Overview

A manager’s interpersonal skills include his or her abilities to understand and to motivate individuals and groups. This in-class demonstration gives you practice in understanding the nonverbal and verbal behavior of a pair of individuals.

Exercise Background

Nonverbal communication conveys more than half of the information in any face-to-face exchange, and body language is a significant part of our nonverbal behavior. Consider, for example, the impact of a yawn or a frown or a shaking fist. At the same time, however, nonverbal communication is often neglected by managers. The result can be confusing and misleading signals.

In this exercise, you will examine interactions between two people without sound, with only visual clues to meaning. Then you will examine those same interactions with both visual and verbal clues.

Exercise Task

1. Observe the silent video segments that your professor shows to the class. For each segment, describe the nature of the relationship and interaction between the two individuals. What nonverbal clues did you use in reaching your conclusions?

2. Next, observe the same video segments, but this time with audio included. Describe the interaction again, along with any verbal clues you used.

3. How accurate were your assessments when you had only visual information? Explain why you were or were not accurate.

4. What does this exercise show you about the nature of nonverbal communication? What advice would you now give managers about their nonverbal communication?

Chapter Review

Management at Work

Standing up for Trust

“Let your body tell you that you’re powerful and deserving, and you become more present, enthusiastic, and authentically yourself.”

—Social psychologist Amy Cuddy

Amy Cuddy, a social psychologist who teaches at the Harvard Business School, recently delivered a presentation at the prestigious TEDGlobal Conference in Edinburgh, Scotland. Her subject was body language and its effect on “the way your life unfolds.” TED presentations are offered for free online viewing, and since 2006, they’ve been watched more than a billion times worldwide. Cuddy’s talk has the distinction of being the second most-watched TED presentation of all time, with nearly 26 million views and counting. Time magazine immediately put Cuddy on its list of “Game Changers,” and Business Insider ranked her 37th among “50 Women Who Are Changing the World.”

What did Cuddy have to say that was so important? Basically, “Smile and sit up straight.” The advice, of course, is pretty simple, but the reason why it’s good advice is not. Cuddy had research to back her up, and that research had led her to a series of significant insights into the significance of body language. What inspired Cuddy’s research? “I noticed in class,” she recalls, that women tended to make themselves small, holding their wrists, wrapping their arms around themselves. Guys tended to make themselves bigger. They’re leaning back, stretching out, draping their arms around chairs. We know from studies of facial feedback that if you smile, you fake yourself into feeling happier. We wondered whether just asking people to spread out would help them feel more powerful.

So Cuddy and her colleagues invited students into the social-psychology laboratory for a few experimental exercises. Participants were asked to spend two minutes alone in a room striking what Cuddy calls “power poses,” either “high-power” or “low-power.” For high-power poses, think superhero posture—chest lifted, head held high, arms either raised or propped on the hips. (Cuddy prefers “the Wonder Woman”—hands on hips, legs wide.) Low-power poses include putting your hands on your neck and crossing your limbs. In general, says Cuddy, “expansive, open postures reflect high power, whereas contractive, closed postures reflect low power.”

Before and after the posing exercises, Cuddy’s team recorded participants’ levels of two hormones: testosterone, which is known to increase feelings of power and confidence, and cortisol, which is associated with feelings of anxiety and stress. After just two minutes of posing, high-power posers experienced a 20 percent increase in testosterone and a 25 percent drop in cortisol. “Not only do these postures reflect power,” explains Cuddy, “they also produce it.” In addition, high-power posers displayed behavior associated with the exercise of power in the real world—a fact that didn’t surprise Cuddy: “Effective leaders,” she points out, “have a classic hormone profile: high levels of testosterone, low levels of cortisol…. When people take over the alpha role, their testosterone rises and their cortisol drops.”

The study’s findings show not only that our hormonal levels can change, but that we can take the initiative in changing them. The process engages a series of feedback loops. As we’ve seen, for example, the principle is evident in the effect of a smile: “Feeling happy makes us smile, and smiling makes us happy,” observes Cuddy. But what if you don’t feel like smiling? “Fake it till you become it,” she advises: Faking happiness, it seems, has pretty much the same effect as being happy. The key is the smile: Using the muscles of your face to communicate nonverbally sends a message to your brain, and as with smiling, so with standing up straight. Thus the purpose of power posing, explains Cuddy, “is to optimize your brain”—to balance your hormones in the way that you want them balanced. “Let your body tell you that you’re powerful and deserving,” she says, and when you pass that message along to your brain, “you become more present, enthusiastic, and authentically yourself.”

Perhaps even more importantly, adds Cuddy, the feedback that you get from such nonverbal behavior as smiling “is also contagious. We tend to mirror one another’s nonverbal expressions and emotions, so when we see someone beaming and emanating genuine warmth, we can’t resist smiling ourselves.” In addition, such responses typically reflect first impressions and often contribute to snap judgments about people—what Cuddy calls “spontaneous trait inferences.” Her research has thus extended to the effect of body language on first impressions, and she’s found that there are two critical variables: warmth and competence. These two factors, she says, account for 90 percent of our evaluations of other people and, more importantly, shape the way we feel about and act toward them.

Unfortunately, projections of both warmth and competence can produce seemingly contradictory behavior in other people. According to Cuddy,

people judged to be competent but lacking in warmth often elicit envy in others, an emotion involving both respect and resentment that cuts both ways. When we respect someone, we want to cooperate or affiliate ourselves with him or her, but resentment can make that person vulnerable to harsh reprisal…. On the other hand, people judged as warm but incompetent tend to elicit pity, which also involves a mix of emotions: Compassion moves us to help those we pity, but our lack of respect leads us ultimately to neglect them.

The first type that Cuddy describes here falls into the category cold/competent and the second into the category warm/incompetent—two of four categories into which people may fit in Cuddy’s warmth/competence matrix. At the extremes are warm/competent, which elicits admiration, helping, and cooperation, and cold/incompetent, which elicits contempt, neglect, and harassment (and even violence).

As revealing as it is, this matrix raises further questions: Is there any difference between, say, warm/competent and competent/warm, and, if so, which is optimum, particularly if one’s job involves leading other people? According to Cuddy, “putting competence first undermines leadership” because doing so fails to prioritize the most important factor in any relationship—trust. “Prioritizing warmth,” she says

helps you connect immediately with those around you, demonstrating that you hear them, understand them, and can be trusted by them…. In management settings, trust increases information sharing, openness, and cooperation…. Most important, it provides the opportunity to change people’s attitudes and beliefs, not just their outward behavior. That’s the sweet spot when it comes to the ability to get people to fully accept your message.

So, how can you project warmth? First, says Cuddy, “Find the right level…. Aim for a tone that suggests that you’re leveling with people—that you’re sharing the straight scoop, with no pretense or emotional adornment.” Second, “validate feelings”: Begin by agreeing with people, letting them know right off that “you hold roughly the same worldview that they do.” Last but not least, “Smile—and mean it.”

Cuddy hastens to add that coming across effectively is a matter of prioritizing, not of minimizing one trait in favor of the other. The best way to lead, she concludes,

is to combine warmth and strength…. The traits can actually be mutually reinforcing: Feeling a sense of personal strength helps us to be more open, less threatened, and less threatening in stressful situations. When we feel confident and calm, we project authenticity and warmth.

Case Questions

1. What about you? How do you sit in class? Does Cuddy’s description of students’ classroom body language seem to apply to you? Specifically, what might you do to improve your classroom body language? How about your body language in other situations?

2. Review the section in the text on “Individual Barriers” to communication. How might Cuddy’s analysis of the impressions that we make on people help in understanding these barriers? More specifically, how might that analysis be used in helping to overcome them? Now ask yourself which of these barriers seem to affect your own communication habits. How might Cuddy’s analysis help you to understand and improve the barriers to your own communication habits?

3. Here’s a list of Cuddy’s four ideal types in the warmth/competence matrix, along with examples of people who, according to her research, tend to fall into each category:

· Warm/competent—fathers

· Warm/incompetent—working mothers

· Cold/competent—Asian students

· Cold/incompetent—economically disadvantaged individuals

4. Bearing in mind that these examples reflect generalized perceptions of people, explain why each group falls into its respective category. Add another group to each category. Explain the role played by stereotyping in assigning people to each category. Finally, to what extent do you yourself tend to succumb to these generalizations?

5. As we’ve seen, Cuddy has observed “a gender grade gap” in her MBA classes at Harvard, in which classroom participation accounts for a significant portion of students’ grades. “It’s competitive—you really have to get in there,” she says, and women aren’t quite as successful at contributing to discussions as men. Men, she reports, volunteer to answer questions by shooting their arms in the air while women tend toward a polite bent-elbow wave. Women often touch their faces and necks while talking and tend to sit with tightly crossed ankles. “These postures,” says Cuddy, “are associated with powerlessness and intimidation and keep people from expressing who they really are.”

6. Why does this “gender gap” exist in the classroom? Does it help to know that nonwhite males are often subject to the same disadvantage?

Case References

Amy Cuddy, “Your Body Language Shapes Who You Are,” TEDGlobal 2012, June 2012, www.ted.com, accessed on April 24, 2017; David Hochman, “Amy Cuddy Takes a Stand,” New York Times, September 19, 2014, www.nytimes.com, accessed on April 24, 2017; Danielle Venton, “Power Postures Can Make You Feel More Powerful,” Wired, May 12, 2012, www.wired.com, accessed on April 24, 2017; Craig A. Lambert, “The Psyche on Automatic,” Harvard Magazine, May–June 2015, http://harvardmagazine.com, accessed on April 24, 2017; Nettra Pan, “One 2-Minute, High-Impact Activity Scientifically Proven to Boost the Success of Your Next Presentation,” Business Families Foundation, April 30, 2014, accessed on April 24, 2017; Amy Cuddy, Caroline A. Wilmuth, and Dana R. Carney, “The Benefit of Power Posing before a High-Stakes Social Evaluation,” Harvard Business School Working Paper, No. 13-027, September 2012, http://dash.harvard.edu, accessed on April 24, 2017; and Amy Cuddy, Matthew Kohut, and John Neffinger, “Connect, Then Lead,” Harvard Business Review, July–August 2013, https://hbr.org, accessed on April 24, 2017.

Chapter Review

You Make the Call: Socializing

1. Consider ESNs in terms of the section in the text on “Organizational Communication.” What, for example, might be the effect of communication through an ESN on a company’s vertical communication flow? On its horizontal communication flow? On its reporting lines? Take another look at Figure 12.3, which displays in a single flowchart both vertical and horizontal flows of communication. What kinds of adjustments would have to be made in order to accommodate the addition of an ESN to a company’s forms of communication? Try your hand at drawing a rough flowchart displaying the possible lines of communication opened up by an ESN.

2. Humana’s Jeff Ross has a few words of advice for organizations that want to set up ESNs. First, he says, “be more lenient than heavy handed” in monitoring users’ posts. “It is very rare,” he adds, “that we have to remove posts. If that happens, it might be because they’ve violated some HR or solicitation policy.” Second, keep guidelines simple: At Humana, he says, “we focus on the ‘Buzz Ten Commandments’—a simple list of rules such us ‘respecting other people’ which is straightforward and easy to understand.”

Like virtually every company, however, Humana does place certain restrictions on ESN content. What kind of restrictions do you think are appropriate for ESN usage at a corporation such as Humana? What kind of restrictions would you regard as too “heavy handed”?

3. According to Ross, “a huge motivator” in setting up Buzz “was just to flatten the organization and…. and break down the silos.

“Silo” is a word that you’ll run across quite frequently these days when people talk about organization structure and design. What does Ross mean by “silos”? How do “silos” affect organizational communications? Why has Humana—like a lot of companies—set out to “break down the silos”?

4. One recent survey found that employees wanted to engage with senior managers through internal social media: 42 percent, for example, would be willing to talk with line managers or team leaders over Facebook, and 20 percent would be happy to tweet a department head or even the CEO. Twenty percent of managers said that they’d be happy to reciprocate. At the same time, the survey revealed that two-thirds of employees had no involvement in their companies’ social media activities and more than a quarter were not permitted access to their employers’ internal communications networks.

Why do you think there’s such a disparity between employee attitudes and organizational practice

Managing Work Groups and Teams Chapter 13

· Chapter Introduction

· 13-1
Groups and Teams in Organizations

· 13-1a
Types of Groups and Teams

· 13-1b
Why People Join Groups and Teams

· 13-1c
Stages of Group and Team Development

· 13-2
Characteristics of Groups and Teams

· 13-2a
Role Structures

· 13-2b
Behavioral Norms

· 13-2c
Cohesiveness

· 13-2d
Formal and Informal Leadership

· 13-3
Interpersonal and Intergroup Conflict

· 13-3a
The Nature of Conflict

· 13-3b
Causes of Conflict

· 13-4
Managing Conflict in Organizations

· 13-4a
Stimulating Conflict

· 13-4b
Controlling Conflict

· 13-4c
Resolving and Eliminating Conflict

· 13-5
Negotiation

· Chapter Review

· Summary of Learning Outcomes and Key Points

· Discussion Questions

· Experiential Exercise

· Building Effective Conceptual Skills

· Management at Work

· You Make the Call: Managing by Clowning around

Chapter Introduction

Learning Outcomes

After studying this chapter, you should be able to:

· 1Define and identify types of groups and teams in organizations, discuss reasons why people join groups and teams, and list the stages of group and team development.

· 2Identify and discuss four essential characteristics of groups and teams.

· 3Discuss interpersonal and intergroup conflict in organizations.

· 4Describe how organizations manage conflict.

· 5Describe the negotiation process.

Management in Action

Managing by Clowning around

“It’s difficult to be creative in isolation.”

—Lyn Heward, former president of Cirque du Soleil’s Creative Content Division

Fourteen-year-old Guy Laliberté dropped out of high school in Québec, Canada, because he wanted to see the world. “I decided to go into street performing because it was a traveling job,” he recalls, and although his skills were limited to playing the accordion and telling stories, they were enough to get him to London by the time he was 18. From there he not only extended his travels to Europe but broadened his repertoire to include fire breathing, juggling, magic, and stilt walking. “It was just an adventure,” he admits, “and I was planning to go back to school and have a regular life,” but his nearly decade-long adventure had only deepened his passion for street performing. When he returned to Canada, he joined a stilt-walking troupe, and in 1984, when he was 23 years old, Laliberté partnered with another high school dropout to form their own street-performance company. (He recently sold a majority ownership stake in the company but retained a significant minority ownership share. He also remains involved in planning new shows.)

Cirque du Soleil makes extensive use of teams to plan, design, and execute its elaborate shows such as Varekai, shown here being performed in Moscow.

ITAR-TASS Photo Agency/Alamy Stock Photo

Cirque du Soleil, which is French for circus of the sun (“The sun,” explains Laliberté, “stands for energy and youth, which is what I thought the circus should be about”), has completely transformed the traditional three-ring spectacle with trapeze artists, clowns, and lion tamers. Laliberté calls Cirque a “transdiciplinary experience”—an amalgam of breathtaking stunt work, dazzling stagecraft, surreal costumes, and pulsing music. There are currently 20 different Cirque shows, each developed around a distinctive theme and story arc, such as “the urban experience in all its myriad forms” (Saltimbanco) and “a tribute to the nomadic soul” (Varekai). Headquartered in Montreal, Canada, the company now employs 5,000 people, including more than a 1,300 artists, and its shows have been seen by 100 million spectators. Profits for 2016 were around $270 million on revenues of $1.12 billion.

The key to this success, according to Laliberté, is creativity: “I believe that the profits will come from the quality of your creative products,” he says. “Since the beginning, I’ve always wanted to develop a self-feeding circle of creative productions: The positive financial returns from one show would be used to develop and create a new show, and so on.” He’s also convinced that his job is to provide a working environment that fosters collective creativity: “I believe in nurturing creativity and offering a haven for creators, enabling them to develop their ideas to the fullest. With more and more talented creators being drawn to Cirque in an environment that fulfills them, these [conditions] are ideal to continue developing great new shows.”

Lyn Heward, former president of Cirque’s Creative Content Division, calls the company’s process of training and integrating talented people “creative transformation”: “Everyone,” she says, “when they come to Cirque as an employee, even an accountant, comes there because it’s a creative and admired company, and they want to be able to contribute something creatively.” From her experience at Cirque, Heward drew up a nine-point guide to “creative transformation,” and at the heart of her list is a commitment to the value of teamwork. In fact, the fifth item on her list says, “Practice teamwork. True creativity requires stimulation and collaboration. It’s difficult to be creative in isolation.” Item 6 picks up the same theme: “Keep creativity fresh with hard-working bosses who constantly encourage and receive employees’ ideas and feedback and accept that there are often different ways of getting the same end result.”

“No matter what your product,” Heward argues, “whether it’s computers, cars, or anything else, your results [depend on] having a passionate strong team of people.” In any workplace, she explains, “our most natural resource is the people we work with—the people we build our product with. Unless there’s a strong commitment to teambuilding passionate leadership, and creativity, even at Cirque it would not happen.” Heward is willing to admit that “incredible freedom is a problem for most people because it requires us to think differently,” but she’s also confident that getting people committed to teamwork is the best way to get them to develop their creativity. Take Igor Jijikine, a Russian-born acrobat and actor who helped to train performers for Mystère, Cirque’s permanent show at Las Vegas’ Treasure Island Hotel and Casino. “[T]he really challenging thing,” he says,

is to change the mentality of the performers I work with. Many of our performers are former competitive gymnasts. Gymnastics is essentially an individual sport. Gymnasts never have to think creatively or be a part of a true team. They got here by being strong individuals. So, right from the start, we really challenge ourselves to erase the lines between athletics and artistry, between individuals and the group. We need to transform an individual into a team player everyone else can count on, literally with their lives.

Finally, Heward acknowledges that you can’t imbue employees with the Cirque du Soleil culture and “then tell them to go work in their cubicles.” The space in which they work, she says, “has to reflect [Cirque’s] values and vision.” All Cirque du Soleil productions are created and developed by teams working at the Montreal facility, which the company calls “the Studio” and describes as “a full-fledged creation, innovation, and training laboratory.” In addition to administrative space—”eight floors of uniquely designed office spaces and relaxation areas conducive to inspiration”—the complex boasts acrobatic, dance, and theatrical studios, and the effect of the whole, says Heward, is that of “a fantastical playground.” Creativity, she explains,

is fostered in work groups where people first get to know each other and then learn to trust one another. And in this playground, we recognize that a good idea can emerge from anywhere in the organization or from within a team. We make our shows from this collective creativity.

Cirque CEO Daniel Lamarre has a succinct way of explaining the company’s success: “We let the creative people run it.” As for Laliberté, he, too, is content to trust his creative people—an instinct, he says, that he learned in his days as a street performer: “In the street, you have to develop that instinct of trusting people and reading people because that instinct is your lifesaver.” He lists himself as “Artistic Guide” in production notes and tries “not to be too involved in the beginning and during the process,” the better to keep his perspective “fresh” and to “be able to give constructive recommendation on the final production.” He also wants to do the same thing that he wanted to do when he was 14: “I still want to travel, I still want to entertain, and I most certainly still want to have fun.”

This chapter is about the interpersonal processes that contribute to organizational success like that enjoyed by Cirque de Soleil. More specifically, it’s about the processes leading to and following from successful group and team dynamics. We start by first introducing basic concepts of group and team dynamics. Subsequent sections explain the characteristics of groups and teams in organizations. We then describe interpersonal and intergroup conflict and discuss how conflict can be managed. We conclude with a brief discussion of negotiation.

13-1Groups and Teams in Organizations

Groups are a ubiquitous part of organizational life. They are the basis for much of the work that gets done, and they evolve both inside and outside the normal structural boundaries of the organization. We will define a 
group
 as two or more people who interact regularly to accomplish a common purpose or goal. The purpose of a group or team may range from preparing a new advertising campaign, to informally sharing information among people, to making important decisions about a potential merger, to fulfilling social needs of group members.

13-1aTypes of Groups and Teams

In general, three basic kinds of groups are found in organizations—functional groups, informal or interest groups, and task groups and teams. These are illustrated in Figure 13.1.

Figure 13.1Types of Groups in Organizations

Every organization has many different types of groups. In this hypothetical organization, a functional group is shown within the purple area, a cross-functional team within the yellow area, and an informal group within the green area.

Functional Groups

A 
functional group
 is a relatively permanent group created by the organization to accomplish a number of organizational purposes with an unspecified time horizon. The advertising department at Starbucks, the management department at Iowa State University, and the nursing staff at the M. D. Anderson Cancer Center in Houston are all functional groups. The advertising department at Starbucks, for example, seeks to plan effective advertising campaigns, increase sales, run in-store promotions, and help maintain a unique identity for the company. It is assumed that the functional group will remain in existence after it attains its current objectives—those objectives will be replaced by new ones.

Informal or Interest Groups

An 
informal or interest group
 is created by its own members for purposes that may or may not be relevant to organizational goals. It also has an unspecified time horizon. A group of employees who lunch together every day may be discussing productivity, money embezzling, or local politics and sports. As long as the group members enjoy eating together, they will probably continue to do so. When lunches cease to be pleasant, though, they will seek other company or a different activity.

Informal groups can be a powerful force that managers cannot ignore. One writer described how a group of employees at a furniture factory subverted their boss’s efforts to increase production. They tacitly agreed to produce a reasonable amount of work but not to work too hard. One man even kept a stockpile of completed work hidden as a backup in case he got too far behind. In another example, several years ago auto workers described how they left out gaskets and seals and put soft-drink bottles inside doors so that finished cars and trucks would rattle and customers would complain.

Of course, informal groups can also be a positive force, such as when people work together to help out a colleague who has suffered a personal tragedy. For example, during and in the aftermath of Hurricane Harvey, the superstorm that devastated the Texas Gulf Coast in 2017, literally dozens of examples were reported portraying how informal groups emerged to help those in distress.

In recent years, social media and similar venues have served as a platform for the emergence of more and different kinds of informal or interest groups. As one example, Google hosts a wide array of interest groups that bring together people with common interests. And increasingly, workers who lose their jobs as a result of layoffs are banding together electronically to offer moral support to one another and to facilitate networking as they all look for new jobs.

Task Groups

A 
task group
 is a group created by the organization to accomplish a relatively narrow range of purposes within a stated or implied time horizon. Most committees and task forces are task groups. The organization specifies group membership and normally (but not always) assigns a relatively narrow set of goals, such as developing a new product or evaluating a proposed grievance procedure. The time horizon for accomplishing these purposes is either specified (a committee may be asked to make a recommendation within 30 days) or implied (the project team will disband when the new product is developed).

There are many different kinds of groups in organizations today. This virtual group includes members from three different locations. They are interacting together–some in person and some using virtual technology–to review and discuss their unit’s performance.

Andrey_Popov/ Shutterstock.com

Teams are a special form of task group that have become increasingly popular. In the sense used here, a 
team
 is a group of workers that functions as a unit, often with little or no supervision, to carry out work-related tasks, functions, and activities. Unlike a traditional task group, a team may have a broader set of goals and may have an open-ended life span. Teams are also sometimes called “self-managed teams,” “cross-functional teams,” or “high-performance teams.” Many firms today are routinely using teams to carry out most of their daily operations. “Doing Business on Planet Earth” provides several examples. Further, 
virtual teams
—teams comprised of people from remote work sites who work together online—are also becoming more and more common.

Doing Business on Planet Earth

Cooking up Sustainability

How much does it cost to cook pasta? It depends on how you do it—and, of course, on how much pasta you want to cook. Olive Garden, for example, cooks a lot of pasta: The Italian-food chain has more than 840 locations worldwide and offers an annual “Never Ending Pasta Bowl” deal in which customers can pack all the pasta they want into their own customized creations. On the other hand, the pasta-cooking process is basically the same one that you use in your own kitchen: Bring cold water to a boil, put in the hard pasta, and bring the water to a second boil. Back in 2011, however, Olive Garden tweaked the process by modifying the cold- and hot-water inlet valves on its pasta cookers so that the process uses hot water only. Since then, the chain has saved $2.4 million in energy costs, mostly in the cost of heating and reheating water.

How does a company come up with such sustainable ideas? At Darden Restaurants, Olive Garden’s parent corporation, many such ideas originate with in-house Sustainability Teams, which Darden describes as “groups of employees in each restaurant who implement programs to reduce waste and energy and water usage.” The company hastens to point out that “they are also responsible for many of the ideas we have used to improve sustainability at our restaurants,” and the spring of 2013, Darden took a step further in seeking out grassroots input by surveying 12,000 employees to gather both feedback on current sustainability efforts and ideas for improvement.

By and large, however, the job of implementing these efforts falls to each restaurant’s Sustainability Team, which typically includes three to five members. Individual efforts are important to Darden’s overall sustainability strategy because the company has discovered that the regular performance of some basic tasks can make a big difference. Michele Smith, for example, is in charge of thermostats at a Red Lobster outlet (Darden recently sold its Red Lobster chain). “When I come to work in the morning,” she says, “I make sure all the thermostats are set where they’re supposed to be. … It gives me a chance,” she adds, “to feel like I’m helping out and doing something good.” Generally speaking, Smith’s attitude toward workplace sustainability reflects that of her generation: So-called Millennials—the roughly one-fourth of Americans born between 1980 and the mid-2000s—are the most sustainability-conscious segment of the population, and according to one recent survey, 80 percent of them want to work for sustainability-conscious companies.

Take Pam Martin, for instance, who is a Sustainability Team member at a Bahama Breeze restaurant. “When I heard about the team,” she recalls, “I felt like it was almost a personal obligation. … to make sure. … our environment is protected and maintained instead of creating a larger carbon footprint. I want to make sure we’re doing the most that we can to make sure our impact on the environment is minimal.” According to Brandon Tidwell, Manager of Sustainability at Darden, the initiatives that the company launched in 2007 were in part a response to the interest of young employees in stepping up sustainability practices. “The idea of doing more,” says Tidwell,

came out of our millennial workforce. Seventy percent of our employees are 30 and under, and they are very interested in this issue. This millennial generation grew up with environmental education in school, and they want to make a difference in their careers and be actively engaged. They grew up recycling at home and separating their trash, so when they can’t do the same thing in the restaurant, it’s frustrating for them. They want their workplace to share their same values.

References: Mike Hower, “Here’s What’s on Olive Garden’s Sustainability Menu,” GreenBiz, October 2, 2014, www.greenbiz.com, accessed on April 21, 2017; Darden Restaurants Inc., “Planet,” Darden Sustainability www.darden.com, accessed on April 21, 2017; Darden Restaurants Inc., “Reporting Library” (videos), Darden Sustainability www.darden.com, accessed on April 21, 2017; and Aarthi Rayapura, “Millennials Most Sustainability-Conscious Generation yet, but Don’t Call Them ‘Environmentalists,’” Sustainable Brands, March 11, 2014, www.sustainablebrands.com, accessed on April 21, 2017.

Organizations create teams for a variety of reasons. For one thing, they give more responsibility for task performance to the workers who are actually performing the tasks. They also empower workers by giving them greater authority and decision-making freedom. In addition, they allow the organization to capitalize on the knowledge and motivation of their workers. Finally, they enable the organization to shed its bureaucracy and promote flexibility and responsiveness. Ford used teams to design its newest Mustang and Focus models. Similarly, General Motors (GM) used a team to develop its newest version of the Chevrolet Corvette.

When an organization decides to use teams, it is essentially implementing a major form of organization change, as discussed in Chapter 7. Thus it is important to follow a logical and systematic approach to planning and implementing teams in an existing organization design. It is also important to recognize that resistance may be encountered. This resistance is most likely from first-line managers, who will be giving up some of their authority to the team. Many organizations find that they must change the whole management philosophy of such managers away from being a supervisor to being a coach or facilitator.

After teams are in place, managers should continue to monitor their contributions and how effectively they are functioning. In the best circumstances, teams will become very cohesive groups with high performance norms. To achieve this state, the manager can use any or all of the techniques described later in this chapter for enhancing cohesiveness. If implemented properly, and with the support of the workers themselves, performance norms will likely be relatively high. In other words, if the change is properly implemented, the team participants will understand the value and potential of teams and the rewards they may expect to get as a result of their contributions. On the other hand, poorly designed and implemented teams will do a less-effective job and may detract from organizational effectiveness.

13-1bWhy People Join Groups and Teams

People join groups and teams for a variety of reasons. They join functional groups simply by virtue of joining organizations. People accept employment to earn money or practice their chosen professions. Once inside the organization, they are assigned to jobs and roles, and thus typically become members of functional groups. People in existing functional groups are then told, are asked, or volunteer to serve on committees, task forces, and teams. People join informal or interest groups for a variety of reasons, most of which are quite complex. Indeed, the need to be a team player has grown so strong today that many organizations will actively resist hiring someone who does not want to work with others.

Interpersonal Attraction

One reason why people choose to form informal or interest groups is that they are attracted to one another. Many different factors contribute to interpersonal attraction. When people see a lot of each other, pure proximity increases the likelihood that interpersonal attraction will develop. Attraction is increased when people have similar attitudes, personalities, or economic standings.

Group Activities

Individuals may also be motivated to join a group because the activities of the group appeal to them. Jogging, playing card games or fantasy football, taking yoga classes, discussing poetry, playing video games, or playing intramural sports are all activities that some people enjoy. Many of these are more enjoyable to participate in as a member of a group, and most require more than one person. Many large firms such as Exxon Mobil and Apple have a football, softball, or bowling league. A person may join a bowling team, not because of any particular attraction to other group members, but simply because being a member of the group allows that person to participate in a pleasant activity. Of course, if the group’s level of interpersonal attraction is very low, a person may choose to forgo the activity rather than join the team.

People join groups and teams for many different reasons. For instance, people might join a group in order to participate in social activities such as playing pool, throwing darts, bowling, softball, bridge, and so forth.

Dragon Images/ Shutterstock.com

Group Goals

The goals of a group may also motivate people to join. The Sierra Club, which is dedicated to environmental conservation, is a good example of this kind of interest group. Various fund-raising groups are another illustration. Members may or may not be personally attracted to the other fund-raisers, and they probably do not enjoy the activity of knocking on doors asking for money, but they join the group because they subscribe to its goal. Workers join unions such as the United Auto Workers because they support its goals.

People sometime join groups in order to engage in certain activities. These young men, for instance, are playing flag football in a city park. They may or may not have known each other before their game, and may or may not keep in contact with one another after the game. But for the moment, they are enjoying a group activity—a game that could not be played without others.

Jupiterimages/Getty Images

Need Satisfaction

Still another reason for joining a group is to satisfy the need for affiliation. New residents in a community may join the Newcomers Club (or something similar) partially as a way to meet new people and partially just to be around other people. Likewise, newly single people often join support groups as a way to have companionship. And this also plays a role in why some people use Facebook and other social media venues.

Instrumental Benefits

A final reason why people join groups is that membership is sometimes seen as instrumental in providing other benefits to the individual. For example, it is fairly common for college students starting to look for jobs to join professional clubs or associations because listing such memberships on a résumé is thought to enhance the chances of getting a good job. Similarly, a manager might join a certain golf or racquet club not because she is attracted to its members (although she might be) and not because of the opportunity to play golf or tennis (although she may enjoy it). The club’s goals are not relevant, and her affiliation needs may be satisfied in other ways. However, she may feel that being a member of this club will lead to important and useful business contacts. The golf or racquet club membership is instrumental in establishing those contacts. Membership in civic groups such as the Junior League and Rotary may be solicited for similar reasons.

13-1cStages of Group and Team Development

Imagine the differences between a collection of five people who have just been brought together to form a group or team and a group or team that has functioned like a well-oiled machine for years. Members of a new group or team are unfamiliar with how they will function together and are tentative in their interactions. In a group or team with considerable experience, members are familiar with one another’s strengths and weaknesses and are more secure in their roles in the group. The former group or team is generally considered to be immature, whereas the latter is considered mature. To progress from the immature phase to the mature phase, a group or team must go through certain stages of development, as shown in Figure 13.2.

Figure 13.2Stages of Group Development

As groups mature, they tend to evolve through four distinct stages of development. Managers must understand that group members need time to become acquainted, accept one another, develop a group structure, and become comfortable with their roles in the group before they can begin to work directly to accomplish goals.

The first stage of development is informally called forming. The members of the group or team get acquainted and begin to test which interpersonal behaviors are acceptable and which are unacceptable to the other members. The members are very dependent on others at this point to provide cues about what is acceptable. The basic ground rules for the group or team are established, and a tentative group structure may emerge. At Adidas, for example, a merchandising team was created to handle a new line of sportswear. The team leader and his members were barely acquainted and had to spend a few weeks getting to know one another.

The second stage of development, often slow to emerge, is storming. During this stage, there may be a general lack of unity and uneven interaction patterns. At the same time, some members of the group or team may begin to exert themselves to become recognized as the group leader or at least to play a major role in shaping the group’s agenda. In Adidas’s team, some members advocated a rapid entry into the market; others argued for a slower entry. The first faction won, with disastrous results. Because of the rush, product quality was poor and deliveries were late. As a result, the team leader was fired and a new manager placed in charge.

The third stage of development, called norming, usually begins with a burst of activity. During this stage, each person begins to recognize and accept her or his role and to understand the roles of others. Members also begin to accept one another and to develop a sense of unity. There may also be temporary regressions to the previous stage. For example, the group or team might begin to accept one particular member as the leader. If this person later violates important norms or otherwise jeopardizes his or her claim to leadership, conflict might reemerge as the group rejects this leader and searches for another. Adidas’s new leader transferred several people away from the team and set up a new system and structure for managing things. The remaining employees accepted his new approach and settled into doing their jobs.

Performing, the final stage of group or team development, is also slow to develop. At this stage, the team really begins to focus on the problem at hand. The members enact the roles they have accepted, interaction occurs, and the efforts of the group are directed toward goal attainment. The basic structure of the group or team is no longer an issue but has become a mechanism for accomplishing the purpose of the group. Adidas’s new sportswear line has now been growing consistently and has successfully avoided the problems that plagued it at first.

13-2Characteristics of Groups and Teams

As groups and teams mature and pass through the four basic stages of development, they begin to take on four important characteristics—a role structure, norms, cohesiveness, and informal leadership.

13-2aRole Structures

Each individual in a team has a part, or 
role
, to play in helping the group reach its goals. Some people are leaders, some perform tasks, some interface with other teams, and so on. Indeed, a person may take on a task specialist role (concentrating on getting the group’s task accomplished) or a socioemotional role (providing social and emotional support to others on the team). A few people, usually the leaders, perform both roles; a few others may do neither. The group’s 
role structure
 is the set of defined roles and interrelationships among those roles that the group or team members define and accept. Each of us belongs to many groups and therefore plays multiple roles—in work groups, classes, families, and social organizations.

This team has just received word from their manager (pictured in the red in the center) that they need to work through lunch (and possibly dinner!) to complete their quarter end report. Clearly her subordinate in the red tie is not pleased with this late information. This is contrary to what the manager told them last quarter when she indicated that no more overttime would be permitted or required. This intrasender conflict is not contributing to a sense of trust and clear communication in this work environment.

Ronnie Kaufman/Larry Hirshowitz/Getty Images

Role structures emerge as a result of role episodes, as shown in Figure 13.3. The process begins with the expected role—what other members of the team expect the individual to do. The expected role gets translated into the sent role—the messages and cues that team members use to communicate the expected role to the individual. The perceived role is what the individual perceives the sent role to mean. Finally, the enacted role is what the individual actually does in the role. The enacted role, in turn, influences future expectations of the team. Of course, role episodes seldom unfold this smoothly. When substantive disconnects occur, individuals may experience role ambiguity, conflict, or overload.

Figure 13.3The Development of a Role

Roles and role structures within a group generally evolve through a series of role episodes. The first two stages of role development are group processes, as the group members let individuals know what is expected of them. The other two parts are individual processes, as the new group members perceive and enact their roles.

Role Ambiguity

Role ambiguity
 arises when the sent role is unclear. If your instructor tells you to write a term paper but refuses to provide more guidance, you will probably experience role ambiguity. You do not know what the topic is, how long the paper should be, what format to use, or when the paper is due. In work settings, role ambiguity can stem from poor job descriptions, vague instructions from a supervisor, or unclear cues from coworkers. The result is likely to be a subordinate who does not know what to do. Role ambiguity can be a significant problem for both the individual who must contend with it and the organization that expects the employee to perform.

Role Conflict

Role conflict
 occurs when the messages and cues composing the sent role are clear but contradictory or mutually exclusive. One common form is interrole conflict—conflict between roles. For example, if a person’s boss says that everyone must work overtime and on weekends to get ahead, and the same person’s coworkers say that you can succeed without working nights and weekends, conflict may result. In a matrix organization, interrole conflict often arises between the roles a person plays in different teams as well as between team roles and that individual’s permanent role in a functional group.

Intrarole conflict may occur when the person gets conflicting demands from different sources within the context of the same role. A manager’s boss may tell the manager that she needs to put more pressure on subordinates to follow new work rules. At the same time, her subordinates may indicate that they expect her to get the rules changed. Thus the cues are in conflict, and the manager may be unsure about which course to follow. Intrasender conflict occurs when a single source sends clear but contradictory messages. This might arise if the boss says one morning that there can be no more overtime pay for the next month but after lunch tells someone to work late that same evening. Person–role conflict results from a discrepancy between the role requirements and the individual’s personal values, attitudes, and needs. If a person is told to do something unethical or illegal, or if the work is distasteful (e.g., firing a close friend), person–role conflict is likely. Role conflict of all varieties is of particular concern to managers. Research has shown that conflict may occur in a variety of situations and lead to a variety of adverse consequences, including stress, poor performance, and rapid turnover.

Role conflict is a common occurrence in some organizations. Interrole conflict refers to conflict between roles such as the role of employee and the role of family member. This manager, for instance, is away from his family and interacting with them using his digital tablet.

Bloomicon/ Shutterstock.com

Role Overload

A final consequence of a weak role structure is 
role overload
, which occurs when expectations for the role exceed the individual’s capabilities. When a manager gives an employee several major assignments at once, while increasing the person’s regular workload, the employee will probably experience role overload. Role overload may also result when an individual takes on too many roles at one time. For example, a person trying to work extra hard at a job, run for election to the school board, serve on a committee in church, coach Little League baseball, maintain an active exercise program, and be a contributing member to her or his family will probably encounter role overload.

In a functional group or team, the manager can take steps to avoid role ambiguity, conflict, and overload. Having clear and reasonable expectations and sending clear and straightforward cues go a long way toward eliminating role ambiguity. Consistent expectations that take into account the employee’s other roles and personal value system may minimize role conflict. Role overload can be avoided simply by recognizing the individual’s capabilities and limits. In friendship and interest groups, role structures are likely to be less formal. As a result, the possibility of role ambiguity, conflict, or overload may not be so great. However, if one or more of these problems does occur, they may be difficult to handle. Because roles in friendship and interest groups are less likely to be partially defined by a formal authority structure or written job descriptions, the individual cannot turn to those sources to clarify a role.

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13-2bBehavioral Norms

Norms
 are standards of behavior that the group or team accepts for and expects of its members. Most committees, for example, develop norms governing their discussions. A person who talks too much is perceived as doing so to make a good impression or to get his or her own way. Other members may not talk much to this person, may not sit nearby, may glare at the person, and may otherwise “punish” the individual for violating the norm. Similarly, a team might develop a norm that there will be no e-mails exchanged at night while members are spending time with their friends and families. Norms, then, define the boundaries between acceptable and unacceptable behavior. Some groups develop norms that limit the upper bounds of behavior to “make life easier” for the group—for example, do not make more than two comments in a committee discussion or do not produce any more than you have to. In general, these norms are counterproductive. Other groups may develop norms that limit the lower bounds of behavior—for example, do not come to meetings unless you have read the reports to be discussed or produce as much as you can. These norms tend to reflect motivation, commitment, and high performance. Managers can sometimes use norms for the betterment of the organization. For example, Campbell’s Soup once successfully used group norms to reduce injuries in some of its plants.

Norm Generalization

The norms of one group cannot always be generalized to another group. Some academic departments, for example, have a norm that suggests that faculty members dress up on teaching days. People who fail to observe this norm are “punished” by sarcastic remarks or even formal reprimands. In other departments, the norm may be casual clothes, and the person unfortunate enough to wear dress clothes may be punished just as vehemently. Even within the same work area, similar groups or teams can develop different norms. One team may strive always to produce above its assigned quota while another may maintain productivity just below its quota. The norm of one team may be to be friendly and cordial to its supervisor but that of another team may be to remain aloof and distant. Some differences are due primarily to the composition of the teams.

Norm Variation

In some cases, there can also be norm variation within a group or team. A common norm is that the least senior member of a group is expected to perform unpleasant or trivial tasks for the rest of the group. These tasks might be to wait on customers who are known to be small tippers (in a restaurant), to deal with complaining customers (in a department store), or to handle the low-commission line of merchandise (in a sales department). Another example is when certain individuals, especially informal leaders, may violate some norms. If the team is going to meet at 8:00 a.m., anyone arriving late will be chastised for holding things up. Occasionally, however, the informal leader may arrive a few minutes late. As long as this does not happen too often, the group probably will not do anything about it.

Norm Conformity

Four sets of factors contribute to norm conformity. First, factors associated with the group are important. For example, some groups or teams may exert more pressure for conformity than others. Second, the initial stimulus that prompts behavior can affect conformity. The more ambiguous the stimulus (e.g., news that the team is going to be transferred to a new unit), the more pressure there is to conform. Third, individual traits determine the individual’s propensity to conform (e.g., more intelligent people and people with more self-confidence are often less susceptible to pressure to conform). Finally, situational factors, such as team size and unanimity, influence conformity. As an individual learns the group’s norms, he can do several different things. The most obvious is to adopt the norms. For example, the new male professor who notices that all the other men in the department dress up to teach can also start wearing a suit. A variation is to try to obey the “spirit” of the norm while retaining individuality. The professor may recognize that the norm is actually to wear a tie, so he might also succeed by wearing a tie with his sport shirt, jeans, and sneakers.

The individual may also ignore the norm. When a person does not conform, several things can happen. At first the group may increase its communication with the deviant individual to try to bring her back in line. If this does not work, communication may decline. Over time, the group may begin to exclude the individual from its activities and, in effect, ostracize the person. Finally, we need to briefly consider another aspect of norm conformity—socialization. 
Socialization
 is generalized norm conformity that occurs as a person makes the transition from being an outsider to being an insider. A newcomer to an organization, for example, gradually begins to learn about such norms as dress, working hours, and interpersonal relations. As the newcomer adopts these norms, she is being socialized into the organizational culture. Some organizations, such as Texas Instruments, work to actively manage the socialization process while others leave it to happenstance.

13-2cCohesiveness

A third important team characteristic is cohesiveness. 
Cohesiveness
 is the extent to which members are loyal and committed to the group. In a highly cohesive team, the members work well together, support and trust one another, and are generally effective at achieving their chosen goals. In contrast, a team that lacks cohesiveness is not very coordinated, its members do not necessarily support one another fully, and it may have a difficult time reaching goals. Of particular interest are the factors that increase and reduce cohesiveness and the consequences of team cohesiveness. These are listed in Table 13.1.

Table 13.1

Factors That Influence Group Cohesiveness

Factors That Increase Cohesiveness	Factors That Reduce Cohesiveness
Intergroup competition	Group size
Personal attraction	Disagreement on goals
Favorable evaluation	Intragroup competition
Agreement on goals	Domination
Interaction	Unpleasant experiences

Several different factors can influence the cohesiveness of a group. For example, a manager can establish intergroup competition, assign compatible members to the group, create opportunities for success, establish acceptable goals, and foster interaction to increase cohesiveness. Other factors can be used to decrease cohesiveness.

Factors That Increase Cohesiveness

Five factors can increase the level of cohesiveness in a group or team. One of the strongest is intergroup competition. When two or more groups are in direct competition (e.g., three sales groups competing for top sales honors or two football teams competing for a conference championship), each group is likely to become more cohesive. Second, just as personal attraction plays a role in causing a group to form, so, too, does attraction seem to enhance cohesiveness. Third, favorable evaluation of the entire group by outsiders can increase cohesiveness. Thus a group’s winning a sales contest or a conference title or receiving recognition and praise from a superior tends to increase cohesiveness.

Similarly, if all the members of the group or team agree on their goals, cohesiveness is likely to increase. And the more frequently members of the group interact with one another, the more likely the group is to become cohesive. A manager who wants to foster a high level of cohesiveness in a team might do well to establish some form of intergroup competition, assign members to the group who are likely to be attracted to one another, provide opportunities for success, establish goals that all members are likely to accept, and allow ample opportunities for interaction.

Factors That Reduce Cohesiveness

There are also five factors that are known to reduce team cohesiveness. First of all, cohesiveness tends to decline as a group increases in size. Second, when members of a team disagree on what the goals of the group should be, cohesiveness may decrease. For example, when some members believe the group should maximize output and others think output should be restricted, cohesiveness declines. Third, intragroup competition reduces cohesiveness. When members are competing among themselves, they focus more on their own actions and behaviors than on those of the group.

Fourth, domination by one or more persons in the group or team may cause overall cohesiveness to decline. Other members may feel that they are not being given an opportunity to interact and contribute, and they may become less attracted to the group as a consequence. “Leading the Way” provides more insights into this aspect of group dynamics. Finally, unpleasant experiences that result from group membership may reduce cohesiveness. A sales group that comes in last in a sales contest, an athletic team that sustains a long losing streak, and a work group reprimanded for poor-quality work may all become less cohesive as a result of their unpleasant experiences.

Consequences of Cohesiveness

In general, as teams become more cohesive, their members tend to interact more frequently, conform more to norms, and become more satisfied with the team. Cohesiveness may also influence team performance. However, performance is also influenced by the team’s performance norms. Figure 13.4 shows how cohesiveness and performance norms interact to help shape team performance.

Figure 13.4The Interaction between Cohesiveness and Performance Norms

Group cohesiveness and performance norms interact to determine group performance. From the manager’s perspective, high cohesiveness combined with high performance norms comprise the best situation, and high cohesiveness with low performance norms create the worst situation. Managers who can influence the level of cohesiveness and performance norms can greatly improve the effectiveness of a work group.

Leading the Way

Primed for Power

For a long time, observes industrial/organizational psychologist Liane Davey, we were brought up on the idea that “power is useful in driving performance. You defer to your boss because that’s how the hierarchy works. It creates clarity and alignment and keeps things moving.” Not surprisingly, then, when bosses function as leaders in group decision-making situations, power encourages them to assume dominant roles. Davey points out, however, that the criteria for successful group performance are no longer what they used to be: “In our innovation economy,” she says, “where tasks require creative problem solving, information sharing, and collaboration, we need to get the value of all the members of a team—not just the limited perspective of the boss.

“The research,” Davey adds, “bears this out.” The research she has in mind was conducted by a team of business professors and reported in an article entitled “When Power Makes Others Speechless: The Negative Impact of Leader Power on Team Performance” (2013). In various experiments, Tost, Gino, and Larrick tested the effect of two variables on team performance:

· (1)

in some cases, they appointed a formal leader, and in others, they did not;

· (2)

in some cases, leaders were “primed” by being asked to recall past exercises of power, and in others, leaders were not primed.

In one experiment, teams were asked to solve a murder mystery. The two groups without formal leaders were successful 60 percent of the time; the group with a formal leader primed to feel powerful had the worst success rate—about 25 percent.

“The problem,” says Rick Larrick of Duke University, “is that people who are in a power mindset don’t stop to ask what others know and think. And this [habit] is facilitated by formal roles and titles, because it means that those in a less powerful position tend to defer to the person with the higher position.” This doesn’t mean, however, that leaderless teams are the best way to go. The key factor in team success—or the lack of it—appears to be the way leaders perceive their power. “The best teams,” Larrick points out, “had leaders who were not reminded of power. This makes sense in that leaders do play an essential role by providing structure to teams. But the structure has to ensure participation. A facilitative leader is one way to create this desirable structure.”

As Larrick reminds us, the best success rate in solving the murder mystery—80 percent—was posted by the group with a formal leader who was not primed to feel powerful ahead of time. With this team, notes coresearcher Francesca Gino of Harvard, “the leader is sort of stepping back. It’s more of what you like to see, where the leader is orchestrating the conversation, but everyone is talking.”

In other words, differences in team leadership, response, and performance seem to depend in large part on perceptions on the part of both leaders and team members. Leaders, for example, were “primed” to heighten their perception of themselves as powerful: “With the rush that comes with having control,” explains Gino, “it’s easy for a manager to hog the floor—even feel obligated to play this role.” In turn, reports Larrick, when leaders acted on the basis of self-perceived empowerment, team members, who perceived themselves to be “in less powerful positions, tended to defer to the person with the higher position.”

“Oftentimes,” concludes Gino, “we behave the way we do because we’re not aware of the effects of our actions. Bringing this type of awareness to leaders in group decision-making situations could set up a different process whereby they benefit from what others have to offer.”

References: Liane Davey, “Don’t Let Your Voice Be Silenced by Your Boss,” Psychology Today, February 18, 2014, www.psychologytoday.com, accessed on April 21, 2017; Leigh Plunkett Tost, Francesca Gino, and Richard P. Larrick, “When Power Makes Others Speechless: The Negative Impact of Leader Power on Team Performance” (abstract), Academy of Management Journal, 2013, Vol. 56, No. 5, pp. 1465–1486, http://amj.aom.org, accessed on April 21, 2017; Michael Blanding, “Pulpit Bullies: Why Dominating Leaders Kill Teams,” Harvard Business School Working Knowledge, November 18, 2013, http://hbswk.hbs.edu, accessed on April 21, 2017; Erin Medlyn, “New Research Finds Overbearing Leaders Can Hurt Their Team’s Performance,” Duke University Fuqua School of Business, October 14, 2013, www.duke.edu, accessed on April 21, 2017.

When both cohesiveness and performance norms are high, high performance should result because the team wants to perform at a high level (norms) and its members are working together toward that end (cohesiveness). When norms are high and cohesiveness is low, performance will be moderate. Although the team wants to perform at a high level, its members are not necessarily working well together. When norms are low, performance will be low, regardless of whether group cohesiveness is high or low. The least desirable situation occurs when low performance norms are combined with high cohesiveness. In this case, all team members embrace the standard of restricting performance (owing to the low performance norm), and the group is united in its efforts to maintain that standard (owing to the high cohesiveness). If cohesiveness were low, the manager might be able to raise performance norms by establishing high goals and rewarding goal attainment or by bringing in new group members who are high performers. But a highly cohesive group is likely to resist these interventions.

13-2dFormal and Informal Leadership

Most functional groups and teams have a formal leader—that is, one appointed by the organization or chosen or elected by the members of the group. Because friendship and interest groups are formed by the members themselves, however, any formal leader must be elected or designated by the members. Although some groups do designate such a leader (a softball team may elect a captain, for example), many do not. Moreover, even when a formal leader is designated, the group or team may also look to others for leadership. An 
informal leader
 is a person who engages in leadership activities but whose right to do so has not been formally recognized. The formal and the informal leader in any group or team may be the same person, or they may be different people. We noted earlier the distinction between the task specialist and socioemotional roles within groups. An informal leader is likely to be a person capable of carrying out both roles effectively. If the formal leader can fulfill one role but not the other, an informal leader often emerges to supplement the formal leader’s functions. If the formal leader can fill neither role, one or more informal leaders may emerge to carry out both sets of functions.

This group has just learned that it has exceeded its performance goals for the quarter. As a result, the group will likely become more cohesive and feel a greater commitment to high performance norms in the future.

Monkey Business Images/ Shutterstock.com

Is informal leadership desirable? In many cases informal leaders are quite powerful because they draw from referent or expert power. When they are working in the best interests of the organization, they can be a tremendous asset. Notable athletes like Tom Brady and Carli Lloyd are examples of informal leaders. However, when informal leaders work counter to the goals of the organization, they can cause significant difficulties. Such leaders may lower performance norms, instigate walkouts or wildcat strikes, or otherwise disrupt the organization.

13-3Interpersonal and Intergroup Conflict

Of course, when people work together in an organization in groups and teams, things do not always go smoothly. Indeed, conflict is an inevitable element of interpersonal relationships in organizations. In this section, we look at how conflict affects overall performance. We also explore the causes of conflict between individuals, between groups, and between an organization and its environment.

13-3aThe Nature of Conflict

Conflict
 is a disagreement among two or more individuals, groups, or organizations. This disagreement may be relatively mild or very strong. It may be short-lived or exist for months or even years, and it may be work related or personal. Conflict may manifest itself in a variety of ways. People may compete with one another, glare at one another, shout, or withdraw. Groups may band together to protect popular members or oust unpopular members. Organizations may seek legal remedies.

Most people assume that conflict is something to be avoided because it connotes antagonism, hostility, unpleasantness, and dissension. Indeed, managers and management theorists have traditionally viewed conflict as a problem to be avoided. More recently, however, experts have come to recognize that, although conflict can be a major problem, certain kinds of conflict may also be beneficial. For example, when two members of a site selection committee disagree over the best location for a new plant, each may be forced to more thoroughly study and defend his or her preferred alternative. As a result of more systematic analysis and discussion, the committee may make a better decision and be better prepared to justify it to others than if everyone had agreed from the outset and accepted an alternative that was perhaps less well analyzed.

As long as conflict is being handled in a cordial and constructive manner, it is probably serving a useful purpose in the organization. On the other hand, when working relationships are being disrupted and the conflict has reached destructive levels, it has likely become dysfunctional and needs to be addressed. We discuss ways of dealing with such conflict later in this chapter.

Figure 13.5 depicts the general relationship between conflict and performance for a group, team, or organization. If there is absolutely no conflict in the group or organization, its members may become complacent and apathetic. As a result, group or organizational performance and innovation may begin to suffer. A moderate level of conflict among group or organizational members, on the other hand, can spark motivation, creativity, innovation, and initiative and raise performance. Too much conflict, though, can produce such undesirable results as hostility and lack of cooperation, which lower performance. The key for managers is to find and maintain the optimal amount of conflict that fosters performance. Of course, what constitutes optimal conflict varies with both the situation and the people involved.

Figure 13.5The Nature of Organizational Conflict

Either too much or too little conflict can be dysfunctional for an organization. In either case, performance may be low. However, an optimal level of conflict that sparks motivation, creativity, innovation, and initiative can result in higher levels of performance.

13-3bCauses of Conflict

Conflict may arise in both interpersonal and intergroup relationships. Occasionally conflict between individuals and groups may be caused by particular organizational strategies and practices. A third arena for conflict is between an organization and its environment.

Interpersonal Conflict

Conflict between two or more individuals is almost certain to occur in any organization, given the great variety in perceptions, goals, attitudes, and so forth among its members. Bill Gates, founder of Microsoft, and Kazuhiko Nishi, a former business associate from Japan, once ended a lucrative long-term business relationship because of interpersonal conflict. Nishi accused Gates of becoming too political, while Gates charged that Nishi became too unpredictable and erratic in his behavior.

A frequent source of interpersonal conflict in organizations is what many people call a personality clash—when two people distrust each other’s motives, dislike each other, or for some other reason simply cannot get along. Conflict may also arise between people who have different beliefs or perceptions about some aspect of their work or their organization. For example, one manager might want to require that all sales presentations use a standard template in order to project a standard image and brand while another manager might prefer creativity and customization. Similarly, a male manager may disagree with his female colleague over whether the organization is guilty of discriminating against women in promotion decisions. Conflict can also result from excess competitiveness among individuals. Two people vying for the same job, for example, may resort to political behavior in an effort to gain an advantage. If either competitor sees the other’s behavior as inappropriate, accusations are likely to result. Even after the “winner” of the job is determined, such conflict may continue to undermine interpersonal relationships, especially if the reasons given in selecting one candidate are ambiguous or open to alternative explanations. Acer CEO and President Gianfranco Lanci resigned due to several months of unresolved conflict with the company’s board of directors. Lanci and the board had differing views on organizational growth, customer value creation, brand position enhancement, and resource allocation. Lanci pushed strongly for a move into the mobile segment to compete with Apple’s iPad, while the board wanted to maintain its core PC business.

Intergroup Conflict

Conflict between two or more organizational groups is also quite common. For example, the members of a firm’s marketing group may disagree with the production group over product quality and delivery schedules. Two sales groups may disagree over how to meet sales goals, and two groups of managers may have different ideas about how best to allocate organizational resources.

Many intergroup conflicts arise more from organizational causes than from interpersonal causes. In Chapter 6, we described three forms of group interdependence—pooled, sequential, and reciprocal. Just as increased interdependence makes coordination more difficult, it increases the potential for conflict. For example, recall that in sequential interdependence, work is passed from one unit to another. Intergroup conflict may arise if the first group turns out too much work (the second group will fall behind), too little work (the second group will not meet its own goals), or poor-quality work.

At one large Macy’s department store conflict arose between stockroom employees and sales associates. The sales associates claimed that the stockroom employees were slow in delivering merchandise to the sales floor where it could be priced and shelved. The stockroom employees, in turn, claimed that the sales associates were not giving them enough lead time to get the merchandise delivered and failed to understand that they had additional duties besides carrying merchandise to the sales floor.

Just like people, different departments often have different goals. Further, these goals may often be incompatible. A marketing goal of maximizing sales, achieved partially by offering many products in a wide variety of sizes, shapes, colors, and models, probably conflicts with a production goal of minimizing costs, achieved partially by long production runs of a few items. Reebok recently confronted this very situation. One group of managers wanted to introduce a new sportswear line as quickly as possible, but other managers wanted to expand more deliberately and cautiously. Because the two groups were not able to reconcile their differences effectively, conflict arose between the two factions, which led to quality problems and delivery delays that plagued the firm for months.

Competition for scarce resources can also lead to intergroup conflict. Most organizations—especially universities, hospitals, government agencies, and businesses in depressed industries—have limited resources. In one New England town, for example, the public works department and the library battled over funds from a federal construction grant. Similarly, but on a much larger scale, the various branches of the U.S. military often disagree over how defense budget funds should be allocated.

Conflict between Organization and Environment

Conflict that arises between one organization and another is called interorganizational conflict. A moderate amount of interorganizational conflict resulting from business competition is expected, of course, but sometimes conflict becomes more extreme. For example, the owners of Jordache Enterprises, Inc., and Guess?, Inc., battled in court for years over ownership of the Guess? label, allegations of design theft, and several other issues. Similarly, GM and Volkswagen went to court to resolve a bitter conflict that spanned more than four years. It all started when a key GM executive, Jose Ignacio Lopez de Arriortua, left for a position at Volkswagen. GM claimed that he took with him key secrets that could benefit its German competitor. After the messy departure, dozens of charges and countercharges were made by the two firms, and only a court settlement was able to put the conflict to an end.

Conflict can also arise between an organization and other elements of its environment. For example, an organization may conflict with a consumer group over claims it makes about its products. McDonald’s faced this problem a few years ago when it published nutritional information about its products that omitted details about fat content. A manufacturer might conflict with a governmental agency such as the federal Occupational Safety and Health Administration (OSHA). For example, the firm’s management may believe it is in compliance with OSHA regulations, whereas officials from the agency believe that the firm is not in compliance. Or a firm might conflict with a supplier over the quality of raw materials. The firm may think the supplier is providing inferior materials, while the supplier thinks the materials are adequate.

13-4Managing Conflict in Organizations

How do managers cope with all this potential conflict? Fortunately, as Table 13.2 shows, there are ways to stimulate conflict for constructive ends, to control conflict before it gets out of hand, and to resolve it if it does. We now look at ways of managing conflict.

Table 13.2

Methods for Managing Conflict

Stimulating Conflict

Increase competition among individuals and teams.

Hire outsiders to shake things up.

Change established procedures.

Controlling Conflict

Expand resource base.

Enhance coordination of interdependence.

Set superordinate goals.

Match personalities and work habits of employees.

Resolving and Eliminating Conflict

Avoid conflict.

Convince conflicting parties to compromise.

Bring conflicting parties together to confront and negotiate conflict.

Conflict is a powerful force in organizations, and it has both negative and positive consequences. Thus managers can draw on several different techniques to stimulate, control, or resolve and eliminate conflict, depending on their unique circumstances.

13-4aStimulating Conflict

In some situations, an organization may stimulate conflict by placing individual employees or groups in competitive situations. Managers can establish sales contests, incentive plans, bonuses, or other competitive stimuli to spark competition. As long as the ground rules are equitable and all participants perceive the contest as fair, the conflict created by the competition is likely to be constructive because each participant will work hard to win (thereby enhancing some aspect of organizational performance).

Another useful method for stimulating conflict is to bring in one or more outsiders who will shake things up and present a new perspective on organizational practices. Outsiders may be new employees, current employees assigned to an existing work group, or consultants or advisors hired on a temporary basis. Of course, this action can also provoke resentment from insiders who feel they were qualified for the position. The Beecham Group, a British company, once hired an executive from the United States for its CEO position, expressly to change how the company did business. His arrival brought with it new ways of doing things and a new enthusiasm for competitiveness. Unfortunately, some valued employees also chose to leave Beecham because they resented some of the changes that were made.

Changing established procedures, especially procedures that have outlived their usefulness, can also stimulate conflict. Such actions cause people to reassess how they perform their jobs and whether they perform it correctly. For example, one university president announced that all vacant staff positions could be filled only after written justification had received his approval. Conflict arose between the president and the department heads, who felt they were required to do more paperwork than was necessary. Most requests were approved, but because department heads now had to think through their staffing needs, a few unnecessary positions were appropriately eliminated.

Leaders can use a variety of methods to manage conflict. Some methods focus on stimulating conflict while other techniques help control or resolve conflict. These two managers have been in conflict over a pending decision. However, they have just negotiated an understanding that makes both of them happy and are “sealing the deal” with a handshake.

ESB Professional/ Shutterstock.com

13-4bControlling Conflict

One method of controlling conflict is to expand the resource base. Suppose a top manager receives two budget requests for $300,000 each. If she has only $500,000 to distribute, the stage is set for conflict because each group will believe its proposal is worth funding and will be unhappy if it is not fully funded. If both proposals are indeed worthwhile, it may be possible for the manager to come up with the extra $100,000 from some other source and thereby avoid difficulty.

As noted earlier, pooled, sequential, and reciprocal interdependence can all result in conflict. If managers use an appropriate technique for enhancing coordination, they can reduce the probability that conflict will arise. Techniques for coordination (described in Chapter 6) include making use of the managerial hierarchy, relying on rules and procedures, enlisting liaison people, forming task forces, and integrating departments. At the Macy’s store mentioned earlier, the conflict was addressed by providing salespeople with clearer forms on which to specify the merchandise they needed and in what sequence. If one coordination technique does not have the desired effect, a manager might shift to another one.

Competing goals can also be a source of conflict among individuals and groups. Managers can sometimes focus employee attention on higher-level, or superordinate, goals as a way of eliminating lower-level conflict. When labor unions such as the United Auto Workers make wage concessions to ensure survival of the automobile industry, they are responding to a superordinate goal. Their immediate goal may be higher wages for members, but they realize that, without the automobile industry, their members would not even have jobs.

Finally, managers should try to match the personalities and work habits of employees so as to avoid conflict between individuals. For instance, two valuable subordinates, one a chain smoker and the other a vehement antismoker, probably should not be required to work together in an enclosed space. If conflict does arise between incompatible individuals, a manager might seek an equitable transfer for one or both of them to other units.

13-4cResolving and Eliminating Conflict

Despite everyone’s best intentions, conflict sometimes flares up. If it is disrupting the workplace, creating too much hostility and tension, or otherwise harming the organization, attempts must be made to resolve it. Some managers who are uncomfortable dealing with conflict choose to avoid the conflict and hope it will go away. Avoidance may sometimes be effective in the short run for some kinds of interpersonal disagreements, but it does little to resolve long-run or chronic conflicts. Even more unadvisable, though, is “smoothing”—minimizing the conflict and telling everyone that things will “get better.” Often, though, avoiding conflict may only make it worse as people continue to brood over it.

Compromise is striking a middle-range position between two extremes. This approach can work if it is used with care, but in most compromise situations, someone wins and someone loses. Budget problems are one of the few areas amenable to compromise because of their objective nature. Assume, for example, that additional resources are not available to the manager mentioned earlier. She has $500,000 to divide, and each of two groups claims to need $300,000. If the manager believes that both projects warrant funding, she can allocate $200,000 to each. The fact that the two groups have at least been treated equally may minimize the potential conflict.

The confrontational approach to conflict resolution—also called interpersonal problem solving—consists of bringing the parties together to confront the conflict. The parties discuss the nature of their conflict and attempt to reach an agreement or a solution. Confrontation requires a reasonable degree of maturity on the part of the participants, and the manager must structure the situation carefully. If handled well, this approach can be an effective means of resolving conflict. In recent years, many organizations have experimented with a technique called alternative dispute resolution, using a team of employees to arbitrate conflict in this way. Negotiation, a closely related method, is discussed in our final section of this chapter.

Regardless of the approach, organizations and their managers should realize that conflict must be addressed if it is to serve constructive purposes and be prevented from bringing about destructive consequences. Conflict is inevitable in organizations, but its negative effects can be constrained with proper attention. For example, Union Carbide once sent 200 of its managers to a three-day workshop on conflict management. The managers engaged in a variety of exercises and discussions to learn with whom they were most likely to come in conflict and how they should try to resolve it. As a result, managers at the firm later reported that hostility and resentment in the organization had been greatly diminished and that people in the firm reported more pleasant working relationships.

13-5Negotiation

Negotiation
 is the process in which two or more parties (people or groups) reach agreement on an issue even though they have different preferences regarding that issue. In a sense, then, negotiation is also a form of conflict resolution. In its simplest form, the parties involved may be two individuals who are trying to decide who will pay for lunch. A little more complexity is involved when two people, such as an employee and a manager, sit down to decide on personal performance goals for the next year against which the employee’s performance will be measured. Even more complex are the negotiations that take place between labor unions and the management of a company or between two companies as they negotiate the terms of a joint venture. The key issues in such negotiations are that at least two parties are involved, their preferences are different, and they need to reach agreement. Interest in negotiation has grown steadily in recent years. Four primary approaches to negotiation have dominated this study: individual differences, situational characteristics, game theory, and cognitive approaches.

Negotiations can take a variety of forms and deal with many different issues. For instance, people negotiate over salary, contract terms, job assignments, and a variety of other business activities. These representatives from different organizations have just reached an agreement to co-sponsor an advertising campaign. Their next step will be to formalize their agreement in a legal contract.

© Andrey Popov/ Shutterstock.com

Early psychological approaches concentrated on the personality traits of the negotiators. Traits investigated have included demographic characteristics and personality variables. Demographic characteristics have included age, gender, and race, among others. Personality variables have included risk taking, locus of control, tolerance for ambiguity, self-esteem, authoritarianism, and Machiavellianism. The assumption of this type of research was that the key to successful negotiation was selecting the right person to do the negotiating, one who had the appropriate demographic characteristics or personality. This assumption seemed to make sense because negotiation is such a personal and interactive process. However, the research rarely showed the positive results expected because situational variables negated the effects of the individual differences.

Situational characteristics are the context within which negotiation takes place. They include such things as the types of communication between negotiators, the potential outcomes of the negotiation, the relative power of the parties (both positional and personal), the time frame available for negotiation, the number of people representing each side, and the presence of other parties. Some of this research has contributed to our understanding of the negotiation process. However, the shortcomings of the situational approach are similar to those of the individual characteristics approach. Many situational characteristics are external to the negotiators and beyond their control. Often the negotiators cannot change their relative power positions or the setting within which the negotiation occurs. So, although we have learned a lot from research on the situational issues, we still need to learn much more about the process.

Game theory was developed by economists using mathematical models to predict the outcome of negotiation situations (as illustrated in the Academy Award-winning movie A Beautiful Mind). It requires that every alternative and outcome be analyzed with probabilities and numerical outcomes reflecting the preferences of negotiating parties for each outcome. In addition, the order in which different parties can make choices and every possible move are predicted, along with associated preferences for outcomes. The outcomes of this approach are exactly what negotiators want: a predictive model of how negotiation should be conducted. One major drawback is that it requires the ability to describe all possible options and outcomes for every possible move in every situation before the negotiation starts. This is often very tedious, if possible at all. Another problem is that this theory assumes that negotiators are rational at all times. However, it is unlikely negotiators will in fact always act rationally. Therefore, this approach, although elegant in its prescriptions, is usually unworkable in a real negotiation situation.

The fourth approach is the cognitive approach, which recognizes that negotiators often depart from perfect rationality during negotiation; it tries to predict how and when negotiators will make these departures. Howard Raiffa’s decision analytic approach focuses on providing advice to negotiators actively involved in negotiation. Bazerman and Neale have added to Raiffa’s work by specifying eight ways in which negotiators systematically deviate from rationality. The types of deviations they describe include escalating commitment to a previously selected course of action, overrelying on readily available information, assuming that the negotiations can produce fixed-sum outcomes, and anchoring negotiation in irrelevant information. These cognitive approaches have advanced the study of negotiation a long way beyond the early individual and situational approaches. Negotiators can use them to attempt to predict in advance how the negotiation might take place.

Chapter Review

Summary of Learning Outcomes and Key Points

· 1Define and identify types of groups and teams in organizations, discuss reasons why people join groups and teams, and list the stages of group and team development.

· •

A group is two or more people who interact regularly to accomplish a common purpose or goal.

· •

General kinds of groups in organizations are:

· •

functional groups.

· •

task groups and teams.

· •

informal or interest groups.

· •

A team is a group of workers that functions as a unit, often with little or no supervision, to carry out organizational functions.

·
2Identify and discuss four essential characteristics of groups and teams.

· •

People join functional groups and teams to pursue a career.

· •

Their reasons for joining informal or interest groups include interpersonal attraction, group activities, group goals, need satisfaction, and potential instrumental benefits.

· •

The stages of team development include testing and dependence, intragroup conflict and hostility, development of group cohesion, and focusing on the problem at hand.

· •

Four important characteristics of teams are role structures, behavioral norms, cohesiveness, and informal leadership.

· •

Role structures define task and socioemotional specialists, and they may be disrupted by role ambiguity, role conflict, or role overload.

· •

Norms are standards of behavior for group members.

· •

Cohesiveness is the extent to which members are loyal and committed to the team and to one another.

· •

Informal leaders are those leaders whom the group members themselves choose to follow.

· 3Discuss interpersonal and intergroup conflict in organizations.

· •

Conflict is a disagreement between two or more people, groups, or organizations.

· •

Too little or too much conflict may hurt performance; an optimal level of conflict may improve performance.

· •

Interpersonal and intergroup conflict in organizations may be caused by personality differences or by particular organizational strategies and practices.

· 4Describe how organizations manage conflict.

· •

Organizations may encounter conflict with one another and with various elements of the environment.

· •

Three methods of managing conflict are to:

· •

stimulate it.

· •

control it.

· •

resolve and eliminate it.

· 5Describe the negotiation process.

· •

Negotiation is the process in which two or more parties reach agreement on an issue, even though they have different preferences regarding that issue.

Chapter Review

Discussion Questions

Questions for Review

1. What is a group? Describe the several different types of groups and indicate the similarities and differences between them. What is the difference between a group and a team?

2. Identify the stages of group development? Do all teams develop through all the stages discussed in this chapter? Why or why not? How might the management of a mature team differ from the management of teams that are not yet mature?

3. Describe the development of a role within a group. Tell how each role leads to the next.

4. Identify two examples of informal leaders. Can a person be a formal and an informal leader at the same time?

5. Describe the causes of conflict in organizations. What can a manager do to control conflict? To resolve and eliminate conflict?

Questions for Analysis

1. Individuals join groups for a variety of reasons. Most groups contain members who joined for different reasons. What is likely to be the result when members join a group for different reasons? What can a group leader do to reduce the negative impact of a conflict in reasons for joining the group?

2. Consider the case of a developed group, where all members have been socialized. What are the benefits to the individuals of norm conformity? What are the benefits of not conforming to the group’s norms? What are the benefits to an organization of conformity? What are the benefits to an organization of nonconformity?

3. Do you think teams are a valuable new management technique that will endure, or are they just a fad that will be replaced with something else in the near future?

4. Think of several groups of which you have been a member. Why did you join each? Did each group progress through the stages of development discussed in this chapter? If not, why do you think it did not?

5. Describe a case of interpersonal conflict that you have observed in an organization. Describe a case of intergroup conflict that you have observed. (If you have not observed any, interview a worker or manager to obtain examples.) In each case, was the conflict beneficial or harmful to the organization, and why?

Chapter Review

Experiential Exercise

Team Size and Performance

Purpose: Choosing the number of members in a team is an important decision that will affect team processes and outcomes. A team with too few members will have low performance because they are not receiving all of the benefits of effective teamwork. A team that is too large won’t be able to develop strong cohesion and, again, performance will suffer. The best team size in a particular situation depends on the members themselves, the tasks they will perform, and the nature of the interaction between them.

Instructions:

1. Step 1

In a small class, the class will be divided into groups of four by the instructor. In a larger class, four students may be asked to volunteer to demonstrate in front of the whole group.

2. Step 2

Each group will receive a regular deck of 52 playing cards from the instructor. One group member is chosen to be the “sorter.” The cards should be shuffled thoroughly and placed in a stack on the desk in front of the sorter. Another group member is the timer.

3. Step 3

At a signal from the instructor, the sorter or sorters pick up the cards. The timer notes the starting time. They must place the cards into four stacks by suit, arranging each stack from lowest to highest card. Aces are considered to be high. The task is done when the cards are in the four stacks. The timer records the elapsed time.

4. Step 4

After thoroughly shuffling the cards, repeat Step 3. This time, however, the sorter will have a helper. The help may take any form—advice, encouragement, moving the cards, or anything else. After a brief discussion of the actions, the helper will take to aid the sorter, begin timing and start the task. At the end, the timer notes the elapsed time.

5. Step 5

After thoroughly shuffling the cards, repeat Step 3. This time, however, the sorter will have three helpers. The help may take any form—advice, encouragement, moving the cards, or anything else. After a brief discussion of the actions, the helpers will take to aid the sorter, begin timing, and start the task. At the end, the timer notes the elapsed time.

Follow-Up Questions

1. Which of the three trials happened the most quickly? Which was the slowest? Which seemed to go the most smoothly for the sorter? Which seemed to be the most challenging for the sorter? Explain.

2. What was the impact of the help? Were three helpers better than one?

3. What types of help were effective, and what types were ineffective?

4. In what ways is this exercise similar to a situation in a business organization? In what ways is it dissimilar? What lessons might managers learn from this exercise?

Chapter Review

Building Effective Conceptual Skills

Exercise Overview

Conceptual skills require you to think in the abstract. This exercise will allow you to practice your conceptual skills as they apply to the activities of work teams in organizations.

Exercise Background

Business organizations, of course, don’t have a monopoly on effective groups. Basketball teams and military squadrons are teams, as is a government policy group such as the president’s cabinet, the leadership of a church or civic organization, or even a student committee.

Exercise Task

1. Use the Internet to identify an example of a real-life team. Be sure to choose one that meets two criteria: (1) It’s not part of a for-profit business, and (2) you can argue that it’s highly effective.

2. Determine the reasons for the team’s effectiveness. (Hint: You might look for websites sponsored by the group itself, review online news sources for current articles about it, or enter the group name in a search engine.) Consider team characteristics and activities, such as role structures, norms, cohesiveness, and conflict management.

3. What can a manager learn from the characteristics and activities of this particular team? How might the factors that contribute to this team’s success be adopted in a business setting?

Chapter Review

Management at Work

An Open Invitation to Innovation

“Any five-year-old has no trouble turning an old blanket and a couple of chairs into an impenetrable fort.”

—NineSigma CEO Andy Zynga

About a decade ago a well-known multinational company hired an innovation consulting firm called NineSigma to draw up a request for proposal (RFP) entitled “Nanoparticle Halide Salt: Formulation and Delivery.” According to NineSigma CEO Andy Zynga, providing an RFP means “crafting a very precise written needs statement for vetted solution providers who have known expertise in specific areas.” In this case, the client was in the market for a chemically designed salt with specific properties—a compound for which its own R&D department didn’t have the necessary expertise. So NineSigma, reports Zynga, “marketed” its RFP “to a broad audience of technical experts. Proposals came in from a variety of industries and organization types, including energy and fuels, pharma, and engineering services.” The winning proposal was submitted by a team of orthopedics researchers who had created nanoparticles of salt for studies of osteoporosis.

And that’s how PepsiCo developed a way to reduce the sodium content of Lay’s Classic potato chips without sacrificing the flavor that consumers were used to. This approach to an expanded search for solutions is sometimes called open innovation, which Zynga defines as “the process of reaching beyond your team, company, or industry for technologies, solutions, ideas, and knowledge available through global solution-provider networks. … The rationale,” he explains, “is that partnering with outside innovators may lead to something even better and will undoubtedly accelerate the process if a more advanced solution exists elsewhere.”

In a very real sense, although it’s a “process of reaching beyond your team,” open innovation is also an extension of the principle of building teams with a greater diversity of input. David Feitler, Senior Program Manager at Nine-Sigma, points to a parallel between team building as a means of breaking down internal barriers to problem solving and open innovation as a means of breaking down external barriers. Feitler explains that another NineSigma client, the Dutch-based multinational paint manufacturer AzkoNobel, was already practicing open innovation as a means of breaching external barriers when it approached NineSigma about improving internal collaboration. The company was divided into 11 autonomous, and it had grown mainly by means of acquisition. As a result, says Feitler, it “had the typical silos, with organizational and geographical boundaries inhibiting the diffusion of knowledge.”

“The solution,” he reports,

was to implement the request for proposal process inside the organization, broadly training large numbers of technical staff about the process and more intensively training a core group of “Internal Program Managers” to provide the coaching and guidance required for a well-specified search [for collaborative ideas].

Two years later, adds Feitler, AzkoNobel had developed a process of assembling “ad hoc SWAT teams” that allows “individuals with challenging problems. … to tap into a system that gives them rapid access to colleagues in other divisions and countries.”

The idea of “ad hoc SWAT teams,” argues Feitler, is consistent with the findings of studies on the role of so-called cross-pollination—the recombination of previously unrelated ideas—in the diffusion of innovation. In particular, Feitler cites research led by Harvard University’s Lee Fleming, who culled data from every U.S. patents granted since 1975. What did Fleming and his team want to find out from all of this data? First, they wanted to know what kind of networks among inventors and researchers had been developed to foster significant cross-pollination. Second, they were interested in how different networks contribute to “creativity,” which is commonly defined as the combining of familiar ideas in unexpected ways.

Fleming’s team identified two different network models that tend to result in “novel combinations”:

· (1)

the broker, which revolves around an influential person who’s connected to many other people who don’t know each other; and

· (2)

the connector, which revolves around an influential individual who often introduces his collaborators to each other.

The researchers found that organizations functioning as brokers were more likely to generate new ideas because they occupied a central position through which information and ideas travel. By the same token, brokers typically found it harder than connectors to get their ideas publicized.

Some related research goes into more practical detail. Gratton and Erickson, for instance, found that cross-pollination “almost always requires the input and expertise of people with disparate views and backgrounds.” In other words, diversity of expertise and experience is critical, but Gratton and Erickson also concluded that it can “inhibit collaboration”: “Diversity,” they observe,

often means that team members are working with people that they know only superficially or have never met before—colleagues drawn from other divisions of the company, perhaps, or even from outside it. We have found that the higher the proportion of strangers on the team and the greater the diversity of background and experience, the less likely the team members are to share knowledge or exhibit other collaborative behaviors.

In turn, these findings are consistent with Fleming’s conclusion that “the evidence linking breakthroughs with multidisciplinary collaborations remains mixed. On average,” advises Fleming, “it’s more productive to search within established disciplines. Or, when trying to cross-pollinate between fields, the more appropriate approach is to combine areas that have some common ground.” Fleming limits the term “breakthrough” to those “very, very few” inventions or innovations that ultimately produce the highest level of value. Thus when it comes to diversity or “multidisciplinary collaboration,” the issue is whether “the divergence between collaborators’ fields of expertise” is more or less likely to yield a breakthrough. In this respect, the results were in fact mixed. Fleming found, for example, that the greater this divergence, “the lower the overall quality” of a team’s output. At the same time, however, outputs will vary more widely from useless to extremely valuable, thus making breakthroughs more likely.

Finally, let’s go back to NineSigma’s Andy Zynga, who attributes the impasse faced by PepsiCo’s internal problem solvers to a “cognitive bias” that psychologists call functional fixedness. “Any five-year-old,” observes Zynga, “has no trouble turning an old blanket and a couple of chairs into an impenetrable fort. But as we get older, knowledge and experience increasingly displace imagination and our ability to see an object for anything other than its original purpose.”

Adult-run organizations, Zynga argues, encounter functional fixedness on a much more complex level: “Technologists, engineers, and designers,” he says, “not only have their own expertise, they have their own way of applying their expertise. Ironically, the more success they’ve had with their approach to a solution, the harder it is to imagine a different one.” As Zynga sees it, open innovation “replicates the process that a five-year-old goes through to see the potential of a fort in a couple of chairs and a blanket.” It’s all a matter of making connections between what you want to create and objects—or ideas—that apparently have unrelated applications. “Open innovation practitioners,” explains Zynga, “source solutions to specific problems in [an analogous] way—by enabling a connection between a need and potential solutions that reside in unrelated industries.”

Case Questions

1. How good are you at “thinking outside the box”? Are you fixated on functionality? Try solving the following problem before googling the solution.

You have the three items pictured here: a book of matches, a box of thumbtacks, and a candle.

How can you attach the candle to a wall so that, when it’s lit, wax doesn’t drip on the floor?

2. Explain the advantages and disadvantages of open innovation and multidisciplinary collaboration in terms of team cohesion. What aspects of such teams, for example, may increase cohesiveness? Which aspects may reduce cohesiveness?

3. Consider teams formed for multidisciplinary collaboration or as a result of open innovation in terms of role structure. Is role structure, for example, likely to be set or to evolve differently than it usually does in internal functional or task groups? How might the transmission of sent roles be more complicated? Is role ambiguity likely to be more prevalent? How about role conflict (in particular, intrarole conflict)?

4. Gratton and Erickson describe two leadership styles among leaders of multidisciplinary teams:

· relationship-oriented leaders tend to foster “an environment of trust and goodwill in which people are more likely to share knowledge”;

· task-oriented leaders help “to make objectives clear, to create a shared awareness of the dimensions of the task, and to provide monitoring and feedback.”

First of all, ask yourself which of these two leadership styles you’re more comfortable with. In other words, if you were assigned to lead a team, which leadership style would you probably bring to the task?

Now assume that you have been assigned to lead a team of fellow students in drafting a proposed curriculum of required courses for freshmen and sophomores at your college. Naturally, the team consists of students with a broad range of majors. What will probably be your strengths as leader of your group? What will probably be your weaknesses?

Finally, in trying to determine which style—relationship or task oriented—was most effective in leading collaborative teams, Gratton and Erickson concluded that

an emphasis throughout a project on one style at the expense of the other inevitably hindered the long-term performance of the team. … The most productive, innovative teams were typically led by people who were both task and relationship oriented. What’s more, these leaders changed their style during the project.

Under what circumstances will you most likely have to change your leadership style in order to keep the group working effectively? Try to be specific in identifying circumstances that might arise over the course of your team project. What do you need to do in order to adjust your style to shifting circumstances?

Case References

Andy Zynga, “The Cognitive Bias Keeping Us from Innovating,” Harvard Business Review, June 13, 2013, https://hbr.org, accessed on April 21, 2017; Zynga, “Top Five Open Innovation Myths Debunked,” Wired, May 15, 2014, http://insights.wired.com, accessed on April 21, 2017; Betsy McKay, “PepsiCo Develops ‘Designer Salt’ to Chip Away at Sodium Intake,” Wall Street Journal, March 22, 2010, www.wsj.com, accessed on April 21, 2017; David Feitler, “The Case for Team Diversity Gets Even Better,” Harvard Business Review, March 27, 2014, https://hbr.org, accessed on April 21, 2017; Lee Fleming, “Breakthroughs and the ‘Long Tail’ of Innovation,” MIT Sloan Management Review, Fall 2007, http://sloanreview.mit.edu, accessed on April 21, 2017; Elizabeth Gudrais, “Innovation at the Intersection,” Harvard Magazine, May–June 2010, http://harvardmagazine.com, accessed on April 21, 2017; and Lynda Gratton and Tamara J. Erickson, “Eight Ways to Build Collaborative Teams,” Harvard Business Review, November 2007, https://hbr.org, accessed on April 21, 2017.

Chapter Review

You Make the Call: Managing by Clowning around

1. What role do groups play at Cirque du Soleil?

2. How easy or difficult would it be for a traditional organization to adopt the team-based methods used at Cirque Du Soleil?

3. If for some reason Cirque du Soleil decided to move away from team-based decision making, what difficulties might it encounter?

4. How do organizations like Cirque du Soleil most likely manage conflict?

Week 8 reading

Basic Elements of Control

· Chapter Introduction

· 14-1
The Nature of Control

· 14-1a
The Purposes of Control

· 14-1b
Types of Control

· 14-1c
Steps in the Control Process

· 14-2
Operations Control

· 14-2a
Preliminary Control

· 14-2b
Screening Control

· 14-2c
Postaction Control

· 14-3
Financial Control

· 14-3a
Budgetary Control

· 14-3b
Other Tools for Financial Control

· 14-4
Structural Control

· 14-4a
Bureaucratic Control

· 14-4b
Decentralized Control

· 14-5
Strategic Control

· 14-6
Managing Control in Organizations

· 14-6a
Characteristics of Effective Control

· 14-6b
Resistance to Control

· 14-6c
Overcoming Resistance to Control

· Chapter Review

· Summary of Learning Outcomes and Key Points

· Discussion Questions

· Experiential Exercise

· Building Effective Time Management SKILLS

· Management at Work

· You Make the Call: Metric Tons and Nonfinancial Metrics

Chapter Introduction

Learning Outcomes

After studying this chapter, you should be able to:

· 1Explain the purpose of control, identify different types of control, and describe the steps in the control process.

· 2Identify and explain the three forms of operations control.

· 3Describe budgets and other tools for financial control.

· 4Identify and distinguish between two opposing forms of structural control.

· 5Discuss the relationship between strategy and control.

· 6Identify characteristics of effective control, why people resist control, and how managers can overcome this resistance.

Management in Action

Metric Tons and Nonfinancial Metrics

“We are well aware that the potential positive impact through our energy and sustainability services to clients can be substantially greater than the environmental impact of our own operations.”

— Jones Lang LaSalle

A Fortune 500 company headquartered in Chicago, Jones Lang LaSalle (JLL) manages property and facilities for clients holding commercial real estate: With 53,000 employees working out of more than 200 offices in 75 countries, JLL oversees 3 billion square feet of property with $47.6 billion in assets. JLL periodically releases a sustainability report entitled We Are JLL. We Take Responsibility. As an accounting-related document, the report naturally contains a lot of financial numbers. Between 2007 and 2015, for example, JLL helped U.S. clients reduce greenhouse gas (GHG) emissions by almost 12 million metric tons, saving them more than $2.5 billion in energy costs. In keeping with this success in saving clients money, revenue from JLL’s energy and sustainability services (ESS) went up 16 percent in 2016. Companywide, revenue in 2015 totaled nearly $4.5 billion, up from $950 million just 10 years earlier.

Jones Lang LaSalle (JLL) is a Chicago-based property and facilities management business. JLL regularly publishes a sustainability report that outlines what the firm is doing to reduce greenhouse emissions and improve its recycling efforts.

360b/ Shutterstock.com

Unlike the typical financial report, however, JLL’s sustainability report contains no lengthy tables of accounts and financial results. Rather, it has been prepared in narrative form: For the most part, it’s written in ordinary language designed to clarify and connect the numbers and to explain the assumptions underlying them. Narrative also permits JLL to explain the factors driving its performance and to show how its various activities are tied to overall corporate strategy. As JLL puts it, “we aimed to reduce the number of metrics, thereby simplifying the message we convey to stakeholders.”

Four and a half billion dollars in revenue, for example, is a financial metric (a monetary measure), but the metrics in the JLL report aren’t simply financial. That 16-percent increase in revenue from ESS, for instance, is a financial metric called revenue growth rate, but it also reflects what more and more financial professionals are calling a key performance indicator (KPI)—a measurable value that demonstrates how effectively a company is achieving important business objectives. “The primary reason for including performance indicators in corporate reporting,” advises the Big Four accounting firm PricewaterhouseCoopers, “is to enable readers to assess the strategies adopted by the company and their potential to succeed.”

In order to understand why revenue growth rate is a KPI for JLL, we thus need a better idea of the company’s strategies. Obviously, a company’s sustainability report is going to include a discussion of its strategies for sustainability—for maintaining a steady level of growth without exhausting resources or causing future ecological damage. The JLL report, for instance, states that the company reduced GHG emissions in its corporate offices by 7 percent per employee from 2014 through 2015. The narrative also provides a detailed explanation of this 7 percent figure:

In 2013 JLL’s total GHG emissions were approximately 52,880 metric tons, up 7% compared with 2012. While our total emissions increased, our business also grew. Our global revenue increased by 13% and the number of corporate office-based employees by 8%. Consequently, our emissions per employee decreased by 7%, to 1.5 metric tons.

The narrative thus reminds readers—primarily JLL stakeholders, including investors—that the metrics of sustainability must be considered in the context of larger strategic goals: While GHG emissions increased because of the operational activities entailed by additional employees, the increase in the company’s workforce also reflected growth in business that translated into revenue growth. And that’s the message that JLL wants to get across to stakeholders, especially investors. According to a recent study, U.S.-based institutional investors who consider environmental commitment in their allocation decisions invested almost $2.5 trillion in 2012. The US SIF, a nonprofit association promoting investment in socially responsible companies, reports that “the increased prominence of environmental issues, particularly relating to climate change and carbon emissions,” is a key factor in “the near tripling of assets, particularly those held by public funds,” available for investment in companies like JLL.

Here’s another interesting section from the JLL report:

We implement green-building practices where possible. Twenty-three of our offices had a green-building or fit-out certification such as LEED as of 2013. A further 102 offices incorporated green building or fit-out principles but did not obtain a certification. This number is growing (from 15 and 89, respectively, in 2012) as we increase our occupation of green-certified new offices at a higher rate than total offices.

While the statement indicates a sustainability-conscious effort, the data would seem to suggest only modest success. Again, however, the narrative tells a more complete story: JLL typically rents office space in buildings that the company doesn’t own, “and as a tenant,” explains the report, “JLL has little control over waste practices in the majority of our offices. We manage the waste contract in only 5% of our offices.”

Clearly, then, environmental control in its own facilities is not among the premium value drivers of its business that JLL wants to promote among sustainability-conscious investors. What does JLL want investors to know about its sustainability efforts? Its sustainability report clearly lays out “five focus areas” for those efforts, including “energy and resources,” “green buildings,” and “client services.” In turn, explains JLL, those “five areas of our sustainability strategy cut across two pillars: Services and Operations.” We’ve already looked at JLL’s “operational efforts,” which it identifies as initiatives “related to our own people and offices.” As we’ve seen, the impact of these efforts is limited.

But what about the efforts that fall under “Services”? “We are well aware,” JLL reminds stakeholders, “that the potential positive impact through our energy and sustainability services to clients can be substantially greater than the environmental impact of our own operations.” The company’s sustainability strategy, therefore, is aimed at client outcomes: “An integral part of our Energy and Sustainability Services offering,” explains JLL, “is to help clients develop energy management programs that provide measurable savings and results. This approach considers not just how facilities are built, operated, and maintained, but also their location and occupiers’ behaviors.” In 2012–2013, for instance, JLL’s advice allowed clients to save 377 million kilowatt hours and $39 million in energy costs; in 2013, acting or agreeing to act on JLL’s projections, developers planned to avert the release of 18,000 metric tons of carbon dioxide equivalent —the equivalent of removing 46,300 cars from the road.

Documents like its sustainability report are designed to promote what CFO Christie Kelly identifies as “the premium value drivers in JLL’s business and how we measure them.” In another report, entitled Sustainability: The Measurement and Reporting Challenge, the company explains its commitment to the reporting process itself—a process that JLL also regards as critical to its overall sustainability strategy: “Proper measurement and reporting processes,” argues the report, “are vital for corporations in order to be accountable and to demonstrate the improvements that they are able to achieve for their stakeholders and the community, while validating their investment in sustainability initiatives.”

JLL’s sustainability report illustrates many of the complexities inherent in the controlling process. Managers must decide where to focus control, what metrics can be used to assess performance, how to interpret those metrics, and what actions to take. As we discussed in Chapter 1, control is one of the four basic managerial functions that provide the organizing framework for this book. This is the first of two chapters devoted to this important area. In the first section of the chapter, we explain the purpose of control. We then look at types of control and the steps in the control process. The rest of the chapter examines the four levels of control that most organizations must employ to remain effective: operations, financial, structural, and strategic control. We conclude by discussing the characteristics of effective control, noting why some people resist control and describing what organizations can do to overcome this resistance. The next chapter in this part focuses on managing operations, quality, and productivity.

Main content

14-1The Nature of Control

Control
 is the regulation of organizational activities so that some targeted element of performance remains within acceptable limits. Without this regulation, organizations have no indication of how well they are performing in relation to their goals. Control, like a ship’s rudder, keeps the organization moving in the intended direction. At any point in time, it compares where the organization is in terms of performance (financial, productive, or otherwise) to where it is supposed to be. Like a rudder, control also provides an organization with a mechanism for adjusting its course if performance falls outside acceptable boundaries. For example, FedEx has a performance goal of delivering 99.9 percent of its packages on time. If on-time deliveries fall to, say, 99.6 percent, the firm’s control systems will signal the problem to managers so that they can make necessary adjustments in operations to regain the target level of performance. An organization without effective control procedures is not likely to reach its goals—or, if it does reach them, to know that it has!

14-1aThe Purposes of Control

As Figure 14.1 illustrates, control provides an organization with ways to adapt to environmental change, to limit the accumulation of error, to cope with organizational complexity, and to minimize costs. These four functions of control are worth a closer look.

Figure 14.1The Purpose of Control

Control is one of the four basic management functions in organizations. The control function, in turn, has four basic purposes. Properly designed control systems can fulfill each of these purposes.

Adapting to Environmental Change

In today’s complex and turbulent business environment, all organizations must contend with change. If managers could establish goals and achieve them instantaneously, control would not be needed. But between the time, a goal is established and the time it is reached, many things can happen in the organization and its environment to disrupt movement toward the goal—or even to change the goal itself. A properly designed control system can help managers anticipate, monitor, and respond to changing circumstances. In contrast, an improperly designed system can result in organizational performance that falls far below acceptable levels.

For example, Michigan-based Metalloy, a 75-year-old, family-run metal-casting company, once signed a contract to make engine seal castings for NOK, a big Japanese auto parts maker. Metalloy was satisfied when its first 5,000-unit production run yielded 4,985 acceptable castings and only 15 defective ones. NOK, however, was quite unhappy with this performance and insisted that Metalloy raise its standards. In short, global quality standards in most industries are such that customers demand near perfection from their suppliers. A properly designed control system can help managers like those at Metalloy stay better attuned to rising standards.

Limiting the Accumulation of Error

Small mistakes and errors may not seriously damage the financial health of an organization. Over time, however, small errors may accumulate and become very serious. For example, Whistler Corporation, a large radar detector manufacturer, was once faced with such rapidly escalating demand that quality essentially became irrelevant. The defect rate rose from 4 percent to 9 percent to 15 percent and eventually reached 25 percent. One day, a manager started paying more attention to this and realized that 100 of the plant’s 250 employees were spending all their time fixing defective units and that $2 million worth of inventory was awaiting repair. Had the company adequately controlled quality as it responded to increased demand, the problem would never have reached such proportions. Similarly, a routine quality-control inspection of a prototype of Boeing’s 787 Dreamliner revealed that a fastener had not been installed correctly. Closer scrutiny then revealed that literally thousands of fasteners had been installed incorrectly in each prototype under construction. As a result, the entire project was delayed several months. If the inspection process had been more rigorous, the error would likely have been found and corrected much earlier, rather than accumulating into a major problem for Boeing.

Coping with Organizational Complexity

When a firm purchases only one raw material, produces one product, has a simple organization design, and enjoys constant demand for its product, its managers can maintain control with a very basic and simple system. But a business that produces many products from myriad raw materials and has a large market area, a complicated organization design, and many competitors needs a sophisticated system to maintain adequate control. When large firms merge, the short-term results are often disappointing. The typical reason for this is that the new enterprise is so large and complex that the existing control systems are simply inadequate. When American Airlines agreed to merge with US Airways in 2013, the two firms faced myriad challenges in how to merge two complex flight operations centers, their human resource practices, their frequent flyer programs, and so forth. As a result, it took over two years for the merger to be completed, in large part due to the complex nature of the two organizations and their industry.

Minimizing Costs

When it is practiced effectively, control can also help reduce costs and boost output. For example, Georgia-Pacific Corporation, a large wood products company, learned of a new technology that could be used to make thinner blades for its saws. The firm’s control system was used to calculate the amount of wood that could be saved from each cut made by the thinner blades relative to the costs used to replace the existing blades. The results have been impressive—the wood that is saved by the new blades each year fills 800 rail cars. As Georgia-Pacific discovered, effective control systems can eliminate waste, lower labor costs, and improve output per unit of input. Starbucks recently instructed its coffee shops to stop automatically brewing decaffeinated coffee after lunch. Sales of decaf plummet after lunch, and Starbucks realized that baristas were simply pouring most of it down the drain. Now, between noon and early evening, they brew decaf only by the cup and only when a customer orders it. Similarly, many businesses have cut back on everything from health insurance coverage to overnight shipping to business lunches for clients in their quest to lower costs.

14-1bTypes of Control

The examples of control given thus far have illustrated the regulation of several organizational activities, from producing quality products to coordinating complex organizations. Organizations practice control in a number of different areas, and at different levels, and the responsibility for managing control is widespread.

Areas of Control

Control can focus on any area of an organization. Most organizations define areas of control in terms of the four basic types of resources they use: physical, human, information, and financial. Control of physical resources includes inventory management (stocking neither too few nor too many units in inventory), quality control (maintaining appropriate levels of output quality), and equipment control (supplying the necessary facilities and machinery). Control of human resources includes selection and placement, training and development, performance appraisal, and compensation. Relatedly, organizations also attempt to control the behavior of their employees—encouraging them toward higher performance, for example, and away from unethical behaviors. Control of information resources includes sales and marketing forecasting, environmental analysis, public relations, production scheduling, and economic forecasting. Financial control involves managing the organization’s financial obligations so that they do not become excessive, ensuring that the firm always has enough cash on hand to meet its obligations but does not have excess cash sitting idly in a checking account, and ensuring that receivables are collected and bills are paid on a timely basis.

In many ways, the control of financial resources is the most important area, because financial resources are related to the control of all the other resources in an organization. Too much inventory leads to excess storage costs; poor hiring practices lead to termination and rehiring expenses; inaccurate sales forecasts lead to disruptions in cash flows and other financial effects. Financial issues tend to pervade most control-related activities.

Levels of Control

Just as control can be broken down by area, it can also be broken down by level within the organizational system, as shown in Figure 14.2. 
Operations control
 focuses on the processes the organization uses to transform resources into products or services. Quality control is one type of operations control. 
Financial control
 is concerned with the organization’s financial resources. Monitoring receivables to make sure customers are paying their bills on time is an example of financial control. 
Structural control
 is concerned with how the elements of the organization’s structure are serving their intended purpose. Monitoring the administrative ratio to make sure staff expenses do not become excessive is an example of structural control. Finally, 
strategic control
 focuses on how effectively the organization’s corporate, business, and functional strategies are succeeding in helping the organization meet its goals. For example, if a corporation has been unsuccessful in implementing its strategy of related diversification, its managers need to identify the reasons for that lack of success and either change the strategy or renew their efforts to implement it. We discuss these four levels of control more fully later in this chapter.

Figure 14.2Levels of Control

Managers use control at several different levels. The most basic levels of control in organizations are strategic, structural, operations, and financial control. Each level must be managed properly if control is to be most effective.

Responsibilities for Control

Traditionally, managers have been responsible for overseeing the wide array of control systems and concerns in organizations. They decide which types of control the organization will use, and they implement control systems and take actions based on the information provided by control systems. Thus, ultimate responsibility for control rests with all managers throughout an organization.

Most larger organizations also have one or more specialized managerial positions called controller. A 
controller
 is responsible for helping line managers with their control activities, for coordinating the organization’s overall control system, and for gathering and assimilating relevant information. Many businesses that use an H-form or M-form organization design have several controllers: one for the corporation and one for each division. The job of controller is especially important in organizations where control systems are complex.

In addition, many organizations are also beginning to use operating employees to help maintain effective control. Indeed, employee participation is often used as a vehicle for allowing operating employees an opportunity to help facilitate organizational effectiveness. For example, Whistler Corporation increased employee participation in an effort to turn its quality problems around. As a starting point, the quality control unit, formerly responsible for checking product quality at the end of the assembly process, was eliminated. Next, all operating employees were encouraged to check their own work and told that they would be responsible for correcting their own errors. As a result, Whistler has eliminated its quality problems and quickly regained profitability.

Issues can often be found in a workplace where employees perceive their manager’s control measures to be unreasonable. In this photo, an angry manager chastises his subordinates over a minor dip in sales. The employees are trying to explain, with little success, that the harsh winter conditions negatively affected customer’s shopping patterns.

Imtmphoto/ Shutterstock.com

14-1cSteps in the Control Process

Regardless of the type or levels of control systems that an organization needs, each control process has four fundamental steps. These are illustrated in Figure 14.3.

Figure 14.3Steps in the Control Process

Having an effective control system can help ensure that an organization achieves its goals. Implementing a control system, however, is a systematic process that generally proceeds through four interrelated steps.

Establishing Standards

The first step in the control process is establishing standards. A 
control standard
 is a target against which subsequent performance will be compared. Employees at a Taco Bell fast-food restaurant, for example, might work toward the following service standards:

1. A minimum of 95 percent of all customers will be greeted within 1 minute of their arrival.

2. Preheated tortilla chips will not sit in the warmer more than 15 minutes before they are served to customers or discarded.

3. Empty tables will be cleaned within 3 minutes after being vacated.

Standards established for control purposes should be expressed in measurable terms. Note that standard 1 has a time limit of 1 minute and an objective target of 95 percent of all customers. In standard 3, the objective target of “all” empty tables is implied.

Control standards should also be consistent with the organization’s goals. Taco Bell has organizational goals involving customer service, food quality, and restaurant cleanliness. A control standard for a retailer like Best Buy should be consistent with its goal of increasing its annual sales volume by 25 percent within five years. A hospital trying to shorten the average hospital stay for a patient will have control standards that reflect current averages. A university reaffirming its commitment to academics might adopt a standard of graduating 80 percent of its student athletes within five years of their enrollment. Control standards can be as narrow or as broad as the level of activity to which they apply and must follow logically from organizational goals and objectives. When Airbus introduced the A380, the world’s largest passenger airplane, managers indicated that the firm needed to ship 270 planes to break even and set a goal of delivering 18 per year. Managers also forecast that demand for very large aircraft like the A380 and Boeing’s revamped 747 would exceed 1,200 planes during the next 20 years.

A final aspect of establishing standards is to identify performance indicators. Performance indicators are measures of performance that provide information that is directly relevant to what is being controlled. For example, suppose an organization is following a tight schedule in building a new plant. Relevant performance indicators could be buying a site, selecting a building contractor, and ordering equipment. Monthly sales increases are not, however, directly relevant. On the other hand, if control is being focused on revenue, monthly sales increases are relevant, whereas buying land for a new plant is less relevant.

Measuring Performance

The second step in the control process is measuring performance. Performance measurement is a constant, ongoing activity for most organizations. For control to be effective, performance measures must be valid. Daily, weekly, and monthly sales figures measure sales performance, and production performance may be expressed in terms of unit cost, product quality, or volume produced. Employees’ performance is often measured in terms of quality or quantity of output, but for many jobs, measuring performance is not so straightforward.

Designing and building new products requires managers to use a variety of control techniques. When the product is as complex as the Airbus 380, control becomes both more important and more complicated. Literally thousands of control-related activities were used throughout the stages of designing, engineering, manufacturing, testing, and selling the plane before the first commercial flight was ever made.

Jack Sullivan/Alamy Stock Photo

A research and development scientist at Texas Instruments, for example, may spend years working on a single project before achieving a breakthrough. A manager who takes over a business on the brink of failure may need months or even years to turn things around. Valid performance measurement, however difficult to obtain, is nevertheless vital in maintaining effective control, and performance indicators usually can be developed. The scientist’s progress, for example, may be partially assessed by peer review, and the manager’s success may be evaluated by her ability to convince creditors that she will eventually be able to restore profitability.

As Airbus completed the design and manufacture of its A380 jumbo jet, managers recognized that delays and cost overruns had changed its breakeven point. New calculations indicated that the company would need to sell 420 planes before it would become profitable. Its actual annual sales, of course, remained relatively easy to measure.

Comparing Performance against Standards

The third step in the control process is comparing measured performance against established standards. Performance may be higher than, lower than, or identical to the standard. In some cases, comparison is easy. The goal of each product manager at General Electric is to make the product either number one or number two (on the basis of total sales) in its market. Because this standard is clear and total sales are easy to calculate, it is relatively simple to determine whether this standard has been met. Sometimes, however, comparisons are less clear-cut. If performance is lower than expected, the question is how much deviation from standards to allow before taking remedial action. For example, is increasing sales by 7.8 percent close enough when the standard was 8 percent?

Taking corrective action is a critical part of the control process. For example, as the end of a sales season approaches most retailers start to cut prices in order to clear inventory. Few people will be looking for sweaters in May (because it’s getting warmer) or swimsuits in October (because it’s getting cooler). But they may buy these items anyway if the prices are reduced. This helps the retailer control inventory costs.

Lisa S./ Shutterstock.com

The timetable for comparing performance to standards depends on a variety of factors, including the importance and complexity of what is being controlled. For longer-run and higher-level standards, annual comparisons may be appropriate. In other circumstances, more frequent comparisons are necessary. For example, a business with a severe cash shortage may need to monitor its on-hand cash reserves daily. In its first year of production, Airbus did indeed deliver 18 A380s, just as it had forecast. Our “Tech Watch” box provides other insights into the control process in the nonprofit sector.

Considering Corrective Action

The final step in the control process is determining the need for corrective action. Decisions regarding corrective action draw heavily on a manager’s analytic and diagnostic skills. For example, as health care costs have risen, many firms have sought ways to keep their own expenses in check. Some have reduced benefits while others have opted to pass on higher costs to their employees.

After comparing performance against control standards, one of three actions is appropriate: Maintain the status quo (do nothing), correct the deviation, or change the standards. Maintaining the status quo is preferable when performance essentially matches the standards, but it is more likely that some action will be needed to correct a deviation from the standards.

Sometimes, performance that is higher than expected may also cause problems for organizations. For example, when highly anticipated new video games or game systems are first introduced, the demand may be so strong that customers are placed on waiting lists. And even some people who are among the first to purchase such products immediately turn around and list them for sale on eBay for an inflated price. The manufacturer may be unable to increase production in the short term, though, and also knows that demand will eventually drop. At the same time, however, the firm would not want to alienate potential customers. Consequently, it may decide to simply reduce its advertising. This may curtail demand a bit and limit customer frustration.

Changing an established standard usually is necessary if it was set too low or too high at the outset. This is apparent if large numbers of employees routinely beat the standard by a wide margin or if no employees ever meet the standard. Also, standards that seemed perfectly appropriate when they were established may need to be adjusted if circumstances have since changed.

As the 2008–2009 global recession began to take its toll, two major Airbus customers, Qantas and Emirates, indicated that they wanted to defer delivery of some previously ordered A380s. As a result, Airbus found it necessary to reduce its production in 2009 from 18 down to only 14. It also indicated that the plane’s breakeven point had increased but would not reveal the new target.

Tech Watch

The Intelligent Way to Run a Nonprofit

Opportunity International Network (OI) is a nonprofit specializing in microfinance—the practice of making small loans (about $200 on average) to help poor clients in developing countries start up small businesses. Back in 2005, OI’s focus was on the victims of a tsunami that struck South Asia in December 2004, killing more than a quarter of a million people and devastating local economies. OI planned to add 10,000 clients in Indonesia and 20,000 in India. Meanwhile, the organization was also committed to adding 11,000 clients in AIDS-ravaged Africa. It also intended to increase its client base from 675,000 to 2 million in the next five years.

Needless to say, the addition of so many loans would entail a lot of additional bookkeeping, and OI’s overtaxed IT system was inadequate to the task of managing the extra data. CEO Larry Reed admitted that “when you have a loan for $200 that’s paid back weekly, [and it takes] three months before you find out the loan is late, you’re behind the curve. … The ability to manage information—especially to track what’s happening with clients [in South Asia]—is very important for us to ramp up the program there.”

So OI took steps to gain more control over its data-management process. Key to the project was the assistance of Hyperion Solutions Corp., a California-based company specializing in software for business performance management—technology-supported processes for measuring an organization’s performance against its strategic goals. Hyperion donated $250,000 worth of tools and services to enhance OI’s ability to consolidate and analyze data from various sources, put the resulting information to work in carrying out strategic initiatives, and then measure the success of those initiatives. OI, for example, was able to develop a program for measuring the impact of its initiatives on the lives of its clients and their children.

OI was perhaps ahead of the curve in adopting programs that now tend to fall under the heading of business intelligence (BI)—software programming that helps organizations evaluate their activities by using various specialized tools, including reporting applications. BI can be particularly valuable to nonprofit organizations, which have traditionally focused their reporting efforts on such broad, strictly quantitative data as number of people served and number of dollars raised.

Today, however, nonprofit decision makers need to evaluate a much wider range of information. Let’s say, for example, that a nonprofit sponsors an event through social media. The event may attract a lot of participants (easily quantifiable data), but what the organization really needs to know is whether event participation actually translated into successful fundraising. If so, which social-media message was most effective and through which social media? Are there any strategic lessons for the future to be learned from the answers to these questions?

Nurse-Family Partnerships (NFP), for example, is a nonprofit that arranges for registered nurses to make regular home visits to low-income first-time mothers. Since 2010, NFP has used Efforts to Outcomes (ETO®) BI software to monitor and report program performance. The application tracks program outcomes by sorting thousands of data points for the development of each mother and child. It also permits NFP to monitor numbers of in-person visits and nurses’ caseloads and compare the data to evidence-based benchmarks. Ultimately, NFP’s BI process not only allows it to monitor program outcomes but to report those outcomes more effectively to its stakeholders, thereby enhancing its ability to secure the funding necessary to maintain programs and outcome levels.

References: Heather Havenstein, “Business Intelligence Tools Help Nonprofit Make Loans to Tsunami Victims,” Computerworld, March 14, 2005, www.computerworld.com, accessed on May 10, 2017; B. J. Cortis, “Business Intelligence Can Drive Nonprofit Sector Decision Making,” Philanthropy Journal, June 24, 2013, http://philanthropyjournal.blogspot.com, accessed on May 10, 2017; Social Solutions Inc., “Customer Case Study: Nurse Family Partnership,” n.d., www.socialsolutions.com, accessed on May 10, 2017; and Gil Allouche, “Five Nonprofits Using Big Data to Measure and Improve Effectiveness,” BI Insight, December 10, 2013, http://businessintelligence.com, accessed on May 10, 2017.

14-2Operations Control

One of the four levels of control practiced by most organizations, operations control is concerned with the processes that the organization uses to transform resources into products or services. As Figure 14.4 shows, the three forms of operations control—preliminary, screening, and postaction—occur at different points in relation to the transformation processes used by the organization.

Figure 14.4Forms of Operations Control

Most organizations develop multiple control systems that incorporate all three basic forms of control. For example, the publishing company that produces this book screens inputs by hiring only qualified editors and graphic artists (preliminary control). In addition, quality is checked during the transformation process, such as after the manuscript is typeset (screening control), and the outputs—printed and bound books—are checked before they are shipped from the bindery (postaction control).

Screening control focuses on meeting standards for quality or quantity during the production process. This factory makes boots and shoes. At this stage in production the tops and bottoms of the boots have just been attached. This quality control inspector is making sure that the seals meet the quality standards set by the company before the boots move on to the next stage of production.

Michaeljung/ Shutterstock.com

14-2aPreliminary Control

Preliminary control
 concentrates on the resources—financial, material, human, and information—the organization brings in from the environment. Preliminary control attempts to monitor the quality or quantity of these resources before they enter the organization. Firms such as PepsiCo and General Electric hire only college graduates for their management training programs, and even then only after applicants satisfy several interviewers and selection criteria. In this way, they control the quality of the human resources entering the organization. When Macy’s orders merchandise to be sold under one of its own brand names, it specifies rigid standards of quality, thereby controlling physical inputs. Organizations also control financial and information resources. For example, privately held companies such as Toys “R” Us and Mars limit the extent to which outsiders can buy their stock, and television networks verify the accuracy of news stories before they are broadcast.

14-2bScreening Control

Screening control
 focuses on meeting standards for product or service quality or quantity during the actual transformation process itself. Screening control relies heavily on feedback processes. For example, in a Dell assembly factory, computer system components are checked periodically as each unit is being assembled. This is done to ensure that all the components that have been assembled up to that point are working properly. The periodic quality checks provide feedback to workers so that they know what, if any, corrective actions to take. Because they are useful in identifying the cause of problems, screening controls tend to be used more often than other forms of control.

More and more companies are adopting screening controls because they are an effective way to promote employee participation and catch problems early in the overall transformation process. For example, Corning adopted screening controls for use in manufacturing television glass. In the past, finished television screens were inspected only after they were finished. Unfortunately, over 4 percent of them were later returned by customers because of defects. Now the glass screens are inspected at each step in the production process, rather than at the end, and the return rate from customers has dropped to .03 percent.

14-2cPostaction Control

Postaction control
 focuses on the outputs of the organization after the transformation process is complete. Corning’s old system was postaction control—final inspection after the product was manufactured. Although Corning abandoned its postaction control system, it still may be an effective method of control, primarily if a product can be manufactured in only one or two steps or if the service is fairly simple and routine. Although postaction control alone may not be as effective as preliminary or screening control, it can provide management with information for future planning. For example, if a quality check of finished goods indicates an unacceptably high defect rate, the production manager knows that he or she must identify the causes and take steps to eliminate them. Postaction control also provides a basis for rewarding employees. Recognizing that an employee has exceeded personal sales goals by a wide margin, for example, may alert the manager that a bonus or promotion is in order.

Most organizations use more than one form of operations control. For example, Honda’s preliminary control includes hiring only qualified employees and specifying strict quality standards when ordering parts from other manufacturers. Honda uses numerous screening controls in checking the quality of components during car assembly. A final inspection and test drive as each car rolls off the assembly line is part of the company’s postaction control. Indeed, most successful organizations employ a wide variety of techniques to facilitate operations control.

14-3Financial Control

Financial control is the control of financial resources as they flow into the organization (such as revenues and shareholder investments), are held by the organization (e.g., working capital and retained earnings), and flow out of the organization (like employee salaries and operating expenses). Businesses must manage their finances so that revenues are sufficient to cover costs and still return a profit to the firm’s owners. Not-for-profit organizations such as universities have the same concerns: Their revenues (from tax dollars or tuition) must cover operating expenses and overhead. A complete discussion of financial management is beyond the scope of this book, but we will describe the control provided by budgets and other financial control tools.

14-3aBudgetary Control

A 
budget
 is a plan expressed in numerical terms. Organizations establish budgets for work groups, departments, divisions, and the whole organization. The usual time period covered by a budget is one year, although breakdowns of budgets by the quarter or month are also common. Budgets are generally expressed in financial terms, but they may occasionally be expressed in units of output, time, or other quantifiable factors. When Disney initiates the production of a new movie, it creates a budget for how much that movie should cost. Typical costs include salaries for the actors, director, writers, and other people involved in the movie, the costs of creating the sets, costs for special effects, costs for marketing, and so forth. At the same time, Disney forecasts revenues it expects to earn, include ticket sales but also revenues from DVD and streaming sales, potential licensing, and so forth.

Because of their quantitative nature, budgets provide yardsticks for measuring performance and facilitate comparisons across departments, between levels in the organization, and from one time period to another. Budgets serve four primary purposes. They help managers coordinate resources and projects (because they use a common denominator, usually dollars). They help define the established standards for control. They provide guidelines about the organization’s resources and expectations. Finally, budgets enable the organization to evaluate the performance of managers and organizational units.

Types of Budgets

Most organizations develop and make use of three kinds of budgets—financial, operating, and nonmonetary. Table 14.1 summarizes the characteristics of each of these.

Table 14.1

Developing Budgets in Organizations

Types of Budget	What Budget Shows
Financial Budget	Sources and Uses of Cash
Cash flow or cash budget	All sources of cash income and cash expenditures in monthly, weekly, or daily periods
Capital expenditures budget	Costs of major assets such as a new plant, machinery, or land
Balance sheet budget	Forecast of the organization’s assets and liabilities in the event that all other budgets are met
Operating Budget	Planned Operations in Financial Terms
Sales or revenue budget	Income that the organization expects to receive from normal operations
Expense budget	Anticipated expenses for the organization during the coming time period
Profit budget	Anticipated differences between sales or revenues and expenses
Nonmonetary Budget	Planned Operations in Nonfinancial Terms
Labor budget	Hours of direct labor available for use
Space budget	Square feet or meters of space available for various functions

A financial budget indicates where the organization expects to get its cash for the coming time period and how it plans to use it. Because financial resources are critically important, the organization needs to know where those resources will be coming from and how they are to be used. The financial budget provides answers to both these questions. Usual sources of cash include sales revenue, short- and long-term loans, the sale of assets, and the issuance of new stock.

An operating budget is concerned with planned operations within the organization. It outlines what quantities of products or services the organization intends to create and what resources will be used to create them. Dell creates an operating budget that specifies how many of each model of its personal computers will be produced each quarter.

A nonmonetary budget is simply a budget expressed in nonfinancial terms, such as units of output, hours of direct labor, machine hours, or square-foot allocations. Nonmonetary budgets are most commonly used by managers at the lower levels of an organization. For example, a plant manager can schedule work more effectively knowing that he or she has 9,000 labor hours to allocate in a week, rather than trying to determine how to best spend $96,485 in wages in a week.

Organizations use various types of budgets to help manage their control functions. The three major categories of budgets are financial, operating, and nonmonetary. Each category has several different types of budgets. To be most effective, each budget must be carefully matched with the specific function being controlled.

Developing Budgets

Budgets were traditionally developed by top management and the controller and then imposed on lower-level managers. Although some organizations still follow this pattern, many contemporary organizations now allow all managers to participate in the budget process. As a starting point, top management generally issues a call for budget requests, accompanied by an indication of overall patterns the budgets may take. For example, if sales are expected to decline in the next year, managers may be told up front to prepare for cuts in operating budgets.

As Figure 14.5 shows, the heads of each operating unit typically submit budget requests to the head of their division. An operating unit head might be a department manager in a manufacturing or wholesaling firm or a program director in a social service agency. The division heads might include plant managers, regional sales managers, or college deans. The division head integrates and consolidates the budget requests from operating unit heads into one overall division budget request. A great deal of interaction among managers usually takes place at this stage because the division head coordinates the budgetary needs of the various departments.

Figure 14.5Developing Budgets in Organizations

Most organizations use the same basic process to develop budgets. Operating units are requested to submit their budget proposals to divisions. These divisions, in turn, compile unit budgets and submit their own budgets to the organization. An organizational budget is then compiled for approval by the budget committee, controller, and CEO.

Division budget requests are then forwarded to a budget committee. The budget committee is usually composed of top managers. The committee reviews budget requests from several divisions, and once again, duplications and inconsistencies are corrected. Finally, the budget committee, the controller, and the CEO review and agree on the overall budget for the organization, as well as specific budgets for each operating unit. These decisions are then communicated back to each manager.

Strengths and Weaknesses of Budgeting

Budgets offer a number of advantages, but they also have weaknesses. On the plus side, budgets facilitate effective control. Placing dollar values on operations enables managers to monitor operations better and pinpoint problem areas. Budgets also facilitate coordination and communication between departments because they express diverse activities in a common denominator (dollars). Budgets help maintain records of organizational performance and are a logical complement to planning. In other words, as managers develop plans, they should simultaneously consider control measures to accompany them. Organizations can use budgets to link plans and control by first developing budgets as part of the plan and then using those budgets as part of control.

On the other hand, some managers apply budgets too rigidly. Budgets are intended to serve as frameworks, but managers sometimes fail to recognize that changing circumstances may warrant budget adjustments. Also, the process of developing budgets can be very time consuming. Finally, budgets may limit innovation and change. When all available funds have been allocated to specific operating budgets, it may be impossible to procure additional funds to take advantage of an unexpected opportunity. Indeed, for these very reasons, some organizations are working to scale back their budgeting systems. Although most organizations are likely to continue to use budgets, the goal is to make them less confining and rigid.

14-3bOther Tools for Financial Control

Although budgets are the most common means of financial control, other useful tools are financial statements, ratio analysis, and financial audits.

Financial Statements

A 
financial statement
 is a profile of some aspect of an organization’s financial circumstances. Financial statements must be prepared and presented in commonly accepted and required ways. The two most basic financial statements prepared and used by virtually all organizations are a balance sheet and an income statement.

The 
balance sheet
 lists the assets and liabilities of the organization at a specific point in time, usually the last day of an organization’s fiscal year. For example, the balance sheet may summarize the financial condition of an organization on December 31, 2018. Most balance sheets are divided into current assets (assets that are relatively liquid or easily convertible into cash), fixed assets (assets that are longer term in nature and less liquid), current liabilities (debts and other obligations that must be paid in the near future), long-term liabilities (payable over an extended period of time), and stockholders’ equity (the owners’ claim against the assets).

Whereas the balance sheet reflects a snapshot profile of an organization’s financial position at a single point in time, the 
income statement
 summarizes financial performance over a period of time, usually one year. For example, the income statement might be for the period from January 1, 2018, through December 31, 2018. The income statement summarizes the firm’s revenues minus its expenses to report net income (profit or loss) for the period. Information from the balance sheet and income statement is used in computing important financial ratios.

Ratio Analysis

Financial ratios compare different elements of a balance sheet or income statement to one another. 
Ratio analysis
 is the calculation of one or more financial ratios to assess some aspect of the financial health of an organization. Organizations use a variety of financial ratios as part of financial control. For example, liquidity ratios indicate how liquid (easily converted into cash) an organization’s assets are. Debt ratios reflect ability to meet long-term financial obligations. Return ratios show managers and investors how much return the organization is generating relative to its assets. Coverage ratios help estimate the organization’s ability to cover interest expenses on borrowed capital. Operating ratios indicate the effectiveness of specific functional areas rather than that of the total organization. Walt Disney is an example of a company that relies heavily on financial ratios to keep its financial operations on track.

Financial Audits

Audit
 are independent appraisals of an organization’s accounting, financial, and operational systems. The two major types of financial audits are the external audit and the internal audit.

External audits are financial appraisals conducted by experts who are not employees of the organization. External audits are typically concerned with determining whether the organization’s accounting procedures and financial statements are compiled in an objective and verifiable fashion. The organization contracts with a certified public accountant (CPA) for this service. The CPA’s main objective is to verify for stockholders, the Internal Revenue Service (IRS), and other interested parties that the methods by which the organization’s financial managers and accountants prepare documents and reports are legal and proper. External audits are so important that publicly held corporations are required by law to have external audits regularly, as assurance to investors that the financial reports are reliable.

Unfortunately, flaws in the auditing process played a major role in the downfall of Enron and several other major firms. The problem can be traced back partially to the auditing groups’ problems with conflicts of interest and eventual loss of objectivity. For instance, Enron was such an important client for its auditing firm, Arthur Andersen, that the auditors started letting the firm take liberties with its accounting systems for fear that if they were too strict, Enron might take its business to another auditing firm. In the aftermath of the resulting scandal, Arthur Andersen was forced to close its doors, Enron had to liquidate all of its assets, several top managers from both firms are in jail, and the entire accounting profession was forced to reexamine its basic businesses practices.

Some organizations also employ external auditors to review other aspects of their financial operations. For example, some auditing firms specialize in checking corporate legal bills. An auditor for the Fireman’s Fund Insurance Company uncovered several thousands of dollars in legal-fee errors. Other auditors specialize in real estate, employee benefits, and pension plan investments.

Whereas external audits are conducted by external accountants, an internal audit is handled by employees of the organization. Its objective is the same as that of an external audit—to verify the accuracy of financial and accounting procedures used by the organization. However, internal audits also examine the efficiency and appropriateness of financial and accounting procedures. Because the staff members who conduct them are a permanent part of the organization, internal audits tend to be more expensive than external audits. But employees, who are more familiar with the organization’s practices, may also point out significant aspects of the accounting system besides its technical correctness. Large organizations like Halliburton and Ford have an internal auditing staff that spends all its time conducting audits of different divisions and functional areas of the organization. Smaller organizations may assign accountants to an internal audit group on a temporary or rotating basis.

Satyam Computer Services in India falsely reported profits of over $1 billion when in reality it had only $66 million of profits. The Indian affiliate of PricewaterhouseCoopers, PW India, was in charge of routinely auditing the firm but failed to follow basic auditing procedures. Rather than confirming the supposed $1 billion cash balances with the banks, PW India relied solely on the information provided by the firm’s management. In some cases, auditors failed to follow up on confirmations sent independently by the banks that showed significant differences from the balances reported by management. PW India was eventually fined $7.5 million—the largest penalty ever imposed by India on a foreign accounting firm. Our “Doing Business on Planet Earth” feature presents another perspective on auditing.

Doing Business on Planet Earth

How Do Investors Rest Assured?

Recall that in the opening vignette of this chapter we discussed the sustainability report issued by the global real estate-management company JLL. According to a three-stage model of sustainability reporting developed by the Big Four accounting firm KPMG, JLL would fall into Stage 3—”companies issuing reports that are verified by a third party other than an independent certified public accountant.” In accounting parlance, Stage 3 is distinguished by the level of assurance provided by an organization—its procedures for ensuring accurate information about the effectiveness of its strategies and operations and its compliance with regulatory requirements. The purpose of assurance is to confirm that reported data and the processes used to gather them are reliable, both for internal users (e.g., decision makers) and external users (e.g., investors).

KPMG explains that “independent assurance. … of an organization’s processes, controls, and data helps ensure that the company’s sustainability data are reliable and accurate, thereby supporting the credibility of information used in decision making. … and external reporting.” Unfortunately, says KPMG, many companies fall short of providing the level of assurance that more and more stakeholders are calling for. “Are your company’s customers,” asks KPMG, “starting to make decisions based on sustainability data and/or metrics? Does your sustainability data stand up to the same level of scrutiny as your financial data?”

A recent study of 30 Dow Jones companies by Guo and Yang (2014) revealed an “increasing trend of sustainability reporting among publicly traded firms. … However,” add the researchers, “we observed various reporting formats and patterns. … The lack of uniformity of sustainability reporting and assurance might reduce the comparability, effectiveness, and accuracy of sustainability accounting reporting.” In particular, Guo and Yang found substantial variation in assurance practices. 3M, for example, provides “independent third-party assurance” through Environmental Resources Management, a global consultant on environmental and sustainability issues. The Big Four accounting firm PricewaterhouseCoopers has furnished Alcoa with limited assurance on GHG emissions. Microsoft, meanwhile, relies entirely on internal assurance procedures while taking outside feedback into account.

JLL’s assurance procedures are also internal. A Global Sustainability Committee, for example, oversees sustainability activities, including reporting, in accordance with the company’s Management Policy on Sustainability and Responsible Investing. Granted, JLL seeks to comply with a variety of reporting standards set by outside organizations. It subscribes to the G4 Guidelines established by the Global Reporting Initiative (GRI), an independent standards organization that sets criteria for policies on energy, biodiversity, and emissions. It’s also a member of the International Integrated Reporting Council (IIRC), a global coalition of organizations established to promote sustainability accounting.

Note, however, that both the GRI and the IIRC actually set guidelines rather than accredited requirements. The IIRC, for example, suggests that members report information about certain forms of “capital,” including “natural” and “social and relationship.” JLL CFO Christie Kelly subscribes to the IIRC framework because it calls for making selected disclosures rather than the publication of a wealth of specific details. It also supports the principle that an organization’s managers are the best judges of what it needs to report. “We need to be careful that it’s not too much,” explains Christie, “and that nonfinancial reporting doesn’t take on a life of its own.”

References: KPMG LLP, Sustainability Reporting—What You Should Know, 2011, www.kpmg.com, accessed on May 10, 2017; Ying Guo and David C. Yang, “Sustainability Accounting Reporting: A Survey of 30 U.S. Dow Jones Companies,” International Journal of Accounting and Taxation, 2014, Vol. 2, No. 3, pp. 1–15, http://ijatnet.com, accessed on May 10, 2017; Jones Lang LaSalle Inc., 2013 Sustainability Report, September, 2014, www.jll.com, accessed on May 10, 2017; and David M. Katz, “Is Sustainability Reporting Sustainable?” CFO, January 27, 2014, http://ww2.cfo.com, accessed on May 10, 2017.

14-4Structural Control

Organizations can create designs for themselves that result in very different approaches to control. Two major forms of structural control, bureaucratic control and decentralized control, represent opposite ends of a continuum, as shown in Figure 14.6. The six dimensions shown in the figure represent perspectives adopted by the two extreme types of structural control. In other words, they have different goals, degrees of formality, performance expectations, organization designs, reward systems, and levels of participation. Although a few organizations fall precisely at one extreme or the other, most tend toward one end but may have specific characteristics of either.

Figure 14.6Organizational Control

Organizational control generally falls somewhere between the two extremes of bureaucratic and decentralized control. McDonald’s uses bureaucratic control, whereas Starbucks uses decentralized control.

14-4aBureaucratic Control

Bureaucratic control
 is an approach to organization design characterized by formal and mechanistic structural arrangements. As the term suggests, it follows the bureaucratic model. The goal of bureaucratic control is employee compliance. McDonald’s applies structural controls that reflect many elements of bureaucracy. Organizations that use it rely on strict rules and a rigid hierarchy, insist that employees meet minimally acceptable levels of performance, and often have a tall structure. They focus their rewards on individual performance and allow only limited and formal employee participation.

The organization relies on numerous rules to regulate employee travel, expense accounts, and other expenses. A new performance appraisal system precisely specifies minimally acceptable levels of performance for everyone. The organization’s structure is considerably taller than those of the other major networks, and rewards are based on individual contributions. In another example, a large oil company once made the decision to allow employees to wear casual attire to work. But a committee then spent weeks developing a 20-page set of guidelines on what was and was not acceptable. For example, denim pants are not allowed. Similarly, athletic shoes may be worn as long as they are not white. And all shirts must have a collar. Nordstrom, the department store chain, is also moving toward bureaucratic control as it works to centralize all of its purchasing in an effort to lower costs. Similarly, Home Depot is moving more toward bureaucratic control to cut its costs and more effectively compete with its hard-charging rival, Lowe’s.

14-4bDecentralized Control

Decentralized control
, in contrast, is an approach to organizational control characterized by informal and organic structural arrangements. As Figure 14.6 shows, its goal is employee commitment to the organization. Accordingly, it relies heavily on group norms and a strong corporate culture and gives employees the responsibility for controlling themselves. Employees are encouraged to perform beyond minimally acceptable levels. Organizations using this approach are usually relatively flat. They direct rewards at group performance and favor widespread employee participation.

Starbucks allows local managers considerable discretion in the décor of each coffee shop, as well as what merchandise is displayed. Another company that uses this approach is Southwest Airlines. When Southwest made the decision to “go casual,” the firm resisted the temptation to develop dress guidelines. Instead, managers decided to allow employees to exercise discretion over their attire and to deal with clearly inappropriate situations on a case-by-case basis.

14-5Strategic Control

Given the obvious importance of an organization’s strategy, it is also important that the organization assess how effective that strategy is in helping the organization meet its goals. To do this requires that the organization integrate its strategy and control systems. This is especially true for the global organization.

Strategic control
 generally focuses on five aspects of organizations—structure, leadership, technology, human resources, and information and operational control systems. For example, an organization should periodically examine its structure to determine whether it is facilitating the attainment of the strategic goals being sought. Suppose a firm using a functional (U-form) design has an established goal of achieving a 20 percent sales growth rate per year. However, performance indicators show that it is currently growing at a rate of only 10 percent per year. Detailed analysis might reveal that the current structure is inhibiting growth in some way (e.g., by slowing decision making and inhibiting innovation) and that a divisional (M-form) design is more likely to bring about the desired growth (by speeding decision making and promoting innovation).

In this way, strategic control focuses on the extent to which implemented strategy achieves the organization’s strategic goals. If, as outlined earlier, one or more avenues of implementation are inhibiting the attainment of goals, that avenue should be changed. Consequently, the firm might find it necessary to alter its structure, replace key leaders, adopt new technology, modify its human resources, or change its information and operational control systems.

For several years, Pfizer, the world’s largest pharmaceutical company, invested billions of dollars in research and development. Recently, though, the firm acknowledged that it was not getting an adequate return on its investment and announced that it was laying off 800 senior researchers. The firm also signaled a strategic reorientation by suggesting it would look for other drug companies to buy in order to acquire new patents and drug formulas. Kohl’s department stores essentially redefined how to compete effectively in the mid-tier retailing market and were on trajectory to outperform competitors such as Dillard’s. But then the firm inexplicably stopped doing many of the very things that had led to its success—such as keeping abreast of current styles, maintaining low inventories, and keeping its stores neat and clean—and began to stumble.

Because of both their relatively large size and the increased complexity associated with international business, global organizations must take an especially pronounced strategic view of their control systems. One very basic question that has to be addressed is whether to manage control from a centralized or a decentralized perspective. Under a centralized system, each organizational unit around the world is responsible for frequently reporting the results of its performance to headquarters. Managers from the home office often visit foreign branches to observe firsthand how the units are functioning.

BP, Unilever, Procter & Gamble, and Sony all use this approach. They believe centralized control is effective because it allows the home office to keep better informed of the performance of foreign units and to maintain more control over how decisions are made. For example, BP discovered that its Australian subsidiary was not billing its customers for charges as quickly as were its competitors. By shortening the billing cycle, BP now receives customer payments five days faster than before. Managers believe that they discovered this oversight only because of a centralized financial control system.

Organizations that use a decentralized control system require foreign branches to report less frequently and in less detail. For example, each unit may submit summary performance statements on a quarterly basis and provide full statements only once a year. Similarly, visits from the home office are less frequent and less concerned with monitoring and assessing performance. IBM, Ford, and Shell all use this approach. Because Ford practices decentralized control of its design function, European designers have developed several innovative automobile design features. Managers believe that if they had been more centralized, designers would not have had the freedom to develop their new ideas.

14-6Managing Control in Organizations

Effective control, whether at the operations, financial, structural, or strategic level, successfully regulates and monitors organizational activities. To use the control process, managers must recognize the characteristics of effective control and understand how to identify and overcome occasional resistance to control.

14-6aCharacteristics of Effective Control

Control systems tend to be most effective when they are integrated with planning and when they are flexible, accurate, timely, and objective.

Integration with Planning

Control should be linked with planning. The more explicit and precise this linkage, the more effective the control system is. The best way to integrate planning and control, in turn, is to account for control as plans develop. In other words, as goals are set during the planning process, attention should be paid to developing standards that will reflect how well the plan is realized. Managers at Champion Auto Parts recently decided to broaden one of their product lines by adding a total of 21 new products. As part of this plan, they also decided in advance what level of sales they wanted to realize from each product for each of the next five years. They established these sales goals as standards against which actual sales would be compared. Thus, by accounting for their control system as they developed their plan, managers at Champion did an excellent job of integrating planning and control.

Flexibility

The control system itself must be flexible enough to accommodate change. Consider, for example, an organization whose diverse product line requires 75 raw materials. The company’s inventory control system must be able to manage and monitor current levels of inventory for all 75 materials. When a change in product line changes the number of raw materials needed, or when the required quantities of the existing materials change, the control system should be flexible enough to handle the revised requirements. The expense associated with the alternative—designing and implementing a new control system—would then be avoided. Champion’s control system, for example, included a mechanism that automatically shipped products to major customers to keep the inventories of those customers at predetermined levels. The firm had to adjust this system when one of its biggest customers decided not to stock the full line of Champion products. Because its control system was flexible, though, modifying it for the customer was relatively simple.

Accuracy

Managers make a surprisingly large number of decisions based on inaccurate information. Field representatives may hedge their sales estimates to make themselves look better. Production managers may hide costs to meet their targets. Human resource managers may overestimate their minority recruiting prospects to meet affirmative action goals. In each case, the information that other managers receive is inaccurate, and the results of inaccurate information may be quite dramatic. If sales projections are inflated, a manager might cut advertising (thinking it is no longer needed) or increase advertising (to further build momentum). Similarly, a production manager unaware of hidden costs may quote a sales price much lower than desirable. Or a human resources manager may speak out publicly on the effectiveness of the company’s minority recruiting, only to find out later that these prospects have been overestimated. In each case, the result of inaccurate information is inappropriate managerial action.

Timeliness

Timeliness does not necessarily mean quickness. Rather, it describes a control system that provides information as often as is necessary. Because Champion has a wealth of historical data on its existing product sales, such as sparkplugs, it does not need information on sparkplugs as frequently as it needs sales feedback for its newer products. Retail organizations usually need sales results daily so that they can manage cash flow and adjust advertising and promotion. In contrast, they may require information about physical inventory only quarterly or annually. In general, the more uncertain and unstable the circumstances, the more frequently measurement is needed.

Objectivity

The control system should provide information that is as objective as possible. To appreciate this, imagine the task of a manager responsible for control of his organization’s human resources. He asks two plant managers to submit reports. One manager notes that morale at his plant is “OK,” that grievances are “about where they should be,” and that turnover is “under control.” The other reports that absenteeism at her plant is running at 4 percent, that 16 grievances have been filed this year (compared with 24 last year), and that turnover is 12 percent. The second report will almost always be more useful than the first. Of course, managers also need to look beyond the numbers when assessing performance. For example, a plant manager may be boosting productivity and profit margins by putting too much pressure on workers and using poor-quality materials. As a result, impressive short-run gains may be overshadowed by longer-run increases in employee turnover and customer complaints.

14-6bResistance to Control

Managers sometimes make the mistake of assuming that the value of an effective control system is self-evident to employees. This is not always so, however. Many employees resist control, especially if they feel overcontrolled, if they think control is inappropriately focused or rewards inefficiency, or if they are uncomfortable with accountability.

Overcontrol

Occasionally, organizations try to control too many things. This becomes especially problematic when the control directly affects employee behavior. An organization that instructs its employees when to come to work, where to park, when to have morning coffee, and when to leave for the day exerts considerable control over people’s daily activities. Yet many organizations attempt to control not only these but other aspects of work behavior as well. Of particular relevance in recent years are the efforts of some companies to control their employees’ access to social media at work. Some companies have no policies governing these activities, some attempt to limit access, and some attempt to forbid it altogether.

Troubles arise when employees perceive these attempts to limit their behavior as being unreasonable. A company that tells its employees how to dress, how to arrange their desks, and how to wear their hair may meet with more resistance. Employees at Chrysler who drove non-Chrysler vehicles used to complain because they were forced to park in a distant parking lot. People felt that these efforts to control their personal behavior (what kind of car to drive) were excessive. Managers eventually removed these controls and now allow open parking. Some employees at Abercrombie & Fitch argue that the firm is guilty of overcontrol because of its strict dress and grooming requirements—for example, no necklaces or facial hair for men and only natural nail polish and earrings no larger than a dime for women. Likewise, Enterprise Rent-A-Car has a set of 30 dress-code rules for women and 26 rules for men. The firm was sued by one former employee who was fired because of the color of her hair. UBS, the large Swiss bank, had (until recently) a 44-page dress code that prescribed, among other things, that employees should avoid eating garlic and onions (so as to not offend customers), keep their toenails trimmed (so as to not tear their stockings or socks), and wear only skin-colored underwear (so it could remain unseen). Men were instructed in how to knot a tie, and everyone was encouraged to keep their glasses clean. (When the dress code was made public, UBS indicated that it would be making some revisions!)

Inappropriate Focus

A control system may be too narrow, or it may focus too much on quantifiable variables and leave no room for analysis or interpretation. A sales standard that encourages high-pressure tactics to maximize short-run sales may do so at the expense of goodwill from long-term customers. Such a standard is too narrow. A university reward system that encourages faculty members to publish large numbers of articles but fails to consider the quality of the work is also inappropriately focused. Employees resist the intent of the control system by focusing their efforts only on the performance indicators being used.

Rewards for Inefficiency

Imagine two operating departments that are approaching the end of their fiscal years. Department 1 expects to have $30,000 of its budget left over but department 2 already has a $15,000 deficit. As a result, department 1 is likely to have its budget cut for the next year (“They had money left, so they obviously got too much to begin with”), and department 2 may get a budget increase (“They obviously haven’t been getting enough money”). Thus, department 1 is punished for being efficient, and department 2 is rewarded for being inefficient. (No wonder departments commonly hasten to deplete their budgets as the end of the year approaches!) As with inappropriate focus, people resist the intent of this control and behave in ways that run counter to the organization’s intent.

Too Much Accountability

Effective controls allow managers to determine whether employees successfully discharge their responsibilities. If standards are properly set and performance accurately measured, managers know when problems arise and which departments and individuals are responsible. People who do not want to be answerable for their mistakes or who do not want to work as hard as their boss might, therefore, resist control. For example, American Express has a system that provides daily information on how many calls each of its customer service representatives handles. If one representative has typically worked at a slower pace and handled fewer calls than other representatives, that individual’s slower performance can now more easily be pinpointed.

14-6cOvercoming Resistance to Control

Perhaps the best way to overcome resistance to control is to create effective control to begin with. If control systems are properly integrated with organizational planning and if the controls are flexible, accurate, timely, and objective, the organization will be less likely to overcontrol, to focus on inappropriate standards, or to reward inefficiency. Two other ways to overcome resistance are encouraging employee participation and developing verification procedures.

Encourage Employee Participation

Chapter 7 noted that participation can help overcome resistance to change. By the same token, when employees are involved with planning and implementing the control system, they are less likely to resist it. For instance, employee participation in planning, decision making, and quality control at the Chevrolet Gear and Axle plant in Detroit resulted in increased employee concern for quality and a greater commitment to meeting standards.

Develop Verification Procedures

Multiple standards and information systems provide checks and balances in control and allow the organization to verify the accuracy of performance indicators. Suppose a production manager argues that she failed to meet a certain cost standard because of increased prices of raw materials. A properly designed inventory control system will either support or contradict her explanation. Suppose that an employee who was fired for excessive absences argues that he was not absent “for a long time.” An effective human resource control system should have records that support the termination. Resistance to control declines because these verification procedures protect both employees and management. If the production manager’s claim about the rising cost of raw materials is supported by the inventory control records, she will not be held solely accountable for failing to meet the cost standard, and some action probably will be taken to lower the cost of raw materials.

Chapter Review

Summary of Learning Outcomes and Key Points

· 1Explain the purpose of control, identify different types of control, and describe the steps in the control process.

· •

Control is the regulation of organizational activities so that some targeted element of performance remains within acceptable limits.

· •

Control provides ways to adapt to environmental change, to limit the accumulation of errors, to cope with organizational complexity, and to minimize costs.

· •

Control can focus on financial, physical, information, and human resources and includes operations, financial, structural, and strategic levels.

· •

Control is the function of managers, the controller, and, increasingly, operating employees.

· •

Steps in the control process are as follows:

· •

To establish standards of expected performance

· •

To measure actual performance

· •

To compare performance to the standards

· •

To evaluate the comparison and take appropriate action

· 2Identify and explain the three forms of operations control.

· •

Operations control focuses on the processes the organization uses to transform resources into products or services.

· •

Preliminary control is concerned with the resources that serve as inputs to the system.

· •

Screening control is concerned with the transformation processes used by the organization.

· •

Postaction control is concerned with the outputs of the organization.

· •

Most organizations need multiple control systems because no one system can provide adequate control.

·
3Describe budgets and other tools for financial control.

· •

Financial control focuses on controlling the organization’s financial resources.

· •

The foundation of financial control is budgets, which are plans expressed in numerical terms.

· •

Most organizations rely on financial, operating, and nonmonetary budgets.

· •

Financial statements, various kinds of ratios, and external and internal audits are also important tools organizations use as part of financial control.

· 4Identify and distinguish between two opposing forms of structural control.

· •

Structural control addresses how well an organization’s structural elements serve their intended purpose.

· •

Two basic forms of structural control are bureaucratic and decentralized control.

· •

Bureaucratic control is relatively formal and mechanistic.

· •

Decentralized control is informal and organic.

· •

Most organizations use a form of organizational control somewhere between total bureaucratic and total decentralized control.

· 5Discuss the relationship between strategy and control.

· •

Strategic control focuses on how effectively the organization’s strategies are succeeding in helping the organization meet its goals.

· •

The integration of strategy and control is generally achieved through organization structure, leadership, technology, human resources, and information and operational control systems.

· •

International strategic control is generally a question of balance between centralization and decentralization.

· 6Identify characteristics of effective control, why people resist control, and how managers can overcome this resistance.

· •

One way to increase the effectiveness of control is to fully integrate planning and control.

· •

The control system should also be as flexible, accurate, timely, and objective as possible.

· •

Employees may resist organizational controls because of overcontrol, inappropriate focus, rewards for inefficiency, and a desire to avoid accountability.

· •

Managers can overcome this resistance by improving the effectiveness of controls and by allowing employee participation and developing verification procedures.

Chapter Review

Discussion Questions

Questions for Review

1. What is the purpose of organizational control? Why is it important?

2. What are the different levels of control? What are the relationships between the different levels?

3. Describe how a budget is created in most organizations. How does a budget help a manager with financial control?

4. Describe the differences between bureaucratic and decentralized control. What are the advantages and disadvantages of each?

5. Why do some people resist control? How can managers help overcome this resistance?

Questions for Analysis

1. How can a manager determine whether his or her firm needs improvement in control? If improvement is needed, how can the manager tell what type of control needs improvement (operations, financial, structural, or strategic)? Describe some steps a manager can take to improve each of these types of control.

2. One company uses strict performance standards. Another has standards that are more flexible. What are the advantages and disadvantages of each system?

3. Are the differences in bureaucratic control and decentralized control related to differences in organization structure? If so, how? If not, why not? (The terms do sound similar to those used to discuss the organizing process.)

4. Many organizations today are involving lower-level employees in control. Give at least two examples of specific actions that a lower-level worker could do to help his or her organization better adapt to environmental change. Then do the same for limiting the accumulation of error, coping with organizational complexity, and minimizing costs.

5. Describe ways that the top management team, midlevel managers, and operating employees can participate in each step of the control process. Do all participate equally in each step, or are some steps better suited for personnel at one level? Explain your answer.

Chapter Review

Experiential Exercise

Control Systems at State University

Purpose: This exercise offers you an opportunity to practice analyzing an organization’s need for controls. You also will describe likely challenges to implementation and list ways to overcome resistance to control.

Introduction: The following case represents an organization with seriously deficient control systems, which is rather unrealistic. However, most organizations do suffer from one or more control efforts that are lacking or ineffective. In addition, implementing controls is usually more difficult than simply diagnosing the need for controls, especially when organization members resist the control.

Instructions: Step 1: The instructor will divide the class into small groups. Read “The University Control Problem” short case here.

The University Control Problem

You are on a committee appointed by the State University Student Council to help the new president deal with a number of problems that have plagued the campus for years. For example, the university regularly runs out of funds before the academic year ends, causing major disruptions of student services. In fact, some departments seem to have no knowledge of how much money they need or how much they have spent. Students are upset because tuition fees are constantly being changed in an effort to match the university’s varying demands for money. Department chairs have no idea how many students are being admitted, so they never schedule the appropriate number of courses. Some buildings are in bad physical shape. Classrooms are assigned to departments, and some classrooms seem to sit empty while others are overcrowded. There seems to be an oversupply of research equipment but a shortage of computer equipment for students. Some schools, such as the business school, don’t have enough faculty to teach their classes, while some departments in liberal arts have surplus faculty with no students to teach.

Step 2: As a small group, reach consensus about how to complete the University Control Matrix shown here. Identify the different controls that might be established for each of the four resources—physical, financial, human, and information—and remember to consider each type of control. Preliminary controls focus on inputs into the university. Screening controls act on the university’s transformation processes. Postaction controls control the university’s outputs.

Step 3: As a small group, develop responses to the following Discussion Questions. Discuss your responses with the class.

The University Control Matrix

System Stages	Physical Resources	Financial Resources	Human Resources	Information Resources
Preliminary controls
Screening controls
Postaction controls

Discussion Questions

1. Which of the recommended controls may be the hardest to implement? To manage?

2. Will the controls receive some form of resistance? If so, describe which organization members are likely to resist and the likely form of that resistance.

Source: Adapted from Morable, Exercises in Management, to accompany Griffin, Management, 8th edition.

Chapter Review

Building Effective Time Management SKILLS

Exercise Overview

Is it no surprise that time management skills—which are the ability to prioritize tasks, to work efficiently, and to delegate appropriately—play a major role in performing the control function: Managers can use time management skills to control their own work activities more effectively. The purpose of this exercise is to demonstrate the relationship between time management skills and the process of controlling workplace activities.

Exercise Background

You’re a middle manager in a small manufacturing plant. Today is Monday, and you’ve just returned from a week’s vacation. The first thing you discover is that your assistant won’t be in today (his aunt died, and he’s out of town at the funeral). He did, however, leave you the following note:

Dear Boss:

Sorry about not being here today. I will be back tomorrow. In the meantime, here are some things you need to know:

Ms. Hernandez [your boss] wants to see you today at 4:00.

The shop steward wants to see you as soon as possible about a labor problem.

Mr. Withers [one of your big customers] has a complaint about a recent shipment.

Ms. Howard [one of your major suppliers] wants to discuss a change in delivery schedules.

Mr. Zapata from the Chamber of Commerce wants you to attend a breakfast meeting on Wednesday to discuss our expansion plans.

The legal office wants to discuss our upcoming OSHA inspection.

Human resources wants to know when you can interview someone for the new supervisor’s position.

Bill Woodman, the machinist you fired last month, has been hanging around the parking lot, and his presence is making some employees uncomfortable.

Exercise Task

Review the preceding information and then prioritize the work that needs to be done by sorting the information into three categories: very timely, moderately timely, and less timely. Then address the following questions:

1. Are importance and timeliness the same thing?

2. What additional information do you need before you can begin to prioritize all of these demands on your time?

3. How would your approach differ if your assistant were in the office?

Chapter Review

Management at Work

The Law of Cheating

“Don’t go looking for the perfect performance measure. It doesn’t exist.”

—Robert D. Behn, Harvard University, Kennedy School of Government

Let’s suppose that you’re the manager of a factory that manufactures automotive bumpers. When the fourth quarter rolls around, you see that you aren’t on track to meet your quota by your year-end deadline. Failure to meet either the quota or the deadline will mean that you won’t be getting any bonus or stock options; in fact, your job might be at risk. So you decide to put off regularly scheduled maintenance and repairs for the quarter and produce bumpers at full capacity—a practice called “storming.” You meet your quota and deadline, but catching up with maintenance and repairs during the first quarter of the following year reduces your production capacity for three months. Down the line, of course, you’ll be facing yet another quota and another deadline, and in order to recoup the resulting loss in production, you’ll have to resort to “storming” once again. Obviously, it won’t be long before your operations are completely out of control.

Not fair, you say: Your job is constantly on the line because the quotas and deadlines that you have to meet are too demanding. Unfortunately, as any social scientist could tell you, you are a victim of Campbell’s Law. In 1976, Donald T. Campbell, a social psychologist specializing in research methodology, came to the following conclusion:

The more any quantitative social indicator is used for social decision making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes that it is intended to monitor.

In other words: Once a measurement (or metric) is specified as a key criterion for the success of a process or project, its ability to measure what it’s supposed to will almost inevitably be compromised. Why? If the stakes and the cost of failure are too high, people tend to cheat.

Campbell’s Law predicted, for example, what actually happened in Atlanta schools beginning in 2005 and culminating in 2015, when 11 former educators were convicted of racketeering charges stemming from a conspiracy to alter student test scores. The original investigation had extended to nearly 180 principals and teachers at more than 40 schools and had resulted in 35 indictments. The educators, it seems, were motivated by increasing pressure to meet official performance standards on which bonuses and even employment status depended, and adherents of Campbell’s Law argue that the episode reflects the failure of a misguided control process designed to measure student performance too narrowly. According to one report on the Atlanta episode, the dilemma fostered by high-stakes educational standards is an all-too-clear demonstration of Campbell’s original formula for control failure:

School districts are increasingly tying teacher pay to performance, and there’s no consensus on the best way to measure student proficiency, so high test scores are starting to look a lot like money. What emerges is bad news: a carrot-and-stick approach to a sector of the workforce that many consider to be underpaid.

We shouldn’t be surprised by such responses to impractical performance measures, says Robert D. Behn of Harvard University’s Kennedy School of Government:

After all, we have put significant pressure on schools and teachers to improve test scores. … When the pressure becomes personal—when a person’s job and income are on the line—some people may resort to cheating. Why do you think all of those professional baseball players used steroids?

Behn distinguishes between “honest cheating” and “dishonest cheating.” Like the tactics used by certain educators in Atlanta, “dishonest cheating is illegal, and you can go to jail for it” (the convicted principals and teachers are facing prison sentences of five to 20 years). On the other hand, such practices as “teaching to the test”—focusing one’s efforts on standardized testing to the detriment of other educational activities—are merely “honest cheating”: “There is nothing illegal about it. No one goes to jail for it. Still, it illustrates how putting pressure on schools, principals, and teachers to improve on very specific performance measures can produce the distortions about which Campbell worried.”

According to Behn and other analysts of the impulse to cheat, a common denominator in both types of “honesty” is the imposition of “very specific performance measures.” In business, such measures are often called KPIs—quantifiable metrics that show how well an organization is achieving its goals. KPIs can help an organization focus on its most effective strategies, but if they aren’t conceived or executed properly, KPIs can be misleading. Campbell himself offered the example of a city that sets a strategy to reduce crime, designating the crime rate as a KPI. If the crime rate goes down, can city officials be sure that has crime actually been reduced? Not necessarily: What if police, in order to push down the rate, had adopted new criteria for crimes that must be formally reported or systematically downgraded certain crimes to less serious classifications?

When enforced by such counterstrategic employee behavior, Campbell’s Law can sabotage the best-laid plans—as you did when you gamed the process of meeting your quotas and deadlines. You were given a certain amount of discretion in the way you both achieved and reported your results, and you made your decision based on the fact that the stakes and the cost of failure were too high.

Ironically, your employer also gave you incentives to make the decision that you did—literally: In addition to protecting your job, you acted to secure your bonus and stock options. According to EthicalSystems, a nonprofit that compiles research on ethical leadership, conflicts of interest, cheating, and other related issues, extensive research shows that decisions like yours “are frequently distorted by incentives.” An example, suggests James Freis Jr., an attorney specializing in financial-industry regulation, “might be a contractor who knows his bonus depends on the fulfillment of certain contracts and so may be tempted to offer a bribe to a foreign official who is responsible for signing off on a license, customs duty, or shipment.”

Freis may well have been thinking about the case of Acatel-Lucent SA, the world’s largest supplier of landline phone networks. In 2010, the company agreed to pay $137 million to settle criminal and civil charges stemming from violations of the U.S. Foreign Corrupt Practices Act. According to the Securities and Exchange Commission, “Alcatel and its subsidiaries failed to detect or investigate numerous red flags suggesting that employees were directing sham consultants to provide gifts and payments to foreign government officials to illegally win business.” Managers at Alcatel received the bulk of their pay in the form of stock incentives and bonuses tied to short-term profitability.

The problem, suggests Harvard’s Behn, is the practice of pegging high-stakes incentives to narrow win-or-lose KPIs. As Campbell’s Law shows, cheating—including the violation of an organization’s ethics rules—will probably occur under such circumstances. “So get over it,” Behn advises organizational strategists. “Don’t go looking for the perfect performance measure. It doesn’t exist. Don’t waste countless meetings debating whose measure is without defects. All measures have them.” Instead, he suggests,

start with a good measure (or two). Not great, not perfect, just good. From the beginning, try to identify its inadequacies. Recognize what problems the measure might create; then, as you implement your performance strategy, be alert for the emergence of flaws and distortions. When suggesting, adopting, or employing a performance measure, all [managers] should be aware of—and beware of—Campbell’s Law.

Case Questions

1. What about you? Put yourself in the position of the Atlanta educators whose dilemma is described in the case. If there was a real possibility that you’d lose your job because your students performed badly, how would you assess your situation and your options? What if there were a real possibility that you’d lose a pay raise and promotion? How about the possibility that you’d be reassigned to a much less desirable school? Be prepared to argue either side of your case.

2. Think about a class that you’re taking now or have taken in the past. What KPI played the most important role in the instructor’s evaluation of your performance? What did it tell you about your instructor’s strategy for teaching the course? Do you think that it was too narrowly focused or otherwise unreasonable? If so, how do you think your instructor could have improved his performance-evaluation strategy?

3. Again, what about you? After having read this case, have you reconsidered your attitude toward how much control or accountability you’d like to have in a job? If, for example, you’re studying to be a teacher, how do you feel about a career goal such as moving up to principal or even multischool administrator? How does your concept of an ideal work/life relationship affect your thinking on the subject?

4. As we saw in Chapter 10, incentives “represent special compensation opportunities that are usually tied to performance”—that is, to a certain form of workplace behavior. They can also be tied to other forms of workplace behavior—such as complying with an employer’s policies regarding legal and ethical conduct (its so-called compliance & ethics, or C&E, program). Incentives can be either “soft” (consisting of nontangible encouragement or recognition) or “hard” (typically consisting of tangible, often monetary rewards). What “C&E” incentives affect the way you conduct yourself, whether at work or at school? How do they stack up against the incentives to behave in accord with Campbell’s Law? Is there any tension between the two sets of incentives? What do you do—or can you do—to resolve any tension as you make decisions affecting your behavior?

Case References

Sam Alexander, “Examples of Campbell’s Law,” Xamuel.com, May 24, 2013, www.xamuel.com, accessed on May 10, 2017; Donald T. Campbell, “Assessing the Impact of Planned Social Change,” Occasional Paper Series, #8 (Dartmouth College, December 1976), http://portals.wi.wur.nl, accessed on May 10, 2017; Alia Wong and Terence F. Ross, “When Teachers Cheat,” The Atlantic, April 2, 2015, www.theatlantic.com, accessed on May 10, 2017; Robert D. Behn, “Be Aware (and Beware) of Campbell’s Law,” Bob Behn’s Performance Leadership Report, 2011, Vol. 9, No. 12, www.hks.harvard.edu, accessed on May 10, 2017; Robert Bloomfield and David Hirshleifer, eds., “Accounting,” Ethical Systems, 2015, http://ethicalsystems.org, accessed on May 10, 2017; Deloitte Development LLC, “Global Financial Crime Sparks New Focus on Compliance,” Wall Street Journal, October 16, 2013, http://deloitte.wsj.com, accessed on May 10, 2017; and David Voreacos and Olga Kharif, “Alcatel Lucent to Pay $137 Million in Bribe Probes,” BloombergBusiness, December 28, 2010, www.bloomberg.com, accessed on May 10, 2017.

Chapter Review

You Make the Call: Metric Tons and Nonfinancial Metrics

1. “Until recently,” says David M. Katz, an editor at Cfo.com,

talk of “integrated reporting” and “sustainability” had a high probability of putting a CFO of a U.S.-based company to sleep. … When it came down to it, why should CFOs have cared about inserting such puffery into the nuts-and-bolts world of 10-Ks and proxy statements? 

It’s a good question. Why do so many CFOs now care about providing narrative nonfinancial reports with nonfinancial metrics in addition to traditional financial reports?

2. First of all, explain sustainability reporting, particularly as it’s practiced by JLL, as a function of control. Second, review the textbook section on the four “Steps in the Control Process”—establishing standards, measuring performance, comparing performance against standards, and considering corrective action. As your book says, these steps are “fundamental in any control process.” So briefly show how the “Control Process” played a role in producing the results reported by JLL.

3. Remember that it won’t always be easy to make one-to-one correspondences; it may, for example, take an educated guess to explain JLL’s “performance standards” or how closely the company came to meeting them. Feel free to make such guesses but be prepared to explain why they make sense.

4. The five “Characteristics of Control” discussed in the chapter—integration with planning, flexibility, accuracy, timeliness, and objectivity—are based largely on the requirements of financial reporting as it’s explained throughout the chapter. Using the information that you’ve been given about JLL’s 2013 sustainability report, explain how each of these five characteristics can be applied to the requirements of sustainability reporting. Which characteristics are most important in the type of reporting that goes into sustainability report? Which characteristics are most readily applicable? Which are least readily applicable and may require the most adjustments to make a good fit?

5. “At its heart,” says CEO Colin Dyer in JLL’s sustainability report, “sustainability at JLL is about maintaining and expanding our role as a good corporate citizen. … We develop real estate services that anticipate and address our clients’ needs while creating positive change in our industry. Together, these will ensure that JLL remains a sustainable enterprise that clients, employees, investors, and other stakeholders can rely on for the long term.”

In effect, this statement adds another dimension to the definition of sustainability as we’ve used it in the case. It reflects the so-called “triple bottom-line” approach to sustainability accounting. According to the American Institute of Certified Public Accountants, the triple bottom line consists of: “1) economic viability, 2) social responsibility, and 3) environmental responsibility.”

If we adopt the triple bottom-line approach, what does sustainability cover in addition to environmental resources? In other words, what else do companies intend to sustain? Explain how and why the added dimension of sustainability is consistent with the dimension of environmental responsibility.

Managing Operations, Quality, and Productivity Chapter 15

· Chapter Introduction

· 15-1
The Nature of Operations Management

· 15-1a
The Importance of Operations

· 15-1b
Manufacturing and Production Operations

· 15-1c
Service Operations

· 15-1d
The Role of Operations in Organizational Strategy

· 15-2
Designing Operations Systems

· 15-2a
Determining the Product–Service Mix

· 15-2b
Capacity Decisions

· 15-2c
Facilities Decisions

· 15-3
Organizational Technologies

· 15-3a
Manufacturing Technology

· 15-3b
Service Technology

· 15-4
Implementing Operations Systems through SUPPLY Chain Management

· 15-4a
Operations Management as Control

· 15-4b
Purchasing Management

· 15-4c
Inventory Management

· 15-5
Managing Total Quality

· 15-5a
The Meaning of Quality

· 15-5b
The Importance of Quality

· 15-5c
Total Quality Management

· 15-5d
TQM Tools and Techniques

· 15-6
Managing Productivity

· 15-6a
The Meaning of Productivity

· 15-6b
The Importance of Productivity

· 15-6c
Productivity Trends

· 15-6d
Improving Productivity

· Chapter Review

· Summary of Learning Outcomes and Key Points

· Discussion Questions

· Experiential Exercise

· Building Effective Communication Skills

· Management at Work

· You Make the Call: What to Do When Workers Wonder What Happens Next

Chapter Introduction

Learning Outcomes

After studying this chapter, you should be able to:

· 1Describe and explain the nature of operations management.

· 2Identify and discuss the components involved in designing effective operations systems.

· 3Discuss organizational technologies and their role in operations management.

· 4Identify and discuss the components involved in implementing operations systems through supply chain management.

· 5Explain the meaning and importance of managing quality and total quality management.

· 6Explain the meaning and importance of managing productivity, productivity trends, and ways to improve productivity.

Management in Action

What to Do When Workers Wonder What Happens Next

“Employee engagement isn’t about the free food and nap pods that companies like Google offer.”

—Inc. magazine Editor Paul Keegan

Best Buy, the giant consumer electronics retailer, has been using annual surveys to track levels of employee engagement since 2003. Best Buy’s strategy calls for providing customers with individualized shopping experiences, and top management realized early on that this strategy depended on the company’s most important asset—the employees who engaged with its customers. It also stood to reason that if its customers were motivated by the company’s ability to respond to their individual needs, then its employees could be motivated by its willingness to respond to their individual needs as well. In 2003, Best Buy thus launched a fairly radical initiative allowing employees to shape their own jobs and define their own career paths according to their own needs and talents. In 2010, an independent study concluded that Best Buy had “doubled the rate of increase in employee engagement.” In the same year, another study linked increased employee engagement to increased productivity: The researchers found that a 0.1 percent increase in employee engagement at a given store correlated with an annual increase in sales of $100,000.

Enhancing employee engagement is a powerful strategy for boosting productivity and quality. Best Buy, the large electronics retailer, uses a number of methods to more fully engage with its employees.

SANDY HUFFAKER/Getty Images

Findings like those at Best Buy have been confirmed on a much broader scale by a wealth of independent research. In 2012, for example, Gallup examined nearly 50,000 work units (groups of workers assigned to perform specific tasks) across 192 organizations in 34 countries. The purpose of the study was to provide statistical correlations between employee engagement and performance outcomes. According to Gallup, the study “confirmed the well-established connection between employee engagement and nine performance outcomes” ranging from profitability and customer ratings to absenteeism and workplace theft.

Among other things, Gallup found that work units in the top quartile (those that scored better than 75 percent of all organizations in the study) outperformed those in the bottom quartile (those outscored by 75 percent of all organizations) by 10 percent on customer ratings, 22 percent on profitability, and 21 percent on productivity. Units in the top quartile had significantly lower levels of turnover (25–65 percent depending on industry-wide turnover rates), absenteeism (37 percent), safety incidents (48 percent), and quality defects (41 percent). Meanwhile, a study by Towers Watson, a global professional services firm, showed that organizations with high employee engagement enjoyed a one-year average increase in operating income of 19 percent and 28 percent growth in earnings per share (EPS); companies with low levels of engagement experienced an average decline of 32 percent in operating income and an 11 percent drop in EPS.

Gallup translated such data into some bottom-line numbers: Actively disengaged employees—about 26 percent of all workers—cost U.S. organizations between $450 billion and $550 billion in lost productivity every year.

It may seem fairly obvious at this point, but according to Gartner, a consulting firm specializing in information technology research, “the positive correlation between employee engagement and organization performance suggests that there is a substantial upside for organizations that focus on enhancing employee engagement.” More specifically, however, what do all of these numbers mean for top managers when it comes to implementing changes in practices affecting employee engagement? For one thing, they need to appreciate the numbers. “Many executives and line managers,” says Gartner, “still view improving employee engagement as a soft and fuzzy concept,” failing to understand “why it’s important and what a vital role it plays in driving business success.”

The most recent Harvard Business Review (HBR) Analytic Services report agrees that “while most executives see a clear need to improve employee engagement, many have yet to develop tangible ways to measure and tackle this goal. However,” the report hastens to add, “a growing group of best-in-class companies says that they are gaining competitive advantage through establishing metrics and practices to effectively quantify and improve the impact of their engagement initiatives on overall business performance.” In fact, says the report, many companies that have made employee engagement a high priority “are effectively using metrics. … for tying engagement to business performance.” When asked which factors they considered most important to business success, leaders tended to give “people-oriented ‘soft’” goals: At the top were achieving a high level of customer service, developing more effective communications, and improving employee engagement.

“This is not surprising,” observes the report, “as a growing body of research has demonstrated that having a highly engaged workforce not only maximizes a company’s investment in human capital and improves productivity, but it can also significantly reduce costs that directly impact the bottom line.” Employee engagement, explains an HR executive at the global consumer goods company Newell Rubbermaid,

is not just a warm, fuzzy thing. It’s about giving people the tools they need to succeed in their careers, which in turn drives the outcomes that we’re seeking in the marketplace. … When people have the tools they need to succeed, feel good about their personal growth opportunities, and receive the appropriate rewards for their contributions, it’s a win-win proposition.

What are “appropriate rewards”? For one thing, as Inc. magazine editor Paul Keegan puts it, employee engagement

isn’t about the free food and nap pods that companies like Google offer. … Most carrot-and-stick motivators don’t work in the long term, because people get so fixated on the reward that they lose interest in the activity itself. What we really want in our jobs is autonomy, the chance to get better at what we do, and a purpose that connects us to something larger.

A survey by Towers Perrin found that workers who consider themselves “highly engaged” feel that their jobs are significantly connected with their employers’ goals and practices. Eighty-four percent, for example, believe that they could positively affect product quality, and 68 percent believe that they can positively affect the costs of their jobs or work units.

According to the survey, 72 percent of highly engaged employees also believe that they can positively affect their companies’ levels of customer service. In fact, the Gallup survey found that companies with engagement scores in the top quartile averaged 12 percent higher scores on customer advocacy—an approach to customer service based on a customer-focused culture. The HBR report states that in the effort to forge a link between employee engagement and productivity, “the two metrics most utilized to measure the outcome of employee-engagement initiatives are employee satisfaction and customer satisfaction.” Some best-practice companies, says the HBR report, “are increasingly measuring and monitoring how engagement affects the customer experience” using a measuring technique known as the service-profit chain, in which the links can be characterized as follows:

Profit and growth are stimulated primarily by customer loyalty. Loyalty is a direct result of customer satisfaction. Satisfaction is largely influenced by the value of services provided to customers. Value is created by satisfied, loyal, and productive employees. Employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers.

What’s the difference between engaged and disengaged employees? Gallup’s Jim Harter puts it this way: “When you ask people about their intentions during a recession, it’s pretty clear that disengaged workers are just waiting around to see what happens. Engaged workers, though, have bought into what the organization is about and are trying to make a difference. This is why they’re usually the most productive workers.”

Employee engagement is of growing interest to many managers today. One reason for this interest is the relationship between employee engagement and productivity. Productivity, in turn, has long been important to managers in all organizations. In this chapter, we explore operations management, quality, and productivity. We first introduce operations management and discuss its role in general management and organizational strategy. The next three sections discuss the design of operations systems, organizational technologies, and implementing operations systems. We then introduce and discuss various issues in managing for quality and total quality. Finally, we discuss productivity, which is closely related to quality.

15-1The Nature of Operations Management

Operations management is at the core of what organizations do as they add value and create products and services. But what exactly are operations? And how are they managed? 
Operations management
 is the set of managerial activities used by an organization to transform resource inputs into products and services. When Hewlett-Packard buys electronic components, assembles them into PCs, and then ships them to customers, it is engaging in operations management. When a Domino’s employee orders food ingredients and paper products and then combines dough, cheese, and tomato sauce to create a pizza, he or she is also engaging in operations management.

15-1aThe Importance of Operations

Operations are an important functional concern for organizations because the efficient and effective management of operations goes a long way toward ensuring competitiveness and overall organizational performance, as well as quality and productivity. Inefficient or ineffective operations management, on the other hand, will almost inevitably lead to poorer performance and lower levels of both quality and productivity.

In an economic sense, operations management creates value and utility of one type or another, depending on the nature of the firm’s products or services. If the product is a physical good, such as a Honda motorcycle, operations create value and provide form utility by combining many dissimilar inputs (sheet metal, rubber, paint, internal combustion engines, and human skills) to make something (a motorcycle) that is more valuable than the actual cost of the inputs used to create it. The inputs are converted from their incoming form into a new physical form. This conversion is typical of manufacturing operations and essentially reflects the organization’s technology.

In contrast, the operations activities of Delta Airlines create value and provide time and place utility through its services. The airline transports passengers, luggage, and freight according to agreed-upon departure and arrival places and times. Other service operations, such as a Budweiser beer distributorship or an American Eagle retail store, create value and provide place and possession utility by bringing together the customer and products made by others. Although the organizations in these examples produce different kinds of products or services, their operations processes share many important features.

15-1bManufacturing and Production Operations

Because manufacturing once dominated U.S. industry, the entire area of operations management used to be called production management. 
Manufacturing
 is a form of business that combines and transforms resources into tangible outcomes that are then sold to others. Firestone is a manufacturer because it combines rubber and chemical compounds and uses blending equipment and molding machines to create tires. Broyhill is a manufacturer because it buys wood and metal components, pads, and fabric and then combines them to make furniture.

During the 1970s, manufacturing entered a long period of decline in the United States, primarily because of foreign competition. U.S. firms had grown lax and sluggish, and new foreign competitors came onto the scene with better equipment and much higher levels of efficiency. For example, steel companies in Asia were able to produce high-quality steel for much lower prices than U.S. companies such as Bethlehem Steel and U.S. Steel (now USX Corporation). Faced with a battle for survival, many companies underwent a long and difficult period of change by eliminating waste and transforming themselves into leaner and more efficient and responsive entities. They reduced their workforces dramatically, closed antiquated or unnecessary plants, and modernized their remaining plants. In the last decade, their efforts have started to pay dividends, as U.S. businesses have regained their competitive positions in many different industries. Although manufacturers from other parts of the world are still formidable competitors, and U.S. firms may never again be competitive in some markets, the overall picture is much better than it was just a few years ago. And prospects continue to look bright.

15-1cService Operations

During the decline of the manufacturing sector, a tremendous growth in the service sector helped keep the U.S. economy from declining at the same rate. A 
service organization
 is one that transforms resources into an intangible output and creates time or place utility for its customers. For example, E*Trade makes stock transactions for its customers, Hertz leases cars to its customers, and local hairdressers cut clients’ hair. In 1947, the service sector was responsible for less than half of the U.S. gross national product (GNP). By 1975, however, this figure reached 65 percent, and by 2017, it was over 80 percent. The service sector has been responsible for creating approximately 44.5 million new jobs in the United States since 1990. Managers have come to see that many of the tools, techniques, and methods that are used in a factory are also useful to a service firm. For example, managers of automobile plants and hair salons both have to decide how to design their facilities, identify the best locations for them, determine optimal capacities, make decisions about inventory storage, set procedures for purchasing raw materials, and set standards for productivity and quality.

15-1dThe Role of Operations in Organizational Strategy

It should be clear by this point that operations management is very important to organizations. Beyond its direct impact on factors such as competitiveness, quality, and productivity, it also directly influences the organization’s overall level of effectiveness. For example, the deceptively simple strategic decision of whether to stress high quality regardless of cost, lowest possible cost regardless of quality, or some combination of the two has numerous important implications. A highest-possible-quality strategy will dictate state-of-the-art technology and rigorous control of product design and materials specifications. A combination strategy might call for lower-grade technology and less concern about product design and materials specifications. Just as strategy affects operations management, operations management affects strategy. Suppose that a firm decides to upgrade the quality of its products or services. The organization’s ability to implement the decision is dependent in part on current production capabilities and other resources. If existing technology will not permit higher-quality work and if the organization lacks the resources to replace its technology, increasing quality to the desired new standards will be difficult.

There is a tendency to associate operations management with production and manufacturing. But in reality, operations management is also very relevant to service organizations such as this hair salon. Operations management techniques help the salon manager schedule stylists, book appointments, order and maintain the optimal inventory of products, and move clients through dedicated work stations for washing, coloring, cutting, and styling.

© Tyler Olson/ Shutterstock.com

15-2Designing Operations Systems

The problems, challenges, and opportunities faced by operations managers revolve around the acquisition and utilization of resources for conversion. Their goals include both efficiency and effectiveness. A number of issues and decisions must be addressed as operations systems are designed. The most basic ones are the product–service mix, capacity, and facilities.

15-2aDetermining the Product–Service Mix

A natural starting point in designing operations systems is determining the 
product–service mix
. This decision flows from corporate, business, and marketing strategies. Managers have to make a number of decisions about their products and services, starting with how many and what kinds to offer. Colgate-Palmolive, for example, makes regular, tartar control, gel, and various other formulas of Colgate toothpaste and packages them in several different sizes of tubes, pumps, and other dispensers. Similarly, workers at Subway sandwich shops can combine different breads, vegetables, meats, and condiments to create hundreds of different kinds of sandwiches. Decisions also have to be made regarding the level of quality desired, the optimal cost of each product or service, and exactly how each is to be designed. GE recently reduced the number of parts in its industrial circuit breakers from 28,000 to 1,275. This whole process was achieved by carefully analyzing product design and production methods.

A firm’s product–service mix is determined in large part by corporate or business strategies. A logical next step is to design operations systems to efficiently produce products to be sold with the desired packaging and sizes. Of course, as shown here, most products are sold in a wide variety of forms and sizes.

Niloo/ Shutterstock.com

15-2bCapacity Decisions

The 
capacity
 decision involves choosing the amount of products, services, or both that can be produced by the organization. Determining whether to build a factory capable of making 8,000 or 10,000 units per day is a capacity decision. So, too, is deciding whether to build a restaurant with 125 or 175 seats or a bank with 5 or 10 teller stations. The capacity decision is truly a high-risk one because of the uncertainties of future product demand and the large monetary stakes involved. An organization that builds capacity exceeding its needs may commit resources (capital investment) that will never be recovered. Alternatively, an organization can build a facility with a smaller capacity than product demand might actually suggest. Doing so may result in lost market opportunities, but it may also free capital resources for use elsewhere in the organization.

Capacity decisions are an important part of operations management. Take this restaurant, for example. Right now many people are waiting for tables. If the restaurant were larger, more customers could be seated immediately and the restaurant would generate more revenue. However, during other periods, when demand might be lower, the restaurant would have unused space and experience higher costs.

LEE SNIDER PHOTO IMAGES/ Shutterstock.com

A major consideration in determining capacity is demand. A company operating with fairly constant monthly demand might build a plant capable of producing an amount each month roughly equivalent to its demand. But if its market is characterized by seasonal fluctuations, building a smaller plant to meet normal demand and then adding extra shifts staffed with temporary workers or paying permanent workers extra to work more hours during peak periods might be the most effective choice. Likewise, a restaurant that needs 175 seats for Saturday night but never needs more than 125 at any other time during the week would probably be foolish to expand to 175 seats. During the rest of the week, it must still pay to light, heat, cool, and clean the excess capacity. Many customer service departments have tried to improve their capacity to deal with customers while also lowering costs by using automated voice prompts to direct callers to the right representative.

15-2cFacilities Decisions

Facilities
 are the physical locations where products or services are created, stored, and distributed. Major decisions pertain to facilities location and facilities layout.

Location

Location
 is the physical positioning or geographic site of facilities and must be determined by the needs and requirements of the organization. A company that relies heavily on railroads for transportation needs to be located close to rail facilities. GE decided that it did not need six plants to make circuit breakers, so it invested heavily in automating one plant and closed the other five. Different organizations in the same industry may have different facilities requirements. Benetton uses only one distribution center for the entire world, whereas Amazon has several distribution centers in the United States alone. A retail business must choose its location very carefully to be convenient for consumers.

Layout

The choice of physical configuration, or the 
layout
, of facilities is closely related to other operations decisions. Three entirely different generic layout alternatives shown in Figure 15.1 help demonstrate the importance of the layout decision. A 
product layout
 is appropriate when large quantities of a single product are needed. It makes sense to custom-design a straight-line flow of work for a product when a specific task is performed at each workstation as each unit flows past. Most traditional assembly lines use this format. For example, Hewlett-Packard’s personal computer factories use a product layout.

Figure 15.1Approaches to Facilities Layout

When a manufacturer produces large quantities of a product (such as cars or computers), it may arrange its facilities in an assembly line (product layout). In a process layout, the work (such as patients in a hospital or custom pieces of furniture) moves through various workstations. Locomotives and bridges are both manufactured in a fixed-position layout.

Process layouts
 are used in operations settings that create or process a variety of products. Auto repair shops and health care clinics are good examples. Each car and each patient is a separate “product.” The needs of each incoming job are diagnosed as it enters the operations system, and the job is routed through the unique sequence of workstations needed to create the desired finished product. In a process layout, each type of conversion task is centralized in a single workstation or department. All welding is done in one designated shop location, and any car that requires welding is moved to that area. This setup is in contrast to the product layout, in which several different workstations may perform welding operations if the conversion task sequence so dictates. Similarly, in a hospital, all X-rays are done in one location, all surgeries in another, and all physical therapy in yet another. Patients are moved from location to location to get the services they need.

The 
fixed-position layout
 is used when the organization is creating a few very large and complex products. Aircraft manufacturers like Airbus and shipbuilders like Newport News use this method. An assembly line capable of moving one of Airbus’s A380 aircraft would require an enormous plant, so instead the airplane shell itself remains stationary, and work teams and machines move around it as it is assembled.

The cellular layout is a relatively new approach to facilities design. 
Cellular layouts
 are used when families of products can follow similar flow paths. A clothing manufacturer, for example, might create a cell, or designated area, dedicated to making a family of pockets, such as pockets for shirts, coats, blouses, and slacks. Although each kind of pocket is unique, the same basic equipment and methods are used to make all of them. Hence, all pockets might be made in the same area and then delivered directly to different product layout assembly areas where the shirts, coats, blouses, and slacks are actually being assembled.

15-3Organizational Technologies

One central element of effective operations management is technology. In Chapter 6, we defined 
technology
 as the set of processes and systems used by organizations to convert resources into products or services.

15-3aManufacturing Technology

Numerous forms of manufacturing technology are used in organizations. In Chapter 6, we discussed the research of Joan Woodward. Recall that Woodward identified three forms of technology—unit or small batch, large batch or mass production, and continuous process. Each form of technology was thought to be associated with a specific type of organization structure. Of course, newer forms of technology not considered by Woodward also warrant attention. Two of these are automation and computer-assisted manufacturing.

Automation

Automation
 is the process of designing work so that it can be completely or almost completely performed by machines. Because automated machines operate quickly and make few errors, they increase the amount of work that can be done. Thus automation helps to improve products and services and fosters innovation. Automation is the most recent step in the development of machines and machine-controlling devices. Machine-controlling devices have been around since the 1700s. James Watt, a Scottish engineer, invented a mechanical speed control to regulate the speed of steam engines in 1787. The Jacquard loom, developed by the French inventor Joseph-Marie Jacquard, was controlled by paper cards with holes punched in them. Early accounting and computing equipment was controlled by similar punched cards.

Automation relies on feedback, information, sensors, and a control mechanism. Feedback is the flow of information from the machine back to the sensor. Sensors are the parts of the system that gather information and compare it to preset standards. The control mechanism is the device that sends instructions to the automatic machine. Early automatic machines were primitive, and the use of automation was relatively slow to develop. These elements are illustrated by the example in Figure 15.2. A thermostat has sensors that monitor air temperature and compare it to a preset low value. If the air temperature falls below the preset value, the thermostat sends an electrical signal to the furnace, turning it on. The furnace heats the air. When the sensors detect that the air temperature has reached a value higher than the low preset value, the thermostat stops the furnace. The last step (shutting off the furnace) is known as feedback, a critical component of any automated operation.

Figure 15.2A Simple Automatic Control Mechanism

All automation includes feedback, information, sensors, and a control mechanism. A simple thermostat is an example of automation. Another example is Benetton’s distribution center in Italy. Orders are received, items pulled from stock and packaged for shipment, and invoices prepared and transmitted, with no human intervention.

The big move to automate factories began during World War II. The shortage of skilled workers and the development of high-speed computers combined to bring about a tremendous interest in automation. Programmable automation (the use of computers to control machines) was introduced during this era, far outstripping conventional automation (the use of mechanical or electromechanical devices to control machines). The automobile industry began to use automatic machines for a variety of jobs. In fact, the term automation came into use in the 1950s in the automobile industry. The chemical and oil-refining industries also began to use computers to regulate production. During the 1990s, automation became a major element in the manufacture of computers and computer components, such as electronic chips and circuits. It is this computerized, or programmable, automation that presents the greatest opportunities and challenges for management today.

The impact of automation on people in the workplace is complex. In the short term, people whose jobs are automated may find themselves without a job. In the long term, however, more jobs are actually created than are lost. Nevertheless, not all companies are able to help displaced workers find new jobs, so the human costs are sometimes high. In the coal industry, for instance, automation has been used primarily in mining. The output per miner has risen dramatically from the 1950s on. The demand for coal, however, has decreased, and productivity gains resulting from automation have lessened the need for miners. Consequently, many workers have lost their jobs, and the industry has not been able to absorb them. In contrast, in the electronics industry, the rising demand for products has led to increasing employment opportunities despite the use of automation.

Computer-Assisted Manufacturing

Current extensions of automation generally revolve around 
computer-assisted manufacturing
—a technology that relies on computers to design or manufacture products. One type of computer-assisted manufacturing is computer-aided design (CAD)—the use of computers to design parts and complete products and to simulate performance so that prototypes need not be constructed. Boeing uses CAD technology to study hydraulic tubing in its commercial aircraft. Japan’s automotive industry uses CAD to speed up car design. GE used CAD to change the design of circuit breakers, and Benetton uses CAD to design new styles and products. Oneida, the table flatware firm, uses CAD to design new flatware patterns; for example, it can design a new spoon in a single day. CAD is usually combined with computer-aided manufacturing (CAM) to ensure that the design moves smoothly to production. The production computer shares the design computer’s information and is able to have machines with the proper settings ready when production is needed. A CAM system is especially useful when reorders come in because the computer can quickly produce the desired product, prepare labels and copies of orders, and send the product out to where it is wanted. New developments in 3D printing represent an extension of both CAD and CAM.

Closely aligned with this approach is computer-integrated manufacturing (CIM). In CIM, CAD and CAM are linked together, and computer networks automatically adjust machine placements and settings to enhance both the complexity and the flexibility of scheduling. In settings that use these technologies, all manufacturing activities are controlled by the computer network. Because the network can access the company’s other information systems, CIM is both a powerful and a complex management control tool.

Flexible manufacturing systems (FMSs) usually have robotic work units or workstations, assembly lines, and robotic carts or some other form of computer-controlled transport system to move material as needed from one part of the system to another. Ford Motor Company used FMSs to transform a factory producing nothing but low-cost compact cars into a plant capable of making a variety of pickup trucks and SUVs. Using traditional methods, the plant would have been closed, its workers laid off, and the facility virtually rebuilt from the ground up. But by using FMSs, Ford was able to keep the plant open and running continuously, while new equipment was being installed and its workers were being retrained in small groups. Ford continues to be a pioneer in FMS as it adjusts plant capabilities to produce pickups, SUVs, or small hybrids, depending on fluctuations in market demand and supply.

These systems are not without disadvantages, however. For example, because they represent fundamental change, they also generate resistance. In addition, because of their tremendous complexity, CAD systems are not always reliable. CIM systems are so expensive that they raise the breakeven point for firms using them. This means that the firm must operate at high levels of production and sales to be able to afford the systems.

Robotics

Another trend in manufacturing technology is computerized robotics. A 
robot
 is any artificial device that is able to perform functions ordinarily thought to be appropriate for human beings. Robotics refers to the science and technology of the construction, maintenance, and use of robots. The use of industrial robots has steadily increased since 1980 and is expected to continue to increase slowly as more companies recognize the benefits that accrue to users of industrial robots.

Welding was one of the first applications for robots, and it continues to be the area for most applications. A close second is materials handling. Other applications include machine loading and unloading, painting and finishing, assembly, casting, and machining applications such as cutting, grinding, polishing, drilling, sanding, buffing, and deburring. Daimler AG, for instance, replaced about 200 welders with 50 robots on an assembly line and increased productivity about 20 percent. The use of robots in inspection work is increasing. They can check for cracks and holes, and they can be equipped with vision systems to perform visual inspections.

Robots are also beginning to move from the factory floor to all manner of other applications. The Dallas police used a robot to apprehend a suspect who had barricaded himself in an apartment building. The robot smashed a window and reached with its mechanical arm into the building. The suspect panicked and ran outside. At the Long Beach Memorial Hospital in California, brain surgeons are assisted by a robot arm that drills into the patient’s skull with excellent precision. Some newer applications involve remote work. For example, the use of robot submersibles controlled from the surface can help divers in remote locations. Surveillance robots fitted with microwave sensors can do things that a human guard cannot, such as “seeing” through nonmetallic walls and in the dark. In other applications, automated farming (called agrimation) uses robot harvesters to pick fruit from a variety of trees.

Hotels are using increasingly sophisticated technology, including apps like Expedia, to enable guests to book reservations and room upgrades.

Iain Masterton/Alamy Stock Photo

Robots are also used by small manufacturers. One robot slices carpeting to fit the inside of custom vans in an upholstery shop. Another stretches balloons flat so that they can be spray painted with slogans at a novelties company. At a jewelry company, a robot holds class rings while they are engraved by a laser. These robots are lighter, faster, stronger, and more intelligent than those used in heavy manufacturing and are the types that more and more organizations will be using in the future.

15-3bService Technology

Service technology is also changing rapidly. And it, too, is moving more and more toward automated systems and procedures. In banking, for example, technological breakthroughs led to automated teller machines and made it much easier to move funds between accounts or between different banks. Most people now have their paycheck deposited directly into a checking account from which many of their bills are then automatically paid. Electronic banking—where people can access their accounts, move money between accounts, and pay bills—has become commonplace. Moreover, the capabilities to do these things have been extended from personal computers to cell phones and other personal electronic communication technologies.

Hotels use increasingly sophisticated technology to accept and record room reservations. People can now, for instance, check in online and stop by the front desk only long enough to pick up their room key. Universities use new technologies to electronically store and provide access to books, scientific journals, government reports, and articles. Hospitals and other health care organizations use new forms of service technology to manage patient records, dispatch ambulances and emergency medical technicians (EMTs) and monitor patients’ vital signs. Restaurants use technology to record and fill customer orders, order food and supplies, and prepare food. Many grocery stores and other retailers have self-check lanes where customers can scan their own items and pay without the assistance of a traditional cashier. Given the increased role that service organizations are playing in today’s economy, even more technological innovations are certain to be developed in the years to come. The “Leading the Way” feature highlights how technology can assist even artistic performances.

Leading the Way

Combining Technology and Artistry

For years, Canadian gymnast Natasha Chao performed the role of the Red Bird in Mystère, a Cirque du Soleil production permanently staged at Treasure Island Hotel and Casino in Las Vegas. According to the show’s production notes, the character of the flightless Red Bird (who is male though the performer needn’t be) “leaps ever higher in his futile attempts to take to the skies. Still convinced he can fly, he struggles against his fate.” As choreographed, his fate consists of a 60-foot headfirst free fall into a hidden net. “One thing all. … Cirque artists share in common,” says Mystère choreographer Debra Brown, “is a passion for doing art. Circus performers, who risk their lives, are the most passionate,” she adds, and Chao is no exception. Working without an understudy, however, she couldn’t afford to get hurt, and, passion for her art notwithstanding, she was understandably cautious in performing the stunt.

In addition to maintaining her impeccable timing and keen spatial awareness, the key for Chao was to curve her spine upright at the final moment before contact with the net. The tension in the net was continuously monitored by technicians working the theater’s motion-control system, and it should come as no surprise that all of an artist’s skill, preparation, and caution can do little to prevent injury if he or she doesn’t get the type of support for which armies of Cirque technicians are responsible every night. Executing a stunt like the plunge of the Red Bird, says another Cirque choreographer, Jacques Heim, “is extremely exciting, but it’s. … exciting because it’s terrifying.” And that’s why, he explains, every Cirque performance really consists of two shows: the one that the performers are putting on in front of the audience and the one that the technicians are performing behind the scenes.

Heim did the choreography for KÀ, an Egyptianthemed Cirque extravaganza in residence at the MGM Grand Hotel & Casino. KÀ was, at the time, both theatrically and technologically, the most ambitious production that Cirque du Soleil had ever mounted. “In KÀ,” says technical director Matthew Whelan, “the machinery is so impressive that their movement becomes a [dance] number in itself. … The audience does see the lift movements”—the computer-controlled manipulation of the decks that comprise the mobile “stage”—”but there’s also a complete other show going on in the pit where the lifts move out of sight line to allow scenic pieces to move from level to level in a specific choreography to manage limited floor space.” The interaction of technicians and performers is even more critical than in most Cirque productions because, as stage architect Mark Fisher puts it, the technologically managed scenery is “actually part of the landscape in which the performers live and move to create their show.”

Cirque du Soleil relies on a combination of technology and artistry to create its amazing productions. Cirque technicians and choreographers are responsible for leading performers through their acts in ways that maximize visual impact while minimizing the risk of injury.

Ryan Miller/Getty Images

“There’s a constant risk of artists falling,” admits equipment designer Jaque Paquin, and Cirque du Soleil depends on its technology and the people who run it not only to enhance the performance of its artists but to protect them as well. Paquin, after all, is also responsible for the retractable safety net that’s programmed into position beneath KÀ’s centerpiece scene—an aerial-acrobatics spectacle—by the theater’s modular, multiuser NOMAD control system. Keith Wright, KÀ’s operations production manager, sees the technician’s twofold responsibility as a basic reflection of Cirque du Soleil’s mission: “Cirque du Soleil,” he says, “is always about the artist and humanity, and the tools we use—no matter how advanced—must serve the human artists.”

References: John Scott Lewinski, “Cirque du Soleil’s Sophisticated KÀ Evolves with New Tech,” Wired, www.wired.com, accessed on May 20, 2017; Joe Hunkins, “Cirque du Soleil: Dramatic Technologies,” Technology Report, http://technology-report.com, accessed on May 20, 2017; Victoria Looseleaf, “Cirque du Soleil’s Magic,” Dance Magazine, December 2007, www.dancemagazine.com, accessed on May 20, 2017; Gigi Berardi, “Circus+Dance=Cirque du Soleil,” Dance Magazine, September 1, 2002, www.thefreelibrary.com, accessed on May 20, 2017; and Stephanie Gooch, “Industrial-Scale Technology in Cirque du Soleil’s KÀ,” Designfax, www.thefreelibrary.com, accessed on May 20, 2017.

15-4Implementing Operations Systems through SUPPLY Chain Management

After operations systems have been properly designed and technologies developed, they must then be put into use by the organization. Their basic functional purpose is to control transformation processes to ensure that relevant goals are achieved in areas such as quality and costs. Operations management has a number of special purposes within this control framework, including purchasing and inventory management. Indeed, this area of management has become so important in recent years that a new term—supply chain management (SCM)—has been coined. Specifically, 
supply chain management
 can be defined as the process of managing operations control, resource acquisition and purchasing, and inventory so as to improve overall efficiency and effectiveness

15-4aOperations Management as Control

One way of using operations management as control is to coordinate it with other functions. Monsanto Company, for example, established a consumer products division that produces and distributes fertilizers and lawn chemicals. To facilitate control, the operations function was organized as an autonomous profit center. Monsanto finds this effective because its manufacturing division is given the authority to determine not only the costs of creating the product but also the product price and the marketing program.

In terms of overall organizational control, a division like the one used by Monsanto should be held accountable only for the activities over which it has decision-making authority. It would be inappropriate, of course, to make operations accountable for profitability in an organization that stresses sales and market share over quality and productivity. Misplaced accountability results in ineffective organizational control, to say nothing of hostility and conflict. Depending on the strategic role of operations, then, operations managers are accountable for different kinds of results. For example, in an organization using bureaucratic control, accountability will be spelled out in rules and regulations. In a decentralized system, it is likely to be understood and accepted by everyone.

Within operations, managerial control ensures that resources and activities achieve primary goals such as a high percentage of on-time deliveries, low unit production cost, or high product reliability. Any control system should focus on the elements that are most crucial to goal attainment. For example, firms in which product quality is a major concern (as it is at Rolex) might adopt a screening control system to monitor the product as it is being created. If low-cost, large quantities are a higher priority (as is the case at Timex), a postaction system might be used to identify defects at the end of the system without disrupting the manufacturing process itself.

For several years, Boeing grappled with problems in launching its newest major passenger airplane, the Boeing 787 Dreamliner. During its early development, the 787 was hailed as the most commercially successful new plane of all time. Airlines around the world preordered over 900 of the planes at a cost of $178 million each before they ever took a test flight based on its projected fuel efficiency, passenger comfort, low maintenance costs, flexibility, and other major design elements. Boeing subcontracted out the design and assembly of major components of the 787 to firms in Japan, Italy, South Carolina, and Kansas but did not impose adequate coordination across these various suppliers. As a result, subassemblies did not fit together properly, there were numerous quality and delivery issues, and myriad other problems occurred. Indeed, the first test flights for the plane were years late, largely because of supply chain issues. The first plane delivered to a U.S. airline was not completed until 2012. And the airplane continued to have manufacturing defects pop up for months after its initial launch. Clearly, then, poor SCM can be disastrous, especially for major new products.

15-4bPurchasing Management

Purchasing management
, also called procurement, is concerned with buying the materials and resources needed to produce products and services. In many ways, purchasing is at the very heart of effective SCM. Purchasing managers for a retailer like Walmart are responsible for buying the merchandise the stores will sell. The purchasing manager for a manufacturer buys raw materials, parts, and machines needed by the organization. Large companies such as Boeing, Nikon, and Siemens have large purchasing departments. The manager responsible for purchasing must balance a number of constraints. Buying too much ties up capital and increases storage costs. Buying too little might lead to shortages and high reordering costs. The manager must also make sure that the quality of what is purchased meets the organization’s needs, that the supplier is reliable, and that the best financial terms are negotiated.

Many firms have recently changed their approaches to purchasing as a means to lower costs and improve quality and productivity. In particular, rather than relying on hundreds or even thousands of suppliers, many companies are reducing their number of suppliers and negotiating special production delivery arrangements. For example, the Honda plant in Marysville, Ohio, found a local business owner looking for a new opportunity. They negotiated an agreement whereby he would start a new company to mount car stereo speakers into plastic moldings. He delivers finished goods to the plant three times a day, and Honda buys all he can manufacture. Thus, he has a stable sales base, Honda has a local and reliable supplier, and both companies benefit.

15-4cInventory Management

Inventory control
, also called materials control, is essential for effective operations management. The four basic kinds of inventories are raw materials, work in process, finished goods, and in-transit inventories. As shown in Table 15.1, the sources of control over these inventories are as different as their purposes. Work-in-process inventories, for example, are made up of partially completed products that need further processing; they are controlled by the shop floor system. In contrast, the quantities and costs of finished-goods inventories are under the control of the overall production scheduling system, which is determined by high-level planning decisions. In-transit inventories are controlled by the transportation and distribution systems.

Table 15.1

Inventory Types, Purposes, and Sources of Control

Type	Purpose	Source of Control
Raw materials	Provide the materials needed to make the product	Purchasing models and systems
Work in process	Enable overall production to be divided into stages of manageable size	Shop floor control systems
Finished goods	Provide ready supply of products on customer demand and enable long, efficient production runs	High-level production scheduling systems in conjunction with marketing
In transit (pipeline)	Distribute products to customers	Transportation and distribution control systems

Like most other areas of operations management, inventory management changed notably in recent years. One particularly important breakthrough is the 
just-in-time (JIT) method
. JIT is a recent breakthrough in inventory management. With JIT inventory systems, materials arrive just as they are needed. JIT therefore helps an organization control its raw materials inventory by reducing the amount of space it must devote to storage.

First popularized by the Japanese, the JIT system reduces the organization’s investment in storage space for raw materials and in the materials themselves. Historically, manufacturers built large storage areas and filled them with materials, parts, and supplies that would be needed days, weeks, and even months in the future. A manager using the JIT approach orders materials and parts more often and in smaller quantities, thereby reducing investment in both storage space and actual inventory. The ideal arrangement is for materials to arrive just as they are needed—or just in time.

Recall our example about the small firm that assembles stereo speakers for Honda and delivers them three times a day, making it unnecessary for Honda to carry large quantities of the speakers in inventory. In an even more striking example, Johnson Controls makes automobile seats for Mercedes and ships them by small truckloads to a Mercedes plant 75 miles away. Each shipment is scheduled to arrive two hours before it is needed. Clearly, the JIT approach requires high levels of coordination and cooperation between the company and its suppliers. If shipments arrive too early, Mercedes has no place to store them. If they arrive too late, the entire assembly line may have to be shut down, resulting in enormous expense. When properly designed and used, the JIT method controls inventory very effectively.

15-5Managing Total Quality

Quality and productivity have become major determinants of business success or failure today and are central issues in managing organizations. But, as we will see, achieving higher levels of quality is not an easy accomplishment. Simply ordering that quality be improved is about as effective as waving a magic wand. The catalyst for its emergence as a mainstream management concern was foreign business, especially Japanese. And nowhere was it more visible than in the auto industry. During the energy crisis in the late 1970s, many people bought Toyotas, Hondas, and Nissans because they were more fuel efficient than U.S. cars. Consumers soon found, however, that not only were the Japanese cars more fuel efficient, but they were also of higher quality than U.S. cars. Parts fit together better, the trim work was neater, and the cars were more reliable. Thus, after the energy crisis subsided, Japanese cars remained formidable competitors because of their reputation for quality.

15-5aThe Meaning of Quality

The American Society for Quality defines 
quality
 as the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs. Quality has several different attributes. Table 15.2 lists eight basic dimensions that determine the quality of a particular product or service. For example, a product that has durability and is reliable is of higher quality than a product with less durability and reliability.

Table 15.2

Eight Dimensions of Quality

1. Performance. A product’s primary operating characteristic; examples are automobile acceleration and a television’s picture clarity. 2. Features. Supplements to a product’s basic functioning characteristics, such as power windows on a car. 3. Reliability. A probability of not malfunctioning during a specified period. 4. Conformance. The degree to which a product’s design and operating characteristics meet established standards. 5. Durability. A measure of product life. 6. Serviceability. The speed and ease of repair. 7. Aesthetics. How a product looks, feels, tastes, and smells. 8. Perceived quality. As seen by a customer.

Source: Reprinted by permission of Harvard Business Review. Exhibit from “Competing on the Eight Dimensions of Quality,” by David A. Garvin, November/December 1987. © 1987 by the Harvard Business School Publishing Corporation; all rights reserved.

Quality is also relative. For example, a Lexus is a higher-grade car than a Toyota. The difference in quality stems from differences in design and other features. The Toyota, however, is still considered a high-quality car relative to its engineering specifications and price. Quality is relevant for both products and services. Although its importance for products like cars and computers was perhaps recognized first, service firms ranging from airlines to restaurants have also come to see that quality is a vitally important determinant of their success or failure. Service quality, as we will discuss later in this chapter, has thus also become a major competitive issue in U.S. industry today.

15-5bThe Importance of Quality

To help underscore the importance of quality, the U.S. government created the 
Malcolm Baldrige Award
, named after the former secretary of commerce who championed quality in U.S. industry. The award, administered by an agency of the Commerce Department, is given annually to firms that achieve major improvements in the quality of their products or services. In other words, the award is based on changes in quality, as opposed to absolute quality. In addition, numerous other quality awards have been created. For example, the Rochester Institute of Technology and USA Today award their Quality Cup award not to entire organizations but to individual teams of workers within organizations. Quality is also an important concern for individual managers and organizations for three very specific reasons: competition, productivity, and costs.

These eight dimensions generally capture the meaning of quality, which is a critically important ingredient to organizational success today. Understanding the basic meaning of quality is a good first step to managing it more effectively.

Competition

Quality has become one of the most competitive points in business today. Ford, BMW, General Motors, and Honda, for example, each implies that its cars and trucks are higher in quality than the cars and trucks of the others. And American, Delta, and United Airlines each claims that it provides the best and most reliable service. In the wake of the economic recession that started in 2008, many businesses focused even more attention on service quality as a competitive advantage during lean times. While some firms, for example, cut their staff at customer call centers, others did not. What impact might this have? One study found that cutting four representatives at a call center of three dozen people sent the number of customers put on hold for four minutes from 0 to 80. Firms with especially strong reputations for service quality include Amazon.com, USAA (an insurance firm), Lexus, Ritz-Carlton, Ace Hardware, and Apple.

Productivity

Managers have also come to recognize that quality and productivity are related. In the past, many managers thought that they could increase output (productivity) only by decreasing quality. Managers today have learned the hard way that such an assumption is almost always wrong. If a firm installs a meaningful quality-enhancement program, three things are likely to result. First, the number of defects is likely to decrease, causing fewer returns from customers. Second, because the number of defects goes down, resources (materials and people) dedicated to reworking flawed output will be decreased. Third, because making employees responsible for quality reduces the need for quality inspectors, the organization is able to produce more units with fewer resources.

Costs

Improved quality also lowers costs. Poor quality results in higher returns from customers, high warranty costs, and lawsuits from customers injured by faulty products. Future sales are lost because of disgruntled customers. An organization with quality problems often has to increase inspection expenses just to catch defective products. We noted in Chapter 14, for example, how at one point Whistler Corporation was using 40 percent of its workforce just to fix poorly assembled radar detectors made by the other 60 percent.

15-5cTotal Quality Management

Once an organization makes a decision to enhance the quality of its products and services, it must then decide how to implement this decision. The most pervasive approach to managing quality has been called 
total quality management (TQM)
 (sometimes called quality assurance)—a real and meaningful effort by an organization to change its whole approach to business in order to make quality a guiding factor in everything it does. Figure 15.3 highlights the major ingredients in TQM.

Figure 15.3Total Quality Management

Quality is one of the most important issues facing organizations today. TQM is a comprehensive effort to enhance an organization’s product or service quality. TQM involves the five basic dimensions shown here. Each is important and must be addressed effectively if the organization expects to truly increase quality.

Strategic Commitment

The starting point for TQM is a strategic commitment by top management. Such commitment is important for several reasons. First, the organizational culture must change to recognize that quality is not just an ideal but also an objective goal that must be pursued. Second, a decision to pursue the goal of quality carries with it some real costs—for expenditures such as new equipment and facilities. Thus, without a commitment from top management, quality improvement will prove to be just a slogan or gimmick, with little or no real change. Just a few years ago, Porsche had the lowest reliability of any automobile maker in the world. But a major commitment from top management helped turn the company around. By paying more attention to consumer preferences and using the other methods described later in this section, Porsche shot to the top of global automobile reliability.

Employee Involvement

Employee involvement is another critical ingredient in TQM. Virtually all successful quality-enhancement programs involve making the person responsible for doing the job responsible for making sure it is done right. By definition, then, employee involvement is a critical component in improving quality. Work teams, discussed in Chapter 13, are common vehicles for increasing employee involvement.

Technology

New forms of technology are also useful in TQM programs. Automation and robots, for example, can often make products with higher precision and better consistency than people. Investing in higher-grade machines capable of doing jobs more precisely and reliably often improves quality. For example, Samsung has achieved notable improvements in product quality by replacing many of its machines with new equipment. Similarly, most U.S. auto and electronics firms make regular investments in new technology to help boost quality.

Materials

Another important part of TQM is improving the quality of the materials that organizations use. Suppose that a company that assembles smartphones buys chips and circuits from another company. If the chips have a high failure rate, consumers will return defective phones to the company whose nameplate appears on them, not to the company that made the chips. The phone company then loses in two ways: refunds to customers and a damaged reputation. As a result, many firms have increased the quality requirements they impose on their suppliers as a way of improving the quality of their own products.

Methods

Improved methods can improve product and service quality. Methods are operating systems used by the organization during the actual transformation process. American Express Company, for example, has found ways to cut its approval time for new credit cards from 22 to just 2 days. This results in improved service quality.

15-5dTQM Tools and Techniques

Beyond the strategic context of quality, managers can also rely on several specific tools and techniques for improving quality. Among the most popular today are value-added analysis, benchmarking, outsourcing, reducing cycle times, ISO 9000:2000 and ISO 14000, statistical quality control (SQC), and Six Sigma.

Value-Added Analysis

Value-added analysis
 is the comprehensive evaluation of all work activities, materials flows, and paperwork to determine the value that they add for customers. Such an analysis often reveals wasteful or unnecessary activities that can be eliminated without jeopardizing customer service. For example, during a value-added analysis, Hewlett-Packard determined that its contracts were unnecessarily long, confusing, and hard to understand. The firm subsequently cut its standard contract form down from 20 to 2 pages and experienced an 18 percent increase in its computer sales.

Benchmarking

Benchmarking
 is the process of learning how other firms do things in an exceptionally high-quality manner. Some approaches to benchmarking are simple and straightforward. For example, Canon routinely buys copiers made by other firms and takes them apart to see how they work. This enables the firm to stay abreast of improvements and changes its competitors are using. When Ford was planning the newest version of the Focus, it identified the 400 features that customers identified as being most important to them. It then found the competing cars that did the best job on each feature. Ford’s goal was to equal or surpass each of its competitors on those 400 features. Other benchmarking strategies are more indirect. For example, many firms study how Amazon manages its online retail business, how Disney recruits and trains employees, and how FedEx tracks packages for applications they can employ in their own businesses.

Outsourcing

Another innovation for improving quality is 
outsourcing
, which is the process of subcontracting services and operations to other firms that can perform them cheaper or better. If a business performs each and every one of its own administrative and business services and operations, it is almost certain to be doing at least some of them in an inefficient or low-quality manner. If those areas can be identified and outsourced, the firm will save money and realize a higher-quality service or operation. For example, until recently, Macy’s handled all its own computing operations. Now, however, those operations are subcontracted to IBM, which handles all Macy’s computing. The result is higher-quality computing systems and operations at Macy’s for less money than it was spending before. Firms must be careful in their outsourcing decisions, though, because service or delivery problems can lead to major complications. As noted earlier, Boeing’s 787 aircraft suffered numerous delays because the firms to which Boeing outsourced some of its production were not adequately coordinated.

Reducing Cycle Time

Another popular TQM technique is reducing cycle time. 
Cycle time
 is the time needed by the organization to develop, make, and distribute products or services. If a business can reduce its cycle time, quality will often improve. A good illustration of the power of cycle time reduction comes from GE. At one point, the firm needed six plants and three weeks to produce and deliver custom-made industrial circuit breaker boxes. By analyzing and reducing cycle time, the same product can now be delivered in three days, and only a single plant is involved.

ISO 9000:2000 and ISO 14000

Still another useful technique for improving quality is ISO 9000. 
ISO 9000:2000
 refers to a set of quality standards created by the International Organization for Standardization; the standards were revised and updated in 2000. These standards cover areas such as product testing, employee training, recordkeeping, supplier relations, and repair policies and procedures. Firms that want to meet these standards apply for certification and are audited by a firm chosen by the organization’s domestic affiliate (in the United States, this is the American National Standards Institute, or ANSI). These auditors review every aspect of the firm’s business operations in relation to the standards. Many firms report that merely preparing for an ISO 9000 audit has been helpful. Many firms today, including GE, DuPont, British Telecom, and Philips Electronics, are urging—or in some cases requiring—that their suppliers achieve ISO 9000 certification. All told, more than 163 countries have adopted ISO 9000 as a national standard, and more than 610,000 certificates of compliance have been issued. 
ISO 14000
 is an extension of the same concept to environmental performance. Specifically, ISO 14000 requires that firms document how they are using raw materials more efficiently, managing pollution, and reducing their impact on the environment.

Statistical quality control can play a critical role in improving quality. Acceptance sampling is one useful form of statistical quality control. This inspector has just taken a sample of a new liquid detergent. The sample will be tested for quality and adjustments to the detergent ingredients made if needed.

Marcin Balcerzak/ Shutterstock.com

Statistical Quality Control

Another quality control technique is 
SQC
. As the term suggests, SQC is concerned primarily with managing quality. Moreover, it is a set of specific statistical techniques that can be used to monitor quality. Acceptance sampling involves sampling finished goods to ensure that quality standards have been met. Acceptance sampling is effective only when the correct percentage of products that should be tested (e.g., 2, 5, or 25 percent) is determined. This decision is especially important when the test renders the product useless. Batteries, wine, and collapsible steering wheels, for example, are consumed or destroyed during testing. Another SQC method is in-process sampling, which involves evaluating products during production so that needed changes can be made. The painting department of a furniture company might periodically check the tint of the paint it is using. The company can then adjust the color as necessary to conform to customer standards. The advantage of in-process sampling is that it allows problems to be detected before they accumulate.

Six Sigma

Six Sigma was developed in the 1980s for Motorola. The tool can be used by manufacturing or service organizations. The Six Sigma method tries to eliminate mistakes. Although firms rarely obtain Six Sigma quality, it does provide a challenging target. Sigma refers to a standard deviation, so a Six Sigma defect rate is six standard deviations above the mean rate; one sigma quality would produce 690,000 errors per million items. Obtaining three sigmas is a bit more challenging—66,000 errors per million. Six Sigma is obtained when a firm produces a mere 3.4 mistakes per million. Implementing Six Sigma requires making corrections until errors virtually disappear. At GE, the technique has saved the firm $8 billion in three years. GE is now teaching its customers, including Walmart and Dell, about the approach.

15-6Managing Productivity

Although the current focus on quality by U.S. companies is a relatively recent phenomenon, managers have been aware of the importance of productivity for several years. The stimulus for this attention was a recognition that the gap between productivity in the United States and productivity in other industrialized countries was narrowing. This section describes the meaning of productivity and underscores its importance. After summarizing recent productivity trends, we suggest ways that organizations can increase their productivity.

15-6aThe Meaning of Productivity

In a general sense, 
productivity
 is an economic measure of efficiency that summarizes the value of outputs relative to the value of the inputs used to create them. Productivity can be and often is assessed at different levels of analysis and in different forms.

Levels of Productivity

By level of productivity, we mean the units of analysis used to calculate or define productivity. For example, aggregate productivity is the total level of productivity achieved by a country. Industry productivity is the total productivity achieved by all the firms in a particular industry. Company productivity, just as the term suggests, is the level of productivity achieved by an individual company. Unit and individual productivity refer to the productivity achieved by a unit or department within an organization and the level of productivity attained by a single person.

Forms of Productivity

There are many different forms of productivity. Total factor productivity is defined by the following formula:

Total factor productivity is an overall indicator of how well an organization uses all of its resources, such as labor, capital, materials, and energy, to create all of its products and services. The biggest problem with total factor productivity is that all the ingredients must be expressed in the same terms—dollars (it is difficult to add hours of labor to number of units of a raw material in a meaningful way). Total factor productivity also gives little insight into how things can be changed to improve productivity. Consequently, most organizations find it more useful to calculate a partial productivity ratio. Such a ratio uses only one category of resource. For example, labor productivity could be calculated by this simple formula:

This method has two advantages. First, it is not necessary to transform the units of input into some other unit. Second, this method provides managers with specific insights into how changing different resource inputs affects productivity. Suppose that an organization can manufacture 200 units of a particular product with 40 hours of direct labor. The organization’s labor productivity index is 200/40 or 5 (5 units per labor hour). Now suppose that worker efficiency is increased (through one of the ways discussed later in this chapter) so that the same 40 hours of labor result in the manufacture of 240 units of the product. The labor productivity index increases to 240/40 or 6 (6 units per labor hour), and the firm can see the direct results of a specific managerial action.

15-6bThe Importance of Productivity

Managers consider it important that their firm maintains high levels of productivity for a variety of reasons. Firm productivity is a primary determinant of an organization’s level of profitability and, ultimately, of its ability to survive. If one organization is more productive than another, it will have more products to sell at lower prices and have more profits to reinvest in other areas. Productivity also partially determines people’s standard of living within a particular country. At an economic level, businesses consume resources and produce goods and services. The goods and services created within a country can be used by that country’s own citizens or exported for sale in other countries. The more goods and services the businesses within a country can produce, the more goods and services the country’s citizens will have. Even goods that are exported result in financial resources flowing back into the home country. Thus, the citizens of a highly productive country are likely to have a notably higher standard of living than the citizens of a country with low productivity.

15-6cProductivity Trends

The United States has one of the highest levels of productivity in the world. Sparked by gains made in other countries, however, U.S. business has begun to focus more attention on productivity. Indeed, this was a primary factor in the decisions made by U.S. businesses to retrench, retool, and become more competitive in the world marketplace. For example, GE’s dishwasher plant in Louisville cut its inventory requirements by 50 percent, reduced labor costs from 15 percent to only 10 percent of total manufacturing costs, and cut product development time in half. As a result of these kinds of efforts, productivity trends have now leveled out, and U.S. workers are generally maintaining their lead in most industries.

One important factor that has hurt U.S. productivity indices has been the tremendous growth of the service sector in the United States. Although this sector grew, its productivity levels did not. One part of this problem relates to measurement. For example, it is fairly easy to calculate the number of tons of steel produced at a steel mill and divide it by the number of labor hours used; it is more difficult to determine the output of an attorney or a certified public accountant. Still, virtually everyone agrees that improving service sector productivity is the next major hurdle facing U.S. business.

Figure 15.4 illustrates manufacturing productivity growth since 1970 in terms of annual average percentage of increase. As you can see, that growth slowed during the 1970s but began to rise again in the late 1980s. Some experts believe that productivity in both the United States and abroad will continue to improve at even more impressive rates. Their confidence rests on technology’s potential ability to improve operations.

Figure 15.4Manufacturing and Service Productivity Growth Trends

Both manufacturing productivity and service productivity in the United States continue to grow, although manufacturing productivity is growing at a faster pace. Total productivity, therefore, also continues to grow.

Source: U.S. Bureau of Labor Statistics.

Main content

15-6dImproving Productivity

How does a business or industry improve its productivity? Numerous specific suggestions made by experts generally fall into two broad categories: improving operations and increasing employee involvement.

Quality and productivity are critical ingredients to success in the global automobile industry. Ford Motor Company struggled for years with low productivity and a poor reputation for quality. But over the last several years, Ford leaders have sharpened the firm’s focus on both quality and productivity and, as a result, Ford’s market share, revenues, and profits have been consistently growing.

Jim West/Newscom

Improving Operations

One way that firms can improve operations is by spending more on research and development (R&D). R&D spending helps identify new products, new uses for existing products, and new methods for making products. Each of these contributes to productivity. For example, Bausch & Lomb almost missed the boat on extended-wear contact lenses because the company had neglected R&D. When it became apparent that its major competitors were almost a year ahead of Bausch & Lomb in developing the new lenses, management made R&D a top-priority concern. As a result, the company made several scientific breakthroughs, shortened the time needed to introduce new products, and greatly enhanced both total sales and profits—and all with a smaller workforce than the company used to employ. Even though other countries are greatly increasing their R&D spending, the United States continues to be the world leader in this area.

Another way that firms can boost productivity through operations is by reassessing and revamping their transformation facilities. We noted earlier how one of GE’s modernized plants does a better job than six antiquated ones. Just building a new factory is no guarantee of success, but Ford, Caterpillar, Whirlpool, and many other businesses have achieved dramatic productivity gains by revamping their production facilities. Facilities refinements are not limited to manufacturers. Most McDonald’s restaurants now have drive-through windows, and many have moved soft-drink dispensers out to the restaurant floor so that customers can get their own drinks. Each of these moves is an attempt to increase the speed with which customers can be served, and thus to increase productivity.

Increasing Employee Involvement

The other major thrust in productivity enhancement has been toward employee involvement. We noted earlier that participation can enhance quality. So, too, can it boost productivity. Examples of this involvement are an individual worker being given a bigger voice in how she does her job, a formal agreement of cooperation between management and labor, and total involvement throughout the organization. GE eliminated most of the supervisors at its one new circuit breaker plant and put control in the hands of workers.

Research and development helps identify new products, new uses for existing products, and new methods for making products. Each of these things, in turn, contributes to productivity. The scientists in this R&D lab are working on new chemical compounds which may, in turn, result in new products.

docent/ Shutterstock.com

Another method popular in the United States is increasing the flexibility of an organization’s workforce by training employees to perform a number of different jobs. Such cross-training allows the firm to function with fewer workers because workers can be transferred easily to areas where they are most needed. For example, at one Hewlett-Packard plant, 397 of 400 employees have learned at least two skills under a cross-training program.

Rewards are essential to making employee involvement work. Firms must reward people for learning new skills and using them proficiently. At Hewlett-Packard, for example, workers who master a new skill are assigned for five days to a job requiring them to use that skill. If they perform with no defects, they are moved to a higher pay grade, and then they move back and forth between jobs as they are needed. If there is a performance problem, they receive more training and practice. This approach is fairly new, but preliminary indicators suggest that it can increase productivity significantly. Many unions resist such programs because they threaten job security and reduce a person’s identification with one skill or craft. Our “Tech Watch” feature highlights an interesting (and controversial) approach to boosting productivity through increased employee involvement or engagement.

Tech Watch

Is Glassdoor Cracked?

How productive can your company be if your employees aren’t “involved” or—if you prefer the term that we use in the Management in Action vignette at the beginning of this chapter—”engaged”? Probably not as productive as you’d like. If you accept the calculation of the 2013 Gallup study of the State of the American Workplace that employees who aren’t fully engaged cost U.S. companies $450–$500 billion annually in lost productivity, you can probably assume that your company contributes its share to that flush of fiduciary and commercial money down the macroeconomic toilet.

So, how would you know if your workers weren’t involved or engaged (assuming that you can’t afford to wait around for long-term productivity statistics)? Obviously, you could simply ask them. You could, for example, borrow its 12-question format from Gallup, which will be happy to tabulate the results for you.

Or you could do what Rob Tarkoff did when he took over as CEO of Lithium Technologies, a San Francisco-based media-software developer—listen in on the social media conversation about your company. Tarkoff discovered that, under his predecessor, Lithium had received six reviews on the job-review site Glassdoor.com, four of which were scathing: “There is not much positive to say about this company,” reported one anonymous reviewer. “It’s a bad place to work. Stay away!”

Tarkoff decided to accept Glassdoor’s sales-pitch invitation to “Join the conversation.” He paid Glassdoor $495 a month for an “enhanced profile,” which included photos and links to Lithium’s company blogs and Facebook and Twitter feeds, plus an elaborately produced video entitled “Why Work for Us?” The campaign worked like a charm. Before long, Lithium was receiving sterling reviews: Working for Lithium, enthused one employee, was “like a thrilling ride with a bright future.” In a matter of months, Lithium’s Glassdoor rating had ballooned from a dismal 2.7 to a glittering 4.4 (out of a possible 5), with 61 percent of reviewers testifying that they would recommend the firm to friends. In 2014, Lithium received Glassdoor’s own “Best Places to Work Employees’ Choice” award.

Not all CEOs, however, are as happy as Tarkoff with the results of their paid Glassdoor profiles. “To me, it’s like ransom,” says Robb Fujioka, cofounder of tablet maker Fuhu, whose rating remained mired 2.1 based on 70 reviews. As Fujioka sees it, the problem rests with the questionable validity of Glassdoor’s signature reviews: “They should have account representatives to address untrue facts for free,” he argues.

Analysts at Workplace Dynamics agree that Glassdoor’s statistical reliability is shaky at best: A 2013 study released by the human resources consulting firm charges that Glassdoor reviews represent an average of only 1.6 percent of a company’s employees, with “grumpy employees. … 5 to 8 times more likely to leave a review on job-review sites than happy employees.” On Glassdoor, for example, the 3.2 rating of online lender Quicken Loans, based on 140 reviews, indicated that 46 percent of the firm’s employees would not recommend it. Workplace Dynamics, however, surveyed 935 Quicken employees and found that a mere 2 percent would not recommend the company. On a scale of 0–90, Quicken’s workforce awarded the company a rating of 90.3. The study concluded that “the overall Glassdoor star rating is a very poor indicator of what it is really like to work at a company.”

References: Samar Birwadker, “The High Cost of Unhappy Employees,” LinkedIn, July 17, 2014, www.linkedin.com, accessed on May 12, 2017; Ariana Ayu, “The Enormous Cost of Unhappy Employees,” Inc.com, August 27, 2014, www.inc.com, accessed on May 12, 2017; Paul Keegan, “The Five New Rules of Employee Engagement,” Inc., December 2014/January 2015, www.inc.com, accessed on May 12, 2017; Zoe Henry, “Secrets of a Very Opaque Glassdoor,” Inc., December 2014/January 2015, www.inc.com, accessed on May 12, 2017; and Workplace Dynamics, “How Good Is Glassdoor?”, March 11, 2013, www.workplacedynamics.com, accessed on May 12, 2017.

Chapter Review

Summary of Learning Outcomes and Key Points

· 1Describe and explain the nature of operations management.

· •

Operations management is the set of managerial activities that organizations use in creating their products and services.

· •

Operations management is important to both manufacturing and service organizations.

· •

Operations management plays an important role in an organization’s strategy.

· 2Identify and discuss the components involved in designing effective operations systems.

· •

The starting point in using operations management is designing appropriate operations systems.

· •

Key decisions that must be made as part of operations systems design relate to the product–service mix, capacity, and facilities.

· 3Discuss organizational technologies and their role in operations management.

· •

Technology also plays an important role in quality.

· •

Automation is especially important today.

· •

Numerous CAM techniques are widely practiced.

· •

Robotics is also a growing area.

· •

Technology is as relevant to service organizations as it is to manufacturing organizations.

· 4Identify and discuss the components involved in implementing operations systems through SCM.

· •

After an operations system has been designed and put in place, it must then be implemented.

· •

Major areas of interest during the use of operations systems are purchasing and inventory management.

· •

SCM is a comprehensive view of managing all these activities in a more efficient manner.

·
5Explain the meaning and importance of managing quality and TQM.

· •

Quality is a major consideration for all managers today.

· •

Quality is important because it affects competition, productivity, and costs.

· •

TQM is a comprehensive, organization-wide effort to enhance quality through a variety of avenues.

· 6Explain the meaning and importance of managing productivity, productivity trends, and ways to improve productivity.

· •

Productivity is also a major concern to managers.

· •

Productivity is a measure of how efficiently an organization is using its resources to create products or services.

· •

The United States is a world leader in individual productivity, but firms still work to achieve productivity gains.

Chapter Review

Discussion Questions

Questions for Review

1. What is the relationship of operations management to overall organizational strategy? Where do productivity and quality fit into that relationship?

2. Describe three basic decisions that must be addressed in the design of operations systems. For each decision, what information do managers need to make that decision?

3. What are some approaches to facilities layout? How do they differ from one another? How are they similar?

4. What is TQM? What are the major characteristics of TQM?

5. What is productivity? Identify various levels and forms of productivity.

Questions for Analysis

1. Is operations management linked most closely to corporate-level, business-level, or functional strategies? Why or in what way?

2. “Automation is bad for the economy because machines will eventually replace almost all human workers, creating high unemployment and poverty.” Do you agree or disagree? Explain your answer.

3. Some quality gurus claim that high-quality products or services are those that are error free. Others claim that high quality exists when customers’ needs are satisfied. Still others claim that high-quality products or services must be innovative. Do you subscribe to one of these views? If not, how would you define quality? Explain how the choice of a quality definition affects managers’ behavior.

4. How can a service organization use techniques from operations management? Give specific examples from your college or university (or another provider of educational services).

5. Think of a firm that, in your opinion, provides a high-quality service or product. What attributes of the product or service give you the perception of high quality? Do you think that everyone would agree with your judgment? Why or why not?

Chapter Review

Experiential Exercise

Preparing the Fishbone Chart

Purpose: The fishbone chart is an excellent procedure for identifying possible causes of a problem. It provides you with knowledge that you can use to improve the operations of any organization. This skill exercise focuses on the administrative management model. It helps you develop the monitor role of the administrative management model. One of the skills of the monitor is the ability to analyze problems.

Introduction: Kaoru Ishikawa developed this technique in the 1960s, and it is now considered to be one of the fundamental tools of quality management. Quality circles often use the fishbone “cause-and-effect” graphical technique to initiate the resolution of a group work problem. Quite often the causes are clustered in categories such as materials, methods, people, and machines. The fishbone technique is usually accomplished in the following six steps:

1. Write the problem in the “head” of the fish (the large block).

2. Brainstorm the major causes of the problem, and list them on the fish “bones.”

3. Analyze each main cause and write in minor subcauses on bone subbranches.

4. Reach consensus on one or two of the major causes of the problem.

5. Explore ways to correct or remove the major causes.

6. Prepare a report or presentation explaining the proposed change.

7. Your fishbone will look something like this:

Source: Adapted from Gene R. Bruton, Exercises in Management, 5th edition, 1996. © 1996. Houghton Mifflin Company.

Chapter Review

Building Effective Communication Skills

Exercise Overview

Communication skills refer to the ability not only to convey information and ideas to others but also to handle information and ideas received from them. This exercise shows how you can use your communication skills in addressing issues of quality.

Exercise Background

You’re the customer service manager of a large auto parts distributor. The general manager of a large auto dealer, one of your best customers, has sent the following letter, and it’s your job to write a letter in response.

Dear Customer Service Manager:

On the first of last month, ABC Autos submitted a purchase order to your firm. Attached to this letter is a copy of the order. Unfortunately, the parts shipment that we received from you did not contain every item on the order. Further, that fact was not noted on the packing slip that accompanied your shipment, and ABC was charged for the full amount of the order. To resolve the problem, please send the missing items immediately. If you are unable to do so by the end of the week, please cancel the remaining items and refund the overpayment. In the future, if you ship a partial order, please notify us at that time and do not bill for items not shipped.

I look forward to your reply and a resolution to my problem.

Sincerely,

A. N. Owner, ABC Autos

Attachment: Purchase Order 00001

Exercise Task

1. Write an answer to the customer’s letter that assumes that you now have the parts available.

2. How would your answer differ if ABC Autos were not a valued customer?

3. How would your answer differ if you found out that the parts were in the original shipment but had been stolen by one of your delivery personnel?

4. How would your answer differ if you found out that the owner of ABC Autos made a mistake and that the order had been filled correctly?

5. Now review your answers to the previous questions. What are the important components of an effective response to a customer quality complaint (setting the tone, expressing an apology, suggesting a solution, and so on)? How did you use these components in your various responses?

Chapter Review

Management at Work

Driving Hard Bargains in Sustainability

“The guys in the factory in China have no interest whatsoever in sustainability outcomes.”

—Jonathan Maxwell, CEO of Sustainable Development Capital Ltd.

In July of 2011, the southeast Asian nation of Thailand was hit by an unusually severe monsoon season, triggering widespread flooding that killed more than 800 people and affected the lives of 13.6 million. The World Bank estimated economic damages of $45.7 billion, mostly to the country’s manufacturing sector. Seven designated industrial zones were inundated by as much as 10 feet of water, and flooding in some areas persisted until January of 2012.

Now cut to your house in December 2011, where the hard drive in your computer has spun its last disk. So you get on your mother’s laptop to check hard drive prices. When you last checked a couple of months ago, you could get a Western Digital Green 2TB drive for $79. Imagine your surprise when you find that the same hard drive now goes for $230. Why had Western Digital pumped up its prices to nosebleed altitudes? Because 40 to 45 percent of worldwide hard drive production is located in Thailand, where the flooding reduced production capacity by half.

Needless to say, supply chains are fraught with unpredictable dangers (perhaps especially when climate change is involved), and it may be only partly ironic to cite University of Arkansas logistics expert Matt Waller’s observation that “most of the skills and competencies needed to excel in logistics and SCM are the same skills and competencies needed to excel at disaster-relief operations.”

SCM, for example, poses a number of critical challenges to companies that have committed themselves to sustainability as a factor in their corporate strategies. Sara A. Greenstein, a senior VP at U.S. Steel and former head of Supply Chain and Sustainability at Underwriters Laboratories, observes that “as much as 70 percent of product sustainability comes from suppliers, who can lag significantly behind the curve.” Indeed, Greenstein suggests that a sustainability strategy is hardly feasible unless it extends to a firm’s supply chain: “The road to creating user-friendly, science-backed, technology-enabled supply chains,” she says, “is paved with good sustainability intentions that get foiled by today’s dynamic, global complexities. Achieving sustainability of scale requires involvement of the entire supply chain.”

MIT’s Peter Senge agrees: “You can’t possibly source everything sustainably,” he says, “unless you engage thousands and thousands of people around the world. You’ll need technical innovations, management innovations, process innovations, and cultural innovations.” Senge clearly believes that sustainability strategies must begin with a willingness to think differently about business priorities and possibilities. “When someone comes into an organization,” he says,

he or she will ask, “Why do we do it this way?” The answer is often “Just because.” Now, 90 percent of those habits may be perfectly okay. But 10 percent are completely dysfunctional, particularly when the world around you is changing. A cool part of sustainability work is uncovering the assumptions that lead people to do things in a way that’s out of touch with the company’s larger reality.

Not only sustainability strategy, argues Senge, but all organizational strategy, should be inherently forward looking. Sustainability issues are strategic matters for the simple reason that “they will shape the future of the business.” In short, both sustainability and supply chain strategy should be formulated with a firmer sense of business continuity—of how an organization acts to ensure that it continues to function during and after a disaster or some other threat. Senge’s understanding of business continuity, however, is broader and reflects the definition of business continuity management (BCM) provided by the Business Continuity Institute (BCI): According to the BCI, BCM also “provides a framework for building organizational resilience with the capability of an effective response that safeguards the interests of the organization’s key stakeholders, reputation, brand, and value-creating activities.” How else, for example, is an organization’s BCM strategy supposed to deal with the consequences of global warming, which threaten not only future generations but its own long-term survival?

“This isn’t about trying to sell morality in the boardroom,” says Jonathan Maxwell, CEO of Sustainable Development Capital Ltd. “It’s about providing the ability for businesses to make better decisions to reduce costs, improve productivity, support growth, and make longer-term decisions.” According to most proponents of corporate sustainability strategies, the best way to get sustainability on the corporate-strategy (and SCM) agenda is to get it on the “resource-efficiency agenda”—that is, to demonstrate the economic importance of the natural resources on which most organizations depend, such as fuel, water, land, and climate. “Once you have a system to value eco-system services,” says Robert Spencer, sustainability director at the engineering design firm AECOM, “the business case for embedding sustainability will be easier.”

As we’ve seen, however, an organization’s commitment to sustainability isn’t feasible unless its suppliers buy into its sustainability-oriented SCM strategy. This means that getting the organization’s board to implement such a strategy is only half the battle. Generally speaking, says Maxwell, “the guys in the factory in China have no interest whatsoever in sustainability outcomes.” For most organizations, however, getting suppliers to implement their sustainability policies is imperative. Neither buyers nor suppliers, of course, can prevent monsoons and floods, but that’s why companies develop BCM strategies—to deal with such disruptions in business continuity. In effect, then, by building its sustainability strategy into its BCM strategy, a company can take a proactive approach to supply chain disruptions. Says Richard Waterer, head of Britain’s Marsh Risk Consulting: “You can. … reduce volatility in your business by saying, ‘We will not walk consciously into a relationship where we know we’re taking on risks that prove to be damaging’” to our business continuity.

How can companies avoid walking into potentially volatile supplier relationships—or, better yet, help suppliers to develop sustainability practices that are consistent with their own sustainability strategies? Simon Pringle, head of sustainability at the accounting firm BDO, suggests that companies move from “requesting” certain standards to “requiring” adherence to specific guidelines—telling suppliers that “we’ve just made a promise, and now you’re all going to have to keep that promise.” Critics of this approach argue that typical “sustainable procurement guidelines” encourage nothing more than “basic compliance” with existing regulations. Moreover, they contend, once suppliers meet guidelines, they have no incentive to improve their performance.

Proponents of proactive SCM recommend that organizations build stronger measures and more practical activities into their SCM practices. Greenstein, for example, observes that “manufacturers on the leading edge” of sustainable SCM “are pushing their sustainable efforts upstream.” The key, she says, is the effective use of “incentives, business leverage, training programs, and progress monitoring to improve suppliers’ performance.” Best practices involve the collection and analysis of reliable information to understand the business environment of suppliers and to set objectives consistent with environmental conditions; to collaborate with suppliers on meeting those objectives and improving future performance; and to track performance against those goals.

Case Questions

1. In addition to disruption in the supply of raw materials, supply chain problems can result in damage to the reputation of the buying organization. Think of a hypothetical situation in which this situation could occur, and explain how it could disrupt an organization’s business continuity. Finally, provide some suggestions to show how the buying organization might avoid future problems by improving its approach to BCM.

2. Select any two of the following companies and explain how its suppliers can affect the quality of its products. In each case, provide two or three concrete examples. (You’ll probably want to check company websites in order to make sure that you have a solid idea of what each company does.)

· Starbucks

· Ford

· GlaxoSmithKline

· Kellogg’s

· GE

· Johnson & Johnson

· Nike

· L’Oréal

· Walmart

· Men’s Wearhouse

3. Consider the following statement by Jonathan Maxwell, CEO of Sustainable Development Capital Ltd.: “If it’s not commercial, it’s not sustainable.” What does Maxwell mean? What, for example, is he saying about the relationship between business priorities and practices on the one hand and the feasibility of effective sustainability priorities and practices on the other?

4. The most recent UN Global Compact-Accenture poll of 1,000 CEOs of major companies was released in 2013. Forty-five percent of the CEOs said that they regarded sustainability as “very important” to future business success—down from 54 percent in 2010. Nearly 70 percent thought that business was not doing enough to address sustainability challenges, and yet 76 percent felt that their companies were moving quickly and efficiently enough to handle those challenges.

How would you account for these numbers—both the contradictions and, perhaps more importantly, the apparent drop off in concern for sustainability challenges?

Case References

Craig Scott, “Why Sustainable Supply Chains Make Business Sense,” The Guardian, October 21, 2013, www.theguardian.com, accessed on May 12, 2017; Woody Leonhard, “Hard-Drive Prices Still Not Back to Pre-Flood Levels,” InfoWorld, January 30, 2013, www.infoworld.com, accessed on May 12, 2017; “Hurricane Katrina Showed Critical Importance of Logistics and Supply-Chain Management,” University of Arkansas News, October 6, 2005, http://news.uark.edu, accessed on May 12, 2017; Sara A. Greenstein, “Sustainability Starts with the Supply Chain,” IndustryWeek, October 29, 2014, www.industryweek.com, accessed on May 12, 2017; Steven Prokesch, “The Sustainable Supply Chain,” Harvard Business Review, October 2010, https://hbr.org, accessed on May 12, 2017; and Sumit Kumar, “Supply Chain Sustainability Needs a Fresh Viewpoint,” TriplePundit, April 10, 2015, www.triplepundit.com, accessed on May 12, 2017.

Chapter Review

You Make the Call: What to Do When Workers Wonder What Happens Next

1. How about you? According to Kevin A. Sheridan, chief engagement officer of HR Solutions International,

Employee engagement is defined generally as a strong desire to be part of the value an organization creates. Engaged employees exhibit three key characteristics. Namely, they:

· Exhibit a strong emotional and intellectual bond with their organization.

· Exert discretionary effort that helps the organization realize better outcomes for their organization.

· Take co-ownership of their own engagement and commit to improve.

Describe in as much detail as you can the features of the workplace and job that would encourage you to bring all three of these characteristics to your job performance. What seemingly positive factors (e.g., performance recognition awards) don’t rank quite as highly in your mind as those that would motivate you to engage in your job?

2. Select any two jobs from the following list and assume for each that you’ve held it for at least two years:

· Assistant manager at a restaurant

· Stock clerk at a large retail outlet

· Second-grade schoolteacher

· Driver for a taxi company

· Foreman of a lawn and landscape crew

· Assistant librarian at a public library

· Manager of a beauty salon

· Custom footwear designer

· Computer programmer for an applications developer

· Assistant manager in an automotive repair department

Based on your (hypothetical) experience in the job, what suggestions for improved productivity could you make, whether for your specific tasks or for companywide performance?

3. The text explains “Increasing Employee Involvement” as a factor in “Improving Productivity.” The discussion there is consistent with the following definition of employee involvement:

· Employee involvement refers to work structures and processes that allow employees to systematically give their input into decisions that affect their own work.

“Work structures and processes” refer to such workplace features as continuous improvement teams, structured suggestion systems, and quality of work/life programs.

Explain in your own words some basic differences between the concepts of employee involvement and employee engagement.

4. A follow-up to Question 3. HCL Technologies, a global IT services company, has introduced a program to drive employee engagement. Components of the program include the following:

· An online Q&A with the CEO

· A reward and recognition portal to provide timely recognition of exemplary employee performance

· A 360-degree feedback process that allows employees to see how well managers are performing

· Weekly polls to gather employee feedback on various issues

What are the differences between the goals of a program like this and those of programs that come under the heading of “work structures and processes,” such as:

· Continuous improvement teams

· Formal quality of work/life programs

· Quality control circles

· Flatter organizational structures

· Employee problem-solving task forces and teams

· Structured suggestion systems?